Clandestine removal demands need evidence, while unaccounted stock may still face confiscation, fine, and reduced penalty.

A demand for duty on alleged clandestine removal of steel ingots was rejected because it rested only on an assumption that shortage of steel scrap had been converted into ingots and cleared without duty; no evidence established conversion or clandestine removal, so the demand was set aside. Confiscation of excess steel ingots not accounted for in the RG.1 Register was sustained on the factual finding of non-accounted stock, and the redemption fine was maintained. The penalty was held excessive and reduced. The note states the principle that clandestine removal cannot be based on conjecture, but unaccounted goods may still attract confiscation and a moderated penalty.

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Issues: (i) Whether the demand of duty on the alleged clandestine removal of steel ingots made from shortage of steel scrap was sustainable; (ii) Whether confiscation of the excess steel ingots and the redemption fine were justified; (iii) Whether the penalty required reduction.

Issue (i): Whether the demand of duty on the alleged clandestine removal of steel ingots made from shortage of steel scrap was sustainable.

Analysis: The alleged duty demand rested only on the assumption that the shortage of steel scrap had been converted into steel ingots and removed without payment of duty. No material was shown to establish conversion of the short scrap into ingots or clandestine clearance of such goods. The adjudication order did not record any basis for drawing that inference, and the demand was therefore unsupported by evidence.

Conclusion: The duty demand of Rs. 46,570/- on the alleged clandestine removal was set aside in favour of the assessee.

Issue (ii): Whether confiscation of the excess steel ingots and the redemption fine were justified.

Analysis: The excess steel ingots were admittedly not accounted for in the RG.1 Register. On that factual basis, confiscation was warranted. Since the goods had already been released under bond, the redemption fine imposed in lieu of confiscation was maintained. The separate duty component on these ingots was not to be recovered again if it had already been paid.

Conclusion: Confiscation and the redemption fine of Rs. 3,500/- were upheld against the assessee.

Issue (iii): Whether the penalty required reduction.

Analysis: In the circumstances, although the confiscation was maintained, the penalty was considered excessive and was scaled down.

Conclusion: The penalty was reduced to Rs. 15,000/- in favour of the assessee to that extent.

Final Conclusion: The appeal succeeded on the major duty demand, while confiscation of the unaccounted ingots was sustained and the penalty was reduced.

Ratio Decidendi: A demand for clandestine removal cannot be sustained on mere conjecture; it must rest on evidence establishing conversion, removal, and evasion of duty, while unaccounted goods may still be liable to confiscation and moderated penalty.

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