Physical stock shortage shifts the burden to the assessee; exemption-supported scrap confiscation and redemption fine were set aside.

Where excisable stock is found short on physical verification, the assessee must satisfactorily explain the discrepancy and show that the RG-1 balance was accurate; in the absence of a complete and credible stock explanation, duty on the short iron and steel scrap was sustained. Confiscation and redemption fine on copper scrap and aluminium scrap were set aside because the record showed no Modvat credit had been taken on the aluminium goods and the copper scrap was covered by exemption notifications, with those factual claims unrebutted by the Department.

---

---

Issues: (i) whether duty was payable on the quantity of iron and steel scrap found short on physical verification; (ii) whether confiscation of copper scrap and aluminium scrap with redemption fine was sustainable.

Issue (i): whether duty was payable on the quantity of iron and steel scrap found short on physical verification.

Analysis: The stock shortage had been detected by Central Excise officers, and a reverification was ordered after a considerable lapse of time, but the shortage was not satisfactorily explained. The Court held that once shortage is established on physical verification, the burden lies on the assessee to show that the stock actually tallied with the RG-1 balance. As no satisfactory explanation or complete stock position was placed on record, the duty demand on the short quantity was upheld.

Conclusion: The demand of duty on the iron and steel scrap found short was upheld, against the assessee.

Issue (ii): whether confiscation of copper scrap and aluminium scrap with redemption fine was sustainable.

Analysis: The material on record showed that no Modvat credit had been availed on the aluminium goods from which the scrap arose, and the copper scrap was covered by the exemption notifications relied upon by the assessee. These factual assertions were not rebutted by the Department, and even the adjudicating authority had indicated entitlement to exemption in respect of copper scrap. In these circumstances, confiscation and redemption fine could not be sustained.

Conclusion: The confiscation of copper scrap and aluminium scrap, and the redemption fine imposed thereon, were set aside in favour of the assessee.

Final Conclusion: The duty demand on the iron and steel scrap shortage was sustained, but the confiscation and redemption fine relating to copper and aluminium scrap were vacated.

Ratio Decidendi: Where a shortage of excisable goods is established on physical verification, the assessee bears the burden of satisfactorily explaining the discrepancy; confiscation cannot be sustained where the goods are shown to be exempt or where duty-paid status is otherwise not rebutted.

---