Judgment:
1. This appeal arises from the Order-in-Appeal dated 25-3-1997 by which the Commissioner (Appeals) has confirmed Central Excise duty of Rs. 32,725/- on the allegation that on perusal of RT-7(C) of the appellants factory for 3/94 it was found that 1500 bags of Brown Sugar of 1989-90 season was processed for which only 1115 qtls of sugar was recovered resulting in loss of 385 qtls of sugar (32.07 qtls storage loss + 352.93 qtls reprocessing loss). It is alleged that this loss was not accounted for to the satisfaction of proper Central Excise officer as they failed to provide secure storage place of the said sugar which resulted in loss on storage and reprocessing. The have contravened the provisions of Rules 47,148 and 173G of Central Excise Rules, 1944.
2. It was contended by the appellants before the Commissioner that the Assistant Commissioner in his order had relied on the chemical examiner's report which has stated that 29% loss is very high considering all the aspects of loss in such cases. The Assistant Commissioner has also observed that in the similar cases, the loss was found to be 12.5% which is also very high.
3. It is stated that the observations of the Assistant Commissioner did not flow from the allegations made in the show cause notice and therefore, the order was defective. On this point, the Commissioner has agreed but however, he has observed that in the similar cases, the chemical examiner observed that 12.5% loss is very high and hence the present loss of 29% in the instant case is to be treated only on account of negligence in storing the brown sugar. On this reasoning, he has confirmed the demands. In the first instance, as stated that no duty can be imposed on the storage loss of brown sugar as has been so held, that brown sugar arising in the course of manufacture of vaccum pan sugar is not excisable goods, by Delhi High Court in their own case U.P. State Sugar Corporation Ltd. v. Union of India, as reported in 1995 (59) ECR 280. He also relied on the judgments rendered in the case of Bharat Sugar Mills Ltd. v. Collector of Central Excise as reported in 1994 (69) E.L.T. 686. He also pointed out that there was no formula available nor there was determination of normal production in terms of Rule 173E and hence the shortage arrived at was not on the basis of records or by taking of any average production.
4. The learned DR defending the order by pointing out that the figure of loss has been calculated from the register itself and on the basis of average production, the storage loss has been determined. The learned DR also pointed out that in terms of Section 35B(a) the aspect pertaining to the case of loss during the course of processing of goods in a warehouse or in storage, whether in a factory or in a warehouse does not come within the ambit of jurisdiction of the Tribunal.
6. Countering this point, the learned Counsel pointed out that the issue of manufacture of dutiability of brown sugar itself has been challenged and hence the issue does not pertain only to the case of loss during the course of processing of the goods.
7. On a careful consideration of the submissions, I overrule the objections raised by the learned DR on the question of jurisdiction as the very question of dutiability and excisability of brown sugar has been raised, the question of excisability and dutiability of goods have to be determined in terms of Section 3 of the Excises, and Salt Act.
Therefore, the matter being not a mere case of loss during the course of processing but also a question of determining the dutiability and excisability of brown sugar being involved, hence the matter is required to be determined by the Tribunal.
8. On the other points raised by the learned Counsel, there is strong merits for its consideration. The show cause notice does not rely upon the chemical examiner's report on the basis of which they have determined the loss in storage or reprocessing. In the absence of the basis adopted by the department, the very show cause notice is defective and the impugned order is required to be set aside.
9. Be it as it may be, the appellants had taken a ground that the loss in weight is due to natural causes on account of hygroscopic nature of brown sugar. On this point department have not produced evidence to rebut the defence, taken on the technical basis. As the duty is being demanded by the department, the burden lay on the Revenue to prove this point. Further the storage loss for brown sugar cannot be determined in view of the ratio of the judgments cited wherein brown sugar has been held to be not goods.
10. The third point on which the order is required to be set aside is that the report of the chemical examiner was not relied in the show cause notice including the reference to a similar case, wherein the chemical examiner had observed that 12.5% loss is itself very high. The learned Commissioner has accepted the appellants plea that the order is defective inasmuch as the report had not been relied upon in the show cause notice. Having held so, yet he proceeded to confirm the order on the basis of observation of chemical examiner. The impugned order being beyond the scope of the show cause notice and the show cause notice also being defective inasmuch as, the basis for loss has not been stated, therefore, the impugned order is required to be set aside by allowing the appeal. The appeal is allowed.