Confiscation requires prior notice and penalty must be proportionate in clandestine removal cases

Confiscation of seized excisable goods and the fine in lieu of confiscation were held unsustainable where the show cause notice issued after provisional release did not propose confiscation to the person holding the goods on bond; the adjudication could not travel beyond the notice, so the confiscation-related consequences failed. The penalty on the manufacturer was reduced because the duty liability from clandestine removal was accepted, but the original penalty was considered excessive and aligned with the confirmed duty. The penalty on the alleged facilitating concern was upheld on evidence of transport through its invoices and supporting driver statements.

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Issues: (i) whether confiscation of the seized goods and fine in lieu of confiscation could be sustained without a show cause notice proposing confiscation to the person to whom the goods were provisionally released; (ii) whether the penalty imposed on the manufacturer required reduction in the facts of the case; (iii) whether the penalty imposed on the alleged facilitating concern was justified.

Issue (i): Whether confiscation of the seized goods and fine in lieu of confiscation could be sustained without a show cause notice proposing confiscation to the person to whom the goods were provisionally released.

Analysis: The goods were intercepted while being moved without duty payment and the material on record supported clandestine removal, so confiscation was otherwise warranted. However, confiscation had to be adjudged in accordance with the safeguards embodied in Section 124 of the Customs Act, 1962 as applied to central excise proceedings. Since the show cause notice issued after provisional release did not propose confiscation against the person holding the goods on bond, the adjudication could not go beyond the notice. A confiscation order made without such notice could not be sustained, and the consequential fine in lieu of confiscation also failed.

Conclusion: The confiscation and the fine in lieu of confiscation were set aside.

Issue (ii): Whether the penalty imposed on the manufacturer required reduction in the facts of the case.

Analysis: The duty demand based on clandestine removal was not disputed, but the penalty originally imposed under Rule 173Q of the Central Excise Rules, 1944 was higher than the duty confirmed. In the circumstances, the quantum of penalty was considered excessive and was brought in line with the duty liability.

Conclusion: The penalty on the manufacturer was reduced from Rs. 5 lakhs to Rs. 3,27,159/-.

Issue (iii): Whether the penalty imposed on the alleged facilitating concern was justified.

Analysis: The seizure of goods on multiple dates while being transported with that concern's invoices, together with the drivers' statements, established its role in facilitating unaccounted clearances. The penalty was therefore supported by the evidence and was not found to be excessive.

Conclusion: The penalty on the facilitating concern was upheld.

Final Conclusion: The appeal succeeded to the extent of setting aside the confiscation-related fine and reducing one penalty, while the duty demand and the separate penalty on the other appellant were sustained.

Ratio Decidendi: Confiscation and consequential fine cannot be sustained where the show cause notice does not put the affected person on notice of the proposed confiscation, and penalty must be proportionate to the established duty liability and surrounding facts.

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