Clandestine removal needs corroboration; bank statements alone are insufficient, but verified RG 1 stock shortage can sustain duty.

Allegations of clandestine manufacture and removal cannot be sustained on a bank statement alone; independent corroborative evidence of input procurement, production capacity, power consumption, removal and sale is required, so the demand based only on inflated stock figures furnished to a bank was set aside. Admitted shortage reflected in the RG 1 register, however, constituted a statutory stock discrepancy sufficient to sustain duty, and the Tribunal upheld a reduced penalty in view of the limited nature of the lapse. The result was partial relief to the assessee, with the bank-statement-based demand annulled and the stock-shortage-based demand maintained.

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Issues: (i) Whether duty could be confirmed on the basis of inflated stock figures furnished to a bank without independent corroborative evidence of manufacture and clandestine removal; and (ii) whether duty and penalty were sustainable for shortage of stock as reflected against the RG 1 register.

Issue (i): Whether duty could be confirmed on the basis of inflated stock figures furnished to a bank without independent corroborative evidence of manufacture and clandestine removal.

Analysis: The only material relied on for this demand was the statement given to the bank for obtaining enhanced financial limits. The Tribunal held that such a statement, by itself, does not establish actual manufacture or clandestine clearances. In a case of alleged clandestine removal, the Revenue is required to bring corroborative evidence showing procurement of inputs, manufacturing activity, capacity to produce, power consumption, and the manner of removal and sale. No such supporting investigation or seizure of records was shown.

Conclusion: The demand based solely on the bank statement was set aside in favour of the assessee.

Issue (ii): Whether duty and penalty were sustainable for shortage of stock as reflected against the RG 1 register.

Analysis: The Tribunal found that the admitted shortage from statutory stock records constituted a violation of the record-keeping requirement. Unlike the bank-statement-based demand, this discrepancy was directly supported by stock verification and was not displaced by the assessee's explanation. However, the Tribunal considered the lapse limited for penalty purposes.

Conclusion: Duty on the stock shortage was sustained, and a reduced penalty was upheld against the assessee.

Final Conclusion: The demand founded on bank entries was annulled, while the demand arising from verified stock shortage and a limited penalty were maintained, resulting in a partial relief to the assessee.

Ratio Decidendi: Allegations of clandestine manufacture and removal cannot be upheld on a bank statement alone unless supported by independent corroborative evidence establishing production, input procurement, capacity, and removal of goods; however, an admitted stock shortage reflected in statutory records can justify duty and penalty.

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