Customs, Excise and Gold Tribunal - Delhi
Noble Soya House Ltd. vs Collector Of Central Excise on 7 May, 1992
Equivalent citations: 1993(66)ELT627(TRI-DEL)
ORDER K.S. Venkataramani, Member (T)
1. This is an appeal against the order dated 13-2-1990 passed by the Collector of Central Excise and Customs, Indore by which he has demanded duty of Rs. 11,82,509.68 under Rule 9(2) of the Central Excise Rules read with Section 11A of Central Excises and Salt Act, 1944 and he also imposed a penalty of Rs. One lakh on the appellants under Rule 173Q. The Department had initiated proceedings against the appellants who manufactured soya milk based beverages liable to duty under sub-heading 2202.90 CETA, 1985, but that the appellants had mis-declared it as soya milk and had claimed exemption under Notification No. 286/86 (now 20/89 dated 1-3-1989). The duty was demanded in four different show cause notices issued under Rule 9(2) read with Section 11A as per details of show-cause notices issued under Rule 9(2) read with section 11A as per details of show-cause notices gives below :-
(a) SCN dated 9-12-1988 -1-5-1988 to 31-10-1988 issued by the Assistant Collector, answerable to Collector.
(b) SCN dated 28-4-1989 -1-11-1988 to 31-12-1988 issued by the Superintendent, answerable to the Assistant Collector.
(c) SCN dated 27-6-1989 -1-1-1989 to 30-4-1989 issued by the Superintendent, answerable to the Assistant Collector.
(d) SCN dated 22-9-1989 -1-1-1989 to 31-8-1989 issued by the Superintendent, answerable to the Assistant Collector.
2. Appearing for the appellants, Ld. Counsel, Shri Ravindran, submitted that in this case, there was no ground for the Department to allege suppression and invoke longer period for demanding the duty. It was submitted that the appellants, after the establishments of their factory, intimated their intention to manufacture soya milk to the Central Excise authorities in their letter dated 27-1-1987 and on commencement of production of soya milk, they had submitted another letter dated 18-3-1987 alongwith the declaration of the manufacturing process and ingredients used in the manufacture of soya milk. He also claimed exemption under Notification No. 286/86, dated 5-3-1986. It was submitted that in such a situation, the Department has been kept informed of the particulars of a product, being manufactured, in the declaration filed which was done as per the guidance of the Departmental Officers. Hence, there was no justification to allege suppression and invoke the longer period for demanding duty. The Ld. Counsel urged that even assuming that the Department is right in demanding duty, it still cannot be said that the non-payment of duty by the appellants arose out of an intention to evade duty by them. It arose only due to bona fide view of the appellants and with the full knowledge of the Department. There has been no deliberate withholding of information by the appellants and in this context, the Ld. counsel cited and relied upon the Supreme Court decision in the case of Collector of Central Excise, Hyderabad v. Chemphar Drugs & Liniments reported in 1989 (40) E.L.T. 276 (S.C.) and in the case of Padmini Products v. Collector of Central Excise reported in 1989 (43) E.L.T. 195 (S.C.). There has been no clandestine removal of the goods and, therefore, the Collector's reliance upon the case law relating to Rishi Enterprises, Bombay v. Collector of Central Excise, Bombay, reported in 1984 (15) E.L.T. 260 (Tri.) is not relevant. The Ld. Counsel, further, urged that their product is nothing but soya milk only which is eligible for exemption under Notification No. 286/86. The product is declared as soya milk in the packaging in which it is marketed and the publicity material relating to it also described it as such. It was, further, contended that all the four show cause notices were without jurisdiction because they were issued by the Assistant Collector and the Superintendent whereas it is only the Collector, who can issue show-cause notice where proviso to Section 11A of the Act is invoked alleging suppression, mis-declaration etc. The Ld. Counsel, in this context, relied upon the decision of this Tribunal in the case of Alcobex Metals (P) Ltd. v. Collector of Central Excise in Order No. Misc./59/90-NRB/CASE A/192/91-NRB dated 2-1-1990 reported in 1992 (58) E.L.T. 108 (Tri.) to say that even where the show-cause notice is within six months, if suppression is alleged, it is to be issued by the Collector.
