Customs, Excise and Gold Tribunal - Delhi
Paramount Cable Corporation vs Collector Of Customs And Central Excise on 25 May, 1988
Equivalent citations: 1988(18)ECR222(TRI.-DELHI)
ORDER V.P. Gulati, Member (T)
1. This is an appeal against the order of the Collector of Customs & Central Excise, New Delhi.
2. Brief facts of the case are that on verification of the stock of fully manufactured electric wires and cables manufactured by the appellants, they were found to be having in stock 330 coils of dropo wires, PVC insulated conductors which had not been entered in the RG-I register. These electric wires and cables were found to have been manufactured prior to 4.12.1981 before the issue of the licence. Further check resulted in the seizure of some records which showed that the appellants had manufactured, tested and cleared 2645 drums of these wires measuring 5173732 mtrs. valued at Rs. 3,96,331/- without accountal in the RG-1 register and without payment of central excise duty. These goods were manufactured during the period when the appellants had no licence as required under the central excise law. Documents seized showed details of wires of 1808 drums and for the remaining 837 drums the length of the wire was taken on pro-rata basis. In the statement recorded, it was admitted by the partner of the appellant firm that they were manufacturing these wires from July, 1981 onwards for and on behalf of M/s. Krishna Electrical Industries. It was stated that the latter supplied raw material to the appellants. The appellants were charged for contravention of central excise law and rules as set out in the impugned order. The learned advocate for the appellants pleaded that the goods had been manufactured only after 4.12.1981 i.e. after the date of issue of central excise licence. He pleaded that they had applied for the licence on 26.11.1981 and the licence was issued to them as required under the rules after the inspection of the premises by the central excise authorities. He pleaded that when the authorities visited the factory, they did not find any goods being manufactured by the appellants as otherwise the officers would have booked a case against them. He pleaded that only trial run was carried out on the machines installed and the goods seized were nothing but the waste coils of wires manufactured and since these were yet to be tested, these were; not liable for accountal in the RG-I register. He pleaded that the goods were required to be manufactured as per ISI specifications as required by the Postal & Telegraph department. Without the test, according to him, the goods could not be said to have be ready for entry in the RG-I register. He also pleaded that the goods were not in regular lengths. He drew our attention to the Board's direction to show that unless the wires are reeled in lengths of 100 meters or more, these could not be treated as regular goods for the purpose of entry in the RG-I register. The relevant portion in this regard is reproduced for the sake of ready reference:
Electric wires & Cables-Entry in RG-I Register-Stage of manufacture-In respect of insulated wires and cables which are generally reeled in lengths of 100 mtrs. or no laggings are generally fixed. Accordingly, the Board has decided that such reels should be considered as 'complete for the purpose of R.G.-I as soon as the measured length of the wire or cable has been wound over it and packing slips and/o-labels have been affixed. As regards bare conductors production can be considered as complete only after the reel is disconnected from the machine and therefore, it is not correct to show R.G.-I as production the quantity of cable which is wound on a reel on a particular day when the reel is not completed on the same day.
He stated that all the 330 coils were of short lengths and that they should not be treated as fully manufactured. The learned advocate for the appellants stated that the Collector had taken note of the plea that the goods were required to be tested. He also pleaded that the appellants had manufactured the wires out of the raw materials supplied by M/s. Krishna Industries and the wires so manufactured were sent to M/s. Krishna Industries who paid the necessary duty. He pointed out that M/s. Krishna Industries during the year 1981-82 had paid duty of over Rs. 26,000,00/- as against the total duty of over Rs. 8/-lakhs paid in 1980-81. This, according to him, was sufficient to show that the goods manufactured in the appellants factory had been sent to M/s. Krishna Industries who cleared the same on payment of duty. Regarding 2645 drums of drop wire it was pleaded that vouchers for return of 2564 km of wire out of a total of 5173 km. covered by these drums had been produced before the Collector to show that the same after manufacture, had been returned to M/s. Krishna Industries He stated that there were some other vouchers which the Collector had not taken note and which were available with them in regard to the goods manufactured and sent to M/s. Krishna Industries. He however, could not show as to why these vouchers could not be produced before the Collector and how this came into their possession when the records had been seized earlier. The learned consultant was called upon to file an affidavit in this regard. However, he submitted later after the hearing that the vouches referred to by him were not of the same nature as were produced before Collector. No notice therefore, can be taken of these vouchers at this stage. The learned SDR for the department submitted that the 330 coils which had been seized were in measured lengths and that with the tags attached and therefore, were required to be entered in the RG-I register. She pleaded that this could not be treated as semi finished or wastes as contended by the appellants. She stated that the particulars of the goods manufactured by the appellants were taken from the seized records. The statement of the partner of the firm which had been relied upon by the Collector clearly brought out the clandestine operation of the appellants and removal of the goods without entry in the RG-I register and without payment of duty. She stated that no evidence has been produced regarding the payment of duty for the goods manufactured by them.
3. We observe that the coils seized by the authorities were in pre-measured lengths. The appellants' reliance on the Board's instructions cited does not support their case that the coils were short length and therefore, should be treated as wastes. The Board's instructions merely state that the reels of wire and cables which are generally reeled in lengths of 100 meters or so should be treated as complete for the purpose of entry in the RG-I register as soon as the measured length of the wire or cable has been wound over it and packing slips and labels fixed thereto. In case of the wires seized these were in measured lengths and had the necessary slips and labels fixed thereon. It is not essential that for the purpose of accountal, reels should have 100 meters of wire or more. What is required is the wires should be reeled and reels should be labelled and marked. The appellants' first plea regarding 2645 drums of wire is that they never manufactured the wires before the issue of the licence. The statement of the partner and the record seized clearly show that they had been engaged in the manufacture of these goods for quite sometime. For the purpose of the proceedings it is immaterial as to whether the raw materials had been supplied by M/s. Krishna industries and the wires been ultimately returned to them. In the light of the evidence placed on record and the submissions made before us, the fact remains that the appellants manufactured a huge quantum of wires without licence and cleared the same without payment of duty. They have not produced any evidence to show that they had paid duty in respect of the same themselves or the duty in respect of the same had been paid by M/s. Krishna Industries. The fact that M/s. Krishna Industries paid more duty in 1981-82 as compared to 1980-81 does not establish that the goods produced by the appellants suffered duty at the hands of M/s. Krishna Industries. The records seized give the complete details of the quantities of wires manufactured on different dates and the fact of production of the same has been confirmed by the partner of the firm in his statement before the central excise authorities. Any denial later in this regard in the face of the evidence has to be rejected as an afterthought. We therefore hold that the appellants have been correctly held to have contravened the provisions of the central excise law and the rules as set out in the Collector's order. Taking into account the quantum of the goods involved and the value of the goods involved, we hold that the amount of penalty fined is not excessive. The Collector has also correctly demanded duty in respect of the goods which have been held to have been manufactured by the appellants. Redemption fine fixed in respect of the seized goods is also not excessive. The appeal is therefore rejected.
