Average-weight stock discrepancy cannot sustain duty demand, but estimated excise records may still justify penalty.

A duty demand based on stock discrepancy computed only on average weight, without reliable proof of the exact shortage or excess, was held unsustainable and set aside. By contrast, maintaining excise production records on estimated average weight rather than exact quantity was treated as an incorrect accounting method and sufficient to support penalty. The result was that the assessee succeeded on the duty demand issue, but the penalty was upheld.

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Issues: (i) Whether the duty demand and related finding of shortage/excess could be sustained when the stock discrepancy was worked out only on the basis of average weight; (ii) Whether penalty was sustainable where production records were maintained on estimated average weight instead of exact measurement.

Issue (i): Whether the duty demand and related finding of shortage/excess could be sustained when the stock discrepancy was worked out only on the basis of average weight.

Analysis: The stock discrepancy was accepted to have been determined on average weight and not on exact physical weighment. There was no reliable evidence showing the exact quantum of shortage or excess, and the demand was founded on assumptions rather than proved actual discrepancy. In the absence of definite proof of the exact shortage, the basis for duty demand was unsustainable.

Conclusion: The duty demand was not sustainable in law and is set aside, in favour of the assessee.

Issue (ii): Whether penalty was sustainable where production records were maintained on estimated average weight instead of exact measurement.

Analysis: The record showed that production was being entered on estimated average weight, which was not a correct or legally sustainable method of maintaining excise records. Production had to be reflected in exact quantity, number, or units, and the admitted accounting method justified penal action.

Conclusion: The penalty was sustainable in law and is upheld, against the assessee.

Final Conclusion: The appeal succeeded only to the extent of the duty demand, while the penalty portion was maintained.

Ratio Decidendi: A duty demand based on stock discrepancy determined only on average weight, without exact proof of the actual shortage or excess, cannot be sustained; however, maintenance of excise production records on estimated average weight can justify penalty.

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