Excess stock without proof of clandestine removal cannot justify confiscation; procedural non-compliance defeats proforma credit

Confiscation of excess stock could not be sustained merely because the recorded balance was exceeded when there was no evidence of clandestine removal, and a satisfactory explanation for the storage discrepancy was accepted; the confiscation was therefore set aside. Proforma credit under Rule 56A was, however, correctly denied because the prescribed procedure was not followed, including the absence of prior permission and the required intimation before receipt of the consignments; the credit was treated as wrongly taken and the denial was upheld. The assessee obtained only partial relief.

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Issues: (i) Whether confiscation of the excess stock of sewing threads was justified in the absence of evidence of clandestine removal. (ii) Whether proforma credit under Rule 56A was rightly denied for non-compliance with the prescribed procedure and prior receipt of consignments.

Issue (i): Whether confiscation of the excess stock of sewing threads was justified in the absence of evidence of clandestine removal.

Analysis: The excess stock was found during physical verification, but there was no allegation or proof that the goods were intended for clandestine removal. The explanation that the spools were kept in the BSR due to paucity of space and that the reference to the goods being packed was inadvertent was accepted as satisfactory. Mere excess over recorded stock, without evidence of removal from the factory in violation of duty liability, was held insufficient to sustain confiscation.

Conclusion: The confiscation of the 16,079 spools of sewing threads was set aside, in favour of the assessee.

Issue (ii): Whether proforma credit under Rule 56A was rightly denied for non-compliance with the prescribed procedure and prior receipt of consignments.

Analysis: The appellants had applied for proforma credit, but permission had not been granted when the consignments were received. D3 intimation was not filed, and the consignments in question had been received before the application contemplated by Rule 56A(2). On these facts, the procedural requirements for availing the credit were not met, and the credit was treated as wrongly taken. The denial of credit under Rule 56A(5) was therefore supported.

Conclusion: Denial of proforma credit was upheld, against the assessee.

Final Conclusion: The appeal succeeded only on the issue of confiscation and failed on the issue of proforma credit, resulting in partial relief to the assessee.

Ratio Decidendi: Confiscation of excisable goods cannot be sustained merely on excess stock found in the absence of evidence of clandestine removal, but proforma credit is unavailable where the mandatory procedural conditions for its availing are not complied with.

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