Customs, Excise and Gold Tribunal - Mumbai
Tata Chemicals Ltd. vs Collector Of Central Excise And Customs on 1 January, 1800
Equivalent citations: 1988(35)ELT568(TRI-MUMBAI)
ORDER K. Gopal Hegde, Member (J)
1. This appeal arises out of and is directed against the order No. 3/Coilr/1986 dated 24-10-1986 passed by the Collector of Central Excise, Rajkot.
2. The brief facts necessary for the disposal of this appeal are :
The appellants M/s. Tata Chemicals are engaged in the manufacture of three grades of soda ash namely Soda Ash Light, Soda Ash Medium Dense and Soda Ash Dense. All the three grades fall under Tariff Item 14(A) of the Central Excise Tariff at the relevant time. For the purpose of manufacturing Soda Ash Dense, the mechanical process of densification is a continuous integrated and uninterrupted process. The vacuum conveying system which picks up soda ash from the Steam Tube Dryer (STD) delivers part of the Soda Ash to the Dense Ash Plant on its way to the Silos for Soda Ash Light. Soda Ash from the STD, is picked up by the vacuum conveying system which discharges the material to 24" screw conveyer via primary and secondary cyclones. The 24" conveyer first feeds the Dense Ash Plant and conveys only the balance material to the silos for Soda Ash Light. Soda Ash Light coming from STD is directly flowing to Dense Ash Plant to complete the mechanical process of densification in a continuous, integrated and un-interrupted process and in this process, according to the appellants, there is process loss to atmosphere of Soda Ash Light and the loss can not be termed as removal. The appellants have submitted that this loss is worked out notionally on the basis of the formula adopted by them for judging the efficiency of the plant manufacturing this product. Upto April, 1984 the loss was notionally worked out to 2% of the dense ash produced. Thereafter, the appellants installed suction hood, centrifugal fans and bag filters in the dense ash plant to reduce the loss of soda ash into the atmosphere and by installation of these instruments the loss of 2% was estimated to have been reduced to 1% from 1-5-1984 and 1/2% from 25-1-1986. This loss is indicated in the daily stock position reports maintained by the appellants and these reports show the production of different grades of soda ash manufactured by the appellants. One column in the report shows loss at dense ash plant. Copies of these reports are being submitted to the Central Excise authorities from 10-1-1979 onwards. On the basis of loss in these reports, the Collector computed the quantity manufactured and cleared without payment of duty by the appellants vide the show cause notice dated 28/29-1-1986 in which the allegations of clandestine manufacture and clearance of the goods had been made. The department's allegations are based on the further ground that the steam tube drier has been approved as the place of manufacture in terms of Rule 9 vide the Inspector of Central Excise letter dated 14-9-1981. Since the loss occurs after this stage, the Collector held that this was the removal in terms of Rule 49 and he has accordingly, ordered levy of duty on the quantity so lost and oenalty on the appellants. The appellants feeling aggrieved with this decision, have come up with this appeal.
3. On behalf of the appellants Shri Andhyarujina first briefly explained the facts of the case including the process of manufacture of the different grades of soda ash, particularly the manufacturing process of the soda ash dense. He submitted that the Collector had alleged and thereafter held that the appellants did not account for the quantity of soda ash light by not showing it in the production records. The Collector had demanded duty for the period from 1-4-1981 to 30-11-1985 and in doing so the Collector had invoked the longer limitation period of 5 years under the proviso to Section 11A(1) in the show cause notice dated 26-1-1986. The learned advocate stated that the appellants were manufacturing soda ash classifiable under Item 14A of the old Central Excise Tariff since 1961 and they had been following the accounting procedure of the goods manufactured only when they were packed in bags. This was going on since the levy of excise duty on soda ash since 1961. There were 3 different grades of soda ash light, dense and medium dense. Considering the difficulties of the manufacturers in accounting the production at the stage earlier than bagging of the goods, the Asst. Collector of Central Excise, Jamnagar in his letter dated 20-9-1974 had permitted the appellants to show the quantity manufactured only after the same was packed. The learned advocate referred us to this letter of the Asst. Collector. He explained that the packing was in gunny bags for all the categories of soda ash. Resuming his arguments, the learned advocate stated that in 1978 the Production Based control was introduced in the Central Excise Department and as per the direction of the department the manufacturers were required to send to the Department the daily stock reports of goods manufactured by M/s. Tata Chemical Ltd. The Collector's show cause notice dated 26-1-1986 had based the allegations on the manufacturers' daily stock position reports. The learned advocate argued that the alleged loss took place only at the stage of the production of soda ash dense. He explained this with reference to the Flow chart filed in the appeal and the manufacturing process with reference to this chart. Shri Andhyarujina further urged that when the densification plant was closed there was no loss. He illustrated his point with reference to the respective reports. The learned advocate further contended that at the stage of steam tube drier, the soda ash would be so hot and that