Rule 25 penalty fails where stock and reprocessing movements are fully recorded and no evasion finding survives.

Penalty under Rule 25 of the Central Excise (No. 2) Rules, 2001 was unsustainable where the assessee's stock and reprocessing movements were properly reflected in the daily stock account, monthly ER-1 returns and computerised production records. The material did not establish non-accountal of goods or removal with intent to evade duty, and the penalty could not survive once the duty demand had already been set aside. The CESTAT therefore held that the penal action under Rule 25 was not justified and set it aside in favour of the assessee.

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Issues: Whether penalty under Rule 25 of the Central Excise (No. 2) Rules, 2001 was sustainable when the assessee's stock and reprocessing movements were recorded in the statutory and computerised records and no duty demand or finding of removal with intent to evade duty survived.

Analysis: Rule 25 was invoked on the footing that the goods were taken out for reprocessing and were not properly accounted for on removal and return. The record, however, showed that the assessee maintained daily stock account, reflected the quantities for refinishing in the monthly ER-1 return, and the reprocessed goods were capable of specific identification through the computerised daily production report. In these circumstances, the material did not support a finding that the goods were not accounted for, nor did it justify the penalty after the duty demand had already been set aside.

Conclusion: The penalty under Rule 25 was not sustainable and stood set aside in favour of the assessee.

Ratio Decidendi: Penalty for non-accountal under Rule 25 cannot be sustained where the assessee's records adequately track the goods and the alleged basis for invoking penal action is not established.

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