Customs, Excise and Gold Tribunal - Delhi
Bhillai Conductors (P) Ltd. vs Cce on 14 January, 2000
Equivalent citations: 2000(69)ECC192, 2000(125)ELT781(TRI-DEL)
ORDER J.H. Joglekar, Member (T)
1. On a visit to the appellants' factory, the jurisdictional officers found super enamelled coper wire on spools and also packed in containers which were stepped (sic) [stripped] and labelled which wires were not entered in the R.G.I register. The officers, therefore, seized the total quantity of wires valued at Rs. 10,65,957.00. Later, the wire was provisionally released on their filing of a security bond for full value with the Bank Guarantee of Rs. 2.00 lakh. A show cause notice was issued alleging that the goods were liable to confiscation and that the assessees were liable to penalty in terms of Rule 173Q and Rule 226 of the Central Excise Rules, 1944. After hearing the assessees, the Commissioner imposed a fine of Rs. 1,50,000.00 and a penalty of Rs. 50,00000. The present appeal is directed against this order.
2. Shri K.K. Anand, Ld. Advocate appearing for the appellants stated that copper wire on spools was lying in the finishing room pending quality control tests. He submitted that only after the quality control test was done and goods were packed in boxes, the entry in the R.G.I register was made. It was claimed that for the last several years, this was their practice and that it was in knowledge of the departmental officers. As regards the goods, which were found packed in the boxes, he reiterated the claim made before the lower authorities that the goods were manufactured on the same day. The job of packing was not completed due to power failure. It was his claim that the entry could be made at the end of day and that that time, the entry could have been made, but for the intervention of the officers. He submitted that it has been held in a number of decisions by the Tribunal, following the judgment of the Andhra Pradesh High Court in the case of Southern Steels reported in 1979 E.L.T.J 402 that where some goods were not entered in the R.G.I register, but where there was no preparation for illegal removal of those goods, there was no warrant for rendering these goods to confiscation. He cited the law laid down by the Tribunal. Coming to the aspect of penalty, the Ld. Advocate claimed that in a number of judgments it was held that where the confiscation was set aside, there was no ground for sustaining the penalty.
3. Shri Jangir Singh, Ld. DR supported the various grounds in the lower order.
4. We have carefully considered the various submissions made before us.
5. We have carefully examined the judgments cited by the Ld. Advocate. In the case of Kamal Plywood as also in the case of Weston Transformers, the Tribunal had observed that these goods were not fully manufactured and, therefore, the entry in their regard was not required to the made in the R.G.I register. The same plea has been made by the Ld. Advocate in his submissions.
6. There have, at all times, been disputes between the assessees and the department as to the particular stage at which the excisable product can be terms (sic) [termed] to be fully manufactured requiring an entry to be made in the R.G.I register. In a number of cases, the department has ruled on the R.G.I stage. In the impugned order, a citation has been made of the department's instructions in the case of electric wires and cables. It has been very clearly laid down that as soon as such wires and cables are reeled or rolled on drums and are disconnected from the machine they become manufactured goods and should be accounted for in the R.G.I register. These instructions were issued in 1982. It was mandatory on the assessees to follow these instructions. If they felt otherwise, they could always approach the department in order to effect a change. We are also not impressed by the submissions of the Ld. Advocate that the assessees were not aware of these instructions. It is well settled that ignorance cannot make a valid defence. Nor are we impressed by the submissions of the Ld. Advocate that the long standing practice of theirs was in the knowledge of the department. It may be true that their factory was visited by the jurisdictional officers on a number of occasions. The officers would visit a factory for a specific purpose and have a specific duration of time. The days when an officer used to sit in a particular factory, are long gone. An officer would have noticed the contravention committed by the assessees only if he had checked the stock of manufactured goods (as per the department's circular) with the R.G.I entries. The very fact that a similar case was not early made on the assessees establishes that the departmental officers had not examined this area earlier.
7. The R.G.I register, itself, provides for the slight margin of difference between the assessees opinion and the department's impression. The R.G.I register provides for entries to be made for the goods lying in a finishing room before they are brought to the BSR. If it was the claim of the assessees that the goods were in the last stage, namely, quality control, they were required to make an entry in this column. It is acknowledged and accepted that they had not done so.
8. The Central Excises Act and Rules framed there under, prescribe a number of procedures to the followed by the assessees. Even before the assessees commence production, the rules provide for registration of the manufacturing unit, filing of a ground plan, declaration of particular raw materials, disclosure of manufacturing formulae, etc. Before clearance, he is required to file details of classification of the products and their valuation. Correct accountal is required to be made of the goods produced and cleared. The entries in the production registers are required to be made daily or at periodical intervals. Wherever the assesses face hardship, provisions exist for him to approach the jurisdictional officer for certain waivers. These procedural requirements are mandatory and various rules prescribe penalties for contravention thereof. It is not necessary that for penalty to be attracted for contravention of procedural provisions there should exist a culpable mind. Simple failure also would attract penalty.
9. "Rule 53 is one such Rule. Their essential part reads as under :
Rule 53. Daily stock account--(1) Every manufacturer shall maintain a stock account in such Form as the Collector may in any particular case or class of cases allow, and shall enter in such account daily
(a) description of goods,
(b) opening balance,
(c) quantity manufactured,
(d) quantity deposited in the store-room, or other place of storage approved by the Collector under Rule 47.
(e) quantity removed, after payment of duty from such store-room or other place of storage or from the place or premises specified under Rule 9.
