Gujarat State Fertilizers Co. Vs. Collector of C. Excise - Court Judgment

Excerpt:
1. this is an appeal filed by m/s. gujarat state fertilizers co.(hereinafter referred to as 'gsfc') being aggrieved with the order-in-appeal dated 18-2-1980 passed by the collector of central excise (appeals), bombay.2. the matter relates to the demand of central excise duty on the product raw naphtha, which the appellants had received from gujarat refinery of indian oil corpn. under chapter 10 procedure for use in the manufacture of fertilizers. on audit, it was found that the quantity actually used in the manufacture of fertilizers was less than the quantity of naphtha received from gujarat refinery under chapter 10 procedure and the quantity has recorded at the time of the receipt in their own storage tanks. the collector of central excise (appeals) had rejected the appeal on the ground that the appellants' own in-plant accounts indicate that a quantity less than that noted in the rg-16 register has been issued in the manufacture of fertilizers. he had further stated that the appellants had not led any evidence to support their submissions. the central excise duty demanded, in this case is rs. 14,24,065.16 as intimated to the appellants by the asstt.commissioner, vadodara in his communication dated 11-12-1995.3. the matter was posted for hearing on 11-1-1996 when shri willingdon charistian, advocate appeared for the appellants. shri vijay singh, sdr duly represented the respondent/revenue.4. the id. advocate submitted that the goods raw naphtha are received from the public sector undertaking - gujarat refinery through the pipe line. they are stored in their own tanks, which are located in their licensed premises. there was no discrepancies as between the quantity despatched by the gujarat refinery and the quantity received by them in their storage tanks. from the storage tanks, the raw naphtha is again transferred through the pipe line to the plants for actual consumption.at the end of the pipe line, there are flow meters, which indicate the quantity, which actually travels to the plant. he explained the system by which the flow meters recorded the quantity. the quantity as received in their tanks is measured by the dip volume measurement method and it is not practical to physically verify the quantities. the gsfc is also a joint sector unit controlled by the gujarat govt. there had been no mal practice and there is no allegation of any un-authorised removal from their factory. in fact the deptt. has relied upon only on their own records at the stage of the flow meter.5. the id. advocate also mentioned that show cause notice in this case was issued on 13-9-1971 while the demand had been raised for the period dec., 1967 to august, 1970. a part of their process was under physical control system and there was excise office in their factory premises.there is no allegation of clandestine removal or of any use over those for which the goods have been brought by them. he referred to the hon'ble supreme court's decision in the case of govt. of india v. citer -1989 (42) e.l.t. 515 (sc) wherein the hon'ble supreme court had held that even in a case where there is no period within which recovery of duty is to be made then the reasonable period would had to be read into the relevant provisions. in the present proceedings, normal time of limitation was only three months under the then rule 10 of the central excise rules while the show cause notice was issued even beyond one year after the last date i.e. august, 1970. increased demand has been raised from december, 1967 to august, 1970 under the notice dated 13-9-1971. it was his contention that the show cause notice had not been issued within the reasonable period and on that account alone the demand should be vacated.6. the point was also made that under the executive instructions keeping in view the fact that the product was volatile nature, storage losses and evaporation losses have been provided which the officers were empowered to condone.7. the point was made that demand has been raised, taking into account benefit of exemption notification no. 127/58-c.e., dated 13-12-1958.8. the id. sdr referred to rule 196 of the central excise rules and stated that no time limit was prescribed under that rule. he further stated that as shortage has been found at the stage of (sic.) there is no question of any storage losses or evaporation losses. goods have been transferred from their tank to the consuming point through the pipe line. further, he stated that all along the appellants were requested to substantiate the losses by any evidence but they had failed to produce any evidence whatsoever. as the demand had been made within reasonable time, he pleaded for the rejection of the appeal. he added that the demand was as a sequence to the effect [sic] and then records had to be collected so the demand could not be raised earlier than what has been done in the present case. in this regard, he referred to the observations of the id. collector of central excise (appeals), bombay. the appellants had taken considerable time even to furnish the figures and their defence before the id. collector (appeals) and after giving them a sufficient time they were not able to furnish the figures.9. we have carefully considered the matter. the goods under consideration are raw naphtha for which concessional rate of central excise duty had been provided when it is used in the manufacture of fertilizers. the suppliers of raw naphtha are m/s. gujarat refinery - a public sector unit and the fertilizers, the end product was manufactured by gsfc, which is a joint sector undertaking of the gujarat govt. there is no discrepancy in so far as the raw naphtha supplied by the gujarat refinery and the raw naphtha received by the gsfc in their factory premises. this transport is through pipe line. it is seen from the storage tanks of gsfc, which are located in their licensed premises, the raw naphtha is transferred through pipe line to the plant. during the relevant time, the unit was under a physical control upto the year 1969 and thereafter the self-removal procedure was introduced.10. from the facts on records, we find that the allegations relates to the non-accountal and there is no allegation of illicit removal outside the factory premises. the show cause notice was issued on 13-9-1971 for the period dec., 1967 to august, 1970. the id. sdr had stated that show cause notice had been issued within the reasonable time. we fail to understand how a period spanning for about 4 years could be considered as reasonable. in this case both the storage tanks where discrepancy was found and measuring point and flow meters were installed within the same factory premises and the central excise office was located in the factory premises. as had been brought out by the board's instructions, there are some losses in the storage of these products, which are volatile in nature. further, there are dip-reading which are supervised by the excise officers. in the show cause notice, there is no allegation of suppression or clandestine removal. it appears to be a show cause notice for demand which had been issued beyond the period of limitation.11. during the relevant time, under rule 10 the normal time limit for raising demand was 3 months. of course under rule 196, there is no time limit. but in this particular case, we find that when the goods have been received in the factory premises in their storage tank, no discrepancies had been recorded. the discrepancy is when the goods moved from their own storage tanks in the licensed premises to their own plant. at that stage, the recording was by way of flow meters. the id. advocate before us had submitted that the flow meters reading and the dip-reading could not be equated and at par. there could be defects in the flow meters. for which he of course admitted that they have not been able to find out the extent of variation. but as in this case, the demand has been raised only on the basis of their own record, the records which have been made available to the central excise officers; it could not be said that they have suppressed anything or that there was a clandestine removal.12. taking all the relevant considerations into account, we consider that on the limited question of time bar alone the appellants have a case. therefore, without going into the merits or other question raised by both the sides, we accept the appeal on the question of limitation only. accordingly, the impugned order-in-appeal is set aside and the appeal is allowed.

