Partap Rajasthan Special Steels Vs. Commr. of C. Ex. - Court Judgment

Excerpt:
1. this appeal has been filed against the order dated 14-8-1992 passed by the commissioner of central excise & customs, jaipur. the facts of the case are that the officers of preventive section, central excise division, jaipur visited the factory of the appellants on 27-6-1988 and checked the records and excisable goods lying in the factory. the stocks of finished excisable goods, namely, steel ingots and billets/blooms lying in the factory were verified and the officers found some excess stock over the record balance in the statutory rg 1 register. it was found by the department that 2.30 mt of steel ingots and 20.020 mt of steel alloy billets/blooms were found in excess which were seized for action under the central excise rules. on further investigation, the department found that the appellants had a production incentive scheme for payment to its workers. this incentive scheme indicated rate of incentive payable for weekly target of production achieved and based on achievement of the target, incentive at 10%, 20% or 35% is paid. the department, on examination of the records of the incentive payment, was of the view that the production shown in the central excise rg 1 register was less than the production on which production incentive had been paid to the workers. therefore, the department took the stand that the statutory record maintained by the party for central excise purposes, do not show the actual production of steel ingots, billets/blooms. it appeared that the actual production during the period 7-8-1983 to 22-9-1984 for six working days of the week, except sunday, is represented in the records maintained by the appellants for the purpose of payment of production incentive to the workers and further, the production on sundays, during the period from 7-8-1983 to 31-7-1988, has not at all been recorded in any record whereas the department found that power consumption on sunday was as normal as on any other working day. therefore, there was, according to the department, additional production on sunday which is in addition to the production of six days of the week given in the production incentive scheme because sunday is taken as closed holiday for calculating the production under the production incentive scheme.proceedings were, therefore, initiated against appellants by issue of a show cause notice dated 5-9-1988 which proposed to confiscate the seized goods besides the demand of rs. 3,57,522.00 as per annexure i to the show cause notice and rs. 21,44,596.50 as per annexure ii to the notice totalling rs. 25,02,118.50. the assistant commissioner had also written to the rajasthan state electricity board on 27-7-1988, in which he said that in connection with inquiry against the appellants, he sought information whether there was any power cut during the various periods mentioned in the annexure to his letter. which was from 3-7-1983 to 22-9-1984 and if so, the assistant commissioner asked for the number and extent of power cut. the electricity board in their reply dated 1-8-1988, stated that there was no power cut during the period in question, except 22-3-1984 to 27-3-1984. therefore, the department assumed that there was power availability for 24 hours during the period in dispute. this has a relevance to the method adopted by the department to compute the excess production because as per the incentive scheme of the appellants, weekly target has been fixed for 20 hours power availability and the scheme also separately prescribed weekly target with 24 hours power availability. the department, in calculating the duty demand adopted the 24 hours power availability for taking the production as per the production incentive scheme. this formed the basis of the duty computed as per annexure i to the show cause notice. annexure ii thereof related to the demand of duty on the goods produced during sundays. after getting the details of consumption of power on sunday from the electricity board, the department assumed that for producing 1 mt of ingots, 900 units of electricity will be required. for this, they relied upon the statement of shri. ravinder arora, manager, steel melting section of the appellants. the department, thereafter, divided the total consumption of electricity on various sundays with the figure 900 and the result thereof was equivalent to the production on sunday since the rg 1 entry of sundays was shown as nil this quantity was treated by the department as production of finished goods removed clandestinely without payment of duty. the appellants gave a detailed reply to the show cause notice pointing out that the basis taken by the department was erroneous for calculating the excess production, but these arguments were not acceptable to the commissioner, who passed the impugned order confirming the demand for rs. 25,02,118.50 under section 11 a of the central excises & salt act, 1944. he also imposed a penalty of rs. 1 lakh on the appellants under section 173q of the central excise rules.the commissioner ordered confiscation of the seized goods found in excess and fixed a fine in lieu of confiscation, of rs. 10,000.00.2. the ld. counsel, shri v. sridharan appearing for the appellants, submitted that so far as the annexure i to the show cause notice is concerned, the details of the production incentive scheme are, available which has two separate rates based on 24 hour power availability where the higher production target was fixed and 20 hour availability with the lower target. the department had gone by the reply to the assistant commissioner's query given by the electricity board that there was power cut to base the demand on the production incentive scheme for 24 hour power supply situation. this, however, is erroneous and the ld. counsel pointed that there is difference between power cut and peak load restriction imposed on industrial consumers by the electricity board which refers to the restriction imposed on industrial consumers from consuming power during 6.00 p.m. to 10.00 p.m. in the terminology of the electricity board, the ld. counsel submitted, power cut is a cut in the supply to be drawn by the unit and the assistant commissioner's letter to the electricity board has not asked about availability of power for 20 hours or 24 hours as the case may be. the assistant engineer of the electricity board, in his cross-examination on 26-6-1990, before the commissioner, had clarified that during peak load restriction, the electricity board do not allow industrial consumers to consume power and he had also stated that since no query was raised by the assistant commissioner about the restriction of power supply, the electricity board had not indicated this aspect.the ld. counsel urged that this evidence would go establish that the assumption in the show cause notice that there was 24 hours power availability, is without basis. the ld. counsel also referred to the gazette notification dated 3-2-1981 of rajasthan power department wherein in para 17 it has been specifically stipulated that industrial consumers would not operate during peak load hours, namely, 18 hours to 22 hours each day. the ld. counsel referred to 4 working reports relating to 4 weeks which had been obtained by the appellants on inspection of the seized record. these working reports are the actual documents on the basis of which incentive