Clandestine removal penalty confined to goods actually removed and intercepted in transit; stock shortages alone are insufficient.

Penalty under Section 11AC of the Central Excise Act was sustainable only where clandestine removal from the factory was proved. The High Court held that goods intercepted in transit, carried in a tempo without duty payment, established removal and could attract penalty, but no penalty was leviable for stock shortages or goods still lying in the factory because clandestine removal had not been shown. The matter was thus partly allowed in favour of the Revenue, and the penalty was directed to be recalculated only on the basis of the goods actually removed and intercepted.

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Issues: Whether penalty under Section 11AC of the Central Excise Act, 1944 was sustainable only in respect of goods clandestinely removed from the factory and intercepted in transit, and not in respect of stock shortages or goods still lying in the factory premises.

Analysis: The interception of a tempo carrying finished goods without payment of duty established clandestine removal in respect of those goods actually taken out of the factory premises. Penalty could therefore be imposed only on the quantity removed and intercepted in transit. As regards the goods found short on stock verification or the goods which had not been removed from the factory, no penalty was leviable because clandestine removal had not been proved and any inference based merely on a possibility of future removal would rest on conjecture and surmise.

Conclusion: Penalty under Section 11AC was held leviable only for the goods clandestinely removed and intercepted in the tempo, and not for the stock shortage or goods remaining in the factory.

Final Conclusion: The matter was partly allowed in favour of the Revenue to the extent of penal liability on removed goods, while the case was sent back for recalculation of the penalty on that limited basis.

Ratio Decidendi: Penalty for clandestine removal can be sustained only when removal from the factory is proved, and cannot be imposed on mere stock shortage or on goods not shown to have left the premises.

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