Full Judgment
1. The Brief facts of the case are that the appellant manufactures Woollen Yarn, Terry Viscose Yarn falling under chapter heading Nos. 51 and 55 of Central Excise Tariff Act on 26-11-91. Preventive Officers of HQS Central Excise visited the factory of appellant and physically verified in the presence of Panchas, Excise Clerk of factory B.J.Patel, the stock of Excisable Yarns and found stocks of 3478.900 kgs.
of Terry Viscose Yarn as against the recorded balance of 7202.450 kgs.
shortage of 3723.550 kgs. of that yarn was accepted by the above clerk in his deposition that it was carried over since long and cannot explain shortage of 3723.55 kgs. Terry Viscose Yarn valued at Rs. 558532.50, involving Excise duty of Rs. 37235.00 in all. Shri R.B.Shah, Managing Director confirmed it in his statement dated 17-12-91 as recorded in the Panchanama dated 26-11-91, and also endorsed to statement of Excise Clerk-cum-Time Keeper B.J. Patel, verification of RG-1 Register revealed that on 1-4-90 opening stock was 9794.350 and 2591.900 kgs. of Terry Viscose Yarn was cleared during the period 1-4-90 to 4-6-90 under various gate passes. Stock of 7202.450 kgs. was carried over since then till March 1991. Pre-budget day declaration on 23-7-91 also showed a stock of 7202.450 kgs. of factory, duly verified by the in-charge Inspector of the factory of the Pre-budget day/budget day. Annual Stock taking report of the said factory of Excisable goods by central excise officers conducted on 20-12-90 and 1-10-91 also revealed the said stock of 7202.450 kgs. of Terry Viscose Yarn. B.J.Patel, Excise Clerk-cum-Time Keeper expressly confirmed the shortage of 3723.550 kgs. of Terry Viscose Yarn with reference to Central Excise statutory records in his statement dated 17-11-92. Appellant contravened Rule 9(1) read with Rule 173F of Central Excise Rules and cleared the said 3723.550 kgs. found short illicitly. Show cause notice was issued on 20-4-93 to the appellant factory, calling upon to explain as to why Central Excise duty of Rs. 37,235.50 on illicitly cleared Terry Viscose Yarn of 3723.550 kgs. should not be recovered from them under section 11A of Central Excise Act, and why penalty under Rule 173Q of Central Excise Rules should not be imposed. Appellant replied it on 29-9-93,4-11-93,29-12-93 and 21-1-94. In the personal hearing on 14-10-93 and 21-1-94 appellant's counsel argued the case. On going through all the material available on record, impugned order was passed confirming the demand and penalty of Rs. 10,000/- was imposed on the appellant by Collector Central Excise II, Ahmedabad on 18-3-94. Hence the appeal.
2. On behalf of the appellant Shri. I. Chandran, along with Shri Mu-kund B. Madekar, Advocates appeared and submitted Synopsis and submitted the arguments there is no revenue loss. Moisture loss - Actual loss is for the period Nov. 91 and show cause notice is dated 20-4-93. There is no findings on invoking extended period 13-11-88 Order-in-Original upholds moisture loss and hold there is no revenue loss. Illicit removal is not proved. 20-4-93 notice covers 13-1-88 order also. Duty is always paid. As per technical literature Appendix I for Viscose Yarn, moisture loss is 13%. Here in this case it is 11.76%.
In RG 1, production is accounted. Shri G.R. Dev learned JDR for respondent has argued that method of keeping RG 1 register is defective. Permission of Juris-dictional Asstt. Collector should be taken. There is frequent occurrence, Duty is payble on moisture loss.
There is difference in RG 1 entry and actual stock. In the reply, it is submitted duty liability on moisture loss is conceded. Now manufacture is stopped.
3. Point for consideration is whether there are sufficient and satisfactory grounds to disturb the Impugned order? It is answered in the affirmative.
4. Perused the show cause notice, Reply, Written submission, im-pugnant order and order original No. 49/88 dated 13-4-88 of Asstt. Collector, Synopsis and appeal memorandum. The main ground of attack of the impugned order in the grounds of appeal is that both Managing Director and Excise Clerk, in their statements 26-11-91 and 17-12-91 have explained that difference in RG 1 register entry of 7202.450 kgs and actual stock of 3478.900 kgs. of Terry Viscose Yarn is on account of loss by way of moisture evaporation and short fall is carried over from 1986 time to time, which is not at all considered in the impugned order. RG1 register figure includes the aforesaid shortage which had taken place in the past. It is not appreciated. As per Technical Literature Terry Viscose Yarn has a process loss of moisture content to the extent of 15% to 18%, which is accepted in the order of Asst.
