Mandatory penalty under excise law not sustained without evidence of clandestine removal; lesser penalty applied for account irregularities.

Mere shortage of finished goods and admitted duty liability did not by themselves satisfy the ingredients for mandatory penalty under Section 11AC of the Central Excise Act, 1944 where the record contained no evidence of clandestine removal. In the absence of show-cause notice material establishing clandestine removal, the mandatory penalty provision could not be sustained in its original form. However, the admitted irregularity in maintenance of accounts justified a lesser penal consequence, so the penalty was converted to one under Rule 25(1)(b) of the Central Excise Rules, 2002 with reduced monetary liability.

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Issues: Whether penalty under Section 11AC of the Central Excise Act, 1944 was justified where shortage of finished goods was admitted, duty was paid, and there was no evidence of clandestine removal.

Analysis: The shortage of goods and duty liability were not disputed, but the record did not contain evidence of clandestine removal. Mere shortage and admission of irregular maintenance of accounts did not by themselves establish the ingredients required for invoking mandatory penalty under Section 11AC. In the absence of evidence relied upon in the show cause notice to show clandestine removal, the mandatory penalty provision could not be sustained in its original form. At the same time, the admitted irregularity in maintenance of accounts justified a lesser penal consequence.

Conclusion: Penalty under Section 11AC was not sustainable as such and was converted into a penalty under Rule 25(1)(b) of the Central Excise Rules, 2002 with reduction to Rs. 5,000.

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