Rule 196 shortage demands require reliable stock verification and proper examination of the assessee's explanation before duty can be demanded.

A demand for duty and penalty on alleged shortage of hexane received under Chapter X could not be sustained where stock verification was not shown to have been conducted in accordance with the approved calibration chart. Although the licensee bore the burden of accounting for concessionally procured goods under Rule 196 of the Central Excise Rules, 1944, the evidentiary basis for the shortage was doubtful because officers relied on a dip method and produced only a working copy of the calibration chart. The assessee's explanation that significant quantity remained in process was not properly investigated, so the demand failed on the material before the authority and relief was justified.

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Issues: Whether the demand and penalty for alleged shortage of hexane received under Chapter X could be sustained when the stock verification was not shown to have been conducted in accordance with the approved calibration chart and the respondents' explanation was not effectively investigated.

Analysis: Rule 196 of the Central Excise Rules, 1944 requires duty to be paid on excisable goods obtained under Rule 192 if they are not duly accounted for or are not satisfactorily shown to have been lost or destroyed in the manner contemplated by the rule. Although the onus to account for concessionally procured goods lies on the licensee, the evidentiary basis for the alleged shortage remained doubtful because the officers relied on a dip method and only a working copy of the calibration chart was produced, while the approved calibration chart was not produced. The explanation that a substantial quantity was in process in the plant or in the batch plant was not properly verified, and the record did not show why physical inspection was not carried out to test that plea.

Conclusion: The demand could not be sustained on the material before the authority, and relief was rightly granted to the assessee.

Ratio Decidendi: Even where the assessee bears the burden to account for goods obtained under concession, a demand under Rule 196 cannot stand unless the alleged shortage is established on reliable stock verification and the assessee's explanation is properly examined.

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