(f) quantity delivered from the factory without payment of duty for export or other purposes, and
(g) the rate of duty and the amount of such
10. Rule 226 prescribes the manner in which the accounts are to be maintained. The essential portion reads as under:
How entry books, stock accounts and warehouse registers should be maintained.--Where any person is required by these Rules to maintain an entry book, stock account, or warehouse register in respect of goods produced, manufactured or stored by him, he shall,--
(i) at the time of making any entry, insert the date when the entry is made;
(ii) correctly keep such books, account or register in the manner required, and shall not cancel, obliterate, or alter any entry therein, except for correction of any errors, with the sanction and in the presence of proper officer, and shall not make any entry therein which is untrue in any particular;
(iii) keep the book, account or register at all times ready for the inspection of the officers, and shall permit any officer to inspect it and make any such minute therein or any extract there from, as the officer thinks fit, and shall, at any time, if demanded, send it to the proper officer.
11. Any person, who fails to follow the provisions of these two rules, faces penal action under both the rules. The penalty portion of Rule 226 reads as under:
Any person, who fails to enter the required particulars within the time prescribed in the relevant rule, or who fails to keep such book, account or register, as the case may be, or to deliver it up to the officer on demand or who obstructs or hinders such officer in making any minute therein or extract there from, or coveys away or conceals it, or destroys or tears out any leaf there from, or makes any false entry therein or fraudulently alters any entry therein, shall be liable to a penalty which may extend to two thousand rupees and the goods of which due entry has not been made in such book, 1 (account or register) shall be liable to confiscation.
12. The other rule under which penalties are attracted is Rule 173Q(1)(b). The same reads as under:
Confiscation and penalty. - (1) If any (manufacturer, producer, registered person of a warehouse or a registered dealer)--
(a) xxxx
(b) does not account for any excisable goods manufactured, produced or stored by him.
13. Where the maximum penalty imposable, under Rule 226 is Rs. 2,000.00, the penalty under Rule 173Q is upto three times the value of the goods involved or Rs. 5,000.00, whichever greater.
14. There is an essential difference between the provisions of these rules. Rule 226 prescribes the manner of accountal. The violations of this rule are essentially minor in character. The rule does not speak of non-maintenance of accounts. Non-maintenance of accounts is covered by the Sub-rule 1(b) of Rule 173Q. The penalty prescribed thereunder is essentially heavy because non-maintenance may well amount to a prelude to surreptitious removal for which the penalty is provided under Sub-rule 1(a) of Rule 173Q.
15. In a number of decisions cited by the Ld. Advocate before us, the Tribunal had held that where there was no removal of non-accounted goods, confiscation under this provision, itself, was not warranted. These judgments are routinely cited as a shield by the arrant assessees. It is, therefore, necessary to examine the origin of the ratio of the judgments.
16. The earliest seems to be the judgment of the Andhra Pradesh High Court (1979 E.L.T.J 402). Paragraphs 13 to 15 of the judgment put the issue in focus. It is necessary to reproduce them here:
13. The learned Central Government Counsel then drew my attention to Rule 173Q of the Central Excise Rules. The relevant part of the said rule is as follows:
'If any manufacturer, producer or licensee of a warehouse,
(a) removes any excisable goods in contravention of any of the provisions of these rules; or
(b) does not account for any excisable goods manufactured, produced or stored by him; or
(c) ***
(d) contravenes any of the provisions of these rules with intent to evade payment of duty.
then, all such goods shall be liable to confiscation.'
14. He submitted that this case comes under Rule 173Q(a) or (d). In this case, however the goods were seized before they were removed. I do not therefore agree with the contention that this is a case where the manufacturer has removed any goods in contravention of the provisions of these rules. Sri Subrahmanya Reddy, however, attempted to satisfy me that even though there is no actual removal, where there is an intention to remove the goods 173Q (a) is attracted. He argued that in this particular case which is governed by the provisions of self-removal scheme the assessee is authorised to assess the duty himself according to the classification list submitted by him and after doing so he is entitled to remove the goods whenever he chooses. Therefore even if the goods are lying in the factory and the goods are seized at that time, he submitted that as the assessee is entitled to remove the goods at any time he chooses, the seized goods can be considered as goods which the assessee remove in contravention of the provisions of the rules. I am unable to agree with this submission. The expression used is "if any manufacturer etc. removes any excisable goods in contravention of any of the provisions of these rules". This will not in my opinion take in a case where the manufacturer has not removed the goods. The mere fact he is entitled at any movement to remove the goods under the self-removal scheme will not be sufficient to hold that the manufacturer has removed the goods even though the goods are still in the factory. When the self-removal scheme was introduced it was open to the Legislature to have amended the rule to make it clear that even goods which are in the custody of the assessee would be liable to be seized. But no such provisions has been made. It is well settled that penal provisions have to be construed strictly and in favour of the assessee unless the count is compelled by the language to construe it otherwise. I am of the view that the language is very clear and leaves no doubt that what was intended to confer was the power to seize goods which the assessee removes in contravention of any of the rules and the power of seizure does not extend to goods which are still in the factory and which have not reached the stage of removal.
15. Sri Subrahmanya Reddy next relied upon Rule 173Q(d) which provides for confiscation of goods in respect of which the manufacturer contravenes any of provisions of the rules with intent to evade payment of duty. I am also of the view that these goods cannot be considered to be goods in respect of which the petitioner can be said to have contravened the rules with the intent to evade payment of duty. It is no doubt true that the petitioner was submitting classification list in which it took up the stand that it would not be liable to excise duty and this position was accepted for a number of years by the department. It is also true that the mere fact that the authorities had not questioned the position taken up by the petitioner does not prevent them from levying duty whenever they come to the conclusion that the description in the classification list is not correct and according to the correct description duty is leviable. But the circumstance that the list was being accepted by the Department itself for a number of years would indicate that this is not a case of contravention of any of the rules with the intent to evade payment of duty. I am, therefore, of the view that the Rule 173Q(d) is also not applicable.
