1. This appeal is directed against the order in Original No. 21/MP/89, dated 9-5-1989 passed by the Addl. Collector, Central Excise, Vadodara.
2. The Appellants are engaged in manufacturing/producing man-made fabrics falling under T.I. 22 of the First Schedule to the Central Excises and Salt Act, 1944 and hold L-4 licence. On 23-8-1984 the officers of the Central Excise (Preventive) Collec-torate visited the factory premises of the Appellants and during the same noticed certain quantity of fully manufactured man-made fabrics duly packed and in marketable condition at various places like Bonded Store Room, Folding and Packing Section, without being entered into statutory registers. It was also reportedly noticed that the Appellants were not even maintaining lot Register prescribed by the Baroda Collectorate vide Notification No. 1/75 dated 4-1-1975. The officers, therefore, seized the said unaccounted stock but released the same subsequently on execution of B-ll Bond by the Appellants. On recording of the statements of the persons concerned, it was felt that the Appellants had contravened the provisions of Rule 173 G(4) read with Rules 53 and 226, as also of clause (a) and (d) of sub-rule (1) of Rule 173Q of the Central Excise Rules, and hence a notice to Show Cause was issued calling upon the Appellants to show cause why the goods seized should not be confiscated and why the duty amounts should not be recovered vide Section 11-A of the Act read with Rule 9(2) of the Rules and why penalty should not be imposed vide Rule 173Q of the Rules. The Appellants filed their reply dated 7-5-1985 to the said Show Cause Notice where, denying the allegations, they contended that the delivery of the goods was always effected in packed boxes and that entries in RG-1 register were duly made at that time only and that they did not consider fabrics packed in celophane bags/rolls as "ready for delivery" and that said practice was being followed since long without any objection from the officers of the Excise Department stationed at Surat, within whose jurisdiction the factory premises fell, and who often visited and periodically checked the same. As pleaded by the Appellants, the production was duly reflected in the private accounts maintained by them and that there was no intention to suppress any thing. As regards non-maintenance of the Lot register, required to be maintained vide Baroda Collectorate Notification No. 1/75, dated 4-1-1975, the Appellants pleaded that, as there were some practical difficulties in maintaining such a register, they had made a representation to the Board but the Board directed them to approach the Collector of Central Excise, Baroda. As such, the Appellants pleaded, the Department was fully aware that the Lot-Register was not maintained pending decision on their representation and that even then, no objection was raised. In their submissions, therefore, though these were some breach of the provisions of the statute, there was no mala fide attached and that the same were never considered objectionable, even by the Department and the Deptt. acquiesed, and as such there was no ground for either confiscation or for imposition of penalty and that the duty would be paid as and when the goods were taken out of the factory premises.
3. In the adjudication proceedings that followed, the Appellants cross-examined some of the Departmental officers posted at Surat during the relevant period to substantiate their contentions. The Adjudicating Authority however negatived their contentions and ordered confiscation of the seized goods, but as they were released on execution of B. ll Bond, and furnishing the Bank Guarantee, ordered encashment of the said Bank Guarantee which was for Rs. 7,64,031.00, and also imposed personal penalty of Rs. 5,00,000/- and further directed that the duty amount of Rs. 2,95,140.53 be recoverd if not already paid.
4. Mr. K.S. Nanavati, Ld. Advocate for the Appellants submitted that there was no dispute as to the duty amount which had already been paid as and when the goods were removed and that the appeal was restricted to the order of confiscation and imposition of penalty. Mr. Nanavati, Ld. Advocate took us through the factual position and submitted that as per the long standing practice, the Appellants were making entries in RG-1 register only when the fabrics were packed in boxes. In his submission, the appellants were the manufacturer of man-made fabrics and were marketing them as Sarees and Dress Material for women and that the fabrics were therefore cut into appropriate lengths, and put in cellofane bags and rolls, and were then packed in boxes and sent to the market, and that no manufactured goods were sent out without packing them in boxes. In his submissions, relevant entries in RG-1 register were made when the goods were packed in wooden boxes. Pleading that there is no allegation of any clandestine removal, he drew our attention to the cross-examinations of Mr. M.N. Desai, the then Superintendent and Mr. S. J. Panwala, the then Inspector of Central Excise at Surat and submitted that these two officers have admitted knowledge of the practice followed by the Appellants and that no objection thereto was raised. In his submissions, when the departmental officers had not raised any objection, thereto, the lapse, if any, ought not to be viewed seriously as to warrant confiscation of goods and imposition of penalty to the extent as is done here. He also pleaded that subsequent to the raising of the objection, they have rectified the same. He further submitted that due to some practical difficulties the Lot register as prescribed by the Baroda Collectorate could not be maintained, and their representation expressing difficulties on maintenance thereof was already pending. In his submissions, the Department had, in spite of the fact that non-maintenance thereof was known to them, never insisted on maintaining the same. According to him, the Lot-Register was prescribed only by the Baroda Collectorate and none else, and that they otherwise, have been maintaining their own private records, which were sufficient enough to ascertain the data, sought to be availed of under the Lot-Register. Mr. Nanavati also took us through the extracts of the private records to satisfy us that any detail required by the department would be available from such private records. Relying on various judicial pronouncements as reported in 1989 (44) ELT 233 (Tri.), 1978 (2) ELT J 159,1985 (20) ELT 90 and 1979 (4) ELT 402, Mr.
