Clandestine removal requires tangible corroborative evidence; estimated stock discrepancies alone cannot sustain excise duty, extended limitation, or penalties.

Estimated stock variations and discrepancies between statutory records and physical stock cannot establish clandestine manufacture or removal where production records are yield-based and physical verification relies on volumetric or eye estimation. Excise-duty liability requires tangible corroborative evidence, such as actual weighment, unaccounted manufacture, transport, buyers, sale proceeds, or excess raw-material or electricity consumption. In the absence of such evidence, the duty demand based on alleged shortages is unsustainable. The extended limitation period also cannot apply without mala fides, suppression, or intent to evade duty; consequently, interest and penalty cannot survive when the principal demand fails.

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Issues: (i) Whether the alleged shortage determined from estimated stock-taking and discrepancies between statutory records and physical stock established clandestine manufacture and removal without payment of duty; (ii) Whether the extended period of limitation, interest and penalty could be sustained.

Issue (i): Whether the alleged shortage determined from estimated stock-taking and discrepancies between statutory records and physical stock established clandestine manufacture and removal without payment of duty.

Analysis: Production of pig iron was recorded using yield-based conversion ratios because no post-production weighment system was available, while physical stock-taking was conducted by volumetric or eye estimation. Both methods were inherently approximate and could generate discrepancies. The Revenue produced no actual weighment report or independent evidence of unaccounted manufacture, removal, transport, purchasers, sale proceeds, excess raw-material consumption, or excess electricity consumption. A stock discrepancy based solely on estimation cannot establish clandestine removal.

Conclusion: The charge of clandestine manufacture and removal was not proved; the duty demand based on the alleged shortages was unsustainable, in favour of the assessee.

Issue (ii): Whether the extended period of limitation, interest and penalty could be sustained.

Analysis: The show cause notice invoked the extended period for the relevant period, but the Revenue established no mala fides, suppression, or intent to evade duty. The assessee's public-sector character and disclosure of the stock discrepancy further negated the basis for invoking the extended period. As the principal demand failed, penalty could not survive.

Conclusion: The extended-period demand was unsustainable and the penalty was liable to be set aside, in favour of the assessee.

Final Conclusion: Estimated stock variations and record discrepancies, without tangible corroborative evidence of illicit manufacture and clearance, cannot support an excise-duty liability or its penal consequences.

Ratio Decidendi: Clandestine removal cannot be inferred solely from estimated stock shortages or discrepancies in production and stock records; it requires tangible and corroborative evidence of unaccounted manufacture and clearance.

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