Customs, Excise and Gold Tribunal - Delhi
Coca-Cola Export Corporation vs Collector Of Central Excise on 29 September, 1986
Equivalent citations: 1986ECR452(TRI.-DELHI), 1986(26)ELT1025(TRI-DEL)
ORDER V.T. Raghavachari, Member (J)
1. The appellants, M/s. Coca Cola Export Corporation had been manufacturing, amongst other articles, Coca Cola concentrates and beverage bases. Show cause notice dated 17.9.80 was issued to them to the effect that they had failed to take out the necessary central excise licence for the manufacture of the said concentrates and beverage bases and had removed such excisable goods from 1.3.75 to 29.9.77 without observing the necessary central excise formalities They were called upon to show cause why duty payable on said goods, amonting in all to Rs. 68,39,033.33P should not be demanded from them and why no penalty should not be imposed on them. The show cause notice mentioned that the appropriate duty was to be determined under Rule 9-A(5) of the Central Excise Rules. The appellants replied denying the charges. They claimed that the Central Excise authorities had earlier sought to take proceedings on the basis that the concentrates and beverage bases fell under T.I.-1B CET but were not exempt under notification No. 22/60-CE but such proceedings were later dropped on the basis of Chemical Examiner's opinion. They contended that therefore the contention now raised, that the products fell under T.I. 68 CET, was not valid. They, therefore, denied that they had contravened the provisions of the Central Excises and Salt Act or the rules framed thereunder in any manner. They further contended that, in any event, even if the products fell under T.I. 68 CET, they were exempt from duty either under notification No. 55/75-CE or No. 54/75-CE both dated 1.3.75. On adjudication, the Collector of Central Excise, Delhi, under order dated 23.12.82, held the charges established. He accordingly confirmed the demand as raised under the show cause notice and further imposed a penalty of Rs. 25 lakhs. It is against the said order that this appeal has been preferred.
2. Apart from preferring this appeal the appellants had filed Civil Writ Petition No. 324 of 1983 in the Delhi High Court, questioning therein the validity of Section 37(4) of the Central Excises and Salt Act and Rule 173-Q of the Central Excise Rules and for a direction declaring that Rule 9A(5) and 173-Q of the Central Excise Rules were ultra vires and for quashing the said rules. They had applied for interim orders in the C.W.P. and, under order dated 5.5.83, the Delhi High Court had directed the appellants to deposit a sum of Rs. 6,02,132/- and to furnish a bank guarantee in respect of the balance of the duty demand and had further observed "it is desirable that both parties endeavour to get the appeal before the Tribunal disposed of expeditiously and if that appeal makes this writ petition infructuous it should be brought to our -notice." But neither party had made any request to this Tribunal for expeditious hearing in terms of the above directions of the High Court till the Department made such an application on 27.12.75. On a consideration of the said petition the hearing in the appeal was fixed up and, after a few adjournments, the hearing has been concluded.
3. The appellants were represented by Shri Anil Diwan, Sr. Advocate, Shri R.C. Desai, Advocate, Shri Ashok Sagar, Advocate and Shri K.K. Kapoor, Consultant. The Department was represented by Shri B.R. Tripathi, SDR.
4. The contentions for the appellants, stated shortly, are as follows:
The Coca Cola concentrate and beverage bases were being manufactured in India by the appellants only, till they stopped production in June, 1977. Such manufacture was within the knowledge of the Department. In fact in 1969 samples were taken by the Department and sent to the Chemical Examiner for analysis. This was for the purpose of finding out whether the products fell within item 9 of notification No. 22/60 dated 1.3.60. The Chemical Examiner had given his opinion that it was not so. The Central Board of Excise & Customs also accepted this opinion of the Chemical Examiner as correct. Therefore, no further proceedings were taken by the Department for collection of duty.