Nanavati submitted that the facts and circumstances did not warrant ordering confiscation of goods or imposition of penalty and hence the order of the Adjudicating Authority be set aside.
5. Mr. C.P. Arya, the Ld. SDR, however, supported the order appealed against, and submitted that the fact remains that fully manufactured goods were found within the factory premises without having been entered into RG-1 register though the entry was required to be made of all manufactured goods. In his submissions making entry only at the time of packing the goods into boxes, is not the correct procedure and not contemplated under the Rules and notwithstanding the alleged connivance by the local departmental officers, it remains a fact that there is non-compliance of the statutory provisions, which cannot be legalised even if acquiesed by some officers. He also pleached that non-maintenance of the Lot-register, though ordered by the authority, is a patent violation of the directions and mere representation against the same did not justify the omission in this regard. In support of his contentions, Mr. Arya placed reliance on the Tribunal decision in Bata v. C.C.E., 1986 (26) ELT 401 and also to the decisions reported in 1989 (39) ELT 303,1990 (45) ELT 447 and 1987 (29) ELT 753.
7. Identifying the undisputed facts, the Appellants manufacturer of the man-made fabrics, made entries in RG-1 register only at a time when they packed the materials in boxes and at no time before.
8. Rule 53 of the Central Excise Rules provides for maintaining RG-1 register and it further provides that the entry has to be made daily on manufacture of the goods. It, therefore, requires to be examined as to when the manufacture can be said to have been completed. As per the definition of 'manufacture' given in the Central Excises & Salt Act, the process of manufacture is complete when a particular item comes into existence. In the instant case, therefore, the process of manufacture would be complete as soon as the processed fabrics are brought out. Because the Appellants are marketing their goods in the form of sarees and dress materials, involving cutting of the processed fabrics into required size, even accepting that process also as a part of manufacturing process, as soon as the fabrics are cut into such sizes and packed in cellofane bags or rolls, they become the goods duly manufactured and ready for marketing. Packing them in the boxes is not an essential requirement of the process of manufacture as it is only for the convenience of transport that such a packing is done. As per the provisions of Rule 53 of the Rules, therefore, the stage at which the entry in RG-1 register has to be made, could be not latter than the stage when they are packed in Cellofane bags/rolls. Having not done so the appellants have already violated the statutory requirements.
9. An attempt is made to show that the practice that they were following was never objected to, and strong reliance was placed on the statements of the officers cross-examined during the adjudication proceedings. Assuming that what they have stated is true and that they had connived at the practice in all bona fide, even then that provides no justification for the breach committed by the Appellants, who, as one of the leading manufacturing concerns were supposed to know statutory requirements. At the best, the same may provide a mitigating circumstance in so far as imposition of penalty is concerned.
10. As regards non-maintenance of the Lot-register, assuming that it was only the Baroda Collectorate which provided for maintenance of such register and that there were some practical difficulties due to which some representation was made, the appellants could not have, on their own, resolved not to comply with the said requirements. If they wanted to do so, they ought to have obtained orders from the competent authority to that effect. When a direction was given it was incumbent on them to comply with the same, and pleading that their private records could furnish all the required data, or that maintenance thereof was never insisted upon by the local departmental officials, though may provide some mitigating circumstances, cannot exonerate them from the charges of non-compliance of the directions.
11. The judicial pronouncements referred to and relied upon by the Appellants also do not indicate that the lapse of statutory obligations, could, under the present set of circumstances stand condoned.
12. In our view, therefore, the order of imposition of personal penalty is justified.
13. An arugment was advanced that the order of confiscation is bad inasmuch as the confiscation can only be ordered where there is a removal without payment of duty and here, there is no removal. In the submissions of the Ld. Advocate, Rule 173Q does not authorise confiscation of goods where they are in the factory and for that, relied upon the decision of Andhra Pradesh High Court in Southern Steel Ltd. v. U.O.I., 1979 ELT J 402, where it is clearly laid down that power of confiscation under Rule 173Q did not extend to goods which were still in the factory and which had not still reached the stage of removal. It is an undisputed fact that the goods were lying within the factory premises and no attempt was till then, made to clandestinely remove the same. In view of the decision of the Andhra Pradesh High Court and reading the provisions of Rule 173Q of the Rules, therefor, the order of confiscation cannot be sustained. Significantly, the Adjudicating Authority has invoked the provisions of Section 173Q(1) of the Rules only and the Show Cause Notice is not issued indicating the provisions of Rule 209 of the Rules. The order of confiscation, therefore, cannot be sustained and has to be set aside.
14. The question that, however, requires to be considered is whether the quantum of personal penalty of Rs. 5,00,000/- is justified.
15. There is admittedly no allegation of clandestine removal, or evasion of duty. The duty amount has already been paid. It is also found from the records that the local officer, for some reasons or the other, though aware of the irregularity, winked at the same and permitted that to continue. Thus there was also some contribution from the local departmental officers in this regard. In our view, therefore, some leniency is called for. Considering the same, we hold that the penalty amount be reduced to Rs. 50,000/-.
16. With modifications as above, the order appealed against is confirmed and the appeal is disposed of.