Customs, Excise and Gold Tribunal - Delhi
Madhu Foods Products vs Collector Of Central Excise on 9 January, 1995
Equivalent citations: 1995(76)ELT197(TRI-DEL)
ORDER G.R. Sharma, Member (T)
1. M/s. Madhu Food Products, Hyderabad have filed this appeal against the order of Collector of Central Excise, Calcutta. The Id. Collector in his order had held :-
"22. Having regard to the foregoing, I hold that the contraventions alleged in the notice are proven.
23. Under Rule 173-Q of the Central Excise Rules, 1944,I impose a penalty of Rs. 10,000/- on M/s. Madhu Food products, Kathedan, Hyderabad and hold that the biscuits valued Rs. 10,712.58 seized by the officers on 5-6-1984 are liable to confiscation under Rule 173-Q of the Central Excise Rules, 1944. However, as the goods seized had been provisionally released and are not available for confiscation I appreciate the cash security sum of Rs...furnished by the company.
24. Under Rule 9(2) of the CE Rules, 1944 read with Section 11A of the Central Excises & Salt Act, 1944, I order that duty amounting to Rs. 81/- BED and SED Rs. 4.05 on the 180 kg. of button biscuits valued Rs. 810/- and Rs. 32,867.55 BED + Rs. 1643.38 SED on the value of Rs. 4,38,234/- representing the suppressed production shall be paid by M/s. Madhu Food Products."
2. Briefly stated the facts of the case are that on a visit to the appellant's factory premises on 5-6-1984 the Central Excise Officers found on physical stock verification some shortages and some excesses in the quantity of the finished product (biscuits) as also in the quantities of the raw materials. It was also noticed that RG-1 register showing the quantity of goods manufactured and accounted for in Form IV register in respect of raw materials were not written for the period from 26th May to 4th June, 1984. An investigation was undertaken which confirmed that the raw material account and the RG-I account were not maintained properly. Accordingly a show cause notice was issued to the appellants alleging that the appellants had suppressed production and removed goods without payment of duty and without accounting in the statutory records with an intention to evade payment of duty. The appellants were asked to explain as to why duty amounting to Rs. 1,45,845.34 as Basic Excise Duty (BED) and Rs. 7,292.27 as Special Excise Duty (SED) should not be demanded from them under the proviso to Section 11A of the CESA, 1944 as also why the seized goods should not be confiscated among other things as set out in the show cause notice.
3. Shri N. Ramanathan, the Id. Consultant appearing for the appellants submitted that the appellants were entitled to the benefit of exemption under Notification No. 83/83 for the year 1984-85; that the estimates of suppression of production is based on an ad hoc formulae that one unit of power consumption would result in 1.33 kgs. of biscuits on the basis of certain assumptions and presumptions which was not correct; that the data adopted based on experiments was faulty, incomplete and incorrect; inasmuch as 10% allowance given for other purposes was not sufficient; that during the period from April, 1983 to March, 1984, there were 262 number of instances of break-downs; that besides break-downs in power supply, voltage fluctuations also should have been taken into consideration; that the allowance of 94 units given for heating did not cover the cooling operations which again consumed a lot of electricity; that the experiments were confined to Glucose Biscuits (Big size); that there were other varieties which were not taken for purpose of experiments; that re-cycling process was also not taken into consideration. The Id. Consultant, therefore, submitted that in any event it is not legal, correct or proper to demand duty on the basis of estimated production on the basis of power consumption etc. and in support of this contention, the Id. consultant cited and relied upon the ratio of the decision of the Hon'ble Supreme Court in the case of Containers Corporation v. CEGAT, reported in 1986 (24) E.L.T. 173 (S.C.). Unless norms had been fixed already on the basis of normal quantum of production during the given time in the manner stipulated in Rule 173-E of the Central Excise Rules, 1944; that in the absence of such norms, it was not correct on the part of the Department to demand duty on the basis of assumptions and presumptions.
