1. The appellant M/s. Hindustan Lever Ltd., Rajpura has preferred this appeal against the Order-in-Original No. 14/CE/ADE/87 dated 4-12-1987 passed by the Collector of Central Excise, Chandigarh imposing a penalty of Rs. 20,000/- (Rupees Twenty thousand) for alleged charges of committing irregularities in not maintaining of Central Excise records properly and non-accountal or rejected goods in RG-I as per procedure provided for in the Central Excise Rules.
2. The brief facts of the case as Set out in the Show Cause notice dated 30-8-1986 issued by the Assistant Collector are that on 20-8-1986, the Customs and Central Excise Preventive staff, Patiala under the supervision of Superintendent (Preventive), Central Excise, Patiala paid a surprise visit to the factory premises of M/s. Hindustan Lever Ltd. Rajpura and found the Central Excise records written upto date. During the course of verification of stocks, quantity of 571 CB Boxes of 'Rexona' soap (sub-head ing 3401/12 of Central Excise Tariff) full packed, each C.B. Box containing 144 x 100 gms were found lying in the packing shed of the factory. The visiting officers made enquiries regarding it. The officers of the appellant explained to the Central Excise officers that these boxes contained soaps which had been rejected due to poor quality during the production of 8-8-1986 to 12-8-1986. The appellant produced to the Central Excise officers their daily production register (a purely private and unauthenticated register). The officers scrutinised the said register and found that the appellant had replaced 571 C.B. boxes of Rexona soaps (production of 8-8-1986 to 12-8-1986 duly accounted for in the RG-I register) valued at Rs. 1,77,786.56 P. involving Central Excise duty of Rs. 26,667.98 P (BED). The Excise officers presumed that the appellants were clandestinely attempting to remove these 571 CB Boxes. They further presumed that the appellants were attempting to replace the production with 571 CB boxes of Rexona soap found lying in bonded store room and 571 CB boxes of Rexona soap found lying in the packing shed, all valued at Rs. 3,55,573A involving Central Excise duty of Rs. 53,335,95 (BED).
3. The Central Excise officers seized the goods under Section 110 of the Customs Act, 1962 as made applicable to Central Excises cases Adde notification No. 68/63, dated 4-5-1963 issued under Section 12 of the Central Excises and Salt Act, 1944. The Assistant Collector called upon the appellants to show cause vide their show cause notice as to why 1142 CB boxes valued at Rs. 3,55,573/- should not be confiscated under Rule 173Q of the Central Excise Rules, 1944 and why a penalty should not be imposed upon them under Rule 173 for contravention and duty of Rs. 53,335.96 P. should not be recovered from them.
4; The appellants filed their detailed explanation to the said show cause notice alongwith detailed affidavits of Sh. S. Dhawan, Unit Manager and of Shri Rakesh Singh Sareen, Development Manager, Soaps M/s. Hindustan Lever Ltd., Bombay alongwith copy of Roaster sheets. The main defence of the appellants had been that their company had paid excise duty for the year 1985 of Rs. 90 crores and that the Rajpura factory had paid in the year 1985, excise duty of Rs. 6.68 crores. That they were carrying outs its operation of manufacture of soaps and detergents at Rajpura unit on lease basis since 1-11-1983 and were maintaining all the records under the provisions of Excise Act and rules. By and large, there had been no instances of any major non-compliance on their part. They had further explained that during 8th to 12th August, 1986, the unit of Rajpura had produced 571 boxes of Rexona soaps. The Quality Control Department rejected the same as of bad quality and they replaced it with equal number of boxes made in the period 13th to 17th August 86. They were under the bona fide belief and assump-tion that the rejected lot of 571 boxes could be put back into the reprocess stream. Further, 00 account of such exchange of boxes the production of 571 boxes of good quality soap actually made during the said period from 13th to 17th August 86 was shown as nil in the RG-I register. That in any event the total production of Rexona soap made in the factory had been 1142 boxes only, which consisted of 571 boxes of rejected quality and 571 boxes of acceptable quality. They further submitted that the reason for showing nil production in RG-I register from 13th to 17th August 86, was due to the fact that the. quantity of 571 boxes of acceptable quality produced during this period had been sub' stituted with the rejected quantity of 571 boxes produced earlier during the period from 8-8-1986 to 12-8-1986 on the bonafide belief that no loss or prejudice of excise duty would be caused to the Department on account of such replacement of rejected goods. They further submitted that mere discrepancy or lapse of purely technical or procedural na-turej which happened to be committed during the process of such exchange of rejected soaps with good quality soaps without involving any physical removal or clearance of even a single box of soap from the factory premises, no case can be lawfully made out against appellants. They submitted that the question of clandestine removal of the said boxes of soaps from the factory premises did not arise. They further submitted that the wrong entries were on account of lack of familiarity or knowledge on the part of the employees concerned about the correct formalities and procedures required to be followed under the Central Excise Rules.
