Proforma credit preserved after tariff change, while unaccounted bonded-store goods remained liable to confiscation and penalty.

Credit already allowable under the proforma credit scheme remained protected despite the rescission of Notification No. 201/79, because Rule 56A(8) continued such entitlement notwithstanding tariff reclassification or the absence of a fresh permission application. The demand to reverse the credit was therefore unsustainable. Finished concrete sleepers found in a bonded store room without entry in the statutory RG-1 register were, however, liable to confiscation because prior statutory accountal was required before storage; the explanation of rejection or pending testing did not excuse non-compliance. Confiscation and penalty were sustained, though the redemption fine and personal penalty were reduced.

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Issues: (i) Whether credit of duty taken under Notification No. 201/79 could be denied after its rescission in view of Rule 56A(8); (ii) Whether the 2268 concrete sleepers lying unaccounted in the bonded store room were liable to confiscation and whether penalty was warranted.

Issue (i): Whether credit of duty taken under Notification No. 201/79 could be denied after its rescission in view of Rule 56A(8).

Analysis: The relevant inputs and final product were classifiable under the tariff item covered by the proforma credit scheme. Rule 56A(8), as it stood on 1-3-1986, provided that credit of duty already allowable on any material, component part or finished product would continue to be allowed notwithstanding other parts of the rule or any change in nomenclature or classification consequent upon the Central Excise Tariff Act, 1985. Since credit had been allowable before the tariff change, the absence of a separate permission application did not justify denial of the credit in the facts of the case.

Conclusion: The demand for reversal of the credit was unsustainable, and the assessee succeeded on this issue.

Issue (ii): Whether the 2268 concrete sleepers lying unaccounted in the bonded store room were liable to confiscation and whether penalty was warranted.

Analysis: Finished manufactured goods were found in the bonded store room without entry in the statutory RG-1 register. The explanation that the sleepers were rejected or awaited railway testing did not justify storage in the bonded store room without prior statutory accountal. Entry in RG-1 before storage was required, and non-compliance attracted confiscation and consequential penalty. The quantum of redemption fine and personal penalty was, however, moderated in view of the circumstances.

Conclusion: Confiscation and penalty were upheld, but the amounts were reduced.

Final Conclusion: The credit demand was set aside, while confiscation and penalty for non-accountal of the sleepers were sustained with reduced monetary consequences.

Ratio Decidendi: Where credit had been allowable under the proforma credit scheme before the tariff change, Rule 56A(8) preserved that entitlement notwithstanding the rescission of the notification or the absence of a fresh permission, but finished goods stored in a bonded store room without statutory RG-1 entry remained liable to confiscation and penalty.

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