Unexplained stock shortage can trigger Section 11AC penalty even when duty is paid after detection.

Unexplained shortage of finished goods found on stock verification was treated as indicating removal without payment of duty, bringing penalty under Section 11AC of the Central Excise Act, 1944 into play. Subsequent payment of duty after detection did not displace the penalty basis on the facts recorded, and the provisions relating to short levy and payment before notice were treated as inapplicable to erase the established liability. The commentary therefore presents Section 11AC penalty as sustainable where shortage remains unexplained and the assessee offers no satisfactory account at inspection.

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Issues: Whether penalty under Section 11AC of the Central Excise Act, 1944 was leviable where a shortage of finished goods was found during stock verification and no satisfactory explanation was offered, notwithstanding subsequent payment of duty.

Analysis: The recorded shortage of finished goods remained unexplained at the time of inspection. The conduct of the assessee was treated as an admission that the goods found short had been removed without payment of duty. In such circumstances, the case was held to attract the penal consequence under Section 11AC of the Central Excise Act, 1944, and the plea based on post-detection payment of duty did not displace the liability. The reasoning also treated the provisions governing short levy and payment before notice as inapplicable to erase the established penalty foundation on the facts found.

Conclusion: Penalty under Section 11AC was held to be correctly imposed and the assessee's challenge failed.

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