Sd/- (V.P. Gulati) Member (T) G.P. Agarwal, Member (J)
4. I have had the advantage of perusing the order of my Learned Brother Shri V.P. Gulati. I regret I am unable to agree with him.
5. Though the facts in brief have been stated by my Learned Brother in para 2 of the order, I think it necessary to state few more facts for proper appreciation of the controversy in hand. It is the case of the Department that the appellant-a partnership firm-is engaged in the manufacture of electric wires and cables covered under Item No. 33B of Central Excise Tariff and holds L-4 licence issued on 4.12.1981. It is said that on 8.12.1981 the authorities concerned visited the factory premises of the appellant and on verification of the stock found 330 coils of drop wires PVC insulated cadmium copper conductor of size 1/0.63 mm valued at Rs. 25,329.30. These 330 coils, according to the Department, were produced prior to the grant of L-4 licence on 4.12.1981 and were also not accounted for in the R.G.-I Register maintained by the appellants. Therefore, the same were seized under Section 110 of the Customs Act, as made applicable to Central Excise matters Certain record of the appellant firm was also resumed and after scrutinizing the same, the Department, prima facie concluded that the appellant had manufactured, tested and cleared 2645 drums of drop wire, PVC insulated cadmium copper of size 1/0.63 mm valued at Rs. 31,96,331/-without obtaining the Central Excise licence, (i.e. prior to the grant of licence on 4.12.1981) without payment of Central Excise Duty, without the cover of Central Excise Gate Pass, without accountal in their R.G.-I Register and without observing Central Excise Rules. Statement of the partners of the firm were also recorded on the spot. In his statement Shri Anil Gupta, partner of the appellant firm had, inter alia, stated that during July to November, 1981, the appellant firm had only manufactured PVC drop wire used by Indian Telephone Department for and on behalf of M/s. Krishna Electrical Industries, Model Basti Industrial Area, New Delhi. He further stated that 2645 drums which were in semi-finished form and were duly covered by challans issued by appellant in favour of the said M/s. Krishna Electrical Industries. He further stated that the raw material taken in use in the manufacture of these semi-finished goods was entirely supplied by the said M/s. Krishna Electrical Industries and the job work was undertaken on their behalf. In his statement recorded on 10.12.1981 Shri S.S. Aggarwal, partner of the said firm M/s. Krishna Electrical Industries while corroborating the statement of Anil Gupta had stated that his firm, that is to say, M/s. Krishna Electrical Industries had received a bulk order of drop wire from P &. T Department and he took help from the appellants for meeting his own (M/s. Krishna Electrical Industries) requirement of supplies to P & T Department. He further stated that the appellant firm and the said M/s Krishna Electrical Industries are two independent concerns, but side by side these are sister concerns. He further slated that the appellant firm had no independent purchase of raw material like cadium copper and PVC etc. The entire stock of these items was sent to the appellant firm for undertaking the manufacture of semi-finished goods for and on behalf of M/s. Krishna Electrical Industries. He further stated that all these transactions are properly accounted for in the accounts of M/s. Krishna Electrical Industries. In his statement, he further stressed that these drop wires are used only by the P & T Department and have no local market on which appropriate amount of excise duty has also been paid. It appears that the Department was not satisfied with the said statements, and therefore, the authorities concerned also investigated the case with reference to the accounts maintained by M/s. Krishna Electrical Industries and formed an opinion that M/s. Krishna Electrical Industries has not paid the excise duty as contended by the appellants and M/s. Krishna Electrical Industries and ultimately issued a Show Cause Notice to the appellants only to show cause as to why the seized 330 coils be not confiscated and the Central Excise duty on the goods (that is to say, 2645 drums) already removed without payment of duty be not charged and also to show cause as to why penalty be not imposed and Plant and Machinery etc., be not confiscated.
6. It is pertinent to note that despite the fact that Shri S.S. Aggarwal, partner of M/s. Krishna Electrical Industries shouldered the responsibility of the manufacture of the said 2645 drums of wire and also the liability of the payment of excise duty inasmuch as he had admitted in his statement on 10.12.1981 that the semi-finished goods, that is to say, 2645 drums were processed by the appellant firm out of the raw material supplied by M/s. Krishna Electrical Industries on job work basis and that after the receipt of these 2645 drums in semi-finished form the same were cleared after manufacturing, testing etc., by M/s. Krishna Electrical Industries on payment of excise duty by M/s. Krishna Electrical Industries, no show cause notice was issued to the said concern, M/s. Krishna Electrical Industries when according to the Department the authorities were not satisfied with the explanation given on 10.12.1981 by Shri S.S. Aggarwal of M/s. Krishna Electrical Industries regarding payment of excise duty on these 2645 drums said to have been manufactured by the appellant out of the raw material supplied by M/s. Krishna Electrical Industries.
7. In reply to the Show Cause Notice the appellant submitted that the type of wires and cables manufactured by them is used only by P & T Department after undergoing vigorous tests as prescribed by I.S.I. and can not be sold in the market and that the seized 330 coils were nothing but waste and that at no stage they manufactured complete electric wires and cables and until these are completely manufactured, these cannot be classified as excisable and therefore cannot be entered in R.G.-I accounts. Regarding the charge of manufacturing 2645 drums of wire the appellants submitted that these drop wires were returned to M/s. Krishna Electrical Industries after processing against proper challans and they have charged for only labour work done. During the adjudication proceedings the appellants submitted certain bills in original in support of their contention that they processed 2645 drums of drop wires on behalf of M/s. Krishna Electrical Industries, However, the defence of the appellants did not find favour with the Adjudicating Authority. As regards defence of the appellants with respect to the seized 330 coils, the Adjudicating Authority while conceding that the goods under seizure are only of utility to P & T Department further held that the plea of the appellant that these coils were not yet complete as these wires had to undergo a vigorous test such as annealing test, tensile test, wrapping, conductor resistance tests is not convincing. As regards the removal of 2645 drums of electric drop wire the Adjudicating Authority held that against the charge of manufacturing of 2645 drums equivalent to 5173 Kms., the appellants had supplied only vouchers of 2564 Kms. showing fabrication of drop wire, but ultimately held against the appellants mainly because:
(i) the quantity of drop wires reportedly fabricated by the appellants and sent to M/s. Krishna Electrical Industries is nowhere separately shown, indicated or figuring in the stock, processing, production, or R.G. 1 Register of M/s. Krishna Electrical Industries, and
(ii) that M/s Krishna Electrical Industries has produced no record of raw material supplied by them to the appellant though he found it a fact that during the relevant period, that is to say, 1981-82 there was massive, increase in the production and output of M/s. Krishna Electrical Industries with respect to number of workers, quantity of electricity consumed, assessable value and duty paid.
8. Regarding the defence of the appellant that no clandestine removal is proved by the Department and since PVC drop wire in question has no other use than in the P & T Department and all supplies are to the said Department it has to be presumed that duty liability on the goods must have been discharged the Adjudicating Authority did not think it proper to deal with this aspect of the case and contented itself by observing that It is not for me to determine as to what was the alternate end use of these goods; the defendents have not proved to me even by remote connection that on the goods manufactured by them duty liability had been discharged.
