Clandestine removal and fraudulent MODVAT credit require coherent corroboration; isolated records and minor discrepancies were insufficient here.

Clandestine removal of MS ingots was not proved because the department relied on private records, transporter documents, statements and cash deposits without a reliable corroborative chain; minor invoice differences and the absence of stock discrepancy were insufficient, and the chosen quantification method was not convincingly explained. The duty demand therefore could not stand. Wrongful MODVAT credit was also not established, as the evidence consisted mainly of statements from persons already exonerated in earlier proceedings and insignificant slips or invoice discrepancies, without proof of unaccounted raw material procurement or fraudulent credit. The related penalties failed with the substantive charge, and the impugned order was set aside with consequential relief.

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Issues: (i) whether the department proved clandestine removal of MS ingots and consequent duty demand; (ii) whether the department proved wrongful availment of MODVAT credit and related penalties.

Issue (i): whether the department proved clandestine removal of MS ingots and consequent duty demand.

Analysis: The demand was founded mainly on private records, transporter documents, statements of traders and brokers, and cash deposits in the director's account. The alleged unaccounted clearances were not supported by reliable corroboration, and the minor differences noticed in some invoices were insufficient to establish removal of a very large quantity of finished goods. The department also failed to explain why a different formula for quantification was adopted for the overlapping period when an earlier dispute for part of the same period had been settled on the basis of power consumption. No stock discrepancy was found in the factory, and the evidence from the transporter and other private records, in the circumstances, was not adequate to sustain the charge.

Conclusion: The allegation of clandestine removal was not proved and the duty demand on this count could not stand.

Issue (ii): whether the department proved wrongful availment of MODVAT credit and related penalties.

Analysis: The allegation of wrongful credit rested substantially on statements of traders and suppliers who had already been exonerated in the earlier proceedings, and on a few katcha slips and invoice discrepancies of insignificant magnitude. The evidence did not establish procurement of unaccounted raw materials or fraudulent availment of credit. Since the substantive charge itself failed, the consequential penalties imposed on the appellant and the connected noticees also lacked foundation.

Conclusion: The wrongful MODVAT credit demand and the connected penalties were not sustainable.

Final Conclusion: The impugned order was set aside and the appeals were allowed with consequential relief.

Ratio Decidendi: A serious allegation of clandestine removal or fraudulent credit cannot be sustained on isolated private records, uncorroborated statements, or insignificant discrepancies unless the department establishes a coherent and reliable evidentiary chain.

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