Customs, Excise and Gold Tribunal - Delhi
Kissan Sahkari Chini Mills vs Commissioner Of C. Ex. on 8 February, 2007
ORDER
R.K. Abichandani, J. (President)
1. This appeal has been preferred against the order of the Appellate Commissioner upholding the charge of excess stock of molasses as found by the adjudicating authority, to the extent that it confirms the order of the adjudicating authority by imposing a reduced redemption fine of Rs. 20,000/-(as against Rs. 40,000/- under the adjudicating order) and penalty of Rs. 2,000/-(which was Rs. 4,000/- in the adjudicating order).
2. The case of the Revenue was that the appellant-company which was engaged in manufacture of VP sugar and molasses was having excess stock of molasses when the records were checked on 10-5-1999 by the Central Excise Officers. The quantity of molasses physically verified was 639994.03 qtls. as against the book balance of 59,599.10 qtls., and thus there was an excess stock of 4,394.94 qtls. of molasses valued at Rs. 3,69,174.12, involving Central Excise duty of Rs. 2,19,746.50. A show cause notice was, therefore, issued proposing confiscation of the excess stock, recovery of duty and imposition of penalty.
3. The case of the assessee was that the allegation of excess quantity of 4,294.93 qtls. of molasses which was seized from steel Tanks No. 1 and 2, was not correct because the basis of verification of stock was by dip reading which was a faulty method. According to the assessee, the correct quantity of molasses cannot be ascertained by merely dip reading method and it should have been ascertained by floating method, by determining specific gravity of molasses, or by direct weighment. Since none of these methods were adopted and dip reading was not a valid method in the eye of law, the impugned confiscation, recovery of duty, and imposition of penalty were not justified.
4. The learned Additional Commissioner, who adjudicated the matter, took note of the fact that the excess molasses were stored in steel tanks and that the excess quantity of molasses was ascertained by dip method which was questioned by the party. The only contention that was raised before the adjudicating authority, was with regard to the credibility of dip reading method for measurement of molasses stored in steel tanks. The adjudicating authority held that for the determination of weight of molasses stored in steel tanks there was no method available except by dip reading. Following the ratio of the decision of the Tribunal in United Province v. Collector , it was held that the dip method for weight determination was correctly adopted. The excess quantity of 4,394.93 qtls. of molasses was, therefore, ordered to be confiscated with an option to the assessee to redeem the same on payment of redemption fine of Rs. 40,000/-. On such redemption, the party was made liable to pay appropriate Central Excise duty on the clearance of the confiscated goods. A penalty of Rs. 4,000/- was also imported under Rule 173Q of the Rules of 1944.
5. Before the Appellate Commissioner, the adjudicating order was challenged only on the ground that dip reading method was not a foolproof method. According to the assessee, the excess quantity of molasses was well within the prescribed limit of 10% and that the matter was covered by the ratio of the decision in Bajaj Hindustan Ltd. CCE, Kanpur reported in 1994 (72) E.L.T. 710 (T), in which it was held that due to presence of foam dip reading measurement could not indicate correct weight of molasses and, therefore, 10% allowance is always provided for foaming during the storage of molasses. The Appellate Commissioner held that the dip method was acceptable and that the appellant themselves had measured the stocks by this method.
6. The case of the appellant before the Commissioner (Appeals) was that the quantity of excess molasses was within the prescribed limit of 10% allowance attributable to foaming. The Commissioner found that during verification of stock on 10-5-1999, allowance of foam to the extent of 13%, had been given, which was more than 10% for which the appellant was contesting. The contention that dip reading method was not foolproof, was rejected.
7. Therefore, two questions arise for consideration, namely, whether dip reading method was acceptable in the context of ascertaining the weight of molasses stored in steel tanks in the factory of the appellant and what should be the allowance of foam of molasses stored in such tanks, while working out the weight by way of measurement by dip rod and whether such dip rod measurement method was not permissible.
7.1 Molasses is the material which is dark coloured viscous, syrupy liquid having a characteristic odour. The evidence on record proved that during the panchnama which was prepared on 10-5-199 checking of stock of molasses was done by dip rod method and in Tank No. 1, the total dip measurement was 05.53 mtrs., of which 0.72 mtrs. was the foam layer, while in Tank No. 2, the total dip was 07.50 mtrs. with a foam layer of 0.98 mtrs. For working out the excess, the measurement of foam layer was not taken into account and by giving allowance thereof only the nett dip of the two Tanks, namely, 04.81 mtr. for Tank No. 1 and 06.52 mtrs. for Tank No. 2 were taken into account and the excess quantity of molasses was found to be 4,394.93 qtls. The quantity of foam in steel Tank was ascertained by observing the bubbles on the dip rod. It is obvious that the foam layer of molasses stored in a steel Tank would have left bubbles on the dip rod indicating foam on its graduated scale.
