Customs, Excise and Gold Tribunal - Mumbai
Reliance Industries Ltd. vs Commissioner Of C. Ex. on 21 June, 1999
Equivalent citations: 1999ECR254(TRI.-MUMBAI), 1999(112)ELT653(TRI-MUMBAI)
ORDER Gowri Shankar, Member (T)
1. M/s. Reliance Industries Ltd., Pathalganga, manufacture polyster staple fibre (PSF) with polyster tow. In the course of conversion of the tow to fibre, waste emerges. Notice was issued alleging non-payment of duty by the manufacture on the tow consumed in the manufacture of PSF and waste. After considering the cause shown and hearing the assessee, the Commissioner, in the impugned order, has confirmed the liability to pay duty on the following cases :
(i) tow consumed in the manufacture of PSF at nil rate of duty under Rule 191BB or for export;
(ii) or under Notification 43/80, dated 24-4-1980; and tow contained in recycled waste exempted under Notification 243/80.
He has also imposed a penalty under Rule 173Q.
2. It will be appropriate for us to consider separately the liability (the liability) to tow on the different grounds referred to in the order. We shall first consider together the case of tow cleared under Rule 191BB and used in the manufacture of products which are cleared for export without payment of duty including tow consumed in the manufacture of PSF so cleared for export without payment of duty.
3. The assessee had contended before the Commissioner that the clearances in each of these cases would be covered by Sub-clause (3) of the proviso to Sub-rule (1) of Rule 9 and Clause (4) of Rule 49. The relevant provisions of Rules 9 and 49 are reproduced below :
"Rule 9. Time and manner of payment of duty. - (1) No excisable goods shall be removed from any place where they are produced, cured or manufactured or any premises appurtenant thereto, which may be specified by the Collector in this behalf, whether for consumption, export or manufacture of any other commodity in or outside such place, until the excise duty leviable thereon has been paid at such place and in such manner as is prescribed in these Rules or as the Collector may require and except on presentation of an application in the proper form and on obtaining the permission of the proper officer on the form :
Provided that such goods may be deposited without payment of duty in a store-room or other place of storage approved by the Collector under Rule 27 or Rule 47 or in a warehouse appointed or licensed under Rule 140 or may be exported under bond as provided in Rule 13:
Provided further that such goods may be (removed without payment or on part payment of duty) leviable thereon if the Central Government, by notification in the Official Gazette, allow the goods to be so removed under Rule 49):
Provided also that such goods may be removed without payment of duty leviable thereon, if they are consumed or utilised in the place where such goods are produced or manufactured or any premises appurtenant thereto so specified under this sub-rule, either as raw material or as component parts for the manufacture of any other commodity which -
(i) is excisable goods specified by the Central Government by notification under Sub-rule (1) of Rule 56A;
[(ii) is classifiable under Heading No. or sub-heading No. of the First Schedule to the Central Excise Tariff Act, 1985 (5 of 1986), as may be specified in the notification issued under Sub-rule (1) of Rule 56A.]
(iii) is neither exempt from the whole of the duty of excise leviable thereon, nor is chargeable to nil rate of duty.
[Provided also] that the Collector may, if he thinks fit instead of requiring payment of duty in respect of each separate consignment of goods removed from the place or premises specified in this behalf, or from a store-room or warehouse duly approved, appointed or licensed by him, keep with any person dealing in such goods an account-current of the duties payable thereon and such account shall be settled at intervals, not exceeding one month, and the account-holder shall periodically make deposit therein sufficient in the opinion of the Collector to cover the duty due on the goods intended to be removed from the place of production, curing, manufacture or storage.
[(1A) Where a person keeping an account-current under the third proviso to Sub-rule (1) makes an application to the Collector for withdrawing an amount from such account-current, the Collector may, for reasons to be recorded in writing, permit such person to withdraw the amount in accordance with such procedure as the Collector may specify in this behalf.] [(2) If any excisable goods are, in contravention of Sub-rule (1), deposited in, or removed from, any place specified therein, the producer or manufacturer thereof shall pay the duty leviable on such goods upon written demand made (within the period specified in Section 11A of the Act) by the proper officer, whether such demand is delivered personally to him, or is left at his dwelling house, and shall also be liable to a penalty which may extend to two thousand rupees, and (such goods) shall be liable to confiscation.] [Explanation. - For the purposes of this rule, excisable goods produced, cured or manufactured in any place and consumed or utilised -
(i) as such or after subjection to any process or processes; or
(ii) for the manufacture of any other commodity;
Whether in a continuous process or otherwise, in such place or any premises appurtenant thereto, specified by the Collector under Sub-rule (1), shall be deemed to have been removed from such place or premises immediately before such consumption or utilisation.]"