5. Even after the introduction of item 68 in the CET in 1975 the Department did not take any steps to classify the products in question under T.I. 68 and this was for the reason that they were also satisfied, as seen from the earlier proceeding, that the products fell under T.I.-1B and therefore could not fall under the residuary item. In the circumstances the issue of the show cause notice in 1980, long after the cessation of the manufacture of the products, was uncalled for. The allegations therein as if the appellants had wilfully contravened the provisions of Central Excises and Salt Act or the rules framed thereunder are devoid of substance. In any event, even if the goods were classifiable under T.I. 68, they were exempted under notification No. 55/75 as the products in question were food products falling under item No. 1 of the said notification. In any event they were exempt under notification No. 54/75 also as the number of workers in the factory in which the products were being manufactured never exceeded 49. The Collector had erred in including various employees as workers though they were really not workers as defined in the Factories Act or for the purpose of the Central Excises and Salt Act. On all these grounds the Collector should have dropped action holding that no duty was payable and there had been no wilful contravention of the Act or the Rules. In any event, recourse to Rule 9(2) of the Central Excise Rules was not called for and the demand for duty was, therefore, barred by time. Even if duty was payable, the quantification could not be done in terms of Rule 9-A(5) and duty should have been demanded at the rates as were prevalent on the dates of the clearance of the goods, such dates being properly and easily ascertainable from the records regularly kept by the appellants themselves. The imposition of penalty was unjustified and in any event the quantum thereof is excessive.
6. Shri B.R. Tripathi, SDR, on the other hand contended that the Coca Cola concentrate and beverage bases manufactured by the appellants would be neither food nor food products nor food preparations and hence the benefit of exemption claimed under notification No. 55/75 and 22/60 was not available to the appellants. The department never classified these goods under item 1-B. In the circumstances they were properly classifiable under item 68 CET and, therefore, became excisable from 1.3.75. The appellants, a huge manufacturing concern, wilfully refrained from taking out a licence and paying duty as they were bound to. Since the products are neither a food product nor a food preparation, benefit of exemption under notification No. 55/75 was not available. Nor could benefit be claimed under notification No. 54/75 as the number of workers has been proved to have exceeded 49 during the relevant period. In the circumstances he defended the order of the Collector on the question of liability for payment of duty as well as the imposition of penalty, the quantum not being in his opinion excessive. On the question whether duty should be calculated in terms of provisions of Rule 9-A(5), Shri B.R. Tripathi contended that that would be the proper provision though his further contention was that duty should be calculated at the rate as on the date when the show cause notice was issued. While conceding that under rule 10, as it stood on the date of issue of show cause notice, the demand could not be extended beyond a period of 5 years from the date of show cause notice and hence a part of the demand was barred by time, Shri Tripathi contended that as there had been a wilful suppression of facts by the appellants with intent to evade payment of duty the larger period of limitation of 5 years was available to the Department and not the shorter period of 6 months only.
7. Shri. Diwan pointed out that the appellants were the sole manufacturers of Coca Cola concentrates and beverage bases in India. He therefore contended that when the Department took samples and had the same analysed and thereafter the Central Board of Excise & Customs intimated that such Coca Cola concentrates and beverage bases were not liable for duty as falling within item 9 of notification No. 22/60 they were dealing with the products manufactured by the appellants only. "We may see from the Central Board of Excise & Customs' F.No. 33/10 /69-CXIII dated 7.9.70 that the same had been issued with reference to the letter No. 124-Chem-Food-Products-69 dated 7.8.69 from the Chemical Examiner, New Delhi to the Assistant Collector, Central Excise, Faridabad. The fact that the letter of the Chemical Examiner was addressed to the Assistant Collector Central Excise, Faridabad would establish the correctness of this contention that the samples sent to the Chemical Examiner related to the products manufactured by the appellants, and which are now in issue before us. From the letter of the Chemical Examiner it is clear that the samples had been sent to the Chemical Examiner for considering whether the products fell within any one of the items of Sl. No. 9 of notification No. 22/69 as amended by notification No. 104/69. In the above notifications all goods classifiable under tariff item 1-B CET were exempted from duty except such as were included in the schedule to the notification. Hence if the Department wanted to verify whether the products in question fell within any one of the items in Sl. No. 9 of the above notifications that should have been only on the basis that the products were classifiable under T.I. No. 1-B (prepared and preserved food) but not exempt from duty. That would establish, as contended by Shri Diwan, that in 1969 and 1970 the Department was of the view that the products in issue were classifiable under T.I No. 1-B but they were only doubtful whether they qualified for exemption from duty in terms of the notifications above mentioned. We are not convinced with the argument of Shri Tripathi that the Department was even then not of the view that the products fell within T.I. No. 1-B, It is not the case for the Department even now that the products fell within any other item in items 1 to 67 CET. Item 68 was introduced in 1975' only. Therefore, in 1969 or 1970 the Department could not have embarked on any investigation as to dutiability of these products except under T.I. No. 1-B.
