Customs, Excise and Gold Tribunal - Tamil Nadu
Bi-Metal Bearings Ltd. vs Collector Of C. Ex. on 21 November, 1988
Equivalent citations: 1989(22)ECR417(TRI.-CHENNAI), 1990(45)ELT285(TRI-CHENNAI)
ORDER K.S. Venkataramani, Member (T)
1. This is an appeal directed against the order of the Collector of Central Excise, Madras, dated 28-10-1987 by which he had demanded a duty of Rs. 1,02,14,154.84 under Rule 9(2) of Central Excise Rules, 1944, besides imposing a penalty of Rs. 30,00,000/- on the appellants under Rule 173Q of the Central Excise Rules.
2. The appellants are manufacturers of bimetal bearings and bushings at their units at Hosur and Coimbatore. One of the raw materials required for its manufacture is bimetallic strips. These are manufactured at the appellants' own Strip Mill Division situated at Madras. The Department licensed the Strip Mill Division at Madras in March 1986; following the coming into force of the Central Excise Tariff Act, 1985 with the new Tariff Schedule. However, the Department found that the Strip Mill Division had been manufacturing bimetallic strips earlier as well without obtaining Central Excise Licence and clearing the goods without payment of duty over the years. A Show Cause Notice dated 31-3-1987 was, therefore, issued to the appellants asking them to show cause why
(i) the Bimetallic strips manufactured in the Strip Mill should not be classified under Tariff Item 68 of the First Schedule to the Act during the period covered under the SCN i.e. from 1-3-1982 to 28-2-1986;
(ii) duty amounting to Rs. 1,02,14,154.84 should not be demanded on them under Rule 9(2) read with Section 11-A of the Act under the extended time limit of 5 years since it was held that the manufacture of the bimetallic strips was surreptitious, and their removals clandestine, with intent to evade payment of duty; and
(iii) penalty should not be imposed on them under Rule 173Q for the contravention of Section 6 of the Act read with Rule 174, Rules 9(1), 52A, 53,173B, 173G, 173C and 173F read with 173G as aforesaid.
In their reply thereto the appellants contested the proposed classification in the Show Cause Notice of the bimetallic strips under the erstwhile Item 68 of the Central Excise Tariff and they also contended that the Department could not in any case invoke the longer period for demanding the duty under Section 11A of the Central Excises & Salt Act, 1944 because the Department knew all along about the existence of the unit manufacturing bimetallic strips. On consideration of the submissions made the Collector held that the goods were classifiable under Tariff Item 68 of the Central Excise Tariff and demanded duty of Rs. 1,02,14,154.84 for the period 1-3-1982 to 28-2-1986 holding that the manufacture of bimetallic strips was suppressed and the goods cleared clandestinely with the intent to evade payment of duty. He also imposed a penalty of Rs. 30,00,000/- under Rule 173Q of the Central Excise Rules.
3. Shri S. Venkataraman, the learned Consultant appearing for the appellants, at the outset submitted that the appellants undertake to confine their submissions in the appeal to the charge of suppression of the fact of manufacture and clandestine clearances of bimetallic strips, and that no arguments regarding the excisability of the goods would be adduced. With the consent of the parties, therefore, the appeal was proceeded with this specific undertaking that the question to be decided will be confined to the issue of whether or not there was suppression of fact with intention to evade payment of duty for the Department to invoke the longer period of 5 years for demanding duty short levied under Section 11A of the Central Excises & Salt Act, 1944 since the appellants have specifically given up the grounds of their appeal relating to the excisability and classification of the goods produced by them.
