Confiscation for alleged clandestine removal fails where goods remain inside the factory, but record-keeping lapses still attract reduced penalty.

Goods found inside a factory and not entered in statutory records were held not liable to confiscation or redemption fine where they were lying in a bonded store room, not packed, and not shown to be ready for clandestine removal. The absence of RG 1 entries and invoices, by itself, was insufficient to presume removal without payment of duty. However, failure to maintain statutory records remained established and justified penalty, though the amount was reduced as excessive on the facts. The confiscation fine was set aside, while penalty was sustained only to a limited extent, giving the assessee partial relief.

---

---

Issues: (i) Whether goods found inside the factory and not shown in the statutory records were liable to confiscation and redemption fine on an allegation of clandestine removal; (ii) Whether penalty for non-maintenance of records was sustainable and, if so, to what extent.

Issue (i): Whether goods found inside the factory and not shown in the statutory records were liable to confiscation and redemption fine on an allegation of clandestine removal.

Analysis: The goods were found lying in the bonded store room within the factory premises and were neither in packed condition nor in a state of preparation for removal. The only established lapse was that the production figures had not been entered in the RG 1 register and invoices had not been issued. On these facts, a presumption of clandestine removal was not warranted, and goods merely remaining within the factory could not be treated as liable to confiscation in the absence of evidence that they were ready for removal without payment of duty.

Conclusion: The confiscation fine was not sustainable and was set aside in favour of the assessee.

Issue (ii): Whether penalty for non-maintenance of records was sustainable and, if so, to what extent.

Analysis: Although the allegation of clandestine removal was not accepted, the failure to maintain statutory records up to date remained established. The lapse justified penal action, but the original penalty was considered excessive in the overall facts and circumstances of the case.

Conclusion: Penalty was upheld only to the extent of Rs. 5,000 and reduced accordingly, in part favour of the assessee.

Final Conclusion: The appeal succeeded on confiscation but failed substantially on penalty, resulting in partial relief to the assessee.

Ratio Decidendi: Goods found within the factory, not in packed condition or otherwise shown to be in preparation for removal, cannot be confiscated merely because they are not entered in the statutory stock register; however, non-maintenance of records can still attract a reduced penalty.

---