3. As regards the merits, it was contended that the Collector has not considered the various grounds taken by the appellants in reply to the show-cause notice. There is no finding as to why the commercial and technical evidence, produced by the appellants in the form of affidavits and certificates by two well-known authorities on the subject, had not been found acceptable. The Ld. Counsel referred to the technical opinion of Prof. J.S. Pai of the University of Bombay, who has opined that soya milk, normally, contains added sugar, oil, flavouring, etc. and also the opinion of Shri H.S. Gurudas, Executive Director, Protein Foods & Nutrition Development Association of India, who is a Food Technologist with vast experience. He has opined that in the absence of national standards, international norms should be referred, according to which the product of the appellants is soya milk. The affidavits from the consumers of the product were also referred to say that they use it as soya milk for its nutritive value. The Ld. Counsel urged that the affidavits of the dealers and the distributors also indicate that the product is bought and sold as soya milk and the trade understanding should have been given due consideration as has been held by the Supreme Court in the case of Dunlop India Ltd. & Madras Rubber Factory Ltd. v. Union of India and Ors. reported in 1983 (13) E.L.T. 1566 (S.C.). It was, further, argued that the addition of juices and flavours to the soya base by the appellants would not also bring a new commodity into existence. Reliance was placed on the case of Colgate Palmolive India Ltd. v. Union of India reported in 1980 (6) E.L.T. 268 wherein it was held that adding water perfume and colour to the liquid soap did not amount to manufacture. In the case of Sterling Foods v. State of Karnataka and Anr. reported in 1986 (26) E.L.T. 3 (S.C.) the Supreme Court held that mere processing does not amount to manufacture and that emergence dt a new commodity is necessary. The Ld. Counsel, further, contended that there was no contravention of Rule 9(1). The Notification exempt soya milk and there is no warrant to say that the exemption is confined to only raw soya milk. The Collector's order also refers to the percentage of milk, sugar and water contained in the product which is not in the show-cause notice. The Ld, Counsel, further urged that Rule 9(2) has two aspects - (i) relating to demand of duty; and (ii) relating to penalty. The demand of duty contained in that Rule is an outright provision and mandatory, but it was argued that any demand without notice will be violation of principles of natural justice. The Rule can be invoked only in case of clandestine removal. The provision of Section 11A, which specifically laid down the requirement of a notice, should also apply to Rule 9(2) and a notice for demanding duty is necessary, according to the appellants because Rule 9(2) is not independent of Section HA. The show-cause notices in this case invoked Rule 9(2) read with Section HA. It was also urged that Rule 9(2) is ultra vires of the rule-making powers given to the Government of India under Section 37. The Rule for recovery has to be in consonance with the statute, namely, Section HA and cannot be at variation with it. Therefore, the mandatory demand under Rule 9(2) for duty without notice, as envisaged in Section 11A, is bad and ultra vires. Further it was argued that even if the Rules are placed before Parliament, such rule is not valid if it is not in conformity with the statute. However, when it was pointed out to the Ld. Counsel that the Tribunal is not the right forum to challenge the vires of the Rules, the Ld. Counsel, fairly, agreed that it was so and that he could not, in law, press this point before a statutory Tribunal. The Ld. Counsel, further, urged that the evidence clearly shows that there was no contumacious conduct by the appellants in this case and, therefore, the penalty on them was unwarranted.
4. Smt. J.M.S. Sundaram, Ld. Sr. D.R., appearing for the Department contended that as regards the jurisdiction to issue a show cause-notice, out of four notices, three had been issued within six months by the Superintendent and one by the Assistant Collector beyond six months. These notices invoked Rule 9(2) read with Section HA of Central Excises and Salt Act, 1944. Under Rule 9(2), the competent officer to issue the notice, is the proper officer. The definition of proper officer, under Rule 9(2) of Central Excise Rules, is one in whose jurisdiction, the factory is located. Therefore, the show-cause notice issued is valid. It was, further, urged that the reference to Section HA in Rule 9(2) is only for prescribing a time limit which did not exist in the Rule as it was earlier. It specifies only the time limit with reference to Section HA. Under Rule 9(2), itself, there is no bifurcation for two different periods of six months and five years. The Ld. Sr. D.R., relied upon the Tribunal's decision in the case of Piya Pharmaceutical Works v. Collector of Central Excise, Meerut reported in 1985 (19) E.L.T. 272 (Tri.) and in the case of Mahavir Products v. Collector of Central Excise reported in 1989 (41) E.L.T. 491 (Tri.) as well as Lotus Chemical industries v. Collector of Central Excise in Order Nos. 458-459/91-C, dated 21-5-1991 in support of the above proposition regarding interpretation of Section 11A relating to time limit under Rule 9(2). Rule 9(2) covers situations of clearances without assessment and Rule 11A applies where there has been assessment clearances on gate-passes where a short levy has resulted. In the present case, there has been removal of the manufactured product, soya milk base beverages without assessment and without following the prescribed procedure. Hence, Rule 9(2) is relevant and rightly invoked. The Ld. Sr. D.R., further argued that the