Cenvat credit and duty demand fail without proof of clandestine removal despite alleged stock shortage

Duty demand and denial of Cenvat credit could not be sustained where stock verification showed finished goods and raw materials in excess of book balance, because the alleged shortage was not established. In the absence of any specific allegation or proof of clandestine removal from the factory, mere non-maintenance of records was insufficient to support duty liability on a clandestine clearance theory. The impugned order was set aside and the assessee obtained relief against the confirmed duty and penalty.

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Issues: Whether duty demand and denial of Cenvat credit could be sustained on the basis of alleged shortage of finished goods and raw materials when the goods were found in excess during stock verification and there was no allegation or proof of clandestine removal.

Analysis: The stock-taking report showed that the goods found were higher than the balance reflected in the books, which negatived the allegation of shortage as a basis for duty liability. The absence of any specific allegation or substantiation of clandestine removal was material, because excise duty is attracted on manufacture and clearance, and mere non-maintenance of records could not by itself justify confirmation of duty demand on an alleged clandestine clearance theory.

Conclusion: The demand could not be sustained and the impugned order was liable to be set aside.

Final Conclusion: The appeal succeeded and the assessee obtained relief against the confirmed duty and penalty.

Ratio Decidendi: A duty demand premised on shortage cannot be upheld without a specific allegation and proof of clandestine removal from the factory.

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