Clandestine removal and penalty liability remain unaffected by pre-notice duty payment where shortage is admitted and unexplained.

Undisputed shortage of sponge iron, admitted at stock verification, supported penalty under Rule 13 of the Cenvat Credit Rules, 2002 read with Section 11AC of the Central Excise Act, 1944. The explanation of wrong weighment was rejected because no weighing facility or satisfactory supporting material was shown, making the finding of no clandestine removal unsustainable. Pre-notice payment of duty did not, by itself, remove statutory liability to penalty where the ingredients for penalty were otherwise established. The earlier deletion of penalty was therefore set aside and penalty was restored.

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Issues: Whether penalty under Rule 13 of the Cenvat Credit Rules, 2002 read with Section 11AC of the Central Excise Act, 1944 was rightly set aside on the ground that duty on the shortage had been paid before issuance of the show cause notice and that there was no evidence of clandestine removal.

Analysis: The shortage of sponge iron was undisputed and was admitted at the time of stock verification by the authorised signatory. The explanation that the shortage may have resulted from wrong weighment was found unacceptable in the absence of any supporting weighment facility or satisfactory material. On these facts, the finding that there was no evidence of clandestine removal was held to be unsustainable. The pre-notice payment of duty did not, by itself, extinguish the statutory liability to penalty where the ingredients for penalty were otherwise present. The authorities relied upon for deleting penalty were treated as inapplicable in view of the later binding decisions governing mandatory penalty under Section 11AC.

Conclusion: The setting aside of penalty was unsustainable. Penalty under Rule 13 of the Cenvat Credit Rules, 2002 read with Section 11AC of the Central Excise Act, 1944 was restored and the appeal was allowed.

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