Stock verification shortage can sustain excise duty demand, but penalty may fail without proof of clandestine removal

Duty on shortage of molasses detected during stock verification was sustained because the corrigendum to the show cause notice was treated as received, the plea of non-receipt failed, no remission application had been filed, and the assessee could not rely on delay in adjudication to defeat the demand or record-keeping obligations. Penalty under Rule 173Q was set aside because, although shortage was found, there was no evidence of clandestine removal and the long delay in proceedings made penal action unwarranted. The result was partial relief: the excise duty demand remained payable, but the penalty was removed.

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Issues: (i) whether the demand of duty on shortage of molasses found during stock verification was barred by limitation or otherwise unsustainable, and (ii) whether penalty under Rule 173Q was justified.

Issue (i): Whether the demand of duty on shortage of molasses found during stock verification was barred by limitation or otherwise unsustainable.

Analysis: The corrigendum to the show cause notice was held to have been received by the assessee, and the plea of non-receipt of the notice was rejected. The shortage was detected by Central Excise officers during stock verification, and no application for remission of duty had been filed. The assessee was also found not entitled to rely on the delay in adjudication to avoid maintaining records or to invalidate the demand.

Conclusion: The demand of duty was upheld and the plea that it was barred by limitation was rejected.

Issue (ii): Whether penalty under Rule 173Q was justified.

Analysis: The shortage was detected on stock verification, but there was no evidence of clandestine removal of goods. The proceedings had suffered from a long delay, and in those circumstances the imposition of penalty was held to be unwarranted.

Conclusion: The penalty was set aside.

Final Conclusion: The duty demand was sustained, but the penal consequence was removed, resulting in only partial relief to the assessee.

Ratio Decidendi: Where shortage is detected during stock verification and there is no proof of clandestine removal, duty liability may be sustained while penalty can be denied if the circumstances do not justify penal action.

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