Penalty for stock shortage requires proof of clandestine removal or intent to evade duty; mere shortage is insufficient.

Penalty under Rule 13 of the Cenvat Credit Rules, 2002 read with Rule 25 of the Central Excise Rules, 2002 and Section 11AC of the Central Excise Act, 1944 was held unsustainable where only shortage of inputs was found on stock verification and the duty was debited the same day. In the absence of corroborative material showing clandestine removal, fraud, collusion, wilful misstatement, suppression of facts, or any intent to evade duty, mere shortage could not justify the penal provision. The penalty was therefore set aside in favour of the assessee.

---

---

Issues: Whether penalty under Rule 13 of the Cenvat Credit Rules, 2002 read with Rule 25 of the Central Excise Rules, 2002 and Section 11AC of the Central Excise Act, 1944 was sustainable in the absence of evidence of clandestine removal, where shortage of inputs was found on stock verification and duty was paid immediately.

Analysis: Shortage of inputs was noticed during verification, but the explanation for the shortage was given and the duty was debited on the same day. No corroborative material was produced to establish clandestine removal of inputs. Penalty under Section 11AC is attracted only where duty is not paid by reason of fraud, collusion, wilful misstatement, suppression of facts, or similar intent to evade duty. Mere shortage, without supporting evidence of clandestine clearance or other incriminating records, is insufficient to invoke the penal provision.

Conclusion: The penalty was not sustainable and was rightly set aside, in favour of the assessee.

Ratio Decidendi: Penalty under Section 11AC of the Central Excise Act, 1944 cannot be imposed unless the Department establishes fraud, collusion, wilful suppression, or intent to evade duty by cogent evidence; mere stock shortage without corroboration does not establish clandestine removal.

---