Customs, Excise and Gold Tribunal - Mumbai
Collector Of Central Excise vs Gtc Industries Ltd. on 12 April, 1993
Equivalent citations: 1993ECR707(TRI.-MUMBAI), 1994(71)ELT806(TRI-MUMBAI)
ORDER P.K. Desai, Member (J)
1. The Revenue has filed the present appeal against the Order-in-Appeal No. GSM-1995/89-BRD dated 3-10-1989 of the Collector of Central Excise (Appeals), Bombay allowing the appeal of the respondents and setting aside the order-in-original No. 3/MP/88 dated 14-12-1988 of the Deputy Collector (Tech.) of Central Excise, Vadodara, confirming the duty demand of Rs. 48,800/- vide Rules 9(2) and 49 of the Central Excise Rules, 1944 and also imposing personal penalty of Rs. 2000/- on the respondents vide Rule 9(2) of the Rules.
2. Notice to Show Cause, dated 4-4-1988 was served upon the Respondents calling upon them to explain why duty of Rs. 32,000/- for shortage in cigarettes to the extent of 80,000/- Panama Filter King (house consumption) and of Rs. 16,800/- for shortage to the extent of 24,000 Panama FTK (Export quantity) cigarettes totally amounting to Rs. 48,800/- should not be recovered from them vide Rule 9(2) of the Central Excise Rules, 1944 read with Section 11A of CESA, 1944 and also why penalty should also not be imposed on them vide Rule 173Q of the Rules. Cause for issue of such a notice arose, when on 11-10-1987, noticing some suspicious movements, the Inspector of Central Excise on duty got the BSR opened, and verified the stock physically with stock recorded in RG-1 register and then once again the Superintendent with his staff, on 12-10-1987 rechecked the stock lying in BSR as also the one lying loose on production floor but duty entered into RG-1 register and found shortage of 24,000/- cigarettes from the export quality stock, and 80,000/- cigarettes from Home Consumption stock. Statements of various persons were recorded, during which the respondents raised a plea that they might have been stolen, and for that, they had already lodged a complaint with the Police. However the Chief Security Officer is reported to have stated that, close vigil was being kept against any pilferage. In reply to the Show Cause Notice, it was also pleaded that stock of the export quality cigarettes, was the reject from their quality control section and was initially not entered in RG-1 register, but on 30-8-1987 on the visit by the Officers of the preventive branch, they were advised to enter them in RG-1 which they did on 1-9-1987, and vide their letter dated 12-9-1987, sought permission to rip open the said stock to retrieve the tobacco, while permission was granted on 23-11-1987. The Respondents also pleaded that on 11-10-1987, when the Inspector desired to check the stock in BSR, the same tallied, and submitted that on 12-10-1987 when they undertook the process of packing the loose stock lying on the floor in the packing department, they noticed shortage and brought the same to the notice of the Excise Department vide their letter dated 12-10-1987, and also lodged the complaints with the Police.
3. The Dy. Collector adjudicating, in his Order-in-Original however held that the respondents were clearly aware of the possibility of the workers indulging in such petty thefts and yet, did not take measures to avoid such pilferage and then concluded that the cigarettes were removed in contravention of Rule 9(1) of the Rules, and the disappearance was not due to natural causes or unavoidable accident. Observing that even if the same quantity out of the quantity ascertained as short, was found to be not fit for consumption, the liability did exist for their accountal till they were destroyed, the Dy. Collector confirmed the duty demanded and also imposed personal penalty.
4. In the appeal before the Collector of Central Excise (Appeals) preferred by the respondents, he observed that though investigations were made, the department could not find out any clandestine removal and held that in such a case, Rule 9(2) could not be invoked. He also held that probable reason of the shortage was theft and relying upon the decision of the Tribunal in Mahendra and Mahendra v. Collector, 1988 (38) E.L.T. 517, held that the case of theft was fully covered by Rule 147 of the Rules, and the shortage had to be taken as due to "unavoidable accident". He therefore allowed the appeal.
5. Mr. A.V. Naik, the Ld. JDR has submitted that the Collector (Appeals) has factually erred in observing that Rule 9(1) of the Rules was not invoked, as para 2 of the Show Cause Notices does contain an allegation in that regard. He has further pleaded that the plea of theft is not a ground for remission in duty, when the demand is vide Rule 9(2) and has referred to the provisions of Rules 47 and 49, and also to the Government of India order No. 198/79 (1980 Cen-Cus 67D) and has submitted that the theory of theft clearly appears to be an afterthought, as the complaint is filed only after the shortage was detected, and that too, has not been conclusively proved, as, from the statements of the Chief Security Officer, probability of theft or pilferage has to be clearly ruled out.
