Clerical omission and defective demand basis cannot sustain duty demand or penalty where intent, limitation and natural justice fail.

Non-debit of duty on clearance of finished goods was treated as a clerical lapse where invoices were issued, credit balance was available, the assessee was not a habitual offender, and the duty was later debited; intention to evade duty could not be inferred, so the demand and penalty were unsustainable. A separate demand based on alleged shortage also failed because the show cause notice alleged wrong availment of credit without receipt of inputs, while the adjudication proceeded on shortage; the demand was additionally held time-barred, inadequately established, and vitiated by non-supply of documents and denial of cross-examination. The Tribunal upheld relief to the assessee in full.

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Issues: (i) Whether non-debit of duty of Rs. 58,465/- in the credit account on clearance of finished goods was a clerical omission or showed intention to evade duty and justified demand and penalty. (ii) Whether the demand of Rs. 5,83,507/- on alleged shortage was sustainable when it was based on a ground different from the show cause notice, was time-barred, and was affected by denial of material documents and cross-examination.

Issue (i): Whether non-debit of duty of Rs. 58,465/- in the credit account on clearance of finished goods was a clerical omission or showed intention to evade duty and justified demand and penalty.

Analysis: The assessee had sufficient credit balance and had raised Central Excise invoices for the clearances. The omission to debit the account was found to be a clerical lapse, the assessee was not shown to be a habitual offender, and the duty amount was later debited. On these facts, an intention to evade duty could not be inferred.

Conclusion: The demand of Rs. 58,465/- and the connected penalty were not sustainable and the finding was in favour of the assessee.

Issue (ii): Whether the demand of Rs. 5,83,507/- on alleged shortage was sustainable when it was based on a ground different from the show cause notice, was time-barred, and was affected by denial of material documents and cross-examination.

Analysis: The show cause notice proceeded on alleged availment of credit without receipt of inputs, but the adjudication rested on shortage. A demand founded on a basis contrary to the notice was held unsustainable. The Tribunal also accepted that the demand was beyond the normal period, that the shortage was not properly established, and that non-supply of relevant documents and denial of cross-examination violated natural justice.

Conclusion: The demand of Rs. 5,83,507/- was unsustainable and the finding was in favour of the assessee.

Final Conclusion: The Revenue failed to establish any basis for interference, and the order vacating the duty demands and penalty was sustained in full.

Ratio Decidendi: A duty demand cannot be sustained where non-debit of duty is a mere clerical omission without intent to evade, and a further demand is invalid if it is founded on a ground not contained in the show cause notice or is otherwise barred and vitiated by breach of natural justice.

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