Captive consumption of intermediate goods defeats penalty where there is no clandestine removal or home consumption.

Penalty for non-maintenance of records was held unjustified where intermediate wires drawn from duty-paid rods were captively consumed in manufacture of insulated PVC cables. As there was no allegation of clandestine removal or removal for home consumption, and the goods were used within the manufacturing process, the facts did not support a penalty. The penalty was set aside.

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Issues: Whether penalty was leviable for non-maintenance of records in respect of an intermediate product that was captively consumed in the manufacture of the final product.

Analysis: The intermediate wires were drawn from duty-paid rods and were used captively in the manufacture of insulated PVC cables. There was no allegation of clandestine removal or removal for home consumption, and the goods were consumed within the manufacturing process. In the absence of any wrongful intention and in view of the captive use of the goods, penalty was not justified on the facts of the case.

Conclusion: Penalty was not imposable and the penalty of Rs. 2,000/- was set aside.

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