"Rule 49. Duty chargeable only on removal of the goods from the factory premises or from an approved place of storage. - [(1) Payment of duty shall not be required in respect of excisable goods made in a factory until they are about to be issued out of the place or premises specified under Rule 9 or are about to be removed from a store-room or other place of storage approved by the Collector under Rule 47:
Provided that the manufacturer shall on demand pay the duty leviable on any goods which are not accounted for in the manner specifically provided in these rules, or which are not shown to the satisfaction of the proper officer to have been lost or destroyed by natural causes or by unavoidable accident during handling or storage in such store-room or other approved premises:
Provided further that the proper officer may not demand duty due on any goods claimed by the manufacturer as unfit for consumption or for marketing subject to such conditions as may be imposed by the Collector by order in writing.] (2) Notwithstanding anything contained in Sub-rule (I), excisable goods made in a factory to which provisions of Chapter VII of these rules have been extended by the Central Government by notification in the Official Gazette, may be removed from the factory in which they are made to any warehouse licensed under Rule 140 for the storage of such goods and situated outside the licensed premises of the factory and subject to such exemptions, limitations and conditions as may, from time to time, be specified in this behalf by the Central Government.
[(3) Notwithstanding anything contained in Sub-rule (1), the Central Government may, under circumstances of exceptional nature, allow, by notification in the Official Gazette, any excisable goods to be removed from the factory in which they are produced (without payment of, or only on part payment of, duty] leviable thereon subject to such conditions and limitations (including payment of interest on the balance amount of duty) as may, from time to time, be specified by the Central Government. The manufacturer of such excisable goods shall execute a bond in the proper Form with (such surety or security) as the Collector may approve.] [(4) Notwithstanding anything contained in Sub-rule (1), payment of duty shall not be required in respect of excisable goods made in a factory if they are consumed or utilised in the same factory either as raw material or as component parts for the manufacture of any other commodity which -
(i) is excisable goods specified by the Central Government by notification under Sub-rule (1) of Rule 56A, [(ii) is classifiable under heading No. or sub-heading No. of the Schedule to the Central Excise Tariff Act, 1985 (5 of 1986), as may be specified in the notification issued under Sub-rule (1) of Rule 56A, and]
(iii) is neither exempt from the whole of the duty of excise leviable thereon nor is chargeable to nil rate of duty.] Explanation. - For the purposes of this rule, excisable goods made in a factory and consumed or utilised -
(i) as such or after subjection to any process or processes; or
(ii) for the manufacture of any other commodity, whether in a continuous process or otherwise, in such factory or place or premises specified under Rule 9 or store-room or other place of storage approved by the Collector under Rule 47, shall be deemed to hava been issued out of, or removed from such factory, place, premises, store-room or other place of storage, as the case may be, immediately before such consumption or utilisation.]"
4. The contention of the manufacturer before the Commissioner and reiterated before us is that the goods which were exported were neither exempted from the whole of duty of excise thereon nor chargeable to nil rate of duty and therefore the tow used in the manufacture of goods cleared in the circumstances specified above was not required to pay duty in terms of Rules 9 and 49. The Commissioner has held that the goods cannot be considered to be neither exempted from duty nor cleared at nil rate of duty and hence the entitlement contained in the relevant provisions of the rules will not apply.
5. We shall first consider the case of tow cleared under Rule 191BB for being used in the manufacture of goods which are exported and tow cleared for manufacture of PSF which itself is exported. The Commissioner took the view that clearances under Rule 191BB were clearances without payment of duty and neither exempted from the whole of duty nor chargeable to nil rate of duty. He applied the same reasoning to the PSF cleared for export.
6. Advocate for the appellant contends that clearances without payment of duty in these circumstances cannot be considered to be clearance without payment of duty or at nil rate of duty. He relies upon the following decisions of this Tribunal:
(i) Reliance Industries Ltd. v. C.C.E. -1995 (78) E.L.T. 595;
(ii) ICI Ltd. v. C.C.E. -1995 (78) E.L.T. 695;
(iii) Orissa Synthetics Ltd. v. C.C.E., Bhubaneshwar -1995 (77) E.L.T. 350
(iv) an unreported order passed by the Tribunal in Reference Application in 10-95-Bom in Appeal E/611/92-Bom in C.C.E. v. Reliance Industries Ltd.
