Clandestine removal allegations failed where shortage evidence was weak and duty-paid clearances were otherwise corroborated.

Clandestine removal of HR coils was not proved because the alleged shortage rested on inconsistent panchnamas, denial of cross-examination of panch witnesses, and evidence that transport records and buyer verifications broadly matched duty-paid clearances. The discrepancy was accepted as more consistent with an accounting or computer-programming error than unaccounted removal, so the demand of duty and penalties under Section 11AC and Rule 173Q were set aside. Only a limited penalty for incorrect maintenance of books was sustained under Rule 226 of the Central Excise Rules, 1944, reflecting a narrow accounting lapse rather than suppression or evasion.

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Issues: Whether the demand of duty and the penalties could be sustained on the allegation of clandestine removal of HR coils, and whether the evidentiary material established actual shortage and unaccounted clearance.

Analysis: The two panchnamas were treated as materially different in effect, one recording counting of stock and the later one only an inspection, so the alleged shortage could not be safely founded on the second exercise. The rejection of cross-examination of the panch witnesses weakened the factual basis of the shortage finding. The transport contractor records were found to broadly tally with the quantities stated to have moved to the CTL machines. The departmental verification with buyers indicated receipt of HR sheets/plates under central excise invoices on payment of duty, which supported the assessee's explanation that the discrepancy arose from an accounting and computer-programming error rather than clandestine removal. The case against the assessee was held to rest on suspicion and conjecture rather than independent and cogent evidence.

Conclusion: The allegation of clandestine removal was not established, and the demand of duty and the penalties under Section 11AC and Rule 173Q were set aside. Only a limited penalty for incorrect maintenance of books was sustained under Rule 226 of the Central Excise Rules, 1944.

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