1. This combined order relates to the 15 appeals listed in the Annexure. Some of these are against the Orders-in-Original of the Collector of Central Excise, Hyderabad or the Additional Collector of Central Excise, Hyderabad; some are against the Orders-in-appeal of the Collector of Central Excise (Appeals), Madras or the Appellate Collector of Central Excise, Hyderabad; and one is against the Order-in-Appeal of the Central Board of Excise and Customs. Some of the appeals have been filed directly to the Tribunal, whereas the others have been transferred to it under the provisions of Section 35P of the Central Excises and Salt Act. All these 15 matters (henceforth referred to as "appeals") are being dealt with as appeals to the Tribunal under Section 35B, Central Excises and Salt Act, as amended.
2. Since there are common issues involved in all these appeals (with some differences in individual cases, which will be referred to in their appropriate place), they were heard together, and are being disposed of by this combined order.
3. The basic facts are quite simple. It appears that the appellants, the Andhra Pradesh State Electricity Board (henceforth referred to for convenience as "the Board") are a statutory body constituted under Section 5 of the Electricity Supply Act, 1948, and are charged with the responsibility for generation, transmission and distribution of electricity within the State of Andhra Pradesh. In pursuance of these statutory duties, the Board has undertaken the rural electrification programme in the State. For the purpose of distribution of electricity, transmission lines have to be laid, and these require a large number of poles. Previously, only steel and iron poles were being used. It was found more economical and convenient to use cement concrete poles where such usage was feasible, The Board had set up various centres for manufacture of "PSCC" and "RCC" poles exclusively for the use of the Board, and these poles were issued to field staff on requisition for rural electrification works of the Board.
4. Each of the appeals relates to one oe the units of the Board, set up at different places such as Gudur (Appeal No. 133/82D), Erragadda (Appeal No. 700/82D), and so on, at which these poles were being manufactured. (The term "manufactured" is being used for convenience and without prejudice to the appellants' contentions bearing on the excisability of the "goods"-which term is also similarly used for convenience).
5. The manufacture covered different periods for the different units, extending in some cases back to 1965. (However, any period prior to 1-3-75 is not relevant for the present purpose, since Item 68 of the Central Excise Tariff Schedule, under which the goods have been classified, came into force only from that date). No steps were taken by any of the units to apply for a Central Excise licence for the manufacture of excisable goods or to comply with relevant Central Excise procedures and pay Central Excise duty. On the fact of manufacture of the goods coming to their notice, the Central Excise authorities concerned with the different units informed the persons in charge that the goods attracted Central Excise duty under Item 68 and called upon them to furnish necessary particulars and pay Central Excise duty. The appellants did not take steps to apply for a licence or to pay duty but contended that the poles were prepared for the use of the APSE Board exclusively, and that the Board had been advised that such an activity did not attract excise duty. Correspondence in this regard continued over a period of time and ultimately the Central Excise authorities initiated adjudication proceedings for realisation of duty under Rule 9(2) of the Central Excise Rules and imposition of penalty under Rule 173Q ibid. The adjudication proceedings resulted in each case in the demand for duty being confirmed. In 12 out of the 15 cases, penalties were also imposed.
6. The above narration has been given only to indicate the broad features of the cases. Since there are 15 cases, the details of the correspondence and course of events vary, but the pattern was broadly as given above. As an instance, we may take the case of the Erragadda unit, covered by Appeal No. 700/82. Some important dates and events with reference to this case are listed below :- 12-7-77 Letter issued by an Inspector in the Office of the Superintendent of Central Excise, M.R. IX, Kamdan Estate, Nampally Railway Station Road, Hyderabad, to the Asstt. Engineer (Civil), R.C.C. Pole Centre, APSEB, Sub-Divn. III, Erragadda, Hyderabad. In this letter the Inspector states that it is noticed that the Board is producing certain items like P.C.C. Poles and R.C.C. Poles at Erragadda, Hyderabad, and that these attract C.E. duty under T.I. 68. The Asstt. Engineer is required to furnish particulars as in the proforma enclosed with the letter.
18-7-77 Reply from Asstt. Engr. (Civil), P.S.C.C. Pole Centre, Erragadda to the Inspector. He gives some details of the equipment, staff and work done at the Centre, and gives the turnover for the year 1976-77 as less than Rs. 30 lakhs and from 18-6-77 to 31-3-78 as not over Rs. 20 lakhs. He ends by saying that in view of the above he presumes the Centre at Erragadda do not warrant licensing by the Central Excise Department.
2-5-78 A letter issued by the Superintendent of Central Excise, Ameerpet MOR, Hyderabad, to the Secretary of the Board. In this letter the Superintendent refers to an earlier letter dated 5-4-78 He goes on to say that concrete poles, etc., required for transmission of electricity are reported to have been manufactured by the Board in several places. Notification No. 176/77 dated 18-6-77 requires payment of duty on such products subject to certain conditions. The Secretary was requested to furnish by return of post (i) name and complete addresses of the factory producing concrete poles, etc., under the Board's control and (ii) value of the clearances during 1976-77 and 1977-78.
11-5-78 Further letter from superintendent of Central Excise, Ameerpet to Secretary to the Board. The Superintendent referred to his previous letter dated 2-5-78 and again requested the Secretary 10 furnish the addresses where concrete poles were manufactured in units working under the Board's control, the number of poles manufactured and their value during 1976-77 and 1977-78. The conditions of Notification No. 176/77 were repeated and the Secretary was requested to apply for licence in Form AL-4 and observe the Central Excise formalities forthwith.
30-6-78 Letter from Chief Engineer, Electricity (Operation) in the Board, to Superintendent of Central Excise, Ameerpet. The Chief Engineer refers to his earlier letter dated 29.5.78 and the Superintendent's letter dated 9-6-78. (Copies of these letters are not in the paper book). The Chief Engineer goes on to state that the poles in question were prepared for the use of the Board exclusively and that the Board was advised that such an activity did not attract excise duty. A copy of this letter was endorsed by the Chief Engineer to the Secretary to the Board for information.
4-5-79 Letter from Deputy Collector, Office of Collector of Central Excise, Hyderabad to the Chief Engineer, Electricity (Operation), Vidyut Soudha, Hyderabad. He refers to his earlier letter dated 4-7-78 through which the Chief Engineer was requested to instruct the concerned Superintending Engineer to conform to Central Excise Law, and also to furnish certain information. The Deputy Collector stresses that the goods are not exempt from duty, and again requests the Chief Engineer to instruct his Superintending Engineers to get the respective units licensed and observe other Central Excise formalities. The letter ends with a warning that any further delay would entail necessary penal action being taken against the Board.
18-6-79. Reply from Chief Engineer to the Deputy Collector that "the poles in question are being prepared for the exclusive use of the APSEB. The Board is advised that the poles are not'goods'within the scope of entry 68 of the First Schedule to the Central Excises and Salt Act, 1944, and that the said activity does not attract Excise duty." 5-2-80. Letter from Under Secretary to Government of India, Ministry of Finance to Secretary to the Board. In this letter the Under Secretary has informed the Secretary to the Board that RCC poles and P3C poles were manufactured goods attracting excise duty under Item 68 of the Central Excise Tariff. It was also added that duty was payable on these goods unless a declaration was made by the Parliament in terms of Notification No. 57/75 dated 1-3-75.
1-4-80 Letter from Deputy Collector (Technical), Central Excise Collecto-rate, Hyderabad to the Secretary to the Board. In this letter the Deputy Collector referred to the Government of India letter dated 5-2-80. He added that some of the Central Excise Divisional officers had reported that they had been finding it difficult to bring the units of the Board manufacturing RCC/PSCC poles under excise control, since these units were pleading that they had not received any instructions from higher authorities to pay licence fee and take L-4 licences. The Secretary was requested in the light of the Government of India letter dated 5-2-80 to give instructions to the officers in charge of the units to take out Central Excise licences, and conform to Central Excise procedures including payment of Central Excise duty.
16-6-80 Show cause notice issued to the Board in regard to the manufacture of poles at the two centres at Erragadda.
27.9.89 Order-in-Original by Collector of Central Excise, Hyderabad, directing that the Erragadda units should pay duty on all clearances from 1-3-75 on which no duty had been paid. A penalty of Rs. 1,50,000/- was also imposed.
21-2-81. Order-in-Appeal of the Central Board of Excise and Customs (CBEC). The CBEC set aside the Order-in-original of the Collector on the ground that the appsallants did not get an opportunity to explain their case to the Collector. Although it was observed that the appellants did not care to file their reply to the show cause notice even in the extended period granted to them, the CBEC decided that a further opportunity should be given to the appellants and directed them to file their reply to the show cause notice, and directed the Collector to adjudicate the case thereafter expeditiously.
13-8-81 Order-in-Original passed by Collector of Central Excise, Hyderabad on re-adjudication after receiving a reply to the show cause notice and graiting a personal hearing. The Collector again held that duty was payable on the poles and directed that duty as demanded in the show cause notice should be paid. He also imposed on the Board a penalty of Rs. 2 lakhs.
14-1-82 Second Order-in-Appeal of the CBEC upholding the Collector'* order dated 13-8-81.
7. The above time-chart sets out the important details in one of the 15 appeals, where the paper book happens to be fairly complete. As already stated, the details in the different cases show some variations, but the pattern is the same. Where the variations were significant and deserve to be taken note of separately, they have been commented upon later in this Order.
8. It is against the demands for duty and imposition of penalties in the above-mentioned orders that the present appeals have been filed.
9. In a series of hearings, extending over five different days, the case of the appellants was presented exhaustively by Shri Rangaswamy.
His arguments were arrenged into 17 headings, which have been listed in a letter dated 3-1-84 signed by Shri Ramaseshayya Choudhury. A list of these 17 "issues" follows :- II. Whether the items cleared are at all goods within the meaning of the Central Excises and Salt Act III. Whether the appellants are entitled to exemption relatable to job work IV. Whether it is proper for all the units of the Appellants to have been clubbed together for the exemption limit under Notification 176/77 applicable to Small Scale Industries under Item 68 VI. Whether steel and cement having already been subjected to excise duty, it is proper to demand further excise duty on the poles VIII. Communications from other sources cannot be relied upon whilst dealing with a particular establishment.
IX. Whether benefit of the exemption Notification 179/77, dated 18-6-77 exempting goods manufactured without the aid of power can be given X. Whether the Collector had not erred in not accepting the plea that the excise duty should be calculated at the rate prevalent at the time of alleged removal and not uniformly at 8% for the excise period mentioned in the Show Cause Notice XII. The workshop material are not commercially known and their particulars disclose their non-dutiability.
