Duty debit before clearance is essential; finished goods removed without it face confiscation, but raw inputs cannot be seized.

Under the central excise regime, duty was treated as discharged only when the required debit was made in the Modvat or current account, so removal of finished fabrics without such debit supported confiscation and penalty for duty evasion. By contrast, unprocessed fabrics received as inputs were not liable to confiscation merely because the processed goods were cleared unlawfully. The order was therefore sustained on the duty-evasion findings, but modified to exclude confiscation of raw materials and to reduce the redemption fine and the manufacturer's penalty, while the Director's penalty was maintained.

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Issues: (i) whether manufactured fabrics removed without making the required duty debit in the account were liable to confiscation and penalty, and (ii) whether unprocessed fabrics received as inputs could be confiscated.

Issue (i): Whether manufactured fabrics removed without making the required duty debit in the account were liable to confiscation and penalty.

Analysis: Duty payment under the Central Excise regime was effected only when the relevant debit was made in the account, whether the Modvat account or the current account. Where finished goods had been cleared without such debit, the duty remained unpaid. On those facts, the revenue authorities were justified in treating the clearances as unlawful and in imposing consequences for the evasion.

Conclusion: The confiscation and penalty in respect of the cleared manufactured fabrics were sustained.

Issue (ii): Whether unprocessed fabrics received as inputs could be confiscated.

Analysis: The unprocessed fabrics were merely inputs received for processing and were not finished goods removed in the course of clearance. Confiscation of raw materials was not permissible on the facts found, even though duty evasion was established in respect of the processed goods.

Conclusion: Confiscation of the unprocessed inputs was set aside and relief was granted to that extent.

Final Conclusion: The order was upheld in substance for the duty-evasion findings, but modified to exclude confiscation of raw materials and to reduce the redemption fine and the penalty on the manufacturer, while maintaining the penalty on the Director.

Ratio Decidendi: In central excise matters, duty is discharged only upon the requisite account debit, but confiscation cannot extend to raw materials merely received for processing unless the law and facts specifically justify such action.

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