1. The adjudicating authority had confirmed a demand of Rs.4,40,097/- under the provisions of Section 11A together with interest under Section 11AB and imposed penalty of equal amount under Section 11AC of the Central Excise Act, 1944 on shortage of goods found during stock verification, which order was set aside by the Commissioner (Appeals); hence this appeal by the Revenue.

2. I have heard both sides. I find that the case of the department is made out on the basis of unretracted statement of Shri J.Balaji, Manager of the assessee-company and the mahazar, clearly showing shortage. The assessee's defence which has been accepted by the Commissioner (Appeals) is that no proper physical verification was conducted and therefore the shortage cannot be ascertained. However, I find that mahazar clearly recording the shortage has been signed by Mr.Balaji and there is nothing in the cross examination against correct recording of the shortage. Shri S.Krishnan, Inspector of Central Excise has stated that he was not present during the verification; however, this statement is belied by the fact he is the person who drew up the mahazar. Further, Shri Madhanagopal, Superintendent of Central Excise has recorded the statement of Balaji, and the mahazar stating that the same lorry that was available in the factory was used for weighment of the goods while mahazar does not say anything about a lorry being put to use for weighment, does not make any material difference for the reason that it is not as if mahazar has noted that no lorry at all was used for weighment. The third officer G.Kuppuswamy, was also present along with Krishnan for ascertaining the shortage and drawing of the mahazar and this also fortifies the case of the department that shortage being detected was recorded in the mahazar. The evidence on record is sufficient to come to the conclusion that there was shortage which was not accounted in the statutory records viz. RG.1 Register of the assessees thus justifying the duty demand together with interest. However, penalty imposed is set aside as this is, admittedly, not a case of clandestine removal of goods by the assessees but only a case of shortage detected during physical verification and in the case of Gaurang Alloys & Iron Ltd. v. CCE & ST [2010 (252) ELT 67 Trib. - Kolkata], the Tribunal has held that no penalty can be imposed under Section 11AC of the Central Excise Act, 1944 in the absence of any evidence of clandestine removal.

3. In the result, the appeal is partly allowed by upholding the duty demand together with interest.