Confiscation of scrap for non-accounting fails where goods stayed in the factory and were meant for recycling.

Non-accounting of finished goods or scrap does not by itself justify confiscation or penalty under the Central Excise Rules where the material remained within the factory and was intended for recycling. The decisive factor is whether the goods were meant for removal outside the premises; in the absence of any finding of intended illicit removal, the legal basis for confiscation fails. On the facts considered, the scrap was not shown to have been taken outside the factory, so confiscation and the associated penalty were held unsustainable in favour of the assessee.

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Issues: Whether non-accounting of finished goods or scrap, which was not taken outside the factory premises and was meant for recycling, amounted to contravention warranting confiscation and penalty under the Central Excise Rules.

Analysis: The reference turned on whether the goods were intended for removal from the factory or were retained for recycling. In the absence of any finding that the material was intended to be taken outside the premises, the legal basis for confiscation and consequential penalty was not made out. The reasoning followed the settled principle that confiscation cannot be sustained where the goods were not meant for illicit removal.

Conclusion: The non-accounting did not justify confiscation or penalty on the facts found, and the issue was answered in favour of the assessee.

Final Conclusion: The reference was answered by holding that confiscation of the scrap and the associated penalty were unsustainable on the facts considered.

Ratio Decidendi: Where material remaining within the factory is not intended for removal outside the premises and is meant for recycling, confiscation and penalty under the excise rules are not sustainable merely for non-accounting.

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