Judgment:
1. All these appeals arise from and are directed against a common order (Order-in-Original No. 34/97 dated 31-12-97). Accordingly, they were taken up for hearing together and are disposed of under this common order.
2. The impugned order was passed pursuant to an order of remand (Final Order No. 263 to 268/96-C dated 12-4-96) passed by the Tribunal. The main direction in the order of the Tribunal was to determine the quantity of eyebrow pencils removed without payment of duty on the basis of quantity of the four essential raw materials used exclusively in the manufacture of eyebrow pencils. In terms of this direction, the Commissioner has determined the duty liability on goods removed without payment of duty at about Rs. 22.07 lakhs. He has also imposed penalties and confiscated eyebrow pencils valued around Rs. 4.5 lakhs.
3. We may take up the appeal of the manufacturer namely M/s. Standard Pencils Pvt. Ltd., first. The main grievance is that the quantification of production has been done without giving any allowance for wastage and process loss. It has been contended that the quantity determined and duty demanded are high for this reason. It is the contention of the appellant that if process loss of 8% and wastage of 3% were allowed, it would have been found that there was no clandestine removal at all. To this, the objection of the Revenue is that these claims have been made only to show that there was no clandestine removal and that this contention cannot find acceptance since, after considering the evidence in the case, the Tribunal had upheld the charges of clandestine production and removal. It is also being submitted that the claims are being made without any supporting evidence.
4. The direction of the Tribunal on the question of quantification is as under: 14 (i) We hold that quantity of eyebrow pencils removed without payment of duty be worked out on the basis of quantity of 4 essential raw materials used exclusively in the manufacture of eyebrow pencil as indicated in the Raw Materials Accounts, by adopting the formula relied upon by the Collector himself and duty on eyebrow pencils to the extent these are not accounted in RG 1 Register, be worked out accordingly.
5. When the case came for reconsideration, the Commissioner directed the assessee to furnish the production data based on the consumption norm of raw materials. The total production was worked out and furnished by the assessee itself. The assessee has produced no evidence about the aforesaid wastage or process loss. The claims are being made in a vacuum. The Revenue is, therefore, right in its submission that in the absence of substantiation of the claims, they cannot be allowed and the quantification varied. We are in agreement with the contention of the Revenue in this matter. Accordingly, the appellant's claim for refixing of the quantity of removal and consequent reduction of duty fail.
6. The second claim of the appellant is that duty has been worked out without treating sales realisation as cum duty price. It is being pointed out that it is now well settled that in the case of non-duty paid goods, their sale price should be treated as cum duty. While the Revenue is riot contesting this legal position, it is being pointed out that the Tribunal had rejected this claim of the appellant and that decision became final in the absence of any appeal against that order.
It is also being contended that once a decision has become final on an issue between the parties, it is not permissible to reopen the matter in collateral proceedings.
7. We find that this claim had been raised before the Tribunal in the first appeal and the Tribunal held against the assessee. We read sub-para (iv) of the Tribunal's order at para 14.
(iv) Duty payable cannot be allowed to be deducted from the price at which goods have been sold.The assessee did not challenge the above order. Thus, the decision has become final and binding between the parties. It is well settled that a wrong decision by a court having jurisdiction is as much binding between the parties as a right one and may be superseded only by appeals to higher tribunals or other procedure like review, which the law provides. We may note the ruling of the Hon'ble Supreme Court on this issue in the case of State of West Bengal v. Hemant Kumar and Ors.
. We read the relevant para: 14. Before proceeding with these arguments in detail, we can dispose of second contention very shortly. This argument proceeds on a fundamental misconception, as it seeks to equate an incorrect decision with a decision rendered without jurisdiction. A wrong decision by a court having jurisdiction is as much binding between the parties as a right one and may be superseded only by appeals to higher tribunals or other procedure like review which the law provides. The learned Judges of the High Court who rendered the decision on 4-4-1952 had ample jurisdiction to decide the case and the fact that their decision was on the merits erroneous as seen from the later judgment of this Court does not render it any the less final and binding between the parties before the Court. There is, thus, no substance in this contention. The decision of the High Court dated 4-4-1952 bound the parties and its legal effect remained the same whether the reasons for the decision be sound or not.