9. After holding as aforesaid, the Adjudicating Authority imposed a personal penalty of Rs. 1,00,000/- on the appellant and ordered for the confiscation of 330 coils with an option to redeem the same on payment of redemption fine of Rs. 5,000/- and also demanded duty on 2645 drums of electrical wires and cables which according to the Department were cleared from their factory without payment of duty by the appellant.
10. Shri K.K. Kapoor, learned consultant appearing for the appellants reiterated the same contentions which were advanced before the Adjudicating Authority and drew our attention to the various documents on record. In reply Smt. Nisha Chaturvedi, learned SDR supported the impugned order.
As regards manufacture and removal of 2643 drums of drop wire.
11. Shri K.K. Kapoor, learned consultant with the aid of law laid down in the case of Union Carbide India v. Union of India heavily contended that the appellants never 'manufacture' 'excisable goods'. For appreciating the arguments it would be useful to state at the outset that the word "goods" has not been defined in the Central Excises & Salt Act, 1944. However, Section 2(d) of the said Act defines "excisable goods" means goods specified in the Schedule to the Central Excise Tariff Act, 1985 as being subject to a duty of excise and includes salt. Section 2(f) of the same Act defines "manufacture" as including any process incidental or ancillary to the completion of a manufactured product.
It is now well known that the charge to excise duty under Section 3 of the Act is attracted in case of manufacture of an excisable goods. What is meant by the word "manufacture" as used in Section 3 of the Act was considered by the Supreme Court originally in Union of India v. Delhi Cloth and General Mills Ltd. wherein it was observed as follows:
(17)...to become 'goods' an article must be something which can ordinarily come to the market to be bought and sold....
(18) This consideration of the meaning of the word 'goods' provides strong support for the view that 'manufacture' which h liable to excise duty under the Central Excises & Salt Act, 1944 must be the bringing into existence of a new substance known to the market.
In that case it was also argued that if one looks at the definition of the word 'manufacture' in the definition clause of the Act as reproduced above one will find that by inserting the definition of the word 'manufacture' in Section 2(f) the Legislature intended to equate 'processing' to 'manufacture' and intended to make mere 'processing' as distinct from 'manufacture'. Repelling the said contention their Lordships observed as follows:
We are unable to agree with the learned Counsel that by inserting this definition of the word 'manufacture' in Section 2(f) the legislature intended to equate 'processing' to 'manufacture' and intended to make mere 'processing' as distinct from 'manufacture' in the sense of bringing into existence of a new substance known to the market, liable to duty.
The Supreme Court in the said case also quoted with approval a passage from Permanent Edition of Words and Phrases, Vol. 26 from an American Judgment, which runs thus,-
Manufacture implies a change, but every change is not 'manufacture' and yet every change of an article is the result of treatment, labour and manipulation. But something more is necessary and there must be transformation; a new and different article must emerge having a distinctive name, character or use.
This concept was reiterated by the Supreme Court in the case of South Bihar Sugar Mills Ltd. v. Union of India wherein it was clearly observed that the Act charges duty on manufacture of goods and the word 'manufacture' though it implies a change, every change in the raw material is not manufacture. In paragraph 14 of the judgment it was observed:
The Act charges duty on manufacture of goods. The word 'manufacture' implies a change but every change in the raw material is not manufacture. There must be such a transformation that a new and different article must emerge having a distinctive name, character or use.
In the case of Sandoz India Ltd. v. Union of India 1980 ELT 696, it was held that merely because a change has been brought about in the state of the pigment and it has been converted into a liquid state by the addition of the diluent and the dispersing elements, the article in its liquid state i.e. Foron liquid does not become liable to excise duty.
The Supreme Court again reiterated the same view in the case of Deputy Commissioner, Sales Tax (Law) Board of Revenue v. PIO Food Packers and quoted with approval the following passage appearing in the case of Anheuser-Bucsh Brewing Association v. United States (1907) 52 ED 336:
Manufacture implies a change, but every change is not manufacture, and yet every change in an article is the result of treatment, labour and manipulation. But something more is necessary... There must be transformation, a new and different article must emerge, "having a distinctive name, character or use"....
At some point processing and manufacturing will merge. But where the commodity retains a continuing substantial identity through the processing stage we cannot say that it has been 'manufactured'.
12. Again the Supreme Court in the case of Union Carbide India Ltd. v. Union of India Supra 1986 ECR (7) 217 while reiterating the same view and further added that articles in crude or elementary form are not dutiable as they are merely intermediate products and not goods. In paragraph 7 of the judgment their Lordships held that it would be difficult to believe that the aluminium cans or torch bodies produced by extrusion process would attract the market. Thus from the said decisions of the Supreme Court, it is obvious that merely because same process on is carried on any article it would not necessarily amount to manufacture of a fresh article amounting to 'manufacture' under Section 2(f) of the Act.
Thus, the first question that arises for consideration in the instant ease is : whether on the facts of the case it is proved that 'manufacture' of excisable goods has taken place in the factory of the appellants in terms of Section 2(f) of the Act.
It is interesting to note that the adjudicating authority has also not adverted itself to the said question. My learned brother has also in paragraph 3 of the proposed order brushed aside the contention of the appellant that the appellant firm only processed the 2645 drums of drop wire for and on behalf of M/s. Krishna Electrical Industries out of the material supplied by them and after processing transferred the same as semi-finished goods to M/s. Krishna Electrical Industries against proper vouchers and only charged the labour charges for the work done, by stating that "for the purpose of the proceedings it is immaterial whether the raw-materials had been supplied by M/s. Krishna Electrical Industries and the wires being ultimately returned to them.
