Clandestine removal cannot be inferred from stock register mismatch alone without physical verification or independent evidence.

A demand for central excise duty based only on a mismatch between income-tax stock figures in Form 3CD and the RG-1 register is not sustainable unless backed by physical stock verification or other independent evidence of clandestine removal. Stock records prepared for income-tax and excise purposes serve different functions, so they cannot be mechanically compared to infer shortage or unlawful clearance. The cited precedent, affirmed by the Supreme Court, was applied to hold that a mere discrepancy in records, without proof of actual removal of goods, does not establish excisable evasion.

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Issues: Whether a demand of central excise duty could be sustained solely on the basis of discrepancy between stock figures shown in income-tax Form 3CD returns and the RG-1 register, in the absence of physical stock verification or independent evidence of clandestine clearance.

Analysis: The demand was founded only on a mismatch between the stock reflected in the income-tax records and the excise stock register. No physical verification of stock was undertaken and no independent material was brought on record to establish clandestine removal. The stock figures maintained for income-tax and accounting purposes could not be mechanically compared with entries in the excise register, since the standards and purposes of recording stock under the two regimes were different. The reasoning adopted in the cited precedent, affirmed by the Supreme Court, applied directly to the facts of the case and supported the assessee's explanation that the discrepancy did not by itself establish shortage of excisable goods or unlawful clearance.

Conclusion: The demand of duty was not sustainable and the appeal was allowed in favour of the assessee.

Ratio Decidendi: A duty demand for alleged clandestine clearance cannot rest merely on a mismatch between income-tax stock statements and excise stock records unless supported by physical verification or other independent evidence proving removal of goods.

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