What becomes clear is that the Court did not go into the provisions of Rule 173Q(1)(b) which is material here. It is true that in the impugned notice this provision has specifically not been referred, but that only a reference is made to Rule 173Q. But since this sub-rule alone deals with the situation as it existed, it is apparent that the charge made in the show cause notice is only under this provision. In the cited case of New Polymer Industries, , this Tribunal set aside the confiscation on the following observations :
We also set aside the seizure of 500 kg. of phenolic moulding compound as there was no clandestine removal of the same, in which case alone seizure is justified as has been held by the Andhra Pradesh High Court in the case of Southern Steel Ltd., Hyderabad v. Union of India of India and Ors. 1979 ELTJ 402.
17. There is no discussion as to how the judgment of the High Court was relevant to the facts of the case before the Tribunal. In the case of Garden Silk Mills also, the Tribunal heavily relied upon the judgment of the High Court. Paragraph 13 of the Tribunal judgment reads as under:
An argument was advanced that the order of confiscation is bad inasmuch as the confiscation can only be ordered where there is a removal without payment of duty and here, there is no removal. In the submissions of the Ld. Advocate, Rule 173Q does not authorise confiscation of goods where they are in the factory and for that, relied upon the decision of Andhra Pradesh High Court in Southern Steel Ltd. v. U.O.I. 1979 E.L.T. 402, where it is clearly laid down that power of confiscation under Rule 173Q did not extend to goods which were still in the factory and which had not still reached the stage of removal. It is an undisputed fact that the goods were lying within the factory premises and no attempt was till then, made to clandestinely remove the same. In view of the decision of the Andhra Pradesh High Court and reading the provisions of Rule 173Q of the Rules, there for, the order of confiscation cannot be sustained. Significantly, the Adjudicating Authority has invoked the provisions of Rule 173Q(1) of the Rules only and the Show Cause Notice is not issued indicating the provisions of Rule 209 of the Rules. The order of confiscation, therefore, cannot be sustained and has to be set aside.
18. In our view, there is no warrant for the observation of the Tribunal that Rule 173Q did not authorise confiscation of the goods where they were in the factory. In the case of situation covered under Clauses (b) and (c) of Sub-rule (1) of the said Rule, there cannot exist any prohibition in seizing of the goods while they are still in the factory. In the case of Garden Silk Mills, the facts were identical as in the case before us i.e. the entry in the R.G.I register was not made although the goods were fully finished. It is significant to find that on this count although the Tribunal set aside the orders of confiscation, they upheld the order of penalty, but reduced the quantum thereof.
19. The judgments in the case of Weston Transformers and Equipments Pvt. Ltd. as also in the case of Kamal Plywood & Allied Industries P. Ltd. v. C.C.E., Meerut reported on which reliance was placed by the Ld. Advocate have no applicability in the present case. Inasmuch as in these judgments, the Tribunal had accepted that the goods were not fully manufactured. In the Pooja Forge Pvt. Ltd. v. C.C.E., New Delhi , the Ld. Single Member followed the ratio of the decision in the case of Weston Transformers as well as Garden Silk Mills (supra) for setting aside the confiscation where the goods were fully finished but not recorded in the R.G.I register. The same is the ratio of the last judgment cited by the Ld. Single Member in the case of Balls & Cylpebs Ltd. v. C.C.E., Allahabad .
20. The extracts of the judgments reproduced above ranging from Southern Steel to Balls & Cylpebs Ltd. very clearly show that the various authorities did not examine the provisions of Rule 173Q(1)(b) but that all subsequent judgments followed the High Court decisions which, itself, was confined to examination to Clauses (a) and (d) of this sub-rule.
21. We find that the issue of non-accountal was considered by the Tribunal in two judgments, namely, Indian Cork Mills Ltd. and Ors. v. C.C.E., Bombay and Snack Foods Pvt. Ltd. v. C.C.E. . In the Indian Cork case (supra), some goods were inside the factory, but were not recorded in the R.G.I register. In dealing with the submissions of the Advocate, the Tribunal observed as under:
The contention of Shri Ganeshan that the appellants have only committed a technical breach in not making necessary entries in R.G.I register cannot be accepted. It is not an unknown practice to clear goods more than once on the strength of a same gate pass. In any event the possibility of making use of the single gate pass for clearing goods more than once cannot be altogether ruled out. Neither production of a gate pass nor making a debit entry in the PLA account can absolved the appellants' of the breach of statutory duty of making entries in R.G.I register. R.G.I register is a basic document.
22. We, thus, find that the provisions of Sub-Rule (1)(b) of Rule 172Q has been discussed in this judgment.
23. In the facts of the present case, therefore, the ratio of the last two judgments becomes applicable.
24. We, however, find that these two judgments were considered by the Tribunal in the Balls & Cylpbes and also Pooja case (supra) judgment. Both these judgments were given by single Members whereas the judgment in the case of Indian Cork Mills (supra) was of two Member bench. We, therefore, are inclined to follow the Indian Cork Mills judgment and hold that orders of confiscation in the present case are sustainable.
