Shortage of inputs without proof of clandestine removal may still sustain duty and penalty where the explanation is unsubstantiated.

Shortage of raw material found during inspection was not, by itself, proof of clandestine removal, as the record contained no evidence of secret clearance. However, the shortage was admitted by the director in a statement under section 14, the assessee had voluntarily debited the amount in RG-23A Part II, and the explanation that the discrepancy arose from improper weighment remained unsubstantiated. On that basis, the duty demand was sustained and penalty under Rule 173Q was upheld, though reduced to a nominal Rs. 15,000 in the circumstances.

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Issues: Whether the demand confirmed on account of shortage of raw material and the penalty imposed under Rule 173Q were sustainable, and whether the penalty ought to be interfered with.

Analysis: The shortage was noticed during inspection and the Director admitted the shortage in the statement recorded under Section 14 of the Central Excise Act, 1944, while explaining it as resulting from improper weighment on receipt of inputs. The respondent had also voluntarily debited the amount in the RG-23A Part II register. The record did not disclose evidence of clandestine removal, and mere shortage or suspicion could not by itself establish such removal. At the same time, the respondent could not identify the exact error or the employees responsible for the incorrect weighment, and did not dispute the duty amount already confirmed and appropriated.

Conclusion: The confirmation of duty demand was upheld, and the respondent was held liable to penalty, but the penalty was reduced to Rs. 15,000/-.

Final Conclusion: The revenue succeeded in sustaining the duty demand and in restoring penal liability, but the penalty was moderated to a nominal amount in the circumstances.

Ratio Decidendi: Shortage of inputs without proof of clandestine removal does not by itself establish evasion, but a penalty may still be sustained where the shortage is admitted and the factual explanation remains unsubstantiated.

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