Probable stock discrepancy explanation defeats duty demand, but unauthorised job-work removal still attracts penalty.

A stock discrepancy in HDPE material was explained by reference to dispatch for drying at a job worker's premises, supported by movement records, the presence of corresponding material there, and the nature of the material itself. On that basis, the shortage explanation was treated as probable and the duty demand on that item was not sustained. However, sending finished HDPE to the job worker was outside the permitted Rule 57F(2) arrangement, so penalty was justified. The remaining duty demands, including on black plastic granule waste, were upheld, while the penalties were reduced in light of the circumstances.

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Issues: (i) whether the duty demand on the shortage of HDPE material could be sustained when the assessee explained that the material had been sent to the job worker for drying and part of it was found in the job worker's premises; (ii) whether the remaining duty demands and penalties were liable to be interfered with.

Issue (i): whether the duty demand on the shortage of HDPE material could be sustained when the assessee explained that the material had been sent to the job worker for drying and part of it was found in the job worker's premises.

Analysis: The explanation for the apparent shortage was supported by the record showing movement of the material to the job worker and the presence of a substantial corresponding quantity in the job worker's premises. The nature of the material, including its moisture content and drying process, also supported the defence. On that basis, the assessee's explanation stood probabilised, and the exact equivalent shortage could not be treated as established against it. However, sending finished HDPE to the job worker was outside the scope of the permission under Rule 57F(2).

Conclusion: The duty demand on this quantity was not sustained, but penalty was justified for the unauthorised sending of finished material to the job worker.

Issue (ii): whether the remaining duty demands and penalties were liable to be interfered with.

Analysis: The assessee did not seriously contest the demand relating to the black plastic granule waste. For the remaining items, the adjudicating authority's reasoning was found unobjectionable, and the duty demands on those counts were upheld. Considering the circumstances, the penalties were reduced.

Conclusion: The remaining duty demands were upheld, while the penalties were reduced.

Final Conclusion: The appeals succeeded only to the limited extent of relief on the disputed HDPE shortage and reduction of penalties, and were otherwise rejected.

Ratio Decidendi: Where the assessee's explanation for a stock discrepancy is supported by surrounding circumstances and documentary material so as to probabilise the defence, the demand on that item cannot be sustained, though unauthorised removal outside the permitted Modvat/job-work procedure may still attract penalty.

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