1. In his order-in-appeal No. 159/79 dated 31-1-1979, the Appellate Collector of Customs & Central Excise, Madras rejected appeal dated 23-9-1977 by Sundram Industries, Madurai, and held that backing material '(cushion compound)1 produced by Sundaram and used by it captively was correctly held by the Assistant Collector to be liable to duty. The factory has, therefore, filed this appeal dated 9-7-1979 against that order-in-appeal.
2. On 5-12-1983 the learned counsel for the Sundaram submitted before the Tribunal that one of the members of the Bench before which his appeal was to be heard had been a member of another Bench that had given a decision in a similar case that was unfavourable to his present appeal. He cited 1983 (1) ETR 307 as the decision he had in his mind.
He, therefore, submitted that his appeal should be heard by another Bench in which that member would not sit. The learned counsel for the department resisted this demand.
3. The appellants' counsel was told he should, if he so desired, move the President for suitable direction in the matter. The hearing was then adjourned to 16-1-1984. On this day the appellants were not represented. The matter was, therefore, taken up for hearing on merits, especially since the counsel for the appellant had not taken any action as suggested to "him by the Bench on 5-12-1983.
4. The dispute arose because the Assistant Collector demanded duty under Rule 9(2) of the Central Excise Rules, 1944 amounting to Rs. 5,95,118.68 on cushion compound manufactured by Sundaram and used by it captively, during the period 1-10-1963 to 13-10-1972. He held that the cushion compound had a separate identity and the product was being sold by a firm called Good Shepard Rubber Co., Palghat. The appellants maintain that the product is manufactured in a continuous process and it had no separate identity which would make it a distinctly assessable product. It is urged by the appellant that they have been duly licensed to manufacture various rubber products from the year 1963. The Central Excise also obtained from the applicants a list of rubber products which they manufacture along with flow charts which show and demonstrate the process of manufacture. The department had all the required details like process of manufacture of tread rubber, camelback, cushion compound, tread gums, because the diagrams show the raw materials used in the process of such goods, the manufacturing technique and the intermediate product which come into being in the course of the manufacture of the licensed products. Therefore everything that was manufactured by the applicants and all the details in respect thereof were in the possession of the Central Excise authorities from the very beginning. The appellants stated that with the promulgation of Notification No. 208 of 1972 dated 1 4-10-1972 cushion compound used within the factory in the production of other rubber products falling under the same item became exempted from the whole of the duty of excise. This would show that cushion compound enjoyed immunity from excise duty if used in captive consumption. They also said that the Superintendent who called for details from the applicants on 13-12-1972 in respect of backing materials or cushion compound or cushion mixture had mistaken backing material for cushion compound. However all the details required had been furnished. On 1-9-1973 a show cause notice was issued calling upon the applicants to show cause against the demand for central excise duty of Rs. 1,80,057.76 for the period 1-10-1963 to 31-5-1968 and Rs. 4,15,060.92 for period 1-6-1968 to 16-10-1972 under Rule 9(2) and 173Q respectively of the Central Excise Rules. It appears that the notice was followed by a corrigendum on 7-9-73 in which Paragraph (1) of the notice dated 1-9-1973 was corrected showing duty of Rs. 8,539.60 demanded under Rule 9(2) read with Rule 10A of the Central Excise Rules for period 1-4-1968 to 31-5-1968 and Rs. 4,15,060.92 for. period 1-6-1968 to 13-10-1972 under Rule 173Q read with Rule 10, 10A of the said Rules, "as the case may be". The appellants said that there had been no suppression of facts or clandestine removals, or wilful evasion of duty to justify use of Rule 9, 10, 10A or 173Q. They maintained that the demands were barred by limitation.
5. On the date of hearing, as the party was not represented, the Bench heard the arguments of the learned counsel for the department, who argued that a similar case had already been decided by the Tribunal in 1983 (1) ETR 307 in the case of M/s. Goodwin Rubber Works, Changana-cherry (Kerala) v. Collector of Central Excise, Cochin, He said that in view of such a clear ruling of the Tribunal, these goods should also be treated similarly and the decision should also be in conformity with that decision. He referred to the flow chart prepared by the appellants from which it can be seen clearly that the backing material was a definite product in the process of making the finished product camelback/slab. He also submitted that the plea of the appellants that they had informed the central excise about this product is not correct. They were required not only to give the process of manufacture and technique of production etc. etc., but were also required specifically to declare to any excisable product that may have emerged during the process of production and to ask for a clarification or ruling or to apply for a licence therefor. None of these things was done and it is evident that the factory had not made a full and correct declaration about the products in manufacture and this caused the loss of duty, because the failure to inform the central excise of the manufacture of the backing material/cushion compound kept from the central excise officers the vital knowledge they required in respect of the production of the goods in dispute. 'He therefore urged that the appeal needs to be rejected.
