Clandestine removal not established where small-bobbin POY was shown to have been treated as waste, not cleared as yarn.

POY produced on bobbins of one kilogram or less was found to have been cut off and treated as waste, not clandestinely cleared as yarn. Contemporaneous correspondence with excise authorities, the classification order treating manufacturing waste as waste, RG-1 and stock verification records, and field officers' references to waste yarn supported the assessee's explanation. As there was no evidence of sale or removal of the goods as yarn, the absence of separate category-wise accounting did not justify an inference of unaccounted clearance. The demand of duty and the penalty were therefore set aside.

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Issues: Whether the POY produced on bobbins of one kilogram or less was cleared as yarn without proper accounting and duty payment, or whether it was in fact disposed of as waste, so as to sustain the demand of duty and penalty.

Analysis: The production of the goods on the relevant bobbins was not in dispute, but the evidence on record had to show how they were disposed of after the machine-stage log sheets. The contemporaneous correspondence with the excise authorities, the classification order treating wastes arising in manufacture as waste, the RG-1 and stock verification records, and the field officers' own references to waste yarn showed that yarn arising at the machine stage was later treated as waste. There was no evidence of sale or removal of such goods as yarn, and the record supported only the explanation that the goods on bobbins of less than one kilogram were cut off and added to waste. On that material, the gap in separate category-wise accounting did not justify an inference of clandestine clearance as yarn.

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

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