Unrecorded finished goods can justify confiscation, duty demand, and penalty when statutory records do not support the explanation.

Unrecorded excess stock of readymade garments found in a factory, when not reflected in statutory records and not supported by a credible explanation, may be treated as liable to confiscation as goods intended for clandestine clearance; the confiscation was upheld, though the redemption fine was reduced. A shortage of finished garments, which should have been entered in RG-1 and removed on invoices, justified duty demand and penalty because the goods were treated as unaccounted finished stock; the duty liability and penalty were sustained, subject to reduction of penalty.

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Issues: (i) whether the excess stock of readymade garments found in the factory was liable to confiscation as unrecorded goods intended for clandestine clearance; and (ii) whether the shortage of finished readymade garments warranted duty demand and penalty.

Issue (i): whether the excess stock of readymade garments found in the factory was liable to confiscation as unrecorded goods intended for clandestine clearance.

Analysis: The excess goods were found packed in master cartons and were not reflected in the statutory records. The explanation that they were rejected goods or process goods was rejected, as such goods were expected to be accounted for and the absence of any record supported the inference that they were meant for clandestine clearance. The goods were therefore held liable to confiscation. However, the redemption fine was found to be excessive and was reduced in view of the nature of the goods and the surrounding facts.

Conclusion: The confiscation was upheld, but the redemption fine was reduced.

Issue (ii): whether the shortage of finished readymade garments warranted duty demand and penalty.

Analysis: The shortage related to finished goods which should have been entered in RG-1 and cleared on invoices. The explanation that they were mixed with rejected goods was not accepted, as the goods were treated as unaccounted finished stock. Duty liability therefore arose on clearance, and penalty was justified. The penalty, however, was reduced to a lower amount.

Conclusion: The duty demand and penalty on the shortage were sustained, subject to reduction of penalty.

Final Conclusion: The appeal succeeded only to the limited extent of reduction in redemption fine and penalties, while confiscation and duty liability on the unaccounted finished goods were upheld.

Ratio Decidendi: Unrecorded finished goods found in the factory, when not reflected in statutory records and unsupported by a credible explanation, may be treated as liable to confiscation and duty demand on the basis of clandestine clearance or unaccounted removal.

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