6. We have seen the decision of the Tribunal referred to above, viz.
1983 (1) ETR 307 and we are in agreement with the findings in this decision. We also note from this decision that the Kerala High Court had given a judgment in a Writ Petition No. 14-62/72 filed by M/s.
Goodwin Rubber Works in respect of cushion compound. The High Court held that the cushion compound captively consumed for cushion backing of tread rubber was a product directly falling within the description given against tariff entry 16A(2) and, therefore, liable to excise duty. In their appeal M/'s. Sundaram Industries Pvt. Ltd. argued that the backing material/ cushion compound was an intermediate used captively in the production of other finished excisable products, and, therefore, should not be subjected to excise levy. This argument is no longer acceptable in view of the amendment in the year 1982 of Rule 9 of the Central Excise Rules which makes with effect from 1944, intermediate goods captively used in the same factory also liable to excise duty.
7. There are, however, other things that attract our attention and we shall deal with them below. The show cause notice was issued on 1-9-1973. The appellants, M/s. Sundaram Industries Pvt. Ltd. wrote a letter dated 4-9-1973 asking for a personal hearing; that personal hearing was granted 4 years later on 21-7-1977. We can find no explanation of any kind for this extraordinary dereliction. We have also seen that the corrigendum to the show cause notice was issued on 7-9-1973, whereby, as per the correction, duty of Rs. 8,539.69 was demanded under Rule 9(2) read with Rule 10A for the period 1-4-1968 to 31-5-1968 and Rs. 415,060.92 for the period 1-6-1968 to 13-10-1972 under Rule 173Q read with Rule 10, 10A "as the case may be". There can be little doubt that these events were set in motion by Notification 208 of 1972, dated 14-10-1972, which exempted cushion compound used captively in the production of other rubber products falling under the same item from the whole of the duty. It was not that the Central Excise on their own began doubting the correctness of non-levy to duty of the cushion compound/backing material but the jolt they received from the notification because this notification clearly told him that cushion compound was dutiable unless it was exempted, as this notification did. This in turn meant that all the cushion compound produced before 14-10-1972 should have been levied to duty. But strangely enough, though the notification was issued on 14-10-1972, the show cause notice was issued nearly a year later on 1-9-1973. For this second dereliction there is as little explanation as for the first. It has been claimed that the factory has suppressed the fact of production of what the Central Excise considered was a distinct and separate excisable product. They profess not to have received enough information from the production process and manufacturing technique that the factory furnished to them (this fact has not been denied by the department). Truth to tell, it would not have taken too much for the Central Excise to get to know about the process of manufacture and the excisable goods that emerge particularly when we bear in mind the production of the camelback/slab etc. started in 1963, 10 years earlier. We are not prepared to be won over by the claim of the Central Excise that they were not aware of the emergence of the backing material during the 10 long years that they were in control of the factory. We are satisfied that it was due to the Central Excise belief that the backing material was not excisable because it was being used in captive consumption that no action was taken to assess it and levy it to duty, and not because the factory had suppressed the fact of its production.
8. The attempt to use the unlimited demand period is clearly a cover up by the Central Excise of its own failure; and if the truth is to be told Rule 9(2) itself has been much misued as can be seen from this case. We cannot support the use of Rule 9(2) in a case like this one.
It is practically impossible for the Central Excise not to know what was being done, what was being produced etc. etc. in a process of this kind. The fumbling that we have seen with respect to the issue of the show cause notice when Rule 9(2), Rule 10, Rule 10A and Rule 173Q were all enlisted to bolster a poor case, expose an action that says as loudly as words can, that the Central Excise were conscious that their case was weak and, therefore, resort had to be had to all these stratagems, as if they thought that if the one rule should fail them, the others might perhaps not. We are totally dissatisfied by the case, to say nothing of our disquiet by the 4 years delay in holding the personal hearing, a fact we have referred to above. And let us all note that the Assistant Collector imposed a penalty of Rs. 200/- (not Rs. 2,000/- or Rs. 20,000/-, but Rs. 200/-) for what he thought was a fraud of 5 lakhs. These leisurely halfhearted steps are not the reaction of men who have discovered a fraud worth half a million. We believe not a word of the story of suppression.
9. We think that the only right thing to do is to limit the demand under the show cause notice dated 1-9-1973 to only, 1 year of Rule 10 and not the unlimited time set by the department, as we are satisfied that there has been nothing to justify a demand for such unlimited periods. We order accordingly and all actions be taken in consequence of this order shall be completed within 3 months.