Stock shortage supports duty and interest, but penalty fails without independent evidence of clandestine removal.

Shortage detected during stock verification by Central Excise officers, acknowledged by the assessee's authorised representative, supported the duty demand and interest because the delayed challenge to the verification method was not substantiated. However, penalty could not be sustained since the record contained no independent evidence of clandestine removal; mere shortage, without more, is insufficient to attract penal consequences. The adjudication was therefore upheld only for duty and interest, and the penalty was set aside.

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Issues: (i) whether the demand of duty along with interest was sustainable on the basis of shortage noticed during stock verification; (ii) whether penalty was leviable in the absence of evidence of clandestine removal.

Issue (i): whether the demand of duty along with interest was sustainable on the basis of shortage noticed during stock verification.

Analysis: The shortage was found during stock verification conducted by Central Excise officers in the presence of the appellant's authorised representative, who acknowledged the verification and the discrepancy in the recorded stock. The challenge to the manner of weighment and stock taking was raised only after a long delay, and the record did not support the contention that the verification was improper. On that basis, the demand of duty and interest was held to be justified.

Conclusion: The demand of duty along with interest was upheld, against the assessee.

Issue (ii): whether penalty was leviable in the absence of evidence of clandestine removal.

Analysis: The record did not contain material showing that the shortage quantity had been removed clandestinely. The principle applied was that mere shortage found during stock verification, without supporting evidence of clandestine removal, does not by itself justify penalty. In the absence of such evidence, the penalty imposed under the rules could not stand.

Conclusion: The penalty was set aside, in favour of the assessee.

Final Conclusion: The adjudication was sustained only to the extent of duty and interest, while the penal consequence was annulled.

Ratio Decidendi: Mere shortage detected during stock verification is insufficient to establish clandestine removal or justify penalty unless supported by independent evidence; however, an unsubstantiated delayed challenge to the verification does not undo the demand of duty and interest.

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