Stock shortage beyond condonable limit cannot be offset across separate product groups; duty demand and penalty were sustained.

Duty demand based on stock shortage was sustained where joint stock verification showed losses beyond the condonable limit under the Board's circular. Rule 223A of the Central Excise Rules was applied to the stock-taking enquiry, and the court accepted that the show-cause notice and adjudication were confined to shortage exceeding the permissible percentage. The assessee's attempt to set off excess shortage in rails against shortage in Z piling was rejected because the two constituted separate and distinct product groups. As the unexplained loss beyond the permissible limit remained attributable to the assessee, the confirmed duty demand and connected penalty were upheld.

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Issues: Whether the duty demand and penalty could be sustained where the shortage exceeded the condonable loss limit and the excess shortage in one product group was sought to be set off against shortage in another product group.

Analysis: The demand was based on losses found on joint stock verification. Rule 223A of the Central Excise Rules was considered in relation to the taking of stock and the resulting enquiry. The Court accepted the finding that the show-cause notice and adjudication covered only losses beyond the condonable limit prescribed by the Board's circular. It also accepted the Tribunal's view that excess shortage in rails could not be adjusted against shortage in Z piling because the two were separate and distinct product groups. Since the unexplained loss beyond the permissible percentage remained attributable to the appellant, no infirmity was found in the confirmed duty demand.

Conclusion: The duty demand and connected penalty were upheld and the challenge failed.

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