SSI exemption and record-keeping lapse: redemption fine and penalty reduced as disproportionate, while confiscation was maintained.

Where an SSI unit entitled to exemption was not required to file a declaration or obtain registration, and the only sustained lapse was non-maintenance of records, the monetary consequences had to be commensurate with that default. As there was no allegation of suppression of production or clearances, and no basis to club clearances with another unit to deny SSI exemption, confiscation was not disturbed but the redemption fine and penalty were found excessive. CESTAT New Delhi reduced the redemption fine and penalty substantially, while maintaining confiscation.

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Issues: Whether, in the circumstances of an SSI unit availing exemption and not required to file declaration or obtain registration, the redemption fine and penalty imposed for non-maintenance of records were excessive and liable to be reduced.

Analysis: The only allegation sustained against the assessee was non-maintenance of records. There was no allegation of suppression of production or clearances, and no case that the clearances were liable to be clubbed with another unit for denying SSI exemption. In these circumstances, confiscation was not in dispute, but the monetary consequences imposed for the lapse were found to be disproportionate.

Conclusion: The redemption fine and penalty were reduced from Rs. 2,00,000 and Rs. 65,293 to Rs. 50,000 and Rs. 10,000 respectively, and the assessee succeeded to that extent.

Final Conclusion: The order was modified by substantially reducing the redemption fine and penalty while maintaining the confiscation.

Ratio Decidendi: Where the only established lapse is non-maintenance of records by an SSI unit otherwise entitled to exemption and there is no allegation of suppression or clubbing, the redemption fine and penalty must be commensurate with the default and not excessive.

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