Stock shortage duty demands fail without proof of clandestine removal, and natural loss cannot be disallowed on conjecture.

Duty on stock shortages of inputs held under Rule 56A could not be demanded without evidence of clandestine removal or unauthorised clearance. The record contained no proof that the goods were cleared without payment of duty, and a demand based only on assumptions and conjecture was rejected. Shortages explained by handling, leakage, and storage loss were treated as natural loss in the circumstances, so they could not be disallowed merely because the loss was disputed. On that basis, the duty demand on the alleged shortages was held not justified and the order in favour of the respondent was upheld.

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Issues: Whether duty could be demanded on stock shortages of inputs held under Rule 56A of the Central Excise Rules, 1944 on the basis that the goods were cleared without payment of duty, and whether the shortages could be rejected as not constituting natural loss under Rule 223A of the Central Excise Rules, 1944.

Analysis: The record did not contain evidence to support an inference that the respondent had cleared the inputs without payment of duty or in a clandestine manner. A demand resting only on assumptions and conjectures could not be sustained when the shortages were otherwise explained as arising from handling, leakage, and storage loss. The view that the shortages were not a natural loss was also not accepted, as the loss claimed was treated as within the category of loss attributable to natural causes in the circumstances of the case.

Conclusion: The demand of duty on the alleged shortages was not justified, and the order in favour of the respondent was upheld.

Ratio Decidendi: A demand for duty on stock shortages cannot be sustained in the absence of evidence of clandestine removal or unauthorised clearance, and shortages attributable to natural loss cannot be disallowed merely on conjecture.

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