5. The learned Additional Collector of Customs, after affording full opportunity to the appellants, passed the impugned order. The Addl.
Collector of Customs accepted the explanation of the appellants and did not impose any duty or seized the goods but however, passed the order which reads as below - In retrospect in the absence of conclusive evidence charges of clandestine removal cannot be sustained. Accordingly, goods under seizure are released and be cleared after proper accountal in the Centrat Excise records and on payment , " of Central Excise duties.
However, the charges against the party for committing irregularities in not maintaining of Central Excise records properly and non-accountal or rejected goods in the RGI as per procedure provided for in the Central Excise Rules are established and assumes much more proportion as being well-established big unit should have discharged their responsibility and accountability more efficiently and in fact irregularities committed are of serious nature.
Accordingly, the party deserves sterner punishment. Therefore, I impose a personal penalty of Rs. 20,000/- on M/s. Hindustan Lever (P) Ltd., Rajpura under the relevant provisions of the Central Excise Rules, 1944 which should be paid forthwith".
6. Sh. S.K. Beri, advocate appeared for the appellants and argued that the order of the Additional Collector is not sustainable in law and that the imposition of Rs. 20,000/- penalty on account of technical lapse committed by their employees due to lack of experience and knowledge is too expensive, harsh, arbitrary and unsustainable in law.
Further, he submitted that the learned Addl. Collector of Customs having accepted the explanation of the appellants that there had been no attempt of clandestine removal of goods by the appellants, should have dropped the proceedings or at best could have administered a warning. In support of his contention, the learned advocate for the appellants cited the following decisions -Kellner Pharmaceuticals Ltd., Kanpur v. Collector of Central Excise, Kanpur The advocate for the appellants, sought for setting aside the order of the Addl. Collector in view of the well settled law.
6. Smt. Dolly Saxena, SDR appearing for the respondent-Collector strongly supported the imposition of severe penalty as punishment on the ground that such personal penalty has to be imposed as a deterrent to the company from committing irregularities in maintaining accounts.
The Departmental Representative further submitted that mens rea need not be established for non-performance of the duty in maintaining the RG-I register and that deterrent punishment can be imposed on erring industries who fail to maintain the records properly. Thus the learned Departmental Representative justified the imposition of stern penalty on the appellants by the learned Addl. Collector.
7. The only question that arises for consideration after going through the facts and circumstances of the case is as to whether Addl.
Collector is justified in imposing a severe punishment by way of personal penalty of Rs. 20,000/- merely on the ground of committing irregularities in not maintaining the Central Excise records properly and non-accountal of rejected goods in the RG-I register.In Hindustan Steel Ltd. v. State of Orissa (1978) E.L.T. J-159, the Hon'ble Supreme Court has stated :- "But the liability to pay penalty does not arise merely upon proof of default in registering as a dealer. An order imposing penalty for failure to carry out a statutory obligation is the result of a quasi-criminal proceeding, and penalty will not ordinarily be imposed unless the party obliged either acted deliberately in defiance of law or was guilty of conduct contumacious or dishonest, or acted in conscious disregard of its obligation. Panalty will not also be imposed merely because it is lawful to do so. Whether penalty should be imposed for failure to perform a statutory obligation is a matter of discretion of the authority to be exercised judicially and on a consideration of all the relevant circumstances. Even if a minimum penalty is prescribed, the authority competent to impose the penalty will be justified in refusing to impose penalty, when there is a technical or venial breach of the provisions of the Act or where the breach flows from a bonafide belief that the offender is not liable to act in the manner prescribed by the statute. Those in charge of the affairs of the Company in failing to register the company as a dealer acted in the honest and genuine belief that the company was not a dealer.
Granting that they erred, no case for imposing penalty was made out".In Kellner Pharmaceuticals Ltd., Kanpur v. Collector of Central Excise, Kan-purJay Engineering Works Ltd. v. Collector of Central Excise reported in 1984 16 E.L.T. 534, this Tribunal had set aside the orders of penalty on technical lapse and as also on the ground that mens rea was not established. The appellants have explained and shown to the satisfaction of the Addl. Collector that they had not removed the 571 boxes of Rexona soap nor they had committed any contravention of Excise rules to evade duty. The learned Addl. Collector had accepted the said explanation but however, had found fault with the appellants in so far as the entries having not been made in the RG-I register properly.
10. From the facts and circumstances of the case and in the light of the settled case law referred to above, the penalty imposed is harsh and severe. As has been held by the Supreme Court in the case of Hindustan Steel Ltd. referred to supra, no penalty should be imposed for technical or venial breach of legal provisions or where the breach flows from bonafide belief that the offender is not liable to act in the manner prescribed by the statute. A warning in this case would have been sufficient as contended by the appellant's advocate. The appellants have clearly explained the circumstances under which the boxes were lying in both the places. The mistake appears to be technical. The appellant are entitled to succeed in this appeal. The appeal is allowed and the Revenue is directed to refund the amount of penalty, if paid, within two months from the date of this order.