Admitted shortage in RG-1 records sustains duty demand, but penalty fails without cogent proof of serious violation.

Duty on goods found short from the RG-1 register was sustained where the shortage was admitted at the spot, the duty on the short-found goods was debited the same day, and the later explanation that the goods were in the factory for painting was not supported by contemporaneous evidence. The demand was therefore upheld against the assessee. Penalty under the Central Excise Rules was set aside because the goods were already accounted for in the statutory record before completion of manufacture and no cogent reason or serious statutory violation was shown to justify a punitive consequence. The assessee succeeded only on the penalty issue.

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Issues: (i) Whether the demand of duty on the goods found short from the RG-1 register was sustainable. (ii) Whether the penalty imposed under the Central Excise Rules was justified.

Issue (i): Whether the demand of duty on the goods found short from the RG-1 register was sustainable.

Analysis: The shortage detected by the officers was admitted at the spot, and the duty on the short-found goods was debited on the same day. The subsequent plea that the goods were lying in the factory for painting and were not noticed by the officers was not found persuasive, particularly as the explanation was not supported by a contemporaneous affidavit from the person who dealt with the visit and the record showed accountal of unpainted rims in RG-1. The request for re-verification was also found unlikely to alter the result on the facts.

Conclusion: The demand of duty was upheld, against the assessee.

Issue (ii): Whether the penalty imposed under the Central Excise Rules was justified.

Analysis: The goods found short were already accounted for in the statutory record, though before completion of manufacture, and the lower authorities did not establish any more serious violation beyond the irregularity noticed. The finding was that no cogent reason existed for imposing penalty of Rs. 5,000/-, and the lapse did not justify a punitive consequence of that nature.

Conclusion: The penalty was set aside, in favour of the assessee.

Final Conclusion: The duty demand was sustained, but the penalty was annulled, resulting in a partial success for the assessee.

Ratio Decidendi: A duty demand based on admitted shortage and contemporaneous payment may be sustained, but penalty cannot be upheld absent a clear and serious statutory violation supported by cogent reasons.

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