1. The above Appeal arises out of the Order dt. 17.6.1991 of the Collector of Central Excise, Indore. The case relates to alleged excess and shortage of goods i.e. wall tiles and floor tiles detected by the Central Excise Officers of Ujjain during their visit to the factory of the Appellants between 8th and 14th September, 1990.
2. The Appellants herein are engaged in the manufacture of ceramic products viz. Glazed Wall Tiles and Floor Tiles (Paving), both falling under Heading 6906.10 of the CETA 1985. The Central Excise Officers of Ujjain Division visited the factory of the Appellants situated at Dewas during the period from 8th to 14th September, 1990 and conducted stock verification of the goods in the Bonded Stock Room. The capacity of the Bonded Store Room was approximately 75,000 cartons while about 2 lakhs cartons were stored therein. The excess and shortage of the goods was verified and found to be as under:I. Excess Stock No. of Cartons Value Duty----------------------------------------------------------------------a. Wall Tiles 3,415 5,08,282/- 2,54,141/- Basic 12, 707/- Spl.b. Floor Tiles 1,067 82,212.55 41,107/- Basic 2,055/- Spl.a. Wall Tiles 2,7826 41,51,129.00 20,75,565/- Basic 1,03,778/- Spl.b. Floor Tiles 2,685 2,97.094.50 1,48.548.00 Basic 7,427/- Spl.
The Officers seized the excess 3,415 cartons of wall tiles and 1,067 cartons of floor tiles under Panchnama dt. 14.9.1990 and 12.9.1990 respectively. A difference of 11,373 cartons in the Glost Selection Production Report and of 5,298 cartons in combined Dipping and Selection Report was also worked out by the Deptt. A Show Cause Notice dt. 1.1.1991 was issued to the Appellants proposing confiscation of seized goods, levy of duty of Rs. 3,10,010/- on seized goods and duty of Rs. 35,95,646/- on goods alleged to have been found short and also proposing imposition of penalty. By letter dt. 26.2.1991 the Appellants replied to the SCN contending inter alia that no goods had been cleared without payment of duty and that the alleged excess and shortage was due to the reason that the stock was not properly and accurately counted but only verified on an estimated basis and also that a large quantity of damaged stock lying in BSR was also not taken into account by the Deptt. On 22.3.1991 the Appellants submitted a further reply together with a statement showing production, clearance and balance of the goods and tallied the stock with the balance in RG-I register. The Adjudicating Authority passed the impugned order confiscating the excess stock of wall tiles and floor tiles with option to redeem the same on payment of a fine of Rs. 50,000/- and confirming a duty demand of Rs. 17,15,780/- basic duty and Rs. 85,789/- SCD on 22,829 cartons of wall tiles and duty of Rs. 1,48,548/- (BED) and Rs. 7,427/- (SED) on 2,685 cartons of floor tiles. A penalty of Rs. 2,50,000/- was also imposed under Rule 173Q of the Central Excise Rules, 1944.
3. We have heard Shri D.B. Shroff, Ld. Advocate and Shri V.C. Bhartiya, Ld. DR and carefully considered their submissions.
4. The Appellants deny the charge of excess shortage of stock and submit that the detailed statement of 22.3.1991 furnished to the Collector would clearly reveal a total tally of stock in RG-I Register with the stocks in BSR 4,997 cartons of wall tiles lying in-BSR were damaged due to overstocking and the stocks could not be physically verified correctly for this reason. Ld. Counsel takes us through the various Panchnamas and high-lights the lack of details of stocks there to substantiate his contention that only an eye estimate of stocks was taken. He challenges the veracity of the Panchnamas on the basis of the recording of the presence of one particular panch witness viz. Shri Vipin Chadha on a particular day i.e. 11.9.1990 at two different BSRs situated at a distance of over 300 metres apart, at the same time i.e.
at 9.30 AM. He refers to the statement of B.G. Ekande, Accounts Manager of the Appellants recorded on 22.9.1990, wherein the charge of shortage has been denied and improper stocking due to over stocking has been clearly explained. Lastly in support of his contention that the charge of clandestine removal falls to the ground for want of sufficient direct or circumstantial evidence, he cites a host of Judgments of various High Courts and Orders of the Tribunal to that effect that Sub-rule (2) to Rule 9 of the Central Excise Rules, 1944 is attracted only for contravention of Sub-rule (1), and in this case, Rule 9(2) is not applicable as goods have not been proved to have been removed clandestinely, escaping assessment. He, therefore, prays that the duty and penalty be set aside.
