Input shortage demands need cogent proof of actual shortage and clandestine removal; estimates alone are insufficient.

A demand for duty, interest and penalty based on alleged shortage of inputs was held unsustainable where stock verification was not supported by reliable physical weighment and rested mainly on estimates, a chemical examination report and an input-output ratio. The assessee's explanation that material remained in heaps, some heaps were not counted, stock had deteriorated over time, and consumption was recorded on an estimated basis was found plausible. In the absence of evidence of clandestine removal or disposal outside the factory, the department had not discharged the burden of proving that the alleged shortage represented removed goods or suppressed stock; the Revenue appeal therefore failed.

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Issues: Whether the demand of duty, interest and penalty could be sustained on the basis of alleged shortage of inputs found during stock verification.

Analysis: The shortage was not established by reliable physical weighment, and the verification rested largely on estimates, the chemical examination report, and an input-output ratio. The explanation that the material remained in heaps, that some heaps were not counted, that stock had deteriorated over time, and that consumption was booked on an estimated/theoretical basis was accepted as plausible. The record did not contain evidence of clandestine removal or of any disposal of the material outside the factory. The Commissioner (Appeals) had considered the evidence and rightly found that the department had not discharged the burden of proving that the alleged shortage represented removed goods or suppressed stock.

Conclusion: The demand of duty, interest and penalty was not sustainable and the Revenue appeal failed.

Final Conclusion: The order dropping the demand was upheld and the Revenue's appeal was dismissed.

Ratio Decidendi: A demand based on shortage of inputs cannot be sustained without cogent evidence of actual shortage and clandestine removal, particularly where the assessee offers a plausible explanation supported by material on record and the department relies only on estimates or inconclusive stock verification.

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