7. In Reliance Industries Ltd. v. C.C.E. - 1995 (78) E.L.T. 595, the question before the Tribunal was whether the assessee could take Modvat credit on the duty paid on inputs used in the manufacture of polyester yarn from polyester synthetic fibre cleared without payment of duty under Rule 191B and Rule 191BB. The Assistant Collector held that credit could not be taken on the ground that final product was cleared without payment of duty. Hence the provisions of Rule 57C would apply. The other ground was that since the goods were themselves utilised both in the manufacture of fabrics, which were exported, the proviso to Sub-rule (3) of Rule 57F would not apply. The assessee contended that both these objections would not be valid in view of the decisions of the Tribunal in Orissa Synthetics Ltd. v. C.C.E. -1995 (77) E.L.T. 350 and Hindustan Petroleum Corporation Ltd. v. C.C.E. -1995 (77) E.L.T. 256 and the Delhi High Court judgment in Hindustan Aluminium Corporation Ltd. v. Superintendent of Central Excise, Mirzapur -1981 (8) E.L.T. 642. The Tribunal accepted this contention. It said that the East Regional Bench had held in Orissa Synthetics Ltd. that removal of final product without payment of duty under Rule 191BB was not clearance of goods either exempted or at nil rate of duty and hence not attracting the provisions of Rule 57C. It noted that the Tribunal in deciding C.C.E. v. Hindustan Aluminium Corporation Ltd. v. Supdt. of Central Excise apply the same view with regard to Modvat credit under Rule 56A similar to the provisions of Rule 57C in the case of the goods cleared without payment of duty after export under Rule 191B and Rule 191BB. It held that on the ratio of these decisions the Delhi High Court judgment in Hindustan Aluminium Corporation Ltd. v. C.C.E. -1981 (8) E.L.T. 642 and views of the Board itself it could not be said that removal in question attracted the scope of Rule 57C. They declined to accept the prayer made by the advocate for the department to reconsider these two decisions and not applied the ratio.
8. The ld. Advocate for the department contends that PSF removed under Rule 191BB does not suffer any burden of duty. He contends that the Tribunal decision was in the context of the Modvat credit and should not be held applicable to cases involving application of Rules 9 or 49. The observations of the Delhi High Court in Hindustan Aluminium Ltd. v. C.C.E. are relevant in this context. Even with regard to Modvat credit, he contends that in view of the Larger Bench decision in Machine Builders v. C.C.E. -1996 (83) E.L.T. 576 to the effect that if the final product is not paid duty due to any reason whatsoever Modvat credit could not be taken.
9. It is further contended that removal under Rule 191BB is permitted only for supply of goods for manufacture of articles to be exported or for replenishment of goods used for manufacture of exported goods without payment of duty against advance licences. The import of goods in such cases are exempted from payment of duty by relevant Customs notification. Therefore, non-payment of that duty under Rule 191BB which is on the same footing amounts to statutory exemption. It was contended that the appellant had itself recognised this fact by using for their clearance AR 3 forms which are used to clear goods under exemption from duty.
10. Rule 191BB provides for removal of goods "without payment of duty from the place of their manufacture or storage" if they are to be used in the manufacture of goods exported or for replenishing of goods already so used in pursuance of notification issued in this regard. Rule 13 provides that the goods may be exported "without payment of duty". At the relevant time Explanation 2 (ii) to the rule included excisable goods used in the manufacture of exported goods within the term "goods" occurring in the rule. The question therefore is whether the goods removed without payment of duty either in terms of Rule 191BB or Rule 13 would be goods removed either under exemption or under nil rate of duty.
11. The scope and significance of the provisions of Rules 12 and 13 were considered by the Supreme Court in Hindustan Petroleum Corporation Ltd. v. C.C.E. - 1995 (77) E.L.T. 256. Rule 12 empowers the Central Government to grant rebate of duty paid on excisable goods to be exported outside India subject to the extent and conditions as may be specified. In Hindustan Aluminium Corporation v. Supdt. of Central Excise - 1981 (8) E.L.T. 642, the question that the Delhi High Court found raised was whether the goods which were exported under bond were liable to payment of excise duty totally exempted. The petitioner before the Court had exported aluminium without payment of duty under a bond given under Rule 13. Notice was issued to it claiming the differential duty between duty leviable on aluminium under the tariff and the amount notified as rebate by notification issued under Rule 12.
