Outside storage of modvatable inputs cannot attract confiscation or penalty when permission was sought and later granted.

Where modvatable inputs are stored outside the factory with a pending request for permission, administrative delay in processing that request cannot justify confiscation or penalty once the competent authority is empowered to grant, and ultimately grants, the permission. The record showed repeated correspondence seeking approval to use hired premises as an extension of the factory, and the governing circular allowed the Commissioner to authorise such outside storage. On those facts, confiscation of duty-paid inputs and the associated penalty were held unsustainable.

---

---

Issues: Whether confiscation of duty-paid inputs and imposition of penalty were sustainable when the assessee had sought permission to store modvatable inputs outside the factory and the permission was ultimately granted.

Analysis: The assessee had repeatedly requested permission to store inputs at hired premises as an extension of the factory, and the record showed continued correspondence over several years. The governing circular permitted the Commissioner to authorise storage of modvatable goods outside the factory premises. The delay and inaction on the part of the revenue authorities in dealing with the request could not be used to penalise the assessee for storing the goods outside the factory, particularly when the permission was eventually granted.

Conclusion: Confiscation of the goods and the penalty were not sustainable.

Final Conclusion: The impugned order was set aside and the appeals were allowed.

Ratio Decidendi: Where the assessee has consistently sought permission for outside storage of inputs and the statutory authority is empowered to grant such permission, administrative inaction cannot justify confiscation or penalty once the permission is ultimately granted.

---