XIII. Earth coils having been made manually and without electric power are not excisable.
XIV. Articles made in the Appellants' workshop and RCC Pole Unit are different and must be dealt with separately.
XlV(A). Whether the benefit of the exemption. Notification No. 54/75, dated 1-3-1975 could be denied XV. Whether the principles of Natual Justice have been violated-reply sent u/Rule 133B of the Central Excise Rules conveying payment under protest treated as a reply to the Show Cause Notice.
XVI. Whether the benefit of the exemption Notification No. 118/75 could be denied [As serial No. XIV was found to have been duplicated, the second entry bearing this No. has deen re-numbered as XIV (A). Thus, the last entry bears No. XVI and not XVII].
10. In view of the large number of issues and the very detailed arguments addressed by Shri Rangaswamy, it would be convenient if each issue (or group of related issues) is taken up and discussed, in the light of the arguments advanced by both sides, rather than listing all the arguments first and then discussing them.
11. It is proposed for convenience to deal with Issues Nos. I and VII, relating to limitation and penalty at the end, after dealing with the various other issues.
12. Issues Nos. II, XI, XII & XIV.--Being closely related, the above four issues are dealt with together.
13. It was contended that the poles were not "goods" within the meaning of the Central Excises and Salt Act, and accordingly no duty was leviable on them. It was argued by Shri Rangaswamy that the poles were not "goods" for the reasons that (i) they were not marketed, (ii) they were used only by the State Electricity Board and had no use to anyone else, (iii) they were incomplete, in that certain other parts, such as the base plate, cross-arms, etc., had to be added on at the site; and (iv) since they were finally embedded in the ground, they could, on the analogy of a "plant", be considered as not "goods". In support of these arguments, Shri Rangaswamy stated that the poles were made to the specifications framed by the Board. They were not sold to anyone else.
Nor was anyone else likely to buy them, as no one else would have any use for them, and it would be uneconomical to transport them over long distances. On the last point that they were not goods because they were embedded in the earth. Shri Rangaswamy relied on an order of the Government of India in the case of Otis Elevator Co (India) Ltd., reported in 1981 E.LT. 720, relating to elevators and escalators installed in buildings, an order of the Tribunal in the case of Gujarat Machinery Manufacturers Ltd., reported in 1983 E.L.T. 825, relating to a chemical plant, and anr. order of the Tribunal in the case of J.K.Export Industries, reported in 1983 E.L.T. 2390, relating to a dal mill assembled and erected at site attached to earth.
14. Opposing Shri Rangaswamy's contentions, Shri Tayal argued that the concrete poles were admittedly made from raw material such as cement and sand, and as a result of what was done something totally new and different came into being. This satisfied the test for "goods" as laid down by the Supreme Court in its leading decisions in the cases of Delhi Cloth and General Mills (ECR C-l-216-1981 C.C. (S.C 6)) and South Bihar Sugar Mills Ltd. (A1R 1968 S.C. 922). Shri Tayal also relied on the judgment of the Delhi High Court in the case of Hyderabad Asbestos Cement Products Ltd., reported in 1980 E.L.T. 735, in which it was held that the conversion of asbestos rock to asbestos fibre amounted to manufacture. Shri Tayal also referred to the Tribunal's decision in the case of Aditya Mills Ltd. (1983 E.L.T. 1853) in which it was held that the doubling (or twisting) of yarn amounted to manufacture.
15. As regards the arguments that the poles were not marketable and were of no use to anyone else, Shri Tayal relied on a judgment of the Allahabad High Court in the case of Union of India and Ors. v. Union Carbide India Ltd., reported in 1978 E.L.T. 1, which according to him squarely covered this point. In that case the articles were "aluminium cans or torch bodies" which were used in the manufacture of torches, and it was contended that they were not known in the trade and were not marketable. This argument was rejected by the Court, pointed out that though the products might not be known to the general public or to the traders in general it was known and used by that trade which makes torches. The Court further observed that the test of general marketability did not appear sound, as it would fail in a monopoly product and for such a product the relevant entry would become nugatory.
16. As regards the argument that further parts such as base plates and cross-arms had to be fixed to the poles, Shri Tayal submitted that even if the poles were considered as parts of a complete article, they would still be "goods" covered by the description of Item 68, 'since it Was not necessary for the purposes of that Item that only complete articles should be covered.
17. On the argument that the poles were not goods because they were fixed to the ground, Shri Tayal submitted that the poles in themselves were fully manufactured products. Curing of the poles was also done before they were removed, as part of the contract. The various orders cited by Shri Rangaswamy referred to elevators, chemical plants, etc., which became complete only after erection and when they were already fixed to the ground, whereas in the present case the poles were completely manufactured and were removed as such before being fixed to the ground.
18. We find considerable substance in the arguments of Shri Tayal. The poles are clearly recognisable articles which even according to Shri Rangaswamy himself are made according to specifications furnished by the Board. We had pointed out to Shri Rangaswamy that Item 68, being a non-specific Item, can cover any goods, and not only those which form complete articles. So far as marketability is concerned, the judgment in the Union Carbide case clearly sets out the position. Since the supply of electricity is a function statutorily entrusted to the Board,it maybe considered that no one else in Andhra Pradesh would wish to purchase them (though even this would not rule out their use for some other purpose as pillars, etc.), but this only makes them a kind of "monopoly product", and does not prevent them from being "goods".
The analogy sought to be drawn to elevators, chemical plants, etc., is far fetched and inapplicable, since duty is here sought to be levied with reference to the condition of the goods when they are removed from the place of manufacture, and this duty liability is not affected by the fact that they are subsequently fixed to the ground. (In fact, many items of machinery have to be fixed to the ground before they can be efficiently or safely used). We are, therefore, unable to accept the argument of Shri Rangaswamy that the concrete poles are not "goods" within the meaning of the Central Excises and Salt Act and are, therefore, not excisable.
19. While the above discussion covers the generality of the cases before us, appeal No. 133/82, as Shri Rangaswamy pointed out, covers in addition to the cement concrete poles, what are called "workshop materials". So far as these "workshop materials" are concerned, they have not been specified in the show cause notice dated 5-3-1982, nor does the Collector's order dated 26-6-82 contain any detailed discussion relating to them. We are, therefore, not able, on the material before us, to decide whether the Collector's finding in regard to these "workshop materials" is correct or not, and in the absence of an adequate discussion in the order we are also not able to sustain the Collector's finding so far as these "workshop materials" are concerned.
20. Issue No. HI- Whether the appellants are entitled to exemption relat-ablc to job work?-Another plea put forward by Shri Rangaswamy was that what was done in the unit was not manufacture of the poles but "job work". Shri Rangaswamy stated that contractors had been employed for doing the actual work. On our enquiring what exactly were the terms of the agreement, Shri Rangaswamy filed copies of two agreements. One of these pertains to January, 1983 and is, therefore, subsequent to the material period. The other agreement appears to have been signed in October, 197 l(the exact date is not clearly shown) and is, therefore, closer to the material period. The agreement has been entered into by the Divisional Electrical Engineer, Operation, Kavali on the one hand and Shri S.K. Basha, contractor, on the other. The work to be done, as given in the schedule to the agreement is as follows : "Casting and curing of 24' RCC poles at Buchi Pole Centre as per departmental standards including the cost of screened sand, G.I. wire, for earthing and labour charges for casting and stacking but excluding the cost of 12 mm metal, M.S. rod, Cement and fabrication of grill and steel, 21. There are also certain conditions for the hire of the concrete mixture and vibrator which apparently were provided at the site by the Board. It is stated in these conditions that the contractor shall meet the working expenses of concrete mixers like pay of crew, and cost of fuel and lubricants.
22. It was argued by Shri Rangastvamy that what was done by the contractor was only supply of labour and therefore what was done within the unit should be considered as "job work" and duty should have been charged, if at all, on the value of this "job work" in accordance with Notification No. 119/75.
23. Shri Rangaswamy, in the same context, advanced an alternative argument, that the contractors should have been deemed to be the actual manufacturers and, even if what they did was not considered as job work and full duty was held to be leviable, it was the contractors who were liable for the duty, and not the Board. (Since each contractor did a limited amount of work, it would apparently have followed, on the basis of this argument, that no single contractor would have exceeded the exemption limit of Rs. 30 lakhs per annum for a manufacturer and therefore no duty would have been leviable from them).
24. These two alternative stands advanced by Shri Rangaswamy appear to be contradictory to each other. Thus, on the one hand, it is argued that the contractors only did job work, and on the other hand they were the actual manufacturers. On this contradiction being pointed out, Shri Rangaswamy argued that he was entitled to advance alternative arguments.
25. Opposing Shri Rangaswamy's contention, Shri Tayal submitted that, even if what the contractors did was regarded as job work, the entire manufacturing process took place within the premises of the units of the Board. They could not claim the benefit of any exemption which might be available to the "job workers". Shri Tayal further submitted that the operations could not be considered as mere "job work", because very extensive operations were done using cement, sand, steel, etc., and cement concrete poles were manufactured. This could not be considered as mere job work. Shri Tayal further submitted that since at the site, some of the equipment and all the necessary facilities were supplied by the Board, they should be deemed to be the manufacturers.
The contractors could not even be said to be ''job workers", but were more in the nature of hired labour, who were paid on a "piece rate" basis, as would be clear from the contract, where a fixed rate of Rs. l3/- has been stipulated for each pole. In support of this argument that the appellants should be deemed to be the manufacturers, Shri Tayal relied on the judgment of the Supreme Court in the case of Shree Agency v. S.K. Bhattacharjee and Ors., reported in 1977 E.L.T. J 168.
26. We find that in this case the work was done within the premises of the units of the Board itself, according to their specifications. Most of the material, namely 12 mm metal, mild steel rod and cement, was supplied by the Board and sand was to be taken from the Pennar river.
Even the concrete mixers and vibrators were made available by the Board, although the contractor was required to supply the fuel and lubricants and to pay the crew. Further, the payment was in the nature of "piece rate" payment. In the circumstances, the agreement with the contractors is basically one for supply of labour and they could by any stretch of imagination be considered as manufacturers.
27. Since all the work resulting in the excisable article, namely, the cement concerete pole, was done within the unit, there is no justification for separating out some of the operations and calling them "job work", as contended by the learned advocate. It is the Board which arranged the entire process of manufacture, laid down the specifications, furnished the basic material and paid the contractors for their labour. On the analogy of the Shree Agency case, the Board must clearly be held as the manufacturers of the goods, nor is there any question of applying the exemption for "job work".
