Clandestine removal inferred from unexplained stock shortage, restoring penalties on the manufacturer and authorised signatory.

Substantial shortage of finished excisable goods, coupled with no explanation at detection and payment of duty the next day, was treated as sufficient to infer clandestine removal without duty payment. On that basis, the view that there was no evidence of clandestine removal was found unsustainable. Once clandestine removal was inferred, penalty provisions applied to both the manufacturer and its authorised signatory, and penalties under Section 11AC of the Central Excise Act, 1944 and Rule 26 of the Central Excise Rules, 1944 were restored in favour of the Revenue.

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Issues: Whether the shortage of finished excisable goods, coupled with the absence of any explanation and prompt payment of duty, established clandestine removal so as to justify penalty on the assessee company and its authorised signatory.

Analysis: The stock verification revealed a substantial shortage of finished goods. No explanation was offered at the time of detection, and the duty was paid on the next day. These circumstances were treated as sufficient to indicate that the goods found short had been removed clandestinely without payment of duty. The finding of the first appellate authority that there was no evidence of clandestine removal was therefore found unsustainable. Once clandestine removal was inferred, penalty provisions became applicable to both the manufacturer and the authorised signatory.

Conclusion: Penalty under Section 11AC of the Central Excise Act, 1944 and penalty on the authorised signatory under Rule 26 of the Central Excise Rules, 1944 were held to be attracted, and the setting aside of penalties was reversed in favour of the Revenue.

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