Clandestine removal requires positive evidence; mere stock discrepancy was held insufficient to sustain excise demand and penalty.

Physical shortage reflected against the daily stock account was held insufficient, by itself, to sustain central excise duty, interest and penalty for clandestine removal. The record showed only an admission of discrepancy, not of unaccounted clearance, and the shortage was explained as arising from approximate stock entries and the absence of actual weighment at production. The discrepancy was only about 0.31% of total production, and there was no independent evidence of removal without duty payment. In the absence of positive evidence of clandestine removal, the demand and consequential penalty were set aside.

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Issues: Whether the demand of central excise duty, interest and penalty could be sustained solely on the basis of shortage found on physical verification vis-a -vis the daily stock account, in the absence of positive evidence of clandestine removal.

Analysis: The physical stock of 12mm TMT bars was not found, while the daily stock account reflected a quantity of 368.540 MT. The record showed admissions only about the discrepancy and not about clandestine clearance. The discrepancy was explained as arising from approximate entries in the daily stock account and absence of actual weighment at the time of production entries. The shortage was held to be only about 0.31% of total production, and the assessee was operating under a notification that reduced any incentive to evade duty, since duty paid through PLA was refundable. In the absence of any independent evidence of removal without duty payment, the stock discrepancy alone was held insufficient to establish clandestine removal.

Conclusion: The charge of clandestine removal was not sustainable and the demand, interest and penalty were set aside.

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