28. Issue No. IV- Whether it is proper for all the units of the Appellants to have been clubbed together for the exemption limit under Notification 176177 applicable to Small Scale Industries under Item 681-Shri Rangaswamy argued that each of the units should have been considered as an independent one. Even if what they manufactured was excisable, the production of all the units should not have been clubbed together. According to him, although the purchase of materials was pooled and all the units were ultimately under the Board, and the officials transferable from one to another, they should nevertheless be treated as separate units. Thus, the funds for their expenses were earmarked by the Board separately for each unit and allocated through various Circles. The units also had a reasonable degree of autonomy.
29 As against this, Shri Tayal pointed out that Notification No. 176/77 clearly applied to a manufacturer and not a separate factory, and where the same manufacturer had a number of factories, their production had to be clubbed together. The Board was in fact the owner of all the factories and was allotting funds to them and exercising control over their operations. Even the correspondence on behalf of the different units would show that many of the letters to the Central Excise authorities were addressed by higher level officers and not by those who were nominally in charge of the separate units. Shri Tayal cited the judgment of the Judicial Commissioner, Goa, in the case of Madras Rubber Factory Ltd. v. Union of India and Ors., reported in 1981 E.L.T.906, wherein it was clearly held that where an exemption notification refers to clearances made by a "manufacturer", the clearances from all the factories of such manufacturer will be clubbed together.
30. The facts of these cases as set out above make it very clear that the units were not independent but were all under the Board and were subject to common directions and control. As pointed out earlier, when they were called upon to take out a licence and pay duty, they referred to the advice given to the Board. The following extract from the reply given by the Assistant Divisional Engineer, Central Stores, Gudur, in his reply dated 5-4-82 to the show cause notice dated 5-3-82 in the case covered by Appeal No. 133/82 is very revealing as to what the units themselves (which should have been in the best position to know whether they were functioning independently or not) thought of the position :- "I therefore on behalf of A.P.S.E.B. state further that the A.P.S.E.B. is constituted under Section 5 of the said Act. No suit prosecution, or other legal proceedings shall lie against any person for anything which is in good faith done or intended to be done under this Act. The Officers of the Board are adhering to the duties enjoined upon them under the Act by the Board and hence no prosecution of penalty is leviable. The Board is also not liable for the proposed levy of excise duty from 18-6-77 in view of the foregoing explanation and in view of the position already stated." 31. We also observe that, with reference to the question of penalty, Shri Rangaswamy himself has argued that the officers in charge of the individual units could not be held liable since they had to follow directions from above. It would, therefore, be plainly contrary to the facts to say that the units were functioning independently, particularly in the light of the common control, transferability of employees and pooled procurement of materials. We, therefore, do nut find any substance in the, argument that the units should be treated as independent manufacturers.
32 Issue No. V-State function and not liable to excise.-The proposition is that the goods being the property of the State Government and used for purpose of a statutory function are not liable to excise duty in view of the provisions of Article 285 of the Constitution.
33. On Shri Rangaswamy stating the above proposition, the Bench pointed out to him that the matter had been conclusively settled by the opinion of the Supreme Court on a Presidential reference, reported in 1963 A.I.R S.C. 1760. It had been clearly held therein that an excise duty is not a tax on property within the meaning of Article 285 of the Constitution and therefore not hit by the provisions of that Article.
Even the very wording of Section 3(1A) of the Central Excises and Salt Act, which specifically states that the provisions of Sub-section (1) ibid, permitting the levy and collection of duties of excise, shall apply in respect of excisable goods produced or manufactured by, or on behalf of, Government, as they apply in respect of goods which are not produced or manufactured by Government, had been placed before the Supreme Court in the Presidential reference and had been held to be constitutional. In view of this clear decision by the Supreme Court, the argument was totally without force.
34. While admitting that the Supreme Court had ruled on the matter, Shri Rangaswamy sought to advance a further argument. This was to the effect that if the poles were not "goods", then what was sought to be levied was not a duty of excise It would then become an unspecified tax on property, which would again be hit by the provisions of the Constitution.
35. We do not find any substance in this latter argument of the learned counsel. If the poles are not "goods', and are not liable to Central Excise duty, there is no need for any further argument based on the provisions of the Constitution, as that consideration alone would suffice to save them from duty. If, on the other hand, they are "goods" within the meaning of the Central Excises and Salt Act (as we have held them to be), then what is sought to be levied is clearly a duty of excise and therefore the further argument of Shri Rangaswamy is not applicable.
36. Issue No. VI-Whether steel and cement having already been subjected to excise duty, it is proper to demand further excise duty on the poles. - This argument was not expanded upon by Shri Rangaswamy. There is no authority for the proposition that because the constituents or raw materials of certain excisable goods have been subjected to duty, the complete article resulting from further manufacture cannot be subjected to duty under a different entry of the Tariff. This argument, therefore, has no force.
37. Issue No. VIII-Communications from other sources cannot be relied upon whilst dealing with a particular establishment.-It was contended by Shri Rangaswamy that in respect of the orders covered by Appeals Nos. 133/82-D, 745/82-D, 147/82-D, 227/83-D, 2057/83-D and 304/83D, the lower authority had erred in relying upon communications received from other sources. For instance, in the order dated 26-6-82 of the Collector of Central Excise, Hyderabad, which is the subject-matter of Appeal No. 133/82, the Collector has observed as follows: - "It is not correct that the liability of the poles and baseplates, etc., was known to the Electricity Board only in April, 1980.-It is on record that the Electricity Board was told in July, 1978. The matter was dealt with in order No. 7B, dt. 14-1-1982." Shri Rangaswamy argued that what was communicated to the Board in connection with some other unit could not have been taken into account by the Collector when dealing with the case of the Gudur unit.
38. Replying to this argument, Shri Tayal submitted that all the units functioned under the Board, and ail the appeals were in the name of the same Board. For the reasons stated earlier, the Boaid should be considered as a single ''manufacturer' and, therefore, as a single entity. The Collector was, therefore, justified in observing that when the excisability of the poles had been brought to the notice of the Board in July, 1978, even though with reference to another of its units, the Board in its capacity as the manufacturer in the case of the Gudur unit should be deemed to be aware of the position.
39. We observe that Shri Rangaswamy has repeatedly emphasised that all the units of the Board were working under the instructions of the Board. The employees of the Board were transferable from one unit to another. With reference to the question of penalty, it has been pleaded that individual officials in charge of the various units could not be held responsible for non-compliance since they could not take a decision to pay duty without the approval of the Board. We find that even in the case of the Gudur unit, in reply to the Assistant Collector's letter dated 22-7-78, the Superintending Engineer, Nellore, had replied that the poles in question are being prepared for the use of the Andhra Pradesh State Electricity Board. The Board is advised that such an activity does net attract excise duty." Again, in reply to the Inspector's letter dated 24-3-80, the Superintending Engineer had stated, "In reply to your letter cited 1 am to state that the matter is referred to APSEB and further action will be taken on receipt of instructions please." It is, therefore, amply evident that the various units of the Board were functioning under the directions of the Board itself and were referring to the Board on any matter of importance, including the specific question of liability of the poles to excise duty. It is not, therefore, open to them to contend that one hand of the Board dealing with one unit was not aware of what another hand dealing with another unit was doing. This argument, therefore, nas no substance.
40. Issue No. IX-Whether benefit of the exemption Notification 179\77, dated 18-6 77 exempting goods manufactured without the aid of power can be given ?-This issue has been raised with reference to the three orders which are the subject-matter of Appeals Nos. 227/83-D, 745/82-D and 2060/83-D. The argument is that in the making of the goods in these units no process was carried on with the aid of power, and therefore the goods were exempt from excise duty under Notification No. 179/77, dated 18-6-77.
41. This point would no doubt have been relevant with reference to the levy of excise duty. However, we find that it was not taken before the adjudicating authority. In the case covered by Appeal No 745/82-D, there was no reply to the show cause notice. In the other two cases, a reply was sent to the show cause notice but this point was not taken.
42. When this was pointed out to Shri Rangaswamy, he submitted that the position could be verified even at this stage from documentary evidence. He submitted that this should be done and necessary relief should be given if the contention was found to be correct.
43. We observe that power was admittedly used in the majority of cases for mixing of concrete, welding, etc. Therefore, it cannot be said that the use of power was unusual or impossible. This being a question of fact should have been raised at the material time when there was a possibility of verifying it. However, the appellants failed to do so.
We do not think we would be justified in going into this aspect at this distance of time We are, therefore, unable to accept this ground 44 Issue No. X- Whether the Collector had erred in not accepting the plea that the Excise duty should be calculated at the rate prevalent at the time of alleged removall- Shri Rangaswamy stated that this issue related only to one appeal, that is No. 2057/83-D. For reasons set out under Issue No. XIVA, this appeal is being remanded for re-decision, and it is not, therefore, necessary for us to go into this issue.
45. Issue No. XIII-Earth coils having been made manually and without electric power are not excisable-Appeal No. 133182.-This is the same point which has been dealt with under Issue No. IX, but has been raised separately with reference to Appeal No. 133/82. Here also, in the reply dated 5-4-82 to the Assistant Collector, there is no assertion that earth coils were being made without the use of power. For the reasons given under Issue No. IX, we do not accept this ground.
46. Issue No. XIVA-Whether the benefit of the Notification No. 54175, dated 1-3-1975 could be denied? It was also contended by Shri Rangaswamy that some of the units were eligible for exemption from duty in terms of Notification No. 54/75, dated 1-3-1975, under which units employing not more than 50 workers were exempt. Initially, Shri Rangaswamy stated that this exemption was applicable to several cases, but he ultimately stated that it would apply only to the two cases covered by Appeals Noa. 149/82-D and 2057/83-D.47. We have looked into the correspondence in regard to these two cases. In the case relating to the Nellore unit, covered by Appeal No.149/82-D, it was argued by the Board that the "approximate average number of. labour engaged at each time" was less than 50. This contention was rightly rejected by the Collector, who observe that "it is not the 'approximate average number' that will determine the dutiability when the number of workers was the factor but the employment of 50 or more workers at any time in the preceding year. As the limit does not appear to have been kept, the factory cannot enjoy this exemption." In other words, even on the basis of their own statement, the appellants were not entitled to the exemption in respect of this unit. We do not consider it either necessary or feasible to re-open the issue at this stage so far as this appeal is concerned.
48. However, the position is slightly different in Appeal No.2057/83-D. The Order-in-Original passed by the Collector shows that the appellants had taken the plea that they had never employed more than 40 workers. This ground, though mentioned in the Collector's order, has not been discussed or taken into account. The exemption under Notification No. 54/75 is admissible in respect of a factory and not a manufacturer and therefore if in fact the number of workers in the Karimnagar factory, covered by this appeal, was always less than 50, the production of that factory was entitled to the exemption. Since this is a material argument which although advanced by the appellants has not been dealt with by the Collector, we find that his order so far as this unit is concerned is vitiated and that this is a fit case for being remanded to the Collector for re-adjudication after taking this submission into account.
