Clandestine removal requires corroborative evidence; register entries and packaging discrepancies alone do not sustain duty demand.

Clandestine removal cannot be sustained on security register entries alone without independent corroborative evidence, especially where stock verification shows no shortage and gate slips, invoices and outward registers support the clearances. Allegations that rejected goods were replaced by finished goods also fail where the rejected goods are duly recorded under Rule 173H and no buyer inquiry or other proof establishes substitution. A discrepancy in the number of gunny bags for waste and scrap does not justify duty demand when the quantity of waste and scrap tallies. The duty, interest and penalty demand was set aside for want of proof.

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Issues: (i) whether the alleged excess clearances recorded in the security register, without independent corroborative evidence, established clandestine removal; (ii) whether the allegation that rejected goods were replaced by finished goods was sustainable; (iii) whether the difference in the number of gunny bags for waste and scrap supported a duty demand.

Issue (i): whether the alleged excess clearances recorded in the security register, without independent corroborative evidence, established clandestine removal.

Analysis: The entries in the security loading register by themselves were not sufficient to prove removal of goods without payment of duty. The stock verification did not show any shortage in the physically available finished goods or raw material. The clearances were supported by gate slips, invoices and the finished goods outward register, and no contrary evidence was produced to discredit those records. In the absence of corroboration, the allegation of clandestine removal could not be sustained.

Conclusion: The allegation of clandestine removal was not proved.

Issue (ii): whether the allegation that rejected goods were replaced by finished goods was sustainable.

Analysis: The rejected goods were entered in the relevant annexure under Rule 173H and that position was not controverted by the Revenue. No inquiry was made from the buyers to establish that finished goods had been supplied in place of rejected goods. The mere allegation that replacement had not occurred within six months did not establish duty evasion.

Conclusion: The allegation regarding replacement of rejected goods was not sustainable.

Issue (iii): whether the difference in the number of gunny bags for waste and scrap supported a duty demand.

Analysis: The discrepancy related only to the number of gunny bags, not to the quantity of waste and scrap. Duty could be demanded on the quantity cleared and not on the basis of the number of packets or bags. Since the quantity tallied, the allegation of shortage failed.

Conclusion: The allegation regarding waste and scrap shortage was not sustainable.

Final Conclusion: The demand of central excise duty, interest and penalty was set aside, and the Revenue's challenge failed for want of proof of clandestine removal or related shortages.

Ratio Decidendi: Clandestine removal must be established by reliable corroborative evidence and stock discrepancy, and duty cannot be sustained on mere register entries or packaging variations when the quantity and statutory records tally.

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