Clandestine removal and excess stock principles: mere factory excess does not justify confiscation, but unexplained input shortage supports duty demand.

Mere excess finished stock found packed inside a factory, without evidence of clandestine removal or preparation for removal, does not justify confiscation under Rule 173Q. An unexplained shortage of inputs may still sustain duty demand where the factual finding is that the goods were removed without accountal, invoice, or duty payment. Penalty under Rule 173Q must be reassessed if confiscation is set aside, while a separate penalty under Rule 226 may be maintained where it is not effectively challenged. The stated ratio is that excess stock alone, without proof of clandestine intent, is insufficient for confiscation under the excise penalty provisions.

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Issues: (i) whether confiscation of excess finished goods found in the factory was sustainable under Rule 173Q of the Central Excise Rules; (ii) whether duty demand on shortage of inputs was correctly confirmed; and (iii) whether the penalties imposed under Rule 173Q and Rule 226 of the Central Excise Rules were liable to be interfered with.

Issue (i): whether confiscation of excess finished goods found in the factory was sustainable under Rule 173Q of the Central Excise Rules.

Analysis: The goods were found within the factory in packed condition, and there was no finding that any attempt had been made to remove them clandestinely or that they were in preparation for such removal. The explanation regarding non-accountal was found broadly consistent, and the case law relied upon supported the view that mere excess stock within the factory, without proof of clandestine intent or attempted removal, does not justify confiscation.

Conclusion: The confiscation of the excess goods was not sustainable and was set aside in favour of the assessee.

Issue (ii): whether duty demand on shortage of inputs was correctly confirmed.

Analysis: The shortage of pig iron inputs remained unexplained, and no acceptable explanation was offered before the lower authorities or the Tribunal. On that factual basis, the finding that the goods had been removed without accountal, without invoice, and without payment of duty was not shown to be incorrect.

Conclusion: The duty demand on the shortage of inputs was correctly confirmed against the assessee.

Issue (iii): whether the penalties imposed under Rule 173Q and Rule 226 of the Central Excise Rules were liable to be interfered with.

Analysis: The penalty under Rule 173Q had to be re-examined in light of the setting aside of confiscation, while the penalty under Rule 226 was not disputed at hearing and was accepted.

Conclusion: The penalty under Rule 173Q was reduced, and the penalty under Rule 226 was confirmed.

Final Conclusion: The appeal succeeded only to the extent of setting aside confiscation and reducing the main penalty, while the duty demand and the separate penalty were maintained.

Ratio Decidendi: Mere excess stock of finished goods found within the factory, proof of clandestine removal or preparation for such removal, does not justify confiscation under the excise penalty provisions.

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