Customs, Excise and Gold Tribunal - Delhi
Bajaj Tempo Ltd. vs Collector Of Central Excise on 21 February, 1984
Equivalent citations: 1984(17)ELT205(TRI-DEL)
ORDER A.J.F. D'Souza, Member (T)
1. The appeal to the Central Board of Excise and Customs under Section 35 of the Central Excises and Salt Act, 1944 against order-in-original F. No. V (34A) 15-49/Adj/8099, dated 3-6-82 passed by the Collector of Central Excise, Pune has been transferred to the Tribunal for disposal as if it were an appeal, under the provisions of Section 35P (2) of the said Act.
2. The appellants hold Central Excise licences to manufacture Motor Vehicles excisable under Item 34 as well as Internal Combustion Engines falling under Item 29 of the First Schedule, which are also components of parts of motor vehicles, since 1963. In May 1971, Notification No. 101/71, dated 29-5-71 was issued by which specified motor vehicle parts and accessories falling under Item 34A were exempted from duty provided it was proved to the satisfaction of the Collector of the Central Excise that they were intended to be used as original equipment parts by manufacturers of motor vehicles and the procedure set out in Chapter-X of the Central Excise Rules, was followed. The appellants applied for a L 6 licence through their application dated 4-6-71 mentioning that remission of duty was desired on motor vehicle parts under the concession given in Notification 101/71. The Department granted the licence after all the formalities had been complied with. The appellants state that their reading was and is that the duty remission was available to them as manufacturers of motor vehicles as long as they followed the prescribed procedure and used the parts as original equipment parts regardless of whether they were used as original equipment parts of motor vehicles or as original equipment parts of the internal combustion engines manufactured by them. Accordingly their estimated requirements in the application for renewal of their L6 licence included the quantities of parts both for motor vehicles and internal combustion engines. That they were specifically authorised to avail the concession is also evident from the C.T. 2 certificate issued under Rule 156 bearing the endorsement-
"(4) The said licence authorises to obtain motor vehicle parts falling under T.I. No. 34A of Central Excise at Nil/Concessional rate of duty under Notification No. 101/71, dated 29-5-71 for manufacture of original equipment parts of motor vehicles."
The factory of the appellants was inspected from time to time and the various accounts and documents concerning motor vehicles and internal combustion engines and the L6 licence granting remission, were thoroughly audited by various Central Excise officers and authorities between 1971 and 1976 as enlisted. From the R.G. 16 which is a record of excisable goods used without payment of the whole or part of the duty for special industrial purposes and other records, it was clear that the motor vehicle parts were being used also in internal combustion engines cleared for sale. It was also within the knowledge of the department that some engines fitted with such parts were being cleared for sale as replacements but no objection was raised. On 5-10-1976, the premises was raided by a party of Central Excise officers who physically checked the stock of all excisable goods and found it to be correct. On being told by the Material Controller that motor vehicle parts were also used in the manufacture of I.C. engines sold in the open market, the officers seized parts valued at Rs. 7,02,949.79 and 9 internal combustion engines valued at Rs. 1,11,870.00. Despite repeated requests, the specific provisions of the Act or Rules which had been contravened and made the goods liable to confiscation were not made known. They also challenged the seizure as unlawful and against the provisions of Section 110 of the Customs Act, 1962 as applied to Central Excise since the goods were duly accounted for and Chapter-X did not provide for forfeiture of goods which had not yet been taken into use. However, on 31st March, 1977 a show cause notice was received alleging contravention of Rule 176 read with Rules 192, 194(1) and 194(3) read with 173C (I) (a) and 173Q(1) (d) inasmuch as (1) 195661 pieces of motor vehicle parts were used in diesel I.C. Engines which were not used as original equipment parts of motor vehicles as envisaged in Notification No. 153/71, dated 26-7-71 and 23/73, dated 1-3-73 but such engines were cleared for sale in the open/replacement markets; (ii) they did not keep proper accounts of receipts and issues of parts procured under Chapter-X, did not submit monthly R.T. 12 in respect of I.C. Engines and did not submit correct figures of manufacture of motor vehicles in the R.T. 11 for motor vehicles; and (iii) failed to satisfactorily account for 68459 pieces of motor vehicle parts found short compared to the R.G. 16 balance. They were called upon to show cause why the goods seized should not be confiscated