Excess finished stock and improper accounts justified confiscation and penalty under Rule 173Q on the facts.

Where excisable finished goods were found in excess of recorded stock and inputs were short in the accounts, the Allahabad HC upheld the finding of violation of Rule 173Q of the Central Excise Rules. The Court treated the failure to maintain proper accounts as attracting confiscation and penalty under Rule 173Q(1)(b), and held that reversal of input credit for the shortage did not undo the accounting lapse for the excess goods. It further noted that, on the facts, the surrounding circumstances supported more than a mere clerical error. The redemption fine and penalty were therefore sustained as lawful.

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Issues: Whether the finding of violation of Rule 173Q of the Central Excise Rules, and the consequential redemption fine and penalty for excess finished goods and shortage of inputs, was justified.

Analysis: Rule 173Q provides for confiscation and penalty where the conditions in its clauses are satisfied. Under Rule 173Q(1)(b), failure to maintain proper account of excisable goods attracts the statutory consequence. In the present case, finished goods were found in excess of the quantity shown in the books, and there was also shortage of inputs. The assessee had reversed the input credit in respect of the shortage, but that did not displace the finding that the finished goods were not duly accounted for. Though excess stock by itself may not invariably establish an intention to evade duty, the surrounding circumstances noticed by the authorities supported the conclusion that the case was not one of a mere clerical lapse.

Conclusion: The finding of violation was sustained, and the redemption fine and penalty were held to be lawful.

Final Conclusion: All referred questions were answered against the assessee and in favour of the Department, and the matter was sent back for consequential action before the Tribunal.

Ratio Decidendi: Where excisable finished goods are found in excess of recorded stock and the accounts are not properly maintained, liability to confiscation and penalty under Rule 173Q follows, even if a separate finding of intention to evade duty is not essential on the facts.

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