Confiscation of goods in a small scale unit was unsustainable absent duty liability, while a reduced penalty remained for record-keeping lapses.

A small scale industry unit not required to maintain statutory records could not have goods lying in its factory confiscated when no duty evasion was shown and no duty was payable; confiscation was therefore set aside. However, failure to maintain the simplified movement record still attracted penal consequences, so penalty remained payable but was reduced in light of the facts and circumstances. The order was thus modified to remove confiscation while sustaining only the reduced penalty.

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Issues: (i) whether confiscation of goods lying in the factory was sustainable against a small scale industry unit that was not required to maintain statutory records; (ii) whether penalty was imposable for failure to maintain the simplified record and, if so, to what extent.

Issue (i): whether confiscation of goods lying in the factory was sustainable against a small scale industry unit that was not required to maintain statutory records.

Analysis: The status of the assessee as a small scale industry unit was undisputed. On that basis, it was not required to maintain statutory records and was only obliged to maintain simplified records regarding movement of goods. The goods were found lying in the factory, and there was no evasion of duty. Since no duty was payable, confiscation of the goods could not be upheld.

Conclusion: Confiscation was not sustainable and was set aside in favour of the assessee.

Issue (ii): whether penalty was imposable for failure to maintain the simplified record and, if so, to what extent.

Analysis: Although confiscation was not warranted, the failure to properly maintain the simplified record attracted penal consequences. However, the surrounding facts and circumstances justified reduction of the penalty.

Conclusion: Penalty was upheld but reduced to Rs. 5,000 in favour of the assessee to that extent.

Final Conclusion: The order was modified by setting aside confiscation and substantially reducing the penalty, while maintaining liability only to the reduced extent.

Ratio Decidendi: Where a small scale industry unit is not required to maintain statutory records and no duty is payable on goods lying in its factory, confiscation is unsustainable, though failure to maintain the simplified record may still justify a reduced penalty.

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