under Rules 196 and 173Q (1), why penalty should not be imposed under Rules 173Q (1) and 210 and why duty at the appropriate rate should not be demanded on 195661 pieces of parts used in internal combustion engines cleared for sale and on 68459 pieces of parts found short compared to the R.G. 1 register. They were also required to show cause why the concession granted under Rule 192 should not be withdrawn and the security desposited should not be forfeited under Rule 196. After due proceedings the Collector, by an order-in-original No. V(34A)15-184/Adj/76/865, dated 14-11-77, held contravention with intent to evade payment of duty proved and duty was liable to be paid on 195661 motor vehicle parts and the goods seized were liable to confiscation under Rule 196 and the appellants were liable to penalty under Rule 173Q (1). He, therefore, imposed a penalty of Rs. 50,000, adjudged confiscation of 212922 pieces and directed appropriation of Rs. 1 lakh desposited as security for their provisional release; confiscated 9 internal combustion engines with an option to pay a fine of Rs. 25,000 in lieu within three months; and demanded duty on 195661 pieces of parts not used as original equipment parts of motor vehicles but used in I.C. Engines cleared for sale. He did not withdraw the concession or forfeit the security.
3. Aggrieved by this order, the appellants filed an appeal to the Central Board of Excise and Customs on 11-2-77 and after hearing them the appeal was disposed of by order F. No. 194/27/78-CX. V (A), dated 23rd April, 1979. Except for remitting the personal penalty of Rs. 50,000 the order of the Collector was upheld. In September, 1979 a Revision Application was filed with the Government of India which resulted in order No. 372 of 1980 dated 31st March, 1930. This order set aside the orders of the lower authorities with the direction that since the appellants had no opportunity of making their submissions in the light of the provisions of Notification 101/71-C.E., dated 21-5-71, the Collector should re-adjudicate the case. Pursuant to this, a corrigendum was issued by the Collector to the original show cause notice issued in 1977 by which a reference to Notification No. 101/71-C.E., dated 29-5-71 was also introduced and the appellants were asked to make further submissions. They claimed that the fresh show cause notice served on 27-5-80 was barred by limitation; it was vague and did not disclose any specific charge nor gave any particulars of contravention of Notification No. 101/71; the fact that contravention of Notification Nos. 101/71 and 153/71 was alleged when both were independent clearly showed the allegations were dubious and since the order regarding contravention of Notification 153/71 had already been quashed, the amended show cause notice was beyond jurisdiction and illegal; the department could not circumvent the limitation provisions or to introduce fresh allegations in the garb of a remand or a corrigendum; the remission of penalty by the Board precluded any liability for penalty in the remand proceedings; Notification 101/71 did not admit of the interpretation that the parts must be used as O.E. parts of motor vehicles alone. A taxing statute must be strictly construed as held by the Supreme Court and no strict construction, the appellants were entitled to and rightly availed of the benefit of Notification 101/71; even if the notification admitted of the interpretation placed on it by the department, it would at once be seen to be ambiguously worded and the benefit of this ambiguity must be extended to the appellants; Chapter-X is self-contained and Rules 173Q and 213 could not be invoked for imposing penalties; seizure of goods which had not yet been taken into use was mala fide and unlawful being unwarranted by Section 110 of the Customs Act as applied to Central Excise; in the absence of a breach leading to withdrawal of the concession under Chapter-X, confiscation of goods lying in stock was clearly unlawful; and since the appellants were using the parts in the genuine belief that as manufacturers of motor vehicles they could be used in the manufacture of internal combustion engines and since such use was known to and had its tacit approval of the department, the duty allegedly short levied could at best be covered by Rule 10, under which a part of the demand beyond 12 months from the date of issue of the show cause notice, was barred by limitation. They also pointed out that the figure of 195661 pieces of parts was incorrect and the correct figure used in a manufacture of I.C. engines was 1,43,361 parts. They also assailed reliance by the department on certain documents other than statutory records. At the personal hearing granted by the Collector, it was pleaded-
(i) the show cause notice was invalid as it did not show the exact amount of duty to be demanded (1980 E.L.T. 121);
(ii) there was nothing in the corrigendum to show how Notification 101/71 had been contravened so the show cause notice was vague and illegal;