4. The Id. Consultant also submitted that the appellants had not sap-pressed or mis-stated any information which was required to be submitted to the Department during the year 1983-84. The demand of duty for this period is hit by limitation under Rule 9 as well as under Section 11-A of the Act. In support of this contention, the Id. Consultant cited and relied upon the ratio of the Tribunal's decision in the case of Bengal Chemicals and Pharmaceuticals Ltd. v. CCE, reported in 1990 (48) E.L.T. 436. The Id. Consultant also submitted that in view of the non-maintainability of the demand for duty there was no justification whatsoever for severe penalty of Rs. 10,000/-. In support of this contention, the Id. Consultant relied on the judgment of Hon'ble Delhi High Court in the case of America Steel Re-Rolling Mills v. CEGAT, reported in 1991 (52) E.L.T. 15 and also the ratio of the decision of the Tribunal in the case of New Polymer Industries v. CCE, reported in 1991 (52) E.L.T. 145. The Id. Consultant therefore prayed that the demand of duty as well as penalty may be quashed. In support of his contentions, the Id. Consultant relied upon the following case laws :-
1. 1992 (58) E.L.T. 158 (Tri.)
2. 1988 (33) E.L.T. 794
3. 1989 (40) E.L.T. 472
4. 1990 (50) E.L.T. 520
5. 1994 (73) E.L.T. 7 (SC)
6. 1993 (63) E.L.T. 348
7. 1986 (24) E.L.T. 173
8. 1979 (4) E.L.T. (J 402)
9. 1990 (48) E.L.T. 475
10. 1990 (48) E.L.T. 460
11. 1987 (32) E.L.T. 430
12. 1990 (29) E.C.R. 549
13. 1990 (45) E.L.T. 104
14. 1990 (48) E.L.T. 436
15. 1984 (15) E.L.T. 451
16. 1989 (40) E.L.T. 276
17. 1989 (43) E.L.T. 195.
5. Shri R.K. Kapoor, the Id. SDR appearing for the Respondent submitted that it was an admitted position that neither RG-I register which shows the stock of finished goods at any point of time was maintained for a number of days nor was the raw materials account maintained during the period of 26th May, 1984 to 4th June, 1984; that on physical stock taking shortages and excesses were noticed; that these shortages and excesses were not properly explained by the appellants and the explanation in regard to transferring of 100 Tins of Vanaspati Ghee was not adequately confirmed on investigation; that the Department in order to be very fair to the appellants conducted an experiment in the premises of the appellants and calculated normal production in terms of consumption of power; that Rule 173-E of the Central Excise Rules, 1944 clearly stipulates calculation of normal production of a factory; that in terms of this rule the Department calculated the normal production and found that there was suppression of production and removal without payment of duty on the goods on which duty was demanded. The Id. SDR submitted that in view of the above facts, the allegations of suppression of production and clandestine removal of goods was proved.
6. The Id. SDR submitted that as there was suppression of production and clandestine removal of goods, therefore, the demand has rightly been made for a period in excess of 6 months under the proviso to Section 11-A of the Central Excises and Salt Act, 1944; that penalty has rightly been imposed on the appellants.
7. Heard the submissions of both sides and considered them. On the question of non-maintenance of records, we observe that RG-I register in respect of raw materials was not written for the period from 26-5-1984 to 4-6-1984 and thus this allegation is proved inasmuch as the explanation furnished by the appellants was not convincing and satisfactory.
8. On the question of excess stock of 126 Tins of Glucose Biscuits, 10 tins of Crunchy Cracks and 54 Tins of Doolar Biscuits, the Id. Consultant had relied on the decision in the case of Southern Steel Ltd. and SBS Organics wherein the A.P. High Court in the case of Southern Steel Ltd. [Para 14] had observed :
* * * * * * * *
9. In the case of S.B.S. Organic, reported in 1990 (48) E.L.T. 475 [Paras 5], the Tribunal had held :-
* * * * * * * * The Id. Consultant had submitted that in the light of these two decisions duty cannot be demanded on goods in the factory as they have not been removed and duty can be demanded only when the goods have been removed from factory. We observe that the Collector in his impugned order has not demanded any duty on the goods which were lying in the factory and seized and later on confiscated.