8. It is in these circumstances that Shri Diwan contends that even after the introduction of T.I. 68 in the first schedule in 1975 the appellants were under no obligation to ascertaining from the Department whether the two products manufactured by them (and now in issue before us) fell for classification under T.I. No. 68. He, therefore, contends that since the appellants were bonafide satisfied that the products continued under T.I. 1-B, and were exempt from duty in terms of notification above said, the appellants were not bound to apply for a licence for manufacture under T.I. No. 68- or to comply with other excise formalities even after 1975. The further contention of Shri Divan, following the above submissions, is that as the Department was fully aware of the manufacturing operations of the appellants and the nature of the products manufactured by them, it was open to the Department, if it felt that the two products could call for classification under T.I. 68 CET, to have taken the necessary steps for calling upon the appellants to comply with the necessary excise formalities and to clear the goods only on payment of duty. He points out that the Department had taken no such steps till the show cause notice dated 17.9.80 was issued more than 2-1/2 years after the appellants had ceased production of the goods. Shri Divan contends that in these circumstances the show cause notice was wholly barred by time.
9. The notice had been issued on 17.9.1980. By that time Rule 10, as amended, had come into effect and rule 9 had also been suitably amended. This Tribunal had held in its decision in the At ma Steels case 1984(17) ELT 331 that in such instances the rule as it stood on the date of the issue of the show cause notice shall alone apply and not the rule as it stood on the date of the original cause of action. Shri Tripathi also does not dispute this contention of Shri Divan Rule 9(2) itself referred to the periods mentioned in rule 10 on the question of limitation. Shri Tripathi, therefore, concedes that in any event duty could not have been demanded for a period of more than 5 years preceding the date of show cause notice. In that event the duty demand for the period 1.3.75 to 19.9.75 (the date on which the show cause notice is said to have been served on the appellants) will have to be set aside as having become barred by limitation. Shri Divan further contends that the extended period of 5 years under rule 10 was itself not available to the Department and hence the demand for the entire period upto 29.9.77 will have to be set aside as having become barred by limitation. The proviso to rule 10(1) as it stood on 17.9.80 provided for a period of limitation of 5 years in case where duty had not been levied or had not been paid by reason of fraud, collusion or any wilful mis-statement or suppression of facts on the part of the assessee or his agent or where any assessee or his agent contravened any of the provisions of the rules with intent to evade payment of duty and had not paid the duty in full [proviso (c) is not relevant for our purpose]. The contention of Shri Divan is that neither proviso (a) nor proviso (b) is attracted to the facts of the present case and hence the extended period of limitation of 5 years was not available to the Department. On the other hand, Shri Tripathi contends that the appellants who were manufacturing goods excisable under T.I. 68 CET had failed to take out the necessary licence but had continued to manufacture and clear the two products without observing the necessary excise formalities and without paying the necessary duty and that by doing so they were guilty of, at any rate, wilful suppression of facts or wilful mis-statement and that such failure to pay duty was with intent to evade payment of duty.