6. Mr. K. Prakash Anand, the Ld. Advocate for the respondents, while supporting the order of the Collector (Appeals) has submitted that the present appeal has been filed without proper application of mind, inasmuch as, no cogent grounds are pleaded to allege the order appealed against as not sustainable. He has also pleaded that the decision of the Tribunal in Saroda Plywood Industries Ltd. v. Collector, 1987 (32) E.L.T. 116 (Tri.) referred to in the memorandum of appeal by the department, actually favours the plea of the respondents, as the said decision holds that vide Rule 49, the duty is chargeable only when the goods are removed from the factory premises, and that such charging of duty could be done only if the goods could not be shown to the satisfaction of the proper Officer, to have been destroyed or lost by natural causes or unavoidable accident. In his submission, the said decision also holds that the demand could be raised only in terms of Rule 9(1) which is not the case here. In his submission, Rule 9(1) prescribes the time and manner of payment of duty and occurrence of theft has not been visualised there, but for that provisions are made in Rules 147 and 160 and referring to the decision of Calcutta High Court in Bavaji and Motibhai v. Inspector of Central Excise, 1979 (4) E.L.T. (J 282), he has pleaded that the word "accident" in Rule 147 includes "theft". The Ld. Advocate has also emphasised that, the department has not levelled any charge of clandestine removal, and has referred to specific averments in the order to the effect that the department did investigate from that angle, but could not gather any material to allege clandestine removal. In his submission, when that aspect has not been established though investigated upon, the respondent's plea of theft could not be rejected. He has pleaded that the ratio of the Tribunal's decision in Re : Mahendra and Mahendra (supra) has been correctly made applicable. The Ld. Advocate has also brought on record the resume of the submission, that he has made, which have been taken on record and have also been considered.
7. Considering the submissions made, and examining the record made available, there is no dispute over the point that the shortage to the extent, as alleged, existed. It is also not the defence plea raised by the respondent that they had ripped open those or part of those cigarettes and had retrieved the tobacco.
8. With the plea in defence, as already specified earlier, the Dy. Collector, adjudicating has in the Order-in-Original, while drawing the conclusion, observed thus:
"The workers could easily, now and then pinch a few cigarettes from the quantity lying in the production hall and 1,04,000 cigarettes thus vanished over a period of time from this stock lying in the production hall".
The observation indicates that the adjudicating authority himself was also satisfied that, here was a case of theft and not of clandestine removal. It also requires to be noted that as per the averments, motivated by some suspicious movements on 11-10-1987, the Inspector from the Central Excise on duty made physical verification of stock in BSR, but nothing is from either the Show Cause Notice or from any other evidence, as to what type of suspicious movements were going on and whether any further investigations were made and if made, the outcome thereof. Two alternate conclusions therefore could be drawn (i) there was no suspicious movement, and it was just an inference of the Inspector on duty or (ii) investigations on that aspect had drawn blank. The mention of existence of suspicious movements hinted at clandestine removal, but with no outcome reported, and above two alternatives being probable, it has to be conclusively held that the department has not alleged clandestine removal, and from the finding of the adjudicating Dy. Collector, as reproduced above, he was convinced of the theft having taken place. This aspect is further clarified from the following conclusion of the Dy. Collector:
"The authorities in GTC Industries Ltd. were clearly aware of the possibility of the workers indulging in such petty theft and yet did not take measures to avoid such pilferage by their own workers".
Thus even in Order-in-Original, which the department seeks to be restored, there is a virtual acceptance of that part of the respondents' plea that the theft was the reason for the shortage, and that there was no clandestine removal.
9. This leaves the issues to be determined as, (i) Whether, the "theft" is a plea available to a manufacturer as a defence against the demand of duty and (ii) Whether the theft pleaded was an "unavoidable accident". Whereas the first issue is pure interpretation of various provisions of the Central Excise Rules, 1944, the second one requires examination of certain factual aspects.
