Clandestine removal can be proved by seized records, but pre-notification unbranded goods escaped duty, with confiscation and penalty sustained.

Seized records can support a finding of clandestine removal even where a witness statement is disowned, but the Department must still prove duty liability for goods claimed to be exempt in the relevant period. Confiscation of the seized biris was upheld because the assessee failed to prove duty payment, while the duty demand was partly sustained on the quantity supported by documentary evidence and partly set aside for unbranded biris cleared before Notification No. 32/79-C.E. The modest penalty was maintained because clandestine removal was proved for the balance quantity.

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Issues: (i) Whether confiscation of 9,60,000 biris and appropriation of the sale proceeds and duty was lawful; (ii) whether duty demand on 16,39,15,725 biris was sustainable in law; (iii) whether penalty of Rs. 2,000 under Rule 9(2) of the Central Excise Rules, 1944 was justified.

Issue (i): Whether confiscation of 9,60,000 biris and appropriation of the sale proceeds and duty was lawful.

Analysis: The appellants did not produce convincing documentary evidence to establish that the seized biris were duty-paid or that they fell within the claimed damaged or rejected stock. A small register relating to a limited quantity could not displace the seizure findings for the entire quantity. The burden to prove duty payment lay on the appellants for this limited issue on confiscation.

Conclusion: The confiscation of 9,60,000 biris and the related appropriation were upheld and are against the assessee.

Issue (ii): Whether duty demand on 16,39,15,725 biris was sustainable in law.

Analysis: The demand was founded principally on seized documents, not on the disowned statement of the witness. For the quantity said to relate to the period prior to 1-3-1979, the Department did not adduce evidence to show that the biris were branded or otherwise dutiable, and the assessee's claim of exemption for unbranded biris before Notification No. 32/79-C.E. remained unrebutted. For the remaining quantity, the documentary evidence was sufficient to support clandestine removal and the absence of proof of duty payment.

Conclusion: Duty demand on 10,27,27,794 biris was set aside, while duty demand on 6,04,67,931 biris was sustained and is partly in favour of the assessee.

Issue (iii): Whether penalty of Rs. 2,000 under Rule 9(2) of the Central Excise Rules, 1944 was justified.

Analysis: Since clandestine removal was upheld in respect of 6,04,67,931 biris, the modest penalty imposed under Rule 9(2) was not excessive or unwarranted.

Conclusion: The penalty was upheld and is against the assessee.

Final Conclusion: The appeal succeeded only to the extent of setting aside duty on the quantity held to be unbranded and pre-1-3-1979, while the confiscation, the reduced duty demand on the balance quantity, and the penalty were maintained.

Ratio Decidendi: Where the Department relies on seized records rather than a retracted witness statement, those records may sustain a finding of clandestine removal; however, in the absence of contrary evidence, the Department must prove duty liability on goods claimed to be exempt in the relevant period, and the benefit of doubt goes to the assessee on that portion.

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