Full Judgment
The case was proceeded against the party on the ground that the party was not maintaining varietywise accounts of stock cards of the glass and glassware manufactured by them, in their RG 1 register.
Central Excise Officers, Firozabad, visited the factory of the appellants on 23-5-1980 and found that stocks were not stored in an ordinary manner and hence the goods were detained for verification.
Production register for the period 1-1-1979 to 29-4-1980 and RG 1 register of the factory from 1-1-1980 to 23-5-1980 were resumed and scrutinised with varietywise clearances shown in the Bill-cum-gate passes and itemwise production figures shown in production register.
On counting of itemwise stocks on 2nd and 3rd June, 1980 sub-tariff itemwise totals of stocks were not found agreeable with the recorded balance of RG 1 Register as struck on 23-5-1980. In respect of goods assessable at the rate of 20%, 25% and 35% ad valorem an excess of 978 doz. 11 pieces; 428 doz. 5 pieces and 62.5 Kgs. respectively were found which were kept concealed with other stocks of glass and glassware which could not be separated or sorted out from such other stocks of goods. In respect of goods assessable @ 5% ad valorem, a shortage of 674 doz. 8 pieces was detected in the total quantity as against the recorded balance in RG 1 register. Accordingly, the Central Excise Officers seized the entire stocks of excisable goods lying stored in the factory as per Panchanama dated 5-6-1980.
Further scrutiny of the records indicated that 990 doz. 11 pieces were found short in respect of items assessable @ 25% ad valorem; a quantity of 2667 Kgs. of tubes valued at Rs. 17,338.75 were found short and 2730 Kgs. rods were found in excess and not accounted for in the production register and RG 1. The remaining balance of 244.5 Kgs. of tubes was not verifiable with the book balance varietywise as no varietywise entries in respect of production were made by the factory in the records. Similarly, in the items assessable @ 20% ad valorem, 151 doz. 7 pieces were found short. Accordingly, a show cause notice was issued after stock was found short. This show cause notice was duly answered by the party and contended before the Adjudicating Authority on the following and among other grounds :- (a) that the excisable goods were properly stocked groupwise as per RG 1 record and not varietywise being impracticable and that excisable goods should not have been seized on this ground.
(b) that annual stock taking was conducted only few months before the detention of the goods and the entire stock was counted and recorded in the stock taking report which was pasted in RG 1 records which was in the possession of the department.
(c) that the entire stocks at the factory including these which were included in the book balance of the statutory records could not be seized. Only such goods could be seized which were outside the book balance.
(d) Explaining the excesses and shortages, he stated that in tableware carrying 25% duty, 363 doz. and 1 pcs. of paper-weights were broken pieces and this fact was explained in the relied upon statement.
(e) In respect of goods carrying 5% excise duty he stated that the goods falling under this item had been wrongly accounted for in another sub-item carrying 20% duty.
(f) that 65 doz. Reagent Bottles 1000 NMFS had been shown as amber whereas these were white carrying 5% ad valorem duty. 130 doz.
Reagent Bottles 1000 UMFS had been shown as amber carrying 20% duty whereas its rate had been shown in the list @ Rs. 97.88 per doz. and it was the approved price for white Reagent bottles carrying 5% duty. The shortage was further reduced by 130 doz. to 479 doz. 8 pieces. He added that 8 doz. 10 pieces of Reagent bottles 200 Ml.
NMFS had been valued in the list @ Rs. 153/- per doz. whereas it was the approved price for Reagent bottles of this type carrying 5% duty. The shortage was further reduced by 130 doz. to 340 doz. 10 pieces. 64 doz. of arume there bottles of 1100 Ml. had been shown in the list of goods carrying 20% duty whereas in fact these were Reagent bottles 1000 Ml. U.M.F.S. carrying 5% excise duty. Due to resemblance in shape and colour, Reagent Bottles had been mistaken for P.T. Bottles.
The Collector who adjudicated the proceedings negatived the contentions of the party and held that party has contravened the provisions of Central Excise Act and Rules and, accordingly, he imposed penalty of Rs. 1,00,000/- on the appellant under Rule 173Q of the Central Excise Rules. Further he ordered for confiscation of 25625 Doz. 6 pieces and 5172.500 Kgs. of glass and glassware (tubes and rods) valued at Rs. 11,08,719.15 which were seized on 2/3-6-1980 under Rule 173Q of the Central Excise Rules. However, he gave an option to the party to redeem the goods on payment of redemption fine of Rs. 30,000/-. Since the seized goods have already been provisionally released, he appropriated the security deposit of Rs. 30,000/- towards redemption fine. He also demanded basic excise duty amounting to Rs. 51,373.44 Paise due on 1817 doz. 2 pcs. and 2667.500 Kgs. of glassware under erstwhile Rule 10 of the Central Excise Rules, 1944. The goods were removed other than as provided in the Rules. Aggrieved by this order, the appellants have come up before us by way of this appeal.
