Clandestine removal demands need corroborative evidence; theoretical calculations, eye estimation, and private notes cannot sustain duty liability.

Demands alleging clandestine manufacture and removal were found unsustainable where they rested on theoretical input-output ratios, unauthenticated printouts, diary entries, or eye estimation without tangible corroboration such as transport evidence, buyer statements, excess raw-material proof, or cash trail. Cenvat credit was not denied because receipt and use of the goods in manufacture was established and remained unrebutted. A shortage-based duty demand based only on estimated stock difference was set aside for lack of reliable verification. The consignment-agent issue was remanded for factual verification of duty already paid and cum-duty working. The extended limitation period and penalties were held inapplicable because the department already knew the facts and the substantive demands largely failed.

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Issues: (i) Whether the demands based on theoretical production ratios, batch charges, computer printouts, diary entries and alleged clandestine removals were sustainable without corroborative evidence; (ii) Whether denial of Cenvat credit could stand when receipt and use of the goods was established; (iii) Whether the shortage-based duty demand founded on eye estimation was sustainable; (iv) Whether the consignment-agent related demand required verification and remand; (v) Whether the extended period of limitation and penalties were invocable.

Issue (i): Whether the demands based on theoretical production ratios, batch charges, computer printouts, diary entries and alleged clandestine removals were sustainable without corroborative evidence.

Analysis: The demands founded on assumed input-output ratios, estimated batch production, unauthenticated computer printouts and private diary entries were held to rest only on theoretical calculations and suspicion. The record did not show chemical testing, independent verification, proof of excess raw-material procurement, transport evidence, buyer statements, cash trail, or any other tangible material to establish clandestine manufacture and removal. A charge of clandestine removal requires direct, affirmative and corroborative evidence, and cannot be sustained merely on assumptions, presumptions or private notes.

Conclusion: The demands on these heads were held unsustainable and were set aside in favour of the assessee.

Issue (ii): Whether denial of Cenvat credit could stand when receipt and use of the goods was established.

Analysis: The credit was denied only on the allegation that the invoices did not correspond to receipt of goods in the factory. The assessee maintained that the goods covered by those invoices were actually received and used in the manufacture of dutiable final products, and the Revenue did not rebut that factual assertion with contrary evidence.

Conclusion: The denial of Cenvat credit was not sustained and the demand was dropped in favour of the assessee.

Issue (iii): Whether the shortage-based duty demand founded on eye estimation was sustainable.

Analysis: The alleged shortage was not based on actual stock verification but on eye estimation. In the absence of physical weighment or reliable stock-taking, the quantity difference could not be treated as proved shortage for fastening duty liability.

Conclusion: The shortage-based demand was unsustainable and was set aside in favour of the assessee.

Issue (iv): Whether the consignment-agent related demand required verification and remand.

Analysis: For the demand arising from clearances through the consignment agent, the proper duty liability depended on verification of the realisation and cum-duty working. The record indicated that part of the amount had already been paid, but the exact payable duty required factual verification by the adjudicating authority.

Conclusion: The matter on this limited issue was remanded for verification, and the assessee was granted conditional relief on the basis that no further demand would survive if the duty had already been correctly paid.

Issue (v): Whether the extended period of limitation and penalties were invocable.

Analysis: The department had earlier searched the premises, seized records, and was already aware of the relevant facts. The later show cause notice, issued after a substantial interval, was not supported by the ingredients required for invoking the extended period. Since the substantive demands largely failed and no independent evidence justified the allegations, the penalties also could not survive.

Conclusion: The extended period of limitation was held inapplicable and the penalties were set aside in favour of the assessee.

Final Conclusion: The impugned order was substantially reversed, the bulk of the duty demands and all penalties were set aside, and only the limited consignment-agent issue was sent back for fresh verification.

Ratio Decidendi: A charge of clandestine manufacture and removal must be proved by tangible, corroborative and affirmative evidence, and cannot be sustained on theoretical calculations, assumptions, private writings, or estimations alone.

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