Clandestine removal demands need positive corroborative evidence; estimated stock variation and untested third-party statements were insufficient.

Estimated stock variation based on non-exact weighment, where the discrepancy was under 10%, was treated as a normal commercial difference and was insufficient to sustain duty demand absent reliable proof of shortage. Parallel invoice allegations could not be upheld on the basis of an untested third-party statement, because cross-examination was denied and the evidence was unreliable under Section 9D of the Central Excise Act, 1944. Alleged clandestine removals founded only on kachcha parchies, private records and third-party material also failed for want of positive, corroborative evidence from independent sources such as transporters or buyers.

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Issues: (i) whether a small shortage found on estimated stock verification could sustain duty demand; (ii) whether parallel invoice allegations and third-party statements could be relied upon without cross-examination; (iii) whether alleged clandestine removals based on kachcha parchies, private records and third-party records were proved by positive evidence.

Issue (i): whether a small shortage found on estimated stock verification could sustain duty demand.

Analysis: The stock verification was not based on exact weighment but on estimation. The variation was less than 10 per cent and was treated as a normal commercial/physical variation. In the absence of precise weighment and reliable evidence of shortage, no adverse inference could be drawn.

Conclusion: The demand based on alleged shortage was not sustainable and was set aside.

Issue (ii): whether parallel invoice allegations and third-party statements could be relied upon without cross-examination.

Analysis: The explanation that the goods were first invoiced to one buyer and later diverted in transit to another buyer was accepted. The adverse finding rested substantially on the statement of a third party, but that person was not examined in adjudication and cross-examination was denied. Such untested evidence was held to be unreliable and hit by Section 9D of the Central Excise Act, 1944.

Conclusion: The demands based on the parallel invoice allegations were deleted.

Issue (iii): whether alleged clandestine removals based on kachcha parchies, private records and third-party records were proved by positive evidence.

Analysis: The alleged removals were founded on informal slips, notebooks and private records, but no author was identified and no corroborative investigation was carried out from transporters, buyers or other independent sources. The explanations offered by the appellants were not shown to be false. On these facts, the allegations remained based on assumptions and presumptions rather than positive proof of clandestine clearance.

Conclusion: The demands founded on kachcha parchies, private records and third-party records were unsustainable and were deleted.

Final Conclusion: The appeal succeeded in full and all surviving duty demands and consequential penalties were set aside for want of reliable evidence of clandestine removal.

Ratio Decidendi: A demand for clandestine removal cannot be sustained on estimated stock variation, untested third-party statements, or private loose sheets alone; the department must establish the charge by positive, corroborative evidence, and denial of cross-examination where relied-upon statements are used vitiates the finding.

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