Milton Laminates Pvt. Ltd. Vs. Collector of C. Ex. and Cus. - Court Judgment

Excerpt:
1. this appeal is directed against the order-in-original no. 16/addl.collector/1989, dated 14-2-1989 passed by the additional collector of central excise & customs, ahmedabad imposing personal penalty of rs. 20,000/- on the appellant under rule 173q of the central excise rules, 1944 and also ordering confiscation of the excess goods seized but since the goods were provisionally released, appropriated the amount of rs. 20,000/- from the security in lieu of confiscation.2. on 27-8-1987 the officers of the central excise paid a surprise visit to the factory of the appellants, where they noticed excess stock of 4862 decorative laminated sheets, as, when the stock was compared with the entries in the rg-1 register, these goods were found to have been not taken on record in the same register. the officers therefore seized the excess quantity found and recorded the statement of shri navinbhai k. patel, director of the appellants firm, who submitted that the rg-1 register was maintained by him on the basis of the production figures supplied by workers of their factory orally and on 25-8-1987 the central excise clerk was absent and 26-8-1987 being staggering holiday, rg-1 register was not written for both days and hence there appeared some excess on 27-8-1987. the appellants also stated that the alleged excess goods were not in saleable condition as the practice of accounting of production was that the cut sheets were graded first and the stickers were affixed and the design numbers were given and written on them and it was only thereafter that entries in rg-1 were made. the seized sheets found to be excess did not bear the stickers and were not even graded. a show cause notice was however, issued with allegation of contravention of the provisions of rule 53 and rule 226 read with rule 173g(4) of the central excise rules, 1944 and after receiving the reply thereto and after hearing the party, the explanations furnished by the appellants were found not satisfactory and the impugned order was passed.3. shri v.n. nair, the ld. advocate on behalf of the appellants, submitted that the goods were not in fully manufactured condition and the reasons for keeping them in the bonded store room were duly given by the appellants. he submitted that as there being no fully manufactured goods available, the question of putting the entry in the rg-1 register did not arise at that particular stage. he then submitted that in the show cause notice, there was no allegation that the goods were lying in the b.s.r. with an intend to evade payment of duty and then took me through the provisions of rule 173q(d) and submitted that the storing of the goods in the b.s.r. had to be coupled with an intention to remove them without payment of duty and there being no allegation to that effect in the show cause notice, the question of imposition of penalty and ordering confiscation under rule 173q did not arise. he then pleaded that the proceedings for imposing penalty and ordering confiscation of the goods were in the nature of quasi criminal proceedings and the penalty could be imposed only if the intention to commit breach of the statutory rules was established. in his submission, the mens rea is an essence in ascertaining the liability of the appellants to penalty. in support of his contention, he placed reliance of the decision of the cegat in topaz commerce ltd. v. cce -1990 (47) e.l.t. 100 (tribunal) as also the decision of the supreme court of india in hindustan steel ltd. v. state of orissa reported in 1978 (2) e.l.t. (j 159). he also submitted that there was no removal of the goods without payment of duty and as such the order of confiscation was not warranted. when a query was put by the bench as to whether the case could attract the provision of rule 173q(b) he submitted that even for that purpose, the existence of mens rea had to be established and if the goods manufactured by the appellants were not entered in rg-1 due to some erroneous practice, bona fidely followed, that would not attract the penal consequences provided for under the said rules. he further submitted that the order passed by the adjudicating authority was not a reasoned order and that he had also not taken into consideration the reply filed by the appellants. according to him the adjudicating authority has based his conclusion only on the alleged first statement of the partner of the firm but has overlooked the other portion of the said statement as well as the averments made in the reply to the show cause notice. he has also pointed out that the adjudicating authority has observed for placement of entry in the rg-1 register as "semi finished goods", for which, he has pleaded, there does not exist any provision whereby such entry should be made. in his submission, therefore, the order of the authority below is not proper and it does not appreciate the facts correctly and hence the same is required to be set aside.4. ms. lipika majumdar roy choudhury, the ld. sdr, however, supported the order of the authority below. she has submitted that the factual position is not challenged inasmuch as the finding of the goods not accounted for in the rg-1 register and their seizure from the b.s.r. is not in dispute. the defence with which the appellants have come is only in relation to the goods being in semi-finished condition and the other points being legal points as to the applicability of the provisions of rule 173q. in her submission, the legal position as incorporated in rule 173q are clear and unambiguous and where the metis rea is considered essential, a specific mention thereof has been made in the rules and otherwise strict compliance of the rule provisions have to be made notwithstanding the intention and non-compliance thereof should be visited with penal consequences. in her submission therefore the provisions of rule 173q squarely stand attracted and that the order passed by the authority below is just and proper and calls for no interference.5. considering the submissions made, there is no dispute over the factual position that 4862 sheets in manufactured condition were lying in the b.s.r. without corresponding entries in the relevant rg-1 register. the plea on the factual aspect put forward by the appellants is that those were not the finished goods and that they were required to be graded and stickers fixed. it is also their contention that as per their practice they were making relevant entries in the rg-1 register only after those two processes were done.6. the statutory requirement is that the entry in the rg-1 register should be made as soon as the manufacturing process is over. branding or fixing of stickers are in the nature of process to be undertaken after manufacture, and cannot be construed as a part of manufacturing process. they are done for better marketing of the items. plea that they were semi-finished therefore cannot be accepted as a valid excuse for not entering into rg-1 register. significantly, the goods were found stored in bsr, where only manufactured goods have to be stored.having known the provisions of storage in bsr, the appellants, if their plea was to be believed, could not have removed the goods to bsr unless they had taken them to have been fully manufactured. the fact of storage in bsr also negatives the contention that the goods were not finished goods.6a. considering the technical objections raised, the ld. adv. for the appellants has pleaded that the proceedings in the nature of ordering confiscation and imposition of personal penalty, being quasi-criminal in nature, mens rea has to be established. it is however not possible to fully endorse the submission made. though mens rea may have a bearing on the crime committed, it cannot be accepted that all or any of the acts committed without culpable mental state, have to be forgone. even the criminal jurisprudence does not contemplate thus.here what is alleged against the appellants is non-maintenance of proper statutory registers. it is also significant to note, that wherever the intention of the party is intended to be taken into consideration, specific mention thereof has been made. statutory obligations, wherever imposed, have however to be complied with, and a bonafide lapse, if established may, at the best, provide mitigating circumstances, but could not provide any justifiable ground to exonerate the party altogether.7. with the factual position duly established, that manufactured goods were found without entries made in rg-1 register, clear non-compliance of the provisions of rule 173q(1)(b) are established. thus, even if some credence is given to the submission that clause (d) may not stand attracted, in view of there being no evidence to prove that the appellants had intended to evade payment of duty, which too, is not convincingly proved, non-compliance with the provisions of clause (b) would render the goods liable to confiscation, and the defaulter liable to imposition of penalty.8. the show cause notice does allege such non-compliance, and with the allegation in that regards duly established, the order of confiscation and imposition of penalty appear just and proper.9. as regards the quantum of fine and penalty, i see no justifiable grounds to interfere with the same.

