Customs, Excise and Gold Tribunal - Mumbai
Shri Dudhganga - Vedganga Sahakari ... vs Collectors Of Central Excise And Ors. on 14 October, 1986
Equivalent citations: 1988ECR252(TRI.-MUMBAI)
ORDER K. Gopal Hegde, Member (J)
1. These appeals arise out of and are directed against the order Nos. v. 15CC(30)191/TB/83, dated 4.1.84, v. 15CC(30)43/TB84/880, dated 15.2.85, v. 15CC(30)65/TB/Abad/83, dated 21.2.85, v.15CC(30)63/TB/A' bad/83, dated 21.2.85, v. 15CC(30)64/ TB/A'bad/85, dated 21.2.85, v.15CC(30)187/TB/83/273, dated 29.5.84, v. 15CC(30)86/TB/471, dated 13.6.84, v.15CC(30)199/TB/84, dated 30.6.84, v.15CC(30)108/TB/391, dated 9.8.84, v.15CC(30)55/TB/83/2578, dated 18.10.84, V.15(30)56/TB/84/343, dated 3.12.84, V. 15CC(30)184/TB/83, dated 26.2.85, V. 15CC(30)185/TB/2463, dated 27.2.85, M.410/AUR.44/85, dated 26.7.85, V.15CC(30)185/TB/83/2463, dated 21.2.85, V.15CC(30)63/ TB/A'bad/83, dated 21.2.85, and V.15CC(30)64/TB/A'bad/83, dated 21.2.85 respectively. The three cross-objections are by the Department. They are not cross objections in the real sense. In fact, they are briefs probably intended to be furnished to the Department Representative to effectively put forward Department's case. In none of the cross-objections any relief is claimed. As a matter of fact, in the appeals in which these cross objections were filed no relief could have been claimed by the Department because the adjudicating authorities have not disallowed any of the claim of the Department.
2. Since no relief is claimed in any of the cross-objections and in view of our observations that they are not cross-objections contemplated by the Act, we unhesitatingly reject them all. Coming to the appeals excepting one appeal, viz., ED(BOM)187/85, the rest of the appeals were filed by the Co-operative Sugar Factories. ED(BOM)A.No. 187/85 was filed by the Collector aggrieved by the order of the Collector (Appeals) allowing the sugar factory's appeal and setting aside the demand of duty in respect of Molasses which according to the finding of the adjudicating authority was destroyed due to natural causes.
3. As all these appeals involve common questions of law and since facts are more or less identical, they are clubbed together, heard together and hence this common order. A copy of this order shall be kept in each of the appeal.
4. Since the facts in all those appeals are more or less identical suffice if a reference is made to the facts in the earliest appeal, viz., ED(BOM)33/84. The Appellants are the manufacturers of sugar and hold central excise licence for the purpose. In the process of manufacture of sugar a bye-product Molasses is produced to the extent of approximately 4% of the quantity of sugarcane crushed. The Appellants have provided the necessary steel and cemented storage tanks for storing the Molasses as required under the State Excise Rules and Orders to the extent prescribed, since Molasses clearances for supply to State Distilleries where it is chiefly utilised in the manufacture of Spirit, Power Alcohol, etc., which are State Excise products. The State Excise Authorities also supervise the storage of Molasses and allow the sugar factories to clear the Molasses strictly in accordance with the release orders issued by them from time to time as per the needs of the Distilleries. The sugar manufacturers are strictly forbidden to clear any quantity of Molasses without such release orders from the State Excise authorities. Under normal conditions the factories do not have any difficulty for the storage of Molasses as the release orders for clearance of Molasses are regularly received by them and the difficulty of storage arises only when there is excessive crushing than the normal quantity of cane crushed. Quantity of Molasses also increases and if the State Excise authorities do not issue release orders regularly and for sufficient quantities, the stock of Molasses accumulates abnormally and the manufacturer has to face acute storage problems. Such a situation arose during the sugar seasons 1979-80, 1980-81 and 1981-82. To meet the extra-ordinary situation, the factories have no other alternative but to store the excess quantity of Molasses in kaccha pits after obtaining permission of the concerned excise authorities. The Central Excise authorities, however, granted permission to store in kaccha pits on the condition that the sugar factories should pay the duty leviable on the Molasses stored in kaccha pits even if the Molasses was to be destroyed by natural causes and to that effect Bonds were executed.
5. The Molasses stored in kaccha pits are known to burn by spontenous internal combustion and whatever precautions the manufacturer may take such combustion cannot be prevented. There was also the possibility of Molasses stored in the kaccha pits being damaged and destroyed if there is excessive rain in the area. The Central Excise Department was aware of these possibilities, but even then taking unfair advantage of the critical situation faced by the sugar factories they (Central Excise authorities) obtained Bonds from the Appellants under duress. As ill-luck would have it, there was exceptionally heavy rains in and around the factory areas during the last week of June 1983, as a result of which, the earthen walls of the kaccha pits collapsed and the Molasses stored was washed away. The total loss in the case of Appellants in this appeal was 1,531.540 M/T.
6. As regards the cause of destruction of Molasses the appeals may be divided into three categories :
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Destruction due to excessive Destruction Transfer of Molasses from
rain and washing out of due to internal approved kaccha pits to
Molasses from the kaccha combustion. unapproved kaccha pits
pits. after the Molasses became
unsuitable for distillation.
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(1) (2) (3)
--------------------------------------------------------------------------------33/84 95/84 197/84 69/84 32/85 18/85 91/84 71/85 68/85 123/84 103 to 105/85 187/85
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7. Before we consider the contentions urged on behalf of the Appellants and the Respondent, we consider it necessary to refer briefly to the orders against which the present appeals were preferred.
8. In the appeal ED(BOM)33/84 while stating the facts of the case the Collector of Central Excise and Customs, Pune, Shri S.D. Mohile, who held the enquiry has stated "due to heavy rains from 26.6.1983 to 28.6.1983, 1531.540 M/Tons of Molasses belonging to M/s. Shree Dudhganga Vedganga Sahakari Sakhar Karkhana Ltd., which was preserved in pit Nos. 1 and 2 was washed away. The total Central Excise duty involved in respect of the same was Rs. 48,243.51. The factory has furnished B.2 bond on 10.12.1982 for storing the Molasses in kaccha pit Nos. 1 and 2. On receipt of the intimation from the factory, Superintendent, Central Excise, Bidri, visited the factory and found that the incidence had occurred due to natural calamity and not on account of any mischief".
9. The Collector though accepted that the Molasses stored in the kaccha pits was washed away due to heavy rains, directed recovery of the duty on the ground that at the time of granting permission to store the Molasses in kaccha pits, the Appellants had executed B-2 bond undertaking to pay the duty without claiming any remission even if the Molasses was destroyed due to natural causes.
10. In the appeal ED(BOM)69/84 while narrating the facts, the Collector of Central Excise and Customs, Aurangabad, Shri S.N.. Karkhanis stated "the facts of this case in brief are that on 18.5.83 Shri B.D. Patil, Chief Chemist of M/s. Kada Sahakari Sakhar Karkhana Ltd., noticed flowing Molasses from kaccha pit No. 5 of the factory which had happened due to tumbling down of one corner of the said pit. Then the factory management reported this fact to the Assistant Collector, Central Excise, Nanded, vide telegram dated 19.5.1983. Then as per the directions of the Assistant Collector, Central Excise, Nanded, Superintendent, Central Excise, Beed, visited the factory on 27.5.1983 and after investigations, it was found that one corner between south and west of pit No. 5 was in broken condition and Molasses inside pit No. 5 was flowing upto 1 km. away towards west side of the said pit. The quantity of Molasses lost in the damage worked out to 1202.180 M/Tons, then the same would not have been lost if sufficient care would have been taken. Though M/s. Kada Sahakari Sakhar Karkhana Ltd., are permitted to store the Molasses in kaccha pit No. 5 by the Additional Collector, Central Excise, Pune, they are required to observe the condition as laid down in Trade Notice No. 209/82, dated 10.11.1982 in which it has been laid down that in case of loss or damage whether by natural cause or otherwise, the factory would be liable to pay duty on such Molasses stored in kaccha pit. As such it was obligatory on the party M/s. Kada Sahakari Sakhar Karkhana Ltd., to pay the Central Excise duty on Molasses lost, that is, flown away on 18.5.1983 from kaccha pit No. 5, hence the demand has been made...."
