Section 11AC penalty requires proof of clandestine removal; stock shortage alone and mere suspicion were insufficient here.

Penalty under Section 11AC of the Central Excise Act was held not leviable where stock shortage alone created suspicion but clandestine removal was not proved by material evidence. The absence of any confessional statement admitting unrecorded clearance, together with no corroborative investigation or seizure showing duty-evaded removal, meant the statutory ingredients for penalty were not satisfied. The Tribunal therefore treated suspicion as insufficient to replace proof and upheld deletion of the penalty in favour of the assessee.

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Issues: Whether penalty under Section 11AC of the Central Excise Act, 1944 was payable where stock shortage was noticed but clandestine removal was not established by material evidence.

Analysis: The applicability of Section 11AC depends on the existence of the statutory conditions attracting that provision. The fact that shortages were found in stock could create suspicion, but suspicion by itself cannot substitute proof. There was no confessional statement admitting clandestine clearance of the shortage, nor any corroborative investigation or seizure showing that the goods were removed without payment of duty. In the absence of evidence establishing clandestine removal, the ingredients of Section 11AC were not satisfied, even in the light of the principles stated in the Supreme Court decisions relied upon by the Tribunal.

Conclusion: Penalty under Section 11AC was not leviable and was rightly set aside in favour of the assessee.

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