Clandestine removal demands fail without admissible evidence, corroboration, or intent to evade duty under revenue-neutral arrangements

Penalty was held unsustainable where the entire duty had been paid before issuance of the show-cause notice, and the penal demand was deleted. Demands based on waste and scrap were rejected because private computer print-outs were not properly authenticated and no independent evidence proved clandestine removal. The demand relating to original equipment and replacements was not fully supported, as the estimate was based on an uncorroborated statement without register-based or other corroborative proof. The extended period of limitation for inter-unit components was also found inapplicable because suppression and intent to evade were not established, particularly in a revenue-neutral arrangement.

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Issues: (i) whether penalties could be sustained when the duty had been paid before issuance of the show-cause notice; (ii) whether the demand on waste and scrap could be based on computer print-outs from a private computer and related statements; (iii) whether the demand on original equipments/replacements was supported by evidence; and (iv) whether the extended period of limitation could be invoked for the demand on components cleared between the units.

Issue (i): whether penalties could be sustained when the duty had been paid before issuance of the show-cause notice.

Analysis: The entire duty demanded had already been discharged before the show-cause notice was issued. The settled principle applied was that where duty is paid before issuance of notice, penalty under the penal provisions invoked in the case is not warranted.

Conclusion: The penalties were not sustainable and were deleted, in favour of the assessee.

Issue (ii): whether the demand on waste and scrap could be based on computer print-outs from a private computer and related statements.

Analysis: The demand rested essentially on print-outs generated from a junior officer's personal computer. The statutory requirements for admissibility of computer-generated evidence were not shown to have been satisfied, the print-outs were not properly authenticated, and they could not support a finding of clandestine removal for periods beyond the span reflected in the print-outs. No independent positive evidence supported the demand.

Conclusion: The entire demand on waste and scrap was unsustainable and was set aside, in favour of the assessee.

Issue (iii): whether the demand on original equipments/replacements was supported by evidence.

Analysis: The clearances comprised two categories, namely repairs and replacements, and duty could arise only on replacements. The finding that 90% of the clearances were replacements was based on an uncorroborated statement of a person who was in charge only for a short period, without independent supporting evidence or register-based confirmation.

Conclusion: The demand on original equipments was not fully proved on the evidence and was not sustainable as confirmed.

Issue (iv): whether the extended period of limitation could be invoked for the demand on components cleared between the units.

Analysis: The demand on components was vulnerable on limitation alone. The finding of suppression was not justified merely from undervaluation, particularly when the arrangement was revenue neutral because duty paid at the first unit would be available as Modvat credit to the second unit. The record did not establish intent to evade duty.

Conclusion: The extended period could not be invoked and the demand was time-barred, in favour of the assessee.

Final Conclusion: The impugned order was set aside in full and the appeal succeeded with consequential relief.

Ratio Decidendi: Penalty and extended limitation cannot be sustained without legally admissible evidence and a demonstrated intent to evade duty, and uncorroborated computer print-outs or unsupported estimates cannot, by themselves, establish clandestine removal.

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