Minor stock variations in petroleum goods do not justify excise demand, extended limitation, or penalty without proof of suppression.

Minor stock variations in petroleum products, without evidence of clandestine removal, were treated as insufficient to sustain excise demand on alleged shortages of raw materials and finished goods. The analysis noted that temperature, density, viscosity, dip readings and weighing methods can cause marginal differences, and that duty had already been reversed where shortages were noticed and reported. It further stated that, where stock records and audit material were disclosed and there was no suppression of facts or intent to evade duty, the extended period could not be invoked and penalty under Section 11AC would not survive. The impugned order was therefore set aside on merits and limitation.

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Issues: (i) whether excise duty could be demanded on alleged shortages of raw materials and finished goods when the shortages were minor and there was no evidence of clandestine removal; (ii) whether the demand and penalty were barred by limitation and unsustainable under the extended period.

Issue (i): Whether excise duty could be demanded on alleged shortages of raw materials and finished goods when the shortages were minor and there was no evidence of clandestine removal.

Analysis: The shortages in base oil and finished goods were found to be marginal and consistent with normal handling and measurement variations in petroleum products, where temperature, density, viscosity, dip readings and weighing methods can produce small differences. The record also showed that the assessee had itself reversed duty whenever shortages in finished goods were noticed and had informed the department. The show cause notice did not allege clandestine removal, and duty-paid goods cleared to depots could not again be subjected to demand merely because shortages were noticed in stock verification.

Conclusion: The demand on this ground was not sustainable and was decided in favour of the assessee.

Issue (ii): Whether the demand and penalty were barred by limitation and unsustainable under the extended period.

Analysis: The demand related to financial years 1999-2000 and 2000-01, while the show cause notice was issued in March 2004. The assessee had been maintaining stock records and had disclosed the relevant audit material, including the statutory report, to the department. In the absence of suppression of material facts or intent to evade duty, the extended period could not be invoked, and the penalty imposed under Section 11AC could not survive.

Conclusion: The demand was time-barred and the penalty was not leviable, in favour of the assessee.

Final Conclusion: The impugned order was set aside on merits and on limitation, and the appeal was allowed with consequential relief.

Ratio Decidendi: Minor stock variations in petroleum products, without proof of clandestine removal or suppression of facts, do not justify excise demand, extended limitation, or penalty.

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