13. While elaborating his arguments Shri K.K. Kapoor, learned Consultant for the appellant submitted that right from the beginning it was the case of the appellant that they never manufactured the PVC insulated cadmium copper drop wire and that they received the raw-material from M/s. Krishna Electrical Industries and alter processing the same returned the drop wire in semi-finished form to M/s. Krishna Electrical Industries and that they have charged for only labour work done. That after receiving the semi-finished goods M/s. Krishna Electrical Industries undertook various vigorous tests as per stand specification laid dard down for the Indian Posts and Telegraphs Department to whom the goods were to be ultimately supplied by M/s. Krishna Electrical Industries as per terms of the contract. In this connection, he drew our attention that PVC drop wire in question are exclusively meant for P & T Department and have no local market and this fact has been conceded by the adjudicating authority in the impugned order wherein at page 5 he has stated that "it is conceded that the goods under seizure are only of utility to P & T Department." In the process he submitted that all these facts are admitted to M/s. Krishna Electrical Industries and to lay emphasis he drew our attention to the statement of Shri S.S. Agarwal, Partner of the said firm M/s. Krishna Electrical Industries recorded on 10.12.1981. In his statement Shri S.S. Agarwal has admitted that the appellant firm had no independent purchase of raw-materials like Cadmium Copper and PVC wire etc. and that raw-material in the shape of Cadmium Copper and PVC wire etc. was sent to the appellant firm for undertaking the manufacture of semi-finished goods on behalf of the M/s. Krishna Electrical Industries for which the appellant firm was paid the labour charges. Shri Kapoor further contended that the fact that after receiving the semi-finished goods from the appellant firm the said firm M/s. Krishna Electrical Industries carried out the various vigorous tests as per standard specification prescribed by the P & T Department and after doing so delivered the same to the P & T Department and discharged the duty liability is also admitted to the said firm M/s. Krishna Electrical Industries. On this premises it was argued by Shri Kapoor that when the defence of the appellant firm was duly corroborated by M/s. Krishna Electrical Industries it was for the Department to prove that the processing of the Cadmium Copper wire in the form of drop wire was an entirely distinct commodity having entirely a distinctive name, character or use as compared with the Cadmium Copper itself and that the processing of the Cadmium Copper wire into the drop wire was capable of sale to the consumer. For it is settled law that in the case of taxation burden of proving that the necessary ingredients prescribed by the taxing provision are satisfied is entirely upon the taxing authority as laid down by the Bombay High Court in the case of Sandoz India Limited v. Union of India Supra but in the instant case the department has not produced any evidence to prove that the appellant firm has manufactured any excisable goods. He further submitted that it was the case of the department itself that at the relevant time the appellant firm was not holding any excise licence for the manufacture of electric wires and cables and that M/s. Krishna Electrical Industries were supplying the PVC drop wire cadmium copper conductor dia to the P & T Department as per ITD Specification No. S/WS-118D dated 25.1.1980 as per the terms of the contract entered between the P & T Department and the said M/s. Krishna Electrical Industries. In this connection Shri Kapoor drew our attention to the copy of the contract entered between the P & T Department and the Krishna Electrical Industries to show that supply were to be made according to the ITD Specification No S/WS-118D dated 25.1.1980 and also to the said standard specification.
14. After giving my due consideration to the arguments so advanced by Shri Kapoor I am of the opinion that the contentions raised by the learned Consultant have force. It is admitted to the department that PVC drop wire cadmium copper conductor did have no local market and are exclusively meant for P & T Department. It is not the case of the Department that the appellant firm ever supplied the PVC drop wire to P & T Department. On the other hand, it is the case of the department that the appellant firm manufactured 2645 drums of drop wire. Against this it is the case of the appellant that to make the drop wire marketable the same are required to undergo vigorous tests as per the specification laid down by the Indian Post & Telegraph Department. And that the appellant firm had no such facility by way of extensive laboratory in the factory premises at the relevant time. From the contract entered between the P & T Deptt. and M/s. Krishna Electrical Industries I find that it was the condition precedent that PVC drop wire cadmium copper conductor dia must conform to ITD Specification No. S/WS-118D dated 25.1.1980. From the said standard Specification No. S/WS-118D dated 25.1.1980 I find that the specification requires a reference to the following Indian standard Specifications:
(a) I.S. : 2665 and
(b) I.S. : 694-1977 From I.S. : 694-1977 I find that for making the PVC insulated cables marketable the following "acceptance tests' are required to be carried out on electric wires and cables:
(a) Annealing test,
(b) Tensile test,
(c) Wrapping test,
(d) Conductor resistance test,
(e) Test for thickness of insulation and Sheath; and
(f) Insulation resistance test.
Besides the above, high voltage tests by way of spark and water immersion are also required to be carried out where these are immersed in a water bath at 60.30°C and after 24 hours a voltage of 3 KV (Gms.) is applied. These are connected to the negative pole and water to the positive pole of DC supply and these are required to withstand this DC voltage test for 240 hours without break down. The voltage shall be applied continuously but if there is any unavoidable interruptions during the 4 hours period, that period shall be increased by the time of interruption. The total of such interruptions shall not exceed one hour otherwise the test shall be started again, Thus from this discussion it is clear that mere processing of cadmium copper into drop wire without carrying out the various prescribed vigorous tests as stated above is not manufacture as laid down by the Hon'ble Supreme Court in the aforesaid cases, for every change is not 'manufacture' and something more is necessary. There must be transformation and a new and different article must emerge, having a distinctive name, character or use. And further to become 'goods' an article must be something which are ordinarily capable of sale to a consumer. Not a single instance has been provided by the respondent demonstrating that such drop wire have a market. On the contrary it is admitted to the department that the PVC drop wire cadmium conductor dia are exclusively meant for P & T Department and have no local market and from the aforesaid prescribed specification and the terms of the contract it is clear that P & T Department would not accept the PVC drop wire cadmium copper conductor dia until and unless the same conform to the prescribed standard and the aforesaid vigorous tests are carried out. On the other hand it is admitted to M/s. Krishna Electrical Industries that whatever raw-material was supplied to the appellant firm was sent back to them after processing in the semi-finished form which was subsequently developed into PVC drop wire cadmium conductor dia after undertaking various tests as per prescribed standard and ultimately supplied to the P & T Department. Thus I hold that it is not proved that manufacture of excisable goods has taken place in the factory of the appellant as defined under section 2(f) of the Central Excises and Salt Act, 1944.
15. It was also argued by Shri Kapoor, learned Consultant that:
(i) Since M/s. Krishna Electrical Industries supplied the raw-material and after processing the same appellant firm returned the same in semi-finished form and all manufacturing operations were performed by M/s. Krishna Electrical Industries, M/s. Krishna Electrical industries were the manufacturers and not the appellant firm; and
(ii) that it is not proved by the department that the appellant clandestinely removed 2645 drums of drop wire.
