Section 11AC penalty requires proof of clandestine removal; shortage alone was insufficient and the penalty was set aside.

Penalty under Section 11AC of the Central Excise Act was held unsustainable where stock verification showed shortage of inputs, duty had been paid, and the record contained no material to establish clandestine removal. The shortage was accepted but no explanation was given for it; however, absence of proof of suppression or clandestine removal meant the statutory ingredients for penalty were not satisfied. The duty demand was upheld, but the penalty was set aside.

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Issues: Whether penalty under Section 11AC of the Central Excise Act, 1944 was leviable where shortage of inputs was detected on stock verification, duty was paid, and there was no material to show clandestine removal.

Analysis: The shortage was accepted by the assessee, but no reasons were furnished for the shortage. At the same time, the record did not contain material to establish clandestine removal of goods. In the absence of such material, the ingredients necessary to sustain penalty under Section 11AC were not made out.

Conclusion: Penalty under Section 11AC was not justified and was set aside, while the duty demand was upheld.

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