Mens rea is required for confiscation under excise law; mere record-keeping lapses justify only a limited penalty.

Unaccounted goods found in the factory, but not yet cleared, were held not liable to confiscation or the stricter penalty where intention to evade duty was not proved. The assessee's claim to small scale exemption and the absence of mens rea meant the harsher Central Excise consequences were not justified. However, the failure to maintain proper records was treated as a separate compliance lapse, attracting only a limited penalty under the record-keeping rule. The impugned order was set aside, while a small penalty was sustained for the accounting default.

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Issues: Whether unaccounted goods found in the factory were liable to confiscation and penalty under the Central Excise Rules in the absence of proof of mens rea, and whether only a limited penalty for failure to maintain proper records was warranted.

Analysis: The record showed that the disputed goods were lying in the factory and had not yet been cleared, and the assessee had claimed the benefit of small scale exemption. On the facts, the Court found that no intention to evade duty had been proved. In the absence of mens rea, confiscation and penalty under the stricter provision were not justified. However, failure to maintain proper records remained a lapse attracting a limited penalty.

Conclusion: The impugned order was set aside, but a penalty of Rs. 2,000 was sustained under Rule 226 of the Central Excise Rules.

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