Judgment:
1. Brief facts of the case as given in the impugned order are as follows :- 1.1. M/s. Raza Textiles Limited, Rampur (hereinafter referred to as the appellants) manufacturers of cotton fabrics falling under Tariff Item 19 of Central Excise Tariff and man-made fabrics falling under Tariff Item 22 of Central Excise Tariff are alleged to have contravened the provisions of Rule 53 read with Rules 173G(4), 9(1), 52A, 173G(1) and Rule 173F of Central Excise Rules, 1944 inasmuch as on 3rd April, 1984, the Deputy Collector (Prev.), Central Excise, Meerut and Assistant Collector (Prev.), Central Excise, Meerut assisted by the Central Preventive Officers, visited the premises of the appellants and on scrutiny of the stocks and accounts, the following irregularities were detected :- (i) The production entries in R.G. 1 register were not being made daily and were being made on the 3rd day.
(ii) The appellants were obliged to maintain R.G. 1 register with separate openings with each value-slab as per Government of India's Notification No. 251/82-C.E., dated 8-11-1982, as amended. But the value-slab-wise register of processed cotton fabrics and man-made fabrics were not being maintained by the appellants. It was also detected that the quantity of processed cotton fabrics, duly measured and folded, found stored in the packing room, was not entered in R.G. 1 register. Shri Shiv Gulam Srivastava, authorised representative of the appellants and Shri S.K. Zaki, Warehouse Incharge of the appellants, present at the time of the aforesaid checking, failed to produce any account showing the quantity of fabrics received and stored after final processing, finishing, folding and measurement had been completed thereon.
(iii) On physical verification, a quantity of 2061 meters of finally processed and finished man-made fabrics duly folded and measured was found stored in the packing room/warehouse of the factory, but this quantity was found not to have been entered in the R.G. 1 register.
(iv) On physical verification of the stocks of the finally processed and finished cotton fabrics, duly folded and measured, a quantity of 3,30,214.72 meters of such fabrics was also stored in the packing room/warehouse without any accountal in the R.G. 1 register.
(v) A quantity of 2527 Kgs. of Fents of processed cotton fabrics was found lying in a separate room adjacent to the place of storage of grey cotton fabrics without any accountal in R.G. 1 register.
(vi) R.G. 1 register for Rags of processed cotton fabrics reflected nil balance, but on physical verification, a quantity of 734 Kgs. of such Rags was found I stored in the finishing room.
(vii) The appellants were maintaining a serially numbered note-book for the receipts of grey cotton fabrics from weaving section and issues thereof to the Dyeing Section and stocks positions were being reflected. On physical verification, a quantity of 25201.40 meters of grey cotton fabrics of different sorts was found unaccounted for in R.G. 1 register.
(viii) A quantity of 33849 meters (28448.13 sq. Mtrs.) of cotton fabrics and 3885.57 sq. Mtrs. of man-made fabrics of grey fabrics was also found short in the factory.
1.2. Shri Shiv Gulam Srivastava, Authorised Signatory of the appellants was present at the time of visit by the officers aforesaid, and, he admitted in writing all the above irregularities. He further admitted that no entry of processed and finished cotton fabrics and man-made fabrics was made in R.G. 1 even after it was folded and measured. He also admitted that R.G. 1 Register was not being maintained value-slab-wise. He also admitted that the following goods were found unaccounted for in the R.G. 1 register and short at the time of the visit by the officers:---------------------------------------------------------------------------------Sl.
Description of Goods QuantityNo.2.
Processed cotton fabrics in which average count of 3,30,214.72 Ktrs.
yarn was less than 51.6.
-do- Grey cotton fabrics 25201.40 Mtrs.-------------------------------------------------------------------------------- 13. Shri Shiv Gulam Srivastava, Authorised Signatory of the factory, admitted that proper maintenance of R.G. 1 register, was fully and properly explained to him by the Collector, Central Excise, Meerut during the course of Regional Advisory Committee Meeting but still he could not ensure proper maintenance of R.G. 1 Register. He mentioned the total quantity of shortage of 33849 Mtrs. of grey cotton fabrics under one head, but on examination, it was found that the quantity included sort Nos. 3135, 3187 and 3135A which were man-made fabrics.