16. While elaborating that the appellant firm is not the manufacturer Shri Kapoor submitted that right from the beginning it was the case of the appellant that the appellants and M/s. Krishna Electrical Industries are two independent concerns; that M/s. Krishna Electrical Industries are licensed manufacturer of the wires in question; that the appellant firm applied for Central Excise Licence on 26.11.1981 and the same was issued on 4.12.1981; that drop wires in question are exclusively meant for P & T Department and have no local market; that since M/s. Krishna Electrical Industries had to supply the drop wires to the P & T Department as per contract and the appellant factory was idle since no licence was granted upto 4.12.1981; M/s. Krishna Electrical Industries decided to send raw material for processing the same for and on their behalf to the appellant and that the appellant after receiving the raw material processed the same and returned it in semi-finished form to M/s. Krishna Electrical Industries under proper vouchers and charged the labour charges only. All these facts were admitted by the partner of M/s. Krishna Electrical Industries. Not only this partner of M/s. Krishna Electrical Industries also shouldered the liability of payment of Central Excise duty by stating in his statement that M/s. Krishna Electrical Industries had paid the Excise duty. Under these circumstances when M/s. Krishna Electrical Industries had admitted that they were the manufacturers and had paid the Excise duty the question of the demand of duty on 2645 drums of drop wire from the appellant does not arise. He further submitted that the vouchers produced by the appellant during the adjudicating proceedings also support the said defence of the appellant. I find considerable force in the arguments of the learned Consultant for the appellant. While dealing with the said defence of the appellant the adjudicating authority after finding it a fact that the vouchers produced by the appellant did support their contention that 2564 Kms. out of the total alleged removal of 5173 Kms. (2645 drums) were manufactured by the appellants out of the raw material supplied by them and the same were returned to M/s. Krishna Electrical Industries, negatived the defence of the appellants mainly because they were not separately accounted for in the records of M/s. Krishna Electrical Industries. This approach, in my view, is erroneous in law. The failure on the part of M/s. Krishna Electrical Industries to show separately in their statutory record would not logically follow that the raw material for 2645 drums of drop wire was not supplied by them to the appellants or that it was not received back after fabrication by M/s. Krishna Electrical Industries. The appellants have filed the statement showing the raw material sent by M/s. Krishna Electrical Industries to the appellants and the drop wire drums sent back by the appellant after processing and the labour charges received. The same is Annexure 'H' to the Paper Book. This statement was not disputed by the learned SDR at the time of hearing From the statement I find that the raw material i.e. copper was received by the appellant from M/s. Krishna Electrical Industries and after processing (drop wire drums) were sent back to M/s. Krishna Electrical Industries and the labour charges were paid through cheques to the appellants. Thus from these established facts it is clear that the instant case is not a simple case of raw materials being sent and new finished articles being manufactured. On the other hand the instant case is a case where M/s. Krishna Electrical Industries were owners of the raw materials throughout and at the end they took away all the goods processed on their behalf including the waste left by paying only the labour charges to the appellant firm. In other words, the instant case is a case of one unit employing another unit on hired labour basis. In this view of the matter I am supported by the ratio of the Supreme Court judgment rendered in the case of Shri Agency v. S.K. Bhattacharjee 1977 ELT (J) 168 : 1976 Cen-Cus 94D and Gairang Gopi Lal Gajabi v. M.N. Balkundri and also by the judgment rendered by this Tribunal in the case of H. Guru Instruments Ltd. v. Collector 1987 27 ELT 269 : 1987 ECR (10) 333. Thus I hold that the appellant was not the manufacturer.
17. With regard to the duty liability Shri Kapoor, learned Consultant submitted that the demand of duty from the appellant is illegal because neither any excisable goods was produced by the appellant nor the appellant was the manufacturer. He further submitted that when M/s. Krishna Electrical Industries shouldered the liability regarding the payment of the excise duty the question of further demand from the appellant does not arise. He further submitted that on this count also the adjudicating authority went tengant. From the impugned order I find that the adjudicating authority after posing a question : whether the duty liability has already been charged dis found that there was an increase in duty payment of Rs. 17,92,619 by M/s. Krishna Electrical Industries during the relevant period that is to say 1981-82 if compared from the duty paid during the preceding period 1980-81, it cannot be concluded from this payment that duty was also paid on 2645 drums in question by M/s. Krishna Electrical Industries. With respect to this approach of the adjudicating authority I do not agree. If M/s. Krishna Electrical Industries had failed to pay any duty on 2645 drums of drop wire the appellant firm cannot be asked to pay the same. Thus I hold that the demand of duty from the appellant firm cannot be sustained.
18. As regards the charge of clandestine removal without payment of excise duty Shri Kapoor, learned Consultant contended that as per terms of the contract entered between P & T Department and M/s. Krishna Electrical Industries the burden of excise duty was exclusively on the P & T Department. This contention also have some force. From the record I find that the charge of clandestine removal without payment of excise duty is not supported by any evidence. It was the case of the appellant before the Adjudicating Authority that the raw materials required for manufacturing the drop wire in question are not available in the market and the PVC drop wire has no other use than in the P & T Department and all supplies are made to the P & T Department. This fact is conceded by the Adjudicating Authority by stating in the impugned order that "it is conceded the goods under seizure are only of utility to P & T Department...." During the course of the hearing learned consultant also drew our attention to the purchase order issued by the P & T Department in favour of M/s Krishna Electrical Industries to highcight that the prices quoted in the purchase order were exclusive of excise duty which is payable extra by the Department. Clause 1(c)(ii) Excise Duty reads as follows:
"(ii) Excise Duty:
The price indicated in para 1(a) above are exclusive of Excise Duty which is payable extra as admissible in keeping with the calculated monthly rate of supply as stipulated in Clause 2(b)(ii) of the purchase order within the Scheduled Delivery period. Present rate of excise duty is 20+5%. Surcharge on Excise duty equally 21% in all as indicated in fender offer. Any statutory variation within the Scheduled delivery period shall be to the purchaser's account. Any increase beyond the Scheduled delivery period will be to the supplier's account: but the benefit of any downward revision will go to the purchaser Payment is subject to the production of Certificate signed by the Director/Manager or any responsible officer of the firm in the pro-forma at Annexure 'B'.
Basing his argument on the said clause learned consultant argued that when it is conceded by the Adjudicating Authority that the drop wire in question were of utility to the P & T Department only and the burden of excise duty was to be borne by P & T Department, there was no question of any clandestine removal or evasion of any duty. He further submitted that if Department was doubting about the payment of duty on drop wire in question, it should have verified this fact from the P & T Department But curiously enough the Adjudicating Authority declined to consider this argument by saying that "it is not for me to determine as to what was the alternate end use of these goods; the defendents have not proved to me even by remote connection that on the goods manufactured by them duty liability had been discharged." He further submitted that if at all there was any burden to prove that the duty liability was discharged, it was on M/s. Krishna Electrical Industries and not on the appellants as they (Krishna Electricals) had admitted that they paid the duty and if the Department was not satisfied with the contention of M/s. Krishna Electrical Industries that they had paid the excise duty demand can not be made from the appellants. In my considered opinion this contention has force and in the facts and circumstances of the case as stated above, it cannot be held that the Department has proved the alleged clandestine removal of 2645 drums drop wire without payment of central excise duty by any acceptable evidence. It should be borne in mind that suspicion howsoever strong can not take the place of proof.
19. As regards the confiscation of seized 330 Coils of Drop Wire PVC insulated Cadmium Copper conductor of size 1/0.63 mm, Shri Kapoor, learned Consultant contended that these wires were produced subsequent to the grant of licence on 4.12.1981. The learned Collector had held that as per slips tagged to them these were produced prior to 4.12.1981. I do not find any reason to take a different view. Accordingly, I hold that these wires were produced prior to 4.12.1981. Shri Kapoor, learned Consultant further submitted that these wires were not yet complete and were required to undergo annealing. Tensile, wrapping, conductor resistance tests test for thickness of insulation and sheath and insulation resistance test and therefore, it cannot be said that the appellants manufactured an excisable goods Consequently, the learned Consultant contended that the same were not required to be entered in the RG-1 Register and no licence was required from the impugned order I find that the same plea was advanced before the Collector but he arbitrarily rejected the same plea by observing as follows:
The plea of the party that goods under seizure, were not yet complete, intended to undergo annealing, Tensile Test, wrapping, conductor resistance tests is not convincing to me.
