Stock shortage supports duty demand and company penalty, but director penalty fails without evidence of personal involvement.

A substantial shortage of finished goods, jointly recorded in stock verification and not satisfactorily explained, supported confirmation of duty demand against the company on the basis of alleged clandestine clearance. On the same factual foundation, penalty on the company under Section 11AC was also upheld. By contrast, the personal penalty on the director was set aside because no material evidence showed his direct involvement in the contravention; penalty could not rest on inference or assumption alone. The result was mixed: the demand and company penalty were sustained, while the director's penalty was quashed.

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Issues: (i) Whether the duty demand arising from shortage of stock and alleged clandestine clearance was sustainable; (ii) Whether penalty on the company under Section 11AC was justified; (iii) Whether penalty on the director was sustainable.

Issue (i): Whether the duty demand arising from shortage of stock and alleged clandestine clearance was sustainable.

Analysis: The stock verification disclosed a substantial shortage of finished goods compared with the RG-1 record. The stock taking report was jointly signed by the concerned representatives of the appellant company. The explanation offered did not satisfactorily account for the large shortage, and the deposit made in anticipation of duty further supported the departmental case.

Conclusion: The duty demand on the company was upheld.

Issue (ii): Whether penalty on the company under Section 11AC was justified.

Analysis: Once the shortage and related duty liability were sustained on the facts found, the penalty imposed on the company followed from the established contravention. No acceptable basis was shown to disturb that finding.

Conclusion: The penalty on the company was upheld.

Issue (iii): Whether penalty on the director was sustainable.

Analysis: No material was shown to establish the director's personal involvement in the alleged contravention. The finding below rested on inference rather than evidence, and penalty could not be sustained on mere assumptions.

Conclusion: The penalty on the director was set aside.

Final Conclusion: The demand and penalty against the company were sustained, while the personal penalty on the director was quashed, resulting in a mixed outcome.

Ratio Decidendi: A penalty cannot be imposed on an individual in excise proceedings without material evidence of personal involvement, and a substantial, jointly verified stock shortage may support confirmation of duty liability against the assessee.

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