Non-accountal of finished goods needs proof of mens rea for harsh excise penalties; otherwise only the lesser rule applies.

Mere non-accountal of finished goods in statutory records does not automatically justify the harsher confiscation and penalty regime under Rule 173Q of the Central Excise Rules, 1944 unless mens rea or clandestine intent to evade duty is shown. In the absence of such proof, the default is treated as a lesser contravention attracting action only under Rule 226. Applying that principle, confiscation was sustained but the larger penalty was set aside, the limited penalty under Rule 226 was retained, and the redemption fine was reduced.

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Issues: Whether mere non-accountal of finished goods in statutory records, without evidence of mens rea or clandestine removal, justified confiscation and penalty under Rule 173Q of the Central Excise Rules, 1944, or whether the matter was confined to the lesser consequences under Rule 226.

Analysis: The Department's allegation of non-accountal was not successfully disputed. The controlling principle applied was that non-accountal of final products, by itself, does not automatically attract the harsher penal consequences under Rule 173Q unless the ingredients requiring mens rea are established. The Tribunal followed the earlier view that such a default, when unaccompanied by proof of intent to evade duty, is at most a minor offence attracting action under Rule 226. On the evidence, confiscation was held permissible, but the original penalty and redemption fine were found excessive in light of the limited nature of the contravention.

Conclusion: The larger penalty under Rule 173Q was set aside except to the extent of Rs. 2,000 under Rule 226, confiscation was sustained, and the redemption fine was reduced to Rs. 2 lakhs. The result was partly in favour of the assessee.

Final Conclusion: Mere non-accountal of finished goods, without proof of clandestine intent, did not justify the full penal consequences imposed below; the matter was confined to the lesser penalty framework, with modified confiscatory relief.

Ratio Decidendi: Non-accountal of finished goods in breach of statutory records attracts the harsher confiscation and penalty provisions only when mens rea is established; absent such intent, the default is punishable only as a minor contravention under the lesser penal rule.

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