Shortages in panchanama alone cannot prove clandestine removal without corroborative evidence and reliable stock verification.

Demand based only on shortages recorded in a panchanama could not be sustained where no independent corroborative evidence of clandestine removal was produced. The assessee disputed the stock verification, sought cross-examination of the panchas, and the witnesses were not produced. The Revenue also failed to place any inventory or other reliable material on record, while the director's statement and later letter challenged both the alleged shortages and the correctness of the panchanama. On these facts, clandestine removal was not established, and the demand and penalties were set aside.

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Issues: Whether demand and penalty could be sustained on the basis of shortages recorded in the panchanama without any other reliable evidence of clandestine removal.

Analysis: The only material supporting the demand was the panchanama showing shortages. The assessee disputed the stock verification and sought cross-examination of the panchas, but the witnesses were not produced. No inventory or other independent evidence was brought on record by the Revenue to establish clandestine removal. The statement of the director and the subsequent letter also disputed the alleged shortages and the correctness of the panchanama. A finding of clandestine removal cannot rest merely on shortages without corroborative evidence.

Conclusion: The demand and penalties were not sustainable and the impugned order was set aside in favour of the assessee.

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