2007 (5) TMI 25 - HC - Central Excise

Confiscation of good Department contended that the appellant were deliberately not recorded in the finished good in RG-I register and accordingly liable to proceeded against under Rule 173-Q of the rules Held department contention was not right and set aside the Rule 173-Q of the Rules

Issues Involved:
1. Confiscation of goods and imposition of fine and penalty under Rule 173-Q(b) of the Central Excise Rules, 1944.
2. Determination of the RG-I stage for accounting finished goods.
3. Intention to evade payment of duty.
4. Validity of the orders passed by the assessing authority, appellate authority, and Tribunal.

Issue-wise Detailed Analysis:

1. Confiscation of Goods and Imposition of Fine and Penalty:
The Deputy Commissioner, Central Excise, Gwalior confiscated certain goods under Rule 173-Q(b) of the Central Excise Rules, 1944, with an option to redeem the same on payment of a redemption fine of Rs. 2.00 lacs and further imposed a penalty of Rs. 50,000/-. This decision was confirmed by the Commissioner (Appeals), Customs and Central Excise Bhopal, and the Customs, Excise, and Gold (Control) Appellate Tribunal, New Delhi. The petitioners challenged these orders, arguing that the goods were not fully manufactured and were still under quality control tests, hence not liable to be entered in the RG-I register at that stage.

2. Determination of the RG-I Stage for Accounting Finished Goods:
The petitioners contended that the RG-I stage under Rule 53 of the Rules occurs only after the quality control tests are concluded and the goods are approved for dispatch to the customers. They argued that the detained goods were marked "H" for hold, indicating they were awaiting quality control approval and were not ready for dispatch. The court examined trade notices from the Chandigarh and Hyderabad Collectorates, which specified that RG-I entry for similar items is required only after inspection and packing. The court found that the petitioners' consistent practice of accounting goods post-quality control was reasonable and aligned with the trade notices.

3. Intention to Evade Payment of Duty:
The petitioners emphasized that there was no intention to defraud the revenue or evade payment of duty. They argued that mere non-accounting of goods does not constitute a penal offense unless there is intent to evade duty. The court referred to the Supreme Court judgment in Jain Irrigation Systems Ltd. v. Commissioner of Central Excise, which held that confiscation and penalty under Rule 173-Q require proof of intent to evade duty. The court found no evidence of intent to evade duty in the petitioners' case, as the goods were still under quality control and not ready for dispatch.

4. Validity of the Orders Passed by the Assessing Authority, Appellate Authority, and Tribunal:
The court reviewed the orders passed by the assessing authority, appellate authority, and Tribunal, and found that they incorrectly applied Rule 173-Q by ignoring the facts and trade notices regarding the RG-I stage. The court held that the authorities failed to consider the petitioners' explanation and the evidence that the goods were not subjected to quality control tests. The court concluded that the orders were unsustainable and quashed them.

Conclusion:
The court allowed the petition, quashing the orders passed by the assessing authority, appellate authority, and Tribunal. The court emphasized that enforcement of penal provisions requires strict proof of intent to evade duty, which was not established in this case. The petition was disposed of without any order as to costs.

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