49. Issue No. XV- Whether the principles of natural justice had been violated ?-Shri Rangaswamy stated that this plea was with reference to one appeal, that is No. 304/83-D. He further stated that he was not pressing this ground. Accordingly, it is not necessary for us to go into it.
50. Issue No. XVI-Whether the benefit of exemption Notification No.118175, dated 30-4-75 could be denied ?-The above-mentioned notification providesthat goods falling under Item No. 68, manufactured in a factory and intended for use in the factory in which they are manufactured, or any other factory of the same manufacturer, are exempt from Excise duty. Shri Rangaswamy stated that this plea had been taken in Appeal No. 700/82-D but was equally applicable to all the appeals.
51. In support of his contention, Shri Rangaswamy submitted that the embedding of the poles in the earth at the respective sites amounted to their "use". It was pointed out to him that the use had to be in a factory. On this Shri Rangaswamy stated that the definition of "works'' under the Electricity Act included all the places where the poles were embedded.
52. In reply, Shri Tayal pointed to the definition of "factory" in Section 2(c) of the Central Excises and Salt Act, as any premises, including the precincts thereof, wherein or in any part of which excisable goods other than salt are manufactured. According to him, it would be far-fetched to consider the respective sites where the poles were embedded in the earth as being "factories". He, therefore, submitted that the above-mentioned notification had no application to the facts of these cases.
53. We find substance in the argument of Shri Tayal. When the term "factory" has been expressly defined in the Central Excises and Salt Act, it is neither necessary nor relevant to refer to the definition of some other expression such as "works" in some other legislation. In the context of the Central Excises and Salt Act, the term "factory" obviously refers to premises where excisable goods are being manufactured. The mere planting of a concrete pole in the earth, and even mounting a few other parts on it, cannot make the site a "factory" within the meaning of the above definition, Indeed, if this were so, it would mean that the appellants have thousands or lakhs of factories situated all over the State. Considering the nature of the electricity supply, these poles could be found not only in roads, but within housing colonies, schools, offices and even other factories. It would be totally far-fetched to advance an interpretation which leads to the conclusion that there would be "factories" of the Board within each of these sites. We do not, therefore, find substance in the argument of Shri Rangaswamy that the goods were eligible for the benefit of exemption under Notification No. 118/75.
54. Issue No. I-Limitation.-We now come to Shri Rangaswamy's arguments on the question of limitation.
55. It was Shri Rangaswamy's contention that the appellants throughout entertained the bona fide belief that the goods were not liable to duty. Therefore, there was no question of their having been removed clandestinely or of any information having been suppressed. In this connection, Shri Rangaswamy relied heavily on the decision of the Madras High Court in the case of Murugan and Company, reported in 1977 E.L.T. J 193. In this case, the petitioners were manufacturing French polish on which they were not paying excise duty, On coming to know about this, the Excise authorities directed the petitioners not to clear the goods without payment of duty. They made representations which were turned down, holding that the goods were dutiable. Their appeals and revision applications were also rejected. In the meantime a notice was issued to them under Rule 10A, demanding duty on the goods manufactured from January, 1963. This was contested by the petitioners in their Writ Petition. They, inter alia, took the ground that Rule 10A was invalid. The counsel for the Central Government argued that although the demands could not be sustained under Rule 10A, they could be sustained under Rule 9(2). It was accepted by the High Court that the mere citation of Rule 10A would not make the demand invalid if they could be sustained under Rule 9(2). The Court, however, went on to observe that the demands could not also be sustained under Rule 9(2).
In this connection the Court made the following observations :- "To attract Rule 9(2) the goods should have been removed in contravention of Sub-rule (1). Rule 9(1) read with Rules 47, 52 and 52(a) set down an elaborate procedure as to how the duty has to be paid at the time of clearance of the goods from the premises of the factory. In the petitioners' case the authorities have not fixed the time, place and the manner of payment of Excise duty as contemplated by Rule 9(1) and as such, there cannot bo any contravention of that Rule. Thus Rule 9(2) can be applied only when the manufacturer clandestinely removes the goods from the place or premises specified in rule 9 1) or from the store room or other place of storage approved by the Collector under Rule 47 without the use of a gate pass in the proper form countersigned by the officer under Rule 52(A). In the case of the petitioners, the authorities have not taken any steps under rules 9(1) and 47 to specify the time, place and the manner of payment of excise duty, so as to enable the petitioners to pay the duty under Rule 9(1) and, theretore, there cannot be any contravention of Rule 9(1) as contemplated in Rule 9(2). The mere non-payment of duty under a bona fide impression that the goods are not excisable cannot lead to a finding that the goods have been cleared from the factory contrary to Rule 9(1) especially when there has been no specification of the time, place and the manner when the duty is to be paid and of the proper form of application for permission to remove and of the proper officer who has to pass an order as provided in rule 9(1)." Shri Rangaswamy placed strong reliance on these observations of the Madras High Court to contend that since the appellants in this case were under a bona fide belief that the goods were not liable to duty, the mere fact of removal of the goods could not make Rule 9(2) applicable, and therefore the demands under this Rule were not sustainable.
56. Shri Rangaswamy also cited the judgment of the Supreme Court in the case of N.B. Sanjana v. Elphinstone Spinning and Weaving Mills Co.
Ltd., reported in 1978 E L.T. 399. That decision related to a case where the goods had been removed after a "Nil" assessment, with the prior permission of the Excise authorities. The facts of that case are, therefore, clearly distinguishable from those of the present case However, Shri Rangaswamy relied on the following observations in para 26 of the judgment:- "That Sub-rule (2) is a penal provision is shown from the fact that apart from the duty payable the party is also made liable to a penalty and he also incurs the risk of the goods being confiscated.
< hat Rule 9(2) applies only to a case where there has been an evasion from payment of duty is clear from the decision of this court in (1969) 2 SCR481=(AIR i970 S.C. 1173)." Shri Rangaswamy relied on the above judgment for the proposition that Rule 9(2) could only apply to a case where there had been a deliberate attempt with knowledge to evade the duty.
57. Another judgment cited by Shri Rangaswamy in this regard is that of the Calcutta High Court in the case of Union Carbide Co Lid. v.Assistant Collector of Central Excise and Ors., reported in 1978 E.L.T. 180 In para 27 of that judgment reference has been made to the maxim that "everybody is presumed to know the law". The Court observed that this maxim had become absolutely unreal, and that the Excise authorities are presumed also to know the law. In the result they concluded that it could not be said that the goods in question were removed separetly or in a clandestine manner, since a detailed site plan and process flow-chart were submitted by the petitioners.
58. It will be seen that in this case also the factory was under excise control, with reference to other goods manufactured bv the petitioners.
The facts of this case are, therefore, also distinguishable from those of the present case. However, it is on the general observations above that Shri Rangaswamy relied. He stressed that the appellants were a Government body and there was no question of private gain as a result of evasion of duty, and there could, therefore, be no question of mala fides. In this context he also referred to a commentary on the Indian Penal Code by V.B. Raju, wherein it has been stated that "knowledge" means the personal knowledge of the person doing the act. (Shri Rangaswamy had undertaken to furnish relevant extracts, but these have not been received).
59. The next case referred to by Shri Rangaswamy was the judgment of the Supreme Court in the case of D. Cawasji & Co., reported in 1978 E.L.T. 154. In para 15 of this judgment, the following observation has been made :- "It is sometimes said that every man is presumed to know the law, but this is only a slovenly way of stating the truth that ignorance of the law is not in general an excuse." 60. Shri Rangaswamy cited the judgment of the Supreme Court in the case of Cement Marketing Company of India Ltd., reported in AIR 1980 S.C.346. That case related to a return submitted under the Central and State Saks Tax Acts, in which the amount of freight on goods sold on P.O.R. basis was not included. A penalty was imposed on the petitioners for having filed a "false" return. The Supreme Court set aside the penalty, on the ground that a return could not be said to be "false" unless there was an element of delibera-teness in it. It was observed that when an assessee did not include a particular item under the bona fide belief that he was not liable so to include it, it would not be right to condemn the return as a "false"' return inviting imposition of penalty. It was also observed that the failure of the petitioiners to include the amount of freight was based on a highly arguable contention which required serious consideration by the Court and the belief entertained by the assessee that it was not liable to include the amount of freight in the taxable turnover could not be said to be mala fide or unreasonable.
61. Shri Rangaswamy also cited a number of authorities for the proposition that where a notice had been issued under Rule 10 before it's omission on 17-11-80, proceedings in terms of that Rule could not be continued after that date. It is, howover, not necessary to set out these cases in detail, as they are not relevant to the case before us.
62. A question was posed to Shri Rangaswamy as to whether it could be held that after 12-7-77, when the appellants were directed to take out a licence, it could be said that limitation would stop running Shri Rangaswamy replied that in the case of Devidayal Rolling & Refineries (P) Ltd., reported in 1983 E.L.T. 338, the Bombay High Court had no doubt held that the issue of a demand without issuing a separate show cause notice was sufficient to make the recipient aware and conscious of the legal position, and that though the notice did not in so many terms describe it as a show cause notice, its contents were eloquent enough to indicate nothing but that. In fact, a letter bringing the provisions of law to the notice of the manufacturers was treated as a show cause notice. Shri Rangaswamy, however, attemptd to distinguish this case from the one before us by pointing out that it was on a Writ Petition, and it was for this reason that the Court did not accept the argument, because it had observed that "to permit such a technical argument in a writ Petition ... would be permitting an otherwise just demand to be defeated on a technicality." 63. Shri Rangaswamy submitted that the period covered by the show cause notices could be broken up into three parts, with reference to the question of limitation. His argument in this regard is set out in para 64. Next, Shri Rangaswamy argued that the time-limit covered in Rule 10 should be read into Rule 9(2) even before its amendment on 6-8-1977 to include that time-limit. On being asked whether he could cite any authority for this proposition, Shri Rangaswamy stated that he could not find any specific authority, though according to him it was implied in the judgment in the Murugan and Company case. He, however, argued that it could be deduced from the doctrine of contemporanea expositio.
This was because the amendment, to bring in the time-limit under Rule 10, was made on 6-8-1977 and the Murugan and Company judgment was delivered in 1976. The same time-limit had been incorporated in Section 11A of the Act, which was included through the Customs, Central Excises and Salt and Central Boards of Revenue (Amendment) Act, 1978.
65. It was observed at this stage that all the show cause notices in the cases before us had been issued after the amendment of Rule 9(2) so as to incorporate the timel-imit in Rule 10. As will be seen hereafter, there is no case where a period beyond five years would be covered.
