RG-1 accounting uncertainty limits confiscation, but shortage of accounted finished goods can sustain duty and penalty.

Unclear departmental guidance on the stage at which transformers had to be entered in RG-1 meant that mere non-entry of semi-finished goods did not, by itself, justify confiscation as unaccounted excisable goods. By contrast, shortage of accounted finished transformers at stock verification supported an inference of evasion and removal without duty, sustaining duty demand and penalty on that count. The stated ratio is that prolonged uncertainty over accounting requirements weakens confiscation for semi-finished goods, but absence of finished goods from stock can establish clandestine removal.

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Issues: (i) Whether the 537 transformers lying in the factory but not entered in the RG-1 register were liable to confiscation as unaccounted excisable goods. (ii) Whether the shortage of three transformers found during stock verification justified demand of duty and penalty on the footing of clandestine removal.

Issue (i): Whether the 537 transformers lying in the factory but not entered in the RG-1 register were liable to confiscation as unaccounted excisable goods.

Analysis: The accounting stage of transformers had remained under correspondence between the Department and the assessee for more than two decades, and no clear departmental direction had been issued. The goods in question were not in packed condition and were asserted to be in semi-finished stage. In these circumstances, mere non-entry in the RG-1 register did not establish failure to account for excisable goods as finished goods or justify confiscation under the relevant confiscation provision.

Conclusion: Confiscation of the 537 transformers was not sustainable and was set aside with consequential relief to the assessee.

Issue (ii): Whether the shortage of three transformers found during stock verification justified demand of duty and penalty on the footing of clandestine removal.

Analysis: The assessee's own case was that transformers were entered only when fully ready for dispatch. Only 15 such transformers were accounted as finished goods, and three of those could not be produced at the time of stock verification. Their later production did not displace the inference that they were missing on the date of verification. The shortage of accounted finished goods thus supported the conclusion that duty had been evaded, and the duty demand and penalty on that count were justified.

Conclusion: The duty demand and penalty relating to the three short-found transformers were upheld.

Final Conclusion: The appeal succeeded only to the limited extent of setting aside confiscation of the 537 transformers, while the duty demand and penalty for the three short-found transformers were sustained.

Ratio Decidendi: Where the departmental position regarding the stage of accounting of goods has remained unclear for a long period, non-entry of semi-finished goods in the stock register by itself does not justify confiscation, but shortage of accounted finished goods at stock verification can sustain a finding of removal without payment of duty.

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