Physical stock shortage and alleged clandestine removal sustained duty demand and Section 11AC penalty, while extra penalties were deleted.

Physical shortage of marble slabs and tiles, unsupported by any evidence of an alternative accounting basis, justified upholding the duty demand because the assessee failed to rebut the stock discrepancy found on verification. Allegations of clandestine clearance without invoice and without payment of duty with intent to evade brought the case within Section 11AC, so the statutory penalty was sustained. As the Section 11AC penalty was considered sufficient, the additional penalties under the Central Excise Rules and the personal penalty on the Managing Director were set aside.

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Issues: (i) Whether the duty demand on shortage of marble slabs and tiles was sustainable; (ii) whether penalty under Section 11AC of the Central Excise Act, 1944 was imposable; (iii) whether the separate penalties under Rule 173Q, Rule 9(2), Rule 52A and Rule 226 of the Central Excise Rules, 1944 and on the Managing Director were sustainable.

Issue (i): Whether the duty demand on shortage of marble slabs and tiles was sustainable.

Analysis: The stock found on physical verification was substantially lower than the balance reflected in the statutory RG-1 register. The explanation that production and clearance were recorded on different bases was raised only in reply to the notice and was not supported by any evidence. The burden lay on the assessee to substantiate the asserted accounting method, and no material was produced to displace the physical shortage findings.

Conclusion: The duty demand on the shortages of marble slabs and tiles was upheld, against the assessee.

Issue (ii): Whether penalty under Section 11AC of the Central Excise Act, 1944 was imposable.

Analysis: The notice specifically alleged clandestine clearance without invoice and without payment of duty with intent to evade duty. Those allegations brought the case within the statutory ingredients for penalty under Section 11AC, and the explanation offered by the assessee did not dislodge that finding.

Conclusion: Penalty under Section 11AC was correctly imposed, against the assessee.

Issue (iii): Whether the separate penalties under Rule 173Q, Rule 9(2), Rule 52A and Rule 226 of the Central Excise Rules, 1944 and on the Managing Director were sustainable.

Analysis: Since penalty under Section 11AC was held to be sufficient to meet the ends of justice, the additional penalties under the cited rules and the personal penalty on the Managing Director were considered unnecessary.

Conclusion: The separate penalties were set aside, in favour of the assessee.

Final Conclusion: The duty demand and the statutory penalty under Section 11AC were sustained, but the other penalties were deleted, resulting in partial relief to the appellants.

Ratio Decidendi: Where shortages are found on physical verification and the assessee fails to prove an alternative accounting basis, duty liability may be upheld, and a specific allegation of clandestine removal with intent to evade duty can sustain penalty under Section 11AC.

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