Clandestine removal inference from unaccounted excisable goods supports confiscation, while penalty may still be moderated on facts.

Substantial quantities of textured yarn found outside the statutory RG 1 account supported an inference of intended clandestine removal, because the explanations were inconsistent, unsupported and inconsistent with normal production. On those facts, confiscation of the unentered goods was sustained under the Central Excise Rules, including the control provisions governing goods not entered in prescribed accounts. A separate explanation based on anti-static oil was rejected for want of reliable consumption records and a coherent accounting trail, but the penalty was moderated because the weight attributable to oil and the duty implications warranted reduction on the facts.

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Issues: (i) whether the seizure and confiscation of textured yarn not entered in the RG 1 register was sustainable under Rule 173Q(1) of the Central Excise Rules, 1944 or Rule 226 of the Central Excise Rules, 1944; (ii) whether the excess stock shown by the stock verification could be explained wholly by the use of anti-static oil and whether the penalty required reduction.

Issue (i): whether the seizure and confiscation of textured yarn not entered in the RG 1 register was sustainable under Rule 173Q(1) of the Central Excise Rules, 1944 or Rule 226 of the Central Excise Rules, 1944.

Analysis: The yarn was found in a large quantity, much beyond the normal daily production and beyond what could reasonably have remained unentered by oversight. The explanations offered were inconsistent and unsupported. The circumstances showed prolonged non-accountal of finished goods and justified an inference that the goods were intended for removal without payment of duty. Even apart from Rule 173Q(1), confiscation could be supported under Rule 226 for goods not entered in the prescribed accounts.

Conclusion: The confiscation of the unentered yarn was upheld.

Issue (ii): whether the excess stock shown by the stock verification could be explained wholly by the use of anti-static oil and whether the penalty required reduction.

Analysis: The claimed explanation based on anti-static oil was rejected because proper consumption records were not maintained and the figures produced were highly inconsistent. The available Modvat credit on such oil and the absence of a credible accounting trail further weakened the explanation. The surrounding circumstances supported the finding of intended clandestine removal, but the extent of weight attributable to oil and the duty involved warranted some moderation in the penalty.

Conclusion: The finding of liability under Rule 173Q(1) was sustained, but the penalty was reduced.

Final Conclusion: The goods were rightly held liable to confiscation, the allegation of unaccounted production was sustained, and only the penalty was moderated on the facts.

Ratio Decidendi: Where finished excisable goods are found in substantial quantity outside the statutory stock account and the explanation for the shortage is unsupported and contradictory, an inference of intended clandestine removal is justified, and confiscation and penalty under the excise control provisions may be sustained.

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