Storage violation without unaccounted production does not attract mandatory penalty; input shortage duty demand upheld for lack of proof.

A mere breach of approved storage requirements, where finished goods are duly recorded in RG 1, does not by itself justify mandatory penalty equal to duty; the penalty under Section 11AC was therefore held unsustainable and deleted. A claim that duty on shortage of inputs should be displaced on the basis of evaporation or handling loss failed because there was no supporting evidence of accumulated shortage or regular stock-taking material; the duty demand on the input shortage was therefore upheld. The order was interfered with only to the extent of removing the mandatory penalty, while the balance relief was refused.

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Issues: (i) whether mandatory penalty under Section 11AC was sustainable where the finished goods were recorded in RG 1 but kept outside the approved storage place, and (ii) whether duty demand on shortage of inputs was sustainable in the absence of proof of accumulated shortage.

Issue (i): Whether mandatory penalty under Section 11AC was sustainable where the finished goods were recorded in RG 1 but kept outside the approved storage place.

Analysis: The goods were admittedly accounted for in the statutory RG 1 register, which showed compliance with accountal of production. The defect found was only that the goods were not kept in the approved place of storage. Such a lapse amounted to a procedural violation attracting the penal provision applicable to contravention of storage requirements, but it did not satisfy the ingredients required for mandatory penalty equal to duty.

Conclusion: The mandatory penalty under Section 11AC was not sustainable and was set aside.

Issue (ii): Whether duty demand on shortage of inputs was sustainable in the absence of proof of accumulated shortage.

Analysis: Although some inputs may have been volatile, the claim of shortage due to evaporation or handling loss was not supported by regular stock-taking material or other evidence showing that the shortage had accumulated over time. In the absence of such proof, the factual basis to disturb the duty demand was not made out.

Conclusion: The duty demand on the shortage of inputs was upheld.

Final Conclusion: The order was interfered with only to the extent of deleting the mandatory penalty, while the remaining reliefs were denied.

Ratio Decidendi: A mere breach of storage requirements, when production is duly accounted for in statutory records, does not by itself attract mandatory penalty; and a claim of input shortage must be supported by evidence before duty demand can be displaced.

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