11. After referring to the contentions urged on behalf of the Appellants herein, the Collector recorded the finding that he was not inclined to accept the contention of the assessee in view of the fact that if sufficient care and proper repairs at appropriate time would have been carried out in respect of kaccha pit No. 5, the loss of Molasses due to breakdown of one corner of the pit in question would not have arisen. The loss of Molasses therefore, cannot be attributed to loss due to natural causes and hence the assessee is not entitled to remission of duty.
12. In the appeal ED(BOM)91/84 the Collector of Central Excise and Customs, Pune, Shri S.D. Mobile, while narrating the facts of the case stated "on 2.7.83, the assessee reported washing away of the Molasses to the extent of 80% of the quantity stored in kaccha pit Nos. 2 and 3 during mid-night of 1.7.83...". The Collector after referring to the various contentions urged on behalf of the Appellants herein, observed "I do not fine myself in full agreement with the contention of the Counsel Shri K.P. Joshi, Advocate, that central excise duty is liable to be recovered when the goods are passed on to the consumer. The provision of Section 3 of Central Excise Act are clear on this subject. The central excise duty is primarily a tax on the excisable goods manufactured or produced, however, duty is collected in such a matter as prescribed under relevant Central Excise Rules. It cannot be equated with Sales Tax. Permission to store Molasses in kaccha pit was granted to the party on account of their own storage problem with clear understanding that no remission of duty will be claimed in case of damage or deterioration by rain. I have come to the conclusion that the assesee could have saved the Molasses by making timely arrangements for storing the said Molasses in pucca pit/steel tank, thus the loss was definitely avoidable...." "Duty should be recovered in terms of bond furnished by the assessee and accepted by the Departmental Officer".
13. In appeal ED(BOM)95/84 the Collector of Central Excise and Customs, Pune, Shri S.D. Mobile, while narrating the facts of the case stated "on 3.5.83, the Superintendent of Central Excise Range-II Kolhapur received a message in writing that spontaneous combustion has stared in Molasses stored in kaccha pit No. 2 of M/s. Shri Chatrapati Shahu Sahakari Sakhar Karkhana Ltd., Kagal, District Kolhapur (hereinafter called as "assessee") and hence, the Superintendent proceeded to Kagal. When he saw Molasses actually boiling and over-flowing, he drew the panchanama of the situation.
14. After referring to the various contentions urged on behalf of the Appellants herein, the Collector observed "in view of the inherent risk involved in storage of Molasses in kaccha pits, the permission was made conditional on the party's agreeing not to claim remission of duty in the event of loss. The assessee with his full knowledge has therefore entered into bond so as to avoid immediate payment of duty. Hence the bond so executed cannot be said as void in terms of Section 28 of Indian Contract Act. As it was open to the party to store the Molasses in pucca tanks, it cannot be said that the loss of Molasses was unavoidable or that the condition imposed was unreasonable or impossible to comply with". Finally, he directed recovery of the duty payable in respect of the loss of Molasses.
15. In appeal ED(BOM)123/84 the Collector of Central Excise and Customs, Pune, Shri S.D. Mohile, while narrating the facts of the case stated "on 29.6.82 the assessee reported that the entire quantity of 1148.700 M/Tons of Molasses stored in the kaccha pit was washed away by rain water and flown into river. On 23.6.82, there was heavy rainfall which broke down the enbankment of the pit and caused damage to the Molasses. Thereupon the Superintendent, Central Excise, Islampur, issued show cause-cum-demand notice to the assessee under his letter No. MP/ Molasses/82/1595, dated 26.8.82, calling upon them to show cause to the Collector of Central Excise, Pune, as to why central excise duty amounting to Rs. 34,461/- should not be recovered...". After referring to the B-2 bond executed by the assessee, the Collector held that the bond cannot be said to be void or ultra vires and further observed "I have come to the conclusion that the assessee could have saved the Molasses by making timely arrangements for storing the said Molasses in pucca pit/steel tank taking into consideration the anticipated production of Molasses which was not an unexpected and sudden happening. Thus, the loss was not unavoidable as envisaged under Rule 49". The Collector thereafter directed the assessee to pay the duty payable on the lost Molasses.
16. In appeal ED(BOM)197/84 the Collector of Central Excise and Customs, Aurangabad, Shri S.N. Karkhanis, while stating the facts observed "the assessee have stored Molasses weighing 4961.010 M/Tons of the seasons 1980-81 and 1981-82 in kaccha pit No. 1. Due to old stock and admixture of rain water, whole quantity is spoiled and became useless for distillation as per the certificate of analysis by the Government Distillery, Chitali".
17. After referring to the contentions urged on behalf of the Appellants herein, the Collector observed "in view of the foregoing facts I am not inclined to accept the party's contention that the 'contractual liability' arising out of the execution of B-2 bond pertains to the Molasses of the season 1982-83 only. The instructions in para 3 of the Trade Notice No. 209/82 are very clear that the permissions to store the Molasses in kaccha pit were to be given in very exceptional circumstances. It was also brought to the notice of the sugar factories that in case of loss or damage whether by natural cause or otherwise, they would be liable to pay duty on such Molasses stored in kaccha pit and would be disentitled to claim remission of duty under Rule 49 of the Central Excise Rules, 1944". Thereafter he confirmed the demand made in the show cause notice.
18. In appeal ED(BOM)18/85 the Collector of Central Excise and Customs, Pune, Shri S.D. Mohile, while narrating the facts of the case stated "on 1.8.84, the assessee vide their letter No. MFG/36-A/178/11539/84, dated 1.8.1984 applied for permission to destroy the Molasses weighing 4912.063 M/Tons lying in storage in open kaccha pit Nos. 1 and 2, as the same had become unfit for distillation purpose due to natural causes such as rains, atmospheric changes and long storage period".
19. After referring to the contentions urged on behalf of the Appellants herein, the Collector observed "in the instant case the damage to the Molasses had occurred on account of assessee's own risk involved in storing the same in open kaccha pits, therefore, assessees' plea is not entertainable".
20. "From the above discussions I am inclined to hold that the assessees could have saved the Molasses from damage by making timely arrangements of storing the said Molasses in pucca pits/steel tanks; thus the loss/damage was avoidable"...."Further, they had been allowed to store the Molasses in kaccha pits on the specific undertaking that they will not claim remission in the event of losses etc.". Thereafter the Collector confirmed the demand raised in the show cause notice.
21. In appeal ED(BOM)32/85 the Collector of Central Excise and Customs, Aurangabad, Shri S.N. Karkhanis, while narrating the facts stated "M/s. Sanjivani Sahakari Sakhar Karkhana Ltd., had stored 4841.300 M/Tons of Molasses falling under T.I. 15CC in kaccha pit No. 3 was burnt out due to spontaneous combustion on 4.6.83. The said quantity of Molasses was reported to be destroyed and the duty involved on the above quantity of Molasses works out to Rs. 1,52,500.95".
22. After referring to the contentions urged on behalf of the Appellants herein, the Collector observed "while in the instant case the factory had already executed B-2 bond for the Molasses contained in kaccha pit No. 3 and therefore, the instructions contained in para 3 of the Trade Notice No. 209/82, dated 10.11.82 issued by Pune Collectorate hold good. Under the circumstances I do not attribute this loss due to natural causes and hence M/s. Sanjivani Sahakari Sakhar Karkhana Ltd., are not entitled for remission of duty on the Molasses contained in kaccha pit No. 3". Thereafter the Collector directed the payment of duty within ten days.
23. In appeal ED(BOM)68/85 the Collector of Central Excise and Customs, Pune, Shri S.D. Mohile, while stating the facts of the case narrated "on 13.4.1984 the assessee reported to the Assistant Collector, Central Excise, Satara, that due to heavy rains during the rainy season the remaining 951.020 M/Tons of Molasses was diluted very much and was deteriorated to the extent being totally unfit for distillation and they requested for grant of permission for destruction and remitting duty thereon." After referring to the contentions of the learned Advocate for the Appellants Shri B.D. Deshmukh, the Collector observed "the permission to the party to store Molasses in kaccha pit was granted on account of their own storage problem with a clear understanding that no remmission of duty will be claimed in case of damage or deterioration by rains etc. The assessee could have saved the Molasses by making timely arrangement of storing the said Molasses in pucca pit/steel tank; thus the loss was avoidable". The Collector thereafter confirmed the show cause-cum-demand raised by the Superintendent, Central Excise, Ogalewadi.
