Statutory input shortages justify excise duty demand where manufacturing loss does not explain unaccounted stock

Shortages of inputs already received and recorded in statutory excise registers cannot be explained by a general plea of processing loss during manufacture. Where the assessee fails to give a plausible account for such shortages, duty remains recoverable and the demand is sustainable. On the same factual footing, penalty is also justified, although the amount may be reduced if the original quantum is considered excessive. The commentary thus states that unaccounted input shortages attract duty liability, and that penalty relief may be limited to moderation of the amount rather than deletion.

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Issues: (i) Whether duty was recoverable on shortages of inputs found in the assessees records and stock, despite the plea of processing loss during manufacture; (ii) Whether the penalty imposed under the Central Excise law required interference.

Issue (i): Whether duty was recoverable on shortages of inputs found in the assessees records and stock, despite the plea of processing loss during manufacture.

Analysis: The shortage related to inputs received, recorded in RG-23A Part-I and credit availed in RG-23A Part-II. A plea of loss during manufacture was not relevant to explain shortage of inputs already received and accounted for in the statutory records. The proprietor had also ed the shortages in statements and agreed to pay duty. In the absence of any plausible explanation for the shortage, the demand of duty was sustainable.

Conclusion: The duty demand was upheld in favour of Revenue.

Issue (ii): Whether the penalty imposed under the Central Excise law required interference.

Analysis: Since the shortage stood established and the demand of duty was restored, penalty was warranted. However, on the facts and circumstances, the quantum of penalty was considered excessive and was reduced.

Conclusion: The penalty was sustained but reduced to Rs. 50,000.

Final Conclusion: The demand of duty was restored, while the penalty was scaled down to a lesser amount, resulting in only partial relief to the respondent.

Ratio Decidendi: Shortage of inputs already received and entered in statutory records cannot be explained by alleging manufacturing loss, and duty is recoverable where the assessee fails to account for the shortage satisfactorily.

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