Clandestine removal must be proved by evidence; excess finished goods were not confiscable and penalties were reduced.

Excess finished goods were not treated as liable to confiscation because the evidence did not show clandestine removal; mere packed, ready-for-despatch condition was insufficient, especially where the quantity remained within the assessee's daily processing capacity, so confiscation was set aside. The duty demand and interest were maintained, but the penal consequence was moderated because the original statutory penalty was found excessive in the circumstances; the Section 11AC penalty was reduced to Rs. 1 lakh and the separate penalty under Rule 25(1) was set aside.

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Issues: (i) whether the excess found finished goods were liable to confiscation as goods intended for clandestine removal; (ii) whether the penalty under Section 11AC and the separate penalty under Rule 25(1) were sustainable in full.

Issue (i): Whether the excess found finished goods were liable to confiscation as goods intended for clandestine removal.

Analysis: The evidence did not establish that the excess goods were meant for clandestine clearance. Mere presence of the goods in packed and ready-for-despatch condition was insufficient to conclude clandestine removal, particularly when the quantity was within the appellant's processing capacity for a day. The surrounding circumstances did not justify an inference of deliberate evasion for the seized excess stock.

Conclusion: The confiscation of the excess found goods was set aside.

Issue (ii): Whether the penalty under Section 11AC and the separate penalty under Rule 25(1) were sustainable in full.

Analysis: The duty demand was not contested, but the surrounding facts justified moderation of the penal consequence. In the circumstances, the statutory penalty was considered excessive in its original quantum, while the separate penalty imposed under Rule 25(1) did not survive.

Conclusion: The penalty under Section 11AC was reduced to Rs. 1 lakh and the separate penalty under Rule 25(1) was set aside.

Final Conclusion: The demand of duty and interest was maintained, but the confiscation was annulled and the penal liability was substantially reduced, resulting in only partial success for the appellant.

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