24. In appeal ED(BOM)71/85 the Collector of Central Excise and Customs, Aurangabad, Shri S.N. Karkhanis, while narrating the facts of the case, among other things, stated that M/s. Dnyaneshwar Sahakari Sakhar Karkhana Ltd., had stored 4210.920 M/Tons of Molasses in kaccha pit Nos. 2 and 3 which was burnt out due to spontaneous combustion on 29.6.83 and became unfit for distillation purposes.
25. After considering the contentions urged on behalf of the Appellants herein, the Collector observed "whereas in the instant case the factory had already executed B-2 bond for the Molasses contained in kaccha pit Nos. 2 and 3 and therefore the instructions contained in para 3 of the Trade Notice No. 209/82, dated 10.11.1982 issued by the Pune Collectorate hold good. Under the circumstances M/s. Dnyaneshwar Sahakar Sakhar Karkhana Ltd. are not entitled for remission of duty oh the Molasses contained in kaccha pit Nos. 2 and 3 amounting to Rs. 1,32,643.98".
26. Thereafter the Collector directed the Appellants herein to pay the duty within ten days.
27. In appeal ED(BOM)103/85 the Collector of Central Excise and Customs, Aurangabad, Shri S.N. Karkhanis, while narrating the facts of the case stated "M/s. Panzarakhan Sahakari Sakhar Karkhana Ltd., Bhadne, has produced the Molasses during the year 1977-78 out of which they have destroyed Molasses weighing 462.620 M/Tons on 24th and 25th May, 1982, without obtaining prior permission...." "Shri S.H. Khairnar, Chief Chemist of M/s. Panzarakhan Sahakari Sakhar Karkhana Ltd., stated in his letter dated 25.3.83 addressed to Superintendent, Central Excise Dhulia that they have sent the intimation but prior permission could not be obtained as it was essential to destroy the Molasses to keep pit No. 5 empty to accommodate the Molasses being produced and to facilitate to run the factory". The Collector after considering the contentions urged on behalf of the Applicants herein, observed "the permission for Storing Molasses in the kaccha pit has been granted by the Department subject to execution of B-2 bond and the instructions in the Trade Notice No. 209/82, dated 10.11.1982 issued by the Pune Collectorate, wherein, it has been clearly mentioned that "it is also brought to the notice of the sugar factories that in case of loss or damage whether by natural causes or otherwise, they would be liable to pay duty on such Molasses stored in kaccha pit/tanks and they would be disentitled to claim remission of duty under Rule 49 of the Central Excise Rules, 1944".
28. Thereafter the Collector ordered to pay the duty demanded within . ten days from the date of his order.
29. In appeal ED(BOM)104/85, the facts narrated by the Collector of Central Excise and Customs, Aurangabad, in this appeal as well as his findings are similar to the facts and findings in appeal No. 103/85.
30. In appeal ED(BOM)105/85, the facts narrated by the Collector of Central Excise and Customs, Aurangabad, as well as his findings in this appeal are similar to the facts and findings in Appeal Nos. 103 and 104/85.
31. ED(BOM)187/85 is an appeal by Department, namely, Collector of Central Excise and Customs, Aurangabad, directed against the order-in-appeal No. M-410/AUR-44/85, dated 26.7.85 passed by Collector of C.E. (Appeals), Bombay,, by which he set aside the order passed by Shri C.D. Thakare, Assistant Collector of Central Excise and Customs, Nanded. In his order, while stating the facts of the case the Assistant Collector has stated "the assessee M/s. Jai Bhavani Sahakari Sakhar Karkhana Ltd., have come forward with their application No. MFG/I/83, dated 19.12.83 addressed to the Superintendent, Central Excise, Jalna Ranga, requesting therein for permission to allow them to destroy total quantity of 7132.844 M/Tons of Molasses ... lying in their kaccha pit Nos. 1 and 2 as due to natural causes as the same is in deteriorated condition and thus unfit for distillation". The Assistant Collector also recorded a finding that the damage of Molasses stored in kaccha pit Nos. 1 and 2 could have been avoided and goods could not have been damaged but for human error and not because of natural causes. The Collector (Appeals), however, set aside the finding of the Assistant Collector and held that the deterioration/damage caused to Molasses were due to natural causes, beyond the control of the appellants herein. He further held that the remission of duty claimed in the case was within the scheme of Central Excise Act and Rules. The assessee was, therefore, entitled to remission under Section 5 read with Rule 49.
32. On behalf of the Appellants in appeal at serial numbers 1 to 13 and on behalf of the Respondents in appeal at serial number 14, arguments were advanced by Shri B.D. Deshmukh and Shri K.P. Joshi, Advocates and their contentions are summarised as under :-
(i) During the sugar year 1981-82 there was bumper crop of sugarcane. There was a direction to the sugar factories by the Director of Sugar, Maharashtra, for crushing more quantity. As a result, heavy crushing took place and the existing arrangements for storage of Molasses became inadequate. The sugar factories approached the Central Excise authorities seeking permission to store the Molasses in kaccha pits. Representations were also made to Government of India in this regard. The Collectorate, Pune, issued a Trade Notice No. 209/82, dated 10.11.1982 which required the sugar factories to execute a B-2 bond undertaking not to claim remission of duty under Rule 49 of the Central Excise Rules, 1944, in respect of loss or damage of Molasses whether by natural causes or otherwise. Further, the Central Excise authorities got B-2 bond executed incorporating the condition regarding non-claiming of remission of duty in respect of Molasses which were lost or damaged due to natural causes. It was urged that the Trade Notice as well as the Bond are illegal and unenforceable in law. It was contended, the Collector, has no competence to issue a Trade Notice contrary to the provisions of the Central Excise Act and Rules. In support of this contention reliance was placed on the decision reported in 1973 Tax Law Reporter 1317 Kusum Hosiery Mills (P) Ltd. v. Collector of Central Excise and Ors.. In support of this contention, it was urged that Section 5(1) of the Central Excise Act (hereinafter referred to as "the Act") empowered the Central Government to make rules providing for a remission of duty leviable on excisable goods which due to any natural causes are found to be deficient in quantity. Reference was also made to Rule 49 of the Central Excise Rules (hereinafter referred to as 'the Rules') which among other things provided for claiming of remission of duty on goods which have been lost or destroyed by natural causes or by unavoidable accident during handling of storage. It also further provided that the proper officer may not demand duty due on any goods claimed by the manufacturer as unfit for consumption or for marketing. It was also contended that the clause in the bond which precluded claiming remission of duty in regard to the goods lost or damaged due to natural causes is an action against the scheme of the Acts and Rules and opposed to public policy and therefore hit by Section 23 of the Indian Contract Act. To buttress the above argument reliance was placed on the decision of the Allahabad High Court reported in AIR 1971 Allahabad page 499 U.P. State Electricity Board v. Smt. Lakshmi Devi Sehgal and anr.
(ii) The Molasses came under the dual control of the Central Excise Act as well as the State Excise Act. The State of Bombay passed an Act called 'Bombay Molasses (Control) Act, 1956 : In exercise of the power conferred by Section 6 of the Bombay Molasses (Control) Act, the Bombay Molasses (Sale, 'Supply and Price) Control Order, 1960 came to be passed. This order placed certain restrictions on the manufactures of Molasses in regard to sale, supply and price of Molasses. The sugar factories were required to sell the entire quantity of Molasses produced by him or held in stock to a person or persons as may be specified by general or special order in each case by the Directorate of Sugar or the authorised officer and the sugar factories had no right to dispose of the Molasses in any other manner. The following were the restrictions regarding storage. The occupier of a sugar factory should ensure -
(a) that the storage accommodation provided for Molasses is such as to prevent the mixing of old and deteriorated Molasses with fresh Molasses, and
(b) there is sufficient coverage storage facilities within the sugar factory for at least 40% of its total estimated annual production of Molasses. Even with regard to a price the order in question required to sell the Molasses not only to the persons in whose favour release order is issued by the Director and the price to be charged cannot be higher than the price specified. The order also provided for testing of Molasses for the purpose of fixing prices. It was urged by the learned Advocates that having regard to the various restrictions placed by the Molasses Control Order and in view of the excessive crushing of sugarcane it became necessary to store Molasses in kaccha pits and in the said circumstances issuing of Trade Notice of the type issued by the Collectorate of Pune or obtaining B-2 bond in the manner in which it was obtained is wholly illegal.