Accordingly, the above argument is not relevant to the issue.
66. Shri Rangaswamy then argued that Rule 10 had been omitted with effect from 17-11-80, and that the show cause notices issued after that date under Rule 9(2) were thereby invalidated. In this connection Shri Rangaswamy referred to various judgments on the effect of proceedings initiated or continued after a particular provision had been omitted.
It is not necessary to go into details of this argument because they proceed on an assumption which, as will be seen from the discussion which follows, we are unable to accept, namely that a notice of demand under Rule 9(2) would depend for its validity or force on the continued existence of Rule 10.
67. Shri Rangaswamy also submitted that since allied questions relating to the position after the omission or amendment of Rules 10 and 10A had been referred to a Larger Bench, this case should also be so referred.
We, however, pointed out that in our view no such question arose out of the appeals before us and we did not find any necessity for referring this matter to the Larger Bench- 68. Replying on behalf of the Department, Shri Tayal in his turn, referred us to several judicial decisions on the question of limitation. The first of these was the judgment of the Supreme Court in the case of Assistant Collector of Central Excise, Calcutta v. National Tobacco Co- of India Ltd., reported in 1978 E.L.T. J4I6. Shri Tayal relied on paras 20 to 22 and 25 of the judgment, in which the terms levy, collection and assessment have been distinguished. He pointed out that for Rule 10 to be attracted there had to be an assessment. In the present case, there had been no assessment prior to the date of the show cause notice, because no documents had been produced by the appellants despite repeated demands. Accordingly, Rule 10 was not applicable to these cases, which were governed by other relevant Rules.
69. Shri Tayel next referred to the judgment of the Allahabad High Court in the case of Oudh Sugar Mill Ltd. v. Union of India and Ors., reported in 1982 E.L.T. 937. He drew attention to para 24 of the judgment wherein the word "issue" has been distinguished from the word "removal". It had been held therein that the word "issue" included removal under the direction of an authority empowered to do so, whereas "removal" contemplated in the Rules was by the manufacturer or producer only. Shri Tayal pointed out that Rule 9 does not require anything more than removal, and therefore for invoking that Rule it was not necessary that the removal should have been under the direction of an empowered authority.
70. Referring to another judgment of the Allahabad High Court in the case of Geep Flashlight Industries Ltd. v. Union of India and Ors., reported in 1979 E.L.T. 674, Shri Tayal referred to para 30, wherein it was observed that Rule 10A did not contain any limitation of time (as the application of Rule 10A to these cases does not arise, this argument does net appear very relevant).
71. Shri Tayal also cited the judgment of the Delhi High Court in the case of Gopal Paper and Board Mills, reported in 1981 E.L.T. 97 (Del.).
In that case it was held that where no "statement" at all was made by the manufacturer, either in the Excise records or by issue of a gate pass, the provisions of Rule 10 could have no application and the case would be covered by Rule 9(2) or even Rule 10A.72. Another judgment cited by Shri Tayal was that of the Bombay High Court in the case of Devidayal Rolling and Refineries (Pvt.) Ltd., reported in 1983 E.L.T. 338. In that case there was no assessment of the goods and it was held that Rule 10 was not applicable.
73. Shri Tayal also referred to a number of decisions of the Tribunal in this regard. One was the Order in the case of Goodwin Rubber Works, reported in 1983 E.L.T. 578. In that case it was held that a reference to Rule 10 was misconceived because that Rule pertained to cases of "short levy", and not those of "non-levy" as in the case before the Tribunal.
74. Again, in the Tribunal's decision in the case of Ceekay Rubb Industries, reported in 1983 E.C.R. 687, it had been held that where a manufacturer did not bring to the notice of the Excis authorities the fact of manu facture of certain goods, Rule 9(2) was applicable.
Similar observations had been made in the Tribunal's decision in the case of Ruby Rubber Works., in its Order No. 633/83D dated 15-10-83 (not reported).
75. Shri Tayal also referred to the decision of the Tribunal in the case of Rekha Industries, reported in 1983 E.L.T. 1163. In that case the appellants were held to have manufactured certain goods and removed them without complying with Central Excise formalities and paying duty, and it was held that Rule 9(2) was applicable.
76. In the light of the above decisions, Shri Tayal submitted that the cases before us were squarely covered by Rule 9(2). The appellants had not come forward to say that they were manufacturing the concrete poles and even after the Department had directed them to comply with Central Excise formalities they had not done so. Thus, there had been no assessment and no short levy so as to bring the provisions of Rule 10 into operation.
77. Shri Tayal then referred to Shri Rangaswamy's argument that the time limit under Rule 10 should be read into Rule 9(2), even before that Rule was amended. He submitted that the Supreme Court judgment in the case of N.B. Sanjana v. Elphinstone Spinning & Weaving Mills Co.
Ltd., showed the contrary, since the distinction drawn between Rule 10 and Rule 9(2) was with reference to the presence of a time-limit only in the former Rule.
78. Shri Tayal then referred to the judgment of the Calcutta High Court in the case of Union Carbide Co. Ltd, (1978 E.L.T. 180), on which Shri Rangaswamy had relied. He pointed out that in that case the manufacturers were licensed assessees and that the issue was always before the Department and within its knowledge. This would be seen from para 27 of the judgment wherein it was stated that a detailed site plan and process flow chart had been submitted by the manufacturers. That case was, therefore, clearly distinguishable from the one before us.
79. Again, the Supreme Court judgment in the case of Cement Marketing Co. of India Ltd., (AIR 1980 SC 346), was distinguishable from the present case because there the assessee had filed a return which was held to be wrong, whereas in the present case no return had been filed.
80. As regards Shri Rangaswamy's argument, based on the provisions of the Indian Penal Code, that a guilty intention was a necessary ingredient for involving Rule 9(2), Shri Tayal submitted that no such inference was possible, since the IPC was concerned with prosecutions and was not applicable to quasi-judicial proceedings in relation to a demand for duty. In this connection Shri Tayal submitted that the wording of the Rule was significantly different from that of certain other provisions in the Central Excises and Salt Act or Rules. For instance, Section 9(b) of the Act referred to a person who "evades" the payment of any duty, thus bringing in the concept of intention.
Similarly, Rule 173Q(d) referred to contraventions of any Rule "with intent to evade payment of duty". In contrast, Rule 9 did not anywhere refer to "intent" or "evasion", but only to "removal" of goods.
81. Shri Tayal referred to Shri Rangaswamy's argument that the period covered by the demands should be broken up into three parts. He submitted that these being cases entirely under Rule 9(2), breaking up of the periods into different parts was meaingless.
82. Coming to the detailed justification given by Shri Rangaswamy in respect of each part of the period, Shri Tayal commented on Shri Rangaswamy's submission that prior to 12-7-77, the appellants should be held to be ignorant of the fact that their goods might be liable to duty. His reply was that for the purpose of levy of duty ignorance was no excuse. Further, as a Government undertaking the appellants had a special obligation to observe the provisions of law.
83. Shri Tayal drew our attention to the letter dated 12-7-77 addressed to the appellants by the Inspector of Central Excise, Ameerpet Range.
He pointed out that even after receipt of this letter, the appellants did not take any steps to comply with the requirements of law as brought to their notice. They could have done so without prejudice to their rights and contentions, by seeking provisional assessment or paying duty under protest, and following the remedies available to them under the law. This, however, they did not do. The subsequent correspondence clearly showed that they had no intention to pay duty.
He submitted that in these circumstances it would not be appropriate to allow them to take the plea of limitation.
84. Shri Tayal also referred to Shri Rangaswamy's argument that Rule 9(2) was amended on 6-8-77 in order to incorporate the principles contained in the judgment of the Madras High Court in Murugan & Company's case, and therefore it should be held that the time limit should be read into the Rule even before this amendment, on the principle of contemporanea expositio. Shri Tayal submitted that this was only a presumption on the part of the learned counsel. His own impression was that the amendment was made in accordance with a recommendation of the S.R.P. Committee, which was received around that time. No argument could be based on such presumptions.
85. Shri Tayal also referred to Shri Rangaswamy's argument that the Central Excises and Salt Act had been amended in 1978 and then incorporated in Section 11 A, which took the place of Rule 10, and that this was also a case of contemporanea expositio. He referred to the note on the relevant Clause 24 of the Bill, and submitted that it only incorporated in the Act the existing provision as contained in Rule 10 at that time, 86. Shri Rangaswamy's arguments on the question of limitation can be summarised as under : - (i) Rule 9(2) was not applicable to a case of this nature. In support of his argument, Shri Rangaswamy cited some authorities which were directly with reference to Rule 9(2). He also cited a number of judgments on the considerations to be applied when imposing a penalty. These were sought to be linked up by relying on an observation in the Supreme Court judgment in the case of N.B. Sanjana v. Elphinstone Mills to the effect that Rule 9(2) is a penal provision ; (ii) Rule 9(2) was not an independent provision but derived its strength from Rule 10, and the time limit in Rule 10 should be read into it even prior to 6-8-1977 ; (iii) Rule 9(2) after amendment referred to Rule 10 and now refers to Section HA. The effect of the omission of Rule 10 and its replacement by Section 11A on the operation of Rule 9(2) should be referred to the Larger Bench which is considering such matters ; (iv) the period prior to issue of show cause notice has to be considered with reference to the following factors : - (a) six months prior to issue of show cause notice, when limitation may not apply ; (b) from 16-7-77 to six months prior to issue of show cause notice.
The extended period under Rule 9(2) could not be applied for this period, since particulars of manufacture were furnished on 16-7-77 and therefore there could not be said,to be any suppression or concealment after that date ; (c) from 1.3.75 (when Item 68 was introduced) to 15-7-77 (before particulars of manufacture were furnished) Even during this period Rule 9( ) was not applicable because of the bona fide belief of the appellants that the goods were not dutiable.
87. In support of his contention that Rule 9(2) was not applicable to a case of this nature, Shri Rangaswamy has strongly relied on the Madras High Court decision in the case of Murugan & Company and also on the Supreme Court decision in the case of N.B. Sanjana v. Elphinstone Spinning & Weaving Mills Co Ltd. So far as the Supreme Court decision is concerned, the facts can be clearly distinguished from those in the present case. In that case the manufacturers had duly filed AR-1 Forms before the Central Excise authorities and made a declaration that the excise duty payable was "NIL", and this was accepted by the excise authorities. It was observed by the Supreme Court that all the removals by the manufacturers during the relevant period were shown by them as not liable to pay any excise duty and were also assessed by the Excise Inspector as not liable to pay any duty. Therefore, there was an assessment to "NIL" duty in every case. However, in the cases before us, there has been no assessment at all, since in the first instance the appellants did not bring the fact of manufacture to the notice of the Central Excise authorities, and subsequently, despite directions by those authorities, they still did not comply with Central Excise formalities.
