Approximate stock shortage without corroboration cannot sustain duty demand, penalty, or Cenvat credit reversal.

Duty demand and penalty based on shortage of finished goods were not sustainable where the shortage was determined only by approximate stock estimation, the quantity was small, and no corroborating evidence of clandestine removal was produced. The corresponding demand for reversal of Cenvat credit on alleged shortage of duty paid scrap or raw material also failed because the raw material was stored in heaps, exact verification was difficult, and the Revenue did not establish clandestine clearance, manipulated receipt, or an adverse consumption-production correlation. In the absence of independent evidence, the assessee was entitled to the benefit of doubt.

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Issues: (i) Whether duty demand and penalty were sustainable in respect of shortage of finished goods found during stock verification. (ii) Whether the demand of reversal of Cenvat credit was sustainable in respect of shortage of duty paid scrap/raw material.

Issue (i): Whether duty demand and penalty were sustainable in respect of shortage of finished goods found during stock verification.

Analysis: The shortage of finished goods was arrived at by an approximate method of stock estimation. The quantity involved was small in relation to the recorded stock, and no independent evidence of clandestine removal was produced. Mere acceptance of the shortage at the time of inspection was not treated as conclusive against the assessee in the absence of corroborating material.

Conclusion: The duty demand and penalty relating to shortage of finished goods were not sustainable.

Issue (ii): Whether the demand of reversal of Cenvat credit was sustainable in respect of shortage of duty paid scrap/raw material.

Analysis: The raw material was stored in heaps and its quantity was estimated approximately, making exact verification difficult. The Revenue did not produce evidence of clandestine clearance, did not establish any correlation between consumption and production over a reasonable period, and did not show actual receipt-related manipulation. In these circumstances, the assessee was entitled to the benefit of doubt.

Conclusion: The demand arising from shortage of raw material and the corresponding credit reversal were not sustainable.

Final Conclusion: The assessee succeeded on both substantive issues, and the Revenue's challenge did not survive.

Ratio Decidendi: A duty demand or credit reversal based only on approximate stock estimation, without corroborative evidence of clandestine removal or improper receipt and utilisation of inputs, cannot be sustained.

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