(iii)Though in certain of the orders the two Collectors had observed that the loss or damage to Molasses was not due to natural causes, no efforts were made by the Central Excise authorities to as certain whether losses or damage intimated to the authorities was due to natural causes. No Central Excise Officer had ever visited the factories. No investigation had been carried out. The visit, if any, was. only after the loss or damage had been intimated to the authorities.
(iv) Though the duties attracted the moment goods are produced or manufactured under the scheme of the Act and the Rules, the duty became payable only when it was about to be removed. If in the meantime due to act of God or unavoidable accident the goods produced or manufactured got destroyed the manufacturer or the producer became entitled to remission of duty in respect of the goods destroyed and no duty was claimable in respect of such goods. There was no allegation much less proof to establish that the Molasses were removed by the sugar factories. In the absence of such an allegation and proof, question of payment of duty of the goods lost or destroyed cannot arise. In support of this contention reliance was placed on the decision of the Supreme Court AIR 1971 SC page 2039 as well as on the decision of the Delhi High Court reported in 1979 E.L.T. (3581) Caltex Oil Refining (India) Limited v. Union of India and Ors.. Reliance was also placed on the following decisions :-
(a) 1980 E.L.T. 679 (Del.) - Synthetic & Chamicals Ltd., Bombay v. Government of India.
(b) 1980 E.L.T. 320 (Del.) - Modi Carpets Ltd. and anr. v. Union of India and Ors..
(c) 1983 E.L.T. 2095 (Born.) J.K. Vacuum Flasks Ltd. v. Union of India and Ors..
(v) The demands in the show cause notices' were confirmed by the two Collectors mainly on the ground of the clause contained in the B-2 bond agreeing not to claim remission of duty under Rule 49 even if the loss or damage was caused due to natural causes. It was urged that Rule 48 of the Rules which empowered the Collector to obtain the bond and B-2 bond is also prescribed and neither Rule 48 nor the prescribed bond permitted incorporation of a condition of the nature incorporated in the bond and on this ground also the bond is unenforceable.
(vi)As regards the Department's appeal the learned Advocates contended the scheme of Central Excise Act and Rules, particularly Rules 49, 160 and 223-A clearly envisages that no duty is leviable in respect of the goods which were destroyed or became unsuitable for marketing due to natural causes. The Collector (Appeals) -was justified in setting aside the order of the Assistant Collector. They also relied upon the order of Shri S.N. Karkhanis, Collector of Central Excise and Customs bearing F. No. V.15CC(30)193/ TB/83/156, dated 23.5.1984, wherein he allowed remission of excise duty amounting to Rs. 41,278.86 under Section 5 read with Rule 49 of the Rules in respect of the quantity of Molasses which got burnt out due to internal combustion.
33. Shri Pattekar appearing for the Respondents in appeals at serial numbers 1 to 13 and for the Appellant in appeal at serial number 14 made the following submissions :-
(a) The sugar factories were permitted to store Molasses in kaccha pits. This permission was subject to a condition that they should enter into a bond (B-2) undertaking not to claim remission of duty even if loss or damage occurred due to natural causes. There was also a Trade Notice to this effect. The sugar factories had executed bond fully knowing the terms of the bond and with open eyes and without raising any. objections. They are, therefore, precluded form contending that the bonds are unenforceable.
(b) Allowing of storage in kaccha pits was a concession extended to the sugar factories in the peculiar situation prevailing at that time. If there had been any objection taken for the incorporation of the clause contained in the bond the Central Excise authorities would not have permitted storage of the Molasses in kaccha pits. On this ground also the sugar factories are liable to pay the duties legitimately payable in respect of the Molasses which were admittedly not accounted for.
(c) There was representation by the sugar factories to the Central Board of Excises and Customs. The Board issued directions to the Collectors to permit storage in kaccha pits after obtaining the bonds contaning a stipulation that no remission would be sought in respect of the Molasses lost or destroyed due to natural causes. Having taken advantage of storage in kaccha pits the sugar factories were estopped from contending that they were not liable to pay excise duty on the ground that certain quantity of Molasses was got destroyed due to natural causes.
(d) The findings of the Collectors in all the cases are not identical and in certain of the cases the Collector's findings were that the losses or damage was not due to natural causes but due to the sugar factories not taking adequate precautions; in other words due to the negligence of the sugar factories and therefore they became disentitled to claim any remission of duty.
(e) The liability to pay excise duty arises no sooner the manufacture of excisable commodity is completed. Since admittedly Molasses were manufactured and stored the sugar factories has become liable to pay excise duty on the manufactured quantity. In support of this contention, Shri Pattekar relied upon (1) 1978 E.L.T. page 833 (M.P.) and (2) 1979 E.L.T. (Jaipur) page 796.
(f) As against the order of Collector, Shri S.N. Karkhanis, the Department had preferred an appeal and the same is pending for consideration.
(g) Section 37(2)(xx) authorises the Central Board of Excise and Customs as well as the Collector of Central Excise to issue written instructions for supplemental matters arising out of any rule made by the Central Govt. Under this section Trade Notices are issued as supplemental matters and therefore they are valid in law. In support of this contention, Shri Pattekar relied upon a case reported in 1979 E.L.T. (3.377) Ramkrishna v. Assistant Collector.
(h) For the Appellant in appeal 187/85 Shri Pattekar contended that the Respondent sugar factory had executed a B-2 bond for Rs. 50,000/- furnishing a security of Rs. 1,000/-. Further, the Assistant Collector who adjudicated the matter had recorded a finding that the loss of Molasses cannot be attributed to loss due to natural causes and as much the assessees are not entitled to remission of duty. Shri Pattekar contended the Collector (Appeals) had not considered the contention of the Department in its proper perspective and not considered the terms of the bond. His finding that loss of Molasses was due to natural causes was not based on any evidence and thereafter his order is liable to be set aside.
34. We have carefully considered the submissions made on both the sides. The points that fall for determination in these appeals are :-
(1) Whether the destruction or deterioration of the Molasses was due to natural causes;
(2) If the destruction or deterioration was due to natural causes, whether the Collectors of Pune and Aurangabad were justified in directing recovery of excise duty; and (3) Whether the order of the Collector (Appeals) which is the subject-matter of appeal ED(BOM)187/85 requires to be interfered with.
35. As the points referred to above are inter-related, they are considered together. It was the contention of the sugar factories that the Molasses stored in kaccha pits which is the subject-matter of appeals ED(BOM)33/84, ED(BOM)69/84, ED(BOM)91/8f and ED(BOM)123/84, were washed out due to excessive rains. The Molasses stored in kaccha pits which are the subject-matter of appeals ED(BOM)95/84, ED(BOM)32/85 and ED(BOM)71/85 got destroyed due to internal combustion. It was also the contention of the sugar factories that the Molasses stored in kaccha pits which are the subject-matter of appeals ED(BOM)197/84, ED(BOM)18/85, ED(BOM)68/85, ED(BOM)l03/85 to ED(BOM)105/85 and ED(BOM)187/85, became unsuitable for distillation. It is for the sugar factories to establish by satisfactory evidence that the loss of Molasses stored in kaccha pits was due to natural causes. We had in paragraphs 8 to 31 referred to the statements contained in the orders passed by the two Collectors against which the above-mentioned appeals were preferred. The Collector, Pune, in his order which is the subject-matter of appeal ED(BOM)33/84 had categorically stated that "due to heavy rains from 26.6.83 to 28.6.83, 1531.540 M/T of Molasses belonging to M/s. Shree Dudhaganga Vedganga Sahakari Sakhar Karkhana Ltd., which was preserved in pit Nos. 1 and 2 was washed away". It was also stated in his order "on "receipt of the intimation from the factory, Superintendent, Central Excise, Bidri, visited the factory and found that the incident had occurred due to natural calamity and not on account of any mischief". Thus it could be said that the loss of Molasses which is the subject-matter of appeal ED(BOM)33/84 was due to natural causes.
36. In his order which is the subject matter of appeal ED(BOM)69/84, the Collector, Aurangabad, had referred to the report of the Chief Chemist of M/s. Kada Satiakari Sakhar Karkhana Ltd., about the flowing of Molasses from kaccha pit No. 5 which had happened due to tumbling down of one corner of the said pit. He had also stated that the Superintendent, Central Excise, Beed, visited the factory on 27.5.1983 and after investigations, it was found that one corner between south and west of pit No. 5 was in broken condition and Molasses inside pit No. 5 was flowing upto 1 Km. away towards west side of the said pit. The quantity of Molasses lost in the damage worked out to 1202.180 M/T. From the facts narrated it is clear that the Molasses was not removed by the factory but was lost due to tumbling down of one corner of the kaccha pit. The Collector, no doubt, had held that if proper care had been taken, there would not have been any loss. We will come to that part of the finding later. But the facts narrated by the Collector clearly shows that it was not due to human agency that loss had occurred. Therefore, it could be said that the loss was due to natural causes.