3. We have heard Shri K.K. Kapoor, learned Consultant for the appellants and Shri G. Bhushan, learned SDR for the respondent.
(i) Whether a manufacturer of glass and glassware is required to maintain RG 1 register varietywise or sub-itemwise or according to assessable value of each variety and the rate of duty leviable on the. goods? (ii) Whether the assessable goods accounted for in RG 1 could be seized? (iii) Whether there existed shortage or excess in glass and glassware against recorded balance of RG 1 on 2nd/3rd June, 1980 in the factory of the appellants? 5. On the first issue, it was contended on behalf of the appellants that glass and glassware manufacturers could not maintain separate accounts in RG 1 in respect of each item of glass and glassware in view of the large variety/sizes manufactured by them and it was not possible for them to maintain separate stock cards. In this regard representations were made to the Central Excise authorities and also by Scientific Glass Manufacturers' Association explaining the difficulties in maintaining varietywise accounts. After considering the request by the Department, the Collector issued a Trade Notice dated 20-10-1990 deciding that a factory manufacturing more than 100 varieties /sizes of glass and glassware may be exempted from making separate entries in RG 1 and maintaining separate stock cards in respect of each variety/size of glass and glassware. The factory may be allowed to group the items according to their broad categories and maintain RG 1 and stock cards for each group separately. In view of the difficulties and since Trade Notice was issued by the Collector, the finding of the Collector that the appellants were required to maintain accounts in RG 1 and stock cards varietywise is not sustainable.
6. While justifying the findings of the Collector on this issue it was submitted by the Departmental Representative that party should have maintained stock cards for each lot for the goods stored in the approved bonded store-room for the period in question as the seizure/offence case was made in May to June 1988 and Trade Notice No.105/30 was issued only on 20-10-1980 and it is effective only from the said date.
7. The contention of the appellants on the second issue is that the verification done on 3-6-1980 was not final because a revised verification was done on 5-6-1980 and the excesses and shortages as found in the revised verification are to be taken into consideration.
The only difference in the two statements dated 3-6-1980 and 5-6-1980 is about the laboratory-ware. In the statement dated 3-6-1980 laboratory-wares were found in excess as 315 dozen and 1 piece, while in the revised verification there was a shortage of 674 doz. and 8 pieces. When after extensive verification of stocks, excess stock had been identified varietywise and sizewise, the goods that should have been seized only those which were found in excess and whose number is given in the statement on page 77 of the paper book.
8. The contention of the Departmental Representative on this issue is that since the party has failed to maintain varietywise RG 1 and lotwise stock cards, it was not possible for the officers to locate varietywise actual shortage and excess, therefore, their entire stocks were seized by the Officers on a reasonable belief that the party had intentionally not accounted for the excess stock lying in their factory with a view to remove them surreptitiously and to avoid payment of duty.
9. The next issue is what is the exact excess and shortage which was discovered. The Representative of the party contended that so far excess stocks are concerned, duty would have been paid at the time of their clearance. But the real point is about the shortages. Although it was mentioned in the show cause notice about the shortage, but it is not supported by any evidence. Even as per revised verification report it was found shortage of 674 doz. and 8 pcs. of glass and glassware.
The Collector valued it at Rs. 7,07,575/- without any basis. The value of 674.8 dozen pieces of laboratory-ware found short was Rs. 16,700/- and even if the value as adopted on paper book value of 21,391 dozen and 9 pieces of laboratory-ware at Rs. 9,53,323.31 Paise is adopted, it comes to Rs. 44.50 per dozen. In the order it has been stated that value has been computed on the basis of the variety which are highest price among the goods of that variety manufactured by a factory.
Highest value of laboratory-ware, i.e. Kipp's Apparatus whose value by adding 5% per dozen cannot be accepted as general value of the laboratory-ware in question. It was contended by Shri Bhushan that since the party could not give any explanation as to what should have been the proper basis for arriving at the fair and correct value of the goods which had been surreptitiously removed by them, the Collector was justified in determining the value of the goods which the party had removed as worked out in the impugned order.
