RG1 register lapse without intent to evade duty does not attract Rule 173Q penalty; confiscation consequences were reduced.

Non-entry of manufactured goods in the RG1 register, by itself, did not justify penalty under Rule 173Q where there was no clearance with intent to evade duty. The Tribunal accepted the assessee's bona fide belief that RG1 entry was not required and treated the lapse as falling, at the highest, under Rule 226. On that basis, confiscation-related consequences were moderated, the redemption fine was reduced from Rs. 5 lakhs to Rs. 1 lakh, and the penalty was reduced to Rs. 2,000.

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Issues: Whether penalty under Rule 173Q of the Central Excise Rules, 1944 was sustainable for non-entry of manufactured goods in the RG1 register, and whether the redemption fine and penalty required reduction.

Analysis: The failure to enter the goods in the RG1 register was admitted, but the finding of the Tribunal was that the case did not involve clearance of goods with intent to evade duty. The explanation that the goods were believed not to require RG1 entry was accepted as a bona fide belief. In the absence of such intent, Rule 173Q was held inapplicable, and the liability was treated as falling, at the highest, under Rule 226. The quantum of redemption fine and penalty was then reconsidered in light of the nature of the lapse.

Conclusion: Penalty under Rule 173Q was not sustainable. The redemption fine was reduced from Rs. 5 lakhs to Rs. 1 lakh, and the penalty was reduced to Rs. 2,000.

Final Conclusion: The appeal succeeded substantially on the issue of penalty and confiscation-related consequences, resulting in a reduced redemption fine and a nominal penalty instead of the original higher sanctions.

Ratio Decidendi: Where goods are not entered in the statutory register but there is no clearance with intent to evade duty, Rule 173Q is not attracted and the penalty must be limited to the provision actually applicable.

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