37. The Collector, Central Excise and Customs, Pune, in his order which is the subject-matter of appeal ED(BOM)91/84 stated "on 2nd July 1983 the assessee reported washing away of the Molasses to the extent of 80% of the quantity stored in kaccha pit Nos. 2 and 3 during midnight of 1.7.83". In the whole of his order the Collector did not state that the Molasses stated to have been washed away was not actually washed away. Therefore, it could be said that the loss of Molasses was due to natural causes.
38. Similarly, in his order which is the subject-matter of appeal ED(BOM)123/84, the Collector, Pune, stated "on .29.6.82 the assessee reported that the entire quantity of 1148.700 M/T of Molasses stored in the kaccha pit was washed away by rain water and flown into river. On 23.6.82, there was heavy rain-fall which broke down the enbankment of the pit and caused damage to the Molasses". The Collector in his order did not state that the Molasses was not washed away due to heavy rains. Therefore, it could be said that the loss was due to natural causes.
39. The Collector of Central Excise and Customs, Pune, in his order which is the subject-matter of appeal ED(BOM)95/84 stated "on 3.5.1983, the Superintendent of Central Excise Range-II, Kolhapur received a message in writing that spontaneous combustion has started in Molasses stored in kaccha pit No. 2 of M/s. Shri Chatrapati Sahu Sahakari Sakhar Karkhana Ltd., Kagal and hence, the Superintendent proceeded to Kagal. When he saw Molasses actually boiling and overflowing, he drew the panchanama of the situation". Having regard to the above statement, it could be safely said that the sugar factory was able to establish that the loss was due to natural causes.
40. The Collector, Aurangabad, in his order which is the subject-matter of appeal ED(BOM)32/85, while narrating the facts stated "M/s. Sanjivani Sahakari Sakhar Karkhana Ltd., had stored 4841.300 M/T of Molasses falling under T.I. 15CC in kaccha pit No. 3 was burnt out due to spontaneous combustion on 4.6.83. The said quantity of Molasses was reported to be destroyed and the duty involved on the above quantity of Molasses works out to Rs. 1,52,500.95". In view of this statement, it is reasonable to hold that the loss of Molasses was due to natural causes.
41. The Collector of Central Excise and Customs, Aurangabad, in his order which is the subject-matter of appeal ED(BOM)71/85 has stated "M/s. Dyaneshwar Sahakari Sakhar Karkhana Ltd., had stored 4210.920 M/T of Molasses in kaccha pit Nos. 2 and 3 which was burnt out due to spontaneous combustion on 29.6.83 and became unfit for distillation purposes". In view of the Collector's statement, it could be said that the loss of Molasses was due to natural causes.
42. In his order which is the subject-matter of appeal ED(BOM}197/84, the Collector of Central Excise and Customs, Aurangabad, observed "the assessee have stored Molasses weighing 4961.010 M/T of the seasons ' 1980-81 and 1981-82 in kaccha pit No. 1. Due to old stock and admixture of rain water, whole quantity is spoiled and became useless for distillation as per the certificate of analysis by the Government Distillery, Chaitali". The Collector in his order did not dispute the assessee's contention that the whole quantity got destroyed and became useless for distillation due to admixture of rain water. In this case also, it could be said that the loss of Molasses was due to natural causes.
43. The Collector of Central Excise and Customs, Pune, in his order which is the subject-matter of appeal ED(BOM)18/85 had stated "on 1.8.84, the assessee vide their letter No. MFG/36-A/178/11539/84, dated 1.8.84 applied for permission to destroy the Molasses weighing 4912.063 M/T lying in storage in open kaccha pit Nos. 1 and 2, as the same had become unfit for distillation purposes due to natural causes, such as rains, atmospheric changes and long storage period". In this case also the Collector did not record a finding that the case of the sugar factory that Molasses stored in kaccha pit Nos. 1 and 2 became unfit for distillation due to natural causes such as rains, atmospheric changes and long storage period was not true.
44. The Collector of Central Excise and Customs, Pune, in his order which is the subject-matter of appeal ED(BOM)68/85 stated "on 13.4.84, the assessee reported to the Assistant Collector, Central Excise, Satara, that due to heavy rains during the rainy season the remaining 951.020 M/T of Molasses was diluted very much and was deteriorated to the extent being totally unfit for distillation and they requested for grant of permission for destruction and remitting duty thereon". In the whole of his order the Collector did not state that the case put forward by the sugar factory was not true. Therefore, it could be said that deterioration was due to natural causes.
45. In his orders which are the subject-matter of appeals ED(BOM)103 to 105/85, the Collector of Central Excise and Customs, Aurangabad, stated "M/s. Panzarakhan Sahakari Sakhar Karkhana Ltd., have reported regarding the destruction of Molasses without obtaining prior permission on the ground that the Molasses stored have become unfit for distillation". In these cases also, the Collector did not record a finding that the case of the sugar factories that the Molasses became unfit for distillation due to deterioration was not true. Therefore, it could be said that the deterioration took place due to natural causes.
46. In his order which is the subject-matter of appeal ED(BOM)187/85, the Assistant Collector of Central Excise and Customs, Nanded, stated "the assessee M/s. Jai Bhavani Sahakari Sakhar Karkhana Ltd., requested the Superintendent, Central Excise, Jalna Range, for permission to allow them to destroy total quantity of 7132.844 M/T of Molasses lying in kaccha pit Nos. 1 and 2, as the same was in deteriorated condition and thus unfit for distillation". The Assistant Collector did not record a finding that the Molasses stored in kaccha pit Nos. 1 and 2 did not become unfit for distillation. In appeals ED(BOM)197/84, ED(BOM)68/85, ED(BOM) 103 to 105/85 and ED(BOM)187/85, the appellants have produced documentary proof by way of certificates issued by the State Government agencies that the Molasses stored in kaccha pits after testing in the laboratories was found to be unfit for distillation. The documentary evidence in the form of certificates were not challenged by the Department. It is also necessary to remember that no sugar factory can in fact privately sell the Molasses produced and stocked by it. It can release the quantity only to the person or distillery in favour of which there is a release order by the State agency. We have already referred to the Molasses Control Order 1960. That order regulated sales, supply and price of the Molasses. It was also urged during the hearing of these appeals that there was physical control of Molasses by the State Excise Department. The Officers of the State Excise Department used to be posted in the sugar factories to effectively carry out the objectives of the Molasses Control Order. If the State Government agency after analysing in the laboratory had issued a certificate that Molasses stored in the kaccha pits which are the subject-matter of appeals ED(BOM)197/84, ED(BOM)18/8.5, ED(BOM) 68/85, ED(BOM)103 to 105/85 and ED(BOM)187/85 have became unfit for distillation, it would be reasonable to hold that the deterioration as claimed by the sugar factories was due to natural causes. We, therefore, answer point (1) in the affirmative. The next question that arises for consideration is whether the two Collectors were unjustified in ordering recovery of the excise duty on the Molasses which was destroyed or deteriorated due to natural causes. From the perusal of the orders of the two Collectors, it is seen that they have directed the recovery of the duty mainly on two grounds. Firstly, on the ground when the sugar factories were allowed to store the Molasses in kaccha pits they had executed B-2 bonds undertaking to pay the duty without claiming any remission even if the Molasses gets destroyed due to natural causes and secondly, on the ground that the washing out of the Molasses, internal .combustion of Molasses and deterioration of the Molasses cannot be attributed to natural causes but on account of the negligence or inaction in not taking proper precautions by the sugar factories at the appropriate time.