was paid to the workers and indicated the details including the slab within which the production falls and consequent production bonus for the week. these reports indicated the annual production for this week and also a slab in which the production falls for incentive purpose. the ld. counsel took us through the entries in these four reports and argued that these are contemporaneous which would establish that the basis in the show cause notice that for the entire period covered under annexure i to the show cause notice, there was 24 hour power supply is incorrect. reference was also made to a chart prepared by the appellants annexed to the reply to the show cause notice to show how the working hours if taken as 20 hours and the production is calculated on the basis of the working reports the actual production in the rg 1 register would be closely comparable.3. in respect of the demand calculated on the production attributable to sundays as give in annexure ii to the show cause notice the ld.counsel submitted that the perusal of the incentive scheme clearly shows that the production for the purpose of incentive scheme is from 6.00 p.m. of one. sunday to 6.00 p.m. of the next sunday. the four working reports relied upon by the appellants, have shown that the production is from 6.00 p.m. of one sunday to 6.00 p.m. of next sunday of that week. therefore, for the production incentive scheme, the production on sunday is also taken into account. it was, further, argued that the submissions made in relating to the demand in annexure i to the show cause notice would, itself, prove that the demand made in annexure ii is also incorrect. it was pointed out that for 4 weeks for which working reports are actually available, it has been demonstrated that the production recorded in the rg 1 for the entire week including nil production of sunday as per the rg 1 corresponded favourably with the total production as per the incentive scheme. the ld. counsel relied upon the case law reported in 1990 (45) e.l.t. 104 in the case of sayaji & engg. co. pvt. ltd. v. c.c.e. to say that improper maintenance of rg 1 and clandestine removal of excisable goods is different. the case law reported in 1995 (76) e.l.t. 197 in the case of madhu foods products v. c.c.e. was also cited to say that the department has to prove clandestine production and removal and such a case cannot be based on assumption. the evidence of clandestine removal has necessarily to be established in a case alleging unauthorised removal of large quantity of goods as in this case.4. in respect of other charge of excess found by the officers on check of their stock and accounts on date of their visit, the ld. counsel referred to the explanation already given by them saying that out of 20 mt of billets, 3mt have already been released by the department and out of balance, 10 mt, is the production on saturday to be entered on the next day. it was also submitted that stock verification is properly to be done by weighment and not by counting number of pieces.5. shri jangir singh, ld. dr contended that the availability of 24 hour power has been adopted after obtaining information from the electricity board. therefore, the demand was firmly based on reliable date. the appellants have clearly shown nil production during sundays while at the same time, admitted that there was production on those days also and there is no satisfactory accountal of the production on those sundays. they had not given full and true intimation regarding their working on sundays to the department. the four working reports for 4 weeks can at best be used for extending production of those four weeks only and cannot be extended to the whole of the period, in question, for which the demand has been raised.6. we have carefully considered the submissions made by both the sides.as far as the demand in annexure i to the show cause notice is concerned, it would appear that the appellants have made certain contentions along with evidence to show that computation of demand based on the rates of incentive production scheme for 24 hour power supply, is not well founded. there is the deposition of the assistant engineer of the electricity board before the commissioner on this issue clarifying and explaining the dictinction between the power cut and peak load restriction, which we find has not at all been considered by the commissioner. this aspect has a vital bearing on the sustainability of the demand. it is, further, supported by the gazette notification, which has been referred to, imposing a peak load restriction for 4 hour for industrial and agricultural consumers of power. if 20 hours power supply is taken and the computation of production is made based on the rates applicable to such category in the production incentive scheme, then the contention of the appellants that the production, as indicated in the incentive scheme and as entered in the rg 1 account compares favourably, has to be considered in detail and pronounced upon. the appellants have, further, furnished before the adjudicating authorities certain (sic) based on the clarification of 20 hour power supply for all weeks, in question which has also not received due consideration at the hands of the commissioner. in regard to demand contained in annexure ii to the show cause notice, a perusal of the production incentive scheme, which is on record, would show that it starts from one sunday and ends with another sunday. apparently, if the department is to rely on the production incentive scheme, then this aspect of the scheme covering sundays, also should have been considered and a finding given thereon by the commissioner in the adjudication order. this has also not been done. however, the charge of improper and irregular maintenance of rg 1 against the appellants on the facts of this case is well founded and the question in this regard would be only quantum of penalty on the appellants for the offence. however, this will have a necessary nexus with the duty that may be ultimately demanded from the appellants. the findings given by the commissioner in the impugned order on the various grounds taken by the appellants are very sketchy and not in sufficient detail. as have been laid down in the decision cited by the ld. counsel, the charges of improper maintenance of rg 1 and charge of clandestine removal, are different in their nature and scope. in a case like this when clandestine removal of a substantial quantity of excisable goods, is involved, the adjudication authority should look for evidence to estalish such clandestine removal. such a finding is not there in the impugned order. since we find that the findings of the commissioner in the impugned order on certain vital grounds taken by the appellants for resisting the demand are inadequate and have not been considered in detail as they should be, we are of the view, that it will be appropriate to remand the matter to the commissioner to give detailed findings on the defence taken by the appellants in respect of the annexures i & ii to the show cause notice and to redetermine the duty deman-dable in this case in accordance with law and after giving the appellants an opportunity of hearing in the matter. as regards order of confiscation and fine on the goods, we do not see any reason to interfere with the order of the commissioner, which is upheld. the appeal is disposed of in the above terms.