The assessee contended that by virtue of the provisions of Rule 13 which was independent of Rule 12 the goods could be exported from bond without payment of duty and the notification issued under Rule 12 would not apply to such clearances. The Court did not accept this contention. It said that Rules 12 and 13 are supplementary and deal with the same matter and the goods exported out of India. The difference between Rules 12 and 13 was only the mode and manner of payment of duty, Rule 12 covering cases of export of goods cleared on payment of duty on which rebate would be available and Rule 13 covering the cases where goods are exported under bond without payment of duty. Where goods are exported under Rule 13, it is the rebate provided under Rule 12 that can be claimed. It said that removal of goods under Rule 13 without payment of duty did not amount to exemption from payment of excise duty as was contended. It declined to accept the argument that export of goods without payment of duty at the time of removal could not be equated to the general exemption from payment of any duty at all and distinction between exemption from duty under Rule 8 and rebate under Rule 12. This view was confirmed by the Supreme Court in its judgment in Hindustan Petroleum Corporation Ltd. v. C.C.E. -1995 (77) E.L.T. 256. The Court declined to accept the alternative view taken by the Calcutta High Court in Hindustan Aluminium Corporation v. C.C.E. that the clearance without payment of duty under Rule 13 amounted to clearance under an exemption from duty.
12. Advocate for the department contends that the decisions of the Supreme Court and High Court do not support the view taken by the Tribunal in Reliance Industries Ltd. v. C.C.E. He contends that the Court were concerned with the notification which granted only partial rebate of duty, whereas the rebate on the PSF is on the entire duty paid under Notification 97/62. It amounts to an exemption. According to him, the Delhi High Court found in para 16 of the judgment that notification issued under Rule 12 was an exemption. Therefore, he contends, the decision in Reliance Industries Ltd. v. C.C.E. was based on an incorrect application of these decisions and requires reconsideration.
13. The passing reference to para 16 of the Delhi High Court judgment to the exemption issued under Rule 12 does not, in our view, justify this interpretation. The Court has specifically distinguished in paragraph 14 between an exemption from duty granted under Rule 8 and under notification granting rebate under Rule 12. We are also unable to see that there is any significance in the entire duty being available as rebate or only a part of the duty. Once it is found that what was granted was a rebate and not an exemption from duty, the fact of the rebate being equal to the total duty paid does not confer the same exemption under Section 5 of the Act. The distinction between such exemption under Rule 8 continue undisturbed irrespective of the quantity of the rebate. The goods exported under Rule 13 and by virtue of the Explanation (2) to this rule goods cleared for making the yarn exported cannot therefore be considered to be goods exempted from payment of duty.
14. It is no doubt true that the Tribunal's decisions were on the applicability of Rule 57C relating to Modvat credit taken on inputs. In Machine Buildings v. C.C.E. - 1996 (86) E.L.T. 576, the Tribunal had, while construing the provisions of the orders of the Government of India issued under Rule 57G relating to deemed credit, interpreted the words "wholly exempted from payment of duty" as taking in cases of unconditional exemption of the whole of the duty payable and also conditional exemption of such duty were the conditions were satisfied. The Tribunal in that order, however was not concerned with goods which were exported. It considered in para 19 only four contingencies in which duty was not paid - this being were no nil rate of duties prescribed in the tariff; goods are wholly exempted; not cleared by the manufacturer and cleared clandestinely without payment of duty; the case of goods which were exported without payment of duty was not considered at all. The Tribunal did not consider the decision in Reliance Industries Ltd. v. C.C.E. or the other two decisions of the East Regional Bench. It would therefore be inappropriate to extend the scope of the decision in Machine Builders to a situation with which it was not at all concerned. Apart from this, the finding of the Delhi High Court and the Supreme Court in Hindustan Petroleum Corporation Ltd. that the clearances under rebate would not amount to clearance under the exemption notification would be ineffect by this decision. It has therefore to be held that clearance under Rule 191BB were not clearances which were exempted or at nil rate of duty.
