1. This is an appeal against the order of Collector of Central Excise (Appeals), New Delhi. The Revenue has also filed a Cross-Objection.
Both the Cross Objection and appeal have been taken up together for disposal.
2. The brief facts of the case are that the appellants manufactured P.C.C. Poles for supply to the U.P. Electricity Board as per a contract entered into between the two parties. The goods manufactured were to the specification of the Electricity Board. The contract stipulates that 1% of the Poles manufactured for supply would be tested by the technicians of the Electricity Board in the appellants' factory. A certain quantity of poles were tested by the appellants and they applied for destruction of the broken poles to the Excise authorities.
The authorities, however, raised a demand of duty in respect of these poles as there was no exemption available for the poles drawn as samples for test. The Assistant Collector confirmed the demand. The Collector (Appeals) partially allowed the appeal and restricted the demand only in respect of the poles drawn for test over and above the 1% limit specified in the contract. In this case the percentage came to 1.89%. The Collector (Appeals) adopted the reasoning given in another order passed by a different Collector (Appeals) and is set out below for convenience of reference : "I agree with the appellants' plea. Having regard to the peculiar nature of the product and the terms of the contract of sale, it is obvious that the goods are not marketable till the necessary tests are carried out. During the test if some goods are destroyed in terms of Rules 9 and 49 according to which the duty liability arises when the goods are (i) either removed from the factory, or (ii) removed for export or (iii) utilised as such in the factory or (iv) utilised in the manufacture of another commodity in the factory. The adjudicating authority has termed the destruction of the poles during test as utilisation of the poles as such in the factory i.e.
within the scope of (iii) above. I do not think that the adjudicating authority is correct in its view. Use of such concrete poles is for various tele-communication purposes. Therefore, utilisation of such poles in the factory itself for the testing purposes cannot be termed as utilisation of the poles for which these are generally used. In this view no duty is chargeable on the goods tested and destroyed by the appellant in the factory itself.
In the facts and circumstances of the case no prior permission as also necessary because all these facts were also submitted in the contract for sale itself. In the circumstances, the appellant is also not liable to any penalty. Accordingly appeals are allowed." The appellants in their appeal before us have asked for the total remission of duty in respect of the poles drawn for test and for which the duty has been demanded. The Revenue however have stated in their cross objection that there is no warrant in law to allow any remission of duty in respect of the poles drawn for test.
3. The learned Consultant for the appellants, Shri D.N. Kohli, stated that before the goods are charged to duty, the conditions precedent for the purpose of levy as set out under Rule 9 and 49 should be satisfied.
He pleaded that the goods could be charged to duty only when they are removed from the factory premises or the same were either consumed or utilised in the factory for the manufacture of other commodity. He stated that the poles drawn for test did not satisfy any one of these criteria as these were neither removed from the factory premises nor these were consumed in the factory for the purpose for which these had been manufactured nor these were utilised in the factory for the manufacture of other commodity. He has stated that the Collector (Appeals) rationale for the purpose of allowing remission upto 1% of poles while it was correct in law, the reason for his denial of the benefit of remission of duty for the remaining poles over and above one per cent was not legally correct. He also pleaded that in terms of Rule 49, the remission was permissible in case the goods were found to be non-marketable. He has stated that after the poles had been tested these became useless for the purpose for which these had been manufactured and these were not marketable as such and, therefore, benefit of the remission of duty should have been allowed in terms of Rule 49 of the Central Excise Rules. He cited the cases of Gwalior Rayons Silk Mfg (Wvg) Co. Ltd. v. Collector of Central Excise, Indore : 1985 (20) ELT 364 (Tri) and Collector of Central Excise, Baroda v. New Shorrock Mills, Nadiad 4. Learned SDR for the respondent Collector, Shri Rakesh Bhatia, read out the pleas set out in paras 6 and 7 of the Collector's Cross-Objection. He pleaded that the Department had not given any permission to the appellants for drawing samples for testing as seen from the price list approved. He pleaded that the remission of duty can-only be allowed in the contingencies as provided for under the law under Rule 49. He pointed out that the rules permitted remission only in case the goods were lost or destroyed by natural causes or by unavoidable accident during handling or storage.
5. The short point for consideration is whether the duty liability is required to be discharged in respect of goods drawn for test within the factory, when there is no specific notification issued in this regard.
