Mere shortage of cenvated input cannot trigger mandatory penalty without independent evidence of clandestine removal.

Mere shortage of cenvated input does not, by itself, justify mandatory penalty under Section 11AC of the Central Excise Act when the Cenvat credit has been reversed and there is no independent evidence of clandestine removal. The record showed that the shortage of base oil was the only basis for penalty, but no additional circumstances established that the input had been clandestinely cleared. In these circumstances, penalty was not imposable, and the challenge to the order declining penalty failed.

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Issues: Whether penalty under Section 11AC of the Central Excise Act was warranted on the basis of shortage of cenvated input, where the Cenvat credit had been reversed and there was no independent evidence of clandestine removal.

Analysis: The shortage of base oil was the only material relied upon for invoking penalty. Although the shortage was initially admitted and the credit was reversed, the record did not disclose any further evidence that the input had been clandestinely cleared. In the absence of such additional circumstances, the case did not justify mandatory penalty under Section 11AC.

Conclusion: Penalty under Section 11AC was not imposable. The Revenue's challenge to the order declining penalty failed.

Ratio Decidendi: Mere shortage of cenvated input, without independent evidence of clandestine removal, does not by itself warrant mandatory penalty under Section 11AC where the credit stands reversed.

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