Clandestine removal demands fail without corroboration; shortage of raw materials alone cannot sustain duty or penalties.

Confiscation of unrecorded plastic bags found in the BSR was unsustainable because the stock matched the unit's practice of recording production later in the day, and unrecorded manufacture was not established. Reversal of Modvat credit on bags treated as scrap stored outside the BSR was also unsustainable, as Rule 57-D allowed credit on inputs contained in scrap and the direction went beyond the show cause notice. Duty demand and penalties based on raw material shortages and alleged clandestine removal failed for lack of substantial corroborative evidence; shortage alone could not support a demand. The impugned order was set aside in full and consequential relief followed.

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Issues: (i) Whether confiscation of the unrecorded plastic bags found in the BSR was sustainable; (ii) Whether reversal of Modvat credit was permissible in respect of bags treated as scrap stored outside the BSR; (iii) Whether the duty demand and consequential penalties based on shortages of raw materials and alleged clandestine removal could be sustained.

Issue (i): Whether confiscation of the unrecorded plastic bags found in the BSR was sustainable.

Analysis: The unrecorded stock was explained as production of the previous shift and the practice was that entries in the register were made only once in the afternoon after manufacture and baling. The finding of excess stock was not met with the actual working practice of the unit, and the small quantity found was consistent with production in the previous shift. On that basis, the allegation of unrecorded production was not established.

Conclusion: The confiscation of the plastic bags found in the BSR was not sustainable and did not survive.

Issue (ii): Whether reversal of Modvat credit was permissible in respect of bags treated as scrap stored outside the BSR.

Analysis: Rule 57-D permitted non-reversal of Modvat credit on inputs contained in scrap. The show cause notice did not allege reversal of credit on this count, and the direction to reverse credit travelled beyond the scope of the notice.

Conclusion: The direction to reverse Modvat credit was not sustainable and did not survive.

Issue (iii): Whether the duty demand and consequential penalties based on shortages of raw materials and alleged clandestine removal could be sustained.

Analysis: Mere shortage of raw materials, without substantial corroborative evidence, was insufficient to establish manufacture and clandestine removal. The reconciliation exercise was not effectively displaced, the statement relied upon did not amount to an admission of production, and no estimate was made on the basis of the alleged shortage of printing ink. In the absence of corroboration, the presumption drawn from shortage could not be converted into a duty demand.

Conclusion: The duty demand and the penalties based on alleged clandestine removal were not sustainable and did not survive.

Final Conclusion: The impugned order was set aside in full, and the appellants were held entitled to consequential relief.

Ratio Decidendi: Alleged clandestine removal cannot be sustained merely on shortages of raw materials unless supported by substantial corroborative evidence, and relief beyond the scope of the show cause notice cannot be imposed.

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