Stock discrepancy demands proof of actual shortage and clandestine removal; unaccounted excisable goods still face confiscation and penalty.

Where duty demand is based on stock discrepancy, the department must prove the actual shortage and clandestine removal; a count-based verification without proof of actual weight was insufficient, so the duty demand and Section 11AC penalty were set aside. Excess excisable goods not entered in statutory records were liable to confiscation and penalty under the Central Excise Rules for failure to account, and mens rea was not required for that statutory breach. The confiscation and penalty were therefore sustained, though the redemption fine and penalty were reduced.

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Issues: (i) Whether the demand of duty and penalty under Section 11AC could be sustained when the alleged shortages were not verified on actual weight and the department failed to prove clandestine removal. (ii) Whether the excess, unaccounted excisable goods were liable to confiscation and penalty under the Central Excise Rules.

Issue (i): Whether the demand of duty and penalty under Section 11AC could be sustained when the alleged shortages were not verified on actual weight and the department failed to prove clandestine removal.

Analysis: The stock verification was admittedly not carried out on the basis of actual weight, but only by counting. In such a situation, the department had to establish both the actual shortage and removal of goods without payment of duty. That burden was not discharged. The alleged shortages therefore lacked the proof necessary to sustain duty demand or the penalty linked to suppression and clandestine clearance.

Conclusion: The demand of duty and the penalty under Section 11AC were not sustainable and were set aside in favour of the assessee.

Issue (ii): Whether the excess, unaccounted excisable goods were liable to confiscation and penalty under the Central Excise Rules.

Analysis: The goods found in excess were not shown to have been entered in the statutory records. Rule 53 required proper daily accounting of goods, and Rule 173Q(1)(b) authorised confiscation and penalty for failure to account for excisable goods. For such a contravention, proof of mens rea was not required; the breach of the statutory obligation itself attracted the consequence.

Conclusion: The confiscation of the excess goods and the imposition of penalty were upheld, but the redemption fine and penalty were reduced.

Final Conclusion: The appeal succeeded only to the extent of setting aside the duty demand and Section 11AC penalty, while maintaining liability for confiscation and a reduced redemption fine and penalty for the unaccounted excess goods.

Ratio Decidendi: Where the department relies on stock discrepancy, it must prove actual shortage and clandestine removal to sustain duty demand, but unaccounted excisable goods found in excess are liable to confiscation and penalty for breach of statutory accounting requirements even without proof of mens rea.

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