Cenvat shortage penalties need corroborative evidence and the specific input-contravention rule cannot be replaced by a general penalty provision.

Penalty under Section 11AC of the Central Excise Act could not be sustained for shortage of finished goods without corroborative evidence of clandestine removal, even though the duty demand on the admitted shortage was upheld. For shortage of Modvat inputs, Rule 57I was treated as the specific self-contained provision, so penalty could not be imposed under the general penal rule in Rule 173Q where the notice did not allege the appropriate contravention or propose penalty under the governing rule. The result was curtailment of the penal consequences, with the input-related penalty deleted and the remaining penalty restricted.

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Issues: (i) whether penalty was sustainable in respect of the shortage of finished goods and whether Section 11AC of the Central Excise Act, 1944 could be invoked in the absence of corroborative evidence beyond the admission of shortage; (ii) whether penalty could be imposed for shortage of inputs under Rule 173Q of the Central Excise Rules, 1944 when Rule 57I of the Central Excise Rules, 1944 specifically governed such contravention.

Issue (i): whether penalty was sustainable in respect of the shortage of finished goods and whether Section 11AC of the Central Excise Act, 1944 could be invoked in the absence of corroborative evidence beyond the admission of shortage.

Analysis: The duty demand on the finished goods shortage was upheld because the shortage stood admitted and the panchnama was not challenged. However, for penalty, mere admission of shortage and an assertion of removal without payment of duty was held insufficient by itself to establish the ingredients of Section 11AC. In the absence of corroborative evidence of clandestine removal, the penal provision under Section 11AC was not attracted. The show cause notice also proceeded on Rule 9(2) read with Section 11A(1), while the notice did not propose penalty under Rule 9(2), though contraventions of other excise rules were alleged.

Conclusion: Duty on the finished goods shortage was confirmed, but penalty under Section 11AC was not sustainable; penalty was confined to Rule 173Q for the alleged rule contraventions, and the original penalty stood liable to reduction.

Issue (ii): whether penalty could be imposed for shortage of inputs under Rule 173Q of the Central Excise Rules, 1944 when Rule 57I of the Central Excise Rules, 1944 specifically governed such contravention.

Analysis: Rule 57I was treated as a self-contained provision for dealing with contraventions relating to Modvat inputs. The show cause notice did not specifically allege violation of the Modvat credit rules for the input shortage, nor did it propose penalty under Rule 57I. In those circumstances, importing Rule 173Q to sustain penalty for the shortage of inputs was held impermissible.

Conclusion: Penalty for the shortage of inputs was not sustainable under Rule 173Q, and that part of the penalty was set aside.

Final Conclusion: The duty demand was sustained, but the penal consequences were curtailed by deleting the penalty relating to inputs and by restricting the remaining penalty to a nominal amount under Rule 173Q.

Ratio Decidendi: A penalty for shortage-based excise liability cannot be sustained under Section 11AC without corroborative evidence of clandestine removal, and where a specific self-contained penal provision governs input contraventions, penalty cannot be imposed under a general penal rule in its place.

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