Stock shortage in excise matters supports duty only on verified quantity; penalty fails without proof of clandestine removal

Shortage of finished goods found during physical stock verification can support central excise duty only to the extent of the quantity actually found short, and not on any enhanced or formula-based computation. Where no further investigation proves clandestine removal or intent to evade duty, the penal consequence cannot be sustained. Duty was therefore confined to the stock shortage established by verification, while the penalty was set aside.

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Issues: Whether the demand of central excise duty and the penalty could be sustained on account of shortage of finished goods noticed during physical stock taking, and whether the shortage established clandestine removal.

Analysis: The shortage was noticed during physical verification, but no further investigation established actual clandestine removal. The recorded shortage could justify duty only to the extent of the quantity found short in the stock verification and not on an enhanced or formula-based figure. Since the department did not prove intent to evade duty by evidence, the penal consequence under the provisions invoked could not be sustained.

Conclusion: The duty demand was upheld only to the extent of 102.476 MTs found short during stock taking, and the penalty was set aside.

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