Clandestine removal requires reliable stock evidence and admissible statements with corroboration; unreliable verification defeated the demand.

A charge of clandestine removal cannot rest on unreliable stock verification or uncorroborated retracted statements. The alleged shortage was not satisfactorily established because the panchnama omitted key weighment details, weighment records were not properly examined, the weighbridge had malfunctioned, and the reported stock-taking appeared impracticable and internally inconsistent. The retracted statements of company personnel also lacked probative value because the statutory procedure for admissibility under Section 9D of the Central Excise Act, 1944 was not followed and no independent corroboration was produced. On that basis, the demand of duty, interest, and penalties was held unsustainable.

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Issues: (i) Whether the alleged shortage of finished goods and the panchnama-based stock verification were reliable enough to sustain the charge of clandestine removal. (ii) Whether the retracted statements of the company's personnel could be relied upon without compliance with Section 9D of the Central Excise Act, 1944 and corroborative evidence.

Issue (i): Whether the alleged shortage of finished goods and the panchnama-based stock verification were reliable enough to sustain the charge of clandestine removal.

Analysis: The stock verification process was found to be unreliable because the panchnama was silent about the weighment of important items and the records of weighment slips and stock-taking details were not properly considered by the adjudicating authority. The alleged verification was also affected by the malfunctioning weighbridge, the improbability of the reported weighment within the available time, and inconsistencies in the physical stock records. On the evidence available, the shortage could not be treated as having been lawfully and satisfactorily established.

Conclusion: The issue was decided in favour of the assessee, and the alleged shortage could not sustain the demand.

Issue (ii): Whether the retracted statements of the company's personnel could be relied upon without compliance with Section 9D of the Central Excise Act, 1944 and corroborative evidence.

Analysis: The statements were retracted and, even otherwise, could not be straightaway relied upon without following the statutory procedure for admissibility of statements. In the absence of Section 9D compliance and independent corroboration, the statements lacked sufficient evidentiary value to prove clandestine removal. The adjudication based substantially on such statements was therefore unsustainable.

Conclusion: The issue was decided in favour of the assessee, and the statements were held insufficient to uphold the demand or penalties.

Final Conclusion: The demand of duty, interest, and penalties was not sustainable, and the appeals succeeded with consequential relief.

Ratio Decidendi: A charge of clandestine removal cannot be sustained on the basis of unreliable stock verification and retracted statements unless the statements are admitted in accordance with the statutory procedure and are supported by independent corroborative evidence.

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