Judgment:
1. This is an appeal filed by M/s. Gujarat State Fertilizers Co.

(hereinafter referred to as 'GSFC') being aggrieved with the Order-in-Appeal dated 18-2-1980 passed by the Collector of Central Excise (Appeals), Bombay.

2. The matter relates to the demand of Central Excise duty on the product raw naphtha, which the appellants had received from Gujarat Refinery of Indian Oil Corpn. under Chapter 10 procedure for use in the manufacture of fertilizers. On audit, it was found that the quantity actually used in the manufacture of fertilizers was less than the quantity of naphtha received from Gujarat Refinery under Chapter 10 Procedure and the quantity has recorded at the time of the receipt in their own storage tanks. The Collector of Central Excise (Appeals) had rejected the appeal on the ground that the appellants' own in-plant accounts indicate that a quantity less than that noted in the RG-16 register has been issued in the manufacture of fertilizers. He had further stated that the appellants had not led any evidence to support their submissions. The Central Excise duty demanded, in this case is Rs. 14,24,065.16 as intimated to the appellants by the Asstt.

Commissioner, Vadodara in his communication dated 11-12-1995.

3. The matter was posted for hearing on 11-1-1996 when Shri Willingdon Charistian, Advocate appeared for the appellants. Shri Vijay Singh, SDR duly represented the Respondent/Revenue.

4. The Id. Advocate submitted that the goods raw naphtha are received from the Public Sector Undertaking - Gujarat Refinery through the pipe line. They are stored in their own tanks, which are located in their licensed premises. There was no discrepancies as between the quantity despatched by the Gujarat Refinery and the quantity received by them in their storage tanks. From the storage tanks, the raw naphtha is again transferred through the pipe line to the plants for actual consumption.

At the end of the pipe line, there are flow meters, which indicate the quantity, which actually travels to the plant. He explained the system by which the flow meters recorded the quantity. The quantity as received in their tanks is measured by the Dip Volume Measurement method and it is not practical to physically verify the quantities. The GSFC is also a Joint Sector Unit controlled by the Gujarat Govt. There had been no mal practice and there is no allegation of any un-authorised removal from their factory. In fact the Deptt. has relied upon only on their own records at the stage of the flow meter.

5. The Id. Advocate also mentioned that show cause notice in this case was issued on 13-9-1971 while the demand had been raised for the period Dec., 1967 to August, 1970. A part of their process was under Physical Control System and there was Excise Office in their factory premises.