5. Ld. DR, Shri Bhartiya, invites our attention to the Panchnama dt.
11.9.1990 and the stock verification set out thereunder revealing excess and shortage and to the Panchnama of 14.9.1990 and submits that it is not open to the Appellants to challenge the correctness of the contents of the Panchnamas in the face of acceptance by the Appellants by signature of its Officers, Mr. Ekande and Mr. B.S. Shah, Excise Officer. He reiterates the findings contained in paras 4.4.2 and draws our attention to para. 4.4. wherein the Adjudicating Authority has adjusted the quantity of 4,997 cartons of wall tiles against the shortage of 27,826 cartons and scaled down the shortage to 22,829 cartons. He argues that the charges of excess and clandestine removal have been established by the Deptt. and pleads for confirmation of the demand and rejection of the Appeal.
6. We find, that the entire stock taking operation was conducted in the presence of authorised representatives of the Appellants from 8th to 14th September, 1990 and each day's proceedings were differently recorded and the Panchnamas were signed by all concerned, including the Appellant's representatives. As a result of stock verification, the excess quantity of 3,415 cartons of wall tiles and 1,076 cartons of floor tiles was detected. The Excise Officer of the Appellants was not in a position to explain the difference without verifying and checking the books of accounts. Similarly, Accounts Manager was also not in a position to explain the discrepancies as evident from his statement recorded on 14.9.1990. The Appellants had written to the Deptt. on 31.7.1990 which letter is reproduced below: Letter No.--dt. 31.7.1990 from H & R Johnson (India) Ltd. addressed to the Superintendent, Central Excise, Range IV, Dewas.
Subject: Accumulation of huge stock of wall and floor tiles (Pavings) We wish to inform you that, our BSRs are built in to handle a stock of around 75,000 cartons of wall tiles and around 55,000 boxes of floor tiles respectively which was normal stock holding in previous years. For past couple of months however our stock has increased every month and at present is around 1,75,000 of wall tiles & 75,000 of floor tiles which is more than double of wall tiles BSR capacity and substantially more in case of floor tiles (pavings). As a result of which we are forced to pile the cartons upto height 20' and more resulting heavy breakages during handling and storing particularly in case of wall tiles. We are in the process of ascertaining actual breakage after which we shall file applications and request for destruction.
However, this letter does not advance the case of the Appellants as admittedly the Appellants have not been able to explain the excess and shortage and have not been able to completely tally the stocks. Filing of a protest letter on 15.9.1990 is post seizure and, therefore, has rightly been discarded by the Adjudicating Authority as an after-thought. The impugned order does not suffer from any infirmity for rejection of the request contained in the above letter for reverification of the stock by grant of sanction to the Appellants for temporary open BSR to enable stock kept in the BSR to be taken outside for the purpose of itemwise and sizewise verification. The letter of 22.3.1991 submitted after the personal hearing is also only a repetion (sic) of the letter dt. 15.9.1990 and we do not accept the contention of the Ld. Counsel that the Adjudicating Authority was bound to act upon this letter, in the admitted position of unexplained excess and shortage of stock detected during the course of proper physical stock taking.
7. The case law cited by the Ld. Counsel for the Appellants is distinguishable on facts. In the case of N.B. Sanjana v. The Elphinstone Spinning & Weaving Mills Co. Ltd. 1978 ELT J 399 S.C. : 1974 Jan. Cen-Cus 1C (SC) :ECR C 368 SC it was not the case of the Deptt. that the Assessees had not complied with the provisions of Sub-rule 1 of Rule 9 and it is in that context that the Supreme Court held that contravention of Rule 9(1) precedes the applicability of Rule 9(2). In the case of jayshree Textiles & Industries and Ors. v. CCE the Hon'ble Calcutta High Court found that there was no clandestine removal and deliberate evasion of duty as RT 12 returns had been duly assessed. In the case of Associated Cylinder Industries Ltd. v. CCE the Tribunal held that incomplete or improper maintenance of prescribed records alone was not sufficient proof of clandestine removal and a comparison between physical stock and the RG record only showed that the statutory records were not maintained properly. It was further held that a co-relation between the cylinder and the documents such as inspection records regarding receipt and issue of valves was possible and it was, therefore, incumbent upon the Deptt. to have probed those aspects, and the matter was remanded to the Asstt. Collector with opportunity to the Appellants to submit evidence in the form of records maintained in compliance with the provisions of Explosives Act or contract. The finding of the Tribunal in the case of Sayaji Iron and Engg. Co. (P) Ltd. v. CCE is that irregularities in maintenance of RG-1 register cannot be conclusive evidence of clandestine removal of goods and the discrepancy appears to be the result of erroneous methods adopted by the Appellants to make entries in the RG-1 register and the Appellants had provided a plausible explanation which was not investigated further by the Deptt. The demand on the basis of two account books stated to be seized from the premises of the Appellants was set aside for want of proof that the entries reflected actual clandestine removal and the benefit of doubt was extended to the Appellants in the case of Ganga Rubber Industries v. CCE 650. Removal of goods was held not to be regarded as clandestine removal in the light of assessment of RT 12 returns and GP-ls, in the case of Samatha Metal Industries v. CCE . Similar is the view of the Tribunal in the case of Royal Paints and Anr. v. CCE . In the instant case we are satisfied that the Deptt.