10. In regard to the shortage of 180 kgs. of Butter Biscuits, we find that there is no evidence on record to show that the Department was informed or an entry was made in the RG-1 register and hence we do not see any reason to interfere with the findings of the Id. Collector.
11. Then there is an allegation against the appellants that they had not maintained true and proper account of the raw materials. We also observe that on verification of the explanation given by the appellants, explanation was not found satisfactory. No substantive evidence was brought on record to explain the incorrect maintenance of records. Therefore, we agree with the findings of the Collector that the appellants failed to maintain a true and proper account in regard to raw material.
12. The most important allegation against the appellants was that it had suppressed the production of biscuits during the years 1983-84 and also in 1984-85. A lot of evidence was led by the appellants on the question of determining the normal production on the basis of consumption of electricity. A reference was made of the Hon'ble Supreme Court's decision in the case of Containers Corporation and it was contended that the Hon'ble Supreme Court had held that: "It was difficult to see how power consumption can be related with the production of excisable goods." However, on a reading of the judgment and its quotation, we find that in para 8 of this decision, the Hon'ble Supreme Court had held :-
"8. Looking to the statement of power consumption of M/s P.G. Orcham and comparing this with the production of the appellants, there appears to be no justification for drawing an inference that during the period May, 1979 to November, 1980 the power shown to have been consumed by M/s P.G. Orcham was in fact utilised by the appellants for manufacture of metal containers. A perusal of the chart showing the production shows that in some months like December, 1979 when the power consumption is shown to be zero, the production was highest and on a perusal of the statement of production when compared with the power bills, it is difficult to see how this power consumption can be correlated with production of metal containers. Ld. counsel appearing for the Revenue also could not justify why this period from May, 1979 to November, 1980 was treated as distinctive period and how the consumption of power shown in various months during this period could be correlated with production. It is in the circumstances impossible to draw an inference that during this period, power was used by the appellants for manufacture of metal containers."
On examining the facts of the case before us, in the light of the Hon'ble Supreme Court's rulings, we find that the rulings do not cover the present case and, therefore, the case can be easily distinguished in as much as in the case before us, calculation was done on the basis of actual consumption of electricity whereas in the case relied upon and cited by the appellants, the question was whether electricity was used for production of the goods and it was found that when there was a maximum production of goods in a particular month the consumption of electricity was zero and in those circumstances the Hon'ble Supreme Court had held that, "It is in the circumstances impossible to draw an inference that during this period, power was used by the appellants for manufacture of metal containers." No doubt it is a fact that it is not possible to calculate normal production with precise mathematical accuracy.
13. Another issue that arose out of the holding that there was suppression of production and consequent clandestine removal of the goods as and when they were produced, the Id. consultant had cited and relied upon the number of cases. Relying on the judgment of the Tribunal in the case of Associated Cylinder Industries v. CCE, reported in 1990 (48) E.L.T. 460, the Id. consultant submitted that the Tribunal had held :
"19. We find that there is a lot of force in Id. counsel's pleadings in as much as a comparison between physical stock and RG record could only show that the statutory record was maintained properly or not but it was by itself not sufficient to prove conclusively that clandestine removal was also involved. For establishing such a charge either direct physical evidence by way of seizure of goods or document was required or there must be sufficient circumstantial evidence to show preponderance of probability."
It was also argued by the Id. Consultant that in the case of Global Industries v. CCE, reported in 1987 (32) E.L.T. 43, the Tribunal had held that "Demand of duty cannot be fastened on the appellants merely on surmises and unwarranted assumptions. Supreme Court's rulings in the case of Audh Sugar Mills, reported in 1978 (2) E.L.T. (J172) relied upon by the Id. Advocate is very apt in the facts and circumstances of this case. Accordingly, the demand of duty is set aside." For the sake of convenience, the ruling of the Supreme Court referred to above is as under :-
"In the circumstances, therefore, we must hold that the finding that 11.606 mould of sugar were not accounted for by the appellants has been arrived at without any legible evidence and is based only on an inference involving unwarranted assumptions. The finding is thus vitiated by an error of law."