(iii) the basic deficiency persisted as the appellants had again been charged for contravention of the provision of Notification 153/71 for which they had never applied and no L 6 licence was granted;
(iv) the words "as original equipment parts by the manufacturers of motor vehicles..." clearly authorised the use of such parts by the appellants. The operation of the exemption has to be adjudged not by the object which the rule making authority had in mind but by the words which it has employed to effectuate the legislative intent (1978 E.L.T. J 350);
(v) the exemption cannot be denied even if there is an apparent mistake in wordingr of the language is deficiency (1979 E.L.T. J 156 and 1980 E.L.T. 10);
(vi) there was no justification for concluding mis-use of the concession in Notification 101/71. There was no suppression of any facts and the use was well within the knowledge of the Central Excise officers so it was incorrect to impute motives regarding evasion of duty;
(vii) Rules 210 and 173Q could not be invoked and this was accepted by the Board so the penalty imposed had been fully quashed;
(viii) since the case involves difference in interpretation of Notification 101/71, no penal action was justified;
(ix) in de novo adjudications, the favourable decisions obtained, in this case from the Board, had to be maintained (1978 E.L.T. J 385 and 1980 E.L.T. 89);
(x) the show cause notice was bad in law as it contained mis-joinder of charges.
4. By the impugned order, the Collector held-
(1) the objection regarding amendment of the show cause notice is not valid in view of the clear provisions of Section 36 and since the basic allegation that the parts procured for use as O.E. parts in the manufacture of motor vehicles were diverted for a different use, has remained unchanged. In certain notification 101/71 as directed by the Government of India does not amount to levying any new charge and there is no violation of natural justice as claimed;
(2) proviso (b) of Rule 10 provides for recovery of duty not levied or not paid within five years for contravention of Rules with intent to evade duty. The show cause notice originally issued was not time-barred and no such objection was raised then. So far as the de-novo proceedings are concerned, no fresh notice has been issued;
(3) presuming the diversion was known to the officers, it cannot preclude remedial action by Government. At best it could be argued that no penal liability would be attracted but here it is doubtful if the diversion was within the specific knowledge of the officers, as listing of parts for I.C. engines in the AL 6 would not be adequate to inform the officers about diversion as it would not spell out that such engines are intended to be removed as replacement parts. In the RT 11 returns it has nowhere been indicated that the parts were used for engines cleared out as replacement parts. Further, certificate 4 of the CT 2 provides that the parts obtained are for manufacture of O.E. parts of motor vehicles and the diversion for other uses reveals nothing but a deliberate attempt to evade duty;
(4) the judgments cited by the appellants regarding the scope of the de-novo proceedings do not support the case of the appellants since the nature of violation remains unchanged in their case;
(5) there is no mis-joinder of charges. It is the dual role of the appellants as manufacturers of motor vehicles and also I.C. engines which necessitated mentioning of the two notifications 101/71 and 153/71;
(6) the Defence contention that there is no stipulation that the part should be used as O.E. parts of motor vehicles alone in Notification 101/71, is misconceived. The restriction to manufacturers of motor vehicles only, which is admitted by the appellants, cannot be entirely fortuitous and there is no evidence to show that the diversion was approved by the Collector, so there was clear contravention of the provisions of the notification;
(7) the contentions regarding confiscation and penalty since the concession was not withdrawn, are based on wrong interpretation of rules and it is also not correct that the grounds of seizure were not indicated;
(8) no evidence has been produced to substantiate the figure of 43361 pieces as against 195661 mentioned in the show cause notice. The Collector, therefore, confiscated 9 I.C. engines with an option to pay a fine of Rs. 11000, appropriated Rs. 50,000 towards fine in lieu of confiscation of 212922 pieces released provisionally on a security deposit of Rs. 1 lakh, demanded duty at the appropriate rate on 195661 pieces under Rule 196 and imposed a penalty of Rs. 10,000 under Rule 173Q (1).
5. In this appeal, the grounds urged are-
(A) The Collector erred in invoking Rule 173Q and has not dealt with the contention that Chapter X is self-contained. In one part he accepts the objection that remission of penalty precludes any liability in remand proceedings but ignores this and imposes the penalty of Rs. 10,000. His order is bad in law and amounts to contempt of the Board.
