Raw material and excess stock findings do not, by themselves, justify confiscation or Cenvat credit reversal.

Cut tobacco identified as raw material, rather than finished excisable goods, could not be subjected to RG-1 accounting, confiscation, or duty demand; the excess found was therefore held not liable to such action. Packing materials found in excess of recorded stock also did not justify reversal of Cenvat credit or confiscation, because there was no evidence of removal of credit-availing inputs and no legal basis for demand merely on an excess stock finding. The impugned order was held unsustainable in law and the assessee obtained full relief.

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Issues: (i) Whether confiscation and duty demand could be sustained on cut tobacco found in excess when it was shown as raw material and not finished goods; (ii) Whether reversal of Cenvat credit and confiscation could be sustained in respect of packing materials found in excess of recorded balance.

Issue (i): Whether confiscation and duty demand could be sustained on cut tobacco found in excess when it was shown as raw material and not finished goods.

Analysis: The goods seized were identified in the panchnama as cut tobacco. The record showed that the appellant manufactured chewing tobacco, and the cut tobacco was treated as remnant/raw material rather than finished excisable goods. Since RG-1 is meant for finished excisable goods, goods which are not finished goods do not require entry in that register. On that basis, the finding that the excess cut tobacco was liable to confiscation and duty demand could not be sustained.

Conclusion: Confiscation and duty demand on the cut tobacco were unsustainable and were set aside.

Issue (ii): Whether reversal of Cenvat credit and confiscation could be sustained in respect of packing materials found in excess of recorded balance.

Analysis: The packing materials were found in excess, not short, in the statutory records. There was no allegation or evidence that packing materials on which credit had been taken were removed from the factory. In the absence of any rule permitting recalculation and demand of credit merely because the inputs were found in excess, reversal of Cenvat credit could not be directed on that basis. Such a demand would arise, if at all, only where the goods are found short.

Conclusion: The demand for Cenvat credit reversal and confiscation in respect of the excess packing materials was unsustainable and was set aside.

Final Conclusion: The impugned order was held unsustainable in law and the appeal succeeded in full, resulting in complete relief to the assessee.

Ratio Decidendi: Goods shown to be raw material and not finished excisable goods cannot be treated as liable to RG-1 accounting or confiscation on that basis, and Cenvat credit cannot be demanded merely because inputs or packing materials are found in excess of recorded stock without a legal basis for such reversal.

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