Judgment:
1. The captioned appeal is filed by the appellants challenging the order-in-original passed by the learned Collector, Central Excise. The Collector, Central Excise, in his order, had held : "I order the party to pay duty at the appropriate rate prevalent at that time on the 2nd centrifugal for the whole season i.e. from 15-1-1977 to 31-10-1977. Considering that the case has dragged for a long period, I take a lenient view and impose a penalty of Rs. 500/- only under Rule 92E of the Central Excise Rules, 1944. I also confiscate the seized Khandsari sugar weighing 12 qtls. under Rule 92E ibid. However, I give the party an option to redeem the same on payment of redemption fine of Rs. 100/- The option should be exercised within one month of the receipt of this order." 2. The facts of the case are that the officers of the Central Excise paid a surprise visit to the Khandsari factory of the appellants. This factory was operating under the compounded levy system for the period from 1-11-1976 to 31-10-1977. The appellants had declared that they will work with one centrifugal size 22.9 x 45.7 cms. during the aforesaid period. In the course of surprise visit, the officers found two centrifugals each of size 22.9 x 45.7 cms. manufacturing khandsari sugar. The appellants failed to produce central excise records and also proof of payment of central excise duty in respect of khandsari sugar manufactured by the second centrifugal during the period 1-11-1976 to 31-10-1977. Khandsari sugar available in the factory was seized in the reasonable belief that it was liable to confiscation. Accordingly, a show cause notice was issued to the appellants asking them to explain as to why the seized sugar should not be confiscated and why duty should not be demanded on the khandsari sugar manufactured by the second centrifugal and also why penalty should not be imposed. Their case was decided by the Collector of Central Excise on 13-7-1981.
Against this order of the Collector, the appellants went in appeal before the CBEC, New Delhi. The Board under its order dated 27-8-1981 remanded the case to the Collector, Central Excise, Meerut for de novo decision. After re-examination of the matter and taking into account the appellants submissions, the Collector, decided the issue as indicated above.
3. Shri A.K. Rastogi, the learned Advocate appearing for the appellants submitted that the seizure of sugar was not legal and that on the date of detection, the sample of seized sugar was drawn whereas no sample was drawn on the date of detection; that the plea of chemical analysis has been taken at a later stage on 13-2-1978 whereas the show cause notice was issued on 6-2-1978; that the ld. Collector misinterpreted the Rule 92B of the Central Excise Rules, 1944; that the word 'unit' has been clarified and linked with the manufacturing operation from the date on which the centrifugal starts manufacturing khandsari sugar and closure of unit on the dates on which the centrifugal finally stops for the season; that Sub-rule (2) of Rule 92B of the Central Excise Rules, 1944, the seasons have been defined from '1st day of November to 30th day of June of the year' and from '1st day of July to 31st day of October of the year'; that the learned Collector admitted in Para 6 of the adjudication order holding that "In view of the categorical endorsement made by the Sector officer, prior to 31-10-1977, it must be held that upto 6-10-1977 only one centrifugal was working"; that the ld. Collector erred by demanding duty for two centrifugals for the period from 15-1-1977 to 31-10-1977. Summing up his arguments, the ld.Counsel prayed that having regard to the decision of the Hon'ble Allahabad High Court, the appeal may be allowed.
4. Shri A.K. Madan, the learned SDR submitted that explanation (C) to Sub-rule (2) of Rule 92B says that if a unit had remained entirely closed for a continuous period of not less than 15 days, duty for that period can be excluded; that this explanation speaks of closure of a unit and not a centrifugal, that it is an undisputed fact in this case that the unit had not remained closed. He submitted that in this explanation, the words 'unit' and 'entirely' are important and connote that the reference is to the entire unit and not to individual centrifugal; that Sub-rule (2A) of Rule 92B speaks as to how a manufacturer could increase or decrease number/size of centrifugals installed in his unit; that he could make such change during the period from 1st November to 30th June, with prior permission of Asstt.
Collector; that in the present case, the relevant date is 31-10-1977 and as such is beyond the scope of Sub-rule (2A); that necessary permission of the Asstt. Collector was neither sought nor obtained. He submitted that in this view of the matter, the duty for the whole season from 15-1-1977 to 31-10-1977 has therefore, rightly been demanded. The ld. DR submitted that the contention of the appellants that what they were manufacturing was not sugar, was incorrect inasmuch as the samples were tested by the chemical examiner who opined that sample as received contained less than 90% sucrose. He submitted that the samples were tested after four years and by that time they had deteriorated by natural process.
5. Heard the submissions of both sides. On careful consideration of the facts on record and the submissions made before us, we find that on 31-10-1977 when PIO, Moradabad visited the appellants' factory, he found that two centrifugals were working. We also observe that the Sector Officer had visited the factory on 23-9-1977 and 6-10-1977. He made endorsement in RG 21 register indicating that only one centrifugal was working. We also observe that in Para 8 of the order-in-original, the collector held that "In view of the categorical endorsements made by the Sector Officer, prior to 31-10-1977, it must be held that upto 6-10-1977 only one centrifugal was working". We find that subsequently it has been held that duty should be demanded for the whole season from 15-1-1977 to 31-10-1977. We also observe that explanation (b) to Sub-rule (2) of Rule 92B provides "in computing the liability of any unit producing khandsari sugar for duty, the period during which the Collector is satisfied that any declared and installed centrifugals had remained closed or dismantled, shall be excluded". We observe that in Para 8, the Collector had categorically held that upto 6-10-1977 only one centrifugal was working. This can be treated as the satisfaction of the Collector concerned in terms of explanation (b) of Sub-rule (2) of Rule 92B. We also find that the Hon'ble Allahabad High Court in the case of B.K. Gupta Khandsari Sugar v. UOI reported in 1983 (13) E.L.T.889, had held that "Mere assumption of the authorities that the additional centrifugal started production from the commencement of the season is not warranted. Therefore, it is for the Customs authorities to determine on facts as to what was the date on which the petitioner commenced production and what was his unauthorised production of Khandsari sugar so that the amount of duty on unauthorised sugar can be quantified".
6. Having regard to the ratio of the decision of the Hon'ble Allahabad High Court and the provision in explanation (b) of Sub-rule (2) of Rule 92B, we hold that duty in the instant case on the second centrifugal shall be payable only from 6-10-1977 to 31-10-1977. Other findings of the ld. Collector are confirmed.
7. Having regard to the above discussions, the impugned order is modified to the extent stated above and the appeal is disposed of accordingly.