Clandestine removal demands fail without independent evidence; revenue-neutral stock transfers and packing-material duty claims were also set aside.

Allegations of clandestine removal must be supported by cogent independent evidence, and a disputed comparison of physical stock with an outdated manual register is insufficient where SAP production and clearance records were maintained and not properly tested; the demand on alleged shortage was set aside. Differential duty on inter-unit transfer of fruit pulp was also unsustainable because the valuation was proper and the transaction was revenue neutral, with credit available in the sister unit. Duty on MS drums and LDPE liners used for packing was not payable absent evidence of domestic sale or removal. Penalties on the company and its executive failed with the substantive demand and were set aside.

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Issues: (i) Whether duty demand based on alleged shortage and clandestine removal of fruit pulp was sustainable when the assessee maintained production and clearance records in SAP and the stock verification was made by comparing physical stock with a defunct manual RG-1 register; (ii) Whether differential duty on stock transfer of fruit pulp to the sister unit was sustainable; (iii) Whether duty on MS drums and LDPE liners used for packing fruit pulp was payable; (iv) Whether penalties on the company and its executive were sustainable.

Issue (i): Whether duty demand based on alleged shortage and clandestine removal of fruit pulp was sustainable when the assessee maintained production and clearance records in SAP and the stock verification was made by comparing physical stock with a defunct manual RG-1 register.

Analysis: The demand was founded on a comparison between physical stock and entries in an outdated manual register, while the assessee's day-to-day production and clearance records were maintained in SAP. The Department did not satisfactorily test the SAP records, though they were asserted to be the relevant books of account, and no independent evidence of clandestine removal was brought on record. The stock verification itself showed serious anomalies, including inconsistent excess and shortage figures over a short interval. In such circumstances, clandestine removal could not be inferred merely from a disputed stock comparison, and the burden of proof remained on the Department.

Conclusion: The demand on alleged clandestine removal was not sustainable and was set aside.

Issue (ii): Whether differential duty on stock transfer of fruit pulp to the sister unit was sustainable.

Analysis: The valuation adopted for stock transfer was found to be proper and based on comparable price. The transferred fruit pulp was used in the sister unit for manufacture of final products cleared on duty payment or under export procedures. Since the duty paid at the sending unit would have been available as Cenvat credit to the receiving unit, the transaction was revenue neutral and there was no incentive to undervalue the transfers.

Conclusion: The differential duty on inter-unit stock transfer was not sustainable and was set aside.

Issue (iii): Whether duty on MS drums and LDPE liners used for packing fruit pulp was payable.

Analysis: The drums and liners were procured without duty for use in packing fruit pulp and were used within the two manufacturing units for packing products that were either cleared on duty payment or exported. No material was produced to show that the drums or liners were sold in the domestic market or otherwise clandestinely removed. In the absence of contrary evidence, duty could not be demanded on those packing materials.

Conclusion: The duty demand on MS drums and LDPE liners was not sustainable and was set aside.

Issue (iv): Whether penalties on the company and its executive were sustainable.

Analysis: Since the demand itself failed, and there was no finding of conscious suppression, wilful misstatement, or other mens rea-based conduct supported by independent evidence, the penal consequences could not survive. The executive's role was also found to be that of an employee acting in the ordinary course of employment, without proof of personal gain.

Conclusion: The penalties on both the company and the executive were not sustainable and were set aside.

Final Conclusion: The impugned orders did not survive judicial scrutiny on merits, and all appeals were allowed with consequential relief in accordance with law.

Ratio Decidendi: Allegations of clandestine removal must be proved by cogent, independent evidence and cannot rest on an unreliable stock comparison where the assessee's maintained records are ignored; where the transaction is revenue neutral and no mens rea is established, duty demand and penalties cannot be sustained.

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