as arrived at its conclusion on the basis of sufficient evidence of excess and shortage detected during actual physial verification and the Appellants have not been able to explain the same satisfactorily till date.
8. It has been held by the Tribunal in the case of Good Year India Ltd. v. Collector of Central Excise that the plea of human error in counting of stock is not acceptable when the verification sheet is signed by officials of the company and penalty is justified as shortage is due to clandestine removal of goods and excess is due to non-accountal of goods. The Tribunal relied upon the judgment of the Hon'ble High Court in the case of Nizam Sugar Factory Ltd. v. Collector for holding that the goods removed in contravention of the provisions of the Act or Rules are liable to confiscation and the manufacturer liable to penalty.
9. In the light of the above discussion we see no reason to interfere with the finding of the Adjudicating Authority and accordingly we uphold the impugned order and reject the Appeal.
Sd/- Sd/- (S.K. Bhatnagar) Gyoti Balasundaram) Vice-President Dt. 20.8.1993 Member (J) 1. With due respect to Hon'ble Member (Judicial) my view and arguments in this matter are as follows: 1. I broadly agree with the observations and findings of the Ld. Member (Judicial) except to the extent that in my opinion the Appellant's letter dt. 31st July, 1990 addressed to the Supdt. of Central Excise (Annexure E) was also required to be kept in view since it was a pre-seizure document. In the context of this communication their subsequent letter dt. 22nd March, 1991 addressed to the Collector of Central Excise, Indore, has to be appreciated; As such, while stock verification carried on in the presence of both the sides, has to be taken into account simultaneously in so far as the damaged stock is concerned, the probability of an estimate having been resorted to al beit by mutual agreement or otherwise cannot be entirely ruled out.
Hence their contention that actual damaged stock was only 6,877 boxes of wall tiles as against 5,000 cartons reported by Officers, was required to be given due consideration. The Appellants have mentioned that these figures closely and reasonably tally with the actual quantity of 6877 boxes ;- although not exactly so they are broadly speaking nearly so and in my opinion the appellants would in any case be entitled to benefit of doubt in this respect. The demand of duty was required to be suitably modified to this extent.
2. Further, looking to the totality of the facts and circumstances, I consider that the penalty of Rs. 2,00,000/- was sufficient on this case. But for this modification the Order of the Collector is confirmed.
In view of the difference of opinion between the Vice-President and Hon'ble Member (Judicial), the matter is submitted to the Hon'ble President for reference to the Third Member on the following point: Whether in the facts and circumstances the Appeal was required to be rejected as proposed by the Hon'ble Member (Judicial) or order of Collector was required to be modified as proposed by the Vice President.
Sd/- Sd/- (Jyoti Balasundaram) (S.K. Bhatnagar) Member (J) 17.11.93 Vice President The point of difference is referred to Shri P.K. Kapoor, Member (Technical).
1. On the point of difference I have heard Shri Arun H. Mehta, the Ld.
Advocate on behalf of the Appellants and Shri V.C. Bhartia on behalf of the Respondents.