25. We now come to the aspect of penalty. Although in the case of Balls & Cylpbes, the confiscation was set aside, the penalty which was under Rule 226 was maintained. In the case of Garden Silk Mills also, the ratio was the same. In the case of Kamal Plywood's as also Weston Transformers the view taken by the Tribunal was that the goods had not reached the R.G.I stage. Therefore, although the penalties were set aside, in the latter case, a token penalty was maintained. In the Pooja case (supra), also the penalty was sustained. In the present case, therefore, we find no warrant for removal of penalty.
26. In upholding the orders of confiscation and penalty, we have also examined the quantum thereof. The fine is about 10 per cent of the value of the goods and the penalty is about 5 per cent of the value of the goods. The observation that for sustaining penalty for contravention of procedural rules, criminal mind is not an essential ingredient has been earlier made by the Tribunal, in their judgment in the case of Willard India Ltd. v. C.C.E., Meerut . In this case the Tribunal was examining the penalty imposed upon the assessees under Rule 173Q (1) (Job). The Tribunal in citing the observation of the Supreme Court in the case of Gujarat Tranvarcore Agency v. C.L.T. , held that unless there was something in the language of the statute indicating the need to establish the element of mens tea, it was generally sufficient to prove that a default in complying with the statute had occurred. The observations of the Tribunal would apply mutatis mutandis to instances of contraventions of Rule 173Q (1)(b).
27. It is not that in the present case, there was total lack of intent. As has been observed earlier, the department had stipulated the R.G.I point way back in 1992 which had been published in a number of Trade Notices issued by several Collectorates, and should have been in the knowledge of the assessees. Even then they merrily flouted the prescription and continued wrong practice. Therefore, not only the act of confiscation and imposition of penalty is sustainable but also the quantum of fine and penalty.
28. We, therefore, see no reason to interfere with the orders of the Collector and dismiss this appeal.
G.A. Brahma Deva, Member (J)
29. I have gone through the proposed order written by my learned brother Shri J.H. Joglekar, Member (Technical). With respect, I am unable to agree with his reasoning as well as conclusion arrived at by him. Hence this separate order.
30. Two issues are involved in this case: Whether goods are liable to confiscation and if the answer is negative, whether penalty can be imposed under Rule 173Q of the Central Excise Rules.
31. The appellants are engaged in the manufacture of Super enamelled copper wires. It was charged that 906.03 kg. of Super enamelled copper wire duly packed in 47 cardboard boxes stripped with nylon strips having logo of brand name "Classique" ready for delivery and 5968.79 kg. Super Enamelled Copper Wire on 417 spools were not entered in RG-1 register. The officers who visited the factory found these irregularities and seized the goods. However, the goods were provisionally released on furnishing a security bond with the bank guarantee. Subsequently, show cause notice was issued charging that the goods were liable to be confiscated and the assessees were liable to penalty in terms of Rule 173Q and Rule 226 of the Central Excise Rules. Show cause notice was duly answered denying the charges. The Commissioner who adjudicated the proceedings negatived the contentions of the party and imposed redemption fine of Rs. 1,50,000 since goods have already been provisionally released, in addition to imposing penalty of Rs. 50,000 under Rule 173Q of the Central Excise Rules.
32. It was contended on behalf of the party that the same could not be entered in RG-1 on that day because the goods were manufactured on that day and same were not tested. They had not reached the RG-1 stage for want of quality control test and they used to enter in RG-1 register after goods were duly tested and this was the practice they were following for a number of years and this practice was known to the department. Shri K.K. Anand, Ld. Advocate emphatically argued that neither goods were removed clandestinely nor there was an attempt for illegal removal of goods and accordingly goods are not liable to confiscation and no penalty can be imposed under Rule 173Q of the Central Excise Rules. In support of his contention that goods were not liable for confiscation and no penalty can be imposed under the Rules in the absence of clandestine removal or preparation for illegal removal, he cited a series of case law including the following: (1) Kamal Plywood & Allied Industries Pvt. Ltd. v. CCE, Meerut reported at (2) CCE, Chandigarh v. 3-F International reported at 1996(17) RLT 764, (3) Kartar Steels (P) Ltd. v. CCE, Chandigarh reported at 1997(18) RLT 138(CEGAT-NB), (4) Balls and Cylpebs Ltd. v. CCE, Allahabad reported at and (5) Order No. 1638/91-NB dated 28.12.95. Shri Jangir Singh, Ld. DR justified the action of the department in ordering for confiscation as well as imposing penalty in terms of Rule 173Q of the Central Excise Rules.
