Penalty under Section 11AC requires proof of intent to evade duty; mere shortage of goods is insufficient.

Penalty under Section 11AC of the Central Excise Act was held unsustainable because the statutory preconditions of fraud, collusion, wilful misstatement, suppression of facts, or contravention with intent to evade duty were not established. The record showed only a shortage of finished goods, with no material linking that shortage to clandestine removal or deliberate duty evasion; on that basis, mere shortage was insufficient to justify penalty and the appeal failed.

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Issues: Whether penalty under Section 11AC of the Central Excise Act, 1944 and the connected rules could be sustained in the absence of material to support clandestine removal and intent to evade duty.

Analysis: The appeal concerned the Tribunal's deletion of penalty where the factual finding was that there was no evidence to support clandestine removal and only a shortage of finished goods was noticed. Section 11AC fastens penalty only where duty short-payment or non-payment occurs by reason of fraud, collusion, wilful misstatement, suppression of facts, or contravention with intent to evade duty, and the penalty is attracted only when the statutory preconditions are satisfied. In the absence of evidence linking the shortage to clandestine removal or deliberate evasion, the mere shortage of finished goods was held insufficient to infer duty evasion and impose penalty.

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

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