15. The same position would apply with regard to clearances under Rule 191BB. Such clearances would be for manufacture of goods to be exported in terms of a notification or in replenishment of the duty paid goods used in such manufacture. The ratio of the Tribunal decision in Reliance Industries v. C.C.E. that clearances recognised as exports stand on a different footing and that such clearances under Rule 12 did not amount to nil rate of duty clearance or without payment of duty would apply to clearance under this rule. The fact that the goods cleared under this rule may be used along with goods imported under an exemption under Section 25 of the Customs Act is not of relevance. Such goods can be cleared without payment of duty as replenishment for goods imported under an exemption. Exemption from duty under the Customs Act can be compared to exemption from Excise duty under Section 5A, but it would be impermissible to make such a comparison to goods which are clearly not so exempted under Section 5A. Goods cleared under Rule 191BB could be utilised for manufacture of the export product without involving use of goods imported without payment of duty under any notification. The character of these goods with regard to non payment of duty does not alter merely by being used in conjunction with goods exempted from Customs duty.
16. We are next concerned with tow in the manufacture of PSF cleared without payment of duty under Notification 191/85. This notification exempted from duty polyester fibre supplied to units of Khadi and Village Industries Corporation for manufacture of specified low cost fabrics under the programme approved by the Textile Commission. It is contended for the appellant in this regard that on the true construction of this notification it is clear that the exemption contained in tow in respect of which duty has to be paid either at the tow stage or at the PSF stage, and that therefore the exemption is in respect of duty which will ultimately be relatable to PSF. Advocate for the appellant relies upon the decision in Indian Organic Chemicals Ltd. v. C.C.E. -1997 (91) E.L.T. 180.
17. The question before the Tribunal in the decision cited by the appellant was the same one with which we are now concerned the duty payable on tow from which PSF was manufactured and cleared under Notification 191/85. The assessee claimed the benefit under Notification 84/87 which exempts tow from payment of duty if used in the manufacture of PSF cleared on payment of duty. The department has denied this benefit on the ground that the fibre was cleared under an exemption notification without payment of duty. The contention raised on behalf of the assessee was that demanding duty on the tow will defeat the object of the notification which was to supply fibre without payment of duty as a measure of social welfare. It was further contended that Notification 76/92 issued on 1-7-1992 exempting tow used in the manufacture of PSF cleared under Notification 191/85 was only clarificatory in nature and therefore retrospective in application. The Tribunal noted that Notification 84/87 exempts from duty on tow used to manufacture PSF cleared on payment of duty and that PSF is exempted if manufactured out of duty paid tow. It concluded therefrom that the intention was to levy duty only at one stage either on the tow or at staple fibre stage and that exemption contained in Notification 191/85 is to be so construed and to apply to the duty paid either at the tow stage or at the PSF stage. On this reasoning it held that Notification 77/92 is clarificatory and hence retrospective in operation.
18. The Departmental Representative questions the correctness of this decision and urges its reconsideration. He contends that the basis for the Tribunal's conclusion that levy of duty on the PSF is to be considered, has been limited to one stage in view of Notification 86/87 is incorrect. The notification was issued under Rule 56A and hence for the purposes of credit, even if duty was paid on tow that would not result in exemption from duty for the PSF manufactured out of such tow in view of the value addition and difference in the rates of duty applicable to tow and PSF. It is further contended that Notification 76/92 does not amend Notification 191/85. Notification 53/91, which is not concerned with PSF supplied to Khadi and Village Industries Commission. Notification 76/92 therefore cannot clarify Notification 191/85.
19. It is difficult to deny the merit in this contention. Notification 76/92 and 191/85 are concerned with quite different situation. The former exempted polyester fibre which was supplied to units functioning under the Khadi and Village Industries Commission. Notification 76/92 exempted from duty tow used in the manufacture of fibre.
20. The reasoning of the Tribunal in the decision cited by the appellant appears to be based upon a premise that there is only one stage of levy of duty, either on tow or PSF. This is what is stated in paragraph 4. The reasoning therefore appears to be that since the exemption granted to fibre cleared to units under the Khadi and Village Industries Commission by Notification 191/85 would be nullified if the tow out of which that fibre is manufactured has to pay duty. Whatever the correctness of this view, it is not possible to conclude that therefore Notification 76/92 has retrospective effect because it amended Notification 191 /85. Notification 76/92 amended not by Notification 191 /85 but by Notification 53/95. This notification again has no direct relation to the Notification 191/85. The view that the object of the notification was to subserve the same purpose as that of Notification 191/85 may or may not be correct. Even if it is correct, it does not confer a retrospective operation upon Notification 76/92. This conclusion of the Bench therefore, in our view, requires reconsideration. The question of the liability to duty on such goods as was supplied under notification therefore will on merits have to await the result of that reconsideration if the demand is sustainable on limitation.
