Processor liability under excise law: supplier declarations sustained duty and redemption fine, but penalty fell for lack of mens rea.

A processor that relied on declarations in challans supplied by weaving mills remained liable for confiscation-linked redemption fine and short-paid duty because it could not verify the actual fabric composition and contractual reimbursement did not alter the excise liability. Penalty under Rule 173Q, however, required evidence of collusion or mens rea; where the record showed only adoption of the supplier's description and no independent gain, the punitive component could not be sustained and was remitted in full. The revised position therefore left the duty demand and redemption fine undisturbed while deleting the penalty.

---

---

Issues: (i) Whether the petitioner-processor was liable for confiscation, redemption fine and duty demand on the basis of the declaration accompanying the grey fabrics. (ii) Whether the penalty imposed under Rule 173Q of the Central Excise Rules was sustainable in the absence of evidence of collusion or mens rea.

Issue (i): Whether the petitioner-processor was liable for confiscation, redemption fine and duty demand on the basis of the declaration accompanying the grey fabrics.

Analysis: The petitioner was a processing unit and was not in a position to verify the actual composition of the fabrics; it acted on the declarations furnished by the weaving mills in the challans accompanying the goods. The ownership of the fabrics continued to vest in the mills, and the petitioner had been reimbursed in terms of the contractual arrangements. On the facts, there was no basis to disturb the liability already fastened in respect of confiscation, redemption fine and the short-paid duty.

Conclusion: The petitioner was not granted relief against the redemption fine or the duty demand.

Issue (ii): Whether the penalty imposed under Rule 173Q of the Central Excise Rules was sustainable in the absence of evidence of collusion or mens rea.

Analysis: The record disclosed no direct or indirect evidence that the petitioner had colluded with the weaving mills or derived any independent benefit from the misdeclaration. The petitioner had merely adopted the description supplied by the mills, and the circumstances did not justify retention of the penalty in full. In these circumstances, the punitive element could not be sustained to the extent originally imposed.

Conclusion: The penalty was remitted in full.

Final Conclusion: The revision succeeded only in relation to the penalty, while the redemption fine and duty liability were left undisturbed.

Ratio Decidendi: Where a processor merely follows the supplier's declaration and no collusion or independent gain is shown, penalty under a quasi-criminal excise provision may be remitted, but contractual reimbursement does not affect liability for redemption fine or duty already determined.

---