4. Shri Venkataraman, the learned Consultant urged that in respect of the question of limitation there was no suppression of manufacture and clearance of bimetallic strips from the appellants' factory with intention to evade payment of duty because, in the first place, the Department did have knowledge about the existence of the unit manufacturing bimetallic strips because their two units manufacturing bimetal bearings as well as bimetallic strips were located side by side in the same complex in Sembium at Madras at the time when the bimetal bearings manufactured by them became dutiable under Tariff Item 34A of the Central Excise Tariff in the Finance Bill introduced on 29-5-1971, and thereafter immediately the Bearing Plant at Madras was inspected by the Central Excise Officers and the factory was asked to take out a licence. Further, the learned Consultant submitted that in their application for Central Excise Licence on 13-6-1971, they had clearly indicated that bimetallic strips were one of the raw materials for their final product viz. bimetal bearings. Apart from that the learned Consultant urged that even if in 1971 the existence of Strip Mill had escaped departmental notice, then again in subsequent Budget of 1975, when for the first time Item 68 of CET was introduced, covering all other goods not elsewhere specified manufactured in a factory, then at least the Department should have been alert to the existence of the Strip Mill. This is also because the accompanying Budget instructions were very specific to say that only through extensive survey new units could be located. The learned Consultant further pointed out that even the Budget succeeding 1975, there were proposals for increasing the rate of duty on goods falling under Item 68 CET, which again should have led to the knowledge on the part of the Department about the Strip Mill. Further, immediately following the imposition of duty on bearings in 1971, till October 1971, the Unit was under physical control, which means that the Department again had the opportunity then to know about the existence side by side of the unit manufacturing bimetallic strips because under physical control, according to the learned Consultant, the Central Excise Officers personally supervises and allow clearances and could not have been unaware that the raw material bimetallic strips came from the Strip Mill Division which was hardly a few hundred yards away from the bearing manufacturing unit. There were also visits by the inspection groups and audit parties to the bearing plant at Madras. The learned Consultant further urged that the only piece of evidence on which the charge of suppression is based is the letter dated 22-6-1981 from the Superintendent, Central Excise, Coimbatore, to the appellants in which inter alia the Superintendent called for the production of invoices covering purchases of raw material requiring the production of Gate Passes if the raw material is from a sister concern or from their own plant. It was submitted that if the Department had felt that the reply to this communication sent by the appellants was not complete in any respect, it could have also reverted to the subject and elicit further information. However, the matter was left to rest there by the Department. It was further pointed out by the learned Consultant that the appellants had produced before the adjudicating authority detailed data regarding the despatch of the bimetallic strips from their Madras factory, and the receipt thereof at their two Units at Coimbatore and Hosur and issue of the raw material for production of bearings, to prove that whatever was produced by them at Madras was utilised only in their own plant in manufacturing bimetal bearings. Further, these were special type of bimetallic strips manufactured under an agreement with their foreign collaborator M/s. Imperial Clevite Inc. USA, and these strips are not sold in the market. The appellants company is under an obligation not to sell these strips outside as part of the collaboration agreement with the USA Collaborator, whose patented process the appellants are using. Apart from this the learned Consultant referred to the Annual Reports of the appellants from 1971 to 1986 wherein bimetallic strips had been clearly mentioned as raw materials. The installed capacity for producing them as well as their annual production have been given in the Annual Accounts. The Department itself had in 1972 by their letter dated 17-1-1972 called for their Balance Sheet. In view of the position as above, the learned Consultant urged that it can clearly be stated that the existence of the unit manufacturing bimetallic strips was within the knowledge of the Department and as such no suppression can be alleged. The fact that the bimetallic strips as raw material for their Coimbatore Unit was being produced at their Madras factory was clearly intimated to the Department in their reply dated 7-9-1981 to the Superintendent at Coimbatore which was clearly, therefore, bringing to the knowledge of the Department about the manufacturing activity at their Madras plant. The learned Consultant further submitted that the appellants had nothing to gain by evading duty. There was no motive for them to evade duty because they would have been eligible for the exemption under Notification No. 118/75 exempting the goods falling under Item 68 CET from duty when used captively by the same manufacturer in the manufacture of finished products. The learned Consultant also referred to the three affidavits in this connection from the Secretary, Manager (Quality Control), and Manager (Production Services) of their Strip Mill in which it has been averred by these persons that the Central Excise Officers had visited their Strip Mill Division from time to time after 1975.
