Shamsons (India) Vs. Collector of Central Excise - Court Judgment

Excerpt:
1. a duty demand of rs. 81,900/- has been confirmed on the ground that the appellants manufactured 13 air conditioners out of 13 compressors found short on 9-5-1991 when the central excise officers visited the factory premises of the appellants and cleared the air conditioners without payment of duty. in addition, a penalty of rs. 25,000/- has also been imposed. the appellant's explanation for the shortage is that they had found some defects in these compressors which had been supplied to them by m/s. carrier aircon, lucknow and they had returned the 13 compressors for removal of defects. this was the explanation putforth by shri subhash khartna, proprietor of the appellants on the spot statement.2. in reply to the show cause notice, the appellants also supported this contention with copies of two letters - one dated 30-4-1991 indicating sending of 6 defective compressors to m/s. carrier aircon through the bearer of the letter and seeking immediate replacement due to urgent need, and letter dated 8-5-1991 covering 7 defective compressors. the letters bear remarks that defective compressors were retimed to the appellants on 9-5-1991 with a remark 'returned with the remarks with a request to send compressors after sometime as we do not have replacement compressors or on receipt, we will inform you'. the collector has rejected this defence for the reason that subsequent enquiry on 11-2-1994 that m/s. carrier aircon had revealed that no air-conditioners were sent to them for removal of defects.3. the learned counsel, shri kaushik submits that the explanation of the appellants right from the beginning had been that the 13 compressors found short were defective and had been returned to the compressor manufacturer in lucknow for replacement and stand of the appellants was verified by the letter under cover of which the defective compressors had been sent to lucknow for the purpose of replacement.4. the department had all the time in the world to verify the correctness of this submission of the appellants; however, instead of verification at the relevant point of time, the department conducted enquiry with m/s. carrier aircon only on 11-2-1992 after the appellants had submitted their defence reply and the result of that enquiry conducted on 11-2-1992 was never communicated to the appellants and for the time, the enquiry findings are mentioned in the impugned order. he further submits that shortage of raw material cannot form the sole basis for coming to the conclusion that final product using such raw materials had been manufactured and cleared without payment of duty. in support of this contention, he cites the tribunal's order reported in 1996 (17) rlt 650 in the case of collector of central excise, chandigarh v. ludhiana bottling co. and 1997 (20) rlt 765 in the case of natraj organics v. collector of customs, meerut.5. the learned dr reiterates the findings in the impugned order with particular reference to the finding that the letters referred to by the appellants were not authentic documents and that the appellants had managed the sales manager of the air conditioners.6. i have carefully considered the submissions of both the sides and see great force in the appellants submission. the appellants were consistently explaining the shortage of compressors by stating that the compressors had been returned to m/s. carrier aircon for replacement.instead of verifying immediately the correctness or otherwise of this averment based upon the letters dated 30-4-1991,8-5-1991, the department instead waited till the appellants had submitted their reply to the show cause notice and then carried out the enquiry, the result of which was not communicated to the appellants, and which only finds a place for the first time in the impugned order. the entire case of the department is made out on this basis, namely shortage in raw material.as rightly pointed out by the learned counsel, this is not sufficient for the purpose of holding that there has been manufacture and clandestine removal of final product without payment of duty. since the burden of clandestine removal has not been satisfactorily discharged by the revenue, i extend the benefit of doubt to the appellants and set aside the impugned order demanding duty. as far as the panelty of rs. 25,000/- is concerned, penalty is warranted for improper maintenance of raw material account namely form 4 register. however, it can be termed as a techincal offence and the penalty is required to be reduced and is accordingly reduced to rs. 5,000/-. the appeal is disposed of in the above terms.

Judgment:
1. A duty demand of Rs. 81,900/- has been confirmed on the ground that the appellants manufactured 13 Air conditioners out of 13 compressors found short on 9-5-1991 when the Central Excise officers visited the factory premises of the appellants and cleared the Air conditioners without payment of duty. In addition, a penalty of Rs. 25,000/- has also been imposed. The appellant's explanation for the shortage is that they had found some defects in these compressors which had been supplied to them by M/s. Carrier Aircon, Lucknow and they had returned the 13 compressors for removal of defects. This was the explanation putforth by Shri Subhash Khartna, Proprietor of the appellants on the spot statement.

2. In reply to the show cause notice, the appellants also supported this contention with copies of two letters - one dated 30-4-1991 indicating sending of 6 defective compressors to M/s. Carrier Aircon through the bearer of the letter and seeking immediate replacement due to urgent need, and letter dated 8-5-1991 covering 7 defective compressors. The letters bear remarks that defective compressors were retimed to the appellants on 9-5-1991 with a remark 'Returned with the remarks with a request to send compressors after sometime as we do not have replacement compressors or on receipt, we will inform you'. The Collector has rejected this defence for the reason that subsequent enquiry on 11-2-1994 that M/s. Carrier Aircon had revealed that no air-conditioners were sent to them for removal of defects.

3. The learned Counsel, Shri Kaushik submits that the explanation of the appellants right from the beginning had been that the 13 compressors found short were defective and had been returned to the compressor manufacturer in Lucknow for replacement and stand of the appellants was verified by the letter under cover of which the defective compressors had been sent to Lucknow for the purpose of replacement.

4. The department had all the time in the world to verify the correctness of this submission of the appellants; however, instead of verification at the relevant point of time, the department conducted enquiry with M/s. Carrier Aircon only on 11-2-1992 after the appellants had submitted their defence reply and the result of that enquiry conducted on 11-2-1992 was never communicated to the appellants and for the time, the enquiry findings are mentioned in the impugned order. He further submits that shortage of raw material cannot form the sole basis for coming to the conclusion that final product using such raw materials had been manufactured and cleared without payment of duty. In support of this contention, he cites the Tribunal's order reported in 1996 (17) RLT 650 in the case of Collector of Central Excise, Chandigarh v. Ludhiana Bottling Co. and 1997 (20) RLT 765 in the case of Natraj Organics v. Collector of Customs, Meerut.

5. The learned DR reiterates the findings in the impugned order with particular reference to the finding that the letters referred to by the appellants were not authentic documents and that the appellants had managed the Sales Manager of the Air conditioners.

6. I have carefully considered the submissions of both the sides and see great force in the appellants submission. The appellants were consistently explaining the shortage of compressors by stating that the compressors had been returned to M/s. Carrier Aircon for replacement.

Instead of verifying immediately the correctness or otherwise of this averment based upon the letters dated 30-4-1991,8-5-1991, the department instead waited till the appellants had submitted their reply to the show cause notice and then carried out the enquiry, the result of which was not communicated to the appellants, and which only finds a place for the first time in the impugned order. The entire case of the department is made out on this basis, namely shortage in raw material.

As rightly pointed out by the learned Counsel, this is not sufficient for the purpose of holding that there has been manufacture and clandestine removal of final product without payment of duty. Since the burden of clandestine removal has not been satisfactorily discharged by the Revenue, I extend the benefit of doubt to the appellants and set aside the impugned order demanding duty. As far as the panelty of Rs. 25,000/- is concerned, penalty is warranted for improper maintenance of raw material account namely Form 4 Register. However, it can be termed as a techincal offence and the penalty is required to be reduced and is accordingly reduced to Rs. 5,000/-. The appeal is disposed of in the above terms.