Customs, Excise and Gold Tribunal - Delhi
Foremost Dairies Ltd. vs Collector Of Central Excise on 26 September, 1986
Equivalent citations: 1986(10)ECC148, 1987(10)ECR73(TRI.-DELHI), 1987(27)ELT437(TRI-DEL)
ORDER V.T. Raghavachari, Member (J)
1. The appellants M/s. Foremost Dairies Ltd. manufacture, amongst other things, skimmed milk powder. Show cause notice dated 6-10-1983 was issued to them on the allegation that they were initially packing such skimmed milk powder in 25 Kilogram polythene bags also but had not enetered the quantity so packed in their RG-1 register and were not paying duty on the same but were repacking the same into small packings of one kilogram, 500 grams and 100 grams, with intent to evade payment of central excise duty. The period of evasion covered by the notice was mentioned as 7-4-19 83 to 30-9-1983. On receipt of reply and after adjudication the Collector of Central Excise, Meerut passed orders on 30-9-1985 holding the charge established. Under the said order he demanded duty amounting to Rs. 32,15,300.80 (basic) and Rs. 1,60,765.04 (special). He further imposed a penalty of Rs. 10,000/-. It is against the said order that the present appeal has been preferred.
2. We have heard Shri V.G. Taraporewala, Advocate assisted by Shri S.C. Verma, Miss Nisha Srivastava and Shri L.K. Bhushan, Advocates for the appellants and Shri Vineet Kumar for the Department.
3. Classification list dated 7-4-1983 (effective from 9-4-1983) had been filed by the appellants with reference to various articles manufactured by them. 18 items of manufacture were covered by the list and under order dated 11-4-1983 the Assistant Collector had granted approval with reference to serial No. 1 to 14 thereof. In this appeal we are concerned with items 3 to 5 which related to spray dried skimmed milk powder in 500 grams, 100 grams and 1 kilogram packets. According to the appellants they were entitled to clear those packets free of duty in terms of exemption notification No. 33 of 83CE dated 1-3-1983. That notification exempted, from the whole of the duty of excise leviable, prepared or preserved foods of description specified in column 2 of the table annexed to the notification and falling under T1-1B CET subject to conditions specified in the corresponding entry in column 3 of the table. In the present case we are concerned with serial 8 relating to "skimmed milk powder". Column 3 relating to this serial No. 8 read "if such skimmed milk powder is packed for sale in a container containing not more than 1 Kilogram net of such skimmed milk powder". The show cause notice raised the following grounds for supporting the demand for payment of duty:
(a) The skimmed milk powder was initially packed in 25 Kilogram polythene bags received from the hopper and the same was covered by item 1 of the classification list dated 7-4-1983 but yet the same was not entered in the RG-1 register and no duty was paid thereon.
(b) The contents "of these bags were later repacked into smaller bags containing 1 kilogram, 500 grams and 100 grams which were again later put in larger packets or cartons on which particulars such as name of the factory, batch number, code number and quantity packed etc. were noted.
(c) These were later cleared to branch offices and not by way of sale at the time of clearance.
(d) In the manner of clearance as above mentioned it could not be determined whether sales of these smaller packages were for consumers whose requirements will be limited to I Kg. net or less or would be for consumers in the nature of bulk consumers whose requirements would very much exceed 1 Kg.
(e) 25 Kg. packed in polythene bags were also mentioned in item 1 of the classification list apart from bulk packing of 25 Kg. in hessian paper bags with inner liner polythene bags but yet no duty was paid on these quantities removed from the hopper in polythene bags which, as mentioned earlier, were later repacked.
5. In their reply the appellants contended that skimmed milk powder was received direct from the hopper into large polythene 25 Kg, bags for purpose of further testing for compliance with the requirements of the prevention of Food Adulteration Act and these large bags were used as the mouth of the hopper was large and the discharge therefrom could not be received in smaller bags. They contended that after testing the powder was packed in smaller packages of 1 Kg. and less and then heat sealed and that it was only at this stage that the need for entry in the RG-1 register arose with reference to these smaller unit packages. They pointed out that in respect of removals in larger bulk bags of more than 1 Kg. (such as from 25 Kgs. bags as mentioned in the item I of the classification list) they had been entering the same properly in their excise accounts and had been paying duty also. They disputed the interpretation put upon the terms of Rule 9 in the show cause notice as to whether the removal should be by way of sale itself. In a further reply dated 27-6-1984 they further relied upon a trade notice 82/83 dated 27-9-1983 issued by the Meerut Collectorate and also a trade advice of 1969 as to the definition of a unit container.
6. In his submissions before us the learned counsel raised all the above arguments and contended that what was received from the hopper in the polythene bags would not require entry in the RG-1 account" as manufacture of the product became complete only after the subsequent testing (which was statutorily required under the Prevention of Food Adulteration Act) and packing by way of air tight heat sealing in either big or small packets. He pointed out that the various notations printed on the packets containing the fully manufactured products were required to be indicated under the Prevention of Food Adulteration Act and the Rules framed thereunder. On the other hand, Shri Vineet Kumar for the Department contended that the information printed on the 25 Kg. bags (into which the SMP was received from the hopper) would establish that what was so received was the fully manufactured product and when the mouth of the said bags were tied with cotton tapes the manufacture of the product (falling under TI 1-B CET)was complete and therefore duty was payable at this stage, notwithstanding the subsequent repacking into smaller packets.