10. It was urged on behalf of appellant that mistake was only due to the fact that variety-wise accounts of glass and glassware could not be maintained and because of this irregularity and in the absence of positive evidence to prove clandestine removal, the imposition of fine and penalty were not justified. Further Representative of the party argued that since the goods were released provisionally against the bond, and thus, not available for confiscation, neither the goods can be confiscated nor redemption fine can be imposed relying upon the decisions in the case of Grauer and Weil (India) Ltd., reported in 1986 (25) E.L.T. 338 and Karnataka Trading Company, Tiptur v. Collector of Customs (Prev.), Patna, 11. Shri G. Bhushan justified the imposition of fine and penalty by submitting that sufficient evidence was brought on record to show that the goods were found in excess and shortage and the same have been removed without payment of duty with an intention to evade duty.
12. We have carefully considered the arguments advanced on both sides and perused the records including the written submissions and detailed comments. On the first issue, we find that though the Department was right in observing that party was required to maintain varietywise accounts for the period in question, but since in view of the difficulties explained by the appellants from the beginning and with reference to their Representation, the Department also issued Trade Notice though it was at late but stating that a factory manufacturing more than 100 varieties/sizes of the glass and glassware may be exempted from separate entry in RG 1, we feel that redemption fine is not warranted unless it resulted in clandestine removal and that too it was proved positively.
An regards second and third issues, we feel these issues require re-consideration. We find that there is a discrepancy between two verification reports dated 2/3-6-1980 and 5-6-1980 and it seems that Adjudicating Authority has proceeded to determine quantum of shortage and value thereof based mainly on verification report dated 2-6-1980 without taking into consideration the verification report dated 5-6-1980. He also made the observation in the impugned order 'that the counsel for the appellants made an attempt to co-relate the items by giving explanation' but the same was not considered by him on the ground that it was at a later stage. Since the appellants tried to convince and co-relate the items during the adjudication proceedings, we feel that he ought to have considered the same. We feel that this matter will have to go back to determine the shortage with reference to the verification reports and on determining the shortage of the goods, the value of the goods should be determined after giving an opportunity to the appellants. Since we are remanding the matter, we do not feel it necessary to go into other issues/points raised by both sides.
13. With the above observations, this appeal is allowed by remand.
Sd/- 14. With due respects to Hon'ble Member (Judicial), my views and orders in the matter are as follows: 15. I observe that the method and manner of stocking the goods and maintaining the accounts in case of excisable commodities has to largely follow the pattern indicated by the tariff structure and the requirement of the relevant rules. Therefore, in case glass and glassware also, the varieties could at best be clubbed into tariffwise categories and stocks and accounts maintained accordingly (i.e. rate of dutywise) unless prescribed otherwise.
16. If this was not so done, it would be impossible for the Departmental Officers to ever verify the correctness of the stocks and accounts and tally them with reference to excise requirements and that is indeed the rationale behind the provisions for record keeping including those relating to maintenance of daily stock accounts.
17. In view of the above position, the Departmental Officers were not justified in demanding a varietywise account of more than a hundred varieties in the absence of any such provision and or public notice/trade notice(s) to that effect.
18. Moreover, the very fact that the Collector of Central Excise was subsequently required to issue a public notice allowing them to maintain a simplified account shows that there is some justification in the appellants' submission that it was not practicable to maintain varietywise account. Also, so far as enforceability of the public notice from the date of issue is concerned, although strictly speaking, such notices are prospective in character but with reference to the context pointed out by the learned Counsel, this notice appears to be more of a clarificatory nature intended to regularise an on-going practice and allowing it to continue. In any eventuality, even if a stricter view is taken in the absence of any order or direction to maintain varietywise accounts, the Department could not legally insist upon it. All this, however, does not mean that the appellants were not required to maintain the accounts properly. It was their duty to maintain the stocks and accounts in such a fashion that it was possible to verify the correctness of their stock and accounts and it was possible to classify them sub-headingwise or rate of dutywise and determine correctly the quantity value, rate of duty and quantum of duty.