it would not be possible to measure or weigh. Similarly, when the part of it was released to the silo the stock of soda ash in the silo was also not capable of measurement or weighment. The loss on the basis of which the Collector had alleged clandestine manufacture and removal was only notional and not real and it was calculated on the basis of the ratio of different inputs for the manufacture of the soda ash. As submitted in the appeal memo, the learned advocate stated that the loss came to 0.33% of the total production in the last 5 years. The learned advocate contended that present controversy started only with the letter dated 24-6-1981 of the Inspector of the Central Excise, addressed to the appellants. The learned advocate drew our attention to the copy of this letter filed in the paper book. Even this letter acknowledge the fact that the quantity in question was a process loss and there was no removal of this quantity by the appellants. The appellants' reply to the inspectors letter under their letter dated 17-8-1931 clarified the position. Thereafter, the appellants were required to send a copy of the plan of the factory and they complied with the same. The Superintendent approved the steam tube drier as the place of production of soda ash on this plan in terms of Rule 9 under his endorsement dated 31-8-1981. The learned advocate drew our attention to a copy of the plan as contained in the paper book. The learned advocate contended that this plan was restricted only to soda ash light and it did not mention in it the production of soda ash dense. This plan had been drawn up on 1-1-1977 and at that time certain quantities had been removed in bulk as shown in this plan. Hence the end of the steam tube drier had been shown as the place of manufacture of soda ash. Thereafter, correspondence ensued between the department and the manufacturer for accounting the production of soda ash on the basis of the approved plan. Shri Andhyarujina contended that it was not possible to term the end of the steam tube drier as the place of production. The place of production had to be co-terminuous with the place of removal under Rule 9 and 49 of the Central Excise Rules 1944. The learned advocate submitted the photographs of the steam tube drier to support his contention that it was not possible for the manufacturers to remove soda ash from this place. The learned advocate further urged that in view of the Asstt. Collector's permission granted in the year 1974 which was not withdrawn it was not proper for the Collector to ask the manufacturer to account for the production at the stage of the steam tube drier.
4. In the show cause notice issued by the Collector, the main allegation was regarding the deduction of the loss as shown in the daily stock position reports. The show cause notice had further alleged that the soda ash was capable of being weighed at this stage. Shri Andhyarujina while maintaining his contention that at that stage it is impossible to measure or weigh urged that even if it were to be held for the sake of argument that the Supdt. approved the place of manufacture of the excisable goods, the Supdt.'s approval did not cover the accounting of the goods in the R.G. I register. The learned advocate drew our attention of the letter dated 24-6-1981 of the Inspector and appellant's letter dated 16-7-1983 addressed to the Inspector of the Central Excise, Mithapur in which they had stated that there was no alternative but to continue the practice of reporting as followed by them so long. This letter also sets out the steps taken by the appellants to reduce the process loss. The advocate contended that this letter could not be treated as an admission by the appellants of the removal of the quantity lost in process.
5. The learned advocate further contended that there was error in the show cause notice as the value of the process loss was taken on the basis of the value of soda ash dense while the loss was with reference to soda ash light. Besides this value was inclusives of the packing charges of soda ash dense. However, this formula had been corrected by the Collecr in his order and he had passed the order for recovery of duty on the value of soda ash light in packed condition.
6. The learned advocate pointed out the company's letter of explanation dated 26-2-1986 in answer to the show cause notice. He argued that the company had denied the correctness of the Flow chart given earlier. In addition, the company had filed the affidavit of Shri C.N. Shah who was the chartered engineer and in this affidavit also Shri Shah had explained the process loss. The advocate referred us to this affidavit filed in the paper book.
7. The Collector in his findings had relied on the amendments made to Rules 9 and 49. The learned advocate contended that the intention behind the amendments was to cover the cases of deemed removals. In the present case the process loss can not be treated as deemed removal. Besides, the classification of the soda ash light and soda ash dense was under Tariff Item No. 14A and therefore there was no removal of one excisable goods for production of another excisable goods as envisaged in Rule 9. Further the Collector had directed that in terms of Rule 53 the manufacturers should account for the soda ash at the steam tube drier end. The learned advocate contended that it was physically impossible to do so. The temperature of soda ash dense at this stage" is 220C and it was not capable of handling or packing. The learned advocate also urged in the case of other manufacturers of soda ash no such stipulation had been laid down by the concerned Central Excise authorities, and these manufacturers were accounting for the production only after the soda ash was packed.
