Stock verification in the proper officer's presence is mandatory; estimated shortages alone cannot sustain excise duty demand.

Rule 223A of the Central Excise Rules, 1944 requires stock verification in the presence of the proper officer; where the annual stock check was conducted only by the assessee without departmental participation, the rule could not be invoked to sustain duty demand or penalty. The text also notes that shortages worked out from estimated sectional measurements, rather than actual weighment, are unreliable for comparison with clearances, especially where the difference falls within the Board circular's permissible limits and there is no allegation of clandestine removal. On that reasoning, the demand was found unsustainable.

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Issues: (i) Whether proceedings and duty demand under Rule 223A of the Central Excise Rules, 1944 could be sustained when the annual stock verification was not carried out in the presence of the proper officer. (ii) Whether shortage worked out on the basis of estimated sectional measurements, as against actual weighment, and within the permissible limits prescribed by the Board's circular, could justify a duty demand in the absence of any allegation of clandestine removal.

Issue (i): Whether proceedings and duty demand under Rule 223A of the Central Excise Rules, 1944 could be sustained when the annual stock verification was not carried out in the presence of the proper officer.

Analysis: Rule 223A contemplates stock taking in the factory in the presence of the proper officer, and that requirement operates as a mandatory precondition for invoking the rule. The stock verification in the present case was carried out by the assessee on its own, without departmental participation. On that admitted factual basis, the statutory condition for application of Rule 223A was not satisfied.

Conclusion: The demand and penalty could not be sustained under Rule 223A.

Issue (ii): Whether shortage worked out on the basis of estimated sectional measurements, as against actual weighment, and within the permissible limits prescribed by the Board's circular, could justify a duty demand in the absence of any allegation of clandestine removal.

Analysis: The stock figures were derived from sectional measurements, while clearances were on actual weighment. The difference between those two methods made the comparison inherently unreliable for establishing shortage. The reconciliation statements showed that the alleged shortage was within the permissible limit contemplated by the Board's circular, and no clandestine removal was alleged to bridge the gap between estimated stock and actual clearances. The reasoning was consistent with the earlier Tribunal decisions relied on in the order.

Conclusion: The alleged shortage did not justify the duty demand.

Final Conclusion: The impugned order was set aside and the appeal was allowed, leaving no surviving duty demand or penalty.

Ratio Decidendi: A demand under Rule 223A of the Central Excise Rules, 1944 cannot be sustained unless the stock verification is conducted in the presence of the proper officer, and a shortage based on estimated stock figures cannot, by itself, establish liability absent reliable evidence of clandestine removal.

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