7. The Collector had relied upon the fact that in their classification list dated 7-4-1983 the appellants have mentioned their 25 kilograms packing loose in polythene bags in serial No. 1 of the list and this would establish that in respect of the 25 kilograms containers they had two kinds or sorts (i) Hessian paper bags with inner liner of polythene and (ii) loose in polythene bag. On this basis he had further held that when the SMP is received from the hopper in polythene bags that would be the removal for purposes of excise duty under sort 2 of serial No. 1 of the classification list. As earlier mentioned, the appellants claim that their sales in 25 kilograms bags is always of hessian paper bags with inner polythene liner and never loose in polythene bags. As earlier mentioned, receipt of the powder from the hopper into loose polythene bags appears to be for the purpose of subsequent tests and later packing in smaller unit containers. When the powder is received in such lose polythene bags the mouth of the bag is merely tied with cotton tape. It is not the case for the Department that SMP packed in this way is ever sold to customers. In the circumstances the conclusion of the Collector, based on the description in serial No. 1 of the classification list, does not appear to be proper. On the other hand the explanation of the appellants, that receipt from the hopper into such loose polythene bags was only for the purpose of subsequent testing and packing in smaller unit containers which alone were intended for sale, appears to be correct and proper.
8. The Collector has further observed that even when such powder is packed in smaller unit containers of 1 kilogram and less they are subsequently packed again in a larger 25 kilogram bag and in the said circumstances the smaller packings lose their identity. In arriving at this conclusion the Collector has taken note of the fact that on such larger packings also particulars such as name of the factory, batch No. , code number, quantity packed etc. are noted. The Collector therefore concluded that it is the said larger packing that is intended for sale and not the lesser unit packing within the larger packing.
9. This conclusion does not appear to be proper. SMP packed in small unit containers of 1 kilogram or less cannot be despatched for sale without such smaller packings being packed in larger containers such as corrugated paper board cartons etc. Such cartons would always contain particulars printed thereon such as name of the factory, batch number, code number, quantity packed, etc. For that reason it cannot be said that what was being' despatched for sale was not the quantity packed in the smaller containers but that the total quantity packed in each carton was alone to be taken as containing a single unit for ultimate sale. The mere fact that the smaller unit containers are packed in another polythene bag and not card board carton does not appear to make for any different approach.
10. In this connection the appellants rightly point out that they do supply SMP in large packings to customers who require SMP packed in larger unit containers and that on all removals of such SMP in large containers (such as 25 kilograms) duty is paid by them. Nor is this disputed by the Department.
11. Another point raised in the show cause notice is that the smaller unit packings packed into a larger unit packing were being cleared to branch offices and not by way of sale at the time of clearance itself and this circumstance would lead to denial of the benefit of the exemption notification. This would appear to suggest that if the assessee is to be held entitled to the benefit under the notification the removal from the factory itself should be by way of sale to the consumers of the smaller containers. There is no justification for any such conclusion, Nor has the Collector himself based his order on such an assumption.
12. The Collector has observed that the sales referred to in notification No. 33 of 1983 are obviously by retail sales to the ultimate consumers. It appears that in his opinion the notification would apply only when each of the smaller unit containers should be sold to individual customers. He points out that in the case of the appellants there has been supplies of large quantities (running to nearly 10,000 kilograms in at least two of the instances) though the supply was by packing the smaller unit containers into larger unit containers of 25 kilograms. The argument of the learned counsel for the appellants was that depending upon the orders placed by the consumer the appellants would supply the SMP either packed in 25 kilograms containers or packed in smaller containers though the smaller containers may themselves be packed in larger containers of 25 kilograms. Shri Taraporewala contended that it may even be that such a procedure was adopted by the customers as goods supplied in the second mode would not suffer excise duty by reason of the exemption notification and would therefore be available to the customer at a price lower than when the supply would be in larger containers. This submission for the appellants is fortified by the fact that there were admittedly supplies in kilograms containers, duty being paid by the appellants on ail such removals.
13. As pointed out by the Learned Counsel for the appellants, if under the terms of the notification a benefit would accrue to the assessee the court or the Tribunal would not be entitled to deny the benefit of the said exemption merely on the basis that the Government would not have intended to confer such a benefit in a particular case. The decisions in the Hans Raj Bodh Raj case (1978 ELT 350 Supreme Court) and Tata Iron Steel Co. case (1977 ELT 61 Supreme Court) support this contention.
14. Shri Vineet Kumar contended that even when the smaller unit packings were later packed in larger packings the said larger packing also contained details which would be required under the Prevention of Food Adulteration Act and Rules. He therefore contended that this circumstance would establish that what was intended to be sold were the contents of the entire larger packing and not the contents of the smaller packings. In this connection also it has to be noticed that the appellants were adopting either the larger packing, or the smaller packings packed in a larger packing, depending upon the order placed by the customers. Hence the fact that the larger packing also contained all details required under the Prevention of Food Adulteration Act would not support the conclusion drawn therefrom by the Department.
15. As the notification stands benefit under the notification would be available when the SMP is packed for sale in a container containing not more than 1 kilogram of SMP. Even on the facts as stated by the Department the benefit was being claimed by the appellants only when the SMP was packed in such small packings and not when the name was being removed in larger unit packings. The reasons given in the order of the Collector to deny the benefit have earlier been discussed and it has been seen that the said reasons are not acceptable. In the circumstances this appeal is allowed and the order of the Collector is set aside.