88. Although the facts are clearly distinguishable, Shri Rangaswamy relied on certain observations made in the above judgment. One is that "in order to attract Sub-rule (2), the goods should have been removed clandestinely and without assessment". According to Shri Rangaswamy, at least after 16-7-77, there could not be said to be any clandestine removal, since the excise authorities were aware that the appellants were manufacturing what according to these authorities were dutiable goods. The other observation on which Shri Rangaswamy relies is to the effect that Sub-rule (2) is a penal provision as shown from the fact that apart from the duty payable the party is also made liable to a penalty and confiscation of the goods. The Supreme Court had also referred to its earlier decibion in J.K. Steel Limited v. Union of India that Rule 9(2) applied only to cases where there had been an evasion from payment of duty.
89. On the basis of this latter observation, Shri Rangaswamy sought to derive further support from other judgments relating to the imposition of penalty, for instance those in the case of Hindustan Steel and Cement Marketing Co. of India Ltd. His attempt was to show that unless the criteria which would justify the imposition of a penalty were satisfied, Rule 9(2) could not be invoked and even the duty due could not be demanded. We consider that such an extension of the scope of the Supreme Court's observations in Sanjana's case, so as to bring in all the considerations governing imposition of penalty into a case where the question is one of demanding duty, is not justified. There has certainly to be a distinction between the payment of duty, which is not dependent on any offence being committed, and the imposition of a penalty which is with reference to a specific offence. While, therefore, Shri Rangaswamy is justified in relying upon the judgment of the Supreme Court in Sanjana's case which bears directly on the interpretation of Rule 9(2), he cannot call to his aid various judgments on the question of imposition of penalty as such, merely because in Sanjana's case Rule 9(2) is referred to as a penal provision. We shall however refer to these judgments, as well as those referring to the presumption that "every one knows the law" when dealing with Issue No. VII relating to the penalties.
90. Coming back to the question whether the demands under Rule 9(2) would be justified in the light of the observations made in Sanjana's case, we have already observed that the present cases are distinguishable on facts, because there was no assessment to duty as there was in Sanjana's case. On the question whether the removals were clandestine, at least prior to 16-7-77 (or 12-7-77), they could very well be considered as clandestine, in the light of the facts of these cases and of the observations in Sanjana's case. As regards the subsequent period, Shri Rangaswamy had argued that once the Department was aware that the goods were being manufactured and removed, the removal could not be said to be clandestine. In this connection we note that the observations in Sanjana's case were made with reference to the facts of that case, to distinguish a case where the excise authorities had explicitly acquiesced in the removal of the goods without payment of duty. In contrast, in the present case there was no such acquiescence. On the other hand, the appellants removed the goods in the face of directions from the Department that they should observe the Central Excise formalities and pay the duty. Their conduct amounted to almost open defiance of the Central Excise authorities, in the confidence that no drastic action would be taken against them. Even if such removals could not be called clandestine, this could certainly be said to be a case of evasion of duty. In Sanjana's case the Supreme Court had given equal importance to the observations of that Court in the case of J.K. Steel, to the effect that Rule 9(2) applies only to cases where there has been an evasion of duty. If this criterion is applied, there appears to be no reason why Rule 9(2) could not be invoked in the case of the appellants.
91. We now come to the judgment in Murugan & Company's case, which on its face would appear to take the appellants out of the scope of Rule 9(2). In that judgment the Madras High Court had taken the view that Rule 9(2) would apply only where a manufacturer clandestinely removed goods from a specified place or premises or store room, without a gate pass. In other words, it would only apply to illicit removals by a person who had subjected himself to Central Excise control.
92. With reference to this judgment, Shri Tayal had submitted that Rule 9(2) did not in specific terms contain anything to the effect that it applied only to illicit removals from licensed premises. We observe, however, that since the judgment is with reference to Rule 9(2), it cannot be ignored on the ground that it brings in a criterion which is not set out in that Rule. What we find, however, is that there are a number of other judicial decisions, also of High Courts, where a different view has been taken. One of these is the judgment of the Allahabad High Court in the case of Oudh Sugar Mills Ltd. (1982 E.L.T.937), which was cited by Shri Tayal. As pointed out by him, a distinction has been drawn in that judgment between the word "issue" as including the removal of goods under the direction of a competent authority, and "removal", which would be by the manufacturer or producer only. Since Rule 9(2) uses the word "removed" the above judgment would imply that such removal if not covered by the direction of the competent authority would attract the provisions of that Rule.
93. We also find that para 21 of the same judgment contains some very significant observations which are particularly relevant to the present case. We reproduce the relevant sentences below : "In our view Rule 9 of Central Excise Rules puts a bar on the removal of excisable goods from the place where the same are produced or manufactured unless duty is paid. The rule by itself does not create a liability, nor can it be read as destroying a liability which is incurred under Section 3 because of manufacture or production of goods. A rule which is framed to carry out the purpose of an Act cannot be read or go to the extent of frustrating its purpose instead of giving effect to it." The Delhi High Court also, in the case of Gopal Paper and Board Mills (1981 E.L.T. 97) had made certain observations, vide para 71 above.
This would also be an authority to show that a case of the present type would be covered by Rule 9(2). The Bombay High Court, in the case of Devi Dayal Rolling and Refineries (P) Ltd. (1983 E.L.T. 338), had held that in a case where there was no assessment. Rule 10 would not apply (vide para 72 above).
94. Thus, as against the decision of the Madras High Court in the case of Murugan & Company, there are decisions of at least three other High Courts which would justify the invocation of Rule 9(2) in the present case and would lead to a contrary conclusion so far as the present case is concerned. We have already referred (vide para 93 above) to the judgment of the Allahabad High Court in the case of Oudh Sugar Mills to the effect that a rule which is framed to carry out the purpose of an Act cannot be read or go to the extent of frustrating its purpose instead of giving effect to it. We are in respectful agreement with these observations of the Allahabad High Court, and we consider that if Rule 9(2) is interpreted in the manner advocated by Shri Ranga-swamy, it would not further the purpose of the Central Excises and Salt Act but would have the effect of frustrating it by encouraging non-compliance with statutory requirements and duty liability.
95. It has been abundantly brought out that Rule 10 was not applicable to these cases, as there was no assessment of the goods at any stage.
There was removal of the goods without compliance with the prescribed procedural provisions and without payment of the excise duty leviable thereon. The removal of the goods was clearly clandestine in nature to begin with. Subsequently, it was evasion of duty. It is, therefore, squarely covered by the provisions of Rule 9(2).
96. The next limb of Shri Rangaswamy's argument was that Rule 9(2) was not an independent provision, and that the time-limit in Rule 10 should be read into it. He admitted that he could not cite any specific authority for this proposition. We do not find any substance in this argument because on a plain reading Rule 9(2) is a self-contained provision and does not have to depend for its force on any other Rule.
In fact, as pointed out by Shri layal, it is clear from the Supreme Court judgment in Sanjana's case that Rules 9, 10 and 10A were alternative provisions each of which applied to cases to which the others did not apply. There is thus no force in this contention of Shri Rangaswamy.
97. Shri Rangaswamy had also argued that the effect of the omission of Rule 10 and its replacement by Section 11A should be taken into account, and since allied questions were under the consideration of a Larger Bench, these cases should also be referred to the Larger Bench.
We have difficulty in seeing the force of this submission. We find that all the show-cause notices in this case (subject to minor variations to be commented upon later) were issued under Rule 9(2). All the show cause notices were issued after 6-8-77, that is, after Rule 9(2) had been amended to incorporate a lime-limit. It is true that some of the show cause notices were issued prior to 17-11-80, when Rule 10 was in force, and some after that date, when it was replaced practically verbatim by Section li A. Both Rule 10 and Section 11A provided for a time limit of six months, which is extended to five years where the non-levy or short-levy is due inter alia to wilful mis-statement or suppression of facts or contravention of the provisions of the Rules with intent to evade payment of duty, by the person concerned. Instead of setting out in extenso the provisions relating to time limit, Rule 9(2) brings in the same time-limit by using the parenthetical clause "within the period specified in Rule 10" (before 17-11-80) and "within the period specified in Section 11A" (from 17-11-80). This method of indicating the time-limit has apparently been adopted with a view to economy of expression, or uniformity with a parallel provision, or both, and only has the effect of incorporating in Rule 9(2) certain words occurring in Rule 10 or Section 11 A, as the case might be, at the time that Rule 9(2) was invoked in a particular case. It does not mean that, in a case where the show-cause notice was issued prior to the omission of Rule 10, and the demand confirmed after its omission, the validity of the show-cause notice or the demand is in any way affected. We do not, therefore, find that Shri Ranga-swamy's contention raises any point of substance requiring a decision from a Larger Bench.
98. We now come to Shri Rangaswamy's division of the periods covered by the respective show cause notices into different parts, as mentioned in para 86 above. We have already held that Rule 9(2) is fully applicable in these cases, and we, therefore, agree with Shri Tayal's contention that any sub-division of this period into different parts would be meaningless.
99. Our conclusion therefore is that the provisions of Rule 9(2) were applicable to these cases and the only limitation that was applicable was that contained in Rule 9(2) itself. We have already observed that all the demands were issued after the amendment of Rule 9(2) to incorporate the time limits of six months and five years For reasons already stated, it is the extended time limit of five years that would be applicable to these cases. With the exception of the orders in appeal Nos. 149/82, 700/82, 2057/83 and 2059/83, we find that the show cause notice as well as the final demand, or at any rate the final demand, covers a period within the time limit of five years from the date of issue of the show-cause notice, and therefore they would be fully within time in terms of Rule 9(2).
100. In the case of appeal No. 2057/83, the show cause notice covered the period from 1-3-75 to 3 6-82, that is over seven years, and the order-in-original contained a demand in respect of the same period, which was in excess of the five years' period in Rule 9( ') However, for the reasons given in para 48 above, we propose to remand this case for de novo decision. In the re-adjudication proceedings, the appellants will be free to take up the question of limitation and we have no doubt that the adjudicating authority will give it due consideration.
101. In the case covered by appeal No. 149/82, the show-cause notice was issued on 12-10-81, for the period 1-4-75 to 21-6-81. However, in the Collector's order-in-original dated 19-3-82, he has specified that the appellants should pay duty on the goods manufactured in the five years preceding the date of the show cause notice. As so limited, the demand is within the period of limitation and therefore valid.
