Suppression-based excise demand fails where returned goods were duly recorded, while admitted stock shortage attracts duty and penalty.

Returned goods that were intimated to the department, entered in statutory records, and reflected in ER-1 returns could not support a demand based on suppression or mis-declaration; Rule 16(2) of the Central Excise Rules allowed credit treatment where such goods were re-processed and re-cleared, so the major demand and penalty were set aside. By contrast, an admitted stock shortage of finished/input goods attracted duty, interest, and equal penalty where the short levy was accepted and the duty had not been disputed as paid, so the smaller demand was confirmed. The text thus distinguishes between unsubstantiated suppression-based allegations and an admitted shortfall on stock verification.

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Issues: (i) Whether the demand of Rs. 11,24,760/- by alleging suppression and mis-declaration, together with penalty under Section 11AC of the Central Excise Act, 1944, was sustainable in respect of returned goods taken back for re-processing and re-clearance. (ii) Whether the duty shortfall of Rs. 37,343/- noticed on stock verification, along with interest and equal penalty, was payable.

Issue (i): Whether the demand of Rs. 11,24,760/- by alleging suppression and mis-declaration, together with penalty under Section 11AC of the Central Excise Act, 1944, was sustainable in respect of returned goods taken back for re-processing and re-clearance.

Analysis: The returned goods had been intimated to the department in writing, entered in the statutory records, and reflected in the ER-1 returns. The goods were initially cleared on payment of duty and, on return, were re-processed and re-cleared. The factual record, including the technical report, supported the assessee's explanation and did not establish any concealment or suppression. Rule 16(2) of the Central Excise Rules permitted credit treatment in respect of returned goods used for further processing. On these facts, the demand founded on suppression was not maintainable and penalty could not survive.

Conclusion: The demand of Rs. 11,24,760/- and the corresponding penalty were set aside in favour of the assessee.

Issue (ii): Whether the duty shortfall of Rs. 37,343/- noticed on stock verification, along with interest and equal penalty, was payable.

Analysis: The shortage of LDPE re-processed granules and calcium carbonate was accepted by the assessee, and the duty on that amount had already been paid. Interest remained payable on the confirmed amount, and equal penalty was upheld in relation to the admitted short levy.

Conclusion: The duty of Rs. 37,343/- stood confirmed, along with interest and equal penalty, against the assessee.

Final Conclusion: The appeal succeeded to the extent of setting aside the major demand raised on the allegation of suppression, but failed in relation to the admitted shortage and the consequential interest and penalty thereon.

Ratio Decidendi: Where returned goods are duly intimated to the department, entered in statutory records, and reflected in returns, a demand alleging suppression cannot be sustained, and Rule 16(2) of the Central Excise Rules permits the credit treatment of such returned goods when re-processed and re-cleared.

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