Mere stock shortage without proof of clandestine removal cannot sustain enhanced penalty under excise law.

Mere shortage of finished goods, where the assessee attributed the discrepancy to a faulty accounting method and the record showed no evidence of clandestine removal, does not justify penalty under Section 11AC of the Central Excise Act, 1944. The adjudicating authority treated the matter as shortage simplicitor rather than clandestine manufacture or removal, and that factual basis did not support invocation of the enhanced penalty. The Commissioner (Appeals) therefore erred in sustaining the enhancement, and the penalty was set aside, granting relief to the assessee.

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Issues: Whether penalty under Section 11AC of the Central Excise Act, 1944 was sustainable where shortage of finished goods was found, but the shortage was admitted to have arisen from the assessee's accounting method and there was no evidence of clandestine removal.

Analysis: The shortage of finished goods was accepted by the assessee and the adjudicating authority had also treated the matter as one arising from a faulty accounting method rather than clandestine manufacture or removal. The record disclosed no material to establish clandestine removal, and the situation was treated as a case of shortage simplicitor. In such circumstances, the enhanced penalty imposed on the premise that the shortage justified invocation of Section 11AC was not supportable.

Conclusion: The penalty under Section 11AC was not warranted and the enhancement ordered by the Commissioner (Appeals) was set aside.

Final Conclusion: The appeal succeeded and the assessee obtained relief against the enhanced penalty.

Ratio Decidendi: Mere shortage of finished goods, without evidence of clandestine removal or equivalent culpable conduct, does not justify penalty under Section 11AC of the Central Excise Act, 1944.

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