mere intimation of intention to manufacture is not enough as the actual manufacture and clearances by the appellants of the products, soya milk beverages was without the Department's knowledge. It was, further, urged that even in the present case, the duty invoking Rule 9(2), has been only through the show cause notice for adjudication (sic) pleaded that for purpose (sic) demand can be extended upto five years and it is not the requirement of that Rule to allege and prove suppression of facts, but in the present case, there Was no disclosure of the necessary data by the appellants who had consistently described their product as soya milk only whereas from the process of manufacture, the Department found that soya milk is obtained at an earlier stage of manufacture before the addition of sugar and flavours. The finished product is soya milk beverages. The Notification No. 286/86, as amended, applies only to soya milk plain. Soya milk and soya milk beverages are known as separate products. This is evident in their letter to the Assistant Collector dated 27-1-1987 where they have stated that they have industrial licence for manufacture of soya milk and soya milk beverages as also in their project report and industrial licence. The project report clearly indicates the commercial distinction between the two products, soya milk and soya milk beverages. The fact that the appellants do not market soya milk, does not make any difference so long as it is marketable. That this is so, is indicated by the fact that soya milk has applications in pharmaceutical and food processing industry. The Ld. Sr. D.R. referred to the project report which shows that soya milk is subject to several processes at the end of which soya milk beverage emerges.
The Ld. Sr. D.R. also pointed out that in 1992, the Notification No. 8/92, dated 2-1-1992, issued, extended the exemption to sweetened and flavoured soya milk. This shows that prior to that, such products did not enjoy exemption. It was also contended that the way a product, advertised by a manufacturer, is not material for its classification as has been held in the case of Leukoplast (India) (Pvt.) Ltd. and Ors. v. Union of India and Ors. reported in 1985 (20) E.L.T. 70 (Bom.). The affidavits, produced in support by the appellants, are in the nature of personal opinion. No Indian Standard specification has been brought out.
5. The submissions made by both the parties, herein, have been carefully considered. The classification of the product, described by the appellants as flavoured soya milk, is not in dispute. The issue relates only to the question of exemption under Notification No. 286/86 dated 5-5-1986 (now 20/89 dated 1-3-1989). This notification exempted soya milk falling under sub-heading 2202.90 from the whole of the excise duty leviable thereof. The process of manufacture of soya milk product, with the appellants, has been described by them in the appeal memo as follows :-
"The raw soya beans are cleaned of all extraneous matters by using, insequence, an air classifier magnetic separator and destoner. The other seed coat is separated from the bean by passage through a dehuller. The dehulled beans are subjected to a hot grinding process in a colloid mill in the presence of hot water to result in a slurry. The solubles in the slurry are separated from the fibrous matter by the use of a decanter centrifugres. The soluble matter is the base for making soya milk. This base is subjected to heating and vacuum treatment for destruction of certain anti-nutritional factors as well as deodorisation. It is then blended with other ingredients such as oil, sugar, flavour, colour and stabiliser. After this, it is processed by an ultra high temperature treatment as especially packed to ensure total sterility and long shelf-life at room temperature. The product thus manufactured is sold as 'Great Shake' Soya Milk. It is to be noted that in the entire process, nothing which can be described as 'plain soya milk' comes into existence."
The Department has held that the Notification will only apply to soya milk simplicitor whereas what the appellants are manufacturing is soya milk beverages which fall outside the ambit of the Notification. The appellant's say that this is not so and that world wide soya milk is only known with added flavours. Therefore, according to the appellants, soya milk product, which they manufacture, is nothing but soya milk only which is eligible for exemption. The flavours are only to make it more enjoyable by the consumers. The Department's view is based on their project report and industrial licence obtained by them where two products are distinguished. On examination of the rival contentions, it is seen that the flow chart of the process of manufacture indicates a definite stage of production of soya base, which is obtained after cleaning of the beans, grinding it and after fibre separating therefrom. There is a clear indication in the project report that the soya milk base is subjected to heating and vacuum treatment for destructing of certain anti-nutritional factors as well as deodorisation. The report, further, says on blending with other ingredients such as oil, sugar, flavour, colour and stabiliser, the soya base yields the flavoured soya milk beverages. The product is finally processed by an ultra high temperature treatment and especially packaged to ensure total sterility and long shelf-life at room temperature. Therefore, it is clearly emerging that from the soya milk base, on blending with flavour and standing agents, soya milk beverages emerges. There is also indication in the report that the soya milk is used in other industries. It is stated, therein, apart from the direct consumer use as a beverage, soya milk can be used by the food and pharmaceutical industries as a high protein ingredient or as a replacement for milk.
