Prayag Polytech P. Ltd. Vs. Commissioner of Central Excise

1. The appellant is a manufacturer of colouring matter and master batches. Central Excise Officers visited their unit on 3-2-2000 and took a stock of finished products lying in the factory. This revealed an excess of about 18 MTs. (2 varieties). The goods were seized and the Show Cause Notice dated 26-72000 was issued alleging that "The assessee appears to have deliberately not accounted for the excess stock of finished goods for facilitating clandestine removal and if Central Excise Officers, had not visited the unit on 3-2-2000, the finished goods found in excess could have been cleared clandestinely at opportune moment and had thereby evaded duty. Thus, it appears that the assessee has fallaciously misstated the fact to the department fraudulently with intent to evade payment of duty. The assessee also appears to be withholding entries of excisable goods in statutory records to suit his designs for facilitating evasion and by not being factual and regular in making entries in statutory records, the assessee has infringed Rules 53, 173G & 226 of Central Excise Rules, 1944". Even before the issuance of Show Cause Notice, the appellant had written a letter dated 11-2-2000 explaining that the goods found in excess on 3-2-2000 was the production of the previous night and that they came to be excluded from RG-1 register only because that register was written up to the previous day i.e. 2-2-2000. That letter further stated that "The said excess stock were in fact lying scattered in the factory after processing during the night and the earlier day and there was no excess". Under the impugned order, the authorities held that there was failure to observe the provision of Central Excise Rules which rendered the goods liable to confiscation.

2. It is the submission of the appellant that in a factory which is continuously in production, this situation will arise all the time inasmuch as the account of production will be written only once a day even as production goes on continuously. It is also being emphasized that since raw materials for the production of the goods in question had been issued and that was shown in the RG 23A Part I register, the appellant could not be alleged to have any intention to produce clandestinely and to remove without payment of duty. Learned Counsel for the appellant during the hearing of the case submitted that mere presence of excess of finished goods did not justify confiscation of the excess of the goods. Reliance has been placed in this connection on the decision of this Tribunal in the case of Lakshmi Polypack Pvt. Ltd. v. C.C.E., Hyderabad-I - 2003 (56) RLT 64 wherein the Tribunal held that non-accountal in RG-23A Part I by itself was no ground for confiscation of the goods and imposition of fine and penalty. As against this, the submission of the learned DR is that panchnama clearly has established the non-accountal of goods present in the factory. The appellant had also not explained the reason for such excess at the time of visit of the Central Excise officers. He has relied on the decision of the Bombay High Court in the case of Kirloskar Brothers Ltd. v. UOI and Ors. [1988 (34) E.L.T. 30 (Bom)] in support of his contention that mens rea is not relevant for the purpose of confiscation under Section 173Q.3. I have perused the record and considered the submissions made by both sides. The appellant's explanation merits acceptance. Account of production is entered in the RG 1 only once a day. In the present case, RG 1 register had been filled up only till 2-2-2000 while visit of the officers was on the next day. It is not being denied that the factory was in continuous production. Therefore, stock being in excess of RG 1 account is bound to take place. Further, the appellant has pointed out that the excess goods had been produced only from raw material which had been entered in the RG 23A Part I register. If it was the intention of the appellant to clandestinely dispose of the excess goods, he would not have entered the raw materials issued for such production in the raw material account. In these circumstances, the charge of any clandestine activity is not sustainable. The appellant's case is covered by the decision of this Tribunal in the case of Lakshmi Polypack Pvt. Ltd. v. C.C.E., Hyderabad-I. The observation of the Hon'ble Bombay High Court in the case of Kirloskar Brothers Ltd. has no application to the facts of the present case, inasmuch that judgment related to a case where goods in question had been manufactured and removed without payment of duty.

4. In view of what is stated above, the appeal succeeds and is allowed with consequential relief, if any, to the appellant.