102. Similarly, in the case covered by appeal No. 700/82, the show-cause notice dated 16-6-80 was for the period from 1-3-75 to 16-5-80. In the Collector's order-in-original dated 27-9-80, he has ordered that the appellants should pay duty under Rule 9(2) "on all clearances from 1-3-75 on which no duty has been paid''. To this he had added "due to the deliberate evasion, the time limit will run for five years". Since the two sentences are at variance with each other, the appellants are entitled to the more favourable interpretation, which would also be in line with the view taken by the Collector in his order in appeal No. 149/82, that is, that the demand would be limited to a period of five years from the date of show-cause notice. So limited the demand in this case also would be clearly within the time limit in Rule 9(2).
103. in the case covered by appeal No. 2059/83, the position is more complex. In the first instance, a show cause notice was issued on 3-8-79. It required the appellants to show cause only why a penalty should not be imposed unde; Rule 173Q. Subsequently, on 2 5-3-82, a revised show cause notice was issued in which the appellants were also required to show cause why duty should not be demanded from them for the period from 28-2-75 to 18-3-81. This period was elaborately broken up into the period 28-2-75 to 5-8-77, to be covered by Rule 10A; the period from 6-8-77 to 16-11-80, to be covered by Rule 10 as amended; and the period from 17-11-80 to 18-3-81, to be covered by Section 11A.In the Assistant Collector's order-in-original dated 24-6-82, the demands in respect of the above periods and under the Rules mentioned above were confirmed. Their appeal was also turned down by the Appellate Collector of Central Excise, Madras.
104. We have already considered the facts of these cases (which in all material respects are similar to one another) and have held that they came within the scope of Rule 9(2). We have also held-and indeed it is a part of the appellants' own case-that all the units were working under the directions of the Board and looking to it for instructions.
(Under Issue No. VIII, we have dealt with the argument that communications from or having reference to other units should not be relied upon while dealing with a particular unit). It was also conceded by Shri Rangaswamy that the invocation of a wrong rule in the show cause notice would not vitiate it or prevent application of the right Rule. In the case covered by appeal No. 2059/83, the Assistant Collector should have relied upon Rule 9(2) and not on Rule 10A or 10, or Section 11 A. Further, under that Rule, we find that the practice was to apply the time limit of five years, as seen from two orders of the Collector of Central Excise, Hyderabad, referred to in paras 101 and 102 above. We accordingly, while holding that this case would also be governed by the provisions of Rule 9(2) (and that there would be no contravention of the principles of natural justice in so holding, since in all other cases Rule 9(2) was invoked, and the appellants were fully aware of it), hold that the demand should be limited to a period of five years from the date of the revised show-cause notice, that is, 25-3-82. (We would make it clear that in giving this direction we are not expressing a view on the question whether a provision which has been rescinded could thereafter be invoked in respect of occurrences prior to its being rescinded, which question arose in the reference made to a Larger Bench. We are only applying uniformly the principle applied by the seniormost officer in the same Collectorate in two earlier orders on cases of the same appellants).
105. Thus, so far as limitation is concerned, we hold that it does not affect any of the demands except the four which we have specifically referred to above, and to the extent indicated above. (We may incidentally add that, while Shri Rangaswamy argued at great length on the general principles of limitation and the applicability of various Rules, he did not place before us submissions based on a detailed study of each of the demands. However, we have felt it necessary, in the interests of justice, to make such a detailed study of all the demands, and to give appropriate relief where it is called for).
106. With the exception of the cases covered by appeal Nos. 481/80, 2058/83 and 2059/83, penalties of varying amounts have been imposed on the appellants under Rule 173Q and other relevant Rules. Shri Rangaswamy argued that these penalties had been unjustly levied, as the appellants were innocent persons.
107. Shri Rangaswamy stated that the conduct of the appellants had not been "contumacious". They had been struggling to convince the Central Excise Department that they had a good case on merits. In one instance, where the local Central Excise authorities took the coercive measure of detaining the goods of the appellants, they had paid the duty amount.
108. In reply to a question why the appellants could not pay duty under protest, Shri Rangaswamy stated that it was difficult for the units to get necessary sanctions, because this would involve problems of budgeting, passing of resolutions, etc. The persons in charge of the various units had no personal interest in violating the law, since they sincerely believed that the goods were not dutiable. The matter had also been taken up with higher authorities, and it was only in 1980 that the C.B.E.C. issued a letter saying that the goods were dutiable.
This would show that the Central Excise authorities also entertained doubts about the matter.
109. Shri Rangaswamy cited a judgment of the Supreme Court in the case of Hindustan Steel v. State of Orissa, reported in AIR 1970 SC 253. In para 7 of that judgment it had been observed that a penalty would not ordinarily be imposed unless the party either acted deliberately in defiance of law or was guilty of conduct contumacious or dishonest, or acted in conscious disregard of its obligation. According to Shri Rangaswamy, none of these circumstances operated in this case.
110. Shri Rangaswamy also referred to the judgment of the Supreme Court in the case of Cement Marketing Company of India Ltd. (1980 E.L.T.295), to which he had already referred in connection with the question of limitation, and stressed that fighting for one's rights is not a matter for penalty. He also cited a judgment of the Andhra Pradesh High Court in the case of Gyanoba Yashwant Jadhav (AIR 1974 AP 76), in which it had been held that a power to impose a penalty must be exercised judiciously. Another reference given by him was to the judgment of the Punjab High Court in the case of Sitaram Gurdamal (AIR 1968 Pb 35), wherein it was observed that the word "adjudge" implied a judicial approach and decision. He also referred to a decision of the C.B.E.C.in the case of Agarwal Metal Works (P) Ltd. (1981 E.L.T. 602). In that case the appellate authority had observed that Rule I73Q conferred enormous powers on the adjudicating authority and had to be used not with enormity but with circumspection and great caution.
111. In the light of these judgments, Shri Rangaswamy submitted that, even if it was held that the goods were dutiable, there was no case for the imposition of personal penalties. In the alternative, he submitted that there should be some uniformity in the treatment of different cases. Since in some cases no penalties had been imposed, the other cases should be similarly treated.
112. Replying to Shri Rangaswamy, Shri Tayal submitted that the decisions cited by Shri Rangaswamy were not applicable to the cases before us. Thus, the judgment of the Supreme Court in the case of Hindustan Steel (AIR 1970 SC 253), referred to the question of registration for the purposes of levy of sales-tax. Here it was not a question of registration but of taking out a Central Excise licence, complying with other requirements of law and paying Central Excise duty.
113. With reference to the judgment of the Supreme Court in the case of Cement Marketing Co. of India Ltd. (1980 ELT 295), Shri Tayal pointed out that that case involved a question whether certain returns submitted in good faith could be held to be "false"- Here, there were no returns and no disclosure at all.
114. With reference to the judgment of the Andhra Pradesh High Court in AIR 1974 AP 76, Shri Tayal submitted that the question of the conduct of the appellant was taken into consideration in that case. In the present case, the appellants did not have clean hands. Not only did they not fulfil their responsibilities of their own accord, but even on receiving a direction of the Department, they did not comply with it 115. Shri Tayal submitted that a person could not escape the consequences of not complying with statutory provisions by claiming that he was only fighting for his rights. The appellants, being a Government undertaking, should have complied with the requirements of law instead of totally flouting them.
116. With reference to the argument that the Departmant itself had some doubt as to the dutiability of the goods, and therefore a clarification had to be issued by the C.B.E.C., Shri Tayal submitted that the departmental authorities had no doubt at all and had been repeatedly asking the appellants to pay duty. The clarification was issued because of the resistance offered by the appellants, who themselves had approached the higher authorities.
117. Shri Tayal also referred to Shri Rangaswamy's argument that different standards had been adopted in different cases of the appellants while imposing penalties and in some cases no penalties had been imposed. According to him, the orders were passed by different officers and each officer had taken a view on the basis of the case before him.
118. In the end Shri Tayal submitted that the penalties imposed could not be said to be unjustified and should be sustained.
119. It would now be appropriate for us to consider how much force there is in the submissions of the learned counsel for the appellants, particularly in the light of the judgments on which he has relied, whether with reference to the question of penalty or with reference to the question of limitation, wherein he had sought to bring in the concepts relating to the imposition of penalties.
120. We shall first refer to the two judgments regarding the proposition that "every man is presumed to know the law." This proposition has been controverted both in the Supreme Court's judgment in the case of D. Cawasji & Co. (1978 E.L.T. 154) and that of the Calcutta High Court in the case of Union Carbide Co. Ltd. (1978 E.L.T.180). However, this by itself would give very little assistance to Shri Rangaswamy. This is because, as the Supreme Court made clear in its judgment in the D. Cawasji case, the above proposition has been condemned as a slovenly way of stating the truth that ignorance of the law is not in general an excuse. Thus, the Supreme Court was re-affirming the axiom that one cannot get away from the consequences of his acts by pleading ignorance of law. Once this latter principle is accepted, it would suffice for the purposes of dealing with the present appeals, and there is no need to refer to the "slovenly" and untenable proposition that every man is presumed to know the law.
121. Coming to the judgments of the Andhra Pradesh High Court in the case of Gyanoba Yashwant Jadhav (AIR 1974 AP 76), of the Punjab High Court in the case of Sitaram Gurdamal (AIR 1968 Pb 35), and the order of the C.B.E.C. in the case of Agarwal Metal Works (Pvt.) Ltd. (1981 E.L.T. 602), all these only underline that the imposition of penalties is not to be done mechanically, but there should be a judicial approach. This is a proposition which few would seek to oppose. But this also would not help Shri Rangaswamy unless he is able to show that in the cases before us the conduct of the appellants was not such as to call for a penalty.
122. We now come to the two main cases on which Shri Rangaswamy has relied, relating to the circumstances in which a penalty is called for.
He had referred to the judgment of the Supreme Court in the case of Hindustan Steel Limited v. State of Orissa (AIR 1970 SC 253). To appreciate the full import of the Supreme Court's observations in this regard, we reproduce below para 7 of the judgment: "Under the Act penalty may be imposed for failure to register as a dealer : Section 9(1) read with Section 25(l)(a) of the Act. But the liability to pay penalty does not arise merely upon proof of default in registering as a dealer. An Order imposing penalty for failure to carry out a statutory obligation is the result of a quasi-criminal proceedings, and penalty will not ordinarily be imposed unless the party obliged either acted deliberately in defiance of law or was guilty of conduct contumacious or dishonest, or acted in conscious disregard of its obligation. Penalty will not also be imposed merely because it is lawful to do so. Whether penalty should be imposed for failure to perform a statutory obligation is a matter of discretion of the authority to be exercised judicially and on a consideration of all the relevant circumstances. Even if a minimum penalty is prescribed, the authority competent to impose the penalty will be justified in refusing to impose penalty, when there is a technical or venial breach of the provisions of the Act or where the breach flows from a bona fide belief that the offender is not liable to act in the manner prescribed by the statute. Those in charge of the affairs of the Company in failing to register the Company as a dealer acted in the honest and genuine belief that the Company was not a dealer. Granting that they erred, no case for imposing penalty was made out." 123. As seen from the above extract and from the rest of the judgment of the Supreme Court, what happened in this case is that Messrs.
