Duty demand on stock shortage sustained, but Section 11AC penalty denied absent evidence of clandestine removal.

Duty demand on shortage detected during stock verification was sustained where the duty had been voluntarily deposited on the date of detection and no material showed payment under protest, so appropriation of the deposited amount was justified. Penalty under Section 11AC of the Central Excise Act, 1944 was not attracted because there was no evidence of clandestine removal or comparable culpable conduct. Confiscation of excess goods was upheld because the goods were not properly entered in statutory records under Rule 10 of the Central Excise Rules, 2002, but the original penalty and redemption fine were reduced and substituted by a lesser penalty under Rule 27.

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Issues: (i) Whether duty demand on shortage of goods, where duty was voluntarily deposited and not shown to have been paid under protest, was sustainable; (ii) whether penalty under Section 11AC of the Central Excise Act, 1944 and confiscation/penalty in relation to excess goods and non-maintenance of records were justified.

Issue (i): Whether duty demand on shortage of goods, where duty was voluntarily deposited and not shown to have been paid under protest, was sustainable.

Analysis: The shortage was detected during stock verification and the duty amount had been deposited by the appellant on the date of detection. There was no material to show that the payment was made under protest. In these circumstances, appropriation of the deposited duty was justified and the challenge to the duty demand on shortage could not succeed.

Conclusion: The duty demand on shortage was upheld, and the appropriation of the deposited amount was sustained.

Issue (ii): Whether penalty under Section 11AC of the Central Excise Act, 1944 and confiscation/penalty in relation to excess goods and non-maintenance of records were justified.

Analysis: No material was available to establish clandestine removal, so the mandatory penalty provision under Section 11AC of the Central Excise Act, 1944 was not attracted. As regards excess goods, the appellant had failed to maintain statutory records properly under Rule 10 of the Central Excise Rules, 2002, and confiscation of goods not entered in RG-1 was held to be justified. However, the original penalty was considered excessive and was substituted by a lesser penalty under Rule 27 of the Central Excise Rules, 2002, with a corresponding reduction in redemption fine.

Conclusion: Penalty under Section 11AC of the Central Excise Act, 1944 was set aside, confiscation of excess goods was sustained, and a reduced penalty and redemption fine were imposed.

Final Conclusion: The appeal succeeded only in part, with the major penalty under Section 11AC being removed while the duty appropriation and confiscation-related relief were substantially maintained in modified form.

Ratio Decidendi: Section 11AC penalty requires evidence of clandestine removal or comparable culpable conduct, while unauthorized excess stock and failure to maintain statutory records can justify confiscation and a reduced penalty under the applicable rules.

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