(B) The Collector has erred in confiscating the goods in store by distorting and misquoting the expression "such a breach" appearing in Rule 196 to "such breach, trying to create the impression that the breach covers all breaches and not the particular breach culminating in withdrawal of the concession. No confiscation is contemplated in Rule 196 for any breach other than one leading to withdrawal of the concession because the goods would in all other events be either used for the intended purpose or cleared on payment of duty.
(C) Further, since the goods had not been removed from the factory, their seizure and confiscation were illegal. Under Section 110 of the Customs Act only goods liable to confiscation can be seized. In its application under Section 12 of the Central Excises and Salt Act, 1944 excisable goods which have been removed in contravention of the provisions of the Central Excise Rules, 1944 are liable to seizure/confiscation.
(D) The Collector's finding on limitation is based on misapprehension of Rule 10 as it applied on 31st March/1st April, 1977 when there was no proviso which was added only on 6-8-1977. Under Rules 10 and 173J, the demand for the period prior to 31st March/1st April, 1976 is barred.
(E) Reliance on RT 11 to establish deliberate intent is an error as incorporation of parts used in I.C. engines is not contemplated and in their understanding of notification 101/71 did not call for any mention. The Collector has wrongly refuted the contention of the department's knowledge of use of parts for I.C. engines for the replacement market, and the finding is fallacious and based on lack of appreciation of the facts regarding repeated audits/inspections/applications for renewal of the L. 6 licence etc. (F) The contention regarding 1,43,361 pieces instead of 1,95,661 pieces was wrongly rejected as this was intimated to the Superintendent, Preventive on 14-1-77.
(G) The Collector erred in holding that use in the manufacture of I.C. engines is not covered by Notification No. 101/71 since the words "in the manufacture of motor vehicles" have not been used but the words are "by the manufacturers of motor vehicles" importing a certain amount of ambiguity.
(H) The Collector failed to deal with the contention that the show cause notice was invalid as the duty had not been specified, as held by the Bombay High Court (1980 E.T.T. 121). The order also is invalid and cannot be enforced.
(I) Since the Notifications 101/71 and 153/71 deal respectively with parts of motor vehicles and assembly of components which are intended for use by manufacturers of motor vehicles, they are independent of each other and the Collector has erred in holding that the question of misjoinder of charge does not arise. They have, therefore, prayed, that the order be set aside and proceedings for recovery of duty demanded, penalty imposed and redemption fine be stayed.
6. Shri Anil Dewan reiterated these contentions and pointed out at the outset, with reference to a list of dates, that the demand for duty dated 1-40-82 from the Superintendent consequent on the impugned order, is for duty of Rs. 6,48,086.32P @ 20% on 195661 parts at current prices which has been challenged on 8-4-82 pointing out that the amount according to his predecessor's letter dated 28-1-79 on the basis of the first order, was Rs. 2,36,726.42? on these parts, which had in turn been challenged on 9-2-79. His arguments, thereafter, dealt with various facets of the appeal-
(1) Notification No. 101/71, dated 29-5-71 exempted specified parts including engine valves, piston rings etc. falling under Tariff Item 34A from duty if proved to be intended to be used as original equipment parts by the manufacturers of motor vehicles falling under Tariff Item 34 and the procedure set out in Chapter X is followed. Notification No. 153/71, dated 26-7-71 was a parallel notification exernptihg parts intended to be used in assembled components which are utilised as O.E. parts by manufacturers of motor vehicles. The appellants obtained L 6-34A No. 2/71 and executed a B8 (security) bond for Rs. 10,000 dated 22-6-71 for availing of Notification No. 101/71 as can be seen from CT 2 certificate dated 23-12-76 issued by the Superintendent of Central Excise. They did not avail of Notification 153/71 which placed a fetter in that assembled components should also be used as O.E. parts of motor vehicles, which fetter was also removed vide Notification No. 249/72 dated 1-11-82. From 26-3-71 to 3-9-76 as many as 21 inspections and audits were carried out, so the department was fully aware that Notification 101/71 was being availed and the engines containing exempted parts were being cleared as such. It was well-settled that the operation of a notification is to be judged not by the object but by the actual words used. Similarly, if there is a mistake in a notification it has to be amended and there is no ground to hold the assessee liable to duty. Also, construction can be by reference to exposition by contemporary authority, or at the time of enactment or by those who execute. Learned Counsel cited AIR 1970 S.C. 755; 1979 E.L.T. J 156; and AIR 1979 S.C. 1049. Keeping in view these principles, since Notification No. 101/71 does not say the parts should be used in a motor vehicle but by a manufacturer of motor vehicles and No. 153/71 stipulates this, the interpretation given by the appellant and accepted by the department over the years should be treated as correct. Referring to the corrigendum which introduces the words "Notification No. 101/71 as well as", the appellants not having claimed or availed Notification No. 153/71, the question of as well as did not arise. It was for the department to have invoked Notification 153/71 in July 1971 itself. Nor did the question of showing cause against penalty arise since the Board had set it aside and it was not in issue before the Central Government which remanded the case. Though the fine in lieu of confiscation was reduced to Rs. 10,000, in case of the engines the duty demand has wrongly been increased.
