Stock discrepancy alone cannot prove clandestine removal; duty demand, extended limitation and penalty fail without supporting evidence.

Stock-taking discrepancies in a steel plant, arising from differing methods of accounting and estimation, could not by themselves sustain duty demand or extended limitation in the absence of evidence of clandestine removal. The mismatch between RG-1 records, annual stock-taking and physical stock was treated as requiring proper contextual appreciation, including the practical difficulties recognised in Board circulars. As no clandestine clearance was shown, the demand failed and the longer limitation period was not invocable. The penalty also fell because it was based on the same unsustainable demand.

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Issues: Whether duty demand, invocation of the extended period, and penalty could be sustained on the basis of stock-taking discrepancies in the absence of evidence of clandestine removal.

Analysis: The stock discrepancies arose from different methods of accounting and estimation used for production, clearance, consumption, and stock verification in a steel plant. The discrepancy between RG-1, annual stock-taking, and physical stock was treated as a matter requiring due perspective, particularly in view of the practical difficulties recognised for steel plants in the Board circulars. In the absence of evidence showing clandestine clearance, a mere difference in estimated figures could not justify duty demand or the longer limitation period. Since the demand itself was unsustainable, the penalty also lacked basis.

Conclusion: The duty demand was not sustainable, the extended period was not invocable, and the penalty was unwarranted.

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