Finished-stage dispute under Central Excise law led to setting aside confiscation and sustaining only a reduced penalty.

Where PU Foam Sheets had not clearly reached the finished stage and remained inside the factory, confiscation for alleged clandestine removal was unwarranted on the facts and was set aside. On the penalty question, the only proved contravention was non-accountal, and because the stage of completion itself was disputed, the penalty was held to fall under Rule 226 rather than Rule 173Q of the Central Excise Rules, 1944. The order was therefore modified by deleting confiscation and sustaining only a reduced penalty under the provision appropriate to the proved breach.

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Issues: (i) Whether the goods were fully finished and liable to confiscation, or remained semi-finished and inside the factory; (ii) Whether the penalty was attracted under Rule 173Q or Rule 226 of the Central Excise Rules, 1944.

Issue (i): Whether the goods were fully finished and liable to confiscation, or remained semi-finished and inside the factory.

Analysis: The dispute turned on whether the PU Foam Sheets had reached the RG 1 stage and were fully finished. The respondents relied on the continued stitching of poplin cloth, the need for double bonding, and the absence of preparations for removal, while the department relied on the partner's statement. On the facts, the goods were treated as still inside the factory and not shown to be intended for clandestine removal.

Conclusion: Confiscation of the goods was set aside.

Issue (ii): Whether the penalty was attracted under Rule 173Q or Rule 226 of the Central Excise Rules, 1944.

Analysis: The only proved allegation was non-accountal, and even that depended upon the disputed stage of completion of the goods. In the circumstances, the appropriate provision for penalty was held to be Rule 226 rather than Rule 173Q, and the penalty was confined to a lesser amount.

Conclusion: Penalty was upheld only to the extent of Rs. 2,000/- under Rule 226 of the Central Excise Rules, 1944.

Final Conclusion: The order was modified by setting aside confiscation and sustaining a reduced penalty, with the appeal disposed of accordingly.

Ratio Decidendi: Where the finished stage of excisable goods and the allegation of non-accountal remain disputed, confiscation for alleged clandestine removal is unwarranted, and penalty must be confined to the provision appropriate to the proved contravention.

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