10. In considering the above contentions we have to look into' the averments in the show cause notice dated 17.9.80. It has been mentioned in the said notice that in making their applications for renewal of licence under the Factories Act the appellants had declared their number of workers as having exceeded 49 during the relevant years, but had yet failed to take out the necessary licence under T.I. 68 from the excise authorities and had failed to pay duty as they were bound to. In paragraph 6 of the notice it has been mentioned that they had failed to include the names of all workers in their attendance register and they appear to have done so with intent to evade central excise duty and to avail exemption under notification Nos. 54/75 and 105/76. Rules 9(2), 10(1) and 10(2) were mentioned as the relevant rules in the said notice. In his order the Collector has observed that there had been a deliberate mis-statement' on the part of the appellants, disclosing their intent to evade payment of duty. He had observed in an earlier portion "in fact by making one declaration before the Chief Inspector of Factories and another before the Central Excise Department, in respect of the same subject, the state of mind of the company is well indicated viz. a wilful effort to defraud the Government of its rightful revenue." Thus the Collector proceeds on the basis that there had been a deliberate mis-statement by the appellants before the excise authorities with intent to evade payment of duty and this was evidently the basis for his invoking the larger period of limitation of 5 years than the normal period of limitation of 6 months. Shri Divan urges that the observation of the Collector about the appellants having made a deliberate mis-statement to the excise authorities with reference to the number of workers employed by them is factually incorrect. He submits that since the appellants were bonafide under the belief that their products were non-dutiable and were fully exempt (falling under T.I. IB CET) they had neither applied for nor obtained any licence nor was there any occasion for them to make any, statement in this regard before the excise authorities, much less a deliberate mis-statement. Shri Tripathi concedes that there had been no such mis-statement before the excise authorities. In the absence of any occasion for the appellants to make any statement before the Central Excise authorities as to the number of their workers (since the appellants were not claiming that their products fell under T.I. 68 or that there was any occasion for them to claim benefit under notification No. 54/75) there was no occasion for them to make any statement in this regard before the excise authorities, much less a deliberate mis-statement. Therefore, the finding of the Collector about the appellants having made any such deliberate mis-statement is factually incorrect. In the absence of any basis for such a finding the Collector was not justified in invoking the larger period of 5. years in respect of the demand for payment of duty. As regards wilful contravention of the provisions of the Central Excise Rules with intent to evade payment of duty it had already been seen that the Department itself was under the impression that the products in question fell under T.I. IB CET and, after taking steps for demanding duty under that item, later dropped action on the receipt of the Chemical Examiner's report, such action being held by the Central Board of Excise and Customs also to be proper. In the circumstances the fact that the appellants had after 1.3.75 also, taken no steps to take out a lice rice under T.I. 68 or pay duty thereunder, would not amount to any wilful contravention with intent to evade payment of duty. Shri Divan is justified in contending that when the appellants did not take such steps they were acting bonafide and not with the intention of wilfully contravening the legal provisions in respect of such matters.
11. This would establish that the Department was not justified, when issuing the show cause notice dated 17.9.80, in invoking the larger period of limitation of 5 years but should have restricted the demand to the normal period of 6 months only. Since the period for which duty was being demanded extended upto 29.9.77 only, but the show cause notice has been issued on 17.9.80,, it would follow that the demand under the notice was wholly barred by time.
12. In the view we have taken on the question whether the appellants were acting bonafide in not taking out a licence even after 1.3.1975, and in continuing to clear their Coca Cola concentrates and beverage bases without payment of excise duty, we are further of the view that in the absence of any intention on the part of the Appellants to wilfully evade payment of duty the imposition of penalty on them is also not justified. In that view we set aside the order regarding imposition of penalty.
In view of the above conclusions, which are sufficient for the disposal of the appeal, it is not necessary to go into the other-contentions raised by both parties.
13. The appeal is accordingly allowed, setting aside the order of the Collector.