14. Referring to the decision of the Tribunal in the case of Ambica Metal Works v. CCE, reported in 1990 (29) ECR 549 the Id. consultant submitted that the Hon'ble Tribunal had held :
"6. We find that the proceedings have been drawn up and the findings reached by the Dy. Collector on the basis of certain documents which showed that the parts of the LPG Stoves (Brass Controllers and Tops) were moved to the appellants' Unit No. 2. There is no direct evidence that these were manufactured in their Unit No. 1 and then moved to Unit No. 2. They have stated that they did not carry out their manufacture in Unit No. 1 but purchased them from different manufacturers and produced their bills. The reasons for not accepting them have not been properly spelt out. The discrepancy between the descriptions has been mentioned but in defence it has been stated 'the same goods have been differently described by the suppliers and by themselves. Even if this is not accepted, we feel that where the only evidence is the documents taken from them and they do not indicate that they were manufactured in Unit No. 1 and instead a defence plea taken that they were purchased from outside, there is no evidence not to accept this plea. The Dy. Collr. has stated in his order that they produced vouchers for the purchase of the item at the time of the personal hearing before him. He has observed that it was difficult to prove the identity of origin of the Tops and Controllers and that it was difficult to establish the fact that the Tops and Controllers are bought out trading items as maintained by them and hence the benefit of doubt cannot be given to them. This view will have few takers. It was difficult for the Dy. Collector to accept the identity of the goods in question as bought out items as claimed by the appellants, then by the same taken it would not be possible to establish that they had been manufactured by the appellants themselves in their own Unit. He has drawn a facile conclusion that the benefit of doubt cannot be given to them. To allege evasion of duty and demand the same requires more solid and acceptable evidence and cannot be left to the vagaries of doubt. The case law cited by the Id. Counsel support their stand. It was held by the Tribunal in the case of M/s. Ebenezer Rubbers Limited v. CCE, Ahmedabad, reported in 1987 (10) ECR 407 that where sufficient evidence for clandestine production, removal and clearance of goods cannot be established, duty cannot be levied. In the other case cited by the Id. Counsel 1976 Cen-Cus 81 D Oudh Sugar Mills Ltd. v. UOI) the Supreme Court has held that show cause issued in the absence of evidence or removal of goods without payment of duty the findings are without any tangible evidence and are based only on inferences involving unwarranted assumption and are vitiated by an error of law. We, accordingly, hold that the duty on brass controllers and tops found by the Dy. Collr. in his order to be leviable for which he directed the Range Officer to work out the amount is not due as their manufacture by the appellants has not been established. We, however, support the imposition of penalty of Rs. 2,000/- on them, which is related to their removal of LPG Stoves without payment of duty which was paid by them subsequently after the proceedings were initiated against them. The appeal is disposed of accordingly."
15. On examination of the above decisions of various Courts and Tribunals, we find that the production has been calculated on the basis of consumption of electricity. No doubt some irregularities have been found in the maintenance of the statutory records, there is no evidence on record either by way of seizure of goods in transit or elsewhere or any private records being seized to show that there was clandestine removal. No evidence has been brought on record to prove that the goods were removed from the factory premises without payment of duty, even the estimated production is an estimate only which is subject to a number of limitations. We, therefore, hold that in the absence of any documentary proof, that the goods estimated to be produced and not brought on record were removed without payment of duty, demand for duty on such estimated goods cannot be confirmed. In the absence of this documentary evidence, we hold that clandestine removal of goods is not proved and, therefore, the demand of duty on this issue is not maintainable in law.
16. On the question of imposition of penalty, we find that the accounts were not written over a period of time and no satisfactory explanation was forthcoming to explain the shortages or the excesses, therefore, incorrect maintenance of records is proved beyond doubt. Having regards to this fact, we hold that penalty was imposable.
17. Looking to the serious nature of allegations and incorrect maintenance of statutory records of finished goods and raw materials, we hold that the quantum of penalty is reasonable.
18. But for the above modifications, the impugned order is upheld and the appeal is disposed of accordingly.