Clandestine removal cannot be inferred from an auditor's stock note alone without independent verification or corroborative evidence.

Duty demand, penalty and interest cannot be sustained merely on the basis of a stock shortage noted by statutory auditors where there is no independent departmental stock verification or other corroborative evidence of clandestine removal. The recorded discrepancy was treated as insufficient by itself to prove evasion, particularly where the assessee's explanation of calibration differences and book adjustments was accepted in the absence of contrary proof. A finding of clandestine removal requires evidence beyond an auditor's note or an isolated stock variation. On these facts, the demand and consequential penalties were set aside in favour of the assessee.

---

---

Issues: Whether duty demand and penalty could be sustained on the basis of stock shortage noted by statutory auditors, without independent departmental stock verification or corroborative evidence of clandestine removal.

Analysis: The shortage recorded in the auditors' note was not based on departmental stock taking. The apparent difference in stock was treated as too small to, by itself, establish evasion, and the assessee's explanation of possible calibration differences and book adjustments was accepted in the absence of any independent evidence. A finding of clandestine removal cannot rest merely on an auditor's note or on a stock discrepancy unless supported by further corroboration.

Conclusion: The demand, penalty and interest were not sustainable and were set aside in favour of the assessee.

---