Stock discrepancy and reversed CENVAT credit did not prove clandestine removal or justify penalty, with interest limited to actual utilisation.

Mere stock discrepancy based on approximate weighment and normal variation was held insufficient to establish clandestine removal; duty, penalty and confiscatory consequences founded on that allegation could not survive. Credit taken and promptly reversed, without evidence of mala fide intention, did not attract penalty for wrong availment. On interest, the governing principle stated was that no interest is payable where credit is reversed without utilisation, but interest remains payable to the extent any credit was actually used before reversal; the matter was therefore remanded for factual verification of utilisation.

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Issues: (i) Whether the apparent shortage in finished goods and raw material established clandestine removal and justified duty, penalty and confiscatory consequences. (ii) Whether credit taken and reversed on being pointed out attracted penalty and interest.

Issue (i): Whether the apparent shortage in finished goods and raw material established clandestine removal and justified duty, penalty and confiscatory consequences.

Analysis: The stock verification was based on an approximate method of weighment and not on actual weighment. The production and stock records were maintained on estimated weight basis, while actual weighment occurred at the stage of removal. The discrepancy in MS ingots and sponge iron was held to be within a normal range of variation in the circumstances and did not support an inference of clandestine clearance.

Conclusion: The charge of clandestine removal was not made out and the duty and penalties founded on that allegation could not survive.

Issue (ii): Whether credit taken and reversed on being pointed out attracted penalty and interest.

Analysis: The credit entry was found to have been reversed promptly, and the record did not show mala fide intention in taking the credit. On interest, the governing principle applied was that interest is not payable on credit that was reversed without being utilized; however, if any part of the credit had been used before reversal, interest would remain payable for that period.

Conclusion: Penalty for wrong availment of credit was not warranted, and the question of interest was remanded for verification of actual utilization before reversal.

Final Conclusion: The appeal succeeded substantially, the findings of clandestine removal and penalty were set aside, and only the limited of interest on reversed credit was sent back for factual verification.

Ratio Decidendi: Mere stock discrepancy based on approximate valuation and normal variations, without proof of actual clandestine removal or mala fide availment of credit, is insufficient to sustain duty, penalty or interest beyond the extent of any credit actually utilized before reversal.

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