47. While considering the point No. 1 the contentions of the sugar factories that the loss and deterioration of Molasses stored in kaccha pits occurred due to natural causes were upheld by us. At the time of granting permission to store in kaccha pits except obtaining B-2 bond the Department did not impose any other condition. There was no condition as to the quantum of Molasses that could be stored in a kaccha pit or the duration of the storage or other precautions required to be taken by the sugar factories. In the absence of any such condition, the findings of the two Collectors that if sufficient care and proper repairs had been effected at appropriate time, the loss would not have occurred, cannot be accepted. No Central Excise Officer ever visited the kaccha pits. It was only when the sugar factories reported regarding the loss or deterioration that the Department woke up and issued the show cause notices. Even after the sugar factories reported such incidents, no investigations were carried out as to whether the alleged loss or deterioration of Molasses could have been avoided if timely action had been taken. As has been stated earlier, the loss occurred due to heavy rains, internal combustion and deterioration due to mixing of rain water and in some cases due to long storage. In the said circumstances the findings of the two Collectors that loss or deterioration of Molasses was not due to natural causes cannot be accepted.
48. In order to examine the liability of the sugar factories to pay excise duty on the Molasses lost or deteriorated due to natural causes, it is necessary to refer to the provisions of the Act and the Rules. Section 3 of the Act provides for levy and collection of duty of excise on excisable goods produced or manufactured in India. Section 5(1) authorises the Central Government by rules to provide for remission of duty of excise leviable on any excisable goods which due to any natural cause are found to be deficient in quantity. Sub-Rule 1 of Rule 9 of the Rules provides "no excisable goods shall be removed from any place where they are produced, cured or manufactured or any premises appurtenant thereto, which may be specified by the Collector in this behalf whether for consumption, export of manufacture of any other commodity in or outside such place, until the excise duty leviable thereon has been paid at such place and in such manner as it prescribed in these Rules or as the Collector may require, and except on presentation of an application in the proper form and on obtaining the permission of the proper officer on the form". Sub-Rule 2 of Rule 9 of the Rules states "if any excisable goods are, in contravention of Sub-rule (1), deposited in or removed from any place specified therein, the producer or manufacturer thereof shall pay the duty leviable on such goods upon written demand (within the period specified in Section 11A of the Act) by the proper officer, whether such demand is delivered personally to him, or is left at his dwelling house, and shall also be liable to a penalty which may extend to two thousand rupees, and (such goods) shall be liable to confiscation".
49. Rule 47 of the Rules provides for among other things storage of dutiable goods in approved place of storage without payment of duty.
50. Rule 48 requires a manufacturer of excisable goods to execute a bond which is commonly known as B-2 bond with such security as the Collector may require that all such goods produced upon his premises will be produced for charge of duty or deposited in a store-room or other place of storage approved by the Collector under Rule 47 or otherwise satisfactorily accounted for, and that no such goods will be removed from the approved premises before the proper duty has been paid, except as provided for in these rules.
51. Rule 49(1) provides "payment of duty shall not be required in respect of excisable goods made in a factory until they are about to be issued out of the place or premises specified under Rule 9 or are about to be removed from a store-room or other place of storage approved by the Collector under Rule 47". The first proviso reads "provided that the manufacturer shall on demand pay the duty leviable on any goods which are not accounted for in the manner specifically provided in these rules, or which are not shown to the satisfaction of the proper officer to have been lost or destroyed by natural causes or by unavoidable accident during handling or storage in such store-room or other approved premises". The second proviso to this rule reads "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".
52. Rule 147 empowers the Collector to remit duty in respect of goods lodged in a warehouse which are lost or destroyed by unavoidable accident.
53. Rule 149 requires an owner of the goods stored in a warehouse who wishes to claim immunity from duty in respect of any goods unfit for consumption or manufacture shall destroy them in the presence of an officer or shall show to the satisfaction of the officer that they are being applied to some purpose which render them eligible for remission of duty.
54. Rule 223-A provides for annual stock taking of goods in a factory or warehouse. It further provides for accounting for goods manufactured or produced to the satisfaction of the proper officer. It also authorises the proper officer to make allowance for waste by evaporation or other natural causes as the proper officer may consider reasonable.
55. From the scheme of the Central Excise Act and Rules, it is seen that a manufacturer or producer is entitled to remission of duty in respect of goods which were lost or destroyed or became unfit for consumption or marketing due to natural causes. It is also clear from the scheme of the Act and Rules that though the excise duty is attracted on production or manufacture, the power to collect duty arises only at the time of removal. In Caltex Oil Refining (India) Limited v. Union of India and Ors. 1979 E.L.T. (3581) the Division Bench of the Delhi High Court observed "though a particular article produced may attract levy of the excise duty, as contemplated by Section 3 of the Act, which is the charging section, removal is the essence of the crystalisation of the charge as would be apparent from reading of Section 4 of the Act and Rule 49 of the Excise Rules". The Court further observed "that the provisions of Section 3 of the Act and Rules 9 and 49 of the Excise Rules have to be harmonised. Indeed, these provisions complement each other. Section 3 lays down the legislative policy on what products excise duty may be levied. Rule 9 is an injunction on the manufacturer that he has not to remove any excisable goods from the place of manufacture or any specified premises appurtenant thereto, whether for consumption, export or manufacture of any other commodity in or outside such place unless he first pays the excise duty leviable on those goods. Rule 49 is a direction to the excise authorities that the payment of excise duty shall not be demanded until excisable goods are about to be issued out of place or premises specified under Rule 9 or are about to be removed from a store-room or other place or storage approved by the Collector under Rule 47". Thus, the point of time when duty must be paid or may be collected is clearly given. Similarly, it is provided that there must be removal from the specified place to attract the payment of duty. If there is no removal there would be no question of payment. Removal is a positive act and cannot have any reference to disappearance of the product. For example, evaporation would not be removal for that takes place by natural causes in the process of manufacture or even afterwards. Similarly, waste or product while in the pipe-line or in storage may take place on account of natural causes or otherwise. In Synthetics and Chemicals Ltd. v. Government of India 1980 E.L.T. 675 (Del.) the Division Bench of the Delhi High Court ruled that "Rule 49 clearly provides that no excise duty shall be levied: until the goods are about to be issued out of the place or premises specified under Rule 9". The Court further observed "the contention on behalf of the Respondents that the excise duty is leviable the moment the goods are manufactured is accepted, these words would be redundant which is also belied by the provisions of Rule 49". Same view was expressed in another case by the Division Bench of the Delhi High Court reported in 1980 E.L.T. 320 (Del.) Modi Carpets Limited and anr. v. Union of India and Ors. The Division Bench of the Bombay High Court in J.K. Vacuum Flasks Ltd. v. Union of India and ors. 1983 E.L.T. 2095 (Bom.) observed "when Rule 223-A cast a duty on the appropriate officer to take into account receipts and deliveries and make allowance for waste by evaporation, or other natural causes, it would be irrational for the officer to say because the manufacturers have not kept account of day-to-day breakages in their bonded store-room, he would not make an allowance for a single vacuum flask refill. Such a proposition would mean that the repository of the power did not apply his mind at all to the normal and natural course of business of manufacture and storage of a commodity like vacuum flask and acted arbitrarily".
56. From the scheme of the Act and Rules and the decided cases, it is clear that the sugar factories are entitled to remission of duty in respect of Molasses which were lost due to natural causes or become unfit for distillation. Therefore, it could be said that the orders of the two Collectors directing recovery of Central Excise duty on the Molasses lost or deteriorated due to natural causes is opposed to the provisions of the Central Excise Act and Rules. But then the Collectors also relied upon the B-2 bond executed by the sugar factories undertaking not to claim remission of duty even if loss takes place due to natural causes. The sugar factories have contended that such a bond is not enforceable as it is opposed to the provisions of the Act as well as Rules which clearly envisage remission of duty in regard to the goods which were lost or destroyed or become unfit for marketing due to natural causes. It was also contended on behalf of the sugar factories that there cannot be contracts against public policy and such contracts are void and unenforceable. In that connection reliance was placed on the decision of the Allahabad High Court reported in AIR 1977 Allahabad 499 U.P. State Electricity Board v. Smt. Lakshmi Devi Sehgal and anr. In this case the agreement between Electricity Board and the consumer provided inter alia that the consumer shall bear the cost of replacement of a transformer which may be stolen, while the law provided that it would be the duty of the Electricity Board to maintain distribution line of which the transformer was one of the part. Such an agreement was held to be contrary to the provisions of Electricity (Supply) Act and the Electricity Act and as such void and the Board could not enforce the same, being against the public policy.
