Section 11AC penalty requires proof of clandestine removal; mere stock shortage and prompt duty payment were insufficient.

Penalty under Section 11AC of the Central Excise Act was held unsustainable where stock shortage was noticed during verification, the duty demand had been promptly deposited, and the record did not disclose any material showing clandestine removal. On that factual basis, the order setting aside the penalty was found justified, because penal liability under Section 11AC requires an evidentiary foundation of clandestine removal or comparable culpable conduct. The Revenue's appeals were rejected.

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Issues: Whether penalty under Section 11AC of the Central Excise Act, 1944 was sustainable in the absence of material showing clandestine removal.

Analysis: The shortage of finished goods was noticed during stock verification and the duty demand had been deposited promptly. The record did not disclose material indicating clandestine removal of goods. In these circumstances, the order setting aside the penalty was found to be justified.

Conclusion: The penalty under Section 11AC was not sustainable and the Revenue's appeals were rejected.

Ratio Decidendi: Penalty under Section 11AC is not warranted where there is no material showing clandestine removal and the factual basis for penal liability is not established.

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