This quantity of 3720.6 Mtrs. or 3885.57 Sq. Mtrs. of man-made fabrics and the remaining quantity of 31028.4 Mtrs. or 28448.13 Sq. Mtrs. of cotton fabrics had been cleared after processing from the factory in a manner otherwise than as provided under the Central Excise Rules, 1944.
1.4. The aforesaid unaccounted for stocks of cotton fabrics, both grey and processed, Fents, Rags, man-made fabrics as detailed above, were seized under the reasonable belief that the same are liable for confiscation under the Central Excise Rules.
1.5. On due adjudication by the Additional Collector the charges were upheld against the appellants herein and a penalty of Rs. 50,000/- was imposed on them under Rule 173Q. The adjudicating authority has ordered confiscation of 2061 Mtrs. of processed man-made fabrics, 330214.72 Mtrs. of processed fabrics, 2527 kgs. of fents of processed cotton fabrics, 734 Kgs. of rags of such fabrics and 25201.40 Mtrs. of grey cotton fabrics under the aforesaid Rule 173Q. The appellants, however, have been given the option to redeem the confiscated goods on payment of a fine of Rs. 50,000/- in lieu of confiscation. The adjudicating authority has also demanded duty amounting to Rs. 11,228.05p leviable on 28448.13 Sq.Mtrs of cotton fabrics and Rs. 1,889.15 leviable on 3885.57 Sq.Mtrs of processed man-made fabrics cleared from the factory illicitly without payment of duty. The interest at the rate of 17.5% has also been ordered to be charged from the date of issue of the impugned order.
1.6. Since the seized goods were provisionally released on execution of a B-11 bond for Rs. 23,38,100/- with a security in the form of bank guarantee for Rs. 5,84,525/-, the appellants were asked to produce the said goods in terms of the bond. Since the party failed to produce the seized goods, the adjudicating authority in order to enforce the said Bond appropriated Rs. 50,000/- towards penalty, Rs. 50,000/- towards redemption fine and Rs. 13,117.20 towards Central Excise duty and interest thereon from the security of the said B-11 Bond.
3. Learned Consultant, Shri Rameshwar Singh, for the appellants has urged that the allegation regarding non-maintenance of R.G. 1 account till the third day of the production was done in accordance with the instructions of the Collector of Central Excise, Allahabad, made as far back as 1965 and further brought to the notice of the local officers on bifurcation of the Collectorate in 1980. He draws attention to the permission given in this connection to the appellants which is reproduced below:- Authority: Collector of Central Excise Allahabad's letter C.No. V 19(3)148/65 dated 19-11-1965 communicated vide A.C. Rampur's endstt. C.No. VI(21)(C.F.) 181-CE/65/14227 dated 25-11-1965Noted Sir, Sd/- 3.1. Dealing with this contention, the adjudicating authority has observed as follows:- "It is further noticed that the abovesaid authority of Collector of Central Excise, Allahabad whereunder they have claimed to have been permitted to post entries in R.G. 1 on the 3rd day has not been filed either in original or in a copy and therefore, it is not possible to find out the context and the scope of such orders, if any. Instead, they have filed a photo copy of a single sentence-remark quoting some numbers of the letters giving dates of November, 1965 and signed by Resident Inspector of Central Excise on 1-12-1965 in a photo copy. This photo copy does not mention that this permission was given to M/s Raza Textiles as no name of any assessee is mentioned. Even the remark given in this paper slip is neither addressed to nor endorsed to M/s Raza Textiles. Therefore, such a document cannot be taken as an authority for non-accountal of production by M/s. Raza Textiles as detected in April, 1984." 4. We have carefully considered this issue and the pleas advanced on both sides thereon. We observe that the adjudicating authority's rebuttal of the permission given by the Collector of Central Excise, Allahabad, reproduced above is untenable. The permission, no doubt, is given in one sentence but it clearly mentions the reference of Collector of Central Excise, Allahabad's letter dated 19-11-1965 as well as Assistant Collector, Rampur's endorsement reference dated 25-11-1965. It was incumbent upon the adjudicating authority to have verified these references which must be available in his office or Assistant Collector, Rampur's office or Collector of Central Excise, Allahabad and seen the contents of those letters and then come to the conclusion whether the permission was duly given to Raza Textiles or not. If the permission has been given in the form as mentioned above by the local Central Excise officers, fault cannot be laid at the doors of the appellants. Apart from this, I find substantial force in the plea of the learned consultant for the appellants that this practice has been continuing for well nigh 19 years and it had not been questioned till the visit of the officers in April 1984. To make out a case against the appellants on this basis is nothing short of a scandalous act on the part of the departmental authorities. These are mere matters of procedure. The procedure which has been in existence for such a long time should not lead to making an offence against a manufacturer/assessee unless an assessee deliberately flouts it even after warning. We, therefore, hold that the allegation of not maintaining R.G. 1 on daily basis is not substantiated in view of the specific permission given to them.