8. The learned advocate then contended that the point for charging duty was at the stage of the removal of ahe goods from the manufacturers factory. In this behalf, he referred us to the definition of "place of removal" in Section 4(4)(b) of the Central Excises & Salt Act, 1944. He further argued that the Supdt.'s letter to treat the steam tube drier as the place of manufacture was unintelligible. The learned advocate further contended that the removal in terms of proviso to Rule 49 has to be a positive act and the process loss can not be treated as removal. In this behalf, he referred us to our decision in the case, of Dudhganga-Vedganga Sahakari Sakhar Karkhana Ltd. and Ors. reported in 1987 (29) ELT 22. He also drew our attention to para 55 of this order which referred to the decisions of the High Courts. The learned advocate also cited the decision of the Madras High Court in the case of G.N. Kasia Pillai reported in 1979 ELT (3 617). The learned advocate further submitted that the Collector's finding that there was illicit removal is made light heartedly and has absolutely no basis whatsoever. Appellants in their daily production report voluntarily disclosed the notional loss of soda ash. In such circumstances, there was no question of illicit removal. The learned advocate submitted for our perusal a copy of the Supdt.'s letter dated 23-2-1978 addressed to the appellants requesting them to supply a copy of the production report of the Inspector of Central Excise, Mithapur in respect of the production of all commodities manufactured by the appellants. The learned advocate also submitted that the charges in the show cause notice were based on the appellant's own disclosures. In such circumstances, the proviso to Section ,11A was not applicable. Besides, the Central Excise Officers did not insist that the process loss should be shown in the R.G. 1.
9. As regards the Collector's order for levy of penalty of Rs. 3,50,000/- the learned advocate submitted that there was no grounds for levying any penalty. He relied on the Supreme Court's decision reported in AIR 1971 SC 2038. He urged that there was no clandestine removal of any quantity by the appellants. He, further, contended that the imposition of penalty was totally unjustified.
10. Shri Senthivel appearing for the Collector supported the order of the Collector and urged that in his detailed order the Collector had considered all the contentions put forward by the appellants and had come to the correct conclusion and therefore, the Collector's order does not require any interference. Shri Senthivel further submitted that on the basis of the flow chart filed by the appellant, the Superintendent of Central Excise had accorded approval showing the place of production. At that place fully manufactured soda ash light comes into being. Any further use of the fully manufactured soda ash light in the manufacture of soda ash dense would amount to captive consumption. Therefore, having regard to the explanation added to Rule 9 the appellants were required to account for soda ash light. But then they had claimed certain percentage as loss. The loss claimed by them did not occur during the manufacture of soda ash dense. Therefore, the appellants were required to seek condonation of the loss. But then, no such condonation had been sought or granted. Shri Senthivel further submitted that any loss that occurs in the manufacture of soda ash dense can be reckoned for the determination of the quantity of soda ash dense and the same cannot be reckoned at the stage of manufacture of soda ash light since no loss is claimed to have occurred during the manufacture of soda ash light.
11. For the specific question put by the Bench as to whether it was possible to quantify the soda ash light at the silo stage Shri Senthivel had to concede that it was not possible having regard to the process involved.
12. We have carefully considered the submissions made on both the sides and perused the records of the case.
13. The points that fall for determination in this appeal are :-
(i) Whether the Collector was not correct and was unjustified in holding that the appellants had suppressed the facts of production of soda ash with an intent to avoid payment of duty of excise and that the appellants had failed to maintain statutory accounts of production and removal.
(ii) Whether the Collector's order confirm the demand of duty is illegal and erroneous.
(iii) Whether the demand of duty for the period exceeding six months immediately preceding the date of show cause notice is barred by time.
(iv) Whether imposition of penalty is unwarranted, unjustified and incorrect.
As the points 1 to 3 are inter-related they are taken up for considera-tion together.
14. The allegations made in the show cause notice are :-
(i) That the appellants have deducted the quantity of soda ash light at 2% upto 4-5-1984 and at 1% with effect from 5-8-1984 and they have failed to maintain statutory accounts for production and removal of the soda ash light and thereby contravened Clauses (a), (b) and (d) of Sub-rule 1 to Rule 173Q of Central Excise Rules read with Rules 91, 53, 173G1, 173G4 and 173G of the Central Excise Rules.