8. To the same effect is the judgment of the Hon'ble Supreme Court in the case of Moti Laminates (P) Ltd. v. Union of India this judgment has been relied upon by the Revenue. We read the judgment.
The issue of classification has become final insofar as this appeal is concerned in as much as the judgment of the High Court was challenged by the Revenue belatedly and the special leave petition was dismissed. In an unconnected appeal to this Court, the issue that was raised was identical to the issue raised before the High Court in this appeal and this Court reversed the view taken by the High Court. It is submitted by learned Counsel for the respondent (Revenue) that, therefore, we should dismiss the claim of the appellant to refund the excise duty that it paid. In that behalf reliance is placed upon the judgment of this Court in Shenoy and Co.
v. Commercial Tax Officer, Circle II Bangalore . It is also submitted that we should not interfere in a case like this under Article 136.
2. In the first place, in the judgment in the case of M/s. Shenoy & Co. several writ petitions raising the plea of unconstitutionality had been allowed by the High Court by a common judgment and a mandamus was issued to the respondent-State. The respondent-State preferred an appeal only against one of the writ petitioners. This Court, employing the provisions of Article 141, held that the mandamus issued by the High Court was rendered ineffective in the case of all the writ petitions. That judgment can have no application to the facts of the case before us, which facts we have already indicated.
3. Equally, there is no substance in the contention that we should not interfere under Article 136. The judgment of the High Court having become final, the assessee is entitled to a refund of excise duly ordered thereby, such refund to be considered by the authorities in the light of the statute, as amended, and the judgment of this Court in the case of Mafatlal Industries Ltd., v. Union of India and Ors.
From the above, it is clear that despite the apparent merits of the contention of the assessee on the issue of valuation, no relief is permissible. Accordingly, this claim of the assessee also fails.
9. The third submission of the assessee is with regard to confiscation.
It is being pointed out that the goods in question were seized on 5-12-1990/February/March -1991 from five different premises and the Commissioner has confiscated the goods and imposed a common redemption fine of Rs. 1 lakh. The appellant's contention is that the confiscation is contrary to the finding on evasion of duty. It is being submitted that according to duly evasion determined in the order, no duty liability arose for the year 1989-90 and 1990-91 and since there is no finding that these goods were not duty paid, they cannot be treated as offending and confiscated. It is also being pointed out that since the goods were confiscated from different parties, each consignment was required to be dealt with separately. There is merit in these contentions of the appellant. Since the seizures were effected towards the end of 1990 and first quarter of 1991 and since there was no duty demand for the financial years of which these periods form part, these consignments prima facie cannot be held as offending. Therefore, relief is warranted in regard to confiscation and redemption fine on these goods. Accordingly, their confiscation and redemption fine are set aside.
10. The last submission of the appellant is with regard to the penalty of Rs. 5 lakhs imposed on it. The contention is that a much lower penalty alone would be justified in view of the fall in the duty demand from the original amount of about Rs. 1.5 crores to the present amount of Rs. 22.07 lakhs. We find no merit in this claim. The clandestine activities of the appellant and evasion of duty remain established.
Therefore, penalty is justified. The amount of penalty is also not disproportionate or excessive to the duty evasion determined under the impugned order. Therefore, the plea of the appellant in regard to penalty is rejected.
11. That brings us to the appeals of S/Shri R.S. Falor and K.K. Falor, Directors of the company. These appeals are directed against imposition of penalties on them. The submission of the appellants is that Rule 173Q of the Central Excise Rules provide for penalty on the "manufacturer' and not on Director of a manufacturing company. It is being submitted that this proposition remained settled by the decision of the Hon'ble High Court of Bombay in the case of S.L. Kirloskar v.Union of India and this judgment was upheld by the Hon'ble Supreme Court [1997 (94) E.L.T. A248]. There is also a submission that, in any case, in the absence of specific finding that the individual Directors in question were involved in and were responsible for the tax evasion, no penalty could be imposed on them.