33. The charge levelled against the appellants is that the fully manufactured goods were not entered in RG-I register. According to the appellants, the impugned goods were manufactured on the very day the officers visited and the same could not be entered because of quality test and they used to enter only after quality control test as it was the practice since number of years. Assuming there was a clear failure on the part of the appellants in not entering fully manufactured goods in the RG-I register in time, whether this omission can be considered as a breach with an intention to evade payment of duty to attract penal action in terms of Rule 173Q is an issue to be considered. Rule 173Q and Rule 226 are relevant in this context to deal with the issue involved in this case. I am not reproducing the relevant Rules since both the Rules have been reproduced in the proposed order written by my learned Brother Shri Joglekar. Rule 173Q is a composite rule which deals with confiscation and penalty as the title of the Rule itself is styled as Confiscation and Penalty. To confiscate goods or to impose penalty in terms of Rule 173Q, there must have been a contravention of the provisions of the Rule either in removing the excisable goods or with intent to evade payment of duty. Admittedly goods have not been removed in the instant case and no evidence was brought on record to establish that there was an attempt for illegal removal of such goods. It is not even the case of the department that the goods were clandestinely removed or there was preparation for such removal. As can be seen from the provisions of Rule 173Q, it is a penal clause and intention is in-built in the Rule 173Q. Mensrea is an essential ingredient to attract this penal clause. Not entering in RG-I itself will not be sufficient to take action under this Rule unless it was shown that books of account were not maintained with an intention to evade payment of duty. Rule 173 Q-1(b) cannot be read in isolation and it should be read with other provisions of Rule 173Q particularly either with 173Q-1(a) or (d) to take penal action. In other words an action can be initiated under 173Q if the goods have been removed in contravention of any of the Rules covered under 173Q-1(a) or if there was an intent to evade payment of duty under 1(d) and non-maintenance of books of account with reference to such excisable goods with an intent to evade payment of duty. For mere non-maintenance of accounts, an action cannot be taken under Rule 173Q and in fact neither show cause notice was issued under particular Sub-clause 1(b) of Rule 173Q nor confirmed the penal action for contravention under Sub-clause 1(b) of Rule 173-Q. If the department were to take action under 173Q for contravention of Sub-rule 173-Q1(b), for non-maintenance of account, there would have been no necessity of inserting Rule 226 for imposition of penalty for such purpose. It is clear from the wordings of Rules 173Q and 226 that an action can be taken under Rule 173Q for non-maintenance of books of account with intent to evade duty and in other cases Rule 226 prevails. Simple failure could not attract penal action under Rule 173Q. It is well settled that penal provision has to be construed strictly and in favour of the assessee unless the Court is compelled by the language to construe it otherwise. Decisions referred to by the counsel on behalf of the appellants are of the consistent view in holding that no penal action can be taken under Rule 173Q either in confiscating or imposing penalty unless the goods were removed illegally or final goods should have been in the preparation for such removal or they must have been seized while being transported without recovery or gate passes and without payment of duty. Earlier cases Indian Cork Mills and Snack Foods Pvt. Ltd. referred to in the order written by my learned Brother are not applicable to the facts of this case for simple reason that there was a categorical finding in both cases that goods have been removed illegally. In the circumstances, I am of the view that goods are neither liable to confiscation and consequently no penalty can be imposed under Rule 173Q in the absence of any evidence to show that there was any intention to evade payment of duty. Since there was a failure on the part of the appellants inasmuch as not maintaining proper books of account, they are liable to penalty under Rule 226. Accordingly, I propose to levy penalty of Rs. 2,000 under Rule 226. In the view I have taken I propose to set aside the order of confiscation and penalty under Rule 173Q but penalty is leviable at Rs. 2000 under Rule 226.
34. In view of the difference of opinion in between two Members of the Bench, the matter is placed before the Hon'ble President to refer it to a third Member to resolve the issue in accordance with the law.
35. The following point is required to be considered by the third Member:
Whether in the facts and circumstances of the case the Member (Technical) was right in upholding the order of the Collector in confiscating the goods and imposition of penalty in terms of Rule 173Q; or Goods are not liable to confiscation and no penalty can be imposed under Rule 173Q in the absence of mensrea and only penalty can be imposed under Rule 226 of the Central Excise Rules, 1944 as per the Member (Judicial).
P.G. Chacko
36. The appellants were manufacturing Super Enamelled Copper Wire (hereinafter referred to as 'SEC Wire') falling under Sub-heading No. 8544.00 of the Schedule to the Central Excise Tariff Act, 1985 during the relevant time. Central Excise Officers made a surprise visit to their factory on 5-10-94 and found an unaccounted excess stock of 6874.82 kg. of SEC Wire valued at Rs. 10,65,957. Out of this quantity, 906.03 kg. of the SEC Wire were found packed in 47 cardboard boxes stripped with nylon strips having a logo of brand "classique" and the balance quantity of 5968.79 kg. was found rolled on 417 spools bearing tags showing thickness of wire, quantity etc. The entire quantity so found was seized by the Central Excise Officers on the belief that the said goods were liable to confiscation. The goods were, however, provisionally released to the party on execution of security bond for the value of the goods and production of bank guarantee of Rs. 2 lakh. The Department subsequently, by show cause notice, directed the party to show cause why the goods should not be confiscated under Rules 173Q and 226 of the Central Excise Rules and why penalty should not be imposed under the said Rules and also why Central Excise duty on the entire quantity of goods should not be demanded and recovered from them. The party, in their reply to the show cause notice, explained their process of manufacture and procedure of accounting. As regards 906.03 kg. of the SEC Wire found packed in 47 cardboard boxes, the party submitted that the said quantity could not be considered to have been manufactured on account of the fact that the quality control test on the product was not complete. As regards the quantity of SEC Wire found rolled on spools, the submission of the party was more or less to the same effect. The appellants thus maintained that the process of manufacture of the goods could have been considered to be complete only when the final quality control test on the goods was complete and the goods were fully packed for final delivery out of the factory. They further maintained that only after such completion of manufacture could have proper accountal of the goods been made in the RG-I Register maintained by them. They pleaded, further, that their practice was to make a consolidated entry of the day's production in RG-I account after the close of the day and that the production of 5.10.94 was seized by the officers before such accounting stage. The appellants, thus, denied the allegation of non-accountal of finished goods in RG-I Register and contested the proposed penal action. This dispute was adjudicated by the jurisdictional Commissioner of Central Excise, who ordered confiscation of the entire quantity of 6874.82 kg. of SEC Wire and imposed redemption fine of Rs. 1.5 lakh in lieu of confiscation. The lower authority also imposed a penalty of Rs. 50,000 on the appellants under Rule 173Q of the Central Excise Rules. In the appeal filed by the party against this order of adjudication before the Tribunal, one of the learned Members of the Bench which heard the matter upheld the order of the Commissioner on the basis of a finding to the effect that the non-accountal of the goods by the appellants in their RG-I Register involved contravention of the provisions of Rules 53,173Q and 226 and ipso facto warranted penal action against them even in the absence of mensrea on their part. The other learned Member of the Bench, however, held that in the absence of mensrea on the part of the appellants, it was not justifiable for the lower authority to penalise them for mere non-accountal of finished goods in RG-I Register, under Rule 173Q, ibid. The learned Member, however, held that it was permissible for the lower authority to impose penalty on the party for such non-accountal (without any intent to evade payment of duty) under Rule 226 of the Central Excise Rules. The learned Member accordingly imposed a penalty of Rs. 2,000 on the appellants, after setting aside the redemption fine and penalty imposed under Rule 173Q by the Commissioner of Central Excise. A difference of opinion has thus arisen between the learned Members of the Bench which heard the appeal and the point of difference (as formulated by that Bench) now before me as Third Member is as follows:
Whether in the facts and circumstances of the case the Member (Technical) was right in upholding the order of the Collector in confiscating the goods and imposition of penalty in terms of Rule 173Q; or Goods are not liable to confiscation and no penalty can be imposed under Rule 173Q in the absence of mensrea and only penalty can be imposed under Rule 226 of the Central Excise Rules, 1944 as per the Member (Judicial).