5. The learned Consultant further argued that the Show Cause Notice had invoked Rule 9(2) read with Section HA for invoking the extended period of 5 years for demanding duty from 1-3-1982 to 28-2-1986. He cited the Supreme Court ruling in the case of N.B. Sanjana v. Elphinston Spg. & Wvg. Mills [1978 (2) E.L.T. (J 399) = AIR 1971 (SC) 2039] wherein the Supreme Court had observed that to attract Sub-rule (2) of Rule 9 the goods should have been removed in contravention of Sub-rule (1) and that in order to attract Sub-rule (2) the goods should have been removed clandestinely and without assessment. This was also followed by the Division Bench of the Madras High Court in the matter of Murugan & Company v. Deputy Collector of Central Excise [1977 (1) E.L.T. (J 193)] where the Hon'ble Madras High Court also held that mere non-payment of duty under the bonafide impression that the goods are not excisable cannot lead to a finding that the goods have been cleared from the factory contrary to Rule 9(1). The Bombay High Court also followed the ratio of the Supreme Court in the Sanjana case and held in the case of Achme Metal Industries v. S.S. Paihak [1980 (6) E.L.T. 156] that to attract the provisions of Rule 9(2) goods should have been removed in contravention of Sub-rule (1) and that sad* removal must be clandestine and without assessment. Elaborating this further the Calcutta High Court in the case of Jayashree Textiles Industries v. Collector of Central Excise [1985 (22) E.L.T. 708 (Cal)] held that element of clandestine removal is essential for attracting Rule 9(2) and further the absence of either of the criteria viz., clandestine removal and non assessment will preclude its application. The Special Bench of the Tribunal in the case of Indian Iron & Steel, Calcutta v. CCE, Calcutta was of the same view.
6. In the case of the appellants, therefore, the removal of the bimetallic strips manufactured at Madras to their own unit at Coimbatore and Hosur was done under complete documentation over the years, thus precluding any charge of clandestine removal, and, following the ratio of these judgments the longer period under Rule 9(2) cannot be invoked.
7. As regards the penalty on the appellant, the learned Consultant relied upon the Supreme Court decision in Hindusian Steel v.State of Orissa [1978 (2) E.L.T. (J 159)] wherein the Hon'ble Supreme, Court observed that even if a minimum penalty is prescribed, the authority competent to impose the penalty will be justified in refusing to impose it when there is a technical or venial breach of the provisions of the Act or where the breach flows from the bonafide belief that the offender is not liable to action in the manner prescribed by the statute. In the case of the appellants their manufacturing activity was open and fully documented, and the unit itself is located in a complex where there are neighbouring units which are under the physical control of the Central Excise, and since there was no deliberate effort at clandestine production and removal as shown above, the penalty on them under Rule 173Q is also not tenable and should be set aside. This was because they had also nothing to gain by evading duty since they would have been eligible for the exemption under Notification No. 118/75 for their product. He also pointed out that the appellants unit is one which had been paying a very large sum of duty on their products, and has a clean past record and reputation. Therefore, the penalty on them is unjustified,
8. Shri K.K. Bhatia, the learned S.D.R. appearing for the Department contended that the information given in the licence application referred to and relied upon by the appellants is of no avail because the information given therein is to specify the raw material, and it does not contain the information that the raw material was being manufactured by the appellants. He pointed out that the appellants ought to have obtained a licence for the bimetallic strip factory also, because at that time the requirement was that the licence should be obtained even if the item produced were to be exempted. The contention that the Department should have had knowledge because the clearance of the bimetal bearing initially was under physical control is also not tenable, because the physical control was only for the purpose of assessment by the officer every time-clearance of the excisable goods took place from the factory and there was no supervisory control over the production process by the officers. The leraned S.D.R. contended that the appellants also cannot take shelter behind their reply to the Superintendent, Coimbatore, about the raw material being manufactured at their Madras factory, because the letter of the Superintendent dated 22-6-1981 was with reference to the clearance of scrap by the appellants. It had a different objective, and further, the Superintendent at Coimbatore was not the jurisdictional officer for the Madras factory. The information given in their reply to the Superintendent's letter was not an information given by the Madras factory to the Central Excise Officer having jurisdiction over that factory. Further, even in that letter the appellants had not said that the Madras unit was manufacturing the bimetallic strips. They had every carefully avoided by saying so, by describing that the raw material was processed at their Madras Unit. Therefore, there was prima facie no call for further investigation. The communication regarding the inspection group visit to the factory, the learned S.D.R., pointed out, was relating to a period prior to 1975 i.e. before Item 68 CET was introduced and hence not of much relevance. Similarly, mere calling for the Balance Sheet by the Department by the Superintendent will not be of much relevance to determining excisability of a product because that particular calling for the Balance Sheet was a general one issued to all manufacturers for a wider study with a different objective and scope for revenue collection.