Judgment:
1. This appeal is directed against the Order-in-Original No. 16/Addl.

Collector/1989, dated 14-2-1989 passed by the Additional Collector of Central Excise & Customs, Ahmedabad imposing personal penalty of Rs. 20,000/- on the appellant under Rule 173Q of the Central Excise Rules, 1944 and also ordering confiscation of the excess goods seized but since the goods were provisionally released, appropriated the amount of Rs. 20,000/- from the security in lieu of confiscation.

2. On 27-8-1987 the officers of the Central Excise paid a surprise visit to the factory of the appellants, where they noticed excess stock of 4862 Decorative Laminated sheets, as, when the stock was compared with the entries in the RG-1 register, these goods were found to have been not taken on record in the same register. The Officers therefore seized the excess quantity found and recorded the statement of Shri Navinbhai K. Patel, Director of the appellants firm, who submitted that the RG-1 register was maintained by him on the basis of the production figures supplied by workers of their factory orally and on 25-8-1987 the Central Excise clerk was absent and 26-8-1987 being staggering holiday, RG-1 register was not written for both days and hence there appeared some excess on 27-8-1987. The appellants also stated that the alleged excess goods were not in saleable condition as the practice of accounting of production was that the cut sheets were graded first and the stickers were affixed and the design numbers were given and written on them and it was only thereafter that entries in RG-1 were made. The seized sheets found to be excess did not bear the stickers and were not even graded. A show cause notice was however, issued with allegation of contravention of the provisions of Rule 53 and Rule 226 read with Rule 173G(4) of the Central Excise Rules, 1944 and after receiving the reply thereto and after hearing the party, the explanations furnished by the appellants were found not satisfactory and the impugned order was passed.

