Customs, Excise and Gold Tribunal - Delhi
Inter Metal Trade Limited vs Cce on 28 November, 2006
Equivalent citations: 2007(115)ECC45, 2007ECR45(TRI.-DELHI)
ORDER
R.K. Abichandani, J. (President)
1. The appellant challenges the order of the Commissioner (Appeals) upholding the confiscation of the goods and imposing the reduced penalty of Rs.20,000/-.
2. The appellant company was engaged in the manufacture of zinc ingots and zinc ash and availed modvat credit in respect of the inputs. During the surprise visit by the preventive officers of the excise department on 15.03.2000, it transpired, on physical verification of the finished goods and raw material in presence of Shri Rajeev Sharma, the authorized signatory of the appellant company and two independent pancha witnesses, that zinc ingots were in excess to the extent of 28,277 kgs. while there was a shortage of zinc ash to the extent of 1,33,843 kgs. We are not concerned with zinc ash because that aspect has been decided in favour of the assessee and there is no appeal by the revenue.
2.1 It was found on stock verification and sample weighment of ingots that there was excess stock of 1088 Nos. of zinc ingots weighing 26117 kgs., which were seized under a panchnama. Show cause notice was issued for confiscation of the said excess stock, with a demand of duty and proposal to impose penalty.
2.2 In the reply dated 16.01.2001, the appellant company contended that by clerical mistake they had not entered zinc ingots in the RG-1 register. The production details of zinc ingots 26117 kgs. being the weight of 1088 Nos. of zinc ingots, were given, showing that these were produced from 1.3.2000 to 11.3.2000. According to the assessee, the clerical mistake by which the goods were not entered into RG-1 register, was only technical in nature and that the stock found in the factory premises due to change in quality which was to be tested. It was contended that these zinc ingots were required to be tested for their purity and percentage before dispatch to customers and that they were not in a finished condition and would have been re-melted if impurities were more than the required percentage. It was also urged that the stock of raw material i.e. zinc scrap was verified by eye estimation by the visiting officer and there was always the possibility of an error in such estimation.
2.3 The matter was listed for personal hearing as many as ten times before the adjudicating authority but the appellant failed to attend the hearing. On the basis of the material on record, the adjudicating authority found that the authorized signatory of the appellant company Mr. Rajeev Sharma had admitted in his statement dated 15.03.2000 that he had counted the zinc ingots and total 2405 zinc ingots were found (excluding that day's production of 90 ingots). Five of those ingots were weighed by him and their total weight was found to be 120 kgs. Therefore, the total weight of 2405 ingots at 24 kg. per ingot came to 57720 kgs. However, in the RG-1 register the weight of the zinc ingots entered was shown as 31603 kgs. The authorized signatory was unable to explain the said excess of 2405 ingots. The production details of excess zinc ingots which were given by the appellant (26117 kgs.) were compared with the details in the RG-1 register which showed much less quantity in kgs. For example, on 1.3.2000, no quantity of production was shown in kgs. in the RG-1 while as per the production details given by the appellant on 1.3.2000, they had produced 10120 kgs. of zinc ingots. Taking note of such discrepancies of the production details and the RG-1 register on various dates, the adjudicating authority found that there was no evidence in support of the contention that the production was on trial basis or that the zinc ingots were required to be tested for purity percentage and were therefore, not entered in RG-1 register. On the issue of confiscation, the adjudicating authority found that the goods were liable to be confiscated since the statutory provision has been contravened and the statutory obligations were not fulfilled. The adjudicating authority therefore, confiscated the seized zinc ingots valued at Rs. 18,97,661/-which were found unrecorded in the stock, under Rule 173Q of the Rules but allowed the same to be redeemed on payment of redemption fine of Rs. 4 lacs and imposed a penalty of Rs. 50,000/- under Rule 173Q for contravention of Rules 9(1), 52A, 53 and 173G of the Central Excise Rules 1944.