9. As regards the case law cited by the appellants in this case, the learned S.D.R. pointed out that those cases are distinguishable from that of the appellants because in all those cases, there was correspondence between the Department and the party, and several of these the units were already under Central Excise Control and had filed classification list also in respect of their products, whereas the appellants had not done any of those things with reference to their bimetallic strips unit at Madras. Even in the San-jana case decided by the Superme Court, there was an assessment although at Nil rate, according to the Court, which again distinguishes the present case. The learned S.D.R. placed reliance on the case of Ceekay Rubber Industries v. C.C.E., Madras, decided by the Special Bench of the CEGAT [1988 (34) E.L.T. 347], and Madras Petro-Chem. Ltd. v. C.C.E., Madras (1983 E.C.R. 1774-D). In these cases it was pointed out that even where a classification list had been filed but certain items manufactured had been left out, the authorities had held that there has been suppression. Therefore, when as in the case of the appellants, the manufacture itself was not brought to the notice of the authorities and no classification list was filed or formalities followed, the question of suppression would definitely arise. The learned S.D.R. further relied upon the case of Kiran Printing Mills decided by the Special Bench [1987 (30) E.L.T. 550] which laid down that when no classification list was filed in respect of the goods it amounted to suppression of fact calling for the demand invoking the longer period of time limit. He also referred to the case of Universal Radiators [1986 (7) E.C.R. 296] decided by the South Regional Bench of the Tribunal. The Tribunal had held that when the unit was manufacturing fans, filing of classification list with general reference to coolers as falling under Item 68 is not sufficient. Fans, the Tribunal held, are different from coolers for the purpose of classification and assessment. Declaring that the coolers are being produced does not necessarily mean that fans are being manufactured by the firm. When such is the interpretation for the purposes of suppression even in a unit already under Central Excise Control, the learned S.D.R. contended, it should be more so where, as in the appellants case, they have not brought to the notice of the Department at all about the manufacture and clearance of bimetallic strips.
10. As regards the imposition of personal penalty on the appellants, the learned S.D.R. urged that the decision of the Andhra Pradesh High Court in the case of Nizam Sugar Factory v. C.C.E. [1987 (27) E.L.T. 40] the Hon'ble High Court had clearly held that infraction of the rules deserve no lenient view and that for confiscation and penalty for violation of Excise Rale 173Q metis rea is not essential ingredient. The Court had observed that the self-removal procedure scheme depends for its operation on the honesty of the manufacturer and Excise Rules create an absolute liability when the act is done no matter how innocently. Therefore, the penalty in this case has also been rightly been imposed by the Collector.
11. We have given careful consideration to the submissions by the learned Consultant and the learned S.D.R. The appellants have sought for a decision of the appeal based only on the question of limitation and are not pressing the other issues contained in the Collector's order regarding the excisability and the classification of the bimetallic strips manufactured by them. In this case duty has been demanded by issue of the Show Cause Notice dated 31-3-1987 demanding the duty for the period 1-3-1982 to 28-2-1986. The longer period under Rule 9(2) of Central Excise Rules, 1944 read with Section 11A of Central Excises & Salt Act, 1944 has been invoked. While Section 11A refers to recovery of duties not levied or short-levied, Rule 9 deals with removal of excisable goods from any place where they are produced. It is stipulated therein that such removal shall not take place until the Excise duty therein is paid In the manner prescribed in the rules. The proviso to Section 11A provides that where a non-levy or short-levy arises, by reason of fraud or collusion or any wilful mis-statement or suppression of facts or contravention of any of the provisions of the Act or the rules with intent to evade payment of duty the demand for recovery of such amount can extend to five years. The short question that arises in this case is whether the materials on record would justify the finding of the Collector that the appellants herein were guilty of suppression or of clandestine removal of goods viz, bimetallic strips manufactured and cleared by them during the period 1-3-1982 to 28-2-1986. The main point of the Show Cause Notice in regard to this has been the letter dated 22-6-1981 of the Superintendent of Central Excise, Coimbatore, addressed to the appellants. This letter has been perused. In that letter the Superintendent has requested them for details regarding sources from which they got their raw materials, invoices covering the purchase of raw material (if it is from a sister concern or from the appellants own plant, the Gate Pass was required to be attached) the mode of sale of the scrap, saying (hat after due verification it will be returned to the appellants. In reply on 7-9-1981 the appellants stated as follows :
"In this connection we wish to inform that the raw materials required for our Bearing Mill Plant at Coimbatore is processed at our Strip Mill Plant at Madras. The raw materials for the Strip Mill Plant are cold rolled steel strips and copper alloy powder which are sintered together in an electric furnace by sintering process. The sintered strips are then brought to Coimbatore as raw material for the Bearing Plant."