5. The next allegation is regarding non-accountal of the following fabrics:---------------------------------------------------------------------------------Sl. Description of Goods QuantityNo.2.
Processed cotton fabrics in which average count of yarn was less than 51.5.
-do- Grey cotton fabrics 25201.40 Mtrs.-------------------------------------------------------------------------------- Main plea of the appellants is that there has been actually no non-accountal of processed fabrics, rags or chindies thereof. This non-accountal, according to the learned consultant, flows from the method of maintaining the account since long and which has not been questioned till the date of seizure by the departmental authorities.
Account of fabric sortwise both for cotton and man-made, is made as soon as grey fabric is woven at the off loom stage. No account is kept at the intermediate stage of processed fabrics lying in the finishing room or the packing room. It is only after the processed fabric has been inspected, measured, folded and baled and the bales are removed to the bonded storeroom that the account thereof is maintained in EB-4 register. The corresponding remark about this stock account in EB-4 register is given in the R.G. 1 register against the corresponding date. This has been the practice, according to the learned consultant and was never challenged by the department. This has been the practice in the other composite mills of the State according to a letter dated 19-2-1986 from the U.P. Chamber of Commerce relied upon by the learned consultant. The precise reason for not maintaining the accounts at intermediate stage of processed fabrics is that "it is impossible to arrive at any enumeration of stock-in-process, unless and until the variety of fabric is measured in its entirety, i.e. in all the places and points of the shop floor of the manufacturer where such fabric is undergoing process or stacking". The fabric is already accounted for in grey stage at off-loom stage and it would be merely a duplication of maintenance of accounts of fabric if processed fabric stage is also accounted for. Further, it will not be possible to correlate the entries between grey fabric and the processed fabric because of the elongation of the fabric that takes place during process. It is in view of these circumstances, according to the learned consultant that the practice is to account only for the fabric at off-loom stage. The finishing stage is accounted for only when the fabric is baled and put in the bonded store room. For that the account prescribed is EB-4.
Learned consultant's plea that the fabrics alleged to be not accounted for was all included in the grey fabric of both man-made and cotton variety on the last date or balance shown in the R.G. 1 plus the production that had taken place since the last date shown in the R.G. 1 covered by various shiftwise and sortwise weaving efficiency reports given to excise officer. In short, he submitted that the case of non-accountal of processed fabrics or fents, rags and chindies thereof is based entirely on the procedural aspect which was in force for a very long time.
5.1. As regards the non-accountal of rags and chindies found in the finishing room/packing room a farther plea of the appellants is that the rags and chindies are accounted for when they are bagged and the process of bagging was stopped because of the visit of the officers.
Hence they could not be accounted for.
5.2. The adjudicating authority has dealt with some of the aforesaid pleas. It has observed as follows:- "It is observed that undoubtedly cotton fabrics and man-made fabrics have to be accounted for in R.G. 1 as soon as they come off the looms but this requirement does not postulate that no further accountal in R.G. 1 is required even when the grey fabrics undergo different types of processing and attain the condition of distinct and processed goods. It is noteworthy that grey cotton fabrics and the processed cotton fabrics are two different types of goods having different name, character and use and this fact is corroborated by separate classification of unprocessed cotton fabrics under sub-item 1 (a) of Item 19 of CET and of processed cotton fabrics under sub-item l(b) of Item 19 of CET. Therefore, the grey and processed fabrics should have been accounted for in separate openings or sections of R.G. 1 and even if it is assumed that all the grey fabrics produced in the factory was initially accounted for in R.G. 1, it would not mitigate the allegations in the show cause notice.