(2) In case the argument regarding interpretation is not accepted, there is the ground of limitation. Where there is no clandestine removal the department could go back 3 months/1 year under Rule 10/173J. Clearance free of duty is also relevant as regards the date. Moreover Rule 10 was omitted on 17-11-80 and the proceedings could not be continued. Counsel relied on 1978 E.L.T. J 399 and 1982 E.L.T. 201. He, however, brought to our notice 1982 E.L.T. 844 by which the High Court of Madhya Pradesh held that since Section 11A had similar wording to Rule 10, continuity was maintained.
(3) Counsel then argued that the corrigendum issued in 1980 brought in Notification No. 101/71 for the first time so the fresh proceedings were barred by limitation. There was no right to reopen the matter once extinguished. 1969 AIR 1778 and AIR 1967 Madras 124 were cited in support.
(4) Finally, Shri Diwan contended that Rule 196 only provides for levy of duty on goods not satisfactorily accounted. Since the concession was not cancelled there was no provision for forfeiture.
At the resumed hearing, Shri Haksar gave a compilation regarding the particulars of demands in question. He also cited 1957 S.C.R. 370 to support the argument that a Tribunal has power to amend a charge but this cannot be so altered as to make out a fresh case, as has happened here.
7. Shri Lakshmi Kumaran explained that motor vehicle parts N.E.S. were taxed for the first time in 1971. By Notfn. 99/71 exemption was given to all but a few specified parts like circlips, pistons etc. Government had clarified that even these would not be taxed if used as original equipment in motor vehicles. This was the genesis of Notfn. 101/71, He also dwelt on the provisions of Chapter X. In July 1971, Notification No. 153/71 was issued to ensure that parts used in sub-assemblies of motor vehicles do not have to bear duty. Notfn. 242/82 has further liberalised this. As regards the present case, proviso to Notification No. 101/71 states "intended to be used as original equipment parts". Original means that which is used from the very beginning. This would not include parts replaced during the Warranty period by a manufacturer of a car. The onus of duty is thus shifted from the manufacturer of the parts to the vehicle manufacturer. "Original equipment" cannot be separated from "by the manufacturers of motor vehicles" as sought to be done by the appellants. Though the words "in the manufacture of motor vehicles" are not used, they are latent though not patent. The word "engines" would also have been used if any such benefit was intended as done in the next Notification 153/71. The appellants had L4 licences for motor vehicles and engines. Only the former can use original equipment and a manufacturer of engines alone cannot avail of Notfn. No. 101/71 even for engines sold to a manufacturer of motor vehicles for use therein. It follows that every manufacturer of engines should also have a licence for motor vehicles to avail the benefit. Relying on the doctrine of contemporanea exposito and the 1971 budget instruction, the learned S.D.R. argued that if there be ambiguity, courts will look into legislative intent. 1979 AIR S.C. 1049 and Tribunal's Order 95/84 dated 20-2-84. He also relied on 1943 (1) All England Reports cited by G.B. Singh p 560; AIR 1962 p. 1764 and AIR 1970 p. 829.