Soya milk, both in the liquid form and as a spray dried powder, can serve as a valuable ingredient to the processed foods industry in the manufacture of bakery products, confectionary, sweetmeats and instant dessert mixes. Proven applications, in the pharmaceutical industry include high protein therapeutic foods, dietetic foods, weaning foods and infant foods.
Therefore, it is evident that soya milk, as such, has uses in pharmaceutical industry and food processing industries. The industrial licence, issued to the appellants, also clearly indicates that the product, manufactured, is soya milk and soya milk beverages. In their letter to the Assistant Collector dated 27-1-1987, also the appellants have stated that they have an industrial licence for manufacture of soya milk and soya milk beverages and extruded soya foods. A perusal of the technical opinion, shows that in the opinion of the Executive Director, Protein Foods and Nutrition Development Association of India, there are two types of products dairy like soya milk and soya milk beverage or soft drinks. The final opinion also is somewhat conditional depending on the protein content of the product. Therefore, there is sufficient ground to hold that soya milk is not the same as soya milk beverages. The industrial licence applied for and obtained by the appellants is also an indication of their own understanding that these are distinct products. In this context, a clarification, issued by the authority in respect of scope of this exemption Notification No. 286/86 and 20/89 is also relevant and is reproduced below :
"Doubt has been raised as to whether Soya Milk based beverages like TUFFY, BIG SIPP, etc. can be treated as soya milk for the purpose of availing benefit under Notification No. 286/86 dated 5-5-1986 and 20/89 dated 1-3-1989 as amended.
The matter has been examined. It is observed that the product is not soya milk as such. It is only beverage and preparation of soya milk. As per Notification No. 286/86 dated 5-5-1986 and 20/89 dated 1-3-1989 soya milk is only eligible for exemption and not soya milk products. The soya milk obtained from grinding soya seeds in the first stage in the manufacturing process of soya milk based products is eligible for the said exemption notifications. But soya milk based beverages in different flavours are not eligible for the benefit of the said exemption notifications as these are not soya milk. Accordingly TUFFY, BIG SIPP etc. cannot be treated as soya milk for the purpose of availing the benefit of Notification No. 286/86 dated 5-5-1986 and 20/89 dated 1-3-1989 as amended.
(Calcutta-II Collectorate Trade Notice No. 248/(CH-22) 3/CE/CAL-I1/90 dated 14-12-1990; Parallel Chandigarh No. 140-CE/90, dated 22-12-1990; Bom-bay-I No. 139/90, dated 18-12-1990."
It is well settled that the meaning ascribed by the authority, issuing the Notification is a good guide contemporaneous exposition of the position of law, as has been held by the Supreme Court in the case of Collector of Central-Excise, Guntur v. Andhra Sugar Ltd. reported in 1988 (38) E.L.T. 564 (S.C.). In that case also, the Supreme Court relied upon the Government of India decision in interpreting a notification relating to product intermediate drugs. In the result, therefore, the contention of the appellants that the product manufactured by them, is eligible for exemption as soya milk under Notification No. 286/86 and 20/89 is not well founded and in this view of the matter, the findings of the Collector, in this regard, about the eligibility of the product to the exemption, have to be upheld and it is ordered, accordingly. As regards the question whether the longer period can be invoked, there appears considerable force in the appellants' contention because a perusal of their letter dated 27-1-1987 shows that they have intimated the Assistant Collector, Bhopal with a copy to the jurisdictional Range Superintendent about their intention to manufacture soya milk and soya milk beverages enclosing their industrial licence and also indicating their view that it is exempted under Notification No. 286/86. In their further letter of 18-3-1987, they had enclosed the flow chart relating to manufacturing process which clearly indicates various stages including the formation of soya base and the further processes to which it is subjected for making ultimate finished product. In such a context of detailed declaration, it is not possible to accept the Department's contention that material particulars had been suppressed by the appellants. In respect of the arguments that a show-cause notice under Rule 9(2) has to be issued by the Collector when it alleges suppression of facts it is noticed that recently the issue had come up before the Hon'ble High Court of Allahabad, in the case of Kanpur Cigarettes (Pvt.) Ltd., Calcutta v. Collector of Central Excise and Ors. reported in 1992 (38) E.C.R. 325 (All.). Para 9 of the Allahabad High Court decision is of relevance and is reproduced below :