The party's plea that accountal of grey as well as processed fabrics would involve duplicate accounting and that instructions do not provide for maintenance of two R.G. 1 accounts for the same goods, is manifestly mis-conceived. As already discussed above, the grey fabrics and the processed fabrics are not the same goods. When after initial accountal at the grey stage, fabrics are processed and finished, they will be deducted from the R.G. 1 for grey fabrics and will be added to the RG-1 of the processed fabrics. In the circumstances, there is no question of any over-lapping or duplicate maintenance of R.G. 1. For the above reasons, the letter dated 7-1-1985 from U.P. Chamber of Commerce, Kanpur does not lend any force to the defence contention".
5.3. We have carefully considered the pleas advanced on both sides on this issue and we are inclined to agree with the appellants, learned consultant that this is again a procedural matter which had been in vogue to the full knowledge of the departmental officers. It was not as if the appellants had changed the practice of maintaining of accounts all of a sudden. While the department undoubtedly may prescribe maintenance of records of fabric at off-loom and other stage but the fact remains, according to the practice in this case, that the R.G. 1 being maintained for fabrics at off-loom stage only and for baled fabrics in EB-4 Register. There was no practice of maintaining account of fabrics lying in the finishing room/packing room. RT12 returns were being furnished by the appellants on the basis of that account and finishing room column was shown blank all throughout so far as the processed fabric was concerned. It would be apparent from the RT-12s being submitted by the appellants. Officers had been visiting, audits were being done, inspections were carried out and yet no objection has been taken to this manner of maintaining the accounts. As already observed that it is improper for the department to book a case against the appellants on a mere matter of procedure which had been in vogue for a long time without any question even though it may not be strictly in conformity with the provisions of Central Excise Rules. In ground No. (xvii) and (xviii) the appellants have stated as follows:- "(xvii) Because no objection to the manner and method of accounting of fabrcis, as in vogue, was, ever raised by Collectorate Audit or Accountant General Audit. The unit was audited by them on 10-5-1979 to 18-5-1979,18-7-1980,10-8-1982 to 30-8-1982,9-4-1985 to 19-4-1985,6-12-1982,12-12-1982,24-8-1983 to 27-8-1983,19-3-1984 to 21-3-1984, 27-9-1984 to 29-9-1984, 24-4-1985 to 25-4-1985. The appellants books of accounts were found by them to be in order.
(xviii) Because in the case of composite mills, for ascertaining the stock at any time, it is essential that stocks lying in the factory be checked in their entirety and this method of ascertaining stocks was not adopted by the preventive officers on 4-4-1984, and without doing so, processed fabrics worth Rs. 23,38,100/- were seized, even though recorded in the R.G. 1 account in their off-loom grey state.
In support, the appellants rely upon the letter dated 19-2-1986 from the U.P. Chamber of Commerce, Kanpur, submitted herewith as Annexure XXI Paper Book P. 168." We find substantial force in the aforesaid pleas. Certainly such a vital matter of accounting the processed fabric could not be missed by so many inspections and audit parties. Therefore, the order of confiscation of fabrics by the adjudicating authority is set aside and consequently redemption fine is also set aside.
5.4. Next allegation is regarding non-maintenance of accounts slab-value-wise. For maintenance of accounts in this form, the department has relied upon a Notification 251/82. The appellants have urged that it is not possible at all to maintain accounts slab-value-wise. They manufacture about 500 different sorts of fabrics and prices thereof keep fluctuating involving change of slabs.
Accordingly, slabwise recording of entries would not be practicable. In this view of practical difficulty the jurisdictional Central Excise authorities, the inspecting officers Collectorate's Internal, and Accountant General's, Audit Parties, never raised any objection in this regard.
5.5. We appreciate the difficulty of the appellants. This is again a matter of procedure and if there has been any shortcoming in following the procedure on the part of the appellants matter ought to have been brought to the notice of the appellants immediately by the concerned authorities and the procedural defect rectified. A practical view has to be taken in these things. It does not call for booking an offence unless, as observed above, an assessee has been properly warned.
