Penalty for alleged shortage of finished goods fails without evidence of clandestine removal

Penalty under Rule 25 of the Central Excise Rules read with Section 11AC was held unsustainable where the alleged shortage of finished goods was not backed by positive evidence of clandestine removal. The factual basis needed to impose penal action on the company and its Managing Director was therefore not established. Although duty liability was not disputed and duty recovery was left open, that did not justify the penalty. The penalty was set aside.

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Issues: Whether penalty under Rule 25 of the Central Excise Rules read with Section 11AC of the Central Excise Act, 1944 was sustainable in the absence of evidence that the shortage of finished goods was due to clandestine removal.

Analysis: The shortage detected during investigation was not supported by any positive evidence showing clandestine removal of goods. In the absence of such evidence, the factual basis necessary to sustain penal action against the company and its Managing Director was not established. Since the appellant did not dispute duty liability, the question of duty recovery was left open, but that did not justify the penalty imposed.

Conclusion: The penalty was not justified and was set aside.

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