Full Judgment
2. Facts of the case in brief are that on 29-9-1981 at about 17.00 hrs, the Central Excise Anti-Evasion Officers of Delhi Collectorate Hqrs., New Delhi intercepted one Tempo No. DHL-7845 loaded with Latex Foam Articles falling under Item No. 16A(1) of Central Excise Tariff, near the factory of M/s. Khanna Rubbers, 220, Piragarhi, Delhi. On demand, the driver of the said tempo produced one hand-written proforma Invoice No. 80-81/108, dated 29-9-1981 for Rs. 5,521.00 issued by M/s. Khanna Rubbers in favour of M/s. Goverdhan Dass and Sons, Rajouri Garden. In order to verify the genuineness of the document accompanying the consignment, the Central Excise Officers immediately visited the factory premises of M/s. Khanna Rubbers. The factory was found to be engaged in the manufacture of Latex Foam Articles and availing exemption from payment of duty provided under Notification No.80/80-C.E., dated 19-6-1980 (as amended). On demand, Shri Vijay Narain Khanna, Proprietor of the firm, who was present in the factory presented simplified account Register maintained by them which was found written upto 29-4-1981. No entries of production/removal of excisable goods had been made in the said register, although there had been regular production and removal of the said goods after 29-4-1981.
The sale bills already issued by the party were found to be upto No.101, dated 18-9-1981. When asked to explain as to why Bill No. 108 had been issued for the consignment removed in the intercepted tempo instead of Bill No. 102 which was the regular next number, Shri Vijay Narain Khanna stated that he had reserved S. Nos. 102 to 107 for issue of bills to other parties from whom the payments had been received from 21-9-1981 to 28-9-1981.
3. Further Central Excise Officers recovered some pocket diaries and exercise note books showing production/clearance of Latex Foam articles from the factory premises of the appellant M/s. Khanna Rubber more than what was in the simplified account register. Due to discrepancies and non-accountal as well as on physical verification of stocks of fully manufactured excisable goods Latex Foam Articles of the value of Rs. 42,101.00 found lying in the factory were seized. The goods in the intercepted tempo of the value of Rs. 5,521/- were also seized on the ground that they had been removed from the place of manufacture without accountal in the simplified register and were not accompanied by a regular bill. In a follow-up action, the business premises/godown of the following firms were searched on 30-9-1981 and Latex Foam Articles of the total value of Rs. 33,000/- lying with them and manufactured in and removed from the factory of M/s. Khanna Rubbers without proper accountal in the Daily Stock Account Register were placed under seizure, since the said firms could not produce any document showing the lawful procurement of the same : -(i) M/s. Khanna Foam Sales, 341, Rs. 2,550.00 Panchkuin Road, New Delhi.(a) Shop at 26/90 Connaught Rs. 20,495.00 Place, New Delhi.(b) Godown at XV/2083, Gali Rs. 10,255.00 No. 5, Chuna Mandi, Delhi 4. On detailed investigation and based upon the statement of Shri Vijay Narain Khanna, Proprietor of appellant firm M/s. Khanna Rubbers as well as statements from persons whom the appellant had sold Latex adhesive, the Department was of the view that clearances of latex foam articles by M/s. Khanna Rubbers had exceeded Rs. 6 lakhs during the year [1981- 82], they were required to apply for and obtain a Central Excise Licence for the manufacture of Latex Foam Articles falling under Item No. 16A(1) of Central Excise Tariff and to clear the same after issue of Central Excise Gate Pass and observance of necessary Central Excise formalities, after crossing the 80% of exemption limit of Rs. 7.5 lakhs provided in Notification No. 80/80-C.E., dated 19-6-1980 (as amended).
Further they were required to effect the clearances of the said goods, in excess of the exemption limit of Rs. 7.5 lakhs, after payment of appropriate Central Excise Duty leviable thereon and after filing of classification list/price list. By not doing so, M/s. Khanna Rubbers have contravened the provisions of Rules 174, 173B, 173C, 9(1), 173F, 173G(2) read with Rules 52A, 173G(4) read with Rules 53 and 226 of Central Excise Rules, 1944, and the latex foam articles on 29-9-1981 from the factory premises of M/s. Khanna Rubbers and those removed in the intercepted tempo as well as those seized on 30-9-1981 from the business premises godown of M/s. Khanna Foam Sales and M/s. Gopal Narain & Sons, of the total value of Rs. 80,922/- are liable to confiscation under Rule 173Q ibid. Besides, seized tempo No. DHL-7845 valued at Rs. 45,000/-approx. used in the transportation of contraband excisable goods, which was released to M/s. Khanna Rubbers provisionally on 1-3-1982 on their execution of E-ll(Sec) Bond of the face value of Rs. 45,000/- alongwith security of Rs. 5,000/- is also liable to confiscation under Section 115 of the Customs Act, 1962.
Further, Central Excise duty amounting to Rs. 2,49,175.72 (BED Rs. 2,37,310.21 and SED Rs. 11,865.51) involved on the clearances of Latex Foam articles of the value of Rs. 5,75,297.50 effected by them without payment of duty in excess of the exemption limit of Rs. 7.5 lakhs is liable to be demanded from them under Rule 9(2) ibid. M/s. Khanna Rubbers are also liable to penal action under Rules 9(2), 52A(5), 226 and 173Q of the said Rules.
5. Accordingly a show cause notice dated 22-3-1982 was issued to show cause as to why : (i) the seized latex foam articles of the total value of Rs. 80,922.00 should not be confiscated under Rule 173Q ibid.
