Customs, Excise and Gold Tribunal - Delhi
Collector Of C. Ex. vs Usha Prestressed And Allied Industries on 9 January, 1987
Equivalent citations: 1989(43)ELT112(TRI-DEL)
ORDER G. Sankaran, Vice-President 1. This is an appeal against Order No. 225-CE/.TPR/81, dated 17-12-1981 passed by the Appellate Collector of Central Excise, New Delhi. 2. The facts of the case, briefly stated, are that M/s. Usha Prestressed & Allied Industries, Chittorgarh (hereinafter called the respondents) were engaged in the manufacture of P.C.C. poles falling under item No. 68 of the First Schedule to the Central Excises and Salt Act, 1944 (the Schedule is hereafter referred to as CET, for brevity's sake) and availed themselves of excise duty exemption for clearances upto Rs. 15 lakhs during the financial year 1979-80 in terms of central excise notification No. 89/79, dated 1-3-1979. They commenced payment of duty during the month of February 1980. On scrutiny of documents, the Central Excise authorities found that, during 1979-80, the respondents had used 158 P.C.C. poles valued at Rs. 26,356.00 for testing by the Rajas-than State Electricity Board (R.S.E.B.). The value of P.C.C. poles was in excess of the eligible exemption limit of Rs. 15 lakhs and the respondents were not eligible for duty exemption thereon but were liable to pay duty at 4% ad valorem, amounting to Rs. 1,054.24. Alleging that this fact was not disclosed to the Central Excise staff, the Superintendent of Central Excise, Chittorgarh issued a notice to the respondents on 21-6-1980 to show cause why the aforesaid amount of duty should not be recovered from them. In their reply dated 1-7-1980, the respondents submitted that the aforesaid 158 poles had to be tested in accordance with the relevant Indian Standard Specification, that the R.S.E.B. carried out the tests in the factory premises, that after subjection to test, the poles (samples) become useless and unfit for any purpose, that the said samples were drawn between 1-4-1979 and 31-3-1980 and subjected to test, that the respondents' practice was to account for such poles in the accounts at the time of the yearly closing on 31st March and were thus shown in the accounts of March '80 and that, as samples, the goods were exempt from duty. While not rejecting the respondent's contention that the said 158 poles were drawn for test, the adjudicating Assistant Collector held that no duty exemption had been provided in the case of samples of goods falling under item No. 68 CET for testing inside the factory. Rejecting the respondent's contention that under Central Excise Rules 49 no duty could be demanded on goods not fit for marketing, the Assistant Collector held that the rule did not envisage remission of duty on goods rendered deliberately unfit for consumption but only on those goods which, by virtue of some manufacturing defect, were unfit for use. In the present instance, according to the Assistant Collector, the fully manufactured and fit-to-use poles get broken in testing. In this view, the Assistant Collector, by his Order dated 23-1-1981, confirmed the demand, for duly. In appeal, the Appellate Collector, by his impugned order dated 17-12-1981 held that for the reasons that exemption in terms of Notification No. 89/79 referred to the value of goods cleared (not produced) and that under Rule 49, duty was chargeable on goods only at the time of their clearance, the poles in question were not liable to be charged to duty since they were not cleared. In this view, he allowed the appeal. It is this Order which the Collector of Central Excise, Jaipur has challenged before us. 3. The grounds taken up in the appeal are :- (i) Once excisable goods are manufactured, they become liable to duty, though payment of duty may be deferred till they are cleared, in terms of Rule 49. (ii) Goods removed within the factory for further use are also liable to be charged to duty in terms of Rule 49. Removal of the poles for testing is removal for the purpose of levy of duty within the meaning of Rule 9 and 49. (iii) . the fact that the poles arc rendered unserviceable after testing does not alter the above position and the value of such goods also would need to be included in the value of clearances for determining eligibility for exemption in terms of Notification No. 89/79. 4. The appeal was listed for hearing on 21-10-1986. The respondents did not appear. Another notice for 21-11-1986 was issued. On that date also, the respondents were not present at the hearing. We have, therefore, heard Shri G.V. Naik, Jt. C.D.R. for the appellant and perused the record. 5. Shri Naik's submissions were essentially a reiteration of the grounds taken up by the Collector. 6. We have carefully considered the matter. It is true that, in accordance with pronouncements of the Supreme Court, excise is a tax on manufacture. However, Central Excise Rule 49 provides that duty need be paid or could be required to be paid only at the time excisable goods are removed from the factory. Such removals could be within the factory or without the factory. In the latter case, duty will doubtless have to be charged and paid. And, unless there is a special dispensation by a competent authority, there could be no question of remitting or refunding the duty paid on such goods for whatever reason. The question before us is, however, of the duty liability of excisable goods which are "removed" within the factory for purposes of test, and are rendered useless in the process. There is no dispute about the position that the poles in question were taken for test and rendered useless after testing. Would the manufacturer be liable to pay duty on such goods? 7. The second proviso to Rule 49 reads as follows :- "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." As noted earlier, it is the contention of the respondents that the 158 poles on which duty is sought to be recovered by the department, were rendered unfit for use in the process of their being tested for conformity with the Indian Standard specifications. This contention has not been controverted. We may, therefore, safely assume that the goods had indeed been rendered unfit for use and, therefore, rendered also unfit for marketing. In the ordinary course, the manufacturer should have approached the Collector in terms of the above proviso and, subject to observance of the conditions imposed by the Collector, he could not have been called upon to pay duty on the goods claimed as unfit for consumption or for marketing. Since, however, in the present case, there is no dispute that the 158 poles were rendered unfit for use we do not see any reason why the benefit of the aforesaid second proviso to Rule 49 should not be extended to the respondents. 8. In the result, we uphold the impugned order and dismiss the present appeal. V.T. Raghavachari, Member (J)
9. No doubt the second proviso to Rule 49 of Central Excise Rules states that duty may not be demanded on 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. Normally in such instances an application is made to the Collector for permission for destruction of the goods and permission is granted either in specific instances, or generally, as to the mode of destruction and it is on the satisfaction of the authorities of the fact of destruction having been carried out that the duty liability is extinguished. Admittedly in the present instance there was neither such an application nor such an order. This was for the reason that the destruction took place in the course of testing and, according to the appellants, the fact of these poles being unfit for marketing became known only by reason of such destruction in the course of testing. That is to say, the destruction has been completed by the time the fact of non-marketability became known.
10. Duty becomes payable only at the time of removal from the factory or the bonded warehouse. In this case no such question of removal from the factory arose since the poles were destroyed during the course of testing within the factory itself and hence no occasion for removal thereof from the factory could even arise.
11. In view of these peculiar circumstances of this case I agree with the order that no duty could be dema the poles which were rendered unfit for use during the course of testing. I the that the appeal is to be dismissed.