Clandestine removal requires corroboration; mere shortage and an unsupported statement cannot sustain penalty or interest recovery.

Mere shortage of inputs and an uncorroborated later statement were insufficient to establish clandestine removal. As no supporting material confirmed the allegation, penalty under Section 11AC of the Central Excise Act was held unsustainable. Interest recovery also failed because the case showed only shortage, with no fixed date of removal or proved clandestine removal, and the credit had already been reversed on the date of visit. The departmental challenge therefore failed, and the relief against both penalty and interest was maintained.

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Issues: (i) Whether penalty under Section 11AC of the Central Excise Act, 1944 was leviable on the basis of shortage of inputs and the later statement alleging clandestine removal; (ii) Whether recovery of interest was sustainable in the facts of the case.

Issue (i): Whether penalty under Section 11AC of the Central Excise Act, 1944 was leviable on the basis of shortage of inputs and the later statement alleging clandestine removal.

Analysis: The shortage was admitted, but the earlier statements did not clandestine removal. The later admission was recorded after a gap of several months and was not supported by any corroborative material. A finding of clandestine removal required corroboration, which was absent.

Conclusion: Penalty under Section 11AC was not sustainable and the assessee was held not liable to such penalty.

Issue (ii): Whether recovery of interest was sustainable in the facts of the case.

Analysis: The case involved shortage only, without a firm date of removal or established clandestine removal. The credit had already been reversed on the date of visit.

Conclusion: Recovery of interest was not sustainable and the assessee succeeded on this issue.

Final Conclusion: The departmental challenge failed in full, and the relief granted by the lower appellate authority against penalty and interest was maintained.

Ratio Decidendi: Mere shortage and an uncorroborated later statement are insufficient to establish clandestine removal or attract penalty under Section 11AC; interest cannot be sustained absent proof of removal and where credit has already been reversed.

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