Clandestine removal and cum-duty quantification upheld, with penalty sustained but reduced and confiscation set aside

Admitted clandestine removal of excisable goods was upheld on the basis of un-retracted statements and surrounding circumstances, despite the absence of buyers' particulars or further corroboration. The duty demand was required to be re-quantified on a cum-duty basis because sale proceeds had to be treated as inclusive of duty. Penalty under Rule 173Q(1) read with Section 11AC remained sustainable even though duty was paid after detection, though the penalty amount was reduced. Confiscation of land, building, plant and machinery was not sustained and was set aside.

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Issues: (i) Whether clandestine removal of excisable goods was established and whether the duty demand required re-quantification by granting cum-duty benefit. (ii) Whether penalty under Rule 173Q(1) read with Section 11AC was sustainable and whether confiscation of land, building, plant and machinery could be upheld.

Issue (i): Whether clandestine removal of excisable goods was established and whether the duty demand required re-quantification by granting cum-duty benefit.

Analysis: The authorized signatory admitted on the spot and in a subsequent statement that the short-found finished goods had been removed without payment of duty. There was no retraction of the statements. The absence of buyers' particulars or further corroboration did not displace the admission, especially where the goods were stated to have been sold in the open market. The absence of any explanation from the Director also supported the finding of clandestine clearance. At the same time, while quantifying the demand, the sale proceeds were required to be treated as inclusive of duty.

Conclusion: Clandestine removal was upheld, but the duty was required to be re-quantified after extending cum-duty benefit, in favour of the assessee on the limited question of quantification.

Issue (ii): Whether penalty under Rule 173Q(1) read with Section 11AC was sustainable and whether confiscation of land, building, plant and machinery could be upheld.

Analysis: The confirmed removal of goods without payment of duty attracted penal consequences, and prior payment of duty after detection did not wipe out liability to penalty. However, the facts and circumstances justified reduction of the quantum of penalty. Confiscation of land, building, plant and machinery was not sustained.

Conclusion: Penalty was sustained but reduced, and confiscation was set aside, partly in favour of the assessee.

Final Conclusion: The finding of clandestine removal stood affirmed, the duty demand was sent back only for fresh quantification on a cum-duty basis, the penalty was reduced, and confiscation was annulled.

Ratio Decidendi: An admitted clandestine removal can be upheld on the basis of un-retracted statements and surrounding circumstances, and payment of duty after detection does not by itself extinguish liability to penalty, though cum-duty benefit must be allowed in quantifying the duty.

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