(ii) There was wilful mis-statement and suppressions of facts of production of soda ash to the extend of quantity deducted as loss with the intention to evade payment of Central Excise duty. The appellants were called upon to show cause as to why the provisions of Rule 173E ' of the Central Excise Rules in so far it relates to determination of normal production should not be invoked in their case;
(iii) The duty of excise at the appropriate leviable rate, amounting to Rs. 24,19,593.18 on the goods weighing totally 7.352.571 MT soda ash falling under Tariff Item .14A valued at Rs. 1,54,66,258.66 deducted from the silos account and shown in Daily Production Report which appears to be illicitly manufactured and removed by them during the period from 1-12-1980 to 30-11-1985 should not be recovered from them under the proviso of Sub-section (1) of Section 11A of the Central Excises & Salt Act, 1944 and
(iv) Why penalty should not be imposed on them under Rule 9(2) read with Rule 173Q(1)of the Central Excise Rules, 1944.
They were also called upon to show cause as to why their plants and machinery and materials should not be ordered to be confiscated.
15. Thus it is seen, that the allegations in the show cause notice are : there were wilful mis-statements and suppression of facts of production of soda ash to the extent of quantity deducted as loss. The further allegation was the deduction shown from the silos account in Daily Production Certificate Report was illicitly manufactured and removed by the appellants during the period from 1-12-1980 to 30-11-1985.
16. Having regard to the nature of the allegations the initial burden is on the department to establish the alleged wilful mis-statements and suppression of facts of production as well as illicit manufacture and removal of soda ash from 1-12-1980 to 30-11-1985. At this stage it is suffice if we observe that the department did not adduce any independent evidence either regarding illicit manufacturing or removal or regarding wilful mis-statements and suppression of facts of production. The basis for the show cause notice was the loss shown by the appellants in their Daily Production Report. If the appellants had not shown the loss in their Daily Production Report probably the proceedings which is under consideration would not have seen the light of the day.
17. Broadly, the appellants' contentions are, that the demand of duty for a period exceeding six months immediately preceding the date of show cause notice is barred by time. Secondly, the loss claimed is manufacturing loss and not the alleged clandestine production and removal.
18. In order to appreciate the above two contention it is necessary to refer to certain undisputed facts.
19. The appellants are manufacturing soda ash light, soda ash dense, soda ash medium dense, soda ash granulator by adopting continuous and cyclic process. For the purpose of manufacturing soda ash dense, the mechanical process of densification is a continuous integrated and uninterrupted process. The vacuum conveying system which picks up soda ash from the Steam Tube Drier describe as STD in Exhibit 'A' delivers part of the soda ash light. In the year 1981 the Superintendent of Central Excise for the purpose of Rule 9 specified the end of Steam Tube Drier as the place of production of soda ash for the purpose of accounting. Undisputedly at the place specified by the Central Excise Superintendent it would not be possible to quantify soda ash even if it is to be held that the fully manufactured soda ash takes place at that point. As early as on 20-9-1974 the Assistant Collector of Central Excise, 3amnagar, wrote to the appellant as under :-
"Sub : Soda Ash : Accounting of when in silos : Difficulties regarding.
Please refer to your letter No. A/WG/2483/74 dated 20th July, 1974.
The difficulties have been discussed on 17-9-1974. I was satisfied that the Soda Ash when in Silos being hot and cannot be accurately estimated and cannot be accounted for in R.G.I in loose conditions and the age long practice followed by you in maintaing R.G. 1 after packing the same and on weighment only, may be continued until further orders."
20. The Superintendent of Central Excise on 22-3-1978 addressed a letter to the appellants requesting them to supply a copy of Daily Production Report of all the commodities for each shift so as to enable the Inspector to check daily production report and check commodity manufactured in the factory. Along with their letter dated 2-3-1978 the appellants forwarded a copy of the Daily Production Report dated 1-3-1978 of their productions and also undertook to continue to file the copy of daily production report. It is not disputed that ever since 1-3-1978 the appellants were filing their Daily Production Report.
21. On 24-6-1981 the Inspector of Central Excise wrote to the appellants as under :-
"It is brought to your kind notice that the Soda Ash is treated as finished excisable goods so long as it is stored in silos in unpacked condition, however, the R.G.I records is being allowed by the department to be maintained at packed stage but the excisability of the product is not changed, though it is unpacked. You are, therefore, requested to inform this office also how the loss at D. Ash stage occurs and the same is accounted for in the statutory record i.e. R.G.i. The scrutiny and verifications of production report with the R.G.I, revealed that the same is neither accounted for in R.G.I nor is condoned by the competent authority, since the loss cannot be said to be loss at manufacturing stage."
