Stock shortage under excise rules does not justify further demand or penalties without proof of clandestine removal.

Stock shortage detected on factory verification attracted duty liability under Rule 223A of the Central Excise Rules, with a limited penalty for deficient goods. Where the assessee had already discharged the duty on the shortage before the show cause notice and the investigation did not reveal clandestine manufacture, removal, clearance, or sale without duty payment, no further demand was legally sustainable. On those facts, the additional duty demand and penalties lacked legal basis and were set aside.

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Issues: Whether duty demand and penalties were sustainable where stock shortage was found on stock taking, the assessee had already discharged the duty liability, and no evidence of clandestine manufacture or removal was brought out.

Analysis: The dispute arose from a shortage detected during stock taking in the factory. The applicable framework was Rule 223A of the Central Excise Rules, under which shortage of stock attracts liability to pay duty on the deficient goods and a limited penalty. The assessee had promptly paid the duty attributable to the shortage before the show cause notice. Subsequent investigation did not establish clandestine manufacture, removal, clearance or sale without payment of duty. In these circumstances, no further proceedings were warranted and the additional demand and penalties had no legal basis.

Conclusion: The duty demand and penalties were unsustainable and were set aside.

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