Procedural storage lapse in machinery removal could not justify duty demand, confiscation or penalty absent clandestine intent.

Removal of partly assembled machinery to a sister unit for storage, when driven by shortage of space and fully reflected in statutory records, was treated as a procedural lapse rather than clandestine clearance. The record showed endorsed storage arrangements at the sister unit and provisional duty payment on notional value that was not lower than the revised demand. As there was no evidence of suppression, diversion, or mala fide intent, the absence of the correct storage protocol could not sustain duty demand, confiscation, or penalty. The demands and penalties were held unsustainable.

---

---

Issues: Whether removal of partly assembled machinery from the factory to the sister unit for storage attracted duty demand, confiscation and penalty, or whether the lapse was only procedural and without mala fide intent.

Analysis: The goods were shifted because of shortage of storage space and the removals were reflected in the statutory records. The sister unit's ground plan had been endorsed for storage, and the materials on record showed that duty had been paid on provisional basis on the notional value, which was not less than the revised demand. The impugned order did not meaningfully address the earlier remand directions and treated the matter as if the removals were clandestine, although there was no evidence of suppression or diversion. In these circumstances, the absence of the correct protocol for storage outside the factory was held to be at best a procedural lapse, not a basis for confiscation or penalty.

Conclusion: The demand, confiscation and penalties were unsustainable. The appeals were allowed and the assessee succeeded.

Ratio Decidendi: Where removals are fully reflected in statutory records, arise from storage constraints, and disclose no mala fide or clandestine intent, a procedural irregularity in the mode of storage does not justify duty demand, confiscation or penalty.

---