37.I have carefully examined the records of the case and perused the orders recorded by the learned Members of the Bench which heard the appeal. I have also heard, S/Shri K.K. Anand and Jitender Singh, Counsel for the appellants and S/Shri T.A. Arunachalam and S. Ramanathan, Departmental Representatives for the respondent/Revenue.
38. The short question before me is whether in the facts and circumstances of the case, it was legal and proper for the Adjudicating Authority to have confiscated the goods in question and imposed penalty on the appellants under Rule 173Q and whether that Authority ought to have imposed only a penalty on them under Rule 226.
39. The learned Advocates for the appellants have reiterated before me all the submissions made before the two-Member Bench and have cited a catena of decisions of the Tribunal in support of their submission, the gist of which is that neither any confiscation of the goods nor any penalty could have been legally ordered against them under Rule 173Q of the Rules ibid inasmuch as there was no finding of mensrea against them. The thrust of the argument of the learned Departmental Representatives is that even in the absence of the element of mensrea, such confiscation and penalty were warranted under Rule 173Q ibid by the non-accountal of finished goods in the RG-I Register, which involved contravention of Rules 53, 173Q (1)(b) and 226. The learned Departmental Representatives, also, have relied on a few decisions of the Tribunal in support of their submissions.
40. Before examining the applicability of the judicial authorities cited by either sides, I think, it is necessary to have a fresh look at the provisions of Rule 173Q since it was under this Rule that penalty was imposed by the lower authority. The relevant provisions of Rule 173Q, as they stood during the relevant period, read as follows:
Rule 173Q. - Confiscation and penalty. - (1) If any manufacturer, producer, registered person of a warehouse or a registered dealer
(a) removes any excisable goods in contravention of any of the provisions of these rules; or
(b) does not account for any excisable goods manufactured produced or stored by him; or [bb) ....
(bbb) ....]
(c) ...
(d) contravenes any of the provisions of these rules with intent to evade payment of duty, then all such goods shall be liable to confiscation and the manufacturer, producer, registered person of the warehouse or a registered dealer as the case may be, shall be liable to a penalty not exceeding three times the value of the excisable goods in respect of which any contravention of the nature referred to in Clause (a) or Clause (b) or Clause (bb) or Clause (bbb) or Clause (c) or Clause (d) has been committed, or five thousand rupees, whichever is greater.
41. Since nobody has had any case that the party had removed (clandestinely or otherwise) the goods in question from their factory premises, Clause (a) of Rule 173Q(1) is, at once, out of the picture. Clause (b) deals with a case where a manufacturer does not account for any excisable gods manufactured, produced or stored by him. The goods so manufactured or stored without being accounted for are liable to confiscation and the manufacturer is liable to penalty not exceeding three times the value of the goods or Rs. 5,000 whichever is greater. It is necessary to pause for a while, having adverted to Clause (b), and examine Rule 53, which mandates that every manufacturer shall maintain a stock account and shall enter in such account daily such entries as required under Clauses (a) to (g) of Sub-rule (1) thereof. The Department has no case that the appellants had not maintained RG-I register for accounting their daily production under Rule 53, ibid. The Department's case is that the goods (which were seized by the Central Excise Officers on 5.10.94 from the appellants' factory) were not found to have been accounted for in RG-I register at the time of the Central Excise Officers' visit to the factory. There can be no doubt that such a case of non-accountal of finished excisable goods is covered by Clause (b) of Rule 173Q(1) ibid. Again, it cannot be disputed that such non-accountal involves a contravention of Rule 53 ibid Clause (d) of Rule 173Q(1), ibid provides for confiscation of excisable goods and imposition of penalty on the manufacturer thereof if the manufacturer contravenes any of the provisions of the Central Excise Rules with intent to evade payment of duty.
