Stock shortage and excess alone cannot sustain duty demand or penalties without evidence of clandestine removal.

Stock shortage and excess found during verification were held insufficient to sustain duty demand, confiscation, or penalties where the shortages were within the permissible limit for the steel industry, records were maintained on a formula basis with clearances effected by actual weighment, and no independent evidence of clandestine removal was produced. The statements recorded at the time of visit were not inculpatory. On these facts, the adjudicatory findings against the assessee could not stand, and the demand, confiscation, and penalties were set aside.

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Issues: Whether the duty demand, confiscation of excess stock, and penalties were sustainable on the basis of stock shortage and excess noticed during verification.

Analysis: The shortages were found to be within the permissible limit applicable in the steel industry, as explained by the accounting practice of maintaining records on a formula basis while effecting clearances on actual weighment. The record disclosed no independent evidence of clandestine removal, and the statements recorded at the time of visit were not inculpatory. In these circumstances, the shortage and excess by themselves were insufficient to sustain the demand, confiscation, and penalties.

Conclusion: The demand of duty, confiscation, and penalties were not justified and were set aside in favour of the assessee.

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