Presumption-based duty demand fails where shortage evidence lacks corroboration; penalties and confiscation also cannot survive.

Duty on man-made fabrics sarees could not be sustained on a mere presumption that a shortage of gray fabric necessarily meant unrecorded manufacture and clearance; without positive corroborative evidence, the demand failed. Consequent penalties also could not stand: once the duty demand was set aside, the Section 11AC penalty fell with it, and confiscation with redemption fine and Rule 173Q penalty were unjustified where the sarees found in the factory were plausibly explained as running-length goods awaiting cutting and RG 1 entry. Mere non-accountal, without more, was insufficient to establish confiscable contravention.

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Issues: (i) Whether duty could be demanded on the basis of a presumption that man-made fabrics sarees were manufactured from allegedly short gray fabric without corroborative evidence; (ii) Whether penalty under Section 11AC and confiscation with penalty under Rule 173Q were sustainable on the facts.

Issue (i): Whether duty could be demanded on the basis of a presumption that man-made fabrics sarees were manufactured from allegedly short gray fabric without corroborative evidence.

Analysis: The demand rested on the assumption that the shortage of gray fabric necessarily meant manufacture and clearance of sarees without payment of duty. No positive evidence or corroboration supported that inference. A finding based only on presumption was insufficient to sustain duty liability.

Conclusion: The duty demand was not sustainable and was set aside in favour of the assessee.

Issue (ii): Whether penalty under Section 11AC and confiscation with penalty under Rule 173Q were sustainable on the facts.

Analysis: Once the duty demand failed, the penalty under Section 11AC could not survive. As regards the 1,980 metres of sarees found in the factory, the non-accountal in RG 1 was capable of explanation since the goods were found in running length and could reasonably represent the day's production before cutting and entry in records. Mere non-accountal, without more, did not justify confiscation or penalty.

Conclusion: The penalty under Section 11AC, the confiscation, the redemption fine, and the penalty under Rule 173Q were not sustainable and were set aside in favour of the assessee.

Final Conclusion: The appeal succeeded in full and all confirmed fiscal and penal consequences were annulled.

Ratio Decidendi: Duty and related penalties cannot be sustained on mere presumption; confiscation for non-accountal requires more than the fact of omission from RG 1 where the goods are otherwise plausibly explained.

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