21. The question of limitation has now to be considered. The notice to show cause which demanded duty is dated 10-2-1994 and was issued for clearances between 25-7-1991 and 30-6-1992. It invoked the extended period contained in the proviso to Section 11A(1) on the grounds that there is no allegation of mis-statement, misdeclaration or suppression; previous notices were on the same ground have been issued and that factory was throughout under physical control. The Supreme Court judgment in C.C.E. v. HMM Ltd. - 1995 (76) E.L.T. 497 in support of the proposition that there must be a show cause notice with details showing the existence any one of the circumstances specified in the proviso to Section 11A(1). The decisions of the Tribunal in CC v. Metro Steel Rolling Mills -1996 (12) RLT 58, Hindustan Sugar Mills v. C.C.E. - 1996 (13) RLT 36, CC v. Malda Chemicals v. C.C.E. (sic) -1996 (13) RLT 216 cited in support of the proposition that the extended period will not be available in the cases where the factory is under physical control.
22. The departmental representative counters that it is not correct to say that the proviso to Section 11A(1) has not been cited in the Notice. He says that paragraph 46 of the show cause notice specifically give the reason for invoking the extended period, which is that there has been contravention of the rules. The provisions of the rules which have been contravened were also cited. He contends that the appellant knew that duty was payable on tow in question because it had filed the classification list showing its manufacture. It was thus aware of its obligation to pay duty on the goods but did not do so. In that situation, he contends that the extended period is rightly applied.
23. The notice to show cause was issued invoking the extended period on the ground that Section 6 of the Act read with Rules 9(1), 52A, 53,54 and 174 have been contravened.
24. The proviso to Section 11A(1) says that "where any duty of excise have been levied or paid or found short levied or short paid or erroneously refunded by reasons of fraud, collusion, or any wilful mis-statement or suppression of facts or contravention of any of the provisions of the Act or the Rules with intend to evade payment of duty, five years would be available from the relevant date to the department to issue of notice to demand duty. The words of the proviso extracted above make it clear that the short levy of payment or non-levy of payment or erroneous refund must have occurred by reasons of any of the factors specified therein. The short levy etc. must thus be a consequence of these factors. Thus contravention of the rules by itself will not attract the proviso; for that to be applied, it must be shown that the contravention resulted in non-payment or short payment of duty. Thus, it would mean that for the extended period to apply, it must be shown that the duty was not collected because of the contravention of the provisions of the Acts and Rules alleged. The notice to show cause cites Section 6 of the Act, Rules 9(1), 52A, 53, 54 and 174. Section 6 of the Act and Rule 174 related to licensing provided that any person manufactures excisable goods must be licensed. It is not denied that the appellant was licensed for manufacture of excisable goods. Rule 9(1) prescribes payment of duty before goods are removed. Rule 52A provides for issue of gate passes. Rule 53 prescribes maintenance of the daily stock account. Rule 54 provides for the monthly return. Sub-rule (2) of Rule 9(1) itself provides that any contravention of Rule 9 provides for recovery of duty on goods removed without such payment within the period specified in Section 11A of the Act. Thus, the mere fact of contravention of Rule 9(1) would not justify invoking the extended period. If that were the case, in every case where duty is demanded, either on the ground that it was short levied or not levied, the provisions of Rule 9(1) would apply and hence the extended period would be available. This leads us to rules relating to issue of gate passes and filing of returns. The object of these returns is to provide information to the department about the fact of manufacture of the goods, and the payment of duty upon them with the object of ensuring of the goods manufactured have been accounted for and that appropriate duty has been paid.
