Diversion of excisable goods can justify confiscation and penalty, but punishment must remain proportionate and fact-based.

Diversion of excisable goods cleared under the prescribed removal procedure justified confiscation and penalty because the breach of Central Excise law was established even without proof of mens rea. The text also states that such measures must remain proportionate, so the redemption fine and penalty on the goods were reduced in the circumstances. Confiscation of plant and machinery was not sustained because no material showed habitual offending or any adequate basis for that extreme step, and that part of the order was set aside.

---

---

Issues: (i) Whether the confiscation of goods and imposition of penalty for diversion of excisable goods cleared under AR-3A procedure were sustainable; (ii) Whether confiscation of plant and machinery was justified.

Issue (i): Whether the confiscation of goods and imposition of penalty for diversion of excisable goods cleared under AR-3A procedure were sustainable.

Analysis: The goods were cleared from the factory against AR-3As and other documents for movement from one 100% EOU to another, but they were intercepted before reaching the intended recipient and were found to have been diverted. The liability to duty was not disputed. On those facts, the contravention of the Central Excise law was established, and confiscation and penalty under Rule 9(2) read with Rule 209(1) of the erstwhile Central Excise Rules, 1944 were held maintainable. At the same time, the redemption fine and penalty were considered excessive in the circumstances, having regard to the status of the unit and the nature of the lapse.

Conclusion: Confiscation and penalty were upheld, but the redemption fine and penalty were reduced.

Issue (ii): Whether confiscation of plant and machinery was justified.

Analysis: No material was shown to establish habitual offending or any adequate basis for the extreme step of confiscating the plant and machinery. In the absence of such justification, that part of the order could not be sustained.

Conclusion: Confiscation of plant and machinery was set aside.

Final Conclusion: The appeal succeeded in part: the confiscation and penalty on the goods were maintained subject to reduction, while confiscation of the plant and machinery was annulled.

Ratio Decidendi: Where cleared excisable goods are diverted in breach of the prescribed removal procedure, confiscation and penalty may be sustained even without proof of mens rea, but punitive measures must remain proportionate and supported by a proper factual basis.

---