Clandestine removal cannot be proved by raw material reconciliation alone; demand fails without tangible corroborative evidence.

Duty demand based only on raw material reconciliation and a stock discrepancy was held unsustainable where there was no tangible evidence of clandestine removal. The text states that differences between raw material consumption and alleged output could not, by themselves, prove actual production or unrecorded clearances, because production may vary due to raw material quality, plant utilisation, rejection, wastage and invisible losses. It also notes that confiscation of the seized excess goods had already been set aside and that the revenue had produced no positive corroborative evidence. The impugned order was therefore set aside.

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Issues: Whether duty demand could be sustained on the basis of raw material reconciliation and stock discrepancy alone without tangible evidence of clandestine removal.

Analysis: The demand arose from excess finished goods found in stock and from a comparison between raw material purchases/consumption and alleged production. The order found that such reconciliation, by itself, could not establish actual production or clandestine clearances, since manufacturing output may vary because of raw material quality, plant utilisation, rejection, wastage and invisible losses. It was further noted that the confiscation of the seized excess goods had already been set aside, and the revenue had not produced any positive or corroborative evidence of clandestine removal. The principle applied was that allegations of clandestine production and removal cannot rest merely on assumptions drawn from raw material calculations in the absence of tangible proof.

Conclusion: The demand of duty was not sustainable and the impugned order was set aside.

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