Clandestine removal demand unsupported by evidence: duty prepayment before notice led to setting aside penalty

Allegations of clandestine removal of scrap were found unsupported because the demand rested only on assumption and presumption, without documentary or other reliable evidence. The assessee had denied clandestine removal throughout, and the duty demand had already been paid before the show cause notice. In these circumstances, the Tribunal held that the demand was not fit to be pursued and that penalty could not be sustained on the same basis. The demand and penalty were accordingly set aside.

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Issues: Whether the demand of Central Excise duty and the consequential penalty were sustainable where the allegation of clandestine removal of scrap was based on assumption and no supporting evidence was produced, and where the entire demand had already been paid before issuance of the show cause notice.

Analysis: The allegation of clandestine removal was not supported by documentary or other reliable evidence and rested on inference and presumption. The assessee had consistently denied clandestine removal. The demand had been deposited before issuance of the show cause notice, and in such circumstances the Tribunal noted that the demand itself was not liable to be pursued and that penalty could not be sustained merely on that basis.

Conclusion: The demand and the penalty were both set aside, and the appeal was allowed.

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