42. The question now is whether the appellants' case is covered by Clause (b) or Clause (d) of Rule 173Q(1). It is pertinent to note that if Clause (d) has to be attracted by the instant case, the appellants ought to have contravened any of the provisions of the Central Excise Rules with intent to evade payment of duty. It is equally pertinent to note that a non-accountal of the goods in RG-I register, as contemplated under Clause (b) of Rule 173Q(1) is nothing but a case of contravention of Rule 53 ibid. Any case of contravention of any of the Central Excise Rules (including Rule 53) can attract confiscation and penalty only where such contravention is actuated by an intent to evade payment of duty as per Clause (d) of Rule 173Q(1). It follows that any non-accountal of excisable goods in RG-I Register would attract confiscation and penalty (under Rule 173Q) only where such non-accountal is indulged in by the manufacturer with intent to evade payment of duty. This position necessarily emerges when Clause (b) is read in conjunction with Clause (d) of Rule 173Q(1). Such conjunctive reading of the two Clauses would be justified by a realisation that the legislative intent behind Clause (b)-covering a case of contravention of Rule 53-can hardly be different from that behind Clause (d)-covering a case of contravention of Rule 53 or of any other provision of the Central Excise Rules.
43. Now, to the case law cited before me. The learned Counsel for the appellants have relied on the following decisions :
(i) Akbar Badruddin Tiwani v. Collector of Customs --[Held: Requisite mensrea has to be established, for imposing penalty]
(ii) Raza Textiles Limited v. C.C.E. - [no practice of maintaining account of fabrics lying in finishing and packing rooms - this procedure in vogue for a long time without any question - confiscation and penalty set aside.]
(iii) Shanti Vrat & Sons (P) Limited v. C.C.E. 1997 (23) RLT 428 - [Production of four days before visit by C.E. Officers not entered in R.G.I. Register -Goods found lying in Bonded Store Room and not in preparation of leaving the factory - confiscation under Rule 173Q set aside - But penalty (reduced) held to be imposable for non-accountal]
(iv) C.C.E. v. Moon Beverages 1999(33) RLT 153(CEGAT) - [Excess over R.G.I. balance - non-entry of production and clearance in R.G.I. from 25.9.93 to 28.9.93 (date of visit by C.E. Officers) - Only a technical violation -Confiscation not warranted]
(v) Dewan Resins (P) Limited v. C.C.E. 1998 (25) RLT 110 (CEGAT) -[Excess goods found in finishing room chemical test had not been carried out and goods not ready for dispatch - not entered in RGI-benefit of doubt to assessee - Confiscation and penalty set aside.]
(vi) Munjal Shown Limited v. C.C.E. 1999 (32) RLT 494 (CEGAT) - [Excess goods found vis-a-vis R.G.I. - explained by the party at the time of seizure -no evidence to disprove explanation - Confiscation under Rule 173Q set aside]
(vii) Kanthal India Limited v. C.C.E. 1999 (31) RLT 547 (CEGAT) - [Excess over R.G.I. balance - goods packed in boxes found on production floor, not accounted in R.G.I. - No evidence of attempt to evade duty - Confiscation & R.F. Set aside, but penalty upheld.]
(viii) Triveni Engineering Works Company v. C.C.E. 1998 (26) R.L.T. 132 (CEGAT) [Goods lying in factory, not accounted in R.G.I. - No attempt to remove them without payment of duty - Confiscation under Rule 173Q held not justifiable.]
(ix) Ajay Forgings v. C.C.E. 1999 (31) R.L.T. 768 (CEGAT) [Excess over R.G.I. balance - not entered in R.G.I. - Confiscation held not justified, though small penalty imposable for non-accountal in R.G.I.]
44. Learned Departmental Representatives have drawn support from the following case law:
(i) Galada Continuous Castings Limited v. C.C.E. [Non-accountal of goods in R.G. 23 register-Clause (b) of Rule 173Q (1) held to have been attracted - Redemption fine held justified.]
(ii) C.C.E. v. Ultra Marine and Pigments Limited [Para 26. If we now turn to the structure of Rule 173Q(1) of the Central Excise Rules, we note that it consists of four Sub-clauses (a), (b), (c) and (d), infringement of any one of which will render relevant goods liable to confiscation and invite penalties on the manufacturer, licensee or owner of a warehouse. Sub-clause (a) deals with the liability of a manufacturer if he removes any excisable goods in contravention of the provisions of the rules. The manufacturer will always be in the knowledge of goods produced and if liability is attracted. Sub-clause (b) refers to accounting. Here too, a manufacturer is aware of the goods manufactured by him and has to necessarily account for the same in the prescribed manner. Sub-clause (c) refers to engaging in the manufacture without a licence when one is needed. In all these cases certain amount of knowledge is inherent in the commission or omission simpliciter. It is hardly necessary to import mensrea. Per contra, Sub-clause (d) refers to contravention of any of the provisions of these rules with intent to evade payment of duty. The absence of reference to intent in the other Sub-clauses (a), (b) and (c) would show that in the case of violation of the types referred to in those Sub-clauses, intention is not a material consideration. The act simpliciter would invite penal action.]
(iii) Autolite (India) Limited v. C.C.E. - [Excess stock found vis-a-vis R.G.I. balance - Held liable to confiscation under Rule 173Q(1)(b).]
45. Learned Counsel for the appellants have submitted that there was no finding by the lower authority that the party had attempted to clear the goods clandestinely without payment of duty or that they had resorted to non-accountal of the goods in R.G.I. with intent to evade payment of duty. The order of confiscation and penalty was passed on the finding that the party had not complied with Rules 53 and 173G of the Central Excise Rules. Relying on the case law cited, the learned Counsel have, further, submitted that the confiscation of goods and imposition of penalty on the appellants are not sustainable under Rule 173Q in the facts and circumstances of the case especially in the absence of finding of mensrea against them..
