Clandestine removal and revenue neutrality: stock discrepancies and job-worker clearances did not justify duty demand.

Duty demands based only on stock shortages, MEG consumption variations, or input-output ratio discrepancies are not justified without positive evidence of clandestine removal or unauthorised disposal of goods. The record here noted parallel stock reconciliation systems, minimal percentage differences, and prior disclosure to the department, which supported rejection of the demand. Clearances to job workers or refillers were also treated as revenue neutral because any duty paid would have been available as credit to the recipient, so the valuation objection did not sustain the demand. The article states that demands on these facts were dropped and the revenue appeal failed.

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Issues: (i) Whether duty demand could be sustained on stock shortages and MEG consumption variations in the absence of evidence of clandestine removal; (ii) Whether the demand on clearances to job workers or refillers was sustainable when the dispute was treated as revenue neutral.

Issue (i): Whether duty demand could be sustained on stock shortages and MEG consumption variations in the absence of evidence of clandestine removal.

Analysis: The shortages in raw materials and finished goods were found to arise from periodic stock reconciliation and accounting differences maintained in parallel systems. The record showed that the discrepancies were minuscule in percentage terms and had been regularly brought to the notice of the department. No positive evidence was produced to show that the materials alleged to be short had not been received in the factory or had been clandestinely removed. In the absence of evidence of clandestine removal, a demand based only on unreconciled stock differences and input-output ratio was not justified.

Conclusion: The duty demand on stock shortages and MEG-related variation was unsustainable and was rightly rejected.

Issue (ii): Whether the demand on clearances to job workers or refillers was sustainable when the dispute was treated as revenue neutral.

Analysis: The goods cleared to refillers attracted duty, but whatever duty was paid would have been available as credit to the recipient. On that basis, the matter did not result in any real revenue loss. The valuation objection, therefore, did not justify confirmation of demand.

Conclusion: The demand on clearances to refillers was not sustainable because the issue was revenue neutral.

Final Conclusion: The impugned order dropping the demands was upheld, and the revenue appeal failed.

Ratio Decidendi: A duty demand cannot rest merely on stock discrepancies or input-output variations unless the department produces positive evidence of clandestine removal or other unauthorised disposal of goods, and a demand is not sustainable where the dispute is revenue neutral.

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