Though he concened "that the goods under seizure are only of a utility to P&T Department." Why the Collector found the plea of the party that the goods under seizure were not complete, intended to undergo annealing, Tensile Test, wrapping, conductor resistance tests not convincing to him is not known. He has not recorded any reason or reasons for holding so. In view of my discussion above with reference to the charge of removal of 2645 drums of electric drop wire, I hold that the goods under seizure were not complete as the same were required to undergo the said vigorous tests. The finding of the learned Collector that since the goods had taken shape of electric wires and cables they were required to be accounted for in RG-1 Register also cannot be sustained in view of the decision of the Hon'ble Supreme Court rendered in the case of Union of India v. Delhi Cloth and General Mills, supra ECR C 216 (SC). In that case the assessee for the purpose of manufacturing Vanaspati purchased groundnut and til oil from the open market or directly from the manufacturers of such oil. The oils thus purchased were subjected to different processes in order to turn them into Vanaspati. It was the case of assessee that only finished product they manufacture from the raw materials thus purchased is Vanaspati which is liable to excise duty as a vegetable product. And that deodorisation was necessary for 'refined oil' to come into existence. However, it was the case of the Revenue that in the course of the manufacture of Vanaspati, the vegetable product from raw groundnut and til oil, the assessee bring into existence at one stage, after carrying out some processes with the aid of power, what is known to the market as 'refined oil' and that deodorisation was not necessary for 'refined oil' to come into existence and this refined oil falls within the description of 'vegetable non-essential oil all sorts, in or in relation to the manufacture of which any process is ordinarily carried on with the aid of power," and so is liable to excise duty. While dealing with these rival contentions it was found by the Supreme Court that the refined oil before it was put on the market requires deodorisation. In another words it was found that the refined oil cannot be put in the market without deodorisation and without such deodorisation refined oil was not marketable. Under these circumstances it was held by the Supreme Court that 'refined oil' was not subjected to excise duty. Consequently, Supreme Court upheld the judgment of High Court quashing the demand of excise duty on the vegetable oil. Thus the ratio of the judgment is that the excise duty cannot be demanded on the intermediate product. In the instant case the Collector had himself conceded that the goods under seizure were only of utility to P & T Department and has no independent market. In the light of this admission with which I agree, I hold that the confiscation of 330 Coils of Drop Wire PVC also cannot be sustained.
20. In the result, the impugned order is set aside and appeal is allowed with consequential relief.
Sd/- (G.P. Agarwal) Member (J) Member (Technical) and Member (Judicial) constituting the North Regional Bench differ on the following points:
(i) whether in the facts and circumstances of the case demand of duty on 2645 drums of electric wire and cable from the appellant was justified?
(ii) whether in the facts and circumstances of the case confiscation of the seized 330 coils of electric wire and cable was justified?
(iii) whether in the facts and circumstances of the case personal penalty was called for?
The points of difference are, therefore, under Section 35D(1) of Section 129C of the Customs Act, 1962 referred to the President of the Tribunal for decision in accordance with law.
Sd/- (G.P. Agarwal) Sd/- (V.P. Gulati)
Member (J) Member (T)
ORDER No. MISC./46/88-NRB.
M. Santhanam, Member (J)
1. Since there was a difference of opinion in respect of the decision in this case, the matter was referred to me by the Hon'ble Sr. Vice-president U/S 35-D(1) of the Central Excises and Salt Act read with Section 129C(5) Customs Act for hearing on the points of difference formulated by Shri V.P. Gulati, Member (Technical) and Shri G.P. Agarwal, Member (Judicial) who comprised the North Regional Bench.
2 The facts of the case are that on 8.12.1981, the factory premises of the appellants was inspected and on verification, the department found a stock of 330 coils of drop wires PVC insulated Cadmium Conductors of size 1/0.63 mm valued at Rs. 25,329,30. The appellants got a L-4 Licence on 4.12.1981 for the manufacture of electric wires and cables The 330 coils were not found accounted for in the R. G. 1 Register and hence they were seized under Section 110 of the Customs Act. On a checking of some of the records, the department was of the view that the appellants had cleared 2645 drums of wires valued at Rs. 3,96,331/-. At the time of the inspection, the partner of the appellants stated that they were manufacturing wires since July 1981 for and on behalf of M/s. Krishna Electrical Industries who supplied the raw-material to the appellants. It is their case that the appellants were receiving merely job charges for the processes carried on by them and that the goods were duly accounted for in the books of accounts of M/s. Krishna Electrical Industries who were the manufacturers. The duty liability had also been borne by them. In regard to the 330 coils, the appellants contended that they were nothing but waste coils of wires manufactured and were yet to be tested.
3. The Collector in his adjudication held that the appellants had contravened the provisions of Rules 174, 9(1) 173F, 52A, 173(2) as they had manufactured 2645 drums of drop wire and 330 coils of electric cables without the Central Excise Licence. He ordered confiscation of the 330 coils but allowed the appellants to redeem the same on payment of a fine of Rs. 5,000/-. A penalty of Rs. one lakh was also imposed. The North Regional Bench consisting of the two Learned Members, as set out above, heard the appeal.
4 Shri V.P. Gulati, Member (Technical) was of the view that the seized coils were in pre-measured lengths. When the attention of the Bench wa7 drawn to Boards' instructions regarding the stage at which the electric wires and cables bad to be entered in the R.G. 1 Register, Member (Technical) was of the view that it was not essential that the reels should have a definite length of 100 Metres, or more. He also rejected the evidence of the appellants that the 2645 drums of drop wire were not manufactured by them. He laid emphasis that no evidence was produced to show that M/s. Krishna Electrical industries had paid the duty.
5. Member (Judicial) laid emphasis on the aspect that the goods should be manufactured to "attract Central Excise duty". He relied on , the judgment of the Supreme Court in the case of Union Carbide of India Ltd. v. Union of India. Reference was also made to the case of D.C.M., South Bihar Sugar Mills, Sandoz India and P.O. Food Packers. In paragraph 14, he has observed that mere processing of Cadmium copper into drop wire without carrying out the various prescribed vigorous tests would not amount to manufacture as laid down by the Hon'ble Supreme Court. Since the wire was required by the P & T department and had no local market, he held that until and unless they conformed to the prescribed standard, duty liability would not be attracted. His finding was that the 2645 drums were in semi-finished forms. The appellants only received the raw-material, processed the same and the returned it to M/s. Krishna Electrical Industries. He was of the view that the ratio of the Supreme Court's decision in Shree Agencies reported in 1977 E.L.T. J 168 : 1976 Cun-Cus 94D would apply to the present facts. Even in regard to the 330 coils seized, he held that they were not complete or held undergone further vigorous tests.
