Modvat input removal without duty can attract penalty, but confiscation must remain proportionate to the breach.

Removal of Modvat inputs as such without payment of duty attracted penalty because the lapse caused revenue loss, even though the duty had been paid before the show-cause notice; however, the penalty was reduced to reflect the circumstances. Confiscation of the plant, machinery and building was held to be harsh and unnecessary on the facts and was set aside. The duty already paid was confirmed, as the assessee did not dispute the demand. The stated principle is that a procedural lapse in excise clearance does not eliminate penal liability, but proportionality may justify reduction, and confiscation must be supported by the facts.

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Issues: (i) Whether, on removal of Modvat inputs as such without payment of appropriate duty, the assessee was liable to penalty; (ii) Whether confiscation of the plant, machinery and building was justified; (iii) Whether the duty already paid was to be confirmed.

Issue (i): Whether, on removal of Modvat inputs as such without payment of appropriate duty, the assessee was liable to penalty?

Analysis: The duty default arose from lack of coordination between the excise and despatch sections of an organised assessee. The amount had been paid even before issue of the show cause notice, but the lapse still resulted in loss of revenue and attracted penal provisions.

Conclusion: Penalty was justified, but its quantum was reduced to Rs. 1,00,000.

Issue (ii): Whether confiscation of the plant, machinery and building was justified?

Analysis: On the facts, confiscation of the appellant's plant and machinery was found to be harsh and unnecessary, and the circumstances did not warrant such a consequence.

Conclusion: The confiscation order was set aside.

Issue (iii): Whether the duty already paid was to be confirmed?

Analysis: The appellant did not contest the duty demand, and the amount had already been paid prior to the notice.

Conclusion: The duty already paid was confirmed.

Final Conclusion: The duty demand stood confirmed, the assessee remained liable to penalty with substantial reduction in quantum, and the confiscation of plant and machinery was annulled.

Ratio Decidendi: A procedural lapse in removal of excisable inputs does not wipe out penal liability, though prior payment and surrounding circumstances may justify reduction of penalty; confiscation must be supported by the facts and proportionality of the breach.

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