Private records and retracted admissions failed to prove clandestine removal, but unauthorized PLA re-credit still attracted penalty.

Private note book entries and a retracted initial admission were held insufficient to prove clandestine production or removal where contemporaneous statutory records, including the RG 1 register, did not support the allegation, so the duty demand and penalty under Rule 173Q were set aside. However, the assessee's suo motu re-credit of an amount earlier debited in the PLA without departmental permission was treated as a separate breach of Rule 226, and the corresponding penalty was upheld as within permissible limits. The result was partial relief: the substantive excise demand failed, but the penalty for unauthorized re-credit survived.

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Issues: (i) Whether the demand of duty and penalty based on the private note book and the partner's initial statement was sustainable; (ii) Whether the suo motu re-credit of the amount earlier debited in the PLA attracted penalty under Rule 226.

Issue (i): Whether the demand of duty and penalty based on the private note book and the partner's initial statement was sustainable.

Analysis: The allegations of excess production and clandestine removal rested essentially on the private note book recovered from the factory. The stock position tallied with the RG 1 register, and the comparative entries showed only marginal variation. The note book was not established to be an authentic record of final production, and the oral admission made at the initial stage was retracted. In the absence of independent supporting evidence, the documentary record was accorded greater evidentiary value than the retracted statement.

Conclusion: The demand of duty and the penalty under Rule 173Q could not be sustained and were set aside in favour of the assessee.

Issue (ii): Whether the suo motu re-credit of the amount earlier debited in the PLA attracted penalty under Rule 226.

Analysis: Although the underlying demand was found unsustainable, the appellants had voluntarily made a debit entry and thereafter re-credited the amount without obtaining departmental permission. That act constituted a distinct contravention of Rule 226. The penalty imposed was within the permissible limit and no ground was made out for interference.

Conclusion: The penalty under Rule 226 was upheld and the challenge failed to that extent.

Final Conclusion: The principal duty demand and associated penalty failed, but the penalty for unauthorized re-credit survived, resulting in partial relief to the appellants.

Ratio Decidendi: A private note book and an uncorroborated, retracted admission are insufficient to prove clandestine manufacture and removal when reliable contemporaneous statutory records do not support the allegation; however, a suo motu re-credit of a debited amount without departmental permission can independently attract penal consequences.

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