Theft of excisable goods may qualify as lost or destroyed, supporting remission where reasonable precautions were taken.

The note states that, under the Central Excise Rules, 1944, goods lost by theft may still fall within the expressions "lost or destroyed" and justify remission or defence against duty demand where the loss is satisfactorily explained and not shown to be clandestine removal. It further explains that a theft can amount to an unavoidable accident when the assessee took reasonable precautions, such as security measures and exit checks, and the disappearance occurred despite those safeguards. On that reasoning, the duty demand and penalty were treated as unsustainable in the circumstances described.

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Issues: (i) Whether theft is a defence available to a manufacturer against a demand of duty under the Central Excise Rules, 1944; (ii) Whether the theft in the present case amounted to an unavoidable accident.

Issue (i): Whether theft is a defence available to a manufacturer against a demand of duty under the Central Excise Rules, 1944.

Analysis: The demand arose from shortage of excisable goods and was sought to be supported under Rule 9(2) of the Central Excise Rules, 1944 read with Section 11A of the Central Excises and Salt Act, 1944. The relevant scheme of Rule 49 and Rule 147 treated goods as chargeable or remissible depending on whether they were removed, lost, or destroyed, and the expressions "lost or destroyed" were construed in a broad sense to include loss by theft. The reasoning adopted preferred the line of authority holding that theft is not excluded from the ambit of such provisions where the loss is otherwise satisfactorily explained and not shown to be clandestine removal.

Conclusion: Theft is available as a defence against the duty demand in the circumstances contemplated by the Rules.

Issue (ii): Whether the theft in the present case amounted to an unavoidable accident.

Analysis: The record showed that the shortage was not disputed, but the adjudicating authority itself indicated that the cigarettes had vanished over time and suggested petty theft rather than clandestine removal. Security staff was deployed, employees were checked at exit, and the loss occurred gradually despite precautions. On that footing, the loss was treated as one that could not have been prevented by ordinary reasonable care and thus fell within the concept of unavoidable accident for the purpose of remission.

Conclusion: The theft amounted to an unavoidable accident.

Final Conclusion: The duty demand and penalty were not sustainable, and the Revenue's challenge failed.

Ratio Decidendi: Goods lost by theft may fall within the statutory expressions "lost or destroyed" and "unavoidable accident" when the assessee shows that reasonable precautions were taken and the loss was not clandestine removal.

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