(ii) Central Excise duty of Rs. 2,49,175.72 (BED Rs, 2,37,310.21 + SED Rs. 11,865.51) invloved on latex foam articles valued at Rs. 5,75,297.50 removed by them without payment of duty leviable thereon should not be demanded from them under Rule 9(2) ibid; (iii) a penalty should not be imposed on them under Rule 9(2), 52A, 52A(5), 226 and 173Q of Central Excise Rules, 1944. They were also required to show cause as to why seized tempo No. DHL 7845 which has been provisionally released to them under Rule 206(3) should not be confiscated.
The show cause notice was duly answered by the appellants M/s. Khanna Rubbers denying the charges. After considering the reply to the show cause notice and submissions, the adjudicating authority negatived the contentions of the party and confirmed the charges. Accordingly, he imposed penalty of Rs. 1,00,000/- for contravention of provisions of Excise Act and Rules in addition to demanding duty of Rs. 2,49,175.72 from the appellants M/s. Khanna Rubbers on latex foam articles valued at Rs. 5,75,297.50. Further he ordered for confiscation of latex foam articles of the total value of Rs. 80,922.00 lying in stock at the premises of M/s. Khanna Rubbers, M/s. Khanna Foam Sales and M/s. Gopal Narain & Sons and the goods found in transit on 29-9-1981. However, he gave option to appellants M/s. Khanna Rubbers to redeem the goods on redemption fine of Rs. 25,000/-.
6. Shri L.R Asthana, ld. Advocate appearing for the appellants submitted that appellants M/s. Khanna Rubbers were manufacturers of latex foam articles and were availing benefit of Notification No.80/80-C.E., dated 19-6-1980 as their clearances were less than Rs. 7.5 lakhs in a year. They were also producing latex foam adhesives which were non-excisable, value of clearances of latex foam articles did not exceed exemption limit during the period in question and the case of the department is based upon the statements and some rough notebooks without any corroborated evidence. Statement of Shri Vijay Narain Khanna was obtained under duress on 29-9-1981 and same was retracted on 2-10-1981 at the earliest possible date. Further, notebook maintained by Shri R.K. Mitra, an employee of the appellant firm who left subsequently was not allowed to cross-examine and even if the production figure appeared in notebook for 93 days is taken into consideration still it falls within exemption limit. He said that Department relied upon the statement of proprietor of M/s. Aradhana Enterprises having denied purchase of latex adhesive but nowhere he said that latex foam articles were purchased from the appellants. On the other hand affidavits, sales tax challans placed on record clearly indicate that appellants have sold latex adhesive to three parties viz.
Aradhana Enterprises, Rockey Rubber & Chemical Agencies and Vishal Rubber Traders. He also contended that demand was barred by time in the absence of suppression of facts nor mention of Section 11A or suppression in the show cause notice to invoke larger period. But show cause notice has been issued on 22-3-1982 for the period 1-4-1981 to 29-9-1981 invoking larger period. He also attempted to show the electricity bills and project scheme for manufacture of latex foam published by the Development Commissioner, Small Scale Industries as additional evidence to show that appellant's unit had no capacity to manufacture latex foam articles of a value of Rs. 13,25,297.50 as held by the Collector. He submitted in the facts and circumstances, the department has no case either for demanding duty or for taking penal action.
7. It was contended on behalf of the Revenue that show cause notice was issued within six months from the date of seizure and further period of limitation is not applicable as the issue relates to offence. He submitted that belated retracted statement of Vijay Narain Khanna was under legal advice and since it was an afterthought, same cannot be taken cognisance relying upon the decision of the Supreme Court reported in AIR 1954 SC 462. He said that Department was right in relying upon the statement of person who has denied having purchased latex adhesive to whom the appellants said to have sold latex adhesive and further according to him latex adhesive can be manufactured basically out of scrap. He stated that the fact that the appellants have maintained private records itself indicates that they have intended to evade payment of duty and in view of circumstantial evidence brought on record, the Department was justified in booking the case against the appellants.
8. We have carefully considered the submissions made by both sides with reference to the facts and perused the records. The Collector has arrived at the conclusion that appellants had cleared the total value of Rs. 13,25,297.50 during the period 1-4-1981 to 29-9-1981 based upon the diaries, bills and the raw material purchased. He heavily relied upon the statements in arriving at the conclusion that against such sale bills of latex adhesive, foam products of equal value had been sold and the sale of latex adhesive had been shown to cover up the consumption of raw material, i.e., latex. We are of the view that mere denial of person to whom the appellant is said to have sold latex adhesive is not sufficient unless it is brought on record with substantive evidence that latex adhesive was not sold but in fact latex foam articles were sold to such party. Further unaccounted production/clearance of latex foam articles for the period of 93 days i.e., for a quarter cannot be taken as basis for enhancing the entire period proportionately as it was argued on behalf of the appellants.
There is also some force in the arguments advanced by the ld. counsel for the appellants with reference to time bar since the demand related to the production of goods other than goods seized in the transit and in the absence of mention of Section 11A or of suppression as such in the show cause notice to invoke larger period. In view of discrepancies and sufficient evidence is not forthcoming to show that value of latex foam articles exceeding exemption limit has been produced and cleared during the period in question, we are giving benefit of doubt to the appellant M/s. Khanna Rubbers to claim exemption in terms of Notification No. 80/80-C.E., dated 19-6-1980 and accordingly all these appeals are allowed.