6. It would be relevant to advert to the provisions of the law regarding the charge and collection of duty. Section 3 of the Central Excises & Salt Act, 1944 is a charging Section and for the sake of ready reference, the relevant portion of this is extracted below : "3. Duties specified in the (Schedule to the Central Excise Tariff Act 1985) to be levied - (1) There shall be levied and collected in such manner as may be prescribed duties of excise on all excisable goods other than salt which are produced or manufactured in (India) and a duty on salt manufactured in, or imported by land into, any part of (India) as, and at the rates, set forth in the (Schedule to the Central Excises Tariff Act, 1985)...." The manner in which the duties are to be collected are provided for under different rules. The relevant rules in this regard are as under : The relevant extracts of the rule for the purpose of the proceedings are reproduced below : "Rule 7: Recovery of duty - Every person who produces, cures or manufactures any excisable goods, or who stores such goods in a warehouse, shall pay the duty or duties leviable on such goods, at such time and to such persons as may be designated, in, or under authority of these Rules, whether the payment of such duty or duties is secured by bond or otherwise." Rule 9. Time and manner of payment of duty - (1) No excisable goods shall be removed from any place where they are produced, cured or manufactured or any premises appurtenant thereto, which may be specified by the Collector in this behalf whether for consumption, export or manufacture of any other commodity in or outside such place, until the excise duty leviable thereon has been paid at such place and in such manner as is prescribed in these Rules or as the Collector may require and except on presentation of an application in the proper form and on obtaining the permission of the proper officer on the form : Provided that such goods may be deposited without payment of duty in a store-room or other place of storage approved by the Collector under Rule 27 or Rule 47 or in a warehouse appointed or licensed under- Rule 140 or may be exported under bond as provided in Rule 13 ..." Rule 47. Goods may be stored without payment of duty - A manufacturer shall provide a store-room or other place of storage at his premises for depositing goods made on the same premises without payment of duty : Provided that, where the manufacturer undertakes to pay duty on all such goods and clear them immediately on completion of manufacture, the Collector may exempt him from providing such store-room or other place of storage ...".
Rule 49 : Duty chargeable only on removal of the goods from the factory premises or from an approved place of storage - (1) Payment of duty shall not be required in respect of excisable goods made in a factory until they are about to be issued out of the place or premises specified under Rule 9 or are about to be removed from a store-room or other place of storage approved by the Collector under Rule 47; Provided that the manufacturer shall on demand pay the duty leviable on any goods which are not accounted for in the manner specifically provided in these rules, or which are not shown to the satisfaction of the proper officer to have been lost or destroyed by natural causes or by unavoidable accident during handling or storage in such store-room or other approved premises.
Provided further that the proper officer may not demand duty due on any goods claimed by the manufacturer as unfit for consumption or for marketing subject to such condition as may be imposed by the Collector by order in writing ...." From the reading of above Sections and rules, it is clear that as soon as the goods are manufactured, a charge is created on the goods.
Collection of duty is, however, postponed and these are allowed to be kept in terms of Rule 47 without payment of duty in a store-room or other place of storage. These goods cannot be removed from the place of storage in terms of Rule 9 for clearance outside the factory including for consumption or manufacture of any other commodity in or outside the approved premises of manufacture or production without payment of duty.
The duty is required to be paid as soon as these are issued out from the place or premises of storage specified under Rule 9 or are about to be removed from storeroom or other place of storage approved by the Collector under Rule 47. Barring the case where the goods are covered by an exemption notification, there is no provision under the Central Act or rules which permit the removal of the goods from the place of storage without payment of duty. There is no warrant in reading of Rule 9 and 49 in isolation that the goods to be chargeable to duty should either be taken outside the premises for clearance or should be consumed within the factory or utilised in manufacture of other goods, as pleaded. Once a charge of duty is created on the manufacture of goods, the charge does not get extinguished merely becuase the rules provide for the postponement of duty. In fact, under Rule 47, in case the manufacturer wants to clear the goods immediately on manufacture on payment of duty these need not even be stored in any store-room. This shows that under the Scheme of Things what is required is that once goods have been manufactured unless there is an exemption notification covering the goods, the duty is to be paid as soon as these are removed from the store-room subject to the provisions for remission of duty as provided for under Rule 49. In this connection, it is relevant to mention that the Hon'ble Allahabad High Court in the case of Oudh Sugar Mills : 1982 (10) ELT 937 as to how the rules should be interpreted has observed as under : "In our view Rule 9 of Central Excise Rules puts a bar on the removal of excisable goods from the place where the same are produced or manufactured unless duty is paid. The rule by itself does not create a liability, nor can it be read as destroying a liability which is incurred under Section 3 because of manufacture or production of goods. A rule which is framed to carry out the purpose of an Act cannot be read or go to the extent of frustrating its purpose instead of giving effect to it." It has not been pleaded that the goods have been lost or destroyed by natural causes or due to unavoidable accident as provided for under Rule 49 to be eligible for remission. There is also no plea before me that goods were unfit for consumption or marketing as these became unfit only after test. In view of this, I hold that in absence of any exemption notification, the Collector (Appeals) was in error in holding that the poles drawn for test were eligible for any remission of duty.
I, therefore, set aside the order of the Collector (Appeals) and allow the plea of the Revenue and reject the appeal of the appellants.