Concessional excise goods must be duly accounted for, but security deposit forfeiture is limited to goods lawfully liable to confiscation.

Goods cleared under a concessional scheme remained liable to duty where they were not used as declared, were not duly accounted for, and the samples showed that part of the consignment did not conform to the prescribed description. Rule 196 of the Central Excise Rules, 1944 was therefore attracted, and the duty demand on the non-conforming and unaccounted quantity was upheld. However, appropriation from the security deposit was not sustained because the oil found in the factory tanks was not the excisable goods contemplated for confiscation and forfeiture under that rule. The recovery by appropriation was set aside, while the duty liability remained in force.

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Issues: (i) Whether duty was payable under Rule 196 of the Central Excise Rules, 1944 on 66.205 M.T. of Jute Batching Oil found not to have been duly accounted for and not conforming to the prescribed specification; (ii) Whether the appropriation of Rs. 37,039.26 from the security deposit against the value of the seized oil was lawful.

Issue (i): Whether duty was payable under Rule 196 of the Central Excise Rules, 1944 on 66.205 M.T. of Jute Batching Oil found not to have been duly accounted for and not conforming to the prescribed specification?

Analysis: The goods obtained under Rule 192 had to be used in the manner stated in the application and duly accounted for. The sample drawn from the factory stock showed a flash point below 94 C, which meant that the oil did not satisfy the prescribed description of Jute Batching Oil under sub-heading 2710.70. The tanker samples also showed that part of the consignment was not Jute Batching Oil, and the balance quantity was not shown to have been lost or destroyed by natural causes or unavoidable accident. On those facts, Rule 196 was attracted and the concessional rate of duty could not be retained for the quantity found to be non-conforming or not duly accounted for.

Conclusion: Duty was payable, and the demand on this issue was upheld against the assessee.

Issue (ii): Whether the appropriation of Rs. 37,039.26 from the security deposit against the value of the seized oil was lawful?

Analysis: Although Rule 196 permits forfeiture of security and confiscation of excisable goods on breach, the oil actually found in the factory tanks was not the excisable goods contemplated by the rule because it did not conform to the specification of Jute Batching Oil. The liability to pay duty on the non-accounted quantity did not by itself justify treating the substituted or non-conforming oil as confiscable goods for the purpose of appropriating the security deposit in this manner. The portion of the order directing appropriation from the security deposit was therefore unsustainable.

Conclusion: The appropriation was held to be unlawful and was set aside in favour of the assessee.

Final Conclusion: The duty demand was sustained, but the recovery by appropriation of the security deposit was disapproved, so the appeal succeeded only to that limited extent.

Ratio Decidendi: Goods cleared under a concession scheme remain subject to duty if they are not used as declared or are not duly accounted for, but security deposit can be appropriated only within the confines of the confiscation and forfeiture provisions applicable to the goods lawfully liable to such action.

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