Confiscation and penalty on ungraded factory goods fail absent evidence of clandestine removal or duty evasion.

Ungraded aluminium alloy ingots found in the factory and intended for captive consumption could not justify confiscation or penalty when there was no evidence of clandestine removal or intent to evade duty. The Tribunal accepted that the goods were still subject to grading and quality checks and had not reached the RG-I stage, so mere non-entry in RG-I did not establish contravention warranting penal action. Confiscation and penalty were therefore held unsustainable under the Central Excise Rules.

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Issues: Whether confiscation and penalty were sustainable in respect of aluminium alloy ingots found in the factory premises but not entered in RG-I, when the goods were ungraded, meant for captive consumption, and there was no material to show intent to evade duty.

Analysis: The goods were produced by remelting and were found lying near the furnace in an ungraded condition. The Commissioner had accepted the factual position that the ingots were required to undergo grading and quality checks before use or clearance, and that they were intended for captive consumption. On these facts, the Tribunal found no basis to infer an intention to evade duty. The reliance placed on earlier decisions holding that confiscation and penalty are not justified where goods have not reached the RG-I stage and are not shown to have been kept with a view to clandestine clearance was accepted as applicable.

Conclusion: Confiscation and penalty were not sustainable, and the Revenue's challenge failed.

Ratio Decidendi: Where goods found within the factory are ungraded, awaiting quality control or grading, and there is no evidence of intended clandestine removal or duty evasion, confiscation and penalty under the Central Excise Rules are not justified.

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