Clandestine removal not proved from stock discrepancy, but incorrect statutory record-keeping still attracted a reduced penalty.

Clandestine removal and intent to evade duty were not established on the basis of stock shortage and excess alone, because no supporting evidence showed removal without payment of duty and the discrepancy was plausibly explained as a recording mistake. The duty demand on that basis was therefore not sustained. Incorrect maintenance of statutory records, however, amounted to contravention of Rule 226 of the Central Excise Rules, 1944, since accurate separate accounting for different widths of flat bars remained the assessee's responsibility. A reduced penalty was sustained for the record-keeping lapse despite failure to prove clandestine removal.

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Issues: (i) Whether the allegation of clandestine removal and intent to evade duty was proved on the basis of stock shortage and excess. (ii) Whether incorrect maintenance of records justified a penalty under Rule 226 of the Central Excise Rules, 1944.

Issue (i): Whether the allegation of clandestine removal and intent to evade duty was proved on the basis of stock shortage and excess.

Analysis: The goods were of the same tariff entry so far as thickness below 3 mm was concerned, regardless of width. No material was brought on record to show clandestine removal. The explanation given at the earliest stage suggested that the discrepancy could have arisen from an employee's mistake in recording the width of the flat bars. Mere shortage and excess, without supporting evidence of removal without payment of duty, was insufficient to establish evasion.

Conclusion: The allegation of clandestine removal and intention to evade duty was not proved, and the duty demand on that basis was not sustained.

Issue (ii): Whether incorrect maintenance of records justified a penalty under Rule 226 of the Central Excise Rules, 1944.

Analysis: The assessee maintained separate entries for flat bars of different widths, and accurate maintenance of such accounts was the assessee's responsibility. The admitted discrepancy showed contravention of the record-keeping requirement, even though the department failed to prove clandestine removal. On that footing, a penalty was warranted for failure to maintain correct accounts.

Conclusion: Contravention of Rule 226 of the Central Excise Rules, 1944 was made out, and a reduced penalty was sustained.

Final Conclusion: The challenge to clandestine removal failed, but the record-keeping lapse attracted penalty, resulting in only limited relief to the assessee and partial success for the Revenue.

Ratio Decidendi: Where clandestine removal is not proved by evidence, duty liability on that basis cannot be sustained, but incorrect maintenance of statutory records may still attract penalty for contravention.

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