Rule 223A stocktaking cannot cover goods under process; duty demand and penalties based on such stocktaking were untenable.

Rule 223A of the Central Excise Rules, 1944 permits periodic stocktaking of excisable goods held as finished goods in the bonded store room and does not authorise stocktaking of goods under process. The article notes that shrinkage is a normal incident in fabric processing and that comparison between grey and finished fabrics is relevant only where finished goods recorded in the books are suspected to have been removed without duty. On that reasoning, duty demand and penalties based on stocktaking of goods under process under Rule 223A were untenable.

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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 such stocktaking could survive.

Analysis: Rule 223A contemplates periodic stocktaking of excisable goods, meaning fully finished goods stored in the bonded store room, and does not authorise stocktaking of fabrics in process. The proceedings were therefore founded on a / wrong understanding of the rule. The order also recognised that shrinkage is a normal incident in fabric processing, and that any comparison between grey fabrics and finished fabrics may have relevance only in a case where finished goods entered in the records are examined for possible removal without duty. That situation did not justify invoking Rule 223A against goods under process.

Conclusion: The demand of duty and penalties based on stocktaking of goods under process under Rule 223A were untenable and could not survive.

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