7.2 The main thrust of the argument of the assessee is that dip reading was not the correct method for ascertaining the quantity of molasses, as the actual weight cannot be determined with absolute accuracy. According to the assessee, whatever difference by way of excess was detected, was due to presence of foam and that the production, clearance, and storage of molasses was the basis of actual weighment and that ascertaining the quantity of molasses by volumetric method, will never be correct. This stand of the assessee is not acceptable because, the steel Tanks for storage of molasses are required to be as per the specification prescribed by Bureau of Indian Standards. In fact by IS-552-1980 specifications for Steel Tanks For Storage of Molasses were laid down for efficient storage of molasses. Construction of molasses tanks preferably of steel is of marked importance in arresting the deterioration and wastage of molasses, as noted in the 'Foreword' of the ISI. The said prescribed standard covers provisions relating to the construction of covered mild steel tanks for storage of molasses. Such tanks are required to be marked legibly and permanently with the particulars of the tank number and the volume of the tank in m3. Each tank is required to be marked with ISI certification mark. In clause A-3 of Appendix 'A' of the said ISI specification No. 5521-1080, the method of calculation of volumes of tanks is indicated. This may be reproduced for ready reference, as hereunder:
A-3 CALCULATION OF VOLUMES OF TANKS A-3.1 The volume of tanks for storing molasses for a factory of 1250 tonnes per day cane crushing capacity may be calculated as follows. The required volume of different factories with varying cane crushing capacities may be calculated accordingly:
(a) Average molasses production, percent cane 4.0 (b) Average duration of season in days 140 (c) Total molasses production in tones for the season 7,000 (d) Volume of molasses in litres/tonne at Brix 90 708 (e) Volume of molasses in m3 produced in the season 4,955 (f) Add 10 percent for foam, in m3 496 (g) Total gross volume in m3 available for storage 5,451 or 5,300 (h) Recommended number of tanks [See Note. 1 under 3.1] (emphasis added)
7.3 It will be seen from the above calculations of volumes of tanks for storing molasses, that while calculating the volume, 10% volume of molasses m3 is required to be added for foam formation. The volume so prescribed for foam has to be big enough to allow expansion due to foaming within the tank to the extent of 10%. This ISI specification is an authentic indication of the upper limit of allowance for foaming that takes place in the molasses stored in a steel tank by the industry. If this extra calculation of volume is not added then on foam being formed, it would spill out. The layer of foam in a steel tank would, in view of these specifications, normally expand only up to 10% of the volume of molasses stored therein. The ISI specification 5521-1980 in Clause 3, "Volumes and Dimensions", contains the recommended volumes and dimensions of tanks for storage Tanks in Table I. The materials used for such tanks, fabrication, fittings and accessories are indicated in detail. Even the location of the tank which is required to be adjacent to the factory and its foundations are narrated in Appendix 'A'.
7.4 There is procedure laid down for taking samples from a tank containing molasses in Appendix A-4 of Clause 4.1 of IS 1162-1958, which relates to sampling from can, molasses which is essentially obtained as a by-product during the manufacture of white sugar and is largely used in the alcohol industry. Representative samples may be drawn from huge tanks in small quantity by sampling instruments such as sampling can in which a cylinder is fastened to a suitable rod and which is lowered in the tank to the required depth.
7.5 Therefore, storage of molasses in sugar factories, in steel tanks which are normally used as per the IS specifications, is required to be viewed in the context of such type of steel tanks and their capacity.
7.6 Weighment of quantity of molasses in the tank, by its very nature, will be done in the context of volume of molasses contained in that tank and this can be done by dip rod method which perhaps is the most obvious choice having regard to the nature of such material stored in a steel tank. Such dip rod or dip stick is a square or rectangular bar of brass or any other suitable hard material, used to determine the depth of the liquid in the tank. Dip sticks are suitably graduated to indicate the volume of liquid at different heights in the tank. The unit of volume is cubic decimetre or litre, or cubic centimeter or mililitre, as per the requirement. The device is generally used for measuring the quantity of milk at milk purchasing centers, as noted in Part VI of the 8th Schedule to the Standards of Weights and Measures (General) Rules, 1987. Such dip stick is also used as a method of computation of the bulk storage of petroleum and liquid petroleum products in vertical storage tanks and calculations are made on the accepted mathematical principles as indicated in Part III of Schedule 9-A of the said Rules of 1987.
7.7 The dip rod will show the measurement in vertical height of the contents of the molasses in the tanks and with a given capacity of the tank the quantity can be worked out in the context of such reading on the dip rod. The foam bubbles will obviously remain on the portion of the dip rod which did not enter the surface below the formation of the foam into the liquid molasses. It would, therefore, be easy to read the level of foam in the tank as measured by the scale of such dip rod at the time of reading. This was precisely done, as is evident from the panchnama, and allowance was given by omitting the foam layer, while calculating the excess quantity of molasses in Tank No. 1 and Tank No. 2. Since the dip method is a method duly recognized in the Standards of Weights and Measures (General) Rules, 1987, in the context of measuring the quantity of liquids, it is difficult to accept the contention raised by the appellant that dip reading method for measurement of molasses stored in steel tanks is a faulty method. The objections raised against the dip method for weight determination of molasses have, therefore, been rightly negatived by the authorities below.
8. The authorities below have passed their decision on the basis of the material on record, and after noticing that due allowance was given for the foam formation of molasses in the Tanks, they have rightly held that the excess quantity of 4,394.93 qtls. of molasses remained unexplained and was liable to be confiscated. The impugned orders have been made for cogent reasons warranting no inference with them. The appeal is, therefore, dismissed.
(Dictated and pronounced in the open Court on 8-2-2007)