Clandestine removal requires corroborative evidence; private records and unsupported stock verification cannot sustain duty demands.

Clandestine removal allegations cannot be sustained on private diary entries or statements alone unless supported by tangible corroborative evidence such as buyer or transporter statements, unaccounted raw materials, excess power use, cash flow-back, or proof of actual transport; on these facts, the demand was set aside. Stock shortage demands require a reliable and disclosed stock-taking methodology with supporting documents such as weighment slips and quantification details; unsupported or estimated verification was insufficient, so that demand was also set aside. Where the notice was issued long after the investigation and no material showed suppression or other grounds for special limitation, the extended period could not be invoked and the demand was time-barred.

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Issues: (i) whether the demands raised on the allegation of clandestine manufacture and removal could be sustained on the basis of private diary entries and statements without corroborative evidence; (ii) whether the demands based on stock shortage were sustainable in the absence of reliable stock-taking methodology and supporting documents; (iii) whether the extended period of limitation could be invoked on the facts of the case.

Issue (i): whether the demands raised on the allegation of clandestine manufacture and removal could be sustained on the basis of private diary entries and statements without corroborative evidence

Analysis: The recovered diary and note sheets, by themselves, were not enough to prove clandestine clearance. No statements were recorded from identified buyers, transporters, or other persons connected with the alleged removals. There was no evidence of unaccounted raw materials, excess electricity consumption, cash flow-back, or actual transportation of goods. The only statements relied upon were those of the Director, recorded on different dates without meaningful follow-up investigation. On the established legal standard, clandestine manufacture and removal must be proved by tangible and corroborative evidence, not by suspicion or private records alone.

Conclusion: The demand on the allegation of clandestine removal was not sustainable and was set aside in favour of the assessee.

Issue (ii): whether the demands based on stock shortage were sustainable in the absence of reliable stock-taking methodology and supporting documents

Analysis: The stock verification report was not supported by weighment slips, quantification details, or a disclosed method of stock taking. The record did not establish that the shortage was actual rather than notional. In a case of alleged shortage, the Revenue must show a reliable and verifiable basis for the quantity adopted, and mere estimation or unsupported verification is insufficient to confirm duty liability.

Conclusion: The demand based on alleged stock shortage was not sustainable and was set aside in favour of the assessee.

Issue (iii): whether the extended period of limitation could be invoked on the facts of the case

Analysis: The investigation commenced in July 2008, but the show cause notice was issued only in March 2011. No adequate intervening investigation was shown to justify the delay, and the facts relied upon for demand were already within the Department's knowledge at the time of search and verification. In these circumstances, the ingredients necessary for invocation of the extended period were not established.

Conclusion: The extended period of limitation was not invocable and the demand was time-barred.

Final Conclusion: The impugned demands and penalty were unsustainable both on merits and on limitation, and the appeals were allowed with consequential relief as permissible in law.

Ratio Decidendi: A charge of clandestine removal or stock shortage can be sustained only on positive, cogent, and corroborative evidence, and not on private records or unsupported verification alone; where the Department fails to discharge that burden and delays issuance of the notice without justification, the extended period of limitation cannot be invoked.

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