Cenvat credit and confiscation principles: stock record lapses alone do not sustain confiscation, but uncorrelated returned goods credit fails.

Confiscation of goods kept in the factory was held unsustainable because there was no finding of clandestine removal; mere non-updation of stock records was insufficient. The larger Cenvat credit demand was also rejected because the credit, though irregularly recorded, had been utilised to pay duty on finished goods and no corresponding duty demand was raised on those clearances, making the proposed recovery of credit, interest and penalties unsustainable. However, the smaller credit demand was upheld since the assessee could not correlate returned goods with the original duty-paid clearances, so admissibility of credit was not proved.

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Issues: (i) whether confiscation of goods found in the factory premises was sustainable in the absence of any finding of clandestine removal; (ii) whether the demand of Cenvat credit of Rs. 45,31,371/- along with interest and penalties was sustainable where the credit had been utilised for payment of duty on finished goods and no demand was raised on such clearances; (iii) whether the demand of Rs. 2,87,958/- as ineligible Cenvat credit was sustainable for want of correlation of the returned goods with the original duty-paid clearances.

Issue (i): whether confiscation of goods found in the factory premises was sustainable in the absence of any finding of clandestine removal.

Analysis: The goods were admittedly lying within the factory premises, and the RG-I register had not been updated for the relevant period. However, there was no allegation or finding that the appellant intended to remove the goods clandestinely. Mere non-entry in the stock register, without evidence of attempted clandestine clearance, was insufficient to justify confiscation.

Conclusion: The confiscation was set aside in favour of the assessee.

Issue (ii): whether the demand of Cenvat credit of Rs. 45,31,371/- along with interest and penalties was sustainable where the credit had been utilised for payment of duty on finished goods and no demand was raised on such clearances.

Analysis: Although the appellant had not maintained the prescribed quantitative records, the credit had been taken in the statutory register and utilised for discharge of duty on the finished goods. Since no duty demand was made on the finished goods cleared on such utilisation, the situation was treated as equivalent to reversal of credit. On that basis, the proposed demand could not survive, and the consequential interest and penalties also could not survive.

Conclusion: The demand of Rs. 45,31,371/- and the connected interest and penalties were set aside in favour of the assessee.

Issue (iii): whether the demand of Rs. 2,87,958/- as ineligible Cenvat credit was sustainable for want of correlation of the returned goods with the original duty-paid clearances.

Analysis: The appellant failed to establish that the returned goods were received under documents showing that they had originally been cleared on payment of duty. In the absence of proper correlation, the credit was not proved to be admissible.

Conclusion: The demand of Rs. 2,87,958/- along with interest and equivalent penalty was upheld against the assessee.

Final Conclusion: The order granted relief on confiscation and on the larger Cenvat credit demand, but sustained the smaller credit demand with consequential interest and penalty, resulting in a partial success for the appellant.

Ratio Decidendi: Confiscation cannot rest on mere non-maintenance of stock records when there is no finding of clandestine removal, and a credit demand may fail where the credit, even if irregularly taken, has already been utilised to pay duty on finished goods without any corresponding duty demand on those clearances.

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