10. Rule 9(1) of the Rules provides for time and manner of payment of duty and Rule 9(2) provides for raising a demand if the goods are removed, otherwise than, as provided in Sub-rule (1), Rule 49 provides for charging of duty only on removal of the goods from the factory premises or from an approved place of storage, and the first proviso to Sub-rule (1) of the said Rule provides that the manufacturer shall pay the duty also on goods which are not accounted for, 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". Though the issue raised here is whether the "theft" could fall within the ambit of the said proviso, in the "Reasons for Appeal" filed by the department, under the signature of the Superintendent (Appeals), Central Excise and Customs, Baroda, who has been authorised by the Collector, Central Excise and Customs Vadodara, to file this appeal, there a mention as under :
"No doubt that the expressions "lost or destroyed" postulates loss or destruction caused by theft also, however, full duty is leviable on such goods lost by theft, if the theft is not proved to the satisfaction of the authority due to cause beyond the control of the assessee".
If this is taken as an acceptance of the rule position and due interpretation thereof, then any further discussion on that count, becomes unnecessary and one has to simply switch over to the next point. Such a course would, certainly, have been adopted here, but for the strenuous arguments advanced by the Ld. JDR, that remission on ground of 'theft' is not permissible.
11. Besides, Rule 49, the Central Excise Rules, 1944, while dealing with warehousing provisions, Rule 147 provides that the Collector has the discretion to remit duty if the warehoused goods are "lost or destroyed by unavoidable accident" and in series of decision, the view has been expressed that, the expression "lost or destroyed" in Rules 19, 49, 147, 196 is used in generic or comprehensive sense and not in a narrow sense. It postulates loss or destruction caused by whatsoever reason, whether by theft, robbery, fire or accident including pilferage or the loss over which men have no knowledge or control (Ref: Sialkot Industrial Corporation v. Union of India, 1979 (4) E.L.T. (J 324) (Delhi) Collector v. Bihar State Sugar Corporation, 1985 (19) E.L.T. 179 (Tri.), Balaji and Motibhai v. Inspector of Central Excise, 1979 (4) E.L.T. (J 282) (Calcutta), Mahendra and Mahendra v. Collector 1988 (33) E.L.T. 517 (Tri.). There is also a contrary view as expressed in Collector v. International Woollen Mills 1987 (25) E.L.T. 310, but the same being of a Single Member, and when contrary view is expressed by the other Benches of the Tribunal and also by the High Courts, the majority view has to get precedence.
12. The Ld. JDR has also referred to the Government of India Order No. 198/79 in one Civil Revision Application to the effect that revision of duty on loss due to theft is not justifiable. With the case law as discussed above, however, the view expressed in the said order cannot be followed.
13. Assuming that some contradictory views exist, with majority of pronouncements fitting in favour of the view taken by the Collector (Appeals), it cannot be held that his order suffers from infirmity requiring interference.
14. The next issue to be considered is whether the theft is on account of unavoidable circumstances. As indicated above, the Dy. Collector adjudicating has himself felt that the workers might have had "now and then, pinch of a few cigarettes lying in the production hall and 1,04,000 cigarettes thus vanished over a period of time from the stock..". With this observation, it appears that the Adjudicating authority himself was also convinced that the theft was a gradual process spread over a period of time, surruptiously arranged. It is not unusual that it could be concealed anywhere on the person. Concealment of loose cigarettes for the purpose of theft, spread over a period of time, could remain undetected. Theoretically, it could be argued that very strict vigil could have prevented such a theft, but when the same has to be rationally examined, the relevant provisions have to be interpreted, as "unavoidable accident", to mean the one which could not be avoided, in spite of all reasonable precaution taken deligently by a person of ordinary prudence. Here, the evidence exists on record to show that security staff was duly deployed by the Respondents and Security Officer has, in his statement, stated that each and every employee was properly checked when he left the factory premises. When the occurrence of theft is not doubted by the adjudicating authority, who himself opines that the occurrence was spread over a period of time and when the Security Officer states that he took all preventive measures and subjected each employee going out, to physical check, the occurrence of the theft has to be taken as an unavoidable accident, which in spite of all reasonable precaution, could not be averted.
15. With the findings as above, the other grounds urged need not be considered.
16. Under the circumstances the order passed by the Collector (Appeals) does not call for any interference and as such the appeal deserves to be rejected.
17. The cross-objections filed by the Respondents are in the nature of reply to the grounds of appeal raised by the Appellants. No counter relief is claimed, and hence with the disposal of the appeal, they are also treated as disposed of.
18. The appeal filed by the Revenue is therefore rejected. The cross objections filed are also disposed of.