Clandestine removal needs corroborative evidence; stock shortage alone cannot sustain duty demand, though record-keeping lapses may still attract nominal penalty.

CESTAT, Chennai held that a duty demand for alleged clandestine removal of mineral glasses could not rest on stock shortage alone, especially where physical verification was disputed and no corroborative evidence supported the charge. The absence of reliable material on raw material consumption, buyer statements, sale proceeds, or certainty in production entries meant the principal demand and the connected penalty were unsustainable and were set aside. However, the failure to maintain statutory records under the RG-1 account and Form V register remained proved, so a limited penalty was upheld for that record-keeping lapse and confined to a nominal amount.

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Issues: (i) Whether duty demand could be sustained on the basis of alleged stock shortage and presumed clandestine clearance of mineral glasses; (ii) Whether penalty was warranted for failure to maintain statutory accounts, and if so to what extent.

Issue (i): Whether duty demand could be sustained on the basis of alleged stock shortage and presumed clandestine clearance of mineral glasses.

Analysis: The stock shortage relied upon by the department was disputed, and the assessee's objection that reliable physical verification of a large quantity of thin and fragile glass tops was not satisfactorily established was not convincingly met. More importantly, the allegation of clandestine removal was unsupported by the kind of corroborative material normally required in such cases. There was no reliable evidence of raw material consumption relatable to the alleged shortage, no buyer statements, and no proof of receipt of sale proceeds. The production summary entries were also not shown to represent the final RG-1 stage figures with certainty.

Conclusion: The duty demand and the consequential penalty based on alleged clandestine removal were not sustainable and were set aside.

Issue (ii): Whether penalty was warranted for failure to maintain statutory accounts, and if so to what extent.

Analysis: The record showed that the RG-1 account and the Form V register were not maintained properly and regularly as required. While the major demand founded on clandestine clearance failed for want of proof, the lapse in maintenance of statutory records remained established and justified a limited penal consequence.

Conclusion: A reduced penalty was justified for failure to maintain statutory accounts, and the penalty was confined to Rs. 1,000/-.

Final Conclusion: The assessee succeeded on the principal demand and penalty founded on clandestine clearance, but remained liable to a nominal penalty for breach of statutory record-keeping requirements.

Ratio Decidendi: A charge of clandestine removal cannot be sustained on stock shortage alone and must be supported by reliable corroborative evidence; where only the record-keeping lapse is established, the penalty may be confined to that limited infraction.

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