Clandestine removal demands need corroborative evidence; electricity consumption alone is insufficient, though stock shortage duty can still be upheld.

A demand alleging clandestine manufacture and clearance of M.S. ingots was set aside where it rested mainly on electricity consumption calculations and an unsafe expert report, because there was no tangible evidence of unaccounted raw material procurement, actual clearance, transportation, sale, or receipt of proceeds. The connected duty, interest, and penalties failed on that basis. By contrast, the duty demand arising from shortage of goods noticed during stock verification was sustained, as the shortage was not seriously disputed on merits. The legal principle applied was that clandestine removal must be proved by positive, corroborative evidence and cannot rest on assumption or presumption alone.

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Issues: (i) Whether the demand of duty, interest and penalties based on alleged clandestine manufacture and clearance of M.S. ingots, founded mainly on electricity consumption and an alleged non-existent expert report, was sustainable; (ii) Whether the demand relating to shortage of goods noticed during stock verification was sustainable.

Issue (i): Whether the demand of duty, interest and penalties based on alleged clandestine manufacture and clearance of M.S. ingots, founded mainly on electricity consumption and an alleged non-existent expert report, was sustainable.

Analysis: The confirmation of clandestine removal was principally built on electricity consumption of 1046 units per metric tonne and alleged unaccounted raw material. The record did not establish procurement of all necessary raw materials in an unaccounted manner, nor did it supply tangible evidence of actual clandestine clearance, sale, transportation, or receipt of sale proceeds. The reliance on the purported expert report was found unsafe, and the reasoning based only on presumed production from electricity consumption was held to rest on assumption and presumption rather than positive evidence.

Conclusion: The demand, interest and penalties relatable to alleged clandestine removal were set aside in favour of the assessee.

Issue (ii): Whether the demand relating to shortage of goods noticed during stock verification was sustainable.

Analysis: The shortage found during the visit of the officers was not seriously disputed on merits by the appellants. In that limited respect, the adjudication was supported and the demand arising from the shortage was upheld.

Conclusion: The demand relating to shortage of goods was sustained against the assessee.

Final Conclusion: The impugned orders were substantially set aside insofar as they confirmed demands for alleged clandestine removal and the connected penalties, but the duty demand arising from shortage of goods was upheld.

Ratio Decidendi: A demand alleging clandestine removal cannot be sustained merely on electricity consumption calculations or presumptive reasoning unless supported by tangible and corroborative evidence of unaccounted manufacture and clearance.

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