Excise duty on destroyed goods depends on proof of destruction and compliance with remission procedure, with penalty reduced.

Destroyed aerated water bottles and crates remained liable to excise duty because the claim of defect, non-marketability and destruction was not proved by evidence. The goods were excisable, were not entered in the RG-1 register, no prior permission or departmental intimation was given, and the prescribed remission procedure under the Central Excise Rules, 1944 was not followed. Mere production records were insufficient to establish actual destruction or entitlement to remission. While duty liability was sustained, the penalty was reduced on the facts to a lower amount in the interests of justice.

---

---

Issues: (i) Whether the destroyed aerated water bottles and crates were non-marketable and therefore not liable to duty or entitled to remission; (ii) Whether the penalty required reduction.

Issue (i): Whether the destroyed aerated water bottles and crates were non-marketable and therefore not liable to duty or entitled to remission.

Analysis: The disposal of the manufactured aerated water bottles and crates was not disputed, but the claim that they were defective, non-marketable and destroyed on that account was not supported by evidence. The goods were excisable, were not entered in the RG-1 register, no permission was obtained before destruction, no intimation was given to the department, and no remission procedure was followed under Rule 49 of the Central Excise Rules, 1944. Mere reliance on production formats was insufficient to establish actual destruction or non-marketability.

Conclusion: The demand of duty was correctly confirmed against the assessee.

Issue (ii): Whether the penalty required reduction.

Analysis: Although the duty demand was sustained, the facts and circumstances justified interference with the quantum of penalty. The adjudicating authorities had imposed penalty equal to the duty, but the Tribunal found that a lesser penalty would meet the ends of justice.

Conclusion: The penalty was reduced to Rs. 65,000 in favour of the assessee.

Final Conclusion: The duty demand was upheld, but the penalty was substantially reduced, resulting in only a limited relief to the assessee while sustaining the revenue's substantive claim.

Ratio Decidendi: Defective or allegedly non-marketable excisable goods are not exempt from duty or entitled to remission unless their actual destruction and compliance with the prescribed procedure are proved by evidence and permission or intimation is obtained where required.

---