Mere presumption cannot sustain excise demand for alleged shortage and clandestine removal without corroborative evidence.

Central excise demand and penalty for alleged shortage of inputs and clandestine removal cannot be sustained on mere presumption or uncorroborated statements when statutory records are maintained and no positive evidence is produced. The allegation was weakened by a retracted statement, the absence of any shortage or excess in finished goods, and the lack of statements from the job worker or other corroboration from the department. On that factual and evidentiary basis, the extended period and penalty were held unjustified, and the demand was set aside.

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Issues: Whether the demand of duty and penalty for alleged shortage of inputs and alleged clandestine removal could be sustained on the basis of presumptions and statements, and whether the extended period and penalty were justified.

Analysis: The shortage allegation rested largely on assumptions and on a statement that had been retracted by affidavit. Relevant statutory records had been maintained, and no shortage or excess was found in the finished goods. The reasoning emphasised that if the alleged quantity of input had not been received or used, corresponding discrepancies would have appeared in the finished product. The absence of statements from the job worker and the lack of positive evidence from the department were treated as significant. The applicable principle was that excise liability and penalties cannot be fastened merely on statements or suspicion without corroborative evidence.

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

Ratio Decidendi: A central excise demand and consequential penalty cannot be sustained on mere presumption or uncorroborated statements when the assessee's statutory records are in order and the department has not produced positive evidence of clandestine removal.

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