Excess stock and confiscation: accounted grey yarn covered by invoices defeated penalty and confiscation.

Grey yarn found in excess during stock verification was not liable to confiscation where the assessee produced prior invoices covering the entire stock and departmental verification found no discrepancy. In the absence of any established clandestine activity, and because the raw material was accounted for with no Cenvat credit availed or processing commenced at the time of inspection, confiscation was unwarranted. A penalty based on the same alleged unaccounted stock could not survive once the underlying allegation failed. The confiscation and penalty were therefore set aside.

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Issues: Whether grey yarn found in excess during stock verification was liable to confiscation and whether penalty could be sustained when invoices covering the stock were produced and verified.

Analysis: The excess raw material was noticed during stock verification, but the respondent produced two invoices dated prior to the visit which covered the entire stock. The departmental verification of those invoices did not reveal any discrepancy. In the absence of any established clandestine activity, and since the raw material was accounted for and no Cenvat credit had been availed or processing commenced at the time of verification, confiscation was not warranted. The penalty founded on the same alleged unaccounted stock could not survive.

Conclusion: The confiscation and penalty were rightly set aside, and the Revenue's challenge failed.

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