Judgment:
1. This appeal has been filed against the order dated 14-8-1992 passed by the Commissioner of Central Excise & Customs, Jaipur. The facts of the case are that the officers of Preventive Section, Central Excise Division, Jaipur visited the factory of the appellants on 27-6-1988 and checked the records and excisable goods lying in the factory. The stocks of finished excisable goods, namely, steel ingots and billets/blooms lying in the factory were verified and the officers found some excess stock over the record balance in the statutory RG 1 register. It was found by the Department that 2.30 MT of steel ingots and 20.020 MT of steel alloy billets/blooms were found in excess which were seized for action under the Central Excise Rules. On further investigation, the Department found that the appellants had a production incentive scheme for payment to its workers. This incentive scheme indicated rate of incentive payable for weekly target of production achieved and based on achievement of the target, incentive at 10%, 20% or 35% is paid. The Department, on examination of the records of the incentive payment, was of the view that the production shown in the Central Excise RG 1 register was less than the production on which production incentive had been paid to the workers. Therefore, the Department took the stand that the statutory record maintained by the party for Central Excise purposes, do not show the actual production of steel ingots, billets/blooms. It appeared that the actual production during the period 7-8-1983 to 22-9-1984 for six working days of the week, except Sunday, is represented in the records maintained by the appellants for the purpose of payment of production incentive to the workers and further, the production on Sundays, during the period from 7-8-1983 to 31-7-1988, has not at all been recorded in any record whereas the Department found that power consumption on Sunday was as normal as on any other working day. Therefore, there was, according to the Department, additional production on Sunday which is in addition to the production of six days of the week given in the production incentive scheme because Sunday is taken as closed holiday for calculating the production under the production incentive scheme.

