Stock shortage and DTA clearance duty must be proved and computed under the correct period-specific excise provision.

An alleged stock shortage cannot support a duty demand where the assessee promptly explains that only one godown was verified, stock existed in another godown, and there is no corroborative evidence of clandestine removal. For clearances of socks to the Domestic Tariff Area, the applicable levy depends on the relevant period: clearances before 14-5-2001 fall under the main provision, while post-amendment DTA clearances without permission attract the proviso to Section 3(1) of the Central Excise Act, 1944. Duty on the liable clearances is to be worked out on a cum-duty basis. Corresponding penalties must be modified in line with the reduced duty liability.

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Issues: (i) Whether the duty demand based on alleged shortage of socks found during stock verification was sustainable. (ii) Whether duty on clearances of socks to the Domestic Tariff Area was to be computed under the proviso to Section 3(1) of the Central Excise Act, 1944 and, if so, to what extent. (iii) Whether the penalties imposed on the unit and its Managing Director required modification.

Issue (i): Whether the duty demand based on alleged shortage of socks found during stock verification was sustainable.

Analysis: The shortage was not established on the facts, because the department had been informed immediately that only one godown had been verified and that stock existed in another godown. The claimed exports were also relevant to the stock position. Since the department did not verify the explanation and there was no corroborative evidence of removal, the allegation of shortage could not be sustained.

Conclusion: The duty demand based on alleged shortage was set aside, in favour of the assessee.

Issue (ii): Whether duty on clearances of socks to the Domestic Tariff Area was to be computed under the proviso to Section 3(1) of the Central Excise Act, 1944 and, if so, to what extent.

Analysis: For the period prior to the amendment effective from 14-5-2001, the main Section 3(1) applied. After that date, clearances into the Domestic Tariff Area without permission attracted the proviso to Section 3(1). On the figures accepted from the show-cause notice, only 22,286 dozen pairs remained liable after the amendment, and the duty had to be worked out on a cum-duty basis.

Conclusion: Duty was confined to the post-amendment clearances, and the liability was reduced to Rs. 1,76,728, in favour of the assessee.

Issue (iii): Whether the penalties imposed on the unit and its Managing Director required modification.

Analysis: Since the duty demand was reduced substantially, the penalty under Section 11AC had to be limited to the reduced duty amount. The finding of liability of the Managing Director was maintained, but the quantum of penalty under Rule 209A was reduced having regard to the reduced duty evasion.

Conclusion: The penalty on the unit was restricted to Rs. 1,76,728, and the penalty on the Managing Director was reduced to Rs. 20,000, in favour of the assessee in part.

Final Conclusion: The demand founded on alleged shortage was deleted, the duty on DTA clearances was substantially reduced on correct statutory computation, and the connected penalties were correspondingly modified.

Ratio Decidendi: Where an alleged shortage is not corroborated after the assessee promptly explains the stock position, clandestine removal cannot be inferred; and for DTA clearances, duty must be computed under the provision applicable to the relevant period, with cum-duty adjustment where warranted.

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