"The first contention of the learned counsel of the petitioner is based upon the assumption that the show cause notice is issued beyond the period of six months prescribed by Section 11A (1) of the Act. As we shall presently point out, this assumption is not well-founded. Secondly, as pointed hereinbefore, the notice is not only issued under Section 11A (demanding the duty not paid or short-paid), but it also proposes to levy penalties under Rules 9, 52-A, 210 and 226. Rule 9(2) provides that '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,... and shall also be liable to penalty which may extend to two thousand rupees, and such goods shall be liable to confiscation'. What would be the relevant date from which the six months period should be computed under Rule 9(2)? Would it not be the date on which the illegal deposit or illegal removal is discovered? Is it possible or permissible to read the definition of 'relevant date' in clause (ii) of Sub-section (3) of Section 11A into Rule 9(2) merely because Rule 9(2) imports the period of limitation specified in Section 11A? Similarly, Rule 52-A provides that 'no excisable goods shall be delivered from a factory except under a gate pass signed by the owner of the factory and countersigned by the proper officer'. Sub-Rule (5) provides for penalty and confiscation of goods, in cases of violation of the requirement. No period of limitation is prescribed in sub-rule (5) of Rule 52A. It does not even prescribe who is the proper authority to levy the penalty and/or to confiscate the goods thereunder. Rule 210 provides generally that 'a breach of these rules shall, where no other penalty is provided herein or in the Act, be punishable with a penalty which may extend to one thousand rupees and with confiscation of the goods in respect of which the offence is committed'. This Rule does not prescribe any period of limitation, nor does it specify the authority competent to levy the penalty and/or to confiscate the goods. Rule 226 prescribes the manner in which books shall be maintained by a manufacturer. At the same time, it provides that any person, who fails to maintain the books in the manner prescribed, shall be liable to penalty which may extend to two thousand rupees and further all the goods of which due entry has not been made in such book account or register, shall be liable to confiscation. This Rule also does not prescribe any period of limitation. Evidently, the period of limitation under all these Rules should be the date, on which the illegality or the infraction of the Rule is discovered. From this point of view, we find it difficult to say that the show-cause notice as a whole is barred by limitation. Now coming back to Section 11A, we find it difficult to record any finding at this stage, in this writ petition, that the show-cause notice is barred even under Section 11A. Several instances of evasion of duty are mentioned in the show-cause notice. Para 2 of the show-cause notice refers to certain irregularities having been committed during the period 30-9-1985 to 6-10-1985. Para 3 again refers to certain other irregularities committed during the same period i.e. during the week ending on 6-10-1985. Several paragraphs in the show-cause notice refer to various periods during which irregularities and infractions are said to have taken place, which have given rise to the demand in question. In respect of each instance, the relevant date may be different. Suffice it to say that it is not possible to say that, ex facie, the show-cause notice is barred by limitation and if so, we cannot interfere by way of a writ petition at this stage. We think it necessary to reiterate that under the show-cause notice, not only the duty is sought to be demanded but penalties are also sought to be levied and the goods are also sought to be confiscated. The confiscation of goods and levy of penalties is under various Rules and we have already pointed out hereinabove that action under these Rules is neither governed by any period of limitation, nor can it be said that the notice thereunder is barred by limitation, even assuming that six months' limitation applies (As we have mentioned hereinabove, from the relevant date, i.e., the date on which the irregularities were discovered the show-cause notice is within the period of six months). In such state of affairs, we decline to interfere at this stage of the proceedings. Let the petitioner submit his explanation and orders be passed according to law, whereafter it shall be open to him, if he is aggrieved by the final orders that are passed, to adopt such remedies as are open to him under law."
6. Reliance has been placed on the Alcobex Metals decision of the N.R.B. for the proposition that the show-cause notice has to be issued by the Collector even if it is within six months, if it contains charges of suppression of fact. However, this decision of the N.R.B. was relating to interpretation of Section 11A whereas in the present case, we are concerned with the show-cause notice issued invoking Rule 9(2) and not Section 11A.
7. The High Court had held (supra) that various rules for confiscation of goods and levy of penalty invoked in the show-cause notices referred to therein under Rules which are not governed by any period of limitation. High Court had also held that the provisions of Section 11A, as a whole, cannot be imported into Rule 9(2). Therefore, the submissions made in this regard, do not have any force. As regards the quantum of penalty, since it has been found that the circumstances of the case do not indicate deliberate suppression of facts by the appellants to evade payment of duty, there is a justification for affording relief in the quantum of penalty which is accordingly reduced to Rs. 25,000. The appeal is disposed of in the above terms. The Cross Objection, filed by the Department, is only supportive of the impugned order by which the Department is not aggrieved. Hence, it is also dismissed as mis-conceived.