Non-accountal of factory stock may justify confiscation, but harsher penalties need proof of clandestine removal or duty evasion.

Non-entry of goods in the prescribed production records may justify confiscation and a lesser penalty, but the harsher provision for serious evasion is not attracted where the goods remain within the factory and there is no proof of clandestine removal or preparation for removal. Mere failure to account for stock, without evidence of intent to evade duty, is insufficient to sustain the higher consequence under Rule 173Q(1)(b), though Rule 226 may still support token redemption fine and reduced penalty.

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Issues: Whether confiscation of excess stock and the consequential penalty were sustainable where the goods were found inside the factory, there was no evidence of clandestine removal or preparation for removal, and the goods were not entered in the prescribed records.

Analysis: The goods remained within the factory premises and no direct or circumstantial evidence showed removal without payment of duty or any preparation to do so. Mere non-recording of production or stock, without proof of intent to evade duty, was insufficient to sustain the harsher consequence under Rule 173Q(1)(b) of the Central Excise Rules, 1944. The failure to make entries in the daily production account nevertheless attracted Rule 226 of the Central Excise Rules, 1944 and justified confiscation, but the absence of proven mens rea warranted only a token fine and a lower penalty.

Conclusion: The confiscation was maintained, but the fine in lieu of confiscation and the penalty were reduced by applying Rule 226 of the Central Excise Rules, 1944 instead of Rule 173Q(1)(b) of the Central Excise Rules, 1944.

Final Conclusion: The appeal succeeded only to the extent of reduction in the quantum of fine and penalty, while the finding of liability for confiscation on account of non-entry in the statutory records was not disturbed.

Ratio Decidendi: Where goods are found within the factory and clandestine removal or intent to evade duty is not proved, the harsher penalty provision for serious offences is inapplicable, though non-accountal in the prescribed records may still justify a lesser penalty and confiscation with token redemption fine.

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