6. The last allegation is that 28488.13 Sq. Mtrs. of cotton fabrics and 3885.57 Sq. Mtrs. of man-made fabrics were illicitly removed from the factory without payment of duty because these were found short in the factory. These allegations have been made on the basis of a detailed examination of a serially numbered note-book maintained by the appellants in which the receipts of grey cotton fabrics from the weaving section and issuing to the Dyeing Section and stock position were recorded. The appellants have challenged the said allegation on the ground that the said note-book was not an official record and was just kept by workers for their own purpose and the same is not reliable or correct. They have contended that the said note-book is not made use of for recording entries in any of their official records. The appellants further pleaded before the adjudicating authority that the goods in question were recorded in pieces in the said note-book while the accountability for excise purposes is in metres. The conversion into metres had been done on an average basis which cannot form the basis for demanding the excise duty. The appellants have further pointed out that the sample entries for two days would show that the meterage as per the note-book is less than that recorded in R.G. 1 and issues to the Dyeing House as per the note-book was not accurate and authentic for shortage or excess.
6.1. Dealing with the aforesaid plea, the learned adjudicating authority has found that the note-book in question was maintained in the factory by two employees. This note-book was Machine-serially-numbered in duplicate and while one copy remained in the note-book and the other one sent to the different section of the factory. The note-book contains a regular date-wise accountal and it bears signatures on every sheet. It further held that the appellants are working under Self Removal Procedure whereunder a complete trust and faith has been reposed in them and there is no day-today interference in their working from the Central Excise Department. It holds that in view of various instances of non-accountal of excisable goods detected in the factory this private record in the form of the said note-book kept in the factory assumes great significance and it constitutes a valid evidence for finding out the actual production and removal of excisable goods in the factory. Dealing with the argument that the production accounted for in R.G. 1 was more than that shown in the note-book, the learned adjudicating authority observes as follows: - "I find that this argument is neither here nor there because if the accounted production was more than that recorded in the note-book the assessee have to prove whether the production reflected in the note-book was at all incorporated in the R.G. 1 register." 6.2. The learned consultant on the above issue has further stated that no evidence of removal of goods has been adduced by the department. He submits that leave apart the evidence of actual removal of goods, there is not even a 'foot-print' thereof. He also submits that the appellants are manufacturing about and accounting for roughly 40,000 mtrs. fabric a day. It would be patent injustice to impute to them an allegation of removal of goods on such a petty scale. Some evidence of removal howsoever indirect it may be is necessarily called for particular when a higher quantum of production has been shown in the R.G. 1 than the rough note-book which was being maintained by the employees without any authority from the appellants and on their own. He also relies upon two affidavits of the employees who have clearly stated that they were maintaining these note-books on their own and the management had no purpose to rely on this note-book. The learned consultant submits that the adjudicating authority has arbitrarily rejected the affidavits which are at once illegal in view of the Tribunal's decision in the case of Orient Enterprises [1985 ECR 2158].
6.3. We have carefully considered the pleas advanced on both sides on this issue. We find that recovery of note-book and kept in the manner as vividly described by the adjudicating authority raises a good deal of suspicion against the appellants but considering the overall evidence on record, we observe that the finding of removal of fabrics on the basis of this note-book is not justified. The note-book at best indicates a certain quantity of cotton fabrics produced by the appellants and despatched to the Dyeing House for processing purposes.
The note-book by itself does not indicate that the goods were removed from the factory. The appellants have also shown and it has not been rebutted by the adjudicating authority, that the entries of production in the note-book are less than the entries of said production in the R.G. 1 on some of the relevant dates. With this data staring in the face, one has reasonably conclude that the production shown in the rough note-book has also been duly accounted for in R.G. 1. It cannot be held that this was not accounted for and later on removed from the factory. We may also observe here that the investigtion insofar as this note-book is concerned, has not been quite prompt. If the note-book has been recovered from one of the employees, although it is not very clear from the record from where it has been recovered, then it would have been desirable to record a statement from that employee as to how he got hold of the notebook and in what connection he was maintaining. His statement would have, we feel, thrown some light about this note-book and other activities of the appellants in general.
6.4. While coming to the aforesaid finding of non-removal of the goods without payment of duty on the basis of the rough note-book, we also take into account our findings on other issues involved in this case which had been taken as adverse basis by the adjudicating authority for coming to his finding of removal of goods without payment of duty.
Since we have held that the appellants had not indulged in non-accountal of the goods, the very basis of adjudicating authority's finding regarding removal of goods is knocked out.
7. In short, none of the allegations against the appellants survive.
Consequently, the imposition of penalty on the appellants also does not survive. Accordingly, the appeal is allowed while setting aside the impugned order.