Proceedings were, therefore, initiated against appellants by issue of a show cause notice dated 5-9-1988 which proposed to confiscate the seized goods besides the demand of Rs. 3,57,522.00 as per Annexure I to the show cause notice and Rs. 21,44,596.50 as per Annexure II to the notice totalling Rs. 25,02,118.50. The Assistant Commissioner had also written to the Rajasthan State Electricity Board on 27-7-1988, in which he said that in connection with inquiry against the appellants, he sought information whether there was any power cut during the various periods mentioned in the Annexure to his letter. which was from 3-7-1983 to 22-9-1984 and if so, the Assistant Commissioner asked for the number and extent of power cut. The Electricity Board in their reply dated 1-8-1988, stated that there was no power cut during the period in question, except 22-3-1984 to 27-3-1984. Therefore, the Department assumed that there was power availability for 24 hours during the period in dispute. This has a relevance to the method adopted by the Department to compute the excess production because as per the incentive scheme of the appellants, weekly target has been fixed for 20 hours power availability and the scheme also separately prescribed weekly target with 24 hours power availability. The Department, in calculating the duty demand adopted the 24 hours power availability for taking the production as per the production incentive scheme. This formed the basis of the duty computed as per Annexure I to the show cause notice. Annexure II thereof related to the demand of duty on the goods produced during Sundays. After getting the details of consumption of power on Sunday from the Electricity Board, the Department assumed that for producing 1 MT of ingots, 900 units of electricity will be required. For this, they relied upon the statement of Shri. Ravinder Arora, Manager, Steel Melting Section of the appellants. The Department, thereafter, divided the total consumption of electricity on various Sundays with the figure 900 and the result thereof was equivalent to the production on Sunday since the RG 1 entry of Sundays was shown as nil this quantity was treated by the Department as production of finished goods removed clandestinely without payment of duty. The appellants gave a detailed reply to the show cause notice pointing out that the basis taken by the Department was erroneous for calculating the excess production, but these arguments were not acceptable to the Commissioner, who passed the impugned order confirming the demand for Rs. 25,02,118.50 under Section 11 A of the Central Excises & Salt Act, 1944. He also imposed a penalty of Rs. 1 lakh on the appellants under Section 173Q of the Central Excise Rules.

The Commissioner ordered confiscation of the seized goods found in excess and fixed a fine in lieu of confiscation, of Rs. 10,000.00.

2. The ld. Counsel, Shri V. Sridharan appearing for the appellants, submitted that so far as the Annexure I to the show cause notice is concerned, the details of the production incentive scheme are, available which has two separate rates based on 24 hour power availability where the higher production target was fixed and 20 hour availability with the lower target. The Department had gone by the reply to the Assistant Commissioner's query given by the Electricity Board that there was power cut to base the demand on the production incentive scheme for 24 hour power supply situation. This, however, is erroneous and the ld. Counsel pointed that there is difference between power cut and peak load restriction imposed on industrial consumers by the Electricity Board which refers to the restriction imposed on industrial consumers from consuming power during 6.00 P.M. to 10.00 P.M. In the terminology of the Electricity Board, the ld. Counsel submitted, power cut is a cut in the supply to be drawn by the unit and the Assistant Commissioner's letter to the Electricity Board has not asked about availability of power for 20 hours or 24 hours as the case may be. The Assistant Engineer of the Electricity Board, in his cross-examination on 26-6-1990, before the Commissioner, had clarified that during peak load restriction, the Electricity Board do not allow industrial consumers to consume power and he had also stated that since no query was raised by the Assistant Commissioner about the restriction of power supply, the Electricity Board had not indicated this aspect.

The ld. Counsel urged that this evidence would go establish that the assumption in the show cause notice that there was 24 hours power availability, is without basis. The ld. Counsel also referred to the Gazette notification dated 3-2-1981 of Rajasthan Power Department wherein in Para 17 it has been specifically stipulated that industrial consumers would not operate during peak load hours, namely, 18 hours to 22 hours each day. The ld. Counsel referred to 4 working reports relating to 4 weeks which had been obtained by the appellants on inspection of the seized record. These working reports are the actual documents on the basis of which incentive was paid to the workers and indicated the details including the slab within which the production falls and consequent production bonus for the week. These reports indicated the annual production for this week and also a slab in which the production falls for incentive purpose. The ld. Counsel took us through the entries in these four reports and argued that these are contemporaneous which would establish that the basis in the show cause notice that for the entire period covered under Annexure I to the show cause notice, there was 24 hour power supply is incorrect. Reference was also made to a chart prepared by the appellants annexed to the reply to the show cause notice to show how the working hours if taken as 20 hours and the production is calculated on the basis of the working reports the actual production in the RG 1 register would be closely comparable.

