Clandestine removal requires independent corroboration; disputed stock shortages and an unverified statement were insufficient to sustain demand.

Clandestine manufacture and removal cannot be sustained on disputed stock shortages and an uncorroborated proprietor's statement alone. Where the assessee maintained only a consolidated stock register, no proper variety-wise inventory was prepared, and no independent evidence corroborated the alleged shortages, the allegation of clandestine clearances failed. The assessee's explanation that most production was exported and local sales were to industrial consumers remained unrebutted. On that factual basis, the demand and penalty set aside by the first appellate authority were upheld and the Revenue's challenge was rejected.

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Issues: Whether clandestine manufacture and removal of goods could be sustained on the basis of alleged shortages detected during stock verification read with the proprietor's statement, in the absence of independent corroborative evidence.

Analysis: The Revenue's case rested on alleged shortages noticed by officers and the statement of the proprietor. The assessee maintained only a consolidated register for different varieties of nuts and bolts, making variety-wise verification difficult, and no proper inventories were prepared to demonstrate the alleged shortages. Apart from the disputed shortage findings, there was no independent evidence to establish clandestine manufacture or removal. The proprietor's statement, recorded at the time of visit, could not by itself sustain the allegation when unsupported by corroboration. The assessee's explanation that most production was exported and local clearances were to industrial consumers also remained unrebutted.

Conclusion: Clandestine removal was not proved, and the Commissioner (Appeals) was in setting aside the demand and penalty.

Final Conclusion: The Revenue failed to dislodge the factual finding that shortages alone, without corroboration, were insufficient to establish clandestine clearances, and its appeal was accordingly rejected.

Ratio Decidendi: An allegation of clandestine removal cannot be sustained merely on disputed stock shortages and an uncorroborated statement unless supported by independent evidence establishing the clandestine manufacture and removal.

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