Burden of proof in clandestine removal claims failed where no stock shortage and no reliable evidence of dutiable inputs emerged.

Allegations of clandestine removal of modvatable inputs failed where physical verification showed no shortage of inputs or finished goods, and the department produced no reliable evidence that the cleared goods were dutiable inputs removed without duty payment. The record also supported the assessee's case that some cleared goods were defective non-modvatable stock lying in the factory from the period when the final product was exempt. The burden to prove clandestine removal and dutiability remained on the department and was not displaced merely because every purchase document was not produced. The duty demand, and the related interest and penalty, were therefore not sustainable.

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Issues: Whether the demand of duty, interest and penalty could be sustained on the allegation that modvatable inputs were clandestinely removed under private chits or challans without payment of duty.

Analysis: The record showed that physical verification did not reveal shortage of either inputs or finished goods. The adjudicating authority had itself accepted that, in the absence of such shortage, it was difficult to prove removal of modvatable inputs without payment of duty. The appellant had also produced material showing that part of the goods removed were defective non-modvatable stock lying in the factory since the period when the final product was exempt. On these facts, the department had not established by reliable evidence that the cleared goods were modvatable inputs. The burden to prove clandestine removal and dutiability remained on the department and could not be shifted to the appellant merely because all purchase documents were not produced for every item.

Conclusion: The duty demand was not sustainable, and the connected demand of interest and penalty also failed.

Ratio Decidendi: In a case of alleged clandestine removal of inputs, the burden lies on the department to prove by cogent evidence that the goods were dutiable modvatable inputs and were removed without payment of duty; where stock verification reveals no shortage and the evidence is insufficient, the demand cannot stand.

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