Clandestine removal requires corroborative evidence beyond stock shortages, while unexplained delayed notices cannot invoke extended limitation.

Excise duty based on an alleged finished-goods shortage requires credible evidence of clandestine removal; stock-taking conducted during ongoing production, unsupported working sheets, and anomalies in the panchnama cannot establish clearance by themselves. In the absence of evidence of unaccounted raw materials, excess electricity use, transport, cash sales, purchasers, or private records, the alleged removal was not proved. The extended limitation period is also unavailable where a notice issued nearly three years after stock-taking rests solely on the detected shortage and gives no justification for the delay. The consequential duty demand therefore fails on proof and limitation.

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Issues: (i) Whether excise duty demand based on alleged shortage of finished goods could be sustained as clandestine removal; (ii) Whether the show-cause notice issued nearly three years after stock-taking was barred by limitation.

Issue (i): Whether excise duty demand based on alleged shortage of finished goods could be sustained as clandestine removal.

Analysis: The stock verification was conducted in a three-shift manufacturing unit without ensuring stoppage of production, while the underlying working sheets were not timely supplied and the panchnama contained material anomalies. Mere shortage recorded during stock-taking did not establish clandestine clearance. No corroborative material showed unaccounted procurement or consumption of raw materials, excess electricity consumption, transport of goods, cash sales, purchasers, or private records. Recording the goods in the statutory stock register was also inconsistent with the alleged scheme of clandestine clearance.

Conclusion: The alleged clandestine removal and consequential duty demand were not established; the issue is decided in favour of the assessee.

Issue (ii): Whether the show-cause notice issued nearly three years after stock-taking was barred by limitation.

Analysis: The demand rested entirely on the shortage detected during stock-taking on 12/13 January 2005. No subsequent investigation or verification justified the delay in issuing the show-cause notice on 4 December 2007, and the notice disclosed no explanation for invoking the extended period.

Conclusion: Invocation of the extended period of limitation was unsustainable, and the demand was time-barred; the issue is decided in favour of the assessee.

Final Conclusion: The duty liability founded on the alleged stock shortage fails both for want of proof of clandestine removal and as barred by limitation.

Ratio Decidendi: A stock shortage alone cannot sustain a finding of clandestine removal without credible corroborative evidence, and the extended limitation period cannot be invoked where the department offers no justification for delayed notice after detection.

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