19. At the same time, once the Departmental Officers had chosen to verify the stocks and accounts, they also had a responsibility to work out the exact quantity, sub-headingwise (or rate of duty-wise) and then find out the exact shortages or excesses with reference to the actual stocks and accounts. In this respect, if on their verification conducted on second or third June, any quantity (sub-tariff item-wise) was not found to agree with the corresponding balance with the records, they could certainly proceed further with the matter and take action, but if for any reason, it was not necessary to re-verify the goods and accounts and another exercise was undertaken on 5-6-1980 then the justification for the same was required to be indicated and the allegations could be framed only on the basis of the final outcome of such a continuing verification.
20. It is therefore not clear as to how and why the Collector refers only to the stock taking of 3rd June 1980, when according to the recovery memo, such examination/verification had continued from 2-6-1980 to 5-6-1980.
21. All the same, it is seen from the statement of Mr. Shyam Sunder, dated 6-6-1980 that the appellants had admitted some excesses and shortages. At the same time in respect of one category (relating to 25% duty), the excess is said to be only ' 5 pieces' of which one is said to be broken and in respect of another category shortage of 8 pieces only has been shown and the explanation given is that they were broken during counting. Such minor excesses and shortages (particularly breakages) are probable in a glass factory manufacturing large quantity of a hundred varieties of goods and the appellants were entitled to the benefit of doubt, in respect of such small shortages said to be due to breakages etc.
22. Further, if the entries in the prescribed RG 1 register were not in conformity with the private production/clearance record, the correct quantity was required to be determined by other ways available to the Department. But this does not appear to have been done. Moreover, neither the learned Counsel nor the Departmental Officer has been able to give a satisfactory explanation about the statement titled 'Revised' (given at page 77 of the paper book and bearing the signatures, dated 5-6-1980) and the circumstances in which it was required to be made out.
23. It is also to be remembered that inaccuracies in accounts may not always be necessarily due to unaccounted manufacture or clandestine removal with intent to evade duty and it was required to be shown from the facts and circumstances, whether such a charge would hold water in a given case. In any eventuality, even in a case of improper maintenance of stocks and accounts, a seizure could be effected only in respect of that quantity, which was not accounted for. And it was neither fair nor proper to seize and confiscate the entire stock indiscriminately. Again in so far as the question of value is concerned, if the Department felt that the value had not been correctly declared or recorded, it was open to it to verify the same with reference to vouchers or conduct a market enquiry but it was not open to the Collector to value the goods on an arbitrary basis. In any eventuality, when goods of hundreds of varieties of different values were involved, it was not fair or proper on the part of the officer to just take up the higher value items and assess the entire quantity on that basis.
24. In the instant case, the Departmental Representative has not been able to show from the order of the Collector or otherwise, of the correctness of the value and the quantum of duty and justify the amount demanded. We had also given an opportunity to the appellants' Advocate to show the correctness of the value and duty figures indicated by them in their Appeal Memorandum but beyond stating that the value of the goods worked out by the Collector was far in excess of the real value and the duty liability as worked out by the Collector was incorrect, they had not produced any evidence in support of their contention and calculation. They had stated, on the other hand, that this being a very old matter, they were not able to do so at this stage.
25. In other words, neither the Department has been able to substantiate and show the correctness of the quantity, value and duty worked out by the Collector, nor the appellants have been able to show the correctness of their figures. As such, we do not have any material before us on the basis of which the correctness or incorrectness of one or the other of the figures could be judged at this stage. In the circumstances, we have no go but to fall back on the basic principle that even in those cases, where allegedly, the assessee is unable to give a correct declaration about quantity, description, value or quantum of duty, it was open to the Department to conduct necessary enquiries and the burden of correct assessment continues to rest on the shoulders of the Departmental Officers. Although an assessee could be penalised for proven mis-declaration, in the instant case, since the Department side has not been able to show the correctness of its assessment and demand of duty, therefore, the assessment part of the Collector's order was liable to be struck down on this score alone.
26. A question therefore arises whether the matter should be remanded I observe in this connection that the show cause notice was issued on 15-11-1980 in respect of the stock verification conducted from second to 5th June 1980 and there is a lot of substance in the point that it may not be possible for either side to show the correctness of their respective position at this distant date more than 12 years after the incident and even locating the old records may not be possible and an enquiry may not be feasible at this stage. Therefore, a remand was not a practicable proposition and was likely to turn out to be an exercise in futility. I am therefore not in favour of remanding the case at this stage.
27. It is also required to be noted in this context that the goods which were seized had been released provisionally with a direction to account for in the RG1 and clear them after payment of duty (and, therefore, the Collector has not demanded any duty on them).
