Contemporaneous admissions and records can sustain clandestine removal demand, but raw material shortage alone is insufficient without reliable diversion evidence.

Admitted contemporaneous statements and an admitted register can sustain a demand where finished goods shortage is established and later retraction is uncorroborated. The demand based on shortage of finished goods and the Daily Progress Report Register was therefore upheld. By contrast, shortage of raw materials alone did not prove clandestine removal, because no reliable evidence showed that the inputs were diverted or not consumed in manufacture and one-to-one input-output correlation was not required in a CENVAT setting. The demand on raw material shortage was set aside. On the facts found, the Director's personal penalty and confiscation with redemption fine were not warranted and were set aside.

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Issues: (i) Whether the demand based on shortage of raw materials was sustainable. (ii) Whether the demand based on shortage of finished goods and the Daily Progress Report Register was sustainable. (iii) Whether the penalty on the Director and the confiscation with redemption fine were sustainable.

Issue (i): Whether the demand based on shortage of raw materials was sustainable.

Analysis: The shortage of raw materials was recorded during the visit, and the statements of the authorised signatory and the Director accepted the contents of the panchnama. However, there was no reliable material to show that the allegedly short raw materials had been clandestinely removed. In a CENVAT environment, one-to-one correlation between inputs and final products is not required, and the assessee's explanation that the inputs were consumed in manufacture could not be rejected merely on conjecture.

Conclusion: The demand on shortage of raw materials was not sustainable and was set aside in favour of the assessee.

Issue (ii): Whether the demand based on shortage of finished goods and the Daily Progress Report Register was sustainable.

Analysis: The authorised signatory and the Director repeatedly admitted the shortage, the accuracy of the panchnama, and the authenticity of the Daily Progress Report Register. Their later retraction was unsupported by corroborative evidence and did not dislodge the contemporaneous admissions. The absence of examination of the person maintaining the register did not defeat the demand, since the document stood admitted by the assessee's own representatives.

Conclusion: The demand on shortage of finished goods and the Daily Progress Report Register was upheld in favour of the revenue.

Issue (iii): Whether the penalty on the Director and the confiscation with redemption fine were sustainable.

Analysis: The material on record did not establish the Director's conscious role in the alleged clandestine removals beyond the admitted statements, and the case did not justify confiscation of plant and machinery and allied redemption fine on the facts found. Accordingly, personal penalty and confiscatory consequences were not warranted.

Conclusion: The penalty on the Director and the redemption fine were set aside in favour of the assessee.

Final Conclusion: The duty demand was sustained only in part, while relief was granted on the input shortage issue and on the personal and confiscatory penalties.

Ratio Decidendi: An admitted contemporaneous statement and admitted record can sustain a demand for clandestine removal, but an input shortage demand cannot be upheld without reliable evidence showing that the inputs were not consumed in manufacture or were otherwise clandestinely removed.

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