Collector for 1988. Pro-ducted Declaration dated 18-3-90 and 23-7-91 of the appellant is on the basis of earlier short fall. Solely relying the record existing on 18-3-90 or 30-11-90 or 27-7-91 is not correct, since shortage occurred was being carried forward. There is no wilful suppression or mis-statement by appellant show cause notice does not state any thing about it with particulars. There is no positive act of appellant attracting extended period. The defence of the appellant to show cause notice dated 20-4-93, which states on page 4, regarding the charge that "appellant appears to have removed illicitly 3723.550 kgs.
of Terry Viscose Yarn without issuing any Central Excisable pass and without payment of central Excise duty of Rs. 37,235.50 and thereby contravened Rule 9(1) read with Rule 173F of Central Excise Rules inasmuch as the failed to determine the duty liability and also failed to pay appropriate Central Excise duty leviable on 3723.550 kgs. of Terry Viscose Yarn cleared by them illicitly; Rule 173-G(1) read with 52-A of Central Excise Rules for not issuing Central Excise Gate Pass for the goods manufactured and cleared illicitly. All these acts of contravention on their part appear to have been committed by the appellant, by reason of fraud, wilful misstatement, mis-declaration and suppression of facts, with the mala fide intention to evade payment of duty, and all the above acts of appellant constitutes offences of nature as described in Rule 173Q(i)(a), (b), (d) of Central Excise Rules and so demand was issued by taking 5 years period instead of 6 months" is that when Central Excise Inspector commenced physical verification of stock on 18-3-90 and 23-7-91, he was shown the Order-in-Original No. 49/88 dated 13-4-88 and stated that stock shown in the register is actual stocks + short fall carried forward as per the above order in original and it was accepted and physical stock was stated as 3478.900 kgs. by Central Excise Inspector. Concept of Moisture loss is an internationally accepted and recognised phenominan looking to the nature of yarn it has to be processed and (preserved) in moisture condition by spraying water at the time of spinning as well as packing. The permissible moisture content is about 18% of total weight as per international standards, which is accepted in the above Order-in-Original as reproduced in the reply. So there is no question of counting any production which in fact did not exist. When shortage is because of moisture loss. There is no removal of goods physically and gate pass issuance does not arise. There is no violation of RG(1) read under Rule 173F, Rules 173G and 32A as alleged in the notice.
Moisture loss is explained in the statement of Managing Director and Excise Clerk. When there is neither production, nor removal of goods, nor issue of GPI, there is no offence prescribed under Rule 173Q(1) (a) (b) & (d) of Central Excise Rules, subsequently production of Terry Viscose Yarn is stopped. Moisture gain could not be achieved after production process is over and that too after one moisture gain. When an attempt was made to gain Moisture the yarn got twisted. Verification includes carry forward of shortage. On limitation, it is challenged that show cause notice was issued 18 months after the period, alleging fraud, wilful mis-statement and suppression. The department knew the above facts from 1988. Question of suppression does not arise. There is no such thing. Section 11A (i) proviso is only invoked to get the benefit. Show cause notice is barred by time.
5. As per the discussion and finding in Pages 4 and 5 of the impugned order, Collector Central Excise II, Ahmedabad has considered the point whether there was illicit removal of 3723.550 kgs. of Terry Viscose Yarn, without payment of duty. He has held that no evidence is produced by appellant in support of the claim that such set off of moisture loss is permitted by the Jurisdictional Assistant Collector in 1988. With reference to the manufacture loss in 1986 was not in fact deleted in records. If allowed, they would have been noted in the statutory records and balance set off to them to that extent. No technical literature was produced regarding moisture loss to the extent of 15 to 18% claim of mere 343.05 kgs. out of 7202.450 kgs. as such is contrary to the claim of above percentage. On the other hand, evidence is available that in March 1990 and July 1991 prior to the presentation of the Budget, a stock of 7202.450 kgs. have been physically verified by Central Excise Officers. It is concluded that an additional manufacture of 3723.550 kgs. of Terry Viscose Yarn, and is not accounted, and evasion of Central Excise Duty of Rs. 37,235.50 is established.
6. In view of the above, it is necessary to first consider the order No. 49/88 dated 13-4-88 of Asst. Collector of Central Excise and Customs, North Gujarat Division, Ahmedabad. It pertains to appellant only, regarding 11-8-86 visit and search by same officers for preventive check , and scrutiny of statutory and private records. The goods involved was finished Excisable yarn, in godown and storage places pledged to M/s. Dena Bank by Managing Director of appellant factory. Detailed search/verification was carried out in the presence of Panchas of physical stock of types of yarns in the presence of Mr.