3. In respect of the demand calculated on the production attributable to Sundays as give in Annexure II to the show cause notice the ld.Counsel submitted that the perusal of the incentive scheme clearly shows that the production for the purpose of incentive scheme is from 6.00 P.M. of one. Sunday to 6.00 P.M. of the next Sunday. The four working reports relied upon by the appellants, have shown that the production is from 6.00 P.M. of one Sunday to 6.00 P.M. of next Sunday of that week. Therefore, for the production incentive scheme, the production on Sunday is also taken into account. It was, further, argued that the submissions made in relating to the demand in Annexure I to the show cause notice would, itself, prove that the demand made in Annexure II is also incorrect. It was pointed out that for 4 weeks for which working reports are actually available, it has been demonstrated that the production recorded in the RG 1 for the entire week including nil production of Sunday as per the RG 1 corresponded favourably with the total production as per the incentive scheme. The ld. Counsel relied upon the case law reported in 1990 (45) E.L.T. 104 in the case of Sayaji & Engg. Co. Pvt. Ltd. v. C.C.E. to say that improper maintenance of RG 1 and clandestine removal of excisable goods is different. The case law reported in 1995 (76) E.L.T. 197 in the case of Madhu Foods Products v. C.C.E. was also cited to say that the Department has to prove clandestine production and removal and such a case cannot be based on assumption. The evidence of clandestine removal has necessarily to be established in a case alleging unauthorised removal of large quantity of goods as in this case.

4. In respect of other charge of excess found by the officers on check of their stock and accounts on date of their visit, the ld. Counsel referred to the explanation already given by them saying that out of 20 MT of billets, 3MT have already been released by the Department and out of balance, 10 MT, is the production on Saturday to be entered on the next day. It was also submitted that stock verification is properly to be done by weighment and not by counting number of pieces.

5. Shri Jangir Singh, ld. DR contended that the availability of 24 hour power has been adopted after obtaining information from the Electricity Board. Therefore, the demand was firmly based on reliable date. The appellants have clearly shown nil production during Sundays while at the same time, admitted that there was production on those days also and there is no satisfactory accountal of the production on those Sundays. They had not given full and true intimation regarding their working on Sundays to the Department. The four working reports for 4 weeks can at best be used for extending production of those four weeks only and cannot be extended to the whole of the period, in question, for which the demand has been raised.

6. We have carefully considered the submissions made by both the sides.

As far as the demand in Annexure I to the show cause notice is concerned, it would appear that the appellants have made certain contentions along with evidence to show that computation of demand based on the rates of incentive production scheme for 24 hour power supply, is not well founded. There is the deposition of the Assistant Engineer of the Electricity Board before the Commissioner on this issue clarifying and explaining the dictinction between the power cut and peak load restriction, which we find has not at all been considered by the Commissioner. This aspect has a vital bearing on the sustainability of the demand. It is, further, supported by the Gazette notification, which has been referred to, imposing a peak load restriction for 4 hour for industrial and agricultural consumers of power. If 20 hours power supply is taken and the computation of production is made based on the rates applicable to such category in the production incentive scheme, then the contention of the appellants that the production, as indicated in the incentive scheme and as entered in the RG 1 account compares favourably, has to be considered in detail and pronounced upon. The appellants have, further, furnished before the adjudicating authorities certain (sic) based on the clarification of 20 hour power supply for all weeks, in question which has also not received due consideration at the hands of the Commissioner. In regard to demand contained in Annexure II to the show cause notice, a perusal of the production incentive scheme, which is on record, would show that it starts from one Sunday and ends with another Sunday. Apparently, if the Department is to rely on the production incentive scheme, then this aspect of the scheme covering Sundays, also should have been considered and a finding given thereon by the Commissioner in the adjudication order. This has also not been done. However, the charge of improper and irregular maintenance of RG 1 against the appellants on the facts of this case is well founded and the question in this regard would be only quantum of penalty on the appellants for the offence. However, this will have a necessary nexus with the duty that may be ultimately demanded from the appellants. The findings given by the Commissioner in the impugned order on the various grounds taken by the appellants are very sketchy and not in sufficient detail. As have been laid down in the decision cited by the ld. Counsel, the charges of improper maintenance of RG 1 and charge of clandestine removal, are different in their nature and scope. In a case like this when clandestine removal of a substantial quantity of excisable goods, is involved, the adjudication authority should look for evidence to estalish such clandestine removal. Such a finding is not there in the impugned order. Since we find that the findings of the Commissioner in the impugned order on certain vital grounds taken by the appellants for resisting the demand are inadequate and have not been considered in detail as they should be, we are of the view, that it will be appropriate to remand the matter to the Commissioner to give detailed findings on the defence taken by the appellants in respect of the Annexures I & II to the show cause notice and to redetermine the duty deman-dable in this case in accordance with law and after giving the appellants an opportunity of hearing in the matter. As regards order of confiscation and fine on the goods, we do not see any reason to interfere with the order of the Commissioner, which is upheld. The appeal is disposed of in the above terms.