25. The appellant's factory was under physical control. The system of physical control envisages supervision over the processes of the assessee's factory and checks at every stage of such processes by the officers posted to the factory or those having supervision upon it. The departmental instructions are clear on this. Basic Manual of Departmental Instructions on Excisable Manufactured Products (second edition) 31st December, 1979 describes physical control as also the responsibility of the officers. Paragraph 32 says that every officer connected with the supervision of a factory producing excisable goods must acquaint himself with the different processes and stages of the manufacture so as to exercise full excise control with the minimum risk to the Government revenue. Paragraph 33 provides for physical checks of excise by officers at different stages from the receipt of the raw materials through the manufacturing, packing and storage up to the final disposal of the products. Paragraph 36 refers to check at the packing stage. Section B indicates that the complete survey of the entire licensed premises must be made by the officers on duty at least once in each shift. On every survey each of the checks prescribed must be made in the various departments where work is in progress and the result indicated in the survey book prescribed for the purpose. Paragraph 50 enjoins upon the supervision of the officers scrutinise the survey book. Paragraphs 214 and 215 lists out various records to be checked by the Central Excise officers including the survey book. They indicate that the record is to be maintained containing information concerned with the factory. "Details regarding raw materials, processes of manufacture and finishing; notes on important manufacturers, how the product is normally disposed of and to what markets are to be kept. Paragraph 219 provides for check by the sector or Range Officer on the raw materials and says that the Section Officer must gets acquainted with the proportion of raw materials used and the product manufactured. Checks are prescribed every weighing machine, filling, production or the packing section, delivery or loading. Challenge of stock must be conducted and checks made from account.
26. Specific checks are prescribed in what are called commodity supplement relating to a particular industry.
27. If the checks were carried out in the manner prescribed, by the departmental officers having jurisdiction, it is impossible for them not to be aware that the appellant was manufacturing and clearing tow and waste, and that such clearance was without payment of duty. This is the same conclusion that has been arrived in various decisions of this Tribunal cited by the appellant to the effect that the extended period contained in proviso to Section 11A (1) would not be available in the cases of factories under physical control. It is however true that the question in those decisions did not revolve around the point now canvased by the department i.e. the contravention of the rules has to be treated on a different footing. We must, in this context, refer to the judgment of the Supreme Court in Pushpam Pharmaceutical Co. v. C.C.E. -1995 (78) E.L.T. 401. The Court noted in that judgment that "suppression of facts" referred to in the proviso to Section 11 A(1) was a mildest expression used in the proviso, and that it was used in the company of such strong words such as collusion, suppression of facts and was mildest in it. It said that the surrounding in which it has been used it must be construed strictly. Inescapable inference that otherwise used in the proviso also has to be construed strictly. The words contravention of the rules "also have to be read along with the subsequent expression with intent to evade duty". In point of fact, as we have noted earlier, every case where the extended period is invoked would involve contravention of the rules. At the very least it would involve contravention of Rule 9(2), in that duty required to be paid had not been paid. If that is the case, it would then follow that for this proviso to be invoked, contravention of the rules must involve contravention of rule other than Rule 9(2) which is invariably the contravention in every case where invoked and such contravention must be with intend to evade payment of duty.
28. Apart from the fact of the department coming to know of the check prescribed in the manual, appellant had itself filed classification list for its clearance. These lists have been returned by the officers on the ground that they were not required to be filed, the factory being under the physical control.
29. If the assesse, despite the officers carrying out various checks that they were required to do is not asked to pay duty in a factory under physical control in a particular commodity and despite it specifically bringing to the notice of the department the fact of manufacture of commodity has still not asked to pay duty, it would be entirely reasonable to conclude that duty was not payable. The conduct of the appellant in specifically bringing to the notice of the department, that it was manufacturing this commodity including in the classification lists would show that it believed that it did so that it was liable to pay duty. However, from the department subsequently only returning the classification list and not showing any interest in collecting the duty payable on the waste, the appellant could legitimately conclude that the department itself was under the impression that duty was not payable on it and hence it itself come to the same conclusion. The fact that the assessee did not file AR 1 forms for each clearance become insignificant in this situation.
30. It has therefore to be held that the existence of contravention of the rules with intent to evade duty therefore has not been established and the extended period was not available. The demand for the entire period is therefore barred by limitation and penalties are not imposable. In the light of this, it would not be necessary to refer for reconsideration the Tribunal decision in Indian Organic Chemicals v. C.C.E. -1997 (91) E.L.T. 180 referred to in paragraph 16 above. Duty was therefore not demandable and penalty was also not imposable.
Appeal allowed. Impugned order set aside.