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Issues: (i) whether confiscation and redemption fine could be sustained in respect of goods found in excess of recorded stock, including goods loaded in a tempo at the factory gate; (ii) whether duty could be confirmed on inputs found short on the basis of alleged clandestine manufacture and clearance; and (iii) the consequential quantum of penalty.
Issue (i): whether confiscation and redemption fine could be sustained in respect of goods found in excess of recorded stock, including goods loaded in a tempo at the factory gate.
Analysis: The goods lying inside the factory had not reached the finished stage because testing as per ISI was still required, and the department had not controverted this factual stand. Such goods were not yet marketable and their non-entry in the records could not justify confiscation. By contrast, the 3,600 kgs of PVC compound loaded in the tempo parked at the factory gate had reached the stage of finished goods and were being taken out for marketing, so their non-accountal was legally relevant for confiscation.
Conclusion: Confiscation was unsustainable for the goods inside the factory, but was sustained for 3,600 kgs of PVC compound loaded in the tempo; the redemption fine was correspondingly reduced.
Issue (ii): whether duty could be confirmed on inputs found short on the basis of alleged clandestine manufacture and clearance.
Analysis: The finding of duty demand rested on an assumption of clandestine manufacture and removal, but there was no supporting evidence, including any statement of buyers. The appellants' explanation that the inputs found short had been used in producing the excess goods lying in the factory was not rebutted. In the absence of proof of clandestine clearance or any correlation showing independent removal of goods, the duty demand on the short inputs could not be sustained.
Conclusion: The duty demand on the inputs found short was set aside.
Issue (iii): what should be the consequence for penalty.
Analysis: Since the alleged lapse survived only to the limited extent of non-accountal of 3,600 kgs of finished goods loaded in the tempo, the penalty had to be scaled down accordingly. The broader penalty based on the set-aside duty demand and the unsupported confiscation findings could not stand in full.
Conclusion: The penalty was reduced to Rs. 5,000.
Final Conclusion: The order was modified substantially in favour of the assessee, with the duty demand deleted, confiscation sustained only to a limited extent, and the penalties drastically reduced.
Ratio Decidendi: Unmarketable goods not yet at the finished stage cannot be confiscated for want of entry in stock records, and a duty demand for alleged shortage of inputs cannot be sustained without evidence of clandestine manufacture and removal.
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