Factory stock, unaccounted scrap and unauthorised removal: confiscation may stand, but fines and penalty must remain proportionate.

Physical excess stock awaiting completion of manufacture or marketability may not be treated as liable to confiscation merely because it is found within the factory, where no material shows clandestine removal. Recorded shortages of finished goods require a satisfactory explanation, failing which duty demand is sustainable. Unaccounted tin scrap arising from duty-credit goods is dutiable and may be confiscated if not properly entered in statutory records, though redemption fine must remain proportionate. Unauthorised removal of tin sheets to another godown can justify confiscation; however, duty is not sustainable on shifted stock treated as not finally cleared, and penalty may be reduced where the facts warrant moderation.

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Issues: (i) Whether the excess of 17,076 metal containers was liable to confiscation and redemption fine; (ii) whether duty was correctly demanded on 2,363 metal containers found short; (iii) whether 88.644 M.T. of tin scrap was liable to confiscation and, if so, whether the redemption fine was excessive; (iv) whether 389.540 M.T. of tin sheets removed to the Delhi godown was liable to confiscation, whether duty on that quantity was sustainable, and whether the penalty required reduction.

Issue (i): Whether the excess of 17,076 metal containers was liable to confiscation and redemption fine.

Analysis: The excess containers were found within the factory premises, and the explanation that part of them represented same-day production and part awaited leak test and quality inspection was not rebutted. There was no material showing preparation for clandestine removal, and the containers were not yet fit for entry in the stock register as marketable goods.

Conclusion: The excess metal containers were not liable to confiscation, and the redemption fine imposed on them was set aside, in favour of the assessee.

Issue (ii): Whether duty was correctly demanded on 2,363 metal containers found short.

Analysis: The shortage related to finished goods recorded in the statutory register, and the explanation that the shortage was small in percentage terms was not sufficient. A shortage in recorded finished stock required a proper explanation, which was not furnished.

Conclusion: The duty demand on the 2,363 containers found short was upheld, against the assessee.

Issue (iii): Whether 88.644 M.T. of tin scrap was liable to confiscation and, if so, whether the redemption fine was excessive.

Analysis: Tin scrap arose from tin sheets on which Modvat credit had been taken, so the scrap was dutiable and had to be accounted for in the statutory records. Since it was not properly accounted for and no satisfactory explanation was offered, confiscation was justified. However, the redemption fine was found to be excessive having regard to the circumstances.

Conclusion: Confiscation of the tin scrap was upheld, but the redemption fine was reduced to Rs. 25,000, partly in favour of the assessee.

Issue (iv): Whether 389.540 M.T. of tin sheets removed to the Delhi godown was liable to confiscation, whether duty on that quantity was sustainable, and whether the penalty required reduction.

Analysis: The removal of the tin sheets from the factory to the Delhi godown was not supported by prior intimation or permission, so confiscation was justified. But the duty demand on the recovered quantity was not sustainable because the goods were treated as shifted stock rather than cleared for home consumption. The penalty was also considered excessive in the facts and circumstances.

Conclusion: Confiscation of the tin sheets was upheld, the duty demand on 389.540 M.T. was set aside, the duty on the balance shortage of 46.994 M.T. was sustained, and the penalty was reduced, partly in favour of the assessee.

Final Conclusion: The appeal succeeded only in part: confiscation and duty consequences were modified to the extent indicated, redemption fines and penalty were reduced, and the balance findings of the lower authority were maintained.

Ratio Decidendi: Goods awaiting completion of manufacture or marketability may not be treated as liable to confiscation merely because they are physically present in excess, but recorded shortages of finished stock, unaccounted dutiable scrap, and unauthorised removal of inputs can justify duty demand and confiscation, subject to proportionality in redemption fine and penalty.

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