Estimated stock shortage cannot by itself prove clandestine removal without corroborative evidence of manufacture or clearance.

A duty demand and penalty based on alleged shortage of raw materials and finished goods was rejected because the stock verification was only an estimated approximation, using average weight of a few bundles. The shortage was not admitted in the relied-upon statement, the accounts were regularly maintained, and no irregularity was shown. In the absence of corroborative evidence of clandestine manufacture or clearance, such as proof of production, transport or buyers, mere estimated shortage was held insufficient to sustain a finding of clandestine removal. The demand and penalty were therefore set aside in favour of the assessee.

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Issues: Whether a demand of duty and penalty could be sustained on the basis of shortage of raw materials and finished goods arrived at by estimated stock verification, without corroborative evidence of clandestine manufacture or clearance.

Analysis: The stock taking was done by applying average weight of a few bundles, and the quantity of stock was thus only a rough approximation. The shortage was not admitted by the Director in the statement relied upon by the department. The appellant's accounts were maintained regularly, and there was no evidence of irregularity. In the absence of corroboration such as proof of manufacture, clearance, transport, or buyers of the alleged goods, a conclusion of clandestine removal could not rest merely on an estimated shortage. The cited decisions were applied to hold that mere shortage, especially when based on estimation, is insufficient by itself to establish clandestine removal.

Conclusion: The duty demand and penalty were not sustainable and were set aside in favour of the assessee.

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