Confiscation and harsh excise penalty were unwarranted where only record-keeping lapses were shown, not clandestine removal.

No clandestine production or removal was established where the goods consisted of raw materials and items at different stages of manufacture, and the shortage of input credit had already been reversed. The real default was failure to make proper entries in excise records, so confiscation and the harsher penalty under Rule 173Q and the Revenue's demanded statutory penalty were not justified. The appropriate consequence was only the limited penalty for the recording lapse, and the enhanced sanctions were set aside.

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Issues: Whether confiscation of goods and penalty under the harsher excise provisions were justified on the facts, or whether the matter was confined to a failure to maintain proper production records attracting only a limited penalty.

Analysis: The goods in question comprised raw materials and items at various stages of manufacture, and the record did not establish any clandestine production or removal. The shortage of input credit had already been reversed, and the real lapse was the failure to make proper entries in the excise records. In these circumstances, the severe consequences of confiscation and penalty under Rule 173Q and the statutory penalty sought by Revenue were not warranted. The appropriate consequence was only the limited penalty contemplated for the recording lapse.

Conclusion: The confiscation and enhanced penalty were set aside, and the penalty was reduced to Rs. 2,000; the Revenue's appeal failed and the assessee's appeal succeeded only to that extent.

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