The case of the Department is that the appellants had not given the complete and full information in their letter and have merely referred to the raw material required for the Bearing Plant being 'processed' at their Strip Mill. The reply given by the appellants has also been held to be not a document which would give any knowledge to the Department about the manufacturing activity of the appellants on the ground that the Superintendent at Coimbatore was not the Proper Officer for the factory producing bimetallic strips at Madras and that they ought to have intimated the Proper Officer at Madras having jurisdiction over the factory. The Department's contentions in this regard are not well founded for the reason that if the information given by the appellants in their letter of 7-9-1981 was found to be incomplete or inadequate nothing prevented the Department from pursuing it further vigorously and eliciting further information required by them from the appellants. Undoubtedly the question raised by the Superintendent of Central Excise at Coimbatore had a revenue implication, and the reply of the appellants thereto had also described how the sintered strips are made at Madras, and considering that at that time the Collector of Central Excise at Madras had jurisdiction over Coimbatore also it may not be valid to contend that the Superintendent at Coimbatqre was not the proper officer or that the Department had to accept the appellants' say in the letter that there was only processing and not manufacture taking place at the Madras factory. In fact on this aspect this Bench of the Tribunal in the Cheran Engineering Corporation v. Collector of Central Excise, Coimbatore [1986 (26) E.L.T. 611 (Tribunal) = 1986 (9) E.C.R. 465] had laid down that 'Proper Officer' is defined under Rule 2(xi) as the officer in whose jurisdiction the premises of the producer of any excisable goods are situated would cover all Central Excise Officers including the Collector in whose jurisdiction the appellants premises are located. Yet another aspect which would strengthen the contention of the appellants that there has been no suppression is that in 1971 when Item 34A of Central Excise Tariff was introduced and the factory manufacturing bearings came under Central Excise Control, the unit manufacturing bimetallic strips which is the raw material for bearings was also located in the same complex at Sembium, Madras, and for a few months thereafter, that is, from May, 1971 till October, 1971 the bearings factory was put under physical control under which the clearances of the goods was after assessment and countersignature of the Gate Passes by the officers, during which time admittedly there was opportunity for them to come to know that the raw material is being manufactured and supplied from the adjacent unit of the appellants. Apart from this in 1975, when for the first time Item 68 of the Central Excise Tariff was introduced, with the objective of widening the coverage of excisable goods, surely, the Department must have besteirred themselves generally to locate new units, more so, in the light of the specific instructions issued following the Budget in 1975, emphasising that "extensive surveys alone will ultimately bring out various goods which are produced in the country and which will come under this Tariff Item 68 CET." It is in this context one has to consider the affidavits of the Manager (Production Services) in the Strip Mill Shri K.R. Ramamoorthy and that of Shri M.N. Balasubramaniam, Manager (Quality Control) of that Unit. Shri Ramamoorthy had deposed, "I can distinctly remember that particularly during every Budget time Excise Officials in a team used to visit the Strip Mill and we were every time apprising them, at their request, about the manufacturing process of sintered bimetallic strips. We had explained to them also that the strips were meant for captive consumption at our Bearing Plant where bearings, bushings and thrust washers are manufactured from these sintered strips. At this distance of time I cannot recall the dates of the visits particualrly as these visits were not followed up by any queries by the Excise teams, except to solemnly aver to the fact that these visits by Central Excise Officer did indeed take place at various times and over the years."
Shri Balasubramanian had said in his Affidavit, "Excise Officers had been visiting our Strip Mill off and on right from May, 1971 when bearings were brought under Excise levy. There were subsequent visits also by the Excise Officers about every Budget time. I distinctly remember such visits during which we have personally escorted the Officers round the Strip Mill Shop floor at the request of the officers who had wanted to acquaint themselves fully with the process of manufacture. During the discussion with the Officers on more than one occasion, we have personally informed them that the bimetallic strips produced in the Strip Mill were being sent to Coimbatore (from 1973 and also to Hosur from 1982) for further manufacture of bearings, bushing and thrust washers in the Bearing Plant there. Since there was no follow-up action on any of these visits by the Visiting Officers or the Department, no record has been maintained of either the names of the Visiting Officers or the dates of the visits."