28. I also observe that although the possibility of clandestine removal cannot be entirely discounted but one cannot be punished merely on suspicion and the benefit of doubt was in any case required to be given to the appellants. Similarly, no duty can be demanded without proper assessment except to the admitted extent.
29. At the same time, I take note of the fact that evidently, the stocks and accounts were not properly maintained strictly in accordance with the relevant provisions and rules and therefore, the appellants were liable to penalty on this score. Looking to the totality of the facts and circumstances, I feel that the penalty imposed is on the higher side, I, therefore reduce the same from Rs. 1 lakh to Rs. 25,000/- only.
4-6-1993 Vice President 31. In view of the difference of opinion the matter is submitted to the Hon'ble President for reference to a third Member on the following point: "Whether in the facts and circumstances of the case, the matter was required to be remanded as proposed by the learned Judicial Member or the appeal is required to be partly allowed finally as proposed by the Vice President".
32. The point of difference is referred to Shri S.L. Peeran, Member (J).
33. I have heard Shri K.K. Kapoor, Id. Consultant for the applicant and Shri B.D. Bhagat, Id. JDR for the Revenue.
34. Shri K.K. Kapoor recounted the facts of the case and pointed out to the issues raised by Id. Member (J). On the first issue both the members have agreed. While on issues two and three Id. Member (J) had very justifiably remanded the case for readjudication, as the documents had been furnished by the Collector before the Tribunal, after a protracted hearing and calling for the same by the DRs appearing for the revenue. He pointed out that the Id. Vice President had held that remand at this stage would be futile and hence decided the case. But, in his order, the Id. Vice President had given favourable findings and especially at para 28, he had clearly given his finding that one cannot be punished merely on suspicion and the benefit of doubt was in any case required to be given to the appellant. Again Id. Vice President had given his opinion that no duty can be demanded without proper assessment except to the admitted extent. Id. Consultant pointed out that there were irregular maintenance of account which would not lead to the conclusion that there is clandestine removal and hence Id. Vice President's final order is not in consonance with his findings in previous paragraphs. He pointed out that for non-maintenance of proper accounts penalty would be only Rs. 2,000/- under Rule 226 and Rs. 1000/- under Rule 223 if stocks had not been maintained. Therefore, Id.
Consultant submitted that imposing Rs. 25,000/- penalty by Id. Vice President is not legal and as per law in the light of his own finding that benefit of doubt has to be given to the appellant and also on his finding on the first issue. Id. Consultant submitted that the order of remand suggested by Id. Member 0) is in order. Id. JDR also supported the order of Id. Member 0) and stated that the documents had been furnished for the first time before the Tribunal and that no opportunity had been given to the appellant. There would be no difficulty in remand proceedings, as there is no question of physical verification of any stocks but the discrepancy in accounts was required to be checked. He pointed out from the order sheets in the case, that the previous DR had also agreed for remand of the case, as noted from the order sheet dt. 4-6-1990.
35. I have carefully considered the pleas, perused the documents and the opinions expressed by Id. Member 0) and Id. Vice President. As can be seen from the records of these proceedings, this matter had been heard fully on 7-3-1988. During the course of hearing, it had been noticed that certain figures given at page 3 of show cause notice were not supported by any documents, which could show that there are excesses and shortages. Hence, DR had taken time to clarify the position as regards the conflicting figures that had emerged on the reading of the show cause notice and the various other documents available on record. After a protracted proceedings, the DR finally had agreed for remand of the matter on 4-6-1990. However, the matter was finally heard, after the Id. Consultant had filed the classification lists, price list and other documents. The DR had also filed calculation list. The Id. Member 0) had recorded the facts and rival contentions in paras 7 to 9 of his opinion. In the light of these facts, the opinion expressed by Id. Member 0) in para 12 on issues 2 & 3 is correct and valid. I agree with this finding. Id. Vice President had also given a favourable finding in paras 20 to 25 and in para 28.
In the light of these observations, the imposition of penalty of Rs. 25,000/- does not appear to be in conformity with the favourable finding recorded by Id. Vice President, as rightly pointed out by both the sides before me. Both the sides also favoured for a remand. In the result, I concur with the opinion of Id. Member 0). The papers shall be placed before the original bench for passing the final order.
Sd/- 36. In view of the majority opinion, the matter is remanded for re-adjudication with the direction that the shortage and value of the goods found short should be re-determined and the case decided after giving an opportunity of personal hearing to the appellants.