57. Shri Pattekar had contended that sugar factories were permitted to store Molasses in kaccha pits and it was an extra facility granted to them. Since a concession had been shown to the sugar factories they executed a bond with open eyes and knowing the consequences that they would not claim remission of duty even if loss or damage occurred due to natural causes. Therefore, they cannot be heard to say that no duty is recoverable in respect of the Molasses lost or deteriorated due to natural causes. For the purpose of deciding these appeals, it is not necessary for us to make any pronouncements regarding the validity or otherwise of the B-2 bond. If the Department desire to enforce B-2 bond the proper forum is not the adjudicating authority or even this Tribunal but a Court of Law. Therefore, we restrain from recording any finding as to the validity of the Bond.
58. We have in the course of this order referred to the facts narrated by the Assistant Collector in his order which is the subject-matter of appeal ED(BOM)187/85 filed by the Collector. The factory in question had sought permission to allow them to destroy the Molasses lying in their kaccha pit Nos. 1 and 2 as the same has been deteriorated due to natural causes. The Assistant Collector's finding was that the damage of Molasses stored in kaccha pit Nos. 1 and 2 could have been avoided and goods could not have been damaged but for human error. This finding, on the facts established in this case, appears incorrect. As has been observed by us earlier, while granting permission to store the Molasses in kaccha pits the only condition imposed was to take a bond undertaking not to claim remission of duty even if the Molasses get destroyed or damaged due to natural causes. No other condition had been imposed. There was no condition as to the duration of storage or the quantum of Molasses to be stored or other precautions to be taken. The sugar factory was able to establish by documentary evidence of unimpeccable character the Molasses stored in kaccha pits have become unfit for distillation due to long storage. In the circumstances the finding by the Assistant Collector that the loss was not due to natural causes but due to human error cannot be accepted. Shri Pattekar had contended that the Collector (Appeals) who had set aside the order of the Assistant Collector had not considered the effect of B-2 bond executed by the sugar factory. It is true that in the order of the Collector (Appeals) there is no reference to B-2 bond. But then, as has been observed earlier, if the Department desire to enforce the B-2 bond the proper forum is Civil Court and not the adjudicating authority or the Tribunal.
59. On consideration of all the aspects, we allow the appeals ED(BOM) 33/84, ED(BOM)69/S4, ED(BOM)91/85, ED(BOM)95/84, ED(BOM)123/84, ED(BOM)197/84, ED(BOM)18/85, ED(BOM)32/85, ED(BOM)68/85, ED(BOM) 71/85 and ED(BOM)103 to 105/85 and set aside the orders passed by the respective Collectors. If the Appellants or any one of them had paid the duty demanded or any portion thereof, the same shall be refunded.
60. The Appeal ED(BOM)187/85 is rejected.
K.S. Dilipsinhji, M(T)
61. I have carefully gone through the order drafted by Brother Hegde and 1 agree with his findings and the decisions. Therefore, it is unnecessary for me to repeat the facts of the cases, the arguments in the appeals advanced by both the sides, or the findings incorporated in Brother Hegde's order. The following paragraphs are, however, being added to put on record certain facts and reasonings which have not been incorporated in Brother Hegde's order. Hence this concurrent order.
62. As observed in para 4 of Brother Hegde's order, Molasses is a bye-product coming into existence in the process of manufacture of vacuum pan sugar falling under Item 1 of the Central Excise Tariff as prevalent at the relevant time. The sugar factories had therefore L4 licences for the manufacture of sugar falling under old Tariff Item 1 and these L4 licences of the sugar factories have been in existence for the past several years. The sugar factories manufacture sugar and in the process molasses is also obtained. Before 1.3.1975, Molasses was not excisable goods. The Budget of 1975 introduced Item 68 into the Central Excise Tariff with effect from 1.3.1975. This item covered all goods which were not elsewhere specified in the Tariff Schedule. Hence Molasses came to be covered under this item from 1.3.1975 and became subject to excise duty. This position continued upto 18.6.1980. The Finance Bill No. 2 of 1980 brought into existence a separate item 15CC for Molasses with effect from 19.6.80. While the Central Excise Tariff in respect of Molasses underwent these changes, the practical situation prevailing in the sugar factories for the storage of molasses changed with more leisurely tempo. Before 1.3.1975, Molasses were stored in many factories in open kuccha pits without requiring any approval by the Central Excise authorities. In some cases, these pits were located outside the approved premises of the manufacturers, as in the case of Krishna Sahakari Sakhar Karkhana Ltd., appellants in appeal No. ED(BOM)68/85 as submitted by advocate Shri Deshmukh. When therefore Molasses became an excisable commodity with effect from 1.3.1975, the question of their storage in a bonded store room arose and the Central Excise Department granted permission for storage of the Molasses in Kaccha pits, within or without the factory premises, to regularise the storage in terms of Rule 47 of the Central Excise Rules, 1944. Thus these pits came to be approved as bonded store rooms under Rule 47 of the Central Excise Rules. It will be recalled that the excise control on commodities falling under Item 68 was less vigorous than that in case of the other commodities. Rule 173-PP was framed to provide for a more relaxed system of control for commodities falling under Item 68. But with Molasses becoming specified under Item 15 CC with effect from 19.6.80, the relaxed system of control could not continue and the Department started exerting pressure on the sugar factories to provide better storage arrangements for Molasses. It appears that in this context, the Board issued instructions in their letter F. No. 261/15CC/4/82 CX8, dated 22.10.82, a copy of which was brought to our notice by the learned Departmental Representative in arguing the case on behalf of the Department. This letter recognises the fact that there was huge production of sugar and also of Molasses and hence the sugar factories' keenly felt the need for additional storage space. The Board in this letter addressed to the Collectors gave permission for storage of Molasses in Kaccha pits, but on condition that the sugar factories execute a bond forfeiting any claim for remission of duty under Rule 49. The form of the bond duly vetted by the Ministry of Law, was also sent with this letter. While many sugar factories executed this bond, some like M/s. Krishna Sahakari Sakhar Karkhana Ltd. or M/s. Shri Dudhganga-Vedganga Sahakari Sakhar Karkhana Ltd. did not execute the bond immediately. In fact, their appeals cover parcels of Molasses in storage with them from the earlier period than the date when they executed these specific bonds in terms of the Board's instructions in their letter dated 22.10.82. These instructions seem to have been incorporated in the Trade Notice No. 209/82 dated 10.11.82 of the Collector of Central Excise, Pune. However, it appears on the basis of the present proceedings before us that the Collectors have taken a common stand of turning down the request for remission of duty under Rule 49 of the Central Excise Rules irrespective of the fact whether the sugar factories executed the bonds for Molasses produced earlier to the date of execution of the bond or subsequent to it.
63. It has been contended by the learned advocates that the Collectors had no legal authority to enforce these specific bonds. They have further attacked the bonds as being outside the Central Excise Act and the Central Excise Rules. They have accordingly argued that the terms of the bond are not enforceable. It is seen that these arguments have been advanced only now when the sugar factories' requests for remission of duty have been turned down. However, this is a matter which does not fall within the perview of this Tribunal and the question of legality of the bonds cannot be agitated before this Tribunal. In this behalf, I agree with the findings and decision of Brother Hegde in para 57 of his order. However, I would like to add that the execution of the bond was really not necessary. Any manufacturer of an excisable commodity like a sugar factory has to execute the B2 bond in terms of rule 48 binding him for payment of duty. The B2 bond covers all excisable commodities produced by the manufacturer. In case of a sugar factory it will cover sugar, Molasses, etc. Therefore, so far as the security of Govt. revenue was concerned, the Govt.'s interest had been secured by the existing B2 bond. Though the proviso to Rule 48 enables the Collector to demand a fresh bond and additional security, this is rarely invoked in practice. The only significant difference between the specific bond in terms of the Board's letter dated 22.10.82 and the normal B2 bond is that the former bond took away the statutory right of the manufacturer for claiming remission of duty under Rule 49 on goods which are unfit for consumption or for marketing. Under Rule 49(1) proviso this was a statutory discretion vested in the Proper Officer and the Board's instructions had the effect of taking away this discretion from the Proper Officer. From this point of view it is seen that the instructions are not strictly speaking proper or correct. For this reason, it is hardly surprising to find that the Collectors in the proceedings before the Tribunal had refused to exercise their discretion in granting remission of duty on the Molasses. It can be further observed that the Board's instructions dated 22.10.82 are a little odd. On the one hand, the Board had admitted evolving one common bond to replace several bonds required for the purposes of different rules of the Central Excise Rules, 1944. On the other hand, the Board prescribed an additional bond even where the bond in existence was available to cover the duty. At the most the Collectors could have been advised to use the powers of remission under Rule 49 more circumspectly. Besides, the directions in the letter dated 22nd October 1982 were quite contrary to the other general directions issued by the Board in the case of same sugar industry, wherein the sugar factories are freely given permission to store excess production of sugar outside their L4 premises without execution of any bond or any condition for not claiming remission of duty. The risk of Govt. revenue in respect of sugar is much more than the risk to Govt. revenue in the case of Molasses. Yet for inexplicable reasons, the Board seem to have taken contrary stands in respect of the same industry. However, this additional bond intended to safeguard revenue in terms of Rule 48 cannot take away the manufacturer's right for remission of duty under Rule 49 as made explicit in Brother Hegde's order and for the reasons which follow.