The appellants sent the reply dated 21-8-1981. It reads "We would like to clarify that a part of the output from the Steam Tube Drier is diverted to Dense Ash Plant where it is subjected to process of densification upon which Dense Ash and Medium Dense Ash are produced.
These are subsequently packed and declared as production along with Soda Ash Light packed from Silos.
Dense Ash, Medium Dense Ash are also varieties of Soda Ash and any loss in the process of manufacturing, will not be accounted as part of production."
22. The Central Excise Superintendent by his letter dated 14-9-1981 after referring to the letter of the appellants dated 17-8-1981 pointed out to the appellants that finished soda ash in fully manufactured condition is diverted from silos to dense ash plant. The soda ash stored in silos is subsequently intended for bulk despatches and in view of the above the quantity of above diverted from silos for manufacture of variety known as Dense Ash Medium, Dense Ash can only be treated as further manufacture but the loss occurred at Dense Ash Plant will have to be accounted for the production of soda ash light variety and the same should be condoned by the competent authority. He further requested the appellants to clarify the matter. The appellants, however, sent clarification only on 15-7-1983. They explained the manufacturing process of dense soda ash and then stated that in the said process some soda ash unavoidably lost in the air atmosphere in the form of fire particulate dust. They further clarified that soda ash is not taken from silos. It is in a continuous process directly fed from the Steam Tube Drier. They also stated that though it is very difficult to reduce and recapture dust of soda ash, they are taking steps to instal devices like high efficiency bag filters at a significant capital cost to recover Soda Ash going to air atmosphere to reduce the losses occurring. They, however, made it clear that they have no alternative but to continue the present practice of reporting.
23. In his letter dated 26-7-1985 the Central Excise Superintendent sought several clarifications from the appellants among other things. He asked the appellants to clarify as to whether the Soda Ash Light is directly diverted from place of production approved under the provisions of Rule 9 of the Central Excise Rules, 1944. He further asked if answer ,to the above Was in the affirmative to give cogent reasons for deducting loss at Dense Ash Plant from the unpacked Silo stock. The appellants sent their reply by their letter dated 7-10-1985. The Collector in his order had reproduced the reply. Therefore, it is not necessary to reproduce the same.
24. The show cause notice in this case is dated 28/29-1-1986. It may be pointed out here that even upto the date of issue of show cause notice the permission granted by the Assistant Collector vide his letter dated 26-8-1974, had not been withdrawn. Even as late as 24-6-1981 the Inspector of Central Excise informed the appellants that the R.G.I record is allowed by the department to be maintained at packed stage.
25. If in the light of the above documentary evidence it is not clear how the department could issue a show cause notice alleging wilful mis-statements or suppression of facts of production of soda ash or how an allegation of illicit manufacturing and removal during the period from 1-12-1980 to 30-11-1985 could have been made. Both the allegations in our opinion are totally baseless. In any case they are opposed to the factual position known to both the sides. Therefore, we have no hesitation in holding that the demand of duty for a period exceeding six months immediately preceding the period of show cause notice is cleared barred by time.
26. The next question for our consideration is whether duty can be demanded even for the period of six months immediately preceding the date of show cause notice?
27. The case of the department is simple. It contends that the fully manufactured soda ash light comes into being at the place specified by the Superintendent in the flow chart produced by the appellants. Any further use of the fully manufactured soda ash light in the manufacture of soda ash dense could amount to captive consumption. Therefore, having regard to the explanation to Rules 9 and 49 of the Central Excise Rule, the soda ash light consumed during manufacture of soda ash dense is liable to duty. Further contention of the department has been the so-called loss claimed by the appellants did not occur during manufacture of soda ash light but it occurred during manufacture of soda ash dense. Therefore, the appellants were required to seek condonation of the loss. No such condonation Was sought or granted. The appellants, however, contended that there is neither physical removal nor deemed removal of soda ash light during the manufacture of soda ash dense. Further contention of the appellants was that the alleged clandestine production and removal of soda ash is only a production loss in the process of manufacture of the different grades of soda ash. It was urged for the appellants that at the stage of Steam Tube Drier the place specified by the Superintendent the soda ash would be so hot that would be impossible to measure or weigh. Similarly the soda ash light gets stocked during the process of manufacture was also not capable of measurement or weighment. The loss on the basis' of which the Collector had alleged clandestine manufacture and removal was only notional and not real and it was calculated on the basis of ratio of different inputs for the manufacture of soda ash. Shri Aandhyarjuna has also urged that the department was well aware that quantification of soda ash in whatever form was not possible at the end of Steam Tube Drier the place specified by the Superintendent or at the silo stage and therefore as early as on 20-7-1974, the Assistant Collector had allowed accounting of the soda ash at the packing stage.