There is no allegation of clandestine removal or of any use over those for which the goods have been brought by them. He referred to the Hon'ble Supreme Court's decision in the case of Govt. of India v. CITER -1989 (42) E.L.T. 515 (SC) wherein the Hon'ble Supreme Court had held that even in a case where there is no period within which recovery of duty is to be made then the reasonable period would had to be read into the relevant provisions. In the present proceedings, normal time of limitation was only three months under the then Rule 10 of the Central Excise Rules while the show cause notice was issued even beyond one year after the last date i.e. August, 1970. Increased demand has been raised from December, 1967 to August, 1970 under the Notice dated 13-9-1971. It was his contention that the show cause notice had not been issued within the reasonable period and on that account alone the demand should be vacated.

6. The point was also made that under the executive instructions keeping in view the fact that the product was volatile nature, storage losses and evaporation losses have been provided which the officers were empowered to condone.

7. The point was made that demand has been raised, taking into account benefit of exemption Notification No. 127/58-C.E., dated 13-12-1958.

8. The Id. SDR referred to Rule 196 of the Central Excise Rules and stated that no time limit was prescribed under that Rule. He further stated that as shortage has been found at the stage of (sic.) there is no question of any storage losses or evaporation losses. Goods have been transferred from their tank to the consuming point through the pipe line. Further, he stated that all along the appellants were requested to substantiate the losses by any evidence but they had failed to produce any evidence whatsoever. As the demand had been made within reasonable time, he pleaded for the rejection of the appeal. He added that the demand was as a sequence to the effect [sic] and then records had to be collected so the demand could not be raised earlier than what has been done in the present case. In this regard, he referred to the observations of the Id. Collector of Central Excise (Appeals), Bombay. The appellants had taken considerable time even to furnish the figures and their defence before the Id. Collector (Appeals) and after giving them a sufficient time they were not able to furnish the figures.

9. We have carefully considered the matter. The goods under consideration are raw naphtha for which concessional rate of central excise duty had been provided when it is used in the manufacture of fertilizers. The suppliers of raw naphtha are M/s. Gujarat Refinery - a public sector unit and the fertilizers, the end product was manufactured by GSFC, which is a joint sector undertaking of the Gujarat Govt. There is no discrepancy in so far as the raw naphtha supplied by the Gujarat Refinery and the raw naphtha received by the GSFC in their factory premises. This transport is through pipe line. It is seen from the storage tanks of GSFC, which are located in their licensed premises, the raw naphtha is transferred through pipe line to the plant. During the relevant time, the unit was under a physical control upto the year 1969 and thereafter the self-removal procedure was introduced.

10. From the facts on records, we find that the allegations relates to the non-accountal and there is no allegation of illicit removal outside the factory premises. The show cause notice was issued on 13-9-1971 for the period Dec., 1967 to August, 1970. The Id. SDR had stated that show cause notice had been issued within the reasonable time. We fail to understand how a period spanning for about 4 years could be considered as reasonable. In this case both the storage tanks where discrepancy was found and measuring point and flow meters were installed within the same factory premises and the central excise office was located in the factory premises. As had been brought out by the Board's Instructions, there are some losses in the storage of these products, which are volatile in nature. Further, there are dip-reading which are supervised by the excise officers. In the show cause notice, there is no allegation of suppression or clandestine removal. It appears to be a show cause notice for demand which had been issued beyond the period of limitation.

11. During the relevant time, under Rule 10 the normal time limit for raising demand was 3 months. Of course under Rule 196, there is no time limit. But in this particular case, we find that when the goods have been received in the factory premises in their storage tank, no discrepancies had been recorded. The discrepancy is when the goods moved from their own storage tanks in the licensed premises to their own plant. At that stage, the recording was by way of flow meters. The Id. Advocate before us had submitted that the flow meters reading and the dip-reading could not be equated and at par. There could be defects in the flow meters. For which he of course admitted that they have not been able to find out the extent of variation. But as in this case, the demand has been raised only on the basis of their own record, the records which have been made available to the central excise officers; It could not be said that they have suppressed anything or that there was a clandestine removal.

12. Taking all the relevant considerations into account, we consider that on the limited question of time bar alone the appellants have a case. Therefore, without going into the merits or other question raised by both the sides, we accept the appeal on the question of limitation only. Accordingly, the impugned Order-in-Appeal is set aside and the appeal is allowed.