3. Shri V.N. Nair, the Ld. Advocate on behalf of the appellants, submitted that the goods were not in fully manufactured condition and the reasons for keeping them in the Bonded Store Room were duly given by the appellants. He submitted that as there being no fully manufactured goods available, the question of putting the entry in the RG-1 Register did not arise at that particular stage. He then submitted that in the show cause notice, there was no allegation that the goods were lying in the B.S.R. with an intend to evade payment of duty and then took me through the provisions of Rule 173Q(d) and submitted that the storing of the goods in the B.S.R. had to be coupled with an intention to remove them without payment of duty and there being no allegation to that effect in the show cause notice, the question of imposition of penalty and ordering confiscation under Rule 173Q did not arise. He then pleaded that the proceedings for imposing penalty and ordering confiscation of the goods were in the nature of Quasi Criminal Proceedings and the penalty could be imposed only if the intention to commit breach of the statutory rules was established. In his submission, the mens rea is an essence in ascertaining the liability of the appellants to penalty. In support of his contention, he placed reliance of the decision of the CEGAT in Topaz Commerce Ltd. v. CCE -1990 (47) E.L.T. 100 (Tribunal) as also the decision of the Supreme Court of India in Hindustan Steel Ltd. v. State of Orissa reported in 1978 (2) E.L.T. (J 159). He also submitted that there was no removal of the goods without payment of duty and as such the order of confiscation was not warranted. When a query was put by the Bench as to whether the case could attract the provision of Rule 173Q(b) he submitted that even for that purpose, the existence of mens rea had to be established and if the goods manufactured by the appellants were not entered in RG-1 due to some erroneous practice, bona fidely followed, that would not attract the penal consequences provided for under the said Rules. He further submitted that the order passed by the adjudicating authority was not a reasoned order and that he had also not taken into consideration the reply filed by the appellants. According to him the adjudicating authority has based his conclusion only on the alleged first statement of the partner of the firm but has overlooked the other portion of the said statement as well as the averments made in the reply to the show cause notice. He has also pointed out that the adjudicating authority has observed for placement of entry in the RG-1 register as "semi finished goods", for which, he has pleaded, there does not exist any provision whereby such entry should be made. In his submission, therefore, the order of the authority below is not proper and it does not appreciate the facts correctly and hence the same is required to be set aside.

4. Ms. Lipika Majumdar Roy Choudhury, the Ld. SDR, however, supported the order of the authority below. She has submitted that the factual position is not challenged inasmuch as the finding of the goods not accounted for in the RG-1 register and their seizure from the B.S.R. is not in dispute. The defence with which the appellants have come is only in relation to the goods being in semi-finished condition and the other points being legal points as to the applicability of the provisions of Rule 173Q. In her submission, the legal position as incorporated in Rule 173Q are clear and unambiguous and where the metis rea is considered essential, a specific mention thereof has been made in the rules and otherwise strict compliance of the rule provisions have to be made notwithstanding the intention and non-compliance thereof should be visited with penal consequences. In her submission therefore the provisions of Rule 173Q squarely stand attracted and that the order passed by the authority below is just and proper and calls for no interference.

5. Considering the submissions made, there is no dispute over the factual position that 4862 sheets in manufactured condition were lying in the B.S.R. without corresponding entries in the relevant RG-1 Register. The plea on the factual aspect put forward by the appellants is that those were not the finished goods and that they were required to be graded and stickers fixed. It is also their contention that as per their practice they were making relevant entries in the RG-1 register only after those two processes were done.

6. The statutory requirement is that the entry in the RG-1 register should be made as soon as the manufacturing process is over. Branding or fixing of stickers are in the nature of process to be undertaken after manufacture, and cannot be construed as a part of manufacturing process. They are done for better marketing of the items. Plea that they were semi-finished therefore cannot be accepted as a valid excuse for not entering into RG-1 register. Significantly, the goods were found stored in BSR, where only manufactured goods have to be stored.

Having known the provisions of storage in BSR, the appellants, if their plea was to be believed, could not have removed the goods to BSR unless they had taken them to have been fully manufactured. The fact of storage in BSR also negatives the contention that the goods were not finished goods.

6A. Considering the technical objections raised, the Ld. Adv. for the appellants has pleaded that the proceedings in the nature of ordering confiscation and imposition of personal penalty, being quasi-criminal in nature, mens rea has to be established. It is however not possible to fully endorse the submission made. Though mens rea may have a bearing on the crime committed, it cannot be accepted that all or any of the acts committed without culpable mental state, have to be forgone. Even the criminal jurisprudence does not contemplate thus.

Here what is alleged against the appellants is non-maintenance of proper statutory registers. It is also significant to note, that wherever the intention of the party is intended to be taken into consideration, specific mention thereof has been made. Statutory obligations, wherever imposed, have however to be complied with, and a bonafide lapse, if established may, at the best, provide mitigating circumstances, but could not provide any justifiable ground to exonerate the party altogether.

7. With the factual position duly established, that manufactured goods were found without entries made in RG-1 Register, clear non-compliance of the provisions of Rule 173Q(1)(b) are established. Thus, even if some credence is given to the submission that clause (d) may not stand attracted, in view of there being no evidence to prove that the appellants had intended to evade payment of duty, which too, is not convincingly proved, non-compliance with the provisions of clause (b) would render the goods liable to confiscation, and the defaulter liable to imposition of penalty.

8. The show cause notice does allege such non-compliance, and with the allegation in that regards duly established, the order of confiscation and imposition of penalty appear just and proper.

9. As regards the quantum of fine and penalty, I see no justifiable grounds to interfere with the same.