28. There is considerable force in the contention of Shri Aandhyarjuna that it is neither possible to quantify or weigh the soda ash at the Steam Tube Drier end the place specified by the Superintendent. The soda ash light at silo Stage also cannot be quantified or weighed. At both the stages the temperature of soda ash would be 220C. As a matter of fact to the Bench's query Shri Senthivel had to admit that it would not be possible to quantify the soda ash light even at the silo stage. There is also considerable force in the contention of the learned advocate for the appellants that certain loss occurs during the manufacturing process of different grades of soda ash. From the process involved in the manufacture of the various grades of the soda ash we are satisfied that the loss which the appellants were showing in their Daily Production Reports is notional loss and apparently calculated on the basis of the consumption of the inputs used in the manufacture of the various grades of soda ash. But then, we are inclined to accept the contention of the department that the loss claimed by the appellants occurs during the manufacture of soda ash dense and the quantity shown as loss is fully manufactured soda ash light. The question, therefore, arises as to whether the appellants are required to pay duty on the quantity shown as loss. The appellants contention has been that there is no physical removal of the soda ash light. It was also urged that there was no deemed removal of soda ash light during the manufacture of soda ash dense. We agree that there was no physical removal of soda ash light in the course of manufacture of soda ash dense. But then, we are unable to agree that there is no deemed removal of soda ash light in the course of manufacture of soda ash dense. Admittedly the fully manufactured soda ash light comes into being at the end of the Steam Tube Drier. The manufacturing processes given by the appellants clearly establish that the soda ash from the STD is picked by the vacuum conveying system which discharges the material of 24" Screw Conveyor via primary and secondary cyclones. 24" conveyor first feed the dense ash plant and conveys only the balance material to the silos for soda ash light. Thus the soda ash light at the silos as well as the conveying of soda ash through the conveyer to the Dense Ash Plant takes place after the fully manufactured soda ash light. In the circumstances it cannot be said that there was no deemed removal. The contention of the learned advocate that in order to attract the provision to Rules 9 and 49 there should be physical removal is no more a valid contention having regard to the latest decision of the Supreme Court.
29. The Supreme Court in J.K. Spinning and Weaving Mills Ltd. and Anr. v. Union of India and Ors. - 1987 (32) ELT 234 (S.C.) considers the scope of the explanation added to Rules 9 and 49 of the Central Excise Rules by Central Excise Notification No. 20/82-C.E., dated 20-2-1982 as well as Section 51 of the Finance Act, 1982. Before the Supreme Court Shri Soli 3. Sorabjee relying upon the decision of the Federal Court in the Province of Madras V. Boddu Paidanna and Sons - A.I.R. 1942 FC 33 urged "that although it is true that as soon as the commodity is manufactured or produced it is liable to the payment of Excise duty, the duty will not, however, be collected unless the commodity leaves the factory. It is submitted by him that the commodity must be removed from one place to another either for the purpose of consumption in the factory or for sale outside it before Excise duty can be claimed". He further submitted that Rules 9 and 49, as they stood before they were amended, and even the main part of these two rules after amendment indicate in clear terms that so long as the goods which are manufactured in the factory are not removed, there is no question of payment of Excise duty on the goods. The Supreme Court after considering the various decisions of the various High Courts repelled the contention to Shri Sorabjee,
30. After consideration of the decisions of the Delhi High Court, namely (1) Caltex Oil Refining (India) Ltd. v. Union of India and Ors., 1979 (4) ELT 0 581), (2) Delhi Cloth and General Mills Co. Ltd. v. Joint Secretary, Government of India - 1978 ELT 121, (3) Modi Carpets Ltd. v. Union of India - 1980 ELT 320, (4) Synthetics and Chemicals Ltd., Bombay v. Government of India - 1980 ELT 675, (5) Devi Dayal Electronics & Wires Ltd. v. Union of India - 1982 ELT 33, the Supreme Court observed "Thus it appears that there is a conflict of opinion in the decisions of the Delhi High Court as to what is meant by the word 'removal' for the purpose of payment of Excise duty. Two views have been expressed by the Delhi High Court. One view is that so long as any product manufactured in the factory is not actually removed from the factory premises, there is no removal and, accordingly, no Excise duty is payable on the product, even if the product is used for the manufacture of another commodity inside the factory. The other view is that if at one stage a commodity known to the market is produced and is transferred within the factory for the manufacture of another commodity, there is removal within the meaning of Rules 9 and 49.
