Clandestine removal requires corroborative evidence; theoretical shortage calculations alone cannot sustain duty demand or penalty.

Demand of duty and penalty based on theoretical shortage calculations was found unsustainable where the alleged 2% breakage allowance had no evidentiary basis, supporting witnesses were absent, and the raw material worksheet contained a totaling error. Shortage of glass bottles alone was treated as insufficient to prove clandestine manufacture or removal of quiwam without corroboration such as excess production, raw material procurement, electricity usage, customer receipts, or proof of funds flow-back. On that reasoning, the demand and penalty were set aside.

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Issues: Whether the demand of duty and penalty could be sustained on the basis of theoretical calculation of shortage of glass bottles and raw materials, without reliable evidence of excess production and clandestine removal.

Analysis: The alleged shortage of glass bottles was worked out on an assumed breakage allowance of 2%, but no basis was shown for adopting that percentage. The record did not contain supporting statements from the person said to have prepared the worksheets, from the manager present during search, or from any other witness to establish the alleged shortage. The material on record also disclosed a totaling error in the raw material worksheet, and the appellants' objections regarding excess stock and incorrect accounting were not properly considered by the lower authorities. More importantly, shortage of bottles by itself did not establish that unaccounted quiwam had been manufactured and cleared clandestinely. No corroborative evidence of excess production, procurement of raw materials, use of electricity, customer receipts, or flow-back of funds was brought on record.

Conclusion: The demand of duty and the penalty were not sustainable and were set aside in favour of the assessees.

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