Rule 223A stocktaking applies only to finished excisable goods, not work-in-process fabrics or processing shrinkage.

Rule 223A of the Central Excise Rules, 1944 was construed as permitting periodic stocktaking only of fully finished excisable goods in stock, not fabrics under process. The text notes that shrinkage in fabric processing is a recognised phenomenon, so shortages in work-in-process cannot be treated as shortages of stock under that rule. Any action for discrepancies in finished goods may, in appropriate cases, be examined under Rule 173Q, but not on the basis of stocktaking of goods under process. Duty demand and penalty founded on that incorrect application of Rule 223A were stated to be unsustainable.

---

---

Issues: Whether stocktaking under Rule 223A of the Central Excise Rules, 1944 could validly extend to goods under process, and whether duty demand and penalty based on shortages detected in such goods could be sustained.

Analysis: Rule 223A contemplates periodic stocktaking of excisable goods, meaning fully finished excisable goods kept in stock, and not fabrics under process. The proceedings were initiated on an erroneous understanding of that rule. Shrinkage in fabric processing is a recognised phenomenon, and while a discrepancy in fully finished goods may, in appropriate cases, justify action under Rule 173Q, such action cannot rest on stocktaking of work-in-process goods under Rule 223A.

Conclusion: The demand of duty and penalty were founded on an incorrect application of law and were therefore unsustainable.

---