Apart from the above two views, there is a third view which has also been expressed by the Delhi High Court, namely, that if an. intermediate product is obtained in an integrated process of manufacture of a commodity, there is no removal and, therefore, such intermediate product although known to the market and comes under a particular tariff item yet, as there is no removal, there will be no question of payment of Excise duty on such intermediate product."
31. The Supreme Court also considered the decision of the Nagpur Bench of the Bombay High Court in Oudh Sugar Mills Ltd. v. Union of India - 1980 ELT 327 as well as the decision of the Allahabad High Court in Oudh Sugar Mills Ltd. v. Union of India, 1982 ELT 927 and also the decision of the Gujarat High Court in Maneklal Harilal Spinning and Manufacturing Co. Ltd. v. Union of India, 1978 ELT 618. The Supreme Court thereafter observed that all the above decisions relate to Rules 9 and 49 before they were amended. Leaving aside the question of specification for the time being. Rule 9 before its amendment prohibits the removal of excisable goods whether for consumption, export or manufacture of any other commodity in or outside such place, until the Excise duty leviable thereon has been paid. It is manifestly clear from Rule 9 that it contemplates not only removal from the place where the excisable goods are produ-ced, cured or manufactured or any premises appurtenant thereto, but also removal within such place or premises for captive consumption or 'home consumption' as it is called. Thus if a commodity which is manufactured in such place or premises and is used for the manufacture of another commodity, then it will be a case of removal for the purpose of payment of Excise duty. This view which we take clearly follows from the expression "whether for consumption, export or manufacture of any other commodity in or outside such place" Thus consumption of excisable goods may be within such place or outside such place. The decisions which have taken the view that if a commodity manufactured within the factory in one plant is transferred to another plant for the purpose of production of another commodity will be removal for the purpose of payment of Excise duty are, in our opinion, correct. It is not easily understandable why the definition of expression 'factory' under Section 2(e) of the Act has been taken resort to in some of the decisions for the purpose of interpretation of Rule 9. There can be no doubt that if a commodity is taken outside the factory it will be removal, but Rule 9 does not, in any manner, indicate that it is only when the goods are removed from the factory premises it will be removal and when the excisable goods manufactured within the factory is removed from one plant to another it will not be a case of removal. On the contrary, as noticed already, Rule 9 clearly embraces within its captive consumption of excisable goods, that is to say, when excisable goods manufactured in the factory are used for producion of another commodity.
32. As regards Shri Sorabjee's contention that even after amendment there must be removal of the goods from one place to another for the purpose of collection of excise duty, the Supreme Court observed "It is submitted on behalf of the appellants that the Explanations to Rules 9 49 are ultra vires the provision of Clause (b) of Sub-section (4) of Section 4 of the Act inasmuch as "place of removal" as defined therein, does not contemplate any deemed removal, but a physical and actual removal of the goods from a factory or any other place or premises of production or manufacture or a warehouse etc. This contention is unsound and also does not follow from the definition of "place of removal". Under the definition "place of removal" may be a factory or any other place or premises of production or manufacture of the excisable goods etc. The explanations to Rules 9 and 49 do not contain any definition of "place of removal", but provide that excisable goods produced or manufactured in any place or premises at an intermediate stage and consumed or utilised for the manufacture of another commodity in a continuous process, shall be deemed to have been removed from such place or premises immediately before such consumption or utilisation. Clause (b) of Sub-section (4) of Section 4 has defined "place of removal", but it has not defined 'removal'. There can be no doubt that the word 'removal' contemplates shifting of a thing from one place to another. In other words, it contemplates physical movement of goods from one place to another."