3. In the earlier appeal filed before the Commissioner (Appeals) against the order of the adjudicating authority, the appellate Commissioner had set aside the confiscation of the goods and imposed a penalty of only Rs. 1,000/- on the appellant company for not properly maintaining RG-1 register. The demand confirmed and other penalties were all set aside. This order was challenged before the Tribunal and the Tribunal by order dated 12.07.2004 remanded the case to the Commissioner (Appeals) for a fresh decision. By that order, it was observed that the Commissioner (Appeals) had overlooked the authenticity of the panchnama giving the details of the goods found in excess, which was attested by Mr. Rajeev Sharma and other witnesses and that he had wrongly accepted the plea of the assessee that some of the goods did not reach the stage of entry in the RG-1 register, without assigning any reason; whereas, the adjudicating authority had rejected this plea by recording detailed reasons. It was also noted that the Commissioner (Appeals) had not referred to the statement of the authorized signatory of the assessee.
4. After the remand, the Commissioner (Appeals) has passed the impugned order in which it has been held that no explanation was given regarding excess stock of finished product, which was found in the factory premises of the appellant. It was held that the average weight based on weighment of five zinc ingots appeared to be reasonable and it tallied with the production of 15.3.2000 on which date 90 ingots were manufactured. It was also held that the facts established that the said excess stock of zinc ingots was not accounted for in the RG-1 register. Relying upon the decision of the Bombay High Court in the case of Kirloskar Brothers v. Union of India , in which it was held that Clauses (a), (b) and (c) of Sub-rule (1) of Rule 173Q did not admittedly use the expression "with intent to evade payment of duty", which was found in Clause (d) thereof and therefore, it could, prima facie be assumed that the liability in terms of Rule 173Q(1). Clauses (a), (b) and (c), did not depend upon mens rea and, therefore, the contention raised therein, that imposition of penalty and fine was not valid without establishing mens rea, was not tenable. It was held that the excess stock should have been entered by the appellant company in RG-1 register which was not done and, therefore, the goods were liable to be confiscated. In the process, the Commissioner rejected the suggestion that testing was required to be done and, therefore, the goods were not entered in RG-1 register. For this, he took note of the trade notice No. 74/94 dated 24.10.94 issued by the Indore Commissionerate in which it was mentioned that even if any testing was required on the finished goods, entry of production was still required to be made in RG-1 in column 15 i.e. in "finishing room". While confirming the confiscation of the excess stock, the redemption fine in lieu of confiscation was reduced to Rs. 2 lacs from Rs. 4 lacs, giving the benefit of the average weighment process which was adopted. The penalty of Rs. 50,000/- imposed on the appellant company was reduced to Rs. 20,000/- only by observing: "In the facts and circumstances of the case where there was no allegation of intent to evade duty or any evidence to show that the alleged excess stock was to be removed without payment of duty, a penalty of Rs. 50,000/- was quite excessive and accordingly I reduce the same to Rs. 20,000/-.
5. The learned authorized representative for the appellant strongly contended that once the Commissioner (Appeals) himself observed that there was no allegation of intent to evade duty or evidence to show that the alleged excess stock was to be removed without payment of duty and reduced the penalty, he could not have confiscated the goods and imposed such fine. He also submitted that in the earlier order dated 17.11.2003, which was set aside by the Tribunal, it was held that as zinc ingots were to be tested for their zinc content and there was no evidence to show that the appellant had attempted to remove the goods clandestinely and the benefit of doubt was extended to the appellant. It was further contended that having regard to the allegation contained in the show cause notice that there was breach of Rules 53, 173G and 226, Clause (d) of Rule 173Q(1) required existence of intention to evade duty before any confiscation order could be made. He submitted that mere non entry in the RG-1 register which could be due to innocent mistake, could not be a ground for confiscating the goods in the absence of any intention to evade duty as the requisite mens rea. He contended that there was no allegation that the goods were attempted to be removed and they were found very much in the stock and were not entered in the register because of a technical mistake on the part of the clerk since the goods were got to be tested for their purity. He also contended that the process of sample weighment of five pieces of zinc ingots was erroneous and the entire stock should have been weighed. Since that was not done, no liability could be fastened on the appellant for the excess stock of zinc ingot.