6. Shri V.P. Gulati, Member (Technical) was of the view that the appeal should be rejected. Shri G.P. Agarwal, Member (Judicial) held that the impugned order should be set aside and the appeal allowed.
7. The points of difference according to the two Members are as follows:
(i) Whether in the facts and circumstances of the case demand of duty on 2645 drums of electric wire and cable from the appellants was justified?
(ii) Whether in the facts and circumstances of the case confiscation of the seized 330 coils of electric wire and cable was justified?
(iii) Whether in the facts and circumstances of the case personal penalty was called for?
8. In regard to the 2645 drums of electric wires and cables Shri Kapoor, Learned Consultant for the appellants submitted that they were drop wires intended only for the P & T Department. Many severe tests have been prescribed by the department before accepting the goods. The appellants did not have any testing facility. The finding of the authorities below that the appellants had laboratory fully equipped for the purpose was not justified. He stated that the raw-materials for these goods were given by M/s. Krishna Electrical Industries who were the manufacturers. The processed goods which were sent to M/s. Krishna Electrical Industries had to be further tested, reeled and packed before they would become excisable goods. He emphasised that M/s. Krishna Electrical Industries had paid the duty. Reliance was placed on the Board's Trade Notice (Referred to in the order of Shri V.P. Gulati) regarding the stage at which the electrical wires should be entered in the R.G. 1 Register. He urged that the statement of the appellants partner on the date of seizure was amply corroborated by the statement of M/s. Krishna Electrical Industries. The job charges due to the appellants were paid by M/s. Krishna Electrical Industries by cheques. There was no suppression of the production and the transactions have not been proved to be fictitious, Shri Kapoor also urged that there was no clandestine removal and the department was aware of the production. Among others he laid emphasis on the decision Premier Packaging Private Limited v. Collector of Central Excise, New Delhi. Similar contentions were raised in regard to the 330 coils.
9. Smt. Nisha Chaturvedi, SDR stated that the entire particulars in respect of 2645 drums were gathered from the records of the appellants. She stated that the onus of proving the case was on the appellants more so as it was a case of clandestine removal. She cited Collector of Central Excise, Madras v. Madras Chemicals.
10. In regard to the 2645 drums, the appellants version is that the raw-material was supplied by M/s Krishna Electrical Industries. I have only to refer to page-41 of the Paper-Book where the statement of Shri Agarwal which adverts to this aspect. Further the appellants have claimed that the goods had been returned after processing and under proper challans. Even the department admits that in respect of certain quantity, vouchers had been produced. This statement of the partner and the appellants is confirmed by the statement of M/s. Krishna Electrical Industries. The appellants have stated that the further processing like testing, reeling and packing have been done by M/s. Krishna Electrical Industries. The question is whether the Krishna Electrical Industries were the manufacturers or the appellants. On this issue, it is safe to conclude that M/s. Krishna Electrical Industries were the manufacturers The circumstances are : (i) the supply of the entire raw-materials by M/s. Krishna Electrical Industries to the appellants : (ii) the appellants, after processing the goods had sent them to M/s. Krishna Electrical Industries under proper challans. In their statement, they have disclosed all the particulars including the quantify sent by the Krishna Electrical Industries, the quantity received by them, the quantity sent by the appellants after processing besides the waste left and sent back; (iii) Krishna Electrical Industries were the owners of the goods and the appellants were paid only the job charges. In the order of the Collector, it is stated that there is no evidence of the payment of fabrication charges but the appellants have given particulars of the cheque Nos. and date of the Dena Bank. The department could have verified these particulars before rejecting the case of the appellants. (iv) The appellants had been contending that they did not have all the testing facilities in their factory. Even though the semi-finished goods, if they formed the input for further production, would also be liable to duty. The department should establish that the excisable goods had been manufactured by the appellants. Member (Judicial) has observed to two aspects, which, I think are of considerable importance in regard to this aspect of the case. In particular he has stated that there was mere processing of the cadmium copper into drop wire. The learned member has adverted to the tests to be undertaken before the goods were accepted by the P & T Department. Of course I do not subscribe to the view that the wires would not be goods unless all the tests were carried to the satisfaction of the P & T Department. The fact that there was no general marketability, cannot also be the basis. However, since it is not made out that the appellants were the manufacturers and they were merely job workers assigned to do certain processes establish that no duty liability would arise as against the appellants in regard to the 2645 drums. The decision in the case of Guru Instruments 1987 ECR (10) 333 apply to the present facts.
11. I also notice from the statement of M/s. Krishna Electrical Industries that the duty liability in regard to this production has been discharged by them. It is not the department's case that M/s. Krishna Electrical Industries had also removed the goods without payment of excise duty. Of course, M/s. Krishna Electrical Industries have not entered in their raw-material account about the despatch of raw-materials to the appellants. But we have the evidence of the partner that since the appellants capacity was lying idle and they had no rating order, they utilised the same. The entire production was accounted for in the R.G. 1 Register of M/s. Krishna Electrical Industries. The case of the appellants cannot be rejected merely on the ground that the raw-material register of M/s. Krishna Electrical Industries was not properly maintained. It is significant to note that no action has been taken against M/s. Krishna Electrical Industries. If they were the manufacturers of these 2645 drums, then the order of the Hon'ble Supreme Court in Shree Agencies's case 1976 Cen-Cus 94D would definitely apply. Shri V.P. Gulati Member (Technical), in the course of the order, has rejected the appellants case on the ground that it was not material as to whether the raw-material had been supplied by M/s. Krishna Electrical Industries. But the question, as to who would be the manufacturer, in a particular case, cannot be determined on board legal basis but with respect to the facts in each case. From the evidence adduced, it is clear that the Krishna Electrical Industries had engaged the appellants to process the goods. In the circumstances, f agree with the Member (Judicial) that in regard to the 2645 drums, it could not be said that there was a clandestine removal or that the appellants were the manufacturers.
12. In regard to the 330 coils, Member (Judicial) was of the view that without completing the other tests, the manufacture of the goods would not be complete. I do not accept this view because carrying out tests to meet the requirements of a particular customer, will not be the basis for determining the duty liability. If the manufacture is complete, then the duty liability would automatically arise. The 330 coils, it must be mentioned were found in the stock room PVC insulated and conforming to a a definite size. They were fully manufactured electrical wires. The contention of the appellants that there was a trial run and these were merely waste materials, cannot be accepted, for, one will not find wires packed and stored in the stock room if they were merely waste material. Further the appellants did not take steps to get the goods examined by an expert to establish that they were waste material. There is also no proof that these goods ealier were sent to M/s. Krishna Electrical Industries and that they were returned as waste or scrap. Emphasis was laid on the fact that the P & T Department had required the wires be supplied in lengths of 2000 Metres. It was urged that these goods were not pf the required length. But further severe tests to which the goods were subjected to or the particular specification of the P & T Department cannot be the basis to decide whether the goods had been manufactured or not. There is considerable force in the case of the department that in regard to 330 coils they were kept in the stock room with tags attached because they were in a fully manufactured condition. The Board's directives regarding the stage in R.G. 1 Register speaks of a general basis, and cannot be the criteria to determine the excisability of the product. In his statement, at the time of the seizure, the partner had stated that the 330 coils were unfit for use and had to be ultimately scrapped. The appellants had not produced any records to show as to when they were produced and the basis for holding that they were merely scrap. To this extent, I do not accept the findings of the Member (Judicial) that these 330 coils should also be taken as semi-finished goods. I lay emphasis on the fact that these goods were found in the stock room with the necessary tags. One will not except the manufacturer to keep the waste material properly tagged. Further the condition of the goods fully packed in gunny bags indicates that they were finished products assessable to duty. The non-entry of these products in the R.G. 1 Register is, therefore, violation. The intention of the appellants in not making the entries is itself manifest, I do not agree with the contention that there was no mens rea to evad3 payment of duty. The decision cited by the Learned Consultant does not apply to the present facts. Hence, I agree with Member (Technical) that in regard to the 330 coils, violation has been made out. The confiscation of the 330 coils is justified.
