RG-I non-accountal without mens rea supports only a limited procedural penalty, not confiscation under excise law.

Non-accountal of finished excisable goods in the RG-I register, without proof of intent to evade duty, was treated as insufficient to sustain confiscation and the heavier penalty under Rule 173Q of the Central Excise Rules, 1944. The goods were found inside the factory and not shown to have been clandestinely removed, so the absence of mens rea defeated the graver charge. The accounting lapse was nevertheless regarded as a procedural default under Rule 226, which permitted only the limited statutory penalty. The adjudication was therefore set aside as to confiscation and Rule 173Q penalty, while the Rule 226 penalty was upheld at the prescribed ceiling.

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Issues: (i) Whether finished excisable goods not entered in the RG-I register were liable to confiscation and penalty under Rule 173Q of the Central Excise Rules, 1944 in the absence of mens rea; (ii) Whether a limited penalty could be sustained under Rule 226 of the Central Excise Rules, 1944 for non-accountal in the RG-I register.

Issue (i): Whether finished excisable goods not entered in the RG-I register were liable to confiscation and penalty under Rule 173Q of the Central Excise Rules, 1944 in the absence of mens rea.

Analysis: Rule 173Q was read as a penal provision covering contravention relating to removal of excisable goods, non-accountal of manufactured goods, and contravention with intent to evade duty. On the facts, the goods were found inside the factory and had not been clandestinely removed. The decisive question was whether mere non-entry in RG-I, without proof of intent to evade duty, could sustain confiscation and penalty under Rule 173Q. The majority held that where the adjudication rested on non-accountal simpliciter and no mens rea was established, confiscation and the heavier penalty under Rule 173Q could not stand.

Conclusion: The answer to this issue is in the negative; confiscation and penalty under Rule 173Q were not sustainable in the absence of mens rea.

Issue (ii): Whether a limited penalty could be sustained under Rule 226 of the Central Excise Rules, 1944 for non-accountal in the RG-I register.

Analysis: Rule 226 governs the manner of maintaining stock accounts and penalises failure to make required entries within the prescribed time, with a maximum penalty of Rs. 2,000. The majority accepted that the finished goods were not duly entered in RG-I at the relevant time and treated this as a procedural default distinct from the graver charge under Rule 173Q. On that footing, a limited penalty under Rule 226 was held appropriate for the accounting lapse.

Conclusion: The answer to this issue is in the affirmative; a penalty of Rs. 2,000 under Rule 226 was sustainable.

Final Conclusion: The adjudication was substantially set aside in respect of confiscation and the Rule 173Q penalty, while the accounting lapse was visited only with the limited statutory penalty under Rule 226.

Ratio Decidendi: Non-accountal of finished goods in RG-I, without proof of intent to evade duty, cannot sustain confiscation and penalty under Rule 173Q, but may attract only the limited procedural penalty prescribed for maintenance of accounts.

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