5.1 The learned authorized representative for the appellant relied upon the decision in Navkar Wires Pvt. Ltd. v. Commr. of C.Ex. & Cus. Indore, , for the proposition that where contravention of Rules 53 and 173G was also alleged which would be covered by Clause (d) or Rules 173Q(1), mens rea was required for making of an order of confiscation and that in the absence of requisite guilty mind contemplated by Clause (d), the goods could not be confiscated. Reliance was placed in this decision on the earlier decision of the Tribunal in Bhillai Conductors Pvt. Ltd. v. Commissioner, reported in 2000 (125) ELT 781 (Tribunal), in which it was held that simple failure to make entry does not attract penal action under Rule 173Q(1) and where there was composite case of contravention of Rules 53 and 173Q, no confiscation could be done under Clause (d) of Rule 173Q(1) in absence of any mens rea against the department.
6. The learned authorized representative for the department, on the other hand, submitted that the excess quantity of 1088 zinc ingots weighing 26117 kgs. which were seized under the panchnama on 15.03.2000 was not accounted for in the RG-1 register. He submitted that the raw material was duly accounted for meaning thereby it tallied with the stock entered in the RG-1 register. It was argued that in view of this discrepancy, it was for the appellant assessee to explain the excess stock and on such failure to explain, the authorities below were justified in confiscating the goods. He submitted that the observation that there was no allegation that the goods were meant for clandestine clearance was made only in the context of reducing the fine in lieu of confiscation to Rs. 2 lacs from Rs. 4 lacs and that in the same paragraph the Commissioner had already relied on the decision of the Bombay High Court in Kirloskar Brothers for holding that the excess stock was liable to be confiscated and had rejected the case of the appellant that the goods were not entered in the RG-1 register, because they were required to be tested for purity. The learned authorized representative for the department supported the reasoning and findings of the Commissioner (Appeals) in the impugned order and relied upon the decision of the Bombay High Court in Kirloskar Brothers (supra), in which it was laid-down that Clauses (a), (b) and (c) of Rule 173Q(1) did not depend upon mens rea.
7. In the show cause notice, which was issued on 28.06.2000, there was a clear mention of the fact that on verification of stock of raw material, and the comparison showed discrepancy in the stock entered in the RG-1 register of 31603 kgs. as against the actual physical stock of 59880 kgs. It was alleged that during physical verification, 2495 pieces of zinc ingots were counted, out of which 90 pieces of zinc ingots were produced on that day itself i.e. on 15.03.2000. The authorized signatory of the appellant company had admitted the physical stock of zinc ingot of 57720 kgs. as against the balance quantity of 31603 kgs. recorded in the RG-1 register, but expressed his inability to explain such non-accountal in the RG-1 register. It was clearly alleged in the notice, that 1088 zinc ingots, which were kept without accountal in the statutory record RG-1 as required by Rule 53, 173G and 226 of the Central Excise Rules, 1944, were lying with intent to clear them without payment of duty and, therefore, the said unaccounted zinc ingots were liable for confiscation under Rule 173Q read with Rule 226 of the Central Excise Rules, 1944. Despite this clear allegation in the show cause notice that this unaccounted stock of 1088 zinc ingots was not entered in the RG-1 register, as required by the Rules, so that it could be cleared in future without payment of duty, the Commissioner (Appeals) erroneously observed in paragraph 8 while reducing the fine that there was no allegation that the goods were meant for clandestine clearance. As regards the raw material, it was alleged in the show cause notice, that the stock of zinc scrap lying in factory premises was estimated and the same tallied with the balance recorded in Form-IV register (154874 Kgs.). In the panchnama which was drawn on 15.3.2000, the fact that there was discrepancy in the raw material was clearly recorded. The eye estimation process adopted at the relevant time was never objected to, and at no point of time it has been suggested that there was any discrepancy between the stock of raw material and the RG-1 register. The stock of raw material was found to be tailing with the finished products entered in the RG-1 register because, in Form IV the particulars of the raw material are required to be mentioned along with the quantity of finished products and in the RG-1 register also day-to-day entry of finished goods were required to be made. Furthermore, as noted in the panchnama, the revenue officer had ascertained that by using 1500 kgs. zinc scrap and 1/2 kg. of ammonium chloride, 40 zinc ingots can be manufactured, besides 260 kgs. of zinc ash, and that this information before them was supplied by Mr. Rajeev Sharma. The fact that no discrepancy of raw material was found when it was assessed in the presence of Mr. Rajeev Sharma, was duly recorded in the panchnama and admitted by him by putting his signature. Thus, the fact that the stock of 1088 kgs. of zinc ingot found in excess was not accounted for, stood established.
