Clandestine removal cannot rest on estimated production alone, but failure to keep statutory records can still justify penalty.

Estimated production based on electricity consumption, without seizure of goods, private records, or other direct evidence of clandestine removal, was held insufficient to sustain a duty demand; the demand on suppressed production was therefore set aside. Failure to maintain proper statutory records of finished goods and raw materials, coupled with an unsatisfactory explanation for discrepancies and shortages, was nevertheless treated as proved, and penalty was sustained as reasonable. The document thus states that clandestine removal cannot be inferred from stock discrepancies or estimated output alone, but non-maintenance of true and proper accounts can independently attract penalty.

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Issues: (i) Whether the demand of duty based on estimated production worked out from electricity consumption could be sustained in the absence of documentary proof of clandestine removal; (ii) Whether penalty was imposable for non-maintenance of proper statutory records.

Issue (i): Whether the demand of duty based on estimated production worked out from electricity consumption could be sustained in the absence of documentary proof of clandestine removal.

Analysis: The statutory records were found to be irregular and the production was estimated on the basis of power consumption, but the record did not contain seizure of goods in transit, private records, or other direct material showing removal of the estimated goods without payment of duty. Mere discrepancies in stock or record-keeping, and an estimate of normal production, were held insufficient by themselves to conclusively establish clandestine removal.

Conclusion: The demand of duty on the estimated suppressed production was not sustainable and was set aside in favour of the assessee.

Issue (ii): Whether penalty was imposable for non-maintenance of proper statutory records.

Analysis: The records of finished goods and raw materials were not maintained for the relevant period, and the explanation offered for the discrepancies and shortages was found unsatisfactory. The Tribunal treated the failure to maintain true and proper accounts as proved, even though the duty demand on estimated production could not be sustained.

Conclusion: Penalty was held to be imposable and the quantum was found reasonable against the assessee.

Final Conclusion: The duty demand was annulled, but the penalty for incorrect maintenance of statutory records was sustained, so the appeal succeeded only in part.

Ratio Decidendi: Clandestine removal and duty liability cannot be confirmed merely from estimated production or stock discrepancies unless supported by documentary or comparable reliable evidence; however, proven failure to maintain statutory records can justify penalty.

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