46. Learnd Departmental Representatives have relied on the case law cited them, in support of the Revenue's stand that the order of confiscation and penalty under Rule 173Q (1)(b) cannot be interfered with on the ground of absence of mensrea inasmuch as intention on the part of manufacturer to evade payment of duty is not necessary for invoking the said Clause (b).
47.I have considered the rival submissions and the case law cited. I observe that, as rightly pointed out by the learned Advocates, the lower authority ordered confiscation of the goods and imposed penalty on the appellants for contravention of the provisions of Rules 53 and 173G and that the order was passed under Rule 173Q without specifying any sub-rule or clause thereof. Which of the two relevant clauses - Clause (b) or Clause (d) of Rule 173Q(1) did the learned Collector invoke against the party? The contraventions found by the Collector were of Rules 53 and 173G. A case of contravention of Rule 53, as I have already found, is covered by Clause (b) of Rule 173Q(1). A case of contravention of Rule 173G can be covered only by Clause (d) and not any other clause of Rule 173Q (1). But I have already found that Clause (d) would cover a case of contravention of Rule 53 as well. It thus turns out that a composite case of contravention of Rules 53 and 173G can attract only Clause (d) of Rule 173Q(1). This would lead to the inference that the lower authority's order of confiscation and penalty was under Clause (d) of Rule 173Q(1). The said order, unsupported by any finding of mensrea against the party, cannot be sustained inasmuch as mensrea is sine qua non for invoking Clause (d), ibid.
Even otherwise, as I have already found, the appellant's case is one covered by Clause (d) read with Clause (b), in which case too mensrea is indispensable for confiscation and penalty.
48. In the above view of the matter, the learned Departmental Representatives' arguments cannot be accepted. The case law cited by them does not seem to be applicable to the appellants' case covered by Clause (d) of Rule 173Q(1) of the Central Excise Rules. The case law cited by the learned Advocates, on the other hand, has been found to be applicable. It supports the counsel's contention that, in the facts and circumstances of the case and especially in the absence of mens rea on the part of the appellants, neither the confiscation of the goods nor the imposition of penalty on them is sustainable under Rule 173Q.
49. As regards Rule 226 invoked by the learned Member Judicial) for imposing penalty on the appellants for non-accountal of the goods in question in their RG-I register, I observe that the element of 'intent to evade payment of duty' is conspicuously missing in the said Rule. While Rule 53 prescribes that a manufacturer shall maintain daily stock account of his finished products, Rule 226 lays down the manner in which such stock account shall be maintained. The latter Rule also seeks to penalise a manufacturer who fails to enter the required particulars within the time prescribed in the relevant Rule and the maximum personal penalty imposable on such a manufacturer is Rs. 2,000. The reference (in Rule 226) to "the relevant rule" is a reference to Rule 53. But, I observe, no time is prescribed under Rule 53. ibid for making entries regarding finished products in RG-I register. The appellants had, inter alia, pleaded that, where no time was so prescribed under Rule 53, it was open to them to make the necessary entries regarding the production of 5.10.94 in the RG-I Register at the close of the day but before they could do so the officers visited the factory and seized the goods. This case of the appellants was not successfully countered by the Department, nor have I found any answer to this plea of the appellants, in the learned DRs' submissions. Nevertheless, since the lower authority did not invoke Rule 226 against the appellants and the latter's challenge in the appeal is against the penal action under Rule 173Q, the two sides have become contentious about Rule 226 only at the present stage after the Miscellaneous Order dated 29.7.97 of the Bench which heard the appeal.
50. The learned DRs have contended that Rule 173Q in Chapter VII-A of the Central Excise Rules shall prevail over Rule 226 in Chapter XIV of the said Rules, in any conflict between the two, by virtue of the provisions of Rule 173A of the said Rules. Therefore, they argue, Clause (b) of Rule 173Q(1) has to be strictly interpreted in accordance with the literal text thereof and to be pressed into service regardless of the provisions of Rule 226 ibid. If Clause (b) ibid is so interpreted, the learned DRs submit, there will not be any requirement of mensrea for imposition of penalty on the appellants for non-accountal of the goods in question in their RG-I Register.
51.I have considered the above submissions as well. Without going into the conflict of 'Rule 173Q v. Rule 226' visualised by the learned DRs, I may observe that even if it is assumed that Rule 173Q has overriding effect vis-a-vis Rule 226 (as contended by the DRs) the position would not change for the better for the Revenue inasmuch as the appellant's case is one covered not by Clause (b) of Rule 173Q(1) simpliciter but by Clause (d) read with Clause (b) of the Rule if not squarely by Clause (d) itself. The case would not warrant confiscation and penalty since no mensrea was involved in the non-accountal of the goods in RG-I register. A case of non-accountal without mensrea is a minor offence which can at best attract a penalty of Rs. 2000 alongwith confiscation of the goods under Rule 226 ibid. The Learned Member (Judicial) has rightly held, having regard to the facts and circumstances of the case, that a penalty of Rs. 2000 for non-accountal in RG-I would suffice to meet the ends of Justice in the case. I would thus concur with the view taken by the Learned Member (Judicial). The point of difference is answered accordingly.
52. The Registry is directed to take appropriate follow-up action in the matter.
MAJORITY VIEW
53. By majority it is held that goods are not liable to confiscation and no penalty can be imposed under Rule 173Q in the absence of mensrea and only penalty of Rs. 2000 can be imposed under Rule 226 of the Central Excise Rule, 1944.