Stock discrepancy alone cannot justify confiscation and penalty absent proof of clandestine production or removal.

Stock variation in the manufacture of copper alloy ingots, where raw material was not issued variety-wise, was held insufficient by itself to justify confiscation and penalty under Rule 173Q. The excess in one finished-goods item could be adjusted against the shortage in another, and the residual discrepancy was negligible. The explanation that the excess represented production not yet entered in the accounts was not disproved merely because the accounts had not been written up after a particular date. In the absence of any allegation or proof of clandestine production or removal, the stock discrepancy alone could not sustain adverse action, and the confiscation and penalty were held unsustainable.

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Issues: Whether the finding of shortage and excess stock justified confiscation and penalty under Rule 173Q of the Central Excise Rules in the absence of evidence of clandestine production or removal.

Analysis: The stock discrepancy arose in the course of manufacture of copper alloy ingots from assorted scrap and tin ingots, where raw material issue was not variety-wise. The excess in one item was capable of being adjusted against shortage in another, and the remaining discrepancy was negligible. The explanation that the excess finished goods represented production not yet entered in the accounts was not disproved by the mere fact that the accounts had not been written after a particular date. In the absence of any allegation or proof of clandestine production or removal, the stock variation by itself was not sufficient to sustain the adverse action.

Conclusion: The confiscation and penalty were not sustainable and the appeal was allowed.

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