8. As noted above, the Division Bench of Hon'ble High Court of Bombay in Kirloskar Brothers has categorically held, in paragraph 9 of the judgement, that the Clauses (a), (b) and (c) of Sub-rule (1) of Rule 173Q did not use the expression "with intent to evade payment of duty", which was found in Clause (d) thereof, and therefore, it can be prima-facie assumed that the liability in terms of Rule 173Q(1) of Sub-rule (a), (b) and (c) and did not depend upon mens rea. It was also held that the question whether one had an intention to evade excise duty is a question of fact.
8.1 Rule 173(l)(a) would be attracted when there is removal of excisable goods in contravention of any of the provisions of the said rules. To illustrate, if procedural requirement of Rule 52 & 56 is violated, the said rule would be attracted. Since there is no allegation of actual removal, Clause (a) is obviously not attracted in the present case. Clause (b) of Rule 173Q(1) is attracted when the manufacturer does not account for any excisable goods manufactured, produced or stored by him. The expression "does not account for" occurring in Clause (b) indicates a situation where the manufacturer is unable to explain the quantity of the excisable goods manufactured by him. The expression "account for" as per the Concise Oxford Dictionary means, "serve as or provide an explanation or reason for (that accounts for their mishaviour)". In the present context the expression would mean, providing explanation or reason for no n-inclusion of the stock of 1088 zinc ingots found excess on physical verification, in the RG-1 register. The stock of finished products not accounted for would imply that the stock found in excess was not explained. The stock of finished product can be explained by accountal of the quantities of raw material and other inputs used for making it. If the use of quantities of inputs tallies and justifies the existence of the stock alleged to be in the excess, there would ordinary be no intention to evade payment of duty, and no n-entry in the relevant statutory record RG-1 may in such a case be procedural and a clerical lapse. On the other hand, if the stock found in excess is not so explained with reference to the raw materials and inputs that would be required for manufacture of such quantity of finished products and the quantity of finished products entered in the RG-1 register corresponds to the raw material and inputs used for their manufacture and is explained, the quantity found in excess which is not explained, would have justify a legitimate inference of intention to evade the duty that would become payable on its removal. As all the clauses of Sub-rule (1) of Rule 173Q are disjunctive and not conjunctive and therefore, there is no reason to confine that requirement of confiscation and imposition of penalty only to Clause (d) when there is a specific reference to contraventions of the nature referred to in Clauses (a) or (b) or (bb) or Clause (bbb) or Clause (c) or Clause (d) while prescribing the requirement of confiscation and imposition of penalty under Rule 173Q(1)
9. In the present case, since the appellant did not account for the excess quantity of 1088 zinc ingots meaning thereby it did not explain not only why they were not entered in the RG-1 register but also in the context of the fact that the stock of raw material was found to be tallying with the finished products entered in the RG-1 register, there was a clear warrant for confiscating the excess goods. Moreover, Clause (d) prescribed for contravention of the provision of the rules with intent to evade payment of duty and would apply in the context of other rules including Rule 53, 173G and 226. However, in the present case, the matter can rest on Clause (d) alone. In the facts and circumstance of the case the no n-explanation of the excess stock would justify the inference of intention to evade payment of duty on that stock.
10. For the foregoing reason, there is absolutely no warrant for interfering with the impugned order on any of the contentions raised on behalf of the appellant. The appeal is, therefore, dismissed.
(Dictated and pronounced in the open Court on 28.11.2006)