We find that these appeals merit acceptance for the reasons adduced by the appellant. They are allowed and penalties imposed on them are set aside.
12. Now, we come to the appeal filed by the Revenue. The appeal contends that the Commissioner should not have reduced the duty demand and seeks the restoration of the original duty demand made in the first adjudication. It is being pointed out that the assessee had not entered the full quantity of raw materials in their books of accounts and also that the Commissioner was in error in taking into account material in process. Reliance is also being placed on the statements and other evidence about clandestine activities.
13. The submission of the learned Counsel for the assessee is that these objections are not sustainable at all in view of the observations of the Tribunal in para 7 of its order with regard to authenticity of the quantity of raw materials mentioned in the assessee's register. It is also being pointed out that Tribunal had ordered that the quantity of eyebrow pencil removed without payment of duty be worked out on the basis of raw materials indicated in the raw materials accounts. It is the assessee's submission that no other material could be gone into in view of the specific direction in the remand order.
14. We find that the authenticity of the raw material account kept by the assessee was a specific issue before the Tribunal in the first appeal. The Tribunal observed as under in para 7 & 7.1. We read those paras: 7. The question, therefore, that arises is whether demand of duty relating to eyebrow pencils is to be based on the quantity worked out from the raw material register or entire quantity of kumkum pencil as indicated in the sales invoices is to be taken as the basis, on the assumption that such quantity in fact was only eyebrow pencils. Collector in Para 31 of his order has observed: It is seen from the 'Raw Material Stock Register' maintained by SPPL that the said 4 raw materials required for manufacture of eyebrow pencils had been regularly consumed by SPPL during the period relevant to this case (i.e., from 1-4-1986 to 3-12-1990) Shri Ranganathan, the Storekeeper had stated that he had maintained the Raw-material stock register and had made receipt entries in the register, after verification as and when raw-materials are received and similarly as and when issues are made entered the same in issues column. One of the charges made in the Show Cause Notice is that even though the said four raw materials had been regularly consumed, the production of eyebrow pencils reflected in the daily stock account RG 1 is not in proportion to the quantum of the raw-materials consumed as per the raw-material stock register.
7.1 In this Para, there is no allegation that raw material accounts are not correctly maintained. In fact, Collector has specifically observed that these raw materials had been regularly consumed by SPPL during the period relevant to this case, i.e. 1-4-1986 to 3-12-1990. There is nothing lo cast doubt on the authenticity of raw materials register. In this context, therefore, it would not be fair to reject that part of evidence as reflected in raw material accounts, which evidence in fact is mainly relied upon to raise the charge against the appellant, and to use that evidence in arriving only at assumption that since some quantity as ought to have been produced, has not been entered in RG 1, all the kumkum pencils such as were accounted were in fact only eyebrow pencils, which had been removed as kumkum pencil. To the extent some quantities expected to have been produced from the raw material consumed were not accounted in RG 1 would not lead to the inference that entire RG 1 was falsified by indicating production only of kumkum pencils. Such an assumption would involve rejection of the evidence in the form of Raw Material Accounts, an evidence heavily relied upon by Collector himself. There is no allegation that raw material accounts were not maintained correctly nor any allegation also that raw materials reflected only partially correct position. We are, therefore, of the view that in absence of evidence indicating removal of each and every kumkum pencil as eyebrow pencil only, it would be reasonable to base the demand in regard to eyebrow pencils only on raw material accounts accepted by Collector himself as authentic.
15. No appeal has been filed by the Revenue against the above observation and findings. The remand was also specifically for working out the quantity on the basis of raw materials "indicated in the raw materials accounts". In these circumstances, it is not permissible to take into account factors other than the raw materials indicated in the raw materials accounts. The Revenue's appeal, therefore, cannot find acceptance. It is rejected.