Clandestine removal demands corroborated evidence; estimated shortages, unverified seized papers and penalty without notice are insufficient.

Proof of clandestine removal requires reliable, corroborated evidence; alleged stock shortages based only on estimation and a retracted statement are insufficient. Seized pocket ledgers and loose papers cannot be treated as the complete account of an assessee unless their connection with business transactions is established and the entries are independently corroborated. Where the department fails to prove shortages and unaccounted removals, the basis for duty demand and extended limitation also falls away. Penal liability cannot be sustained without proper notice proposing such penalty.

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Issues: (i) Whether the alleged shortage of steel ingots and runners and risers was established on the evidence; (ii) whether the seized pocket ledgers and loose papers could be treated as the complete account of M/s. Surendra Alloys so as to sustain the charge of clandestine manufacture and removal; (iii) whether the duty demand and penalties could be sustained.

Issue (i): Whether the alleged shortage of steel ingots and runners and risers was established on the evidence.

Analysis: There was no physical verification supporting the alleged shortage. The panch witness did not speak of any meaningful verification, the shortage was based only on estimation, and the statement relied upon by the department was retracted at the earliest opportunity. In the absence of corroborative evidence, the alleged shortage was not satisfactorily proved.

Conclusion: The alleged shortage was not established.

Issue (ii): Whether the seized pocket ledgers and loose papers could be treated as the complete account of M/s. Surendra Alloys so as to sustain the charge of clandestine manufacture and removal.

Analysis: The records seized from the premises were not shown to relate entirely to the assessee's business. The material on record indicated that the entries also included personal and commission transactions of the partner, and the department did not satisfactorily corroborate the alleged unaccounted purchases and removals from independent evidence. The statutory records were also not properly adjusted before making the demand.

Conclusion: The seized documents could not be treated as conclusive proof of clandestine removal.

Issue (iii): Whether the duty demand and penalties could be sustained.

Analysis: Since the department failed to discharge the burden of proving shortages and clandestine removal, the foundation for invoking the extended period and confirming the demand fell away. The penalties on the directors were also unsustainable in the absence of notice proposing such penalty.

Conclusion: The duty demand and penalties were unsustainable.

Final Conclusion: The impugned order was set aside and the appeals succeeded with consequential relief.

Ratio Decidendi: A duty demand for clandestine removal cannot stand unless the department proves the charge with reliable and corroborated evidence, and penal liability cannot be imposed without notice.

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