Confiscation and excise duty demand fail where substitution of inputs is unsupported by concrete evidence and particulars.

Confiscation of unaccounted raw materials under Rule 173Q was not justified where no Modvat credit had been taken on the disputed inputs and the record did not support an assumed intention to substitute goods. The duty demand and equal penalty based on alleged replacement of prime quality granules with low grade granules also failed, because the notice and order relied on vague references to private records without identifying them or producing concrete proof. On the facts stated, the findings rested on presumption rather than evidence, and the impugned order was wholly unsustainable.

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Issues: (i) whether confiscation of the raw materials under Rule 173Q was justified when the goods were alleged to be unaccounted but no credit on those inputs had been availed; (ii) whether the demand of duty and equal penalty based on alleged substitution of prime quality granules with low grade granules was sustainable.

Issue (i): whether confiscation of the raw materials under Rule 173Q was justified when the goods were alleged to be unaccounted but no credit on those inputs had been availed

Analysis: Confiscation under Rule 173Q was examined in the context of the finding that the inputs were not entered in the statutory records. The reasoning also noted that there was no allegation that credit of duty on the disputed inputs had been taken in the Modvat account. On the facts found, confiscation could not be sustained merely on the basis of an assumed intention that the goods were later to be substituted.

Conclusion: Confiscation of the raw materials was not justified and was set aside.

Issue (ii): whether the demand of duty and equal penalty based on alleged substitution of prime quality granules with low grade granules was sustainable

Analysis: The allegation of substitution was found to rest on vague references to private records without identification of the records or supporting particulars in the notice or order. No concrete evidence was shown to establish that prime quality granules were actually replaced by low grade granules. The findings of the lower authority were held to be based on presumption and assumption rather than proof.

Conclusion: The demand of duty and the equal penalty were not sustainable.

Final Conclusion: The impugned order was wholly unsustainable and the appeal succeeded with consequential relief.

Ratio Decidendi: Confiscation, duty demand, and penalty in central excise proceedings cannot be sustained on conjecture or unparticularised allegations; concrete evidence is required to prove unaccounted goods or substitution of inputs.

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