Customs, Excise and Gold Tribunal - Mumbai
J.N. Marshall Ltd. vs Commissioner Of Central Excise on 12 November, 1997
Equivalent citations: 1998(102)ELT57(TRI-MUMBAI)
ORDER Gowri Shankar, Member (T)
1. Following from the physical verification by the Central Excise staff of the stock in the factory of M/s. J.N. Marshal Ltd., M/s. Spirax Marshal Ltd. and M/s. Cambridge Instruments (India) Pvt. Ltd., which were stated to have common Central Excise licences, and discovered shortages and excesses in the premises of the first company. Notice was issued to it proposing recovery of duty of Rs. 27,69,59,000/- (approximately) on goods alleged to have been manufactured and clandestinely removed during the period 1st January, 1986 to 31st March, 1990, of Rs. 1,12,77,000/- on shortages in the finished goods and Rs. 57.48 lacs on excesses between 1st June, 1987 and 31st March, 1990. After considering the replies and hearing the assessees the Collector passed the order impugned in the appeal. In that order, he has held the demand on account of clandestine removal to be untenable and dropped it. He has accepted the contention of the assessee that the excess of production as revealed in the RG 1 register over the physical stock was due to incorrect passing of entries in the RG 1 register and dropped the demand on this count. He has however confirmed the demand on account of shortages. Hence this appeal.
2. One of the contentions raised in the appeal on behalf of the appellant is that material does not show that there was any deliberate attempt to remove the goods clandestinely and that the shortage of goods, as reflected in the RG 1 when compared with the RT 12 returns was only result of incorrect posting of entries in the register. It was contended that, when the Collector has accepted this explanation with regard to the excesses, there was no reason why he should not accept the contention with regard to shortages. This was sought to be rebutted by the Departmental Representative who pointed out that the notice specifically alleged suppression of information and that the assessee had not explained the shortages by producing relevant documents.
3. The notice for the shortages was issued on 29th June, 1992 for the period from 1st June, 1987 to 31st March, 1990. The shortage has been arrived at by comparing the figures in the RG 1 register which figures in the RT 12 returns and other documents internal to the company. The notice was issued beyond the period of six months from the relevant date and has invoked the extended period contained in the proviso to Section 11A. It does not allege any suppression, or the reasons or any other factors specified in the proviso specifically with regard to shortages but makes a general allegation that the assessee had suppressed "various facts" from the Department, maintained false, incorrect and incomplete accounts with an intention of defrauding Government revenue and deliberately did not produce documents.
4. In the order impugned in the appeal, the Collector has not specifically commented upon the applicability of the extended period insofar as the shortages are concerned. He says that, since the goods found short were removed without payment of duty, duty is demandable for the extended period. The mere fact that the goods were removed without payment of duty is insufficient to attract the proviso to Section 11A and it will only apply if it is shown that the assessee has wilfully suppressed the facts, misstated them, by any positive act or omission which would attract the contents of the proviso. This is the decision of the Supreme Court in CCE v. Chemphar Drugs & Liniments - 1989 (40) E.L.T. 276 (S.C.). In that decision the Court said "Something positive other than mere inaction or failure on the part of the manufacturer or producer or conscious or deliberate withholding of the information when the manufacturer knew otherwise, is required before it is saddled with any liability, before the period of six months. Whether in a particular set of facts and circumstances there was any fraud or collusion or wilful misstatement or suppression or contravention of any provision of any Act, is a question of fact depending upon the facts and circumstances of a particular case." As we have observed, the notice issued did not specifically allege that the entries in the RG 1 register were deliberately made with a view to suppressing production. On the contrary, the notice suggests that atleast some of the entries in the RG 1 register, as a result of which shortages were found, were clearly due to clerical error. Thus the notice cites relevant page 488 in volume II of RG 1 of 1986 made on 20 June, 1986. Against the total stock of one and with the closing balance is shown as two; on 23 June, 1986 with a clearance of one from a total of one, balance is shown as one. This led to an incorrect entry on a subsequent date. This view is reflected in the order of the Collector. He says "While going through the charts I find that the shortages reflected in the show cause notice are on account of incorrect posting errors. A few examples are indicated as under :" He gives a number of examples of such incorrect posting and goes on to say "From the above example it is evident that the actual production should have been more than what was reflected in the RG 1 closing balance. The assessee, however, did not make any averment nor provided any evidence to show that actual stock available with them was more than the closing balance reflected in the RG 1 production and was actually the same which would have been in the RG 1 register, had the entries been correctly posted."
5. It is necessary, at this stage, to consider the demand for duty of Rs. 27.70 crores which was issued and dropped by the Collector as untenable. The basis for the notice for this demand was, essentially, that completion of the goods which were partially manufactured by M/s. Spirax Marshal Ltd. and M/s. Cambridge Instruments (India) Pvt. Ltd. was undertaken by the appellant. Reliance was placed in the notice on the fact that the goods figured in the RG1 register maintained by the present appellant. It appears that the other two companies did not maintain any RG 1 register. The Collector has not accepted the allegation in the notice that the completion of the manufacture takes place in the appellants unit. He has accepted that the fact of entry of these goods in the RG 1 register of the appellant did not necessarily show that it manufactured these goods. The implication of this is that the Collector has not accepted that these goods were manufactured solely because entries were made in RG 1 register. He has applied the same principle with regard to the excesses. He accepts that the excess was due to clerical error and that in the absence of evidence it cannot be said that the goods were manufactured by the appellant.
6. This finding of the Collector assumes significance with regard to the plea of limitation. If the Collector accepts that the appellant had in good faith made entries to the extent of duty liability of Rs. 27.70 crores and duty liability on account of goods stated to have been manufactured at Rs. 57.48 lacs on account of excess he could not have applied the extended period to the shortages, without indicating specifically presence of factors which showed an intend to evade duty by the assessee. He has not said that this to be the case, nor as we have noted, has the notice alleged the existence of any such factors. If the appellant maintained its RG 1 register in such a manner that goods involving duty to the extent of Rs. 28.20 crores were wrongly entered it, only by negligence and carelessly it is surely not unreasonable to accept that shortage involving duty at Rs. 1.13 crores Rs. 54.78 lacs would have been caused by the same negligence. Apart from this contention raised, that during this period of five years, the unit had been visited by officers, its RT 12 returns checked and its records audited and that therefore the Department should have been in a position to know that there were incorrect entries also has to be accepted.
7. We therefore hold that in the facts of this case extended period of limitation will not apply. Therefore the demand for duty cannot be sustained. It would therefore follow that imposition of penalty and confiscation of plant and machinery by applying Sub-rule (2) of Rule 173Q cannot be sustained. This would appear to be a case for invoking the provision of Rule 226 relating to incorrect maintenance of accounts. The Department however has chosen not to invoke this rule in the notice.
8. Appeal allowed. Impugned order set aside.