Hiten Shah, authorised person for Central Excise matters of appellant and Pancha-nama was drawn and statements were recorded. Show cause notice on 23-1-87 was issued to appellant. After the receipt of reply on 28-3-87, from the appellant, and after holding personal hearing on 5-6-87, in which Shri. Khamoholja appeared for appellant and argued the matter. The charge was illicit clearance of 3380.500 kgs. of Cellulosic Spun Yarn without payment of Central Excise Duty of Rs. 22,987.00 and in its place 2796.300 kgs. Acrylic Spun Yarn valued Rs. 2,79,800/- was substituted, manufactured by appellant without accounting in Central Excise Records in the form RG 1. After perusal of all the available material on record, the Order-in-Original was passed. The defence of the appellant was same, as now set-up. In the course of the finding regarding shortage of 3380.500 kgs. in C.S. Yarn, it was observed that the party was bound to pay Central Excise Duty on the weight of yarn already recorded on RG-1 and was assurable any loss on that weight under Central Excise Rules. From the submission of, appellant at all stages it is seen that the C.S. Yarn is required to contain moisture during manufacture, storage and use. Appellant is always recording weight of C.S. Yam in RG 1 with moisture. At the time of clearance also the required percentage of moisture is maintained by treating the yarn with moisture by steam process. Thus weight of yarn with moisture as recorded in RG 1 is cleared on payment of duty without claiming any remission of duty on account of moisture content of the yarn evoporated during shortage. It is therefore clear that the duty demanded in S.C.N.on the quantity of C.S. Yarn found short by P.I. officers was even otherwise payable by the appellant and would have certainly be paid at the time of clearance. It is also observed in the end that the appellant has adopted incorrect procedure of maintaining statutory records. The quantity recorded in RG 1 must tally with the actual stock under Rule R 226 of Central Excise Rules. Any variation between is liable to penal action. Shortage of 3380.500 kgs. C.S. Yarn detected is governed by said rule. Explanation regarding moisture content of the yarn and its evaporation due to storage tendered is not supported by statutory records. Ultimately, appellant was asked to pay duty 31669.350 kgs. of C.S. Yarn at the time of clearance, already recorded on RG 1 register, including the quantity of shortage detected, at appropriate rate; and Rs. 500/-penalty was also imposed U/R 173 for violation of Rule 226 of Central Excise Rules.
7. So from the above, it is seen that duty liability of appellant is fixed on the shortage. Regarding moisture content of yarn and its evaporation due to storage is not accepted for want of statutory records. In this case as observed in the impugned order, set-off for the shortage found on the above ground is not shown by appellant in RG I Register. Before Commissioner no technical literature was produced in support of the defence. Before Tribunal, it is produced showing approximate moisture regain percentage at standard conditions at 13.0% on viscose yarn in Appendix I under Technical Service Manual and Gra-sim Industries, Birlagram, Nagola (M.P.) Even if it is accepted, duty liability exists on appellant as per the above Order-in-Original of Assistant Collector, relied on by appellant. So the above order does not help in this case, in that regard. Illicit clearance is alleged in show cause notice, and concluded in impugned order, without any positive material as to utilization of certain quantity of raw materials and production of shortage found, and its illicit clearance.
In the light of the above Technical Material, probability weighs, more in favour of appellant supporting the defence. So on merits, the appellant has a case regarding alleged shortage.
8. The impugned order has not at all considered the question of time-bar, though reply to show cause notice challenges it. It is question of law. Invoking of extended period in that regard to make demand cannot be upheld in view of the Order-in-Original No. 49/88, according to which department was aware of the activities of the appellant in 1988, itself. The question of suppression, wilful mis-statement, fraud, alleged in the show cause notice does not arise.
Particulars of them are not disclosed. Illicit production and clearance is not made out. In the absence of it, issue of gate pass, determination, approximate rate of excise duty and payment does not arise. It is only on the basis of Entry in RG I Register about the production, duty liability arises at the stage of clearance; as held in the order of Asst. Collector the Order-in-Original No. 49/88. So the contention of the appellant in grounds of appeal in clause (F) (G) (H) deserves to be upheld. Accordingly it is upheld. Point raised is answered in the affirmative. Hence the following Order :- For the reasons discussed above, the impugned order is set aside, and the appeal is allowed with consequential relief, if any, as per law.