13. On the question of penalty, in view of my above observations, the circumstances of the case call for the imposition of a personal penalty only in regard to the 330 coils. Since the Bench has to decide the quantum of redemption fine and the penalty in the light of the majority view, I am leaving this question open to be decided by the Bench.
14. My findings on the points are as follows:
(i) I hold that the demand for duty on 2645 drums of electrical wires and cables was not justified;
(ii) I hold that the confiscation of the 330 coils of electrical wires and cables was justified; and
(iii) I hold that in the circumstances of the case, reduction of personal penalty is called for and the quantum of redemption fine and penalty has to be determined by the Members of the Bench.
Appeal disposed of accordingly.
Sd/- (M. Santhanam) Member (J) FINAL ORDER
1. The points of difference between the two Members of this Bench were referred by the Hon'ble Senior Vice-President to our learned brother Shri M. Santhanam, Member (Judicial) in terms of Section 35D(1) of the Central Excises and Salt Act read with Section 129C(5) of the Customs Act who has since recorded his findings. In his order he has agreed with the Member (Judicial) that the demand for duty on 2645 drums of electrical wire and cables was not justified. Thus, this point is to be disposed of on the basis of majority view in terms of Section 129C of the Customs Act. Accordingly we set aside the demand of duty on 2645 drums of electrical wires and cables.
2. However, our learned brother Shri M. Santhanam, Member (Judicial) on the point whether the confiscation of the seized 330 coils of electrical wires and cables was justified, has agreed with the Member (Technical) that the confiscation of the 330 coils of electrical wires and cables was justified. Thus, according to the majority view we uphold the order of confiscation of the seized 330 coils of electrical wires and cables.
3. Since the redemption fine of Rs. 5000/- was imposed for redeeming the seized 330 coils of electrical were and cables being found not accounted for in the R.G. 1 register, and a composite penalty for both the charges, i.e. to say for the clandestine removal of 2645 drums of electrical wires and cables from the factory and also for non-accountal of seized 330 coils of electrical wires and cables was imposed, the learned third Member after holding that the demand for duty on 2645 drums of electrical wires and cables was not justified and confiscation of the seized 330 coils of electrical wires and cables was justified held in para 13 that "On the question of penalty, in view of my observations, the circumstances of the case call for the imposition of a personal penalty only in regard to the 330 coils. Since the Bench has to decide the quantum of redemption fine and the penalty in the light of the majority view, I am leaving this question open to be decided by the Bench".
Accordingly the case was posted for hearing on the question as what should be the redemption fine for redeeming the seized 330 coils of electrical wires and cables and also what should be the personal penalty with respect to the offence proved in relation to these seized 330 coils.
4. Shri J.S. Agarwal, learned Counsel for the appellants submitted that the value of the seized 330 coils was only Rs. 25,239.30 whereas the value of 2645 drums of electrical wires and cables was Rs. 3,96,331.00 and for both the offences the composite penalty of Rs. 1 lakh was imposed by the adjudicating authority. He further submitted that the appellants admittedly applied for the Central Excise Licence on 26.11.1981 which was granted on 4.12.1981, i.e. to say much before the date of visit and seizure of 330 coils. He further submitted that all through it was the contention of the appellants that these coils were not required to be entered into R.G. 1 register. However, he submitted that in view of the majority decision he is not challenging the confiscation but submits that while fixing the redemption fine and amount of penalty all these facts and circumstances of the case should be taken into consideration particularly the appellants were of the belief that the seized goods were not required to be accounted for. To support his contention he cited the following case law:
(1) J.K. Synthetics Ltd. v. Collector of Central Excise 1987 (13) ECR 422 wherein it was held that accountal of goods in R.G. 1 register can only be done when goods are completely manufactured according to the buyer's specification.
(2) Collector of Central Excise v. Reliance Textiles Pvt. Ltd. Shri Agarwal only referred para 27 of the decision wherein it was held that marketability is not the sole criterion to determine whether the goods are finished or semi-finished.
(3) K.R. Steel Union Pvt Ltd. v. Collector of Central Excise and Customs wherein it was held that where it was not shown by the department that there was deliberate defiance of law, negligence or criminal intent, imposition of penalty is not justified.
(4) Cement Marketing Company of India Ltd. v. Assistant Commissioner of Sales Tax 1980 ELT 295 (SC) : ECR C 571 SC-wherein the Hon'ble Supreme Court held that penalty cannot be imposed under Section 43 of the Madhya Pradesh General Sales Tax Act, 1958 when assessce raises a bona fide contention. In reply Smt. Nisha Chaturvedi, learned SDR with her usual fairness submitted that redemption fine does not require any reduction and a suitable personal penalty be imposed.
5. We have considered the arguments and studied the case law cited by the appellants. The charge of manufacturing the seized 330 coils of electrical wires and cables stands proved by the majority. Hence it cannot be assailed. However the facts remains that admittedly the appellants applied for the licence on 26.11.1981 and the licence was granted on 4.12.1981 and the raid took place on 8.12.1981. The department had not produced any evidence to show that these coils were not manufactured after applying for the licence on 26.11.1981, though there is a finding that these were manufactured prior to 4.12.1981, i.e. to say before the actual grant of the licence. Thus taking into consideration the facts and circumstances of the case and the value of the goods involved which is Rs. 25,239.30, we hold that the redemption fine of Rs. 5,000/- imposed by the learned Collector of Central Excise is not excessive and a penalty of Rs. 10,000/- for violating the provisions of Central Excises and Salt Act and the Rules made thereunder would meet the ends of justice. We order accordingly.
Conclusion
6. In the result the appeal is partly allowed. The order demanding the duty on 2645 drums of electrical wires and cables is set aside. However, the confiscation of the seized 330 coils of electrical wires and cables with an option to redeem the same on payment of redemption fine of Rs. 5,000/- is upheld. However the personal penalty is reduced to Rs. 10,000/- (Rupees ten thousand only) as stated above.