Regarding the C.T. 2 certificate, it was pointed out that only T.I. 34A is mentioned and T.I. 29 for I.C. Engines is conspicuously absent. In any case, neither Rule 10 nor Section 11 have been invoked by the department and Rule 196 has been relied upon. There is no question of time-bar, of. 1977 AIR 1754 re. Rules 160 and 10. For this very reason, there was no time-limit for issuing a corrigendum. Further, having accepted the order of the Government of India for a fresh charge, the appellants are precluded from going back. While he had nothing special to say in regard to the penalty, the learned SDR said the confiscation of engines was valid as they were sold and similarly, the parts, since it could not be distinguished which would go as O.E. for motor vehicles and which would be cleared as parts of engines. He relied on AIR 1970 S.C. p. 829.
8. In rebuttal, Shri Haksar agreed that if Rule 196 was invoked there was no time-limit. There was doubt or ambiguity and the appellant is entitled to the benefit. Instructions issued by the department are wholly irrelevant cf. 1973 S.C. p. 1173. Regarding discriminatory interpretation, there is wide latitude in granting exemptions so if the appellant is entitled he must get it. It cannot be denied on the ground that someone else will not get it i.e. sub-assembly manufacturers. Regarding AIR 1962 p. 1764 that was a criminal case, whereas here it is a taxation matter where strict interpretation of the language actually used is imperative. Learned Counsel relied on AIR 1981 S.C. 97 to support his plea that where two expressions could have been used but only one is used, the benefit should be granted.
9. We have given careful thought to the pleas advanced on both sides. The short point here is whether the appellants were entitled to Notification No. 101/71 by virtue of the fact that they were manufacturers of motor vehicles, irrespective of whether or not the parts claiming exemption were used in engines cleared for sale as such. When the notification speaks of use by a manufacturer of motor vehicles" it would be stretching things to construe this to mean a manufacturer of engines, ignoring the fact that each has a distinct licence and character. Whether there is ambiguity or not is itself in doubt. In any event, the Notification 153/71 was sufficient to put at rest all doubt as it was made clear that sub-assembly manufacturers, who procured exempted parts, were on a different footing from manufacturers of motor vehicles, who could procure parts as well as sub-assemblies, provided they were both used as original equipment for motor vehicles. Why the departmental authorities took so long to wake up remains a mystery. The question of time-bar is, however, unaffected by this since the Collector relied on Rule 196 and a demand can be made without any period of limitation. Since, therefore, the concession was wrongly used, the demand for duty was in order. The fact that it was not quantified in the show cause notice also loses much significance. The only question is the basis of calculating the demand. The appellant has given reasons for reducing the quantity to 14336, which have not been adequately controverted. Nor would there be any justification for inflating the demand on the basis of current prices when it was incumbent upon the investigating officers to quantify the duty as soon as the irregularity came to their notice. In order to invoke Clause (iv) of Sub-rule (2) of Rule 196, it has to be shown that the date of removal is not known. The demand may, therefore, be reworked out on the basis of the smaller quantity and the then prevailing prices at the time of removal. Coming to the question of penalty, it is sufficient to go by the findings of the Board and set it aside, in the absence of any controversies of the evidence that the departmental officers had acquiesced in the misinterpretation of the concession. As regards confiscation of the engines, they contained misused parts and having been cleared for sale, were tainted goods. Their confiscation and the prescribed fine are upheld. On the question of interpretation of the penal provisions of Rule 196(1), it contemplates (a) demand for duty on goods not accounted ; (b) withdrawal of the concession for a breach of these Rules (not this Chapter); and (c) in (he event of such a breach, forfeiture of security, confiscation of the excisable (exempted) goods and all goods manufactured from such goods in store at the factory. From this it is clear that the breach is not confined to Rules in Chapter X, in order to attract confiscation of the parts. However, in the circumstances of the case, specially when no penalty is being imposed and keeping in view the fact that the exempted parts were yet to be used either as O.E. for motor vehicles or as parts of I.C. engines as such, we do not feel that the confiscation is necessary. It would suffice if duty is recovered at the appropriate rate on the parts not entitled to the exemption, if this has not already been done.
We accordingly modify the order of the Collector and grant the appeal to this extent only.