Clandestine removal inferred from stock shortage supports duty demand and extended limitation under Central Excise law.

Shortage of finished goods found during physical verification, recorded size-wise in the panchnama and extending beyond mere weight variance to actual missing quantity, was treated as supporting an inference of clandestine removal; on that basis, duty demand was upheld. A tolerance margin may apply to weight, but not to the physical number of goods found short. The show cause notice specifically alleging clandestine removal also supported invocation of the extended limitation period under the proviso to Section 11A(1) of the Central Excise Act. Penalty was not sustained at the original level and was reduced in light of the facts and circumstances.

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Issues: (i) Whether the shortage of finished goods noticed on physical verification justified confirmation of duty on the footing of clandestine removal. (ii) Whether the extended period of limitation was invocable and the penalty required interference.

Issue (i): Whether the shortage of finished goods noticed on physical verification justified confirmation of duty on the footing of clandestine removal.

Analysis: The stock verification was recorded size-wise in the panchnama and the shortage was found not merely in weight but also in number of pipes. A tolerance limit can apply to weight, not to the actual quantity found short. Once the goods were not found in the factory premises, the shortage supported the inference that they had been removed without payment of duty. In a case of clandestine removal, direct proof of the buyer is not always available.

Conclusion: The demand of duty was upheld and the finding of clandestine removal was sustained.

Issue (ii): Whether the extended period of limitation was invocable and the penalty required interference.

Analysis: The show cause notice specifically alleged clandestine removal of goods found short, thereby attracting the ingredients of the proviso to Section 11A(1) of the Central Excise Act. The earlier finding that the goods were short supported invocation of the extended period. However, considering the facts and circumstances, the penalty did not require to be sustained at the higher amount originally imposed.

Conclusion: The extended period of limitation was held invocable, but the penalty was reduced to Rs. one lakh.

Final Conclusion: The appeal succeeded only to the limited extent of reduction of penalty, while the duty demand and the finding on limitation were maintained.

Ratio Decidendi: Shortage of finished goods on verified stock, coupled with a specific allegation of clandestine removal in the show cause notice, can justify confirmation of duty and invocation of the extended limitation period under the Central Excise law.

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