32A. The Supreme Court further observed "It is well settled that a deeming provision is an admission of the non-existence of the fact deemed. Therefore, in view of the deeming provisions under Explanations to Rules 9 and 49, although the goods which are produced or manufactured at an intermediate stage and, thereafter, consumed or utilised in the integrated process for the manufacture of another commodity is not actually removed, shall be construed and regarded as removed. The Legislature is quite competent to enact a deeming provision for the purpose of assuming the existence of a fact which does not really exist. It has been already noticed that the taxing event under Section 3 of the Act is the production or manufacture of goods and not removal. The explanations to Rules 9 and 49 contemplates the collection of duty levied on the production of a commodity at an intermediate stage of an integrated process of manufacture of another commodity by deeming such production or manufacture of the commodity at an intermediate stage to be removal from such place or premises of manufacture. The deeming provisions are quite consistent with Section 3 of the Act. As observed by the Federal Court in Megh Raj's case (supra) there is in theory nothing to prevent the central legislature from imposing a duty of excise on a commodity as soon as it comes into existence, no matter what happens to it afterwards, whether it be sold, consumed or destroyed or given away. It is for the convenience of the taxing authority that duty is collected at the time of removal of the commodity."
33. The Supreme Court also considered the question as to whether Rule 9 before it was amended also envisaged a case of an intermediate product obtained in an integrated and continuous process of manufacture of another commodity, that is, the end product. The Supreme Court observed it must be admitted that prima facie Rule 9 does not show that it also covers a case of integrated continuous and uninterrupted process of manufacture producing a commodity at an intermediate stage which again is utilised in such continuous process for the manufacture of the end product.
34. In the above decision the Supreme Court also consider the contention that even assuming that there can be fictional removal as provided in the Explanations to Rules 9 and 49, there cannot be such fictional or deemed removal without the specification of the place where the excisable goods are produced, cured or manufactured or any premises appurtenant thereto.
35. The Supreme Court observed "It is true that under Rule 9(1) there is a provision for specification by the Collector, but the question is what has to be specified by the Collector. It is the contention of the appellants that the Collector has to specify the place of manufacture and also any premises appurtenant thereto. We are, however, unable to accept this contention. The place where the goods are to be manufactured by a manufacturer, that is to say, the site of the factory cannot be specified by the Collector It is for the manufacturer to choose the site or the place where the factory will be constructed and goods will be manufactured. Rule 9(1), in our opinion, does not require the Collector to specify the place where the excisable goods are produced, cured or manufactured. The words "which may be specified by the Collector' in this behalf" occurring in Rule 9(1) of the Rules do not qualify the words "any place where they are produced, cured or manufactured", but relate to or qualify the words "any premises appurtenant thereto". In other words, if the place of removal is not the place where the goods are produced, cured or manufactured, but any premises appurtenant to such place, in that case, the Collector has to specify such premises for the purpose of collection of Excise duty. Thus the contention of the appellants that the Collector has to specify the place of manufacture and also any premises appurtenant thereto under Rule 9(1) of the Rules, is without any substance."
36. The above judgment of the Supreme Court is a complete answer to the various contention urged by Shri Andhyarjuna. But then, as has been rightly contended by Shri Andhyarjuna that it is not sufficient if the department establishes that there was deemed removal of soda ash light in the manufacture of soda ash dense to demand duty on the quantity shown as loss in the various production reports. The department is required to establish that the deemed removal of soda ash light was for the manufacture of a different commodity.
37. Undisputedly all %grades of soda ash fall under Tariff Item of the Centra! Excise Tariff. Soda Ash Light, Soda Ash Dense, Soda Ash Medium Dense are not treated as different commodities for the purpose of levying Central Excise Duty. Soda Ash Light after further processing converts itself into soda ash dense. But then, the soda ash dense is nothing but soda ash falling under Tariff Item 14(A). No distinction can be made between soda ash liht and soda ash dense as the soda ash dense do not lose its character as soda ash. Soda ash dense is not a different excisable commodity.
38. Having regard to our findings on point No. 1 we hold that the Collector was not correct and justified in holding that the appellants herein had suppressed the facts of production of soda ash with an intent to evade payment of duty of excise and that they had failed to maintain statutory accounts of production and removal.
39. On point No. 2 we hold the Collector's order confirming the demand of duty is illegal and erroneous.
40. On point No. 3 we hold that this point strictly does not arise having regard to our finding on point No. 2. But, however, we make it clear that the demand of duty for the period exceeding six months imme-diately preceding the date of show cause notice is barred by time.
41. Point No. 4. In view of our findings that the department had failed to establish clandestine production and clandestine removal and had, further, failed to establish non-maintenance of production and removal in the statutory accounts and also having regard to our finding that no duty was demandable on the quantity shown as loss in the Daily Production Reports, no penalty should have been imposed on the appellants. We, therefore, hold that the imposition of penalty on the appellants by the Collector was unwarranted, unjustified and incorrect.
42. In the result we allow this appeal set aside the Collector's order in its entirety. The duty and penalty if paid shall be refunded to the appellants.