Unexplained shortage of inputs sustained duty demand, and a mistaken section reference did not vitiate penalty notice.

Unexplained shortage of modvatable inputs reflected in statutory records was treated as sufficient to sustain duty liability, particularly where the appellant's partner could not explain the deficiency at verification and accepted it in statement. The challenge to the verification process failed because no contemporaneous objection or re-verification request was made. A penalty notice was also held valid where it clearly proposed penalty equal to duty and the wrong section number was treated as a typing error, causing no prejudice. The confirmed duty and penalty were sustained.

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Issues: (i) Whether the duty demand based on shortage of raw materials/inputs found on verification was sustainable; (ii) Whether penalty could be imposed when the show cause notice mentioned Section 11A instead of Section 11AC.

Issue (i): Whether the duty demand based on shortage of raw materials/inputs found on verification was sustainable.

Analysis: The statutory records showed purchase of modvatable inputs in excess of the finished goods and scrap accounted for during the relevant period, and even after allowing burning loss, a substantial shortage remained. The partner of the appellant was unable to explain the shortage at the spot and accepted it in his statement. The challenge to the manner of verification was rejected because no contemporaneous objection was raised at the time of checking or re-verification sought. On shortage of inputs against which credit had been availed, duty liability followed.

Conclusion: The duty demand was upheld against the assessee.

Issue (ii): Whether penalty could be imposed when the show cause notice mentioned Section 11A instead of Section 11AC.

Analysis: The notice clearly proposed imposition of penalty equal to the duty amount, and the reference to Section 11A instead of Section 11AC was treated as a typing error. Rule 57-I was correctly mentioned, and the notice was held not to have caused surprise or prejudice to the appellant.

Conclusion: The penalty was held valid and sustainable against the assessee.

Final Conclusion: The impugned order confirming duty and penalty was sustained, and the appeal was dismissed.

Ratio Decidendi: Where shortage of inputs reflected in statutory records remains unexplained, duty demand is sustainable; and a penalty notice is not vitiated merely because the wrong section number is typed, if the notice otherwise clearly conveys the proposed penal consequence.

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