Judgment:
1. Vide his impugned order authorities below had confirmed demand of duty of Rs. 10,86,800/- (Rupees ten lakhs eighty six thousand eighty hundred only) and has imposed personal penalty of Rs. 10 lakhs (Rupees ten lakhs only) upon the appellant on the findings of clearance of molasses without payment of duty.
2. After hearing both the sides, it is seen that the appellant who is engaged in the manufacture of sugar started their factory in the year 1994 and the production started w.e.f. February 1996. Two steel tanks were approved by State Excise Department under their certificate dt.
16.2.1996 for the purpose of storage of molasses and third tanks was under construction during the relevant period. The storage and removal of molasses is under physical control of the State Excise Department, whose officers always remain in the factory for necessary checks and control. The molasses are required to be cleared from the factory under supervision of State Excise Officer on the strength of M.F.4 (Gate Passes), which are duly signed by the Sub Inspector of State Excise.
3. The appellant's factory was visited by Central Excise Officers on 22.7.96, and no discrepancy was found in the physical stock of the sugar as also of the molasses. Subsequently on 9.8.96 Preventive Officers of the Central Excise visited the factory and on physical verification, formed an opinion that there was excess of molasses, which were seized. The said excess molasses according to the appellant were in fact water mixed with molasses, which entered in tank No. 3, which was under construction on account of leaking of valve of tank No.1. Notice was issued to the appellant for confiscating and demanding duty on the excess found goods.
4. However, the appellant's factory was again visited on 10.8.96 by the State Excise authorities who assessed the stock of watery molasses lying in uncovered steel tank No. 3 and after sending them to State Laboratory, declared the same as unfit for consumption and granted permission for draining out the same. Copy of the letter issued by controller and Excise Commissioner permitting the appellant to drain out the molasses was sent to the Assistant Commissioner, Central Excise. The appellant also applied to the Assistant Commissioner for release of the said watery molasses and permitting them to drain the same. It is seen that, subsequently number of letters were written by the appellant to the State Excise authorities but no communication was received by them. Ultimately, the appellant drain out the molasses under the supervision of State Excise Authorities under intimation to the appellants jurisdictional Central Excise Authorities.
5. Their factory was again visited by State Excise Authorities on 28.1.97, who on physical verification of molasses found a quantity of 4105 Qtls. as excess. The same was entered in their M.F.5 part-I records and also in R.G.1 Register so as to account the goods in accordance with the State Excise authorities. Ultimately, however, no objection was received from the State Excise authorities and no action was taken by them against the appellant. On account of the above adjustments made in RG.1 record based upon the initial objection by State Excise authorities, the Central Excise authorities found that the appellant had cleared the said goods without payment of duty.
According, proceedings were initiated against them for demand of duty and imposition of penalty, which resulted in passing of orders against them.
6. After hearing both the sides, and after considering the detailed factual position, as discussed above, it is seen that the drainage of molasses was, in fact of watery molasses which were declared to be unfit for human consumption. As per the appellant the same was, in fact, not marketable and hence not excisable molasses. Inasmuch as the same was mainly water mixed with molasses leaked from the valve of tank No. 1. As such, there was no requirement for the appellant to seek any remission of duty from the Revenue. In any case such drainage was conducted under the supervision of the State Excise authorities with due intimation to the Central Excise authorities, in which case it would amount to deemed application for remission of duty. Even in their reply to the show cause notice, the appellant had contended that if duty is required to be paid on the said molasses, the same should be remitted inasmuch as, the molasses were declared to be unfit for human consumption. In this situation, we are of the view that the demand of duty on the drainage out quantity of molasses is not justified.
7. As regards the wastage of molasses, it is seen that the appellant entered the same in RG.1 register only on account of objection raised by the State Excise authorities as regards, the excess quantity, which objection was never confirmed by them. Subsequently, as such, the quantity of 4105 Qntls., of molasses, if taken out form the total quantity of molasses shown as wastage, the balance shortage would remain only to the extent of 1874.50 Qntls., which is much below, 2% wastage as provided under the law. As such, we find no justification for confirmation of duty on the said quantity also.
8. In a nutshell, the appeal is allowed with consequential relief to the appellant and the impugned order is set aside.