Rule 173Q cannot cover excess inputs; confiscation and penalty were limited to unexplained finished goods only.

Rule 173Q of the Central Excise Rules, 1944 was confined to excisable goods manufactured, produced or stored by the manufacturer, so excess inputs could not be confiscated or penalised under that rule. The confiscation and penalty relating to the seized inputs were therefore set aside. Excess finished goods, however, were admitted and unexplained, so confiscation of those goods was sustained. Because the redemption fine had been fixed by reference to both inputs and finished goods, the fine and corresponding penalty were reduced to reflect only the finished goods lawfully liable to confiscation.

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Issues: (i) Whether Rule 173Q of the Central Excise Rules, 1944 could be invoked to confiscate inputs found in excess stock and to impose penalty in respect of such inputs. (ii) Whether confiscation of excess finished goods was sustainable and whether the redemption fine and penalty required reduction.

Issue (i): Whether Rule 173Q of the Central Excise Rules, 1944 could be invoked to confiscate inputs found in excess stock and to impose penalty in respect of such inputs.

Analysis: Rule 173Q was held applicable to contraventions concerning excisable goods manufactured, produced or stored by the manufacturer, and not to inputs. The excess stock of raw materials and other inputs, therefore, could not be brought within the scope of confiscation and penalty under that rule.

Conclusion: The confiscation and penalty insofar as they related to the seized inputs were set aside, in favour of the assessee.

Issue (ii): Whether confiscation of excess finished goods was sustainable and whether the redemption fine and penalty required reduction.

Analysis: The excess stock of finished goods was admitted and remained unexplained. On that basis, liability to confiscation of the finished goods was established. However, the redemption fine had been fixed with reference to both inputs and finished goods, even though the inputs were not liable to confiscation. In that circumstance, the fine and consequential penalty were required to be brought down to a level commensurate with the value of the finished goods alone.

Conclusion: Confiscation of the finished goods was sustained, but the redemption fine was reduced and the penalty was correspondingly reduced, in favour of the assessee.

Final Conclusion: The order was modified by excluding the inputs from confiscation and by reducing the monetary consequences relating to the finished goods.

Ratio Decidendi: Rule 173Q of the Central Excise Rules, 1944 is confined to excisable goods manufactured, produced or stored by the manufacturer and does not extend to inputs; where confiscation is sustained only for part of the goods, redemption fine and penalty must be proportionate to the goods lawfully liable to confiscation.

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