Unverified shortages and uncorroborated slips cannot sustain central excise duty, extended limitation, or penalties.

Central excise duty demand based on alleged shortages of finished goods and inputs was held unsustainable where the alleged stock verification was not backed by a panchnama or other reliable record, and rough slips or weighment slips were not independently corroborated with the assessee's transactions. The material did not establish clandestine removal, excess consumption, or a dependable basis for duty computation. On the same facts, the extended limitation period and penalties on the assessee and its director were also unjustified because the record did not support wilful suppression or intent to evade duty. The order was therefore set aside and relief followed.

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Issues: (i) Whether the demand of duty based on alleged shortages of finished goods and inputs, supported by rough slips and weighment slips, was sustainable; (ii) Whether the extended period of limitation and the consequential penalties on the assessee and its director were justified.

Issue (i): Whether the demand of duty based on alleged shortages of finished goods and inputs, supported by rough slips and weighment slips, was sustainable.

Analysis: The stock verification was not shown to have been supported by a panchnama or any reliable record explaining the basis of the alleged shortages. The slips and jottings relied upon by the department were not verified with the assessee's transactions, and the alleged link between the documents recovered and the clearances attributed to the assessee was not established by independent corroboration. The material on record did not satisfactorily show excess consumption, clandestine removals, or a dependable foundation for the duty computation.

Conclusion: The duty demand was not sustainable and the finding was in favour of the assessee.

Issue (ii): Whether the extended period of limitation and the consequential penalties on the assessee and its director were justified.

Analysis: The invocation of the extended period rested only on general allegations of suppression and clandestine clearance, without adequate particulars or convincing supporting evidence. In the absence of a sustainable demand founded on reliable material, the basis for treating the case as one involving wilful suppression or intent to evade duty was also not made out, and the penalty provisions could not be applied on the facts established.

Conclusion: The extended period and the penalties were not justified and this issue was decided in favour of the assessee.

Final Conclusion: The common order was set aside and both appeals were allowed with consequential relief as permissible in law.

Ratio Decidendi: A demand of central excise duty and allied penalties cannot be sustained on the basis of unverified shortages and uncorroborated slips without reliable evidence establishing clandestine removal and the requisite grounds for extended limitation.

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