The Collector, however, had, in our view, unjustly brushed aside the evidence of these Officers without testing its veracity as the deponents are persons who had all along been employed in the Strip Mill and were, therefore, admittedly in a position to make a statement. It is also seen that the Strip Mill is reportedly located in an industrial complex at Sembium, in the neighbourhood of other units where a number of factories under Excise Control are also located like India Pistons, Addison Paints, Simpson & Co., etc. and also it is observed that the ground plan of M/s. TAFE and M/s. Shardlow as approved by the Central Excise Department also indicate the existence of the unit producing the bimetallic strips in the neighbourhood. In such a situation, in the light of the practice following each Budget, and the imposition of new levies, especially the introduction of a totally new concept in Central Excise viz. Item 68 CET, covering goods not elsewhere specified in the Tariff, in 1975 Budget, of intensive surveys to locate new units, it will be reasonable to conclude that such surveys should have in the normal course brought the factory making bimetal strip, so located as described above, amongst other factories already under Central Excise Control, into the Central Excise net. In such a context the Collector's attempt to say that the appellants also had faulted in not coming forward themselves and making a declaration to the Department about their manufacturing activity, does not have much force. Further, the records do show that the Department did call for the Balance Sheets of the appellants and in these Balance Sheets bimetal strips have been indicated as one of their products used as raw material for the bearings. Although admittedly, as Collector has observed, the Balance Sheet is not statutorily designed for Central Excise purposes, yet information such as this can be made use of by the Revenue authorities. In fact, one such instance is available in one of the case laws cited by the Department in this case viz. that of Collector of Central Excise, Guntur v. Hindustan Shipyard, Vizagapatnam. Order No. 60/84-B, dated 6-1-1984 [1984 (16) E.L.T. 156 (Tribunal)] passed by Special Bench, CEGAT. That was a case where the Department came to know from the audit reports of the firm and after perusing the Balance Sheets of the Company for the year ending March, 1979 that they were manufacturing certain items and clearing without payment of Central Excise duty. Therefore, the Balance Sheets furnished by the appellants to the Department did contain information relevant for the Department's purposes. Therefore, the Department's stand that they did not have knowledge about the manufacturing activity of the appellants at Madras is not well-founded.
12. As regards the charge of clandestine removal, it is essential for such a charge that there should be some evidence thereof. In the normal course when it is a case of a clandestine manufacture and removal of excisable goods checks of the stocks, lorry receipts and the Check-post would yield some evidence. In this case ever since the Bearing Plant shifted out to Coimbatore, there have been regular despatch of bimetal strips from the appellants factory at Madras to their Bearing Plant at Coimbatore by road for all these years. There is no instance of any of the consignments being checked en route by any Central Excise patrol party for checking the excisability of the goods or of their movement without payment of any duty. Having regard to all the above circumstances it cannot be pretended that the Department was blissfully ignorant of the metallic strip manufacturing activity of the appellants. The plea that the goods in question were periodically regularly and systematically cleared and removed from their factory at Madras and taken to their other manufacturing units hundreds of miles away at Coimbatore, Hosur, etc. in a clandestine manner without any of the Central Excise Officer knowing anything about it is too puerile to pass muster with us or merit acceptance. The only inescapable and inevitable conclusion in the above circumstances is that the Department as well as the appellants must have seen labouring under a mis-conception or mis-apprehension bona fide that the goods in question were not excisable. It is not disputed before us that the goods in question was covered by a Tariff Item under the new Central Excise Tariff Act, 1985, which came into force from 28-2-1986, and it is also not disputed that duty is being paid by the appellants as per law conforming to all the statutory formalities. In such a situation, we are not able to appreciate why the Show Cause Notice in regard to suppression of fact and removal of goods without payment of duty for the period March, 1982 to February, 1986 has been issued only on 31-3-1987, after a delay of more than a year after the Department came to know of the manufacture of strips by the appellants. It is further seen from the records that the appellants herein had supplied with the reply to the Show Cause Notice the despatch notes of the Strip Mill, Sales Tax declaration form, Lorry Receipts with the seals of the Check Post and the goods inward notes at the receiving ends, but no verification of any of these documents has been done. On a perusal of some of these documents, it is seen for example that Part I and Part II of the Strip accountal and production accountal of the Bearing Plant at Coimbatore Unit gives in great detail, date and despatch from the Strip Mill giving its delivery note number, and the vehicle number, along with delivery Invoice, Strip number etc. and it also has a column for goods Inward Note and date thereof, production job number, strip requisition number, quantity issued and quantity produced. Admittedly