2. The Ld. Counsel on behalf of the Appellants submitted that the Ld.
Member (Judicial) has failed to take into account the fact that the Appellants had not accepted the results of the stock-taking carried out by the Central Excise Officers between 8.9.1990 and 14.9.1990 since immediately after the completion of the stock-taking the Appellants had addressed the letter dt. 15.9.1990 pointing out that on account of slow movement of goods during rainy season there was accumulation about over 1,75,000 cartons in the B.S.R. He added that in their letter the Appellants had clearly stated that the determined shortage of nearly 29,000 cartons and estimate of 4,997 cartons in broken condition, on the basis of eye-estimate was not acceptable to them and they had requested that the stocks may be reverified after properly arranging the cartons in the existing B.S.R. and another temporary open B.S.R. He stated that the Adjudicating Authority had also failed to take into account the Appellants' letter dt. 22.3.1991 wherein they had stated that the actual damaged stock was 6,877 boxes of wall tiles whereas on a rough estimate the Officers had estimated such stocks at only 5,000 cartons, he submitted that along with this letter the Appellants had also submitted a statement giving the detailed stock position which established that there were no shortages and the results of the verification carried out by the Departmental Officers were incorrect.
He further submitted that even though the Appellants' letter dt.
15.9.1990 in which they had protested against the manner of stock-taking was referred to in the Show Cause Notice and it was stated that it had been taken on record for further verification no action was taken by the Deptt. on the submissions made therein by the Appellants.
He stated that the Appellants were making over 60 varieties of tiles in different sizes and colours and at the relevant time there were nearly 1,75,000 cartons in the B.S.R., and therefore, it was impossible for anybody to arrive at the correct estimate of the total stock and the stock of broken tiles within a short period. He submitted that in view of the position outlined in their letter dt. 15.9.1990 and 20.2.1991 and the details of the stock furnished by them along with the letter dt. 20.2.1991 there was no excess or shortages as alleged by the Deptt.
He added that the Deptt. had also failed to establish that there was any clandestine removal warranting the invokation of provisions of Rule 9(2) for demanding duty and for imposition of penalty. On behalf of the Respondents Shri V.C. Bhartia, Ld. JDR referred to the Order recorded by the Ld. Member (Judicial) and stated that as observed by her the protest letter dt. 15.9.1990 and 20.2.1991 being post-seizure they could not be taken into account since the Appellants had participated in the verification of the stocks and signed the relevant Panchnama. In support of his contention he cited the decision of the Tribunal in the case of Goodyear India Ltd., reported in 1990 (48) ELT 394 : 1990 (28) ECR 461 (T) wherein it has been held that the plea of human error in counting of stock is not acceptable when the verification sheet is signed by the official of the company. In this regard he also relied on the decision of the Bombay High Court in the case of Uni-Sankyo Limited v. Union of India and Ors. ] wherein it has been held that late submissions of evidence at the time of Show Cause Notice has to be deemed as afterthought and could not be taken into consideration. He referred to the Order recorded by the Ld. Member (Judicial) and contended that all the points raised by the Appellants had been dealt with therein and pleaded that the Order recorded by her may be confirmed.
15. I have considered the submissions made on behalf of both sides. It is an admitted fact that there was a huge accumulation of stock in the Appellants' bonded store-room at the time when the Stock-Taking was carried out by the Departmental Officers. While there could be no justification for acceding to the Appellants' request made in their letter dt. 15-9-1990 for a complete reverification of the stock, their claim that the number of cartons of damaged tiles was 6,877 and not only 5,000 cartons as determined during the Stock-Taking merited consideration by the Adjudication Authority. Since stock verification was carried out over a number of days and excess and shortages were arrived at in the presence of the representative of the Appellants who had also signed the relevant record of the Stock-Taking I am inclined to agree with the Ld. Member (Judicial) that shortages and excesses determined as a result of Stock-Taking have to be deemed as having been established and the protest letters filed by the Appellants have to be deemed as after thought in view of the Tribunal's decision in the case of Goodyear India Ltd. v. CCE (supra). However, as observed by me earlier since each and every packet could not have been opened for verification when the total number of packages stored in the B.S.R. was very large the Appellants' contention that the number of cartons containing broken tiles was 6,877 and not 5,000 merits consideration. I am, therefore, inclined to agree with the Ld. Member (Technical) that the stock of broken tiles should be taken as 6,877 boxes for the purposes of determining the duty liability and on that account a penalty of Rs. 2 lakhs only on the Appellants would meet the end of justice.
In view of the majority opinion, the Order of the Adjudicating Authority is modified as proposed by the Vice-President but for the modification the Order of the Collector is confirmed.