Stock shortage alone cannot prove clandestine removal where factory control has passed to a successor.

Where a factory had already been taken over by Rajasthan Financial Corporation and had passed out of the assessee's effective control before stock verification, a mere stock shortage was insufficient to sustain central excise duty or penalty. The department had intimated the takeover in time but failed to prove that the assessee retained control, removed the goods, or otherwise engaged in clandestine clearance. In the absence of evidence of actual removal or evasion, liability under Rule 173Q of the Central Excise Rules, 1944 could not be established. The demand and penalty were therefore held unsustainable.

---

---

Issues: Whether the demand of central excise duty and penalty could be sustained against the appellants on the basis of stock shortage, when the factory had been taken over by the Rajasthan Financial Corporation and the department had not proved actual removal of goods by the appellants.

Analysis: The factory was taken over by the Rajasthan Financial Corporation and this fact was intimated to the department in time. The records showed that the unit had passed out of the appellants' effective control well before the stock verification. The department did not conduct an immediate verification, nor did it adduce evidence showing that the appellants retained control up to the date of inspection or that they themselves removed the goods. Mere shortage in stock could not, by itself, establish clandestine removal or contravention by the manufacturer, particularly when the evidence indicated that the successor in possession had control over the unit. The department also failed to establish liability under Rule 173Q of the Central Excise Rules, 1944 on the basis of any proved act of removal or evasion by the appellants.

Conclusion: The duty demand and penalty were not sustainable against the appellants.

Final Conclusion: The appeal succeeded because the impugned order was unsupported by evidence of removal by the appellants and the department's case rested only on presumption from shortage after the unit had been taken over.

Ratio Decidendi: Where control of a factory has passed to a successor and the department fails to prove actual removal of excisable goods by the assessee, a mere stock shortage does not justify confirmation of duty or penalty against the assessee.

---