Excise penalty and clandestine removal require proof of wilful evasion, not mere stock shortage or suspicion.

Penalty for alleged stock shortage and clandestine removal could not be sustained where the Revenue failed to prove invoice-based clearances, passing on of Cenvat credit, identification of buyers, destination of goods, or any wilful intent to evade duty. The commentary states that mere physical shortage does not by itself establish a penal contravention, and that excise penalty proceedings are quasi-criminal, so fraud, mens rea, or other culpable conduct must be shown before penalty can be imposed; on that basis, the penalty was held unsustainable and the appeal succeeded.

---

---

Issues: Whether penalty could be imposed for shortage of stock and alleged clandestine removal in the absence of any invoice, evidence of passing on cenvat credit, or proof of wilful intent to evade duty.

Analysis: Physical shortage of stock by itself did not establish a penal contravention. The dealer was not a manufacturer, no invoice had been issued, and there was no material to show that cenvat credit had been passed on or that any buyer had been identified. The Revenue also failed to show the destination of the goods, the manner in which any loss of revenue occurred, or any fraudulent design or guilty intent on the part of the appellant. Since penalty proceedings are quasi-criminal in nature, the necessary elements of wilful evasion and mens rea had to be proved before penalty could be sustained.

Conclusion: The penalty was not sustainable and the appeal succeeded.

Ratio Decidendi: Penalty under the excise law cannot be imposed merely on proof of shortage or suspected irregularity unless the Revenue establishes wilful intent, fraud, or other culpable conduct showing an attempt to evade duty.

---