64. The sole use of Molasses is for the purpose of distillation in the production of alcohol. From this angle, Molasses have been under the control of the State Government authorities for the past several years long before Molasses became excisable with effect from 1.3.75. Under the Bombay Molasses (Control) Act, 1956 and the Bombay Molasses (Sale, Supply and Price) Control Order; 1960 the State Government authorities have been exercising very strict supervision on the production, storage, allocation and movement of Molasses from the sugar factories. No Molasses can be removed from a sugar factory without the permission of the State Govt. As urged by learned advocate Shri Deshmukh, the officers of the Prohibition and Excise Department of the State Government exercise physical control on the storage and movement of Molasses. He submitted that one Inspector and two constables from the prohibition and Excise Department are posted in each sugar factory for this purpose. No Molasses can be removed from the factory without any allotment by the State Govt. This control is in addition to the control exercised by the Central Excise Deptt. It has been urged before us that under these circumstances it is impossible for the sugar factories to remove any Molasses without proper authorisation. It is also seen that Molasses is a commodity which is not capable of being removed easily and that it has no use except for distillation. Therefore there cannot be any question of clandestine removal of Molasses attracting the provisions of Rule 9(2) of the Central Excise Rules, 1944. In case of the appeals No. 33/84, 69/84, 91/84 and 123/84 the Molasses were washed away from the pits. The learned advocates have argued that these cannot be termed as removal under Rules 9 and 49 of the Central Excise Rules, 1944. Such removal has to be a positive act and they have relied on several authorities in this behalf which are discussed in Brother Hegde's order. These authorities lay down that the disappearance of a product by natural causes cannot amount to removal under rules 9 and 49. The ratios of these decisions are fully applicable to the appeals under consideration. Similarly, cancellation of the approval accorded to the storage of Molasses in pits under Rule 47 which were located outside the factory premises as in the case of appeals No. 68/84 and 71/84, cannot amount to removal of the goods by the manufacturers, as there was no such positive act of removal by them. It has further to be seen that the manufacturers had no choice to restrict production. As urged by the appellants they were under compulsion from the State Govt. authorities to crush the cane and produce sugar and Molasses even though their storage capacity was full. Nor could they provide additional storage facilities immediately. Therefore, in such circumstances it cannot be accepted that the manufacturers were-negligent and the Molasses were lost due to their negligence. Such a situation would not have arisen if the requests of the manufacturers for destruction under Rule 49 has been granted. The Molasses were stored in open pits and they deteriorated in quality by rains and floods and became unfit for consumption and marketing meriting destruction and remission of duty under Rule 49.
65. It has been urged that the Molasses became unfit for consumption and marketing and the principal reasons in this behalf can be broadly categorised into two types. One was deterioration due to excessive rain and floods. In the case of the appeal No. ED(BOM)67/84, it has been urged on behalf of the appellant M/s. Kada Sahakari Sakhar Karkhana Ltd. that the Molasses flowed out of the Kaccha pit to a distance of over one kilometre. In this case the Walls of the Kaccha pits collapsed and rendered the Molasses unfit for consumption. The second primary reason for the Molasses becoming unfit for use or marketing was the internal combustion generated in the Molasses despite the sugar factory taking precautions in this behalf as in the case of the appellants in appeal No. 91/84 who tried to control internal combustion by spraying foam, turkey red oil and stirring by rod, In either case, the destruction of the Molasses was by natural causes and it could not be prevented. The goods therefore become unfit for consumption and the test reports by the different authorities including the Central Excise chemical laboratory and the State Government Distillery confirmed that the Molasses were unfit for use. In fact, it was not difficult to anticipate when Molasses was permitted to be stored in open Kaccha, pits, that they would be affected by weather and rain and the quality of Molasses would deteriorate. No user of the Molasses, namely, the distilleries, would buy such a poor quality of Molasses. On the other hand, there was no dearth of good quality of Molasses. Besides the price of the Molasses is fixed by the State Govt. authorities and no purchaser would pay this price when the quality is not upto his requirements. Since the deteriorated Molasses have no use there is no alternative to its destruction under remission of duty in terms of Rule 49. In case of the appeal No. 197/84, it was urged on behalf of the appellants that the State Govt. authorities, viz. the Commissioner of prohibition and Excise and the Collector of Ahmednagar had given permission for destruction of the Molasses as these were found to be unfit for distillation, and the Molasses had been destroyed accordingly. Similarly, the Molasses in appeal No. 103/85 had also been destroyed when the appellants sought the Collector's approval for remission of duty. It would have been reasonable in such circumstances for the Collector of Central Excise to accept the fact of destruction and to grant remission of duty on the Molasses. But it seems the Board's instructions dated 22.10.82 appear to have come in the way of such proper exercise of judicial discretion vested in the Collector under Rule 49. The Board cannot restrict the statutory discretion vested in the Proper Officer and hence the Collector's refusal for granting remission is not correct in the circumstances of the case. Since the Molasses have been destroyed under the supervision of the State Govt. authorities, being unfit for consumption, there is no reason to doubt such destructions and the manufacturers, are fully eligible to the remission' of duty on the destroyed quantities under Rule 49.
66. As the foregoing facts, show, the main question which comes up for decision is the scope of Rule 49. It cannot be that this rule could be interpreted in one way where a manufacturer has executed a bond in terms of the Board's instructions dated 22.10.82 and that the same rule can be interpreted differently where either these instructions do not apply as in the case of all other commodities, or in the case of Molasses where the manufacturer has chosen not to give a bond in terms of the aforesaid directions. The appellants brought to our notice an order dated 25.5.84 passed by the same Collector permitting destruction and allowing remission vide para 32(II) of Brother Hegde's order. In this case, no special bond was obtained from the manufacturer. Under Rule 49, the basic question to determine is whether the goods have become unfit for consumption or for marketing. When therefore a manufacturer applies for destruction for aforesaid reasons he not only takes into account the duty leviable on the goods but also the value of goods which he would lose through their destruction. In answer to our question, the learned advocates of the appellants have stated that the value of Molasses is Rs. 60/- per quintal while the duty leviable is Rs. 31/- per quintal. Thus, the manufacturers have a greater deal of stake as regards the value of the Molasses than the Department with reference to duty. When the manufacturers applied for destruction under Rule 49, they would have done so after being convinced that the goods are unfit for consumption or for marketing. In certain cases, even the Central Excise laboratory has certified that the Molasses were unfit for consumption. In other cases, the State Govt. authorities have given such a certificate. The collectors in the proceedings before us have not disputed this fact, and yet they have unreasonably turned down the requests for remission. Such a refusal is an unreasonable and improper exercise of -judicial discretion vested in them under Rule 49.
67. Thus in all these cases of appeals before the Tribunal it is amply clear that the goods had been rendered unfit for use or marketing and the Collectors accepted the aforesaid fact in their findings. They also accepted the fact that the goods had not been removed from the factory by the appellants. Yet they did not accord the permission for destruction of the Molasses and remission of duty through proper and judicial exercise of the powers vested in them under Rule 49. The only reason which seems to have prevailed on them in turning down the requests for remission of duty was the Board's letter dated 22.10.82 and the instructions conveyed therein. It is seen that these instructions are not in keeping with the judicial exercise of discretion vested in the Proper Officer. In some cases, the Molasses had already been destroyed while in other case, the Molasses are still available with the appellants pending their appeal. It has been urged by some appellants as in appeal Nos. 33/84 and 105/85 that they have Molasses in store for the sugar seasons 1977-78 and 1979-80 onwards respectively. These Molasses have deteriorated in quality due to open storage and are not fit for use or marketing. Therefore they have to be permitted to be destroyed under Rule 49 on remission of duty. In. these circumstances, I agree with the conclusions reached by Brother Hedge in paragraphs 2, 59 and 60 of his order in relation to the cross-objections and the appeals, and I order accordingly.