Judgment:
1. The appellants are engaged in the manufacture of 'Boroplus Prickly Heat Powder' which is an ayurvedic medicine containing alcohol. The said product is covered by the Medicinal and Toilet Preparations (Excise Duty) Act, 1955 and is outside the purview of Central Excise Act. For the purposes of checking whether the product in question contains alcohol or not the central excise authorities have been drawing samples of the appellants' product and getting the same tested from time to time. The appellants have produced a list of such tests conducted during the period 1986-94. It is seen from the said list of samples drawn and tested test reports that all the tests, except the one involved in the present appeal showed presence of alcohol in the final product. The sample involved in the present appeal was drawn on 14-6-1990 under test Memo No. 2/HL/90.
2. After the drawing of the sample, the appellants were issued a show cause notice on 30-11-1993 alleging that the test result of the sample showed that the same did not contain any alcohol and as such the same was liable to duty of excise under heading 33.04 of the Central Excise Tariff read with Section 3 of the Central Excise Act. The notice proposed to confirm demand of duty of Rs. 27,67,0007- for the period starting from 14-6-1990 to 19-2-1991, when the second sample was drawn and sent for testing and was found to be positive towards alcohol. The notice invoked the longer period of limitation and also proposed to impose penalty upon the appellants. The said notice culminated into the impugned order which is under challenge before us.
3. The appellants duly represented by Shri S.K. Bagaria, ld. Advocate submit that for more than two decades the appellants have been manufacturing the said product under the drug licence and all the samples drawn by the central excise authorities showed the presence of alcohol in the product. As per the formula/composition approved by the Director of Drug Control, alcohol was one of its ingredients. All relevant statutory records relating to receipt and use of alcohol in the manufacture of the said product were duly maintained by the appellants in accordance with the provisions of the Medicinal & Toilet Preparations (Excise Duty) Act, 1955. He submits that the appellants have been following the same manufacturing formula and was also answerable to the said authorities for procurement and use of alcohol who maintain physical control over the appellants' unit. He submits that they had filed all the relevant pages of the various statutory registers showing the use of the alcohol as one of the ingredients in the manufacture of their final product under the batch number from where the sample was drawn. It was also showed to the Commissioner that the goods of the said batch were cleared from the factory under the physical control of the authorities under the Drug Act. The certificate given by the Deputy Commissioner of Excise (Special), West Bengal certifying that from the records and registers maintained by the appellants under the Drugs Act it was clear that it used alcohol in the manufacture of 'Boroplus Prickly Heat Powder' of Batch No. 84 of 6/90.
As such he submits that there could be no question of non-use of alcohol in the one particular batch of their final product.
4. Assailing the test report of the chemical examiner he submits that the sample was drawn on 14-6-1990. The appellants were informed about the test report for the first time by the Superintendent (Communication) dated 23-11-1990. Immediately thereafter the appellants explained the entire facts to the Superintendent vide its letter dated 29-11-1990 mentioning all the records/documents/registers maintained by them at their factory indicating the use of alcohol in the said batch.
The authorities were also requested to physically verify the use of alcohol in their factory. No steps were taken by the Revenue and after about a period of three years show cause notice was issued. He submits that apart from the said test report, no other details and particulars of the manner of testing were provided to the appellants. There is nothing on record to show that during the long gap of drawing of samples and the date of testing, the samples were kept in which condition. If the samples are kept in open, the same are exposed to atmospheric reaction even for a short period and there is a chance of alcohol contents evaporating therefrom. He submits that when not even a single sample drawn for a period of nine years has failed, there is no reason as to why the appellants would change their manufacturing process just for one batch. Drawing our attention to the letter dated 28-8-1995 of the appellants' jurisdictional Asstt. Commissioner of Central Excise, to whom the reply filed by the appellants was sent by the Commissioner for his comments, Shri Bagaria submits that even in the said letter the Asstt. Commissioner has observed that in most of the cases testing was done within a period varying from about ten days to two months from the date of drawing of the samples, whereas in the present case testing has been done after a period of four and a half months. Accordingly he has recommended that it may be verified from the chemical examiner's end as to whether by reason of being kept in open and exposed to atmospheric reaction for a long time, the alcoholic contents will evaporate due to atmospheric reaction. Inspite of the said recommendation, no further verifications were conducted from the chemical examiner. As such he submits that the confirmation of demand of duty upon the said report was not justified, in view of the doubt about the correctness of the report.
5. Shri Bagaria further submits that the Commissioner has not doubted the correctness of the records maintained by the appellants and have confirmed the demand of duty on flimsy grounds. In any case he submits that the test report of batch No. 84/6/90 could only be confined to the goods of the said batch and the Revenue's action in confirming demand of duty till the date of drawing of the next sample was against the law laid down by the Tribunal in various decisions.
6. He also assails the confirmation of demand of duty on the point of limitation. He submits that apart from the fact that Central Excise Act is not applicable to their goods, there was no justification for invocation of longer period of limitation. He submits that the show cause notice was issued on 30-11-1993. The sample was drawn on 14-6-1990 and the test report was given in November 1990. As such the issuance of the show cause notice after a period of six months from the relevant date is clearly barred by limitation inasmuch as the conditions precedent for invoking the longer period of limitation as laid down in the proviso to Section 11A(1) did not exist. There is no scope to allege any suppression of facts on the part of the appellants so as to invoke the longer period of limitation. In view of the foregoing he prays for setting aside the impugned order confirming demand of duty and imposing penalty upon them.
7. Shri V.K. Chaturvedi, ld. SDR appeared on behalf of the Revenue and reiterated the reasoning of the Commissioner. It has been argvied that the test of the samples have shown absence of alcohol from the appellants' product and as such the duty has been rightly confirmed by the adjudicating authority with imposition of personal penalty.
8. After carefully considering the submissions made from both the sides we find that the Revenue has been drawing samples of the appellants' product right from 1986 onwards. Even after the drawing of the present sample on 14-6-1990, a number of samples have been drawn thereafter.
All of them have shown presence of alcohol in the appellants' final product except the one under consideration. The appellants' submission is that there must be some error crept in the testing of the sample which has shown negative towards presence of alcohol inasmuch as the appellants have followed the same pattern of manufacture in the present batch also. We find force in the above submission of the appellants.
The appellants are licenced for manufacture of 'Boroplus Prickly Heat Powder', which is an ayurvedic medicine containing alcohol. As per the Medicinal & Toilet Preparations (Excise Duties) Rules 1956, the appellants are required to maintain various statutory records as regards use of alcohol in manufacture of goods and are required to file the same before the relevant authorities. The appellants have placed copies of all these records before the adjudicating authority showing procurement and use of alcohol for the batch in question also. The said registers maintained by the appellants in the ordinary course of their business have not been doubted by the adjudicating authority. In any case it does not appeal to logic that the appellants would change their manufacturing formula only for one batch whereas all other batches have shown positive towards alcohol. Such a change in the manufacture formula/composition by the appellants for one particular batch in between does not seem to be possible for feasible option. We also take note of the fact that the present test was conducted on the sample after a period of about four and a half months whereas as per letter of the Asstt. Commissioner referred supra the tests in all other samples were conducted within a period of ten days up to maximum of two months.
As such there is a chance of the alcohol having been evaporated from the final product if the same has been kept in the open and or in not desirable conditions. That makes the test report open to doubt. As such we feel that the confirmation of demand of duty based upon the said test report is not justified. Accordingly we set aside the impugned order and allow the appeal with consequential relief to the appellants.
9. Inasmuch as the appeal has been allowed on merits. We are not expressing our opinion on the alternative pleas raised by the appellants.