a very elaborate method of accounting from the point of receipt of raw material vehicle-wise to the point of production of the finished product. In fact the quantum of duty alleged to have been evaded as well as the figures of despatches have all been calculated by accepting the figures given by the appellants themselves. In such a context, in the absence of any verification of their claim that they could account for the use of these bimetal strips in the production of the finished bearings fully and completely for the relevant period in the Show Cause Notice, and also in the absence of any evidence of any sales of the goods in the open market, the charge of clandestine removal of goods cannot be sustained. In the matter of clandestine removal of goods, the Collector had held that the verification of the figures would not serve any purpose since the goods have already gone into consumption. This, however, may not be a sound basis in view of the detailed manner of accountal as seen above of the material till its production into bearings and department's acceptance of the appellants figures of despatches. Further, the bimetallic strips are admittedly of special size and specification intended for particular use of various customers, and are not such consumer items as could easily pass into the main stream of trade surreptitiously. It is also submitted in this context that the utilisation of the bearing would have needed a heavy outlay by way of infrastructure as plant machinery etc. which clandestine removal would have necessitated. Then again there will be the question that if there was any diversion, how and wherefrom the appellants could have got identical bimetallic strips for conversion into bearings. Quite apart from that, the appellants are manufacturing the strips by a unique process and they have an agreement with their foreign collaborators M/s. Imperial Clevite Inc., U.S A. not to divulge the formula and also prohibiting sale of strips in the market lest their competitors get wise to the process. In the result, in view of the discussion above, the charge of clandestine removal is not sustainable. In this context the reliance by the appellants on the Supreme Court judgment in the Sanjana case is well placed. Interpreting the Sanjana judgment of the Supreme Court, the Bombay, Madras and Calcutta High Courts have held that there must be removal without assessment and the removal must be clandestine and the absence of either of twin criteria will preclude the application of Rule 9(2). Therefore, in this case when it has been seen from the records that the allegation of clandestine removal is not sustainable, the provisions of Rule 9(2) will not be attracted. It has also been seen that there is sufficient material on record to show that the Department can be held to have had knowledge about the manufacturing activity of the appellant in their Strip Mill at Madras. In this view of the matter, the question of penalty has now to be viewed.
13. When it is found that the charges of suppression and clandestine removal have not been established with any satisfactory evidence, the question of mala fides will have also to be considered when determining the liability to personal penalty. In this case if the authorities had brought the Strip Mill Plant under Central Excise Control in time after introduction of Item 68, then the facility was available to the appellants under Notification No. 118/75 for removing the bimetal strips to their factories at Coimbatore and Hosur for use in the manufacture of bearings there without payment of duty in terms of that Notification. Therefore, the appellants' contention that they had no motive to evade duty has a lot of force. In such a context the observation of the Supreme Court in the case of Hindustan Steel v. State of Orissa come into full play wherein their Lordships observed.
"Even if a minimum penalty is prescribed, the authority competent to impose the penalty will be justified in refusing to impose the penalty when there is a technical pr venial breach of the provisions of the Act or where the breach flows from bona fide belief that the offender is not liable to action in the manner prescribed by the statute."
In this case even if the appellants could be faulted for not having taken out a licence, under Central Excise and followed the procedures on their own, yet it would appear that there was no surreptitious activity on their part to keep the fact of manufacture of strips away from the Department's eyes, as it would appear also that the Department also had occasion to know about the manufacturing activity. The breach of the provisions of the Act in such a view of the matter has to be held as but technical, and applying the ratio of the Supreme Court judgment in the Hindustan Steel case no penalty would be called for. The Department's view regarding penalty is based on the decision of the Nizam Sugar Factory case of the A.P. High Court [1987 (27) E.L.T. 40]. However, the Hon'ble A.P. High Court was dealing in that case with the offence of non-accountal and unauthorised clearance of excisable goods etc. detected against Nizam Sugar Factory, a Central Excise licensee, following the seizure of sugar being transported from the factory without payment of duty and without any valid documents, whereas in the present case, the Department itself decided the excisability and classification of the product only in the impugned order of the Collector classifying it under Item 68 GET. In the result, the demand for duty invoking the extended period under Rule 9(2) read with Section 11A of the Central Excises & Salt Act, 1944, is not sustainable, and the penalty imposed on the appellant is also, for the reasons discussed above, not justified. The appeal is accordingly allowed.