Hindustan Steel were erecting factory buildings and residential buildings for their employees. Some of the constructions were done through contractors. The company supplied building materials to the contractors for consideration and adjusted the value of the goods supplied at the rates specified in the tender. Action was taken against them under the Orissa Sales Tax Act and it was held that the company was a dealer in building material and had sold the material to the contractors and was on that account liable to pay sales tax at the appropriate rates. Further, since the company had failed to register itself as a dealer, penalties were imposed on them.
124. On the matter ultimately being taken before the Supreme Court, it was held that the supply of the building materials did constitute a sale. So far as the imposition of penalty was concerned, it was held, as seen from the above extract, that those in charge of the affairs of the company, in failing to register the company as a dealer, acted on an honest and genuine belief, and that no case for imposition of penalty was made out.
125. If we compare the circumstances of the Hindustan Steel case with those in the cases before us, it is clear that there are substantial differences between them. As has been made clear earlier, the appellants did not of their own accord seek to comply with the requirements of Central Excise law. Even after these requirements were brought to their notice, they consistently refused or omitted to comply with them. There is no controversy so far as this factual position is concerned. However, it has been contended that all this was done a bona fide belief that the goods were not liable to excise duty.
126. It would now be useful to inquire into the nature of this "bona fide belief". What exactly did the Board believe The correspondence in the case covered by appeal No 700/82 would be relevant. In this case the appellants were addressed by the Central Excise Department and required to take out a Central Excise licence and observe Central Excise formalities (vide the Department's letter dated 11-5-78). The reply of the appellants was "I am to state that the poles in question are prepared for the use of the A.P.S.E. Board exclusively. The Board is advised such an activity does not attract excise duty." It may be thought that such a reply, in response to the letter received from a statutory authority under the Central Excises and Salt Act was cryptic to say the least, if not curt. The correspondence continued and subsequently in its letter dated 18-8-79, the Board was a little more forthcoming. This time its reply was "I am to state that poles in question are being prepared for the exclusive use of the A.P.S.E.B. The Board is advised that the poles are not 'goods' within the scope of Entry 68 of the First Schedule to the Central Excises and Salt Act, 1944, and that the said activity does not attract excise duty." 127. Subsequently, the appellants received the letter dated 5-2-80 from the administrative Ministry, namely, the Ministry of Finance in the Department of Revenue, in which they were informed that the appellants were manufacturing goods attracting excise levy under Item 68 and that duty was payable on the goods unless a declaration was made by Parliament in terms of notification No. 57/75, dated 1-3-75. Even this reply did not seem to makemuch difference to the appellants because they continued to contend, as they are now contending before us, that the goods were not liable to excise duty.
128. We have, therefore, to see whether this could be considered to be a case of "bona fide belief". Further, even if it is, would it save them from the imposition of penalties 129. It appears to us that by bona fide belief one does not mean a blind belief or a self-opinionated belief. It would imply a belief which has been reached after a sincere attempt to understand the issue and examine it reasonably. There is no evidence of any such attempt having been made by the appellants. When they were apprised by the Department that the poles were liable to duty, they contended themselves with giving replies which as seen above were cryptic or curt. The use of the word "advised" implies that they were being guided by legal advice. If this was so, we are constrained to observe that the legal advice given to them was not sound or well considered.
130. As we have already observed, the two replies of the Board give very little indication of the reasoning, if any, which they or their legal advisers adopted. However, in paragraph 8 of their written submissions dated 27-9-80, to the Collector of Central Excise, Hyderabad, in appeal No. 700/82, the appellants have set out their view in greater detail. They have stated that the poles manufactured by its units are for the Board's own use, namely rural electrification programme undertaken by the Board in pursuance of the statutory duty imposed upon it and are not manufactured for sale in the market and they are not bought or sold in the market. They have referred to a ruling of the Supreme Court in the Rajasthan State Electricity Board case that Parliament had invested the Electricity Board with sovereign functions, and have contended that by entrusting the duty of supply of electricity to the statutorily constituted Board, the State had delegated its sovereign functions to the Board. It has been added that the Board is not undertaking any business activity either in the manufacture or in the distribution of the poles to its units. The Board, therefore, considered that the poles did not constitute "goods" within the meaning of Entry 68 under the Excise Act. Reliance was also placed on the Supreme Court's decision in the South Bihar Sugar Mills' case (AIR 1968 SC 922). The Board quoted the observations in that judgment, namely that goods must be something which can ordinarily come to the market to be bought and sold and is known to the market. It was contended that since the poles were manufactured by the Board to suit its particular requirements and did not ordinarily come to the market or were bought or sold, they could not be regarded as goods for levying Excise duty. Reference was again made to the Supreme Court's judgment in the Rajasthan Electricity Board's case and the decision that Electricity Boards were "State" as defined in the Constitution.
131. What emerges from these submissions (whether or not they represent the "advice" which was given to the Board earlier), is that the Board had in mind two main considerations namely (i) that it was a statutory authority carrying out statutory functions, and (ii) that the poles were put to its own use and not bought or sold. On both these aspects the advice, if any, given was obviously incorrect. The first point would not arise at all, in view of the conclusive and very direct authority of the Supreme Court, and its opinion of 1963 in the Presidential reference (vide para 33 above), which not only made it clear that goods manufactured by Government, for whatever purpose, were liable to Excise Duty, but also confirmed the validity of the actual wording of Section 3(1A) of the Central Excises and Salt Act as in force at the material time. As regards the second aspect, the appellants had quoted the Supreme Court judgment in the case of South Bihar Sugar Mills as to what constitutes goods. It is relevant that in the very next sentence the judgment refers to the earlier judgment of the Supreme Court in the case of Delhi Cloth and General Mills Co. Ltd. It was clearly laid down in para 8 of the latter judgment that the fact that a substance was not put in the market would not make any difference if what was produced was "goods". Therefore, whoever went into the matter and studied the relevant judicial decisions ought to have been aware that the mere fact that a manufacturer himself used the goods he manufactured did not absolve him from payment of excise duty.
It may be observed that this was not a case of goods being consumed in the process of manufacture, but of goods being manufactured and taken out to various other sites for use and permanent installation there.
132. It therefore appears to us, with all respect of whoever might have advised the Board in this regard, that the advice ignored the most relevant authorities on the point. An advice of this nature could hardly form the basis of "bona fide belief".
133. Quite apart from what the legal adviser might have said in the matter, the question is whether even an intelligent layman could have had a bona fide belief that in the circumstances of the present case the goods were not liable to duty. One has to presume that those in charge of the affairs of the Board, who were responsible for giving a reply to the demand of the Central Excise authorities for compliance with Central Excise law, would have at least cared to read the relevant provisions of that law. These provisions are contained in Section 3 of the Central Excises and Salt Act. Now, Sub-section (1) of the section makes it clear that there shall be levied and collected duties of excise on all excisable goods other than salt which are produced or manufactured in India (emphasis added). Any intelligent layman would be able to conclude from this that duty was leviable on all excisable goods and no exception was made in favour of goods which a manufacturer might use for his own purposes. Similarly, Subsection (1 A) is categorical that the provisions of Sub-section (1) shall apply in respect of all excisable goods other than salt which are produced or manufactured in India, by or on behalf of Government. Here again, any intelligent layman reading this provision could not remain under the impression that any goods would be relieved from the duty burden merely because they were produced or manufactured by Government, whether for its statutory functions or otherwise.
134. Therefore, whether looked at from the intelligent layman's point of view or on the basis of judicial authorities, there was no basis for the Board's contention that the goods manufactured by it were not liable to excise duty. In these circumstances, the plea of "bona fide belief" is misconceived and untenable.
135. We now come to the question whether, assuming that a bona fide belief existed, it could have the effect of saving the appellants from the imposition of a penalty. As already observed, the judgment of the Supreme Court in the case of D. Cawasji & Co., cited by the appellants themselves, makes it clear that ignorance cannot be taken as an excuse.
Apart from this, if one compares the facts of the present case with those of the cases which formed the subject matter of the judgments relied upon by Shri Rangaswamy, it is obvious that they are not comparable. Thus, in the Union Carbide case it was found that the appellants had made a full disclosure, since they had submitted their site plan and process flow chart to the Excise authorities. In the Hindustan Steel case, the Supreme Court held that the concerned officials who failed to register the company as a dealer acted under an honest and genuine belief: and in fact it might not strike an intelligent layman in that position that he could be regarded as a "dealer". In the Cement Marketing Company's case, the Supreme Court observed that the point at issue, namely whether in an F.O.R. sale the freight element should have been included, was a highly arguable one which required the serious considerations of the Hon'ble Court. Here again, the position might not have been expected to be obvious to the persons concerned. The Elphinstone Mills' case was also similar to the Union Carbide case, in that the information regarding removals were duly submitted to the Excise authorities in the AR-I forms, and they had made a 'NIL' assessment. Thus, in all these cases the persons concerned were under a genuine and pardonable mis-apprehension or had made a full disclosure. In contrast, in the present cases, there was no disclosure to begin with and no compliance subsequently. Nor, as we have seen, was there any basis for a "bona fide belief".
136. The Bench asked Shri Rangaswamy why the appellants did not pay the duty under protest or ask for a provisional assessment. Shri Rangaswamy replied to this that various formalities were involved, such as making budget provision, passing of resolutions, etc. The appellants were repeatedly told by the Department that the goods were dutiable. It was pointed out to him that the appellants appeared to have been taking advantage of the reluctance of the Central Excise Department to take coercive action against them. The rather surprising reply was that if the Department had actually taken coercive action the position would have been different. Shri Rangaswamy pointed out that in one case, where a Central Excise officer, more impetuous than his colleagues, initiated penal action, payment was promptly made. This not only confirms that the appellants were taking advantage of the consideration shown to them but also disposes of Shri Rangaswamy's argument (referred to above) and shows that had the appellants been inclined to pay the duty, the formalities such as getting budget provision would not have stood in their way.
137. It appears to us that in all the circumstances, the case fully meets the criteria set out in the Supreme Court's judgment in the Hindustan Steel case as calling for the imposition of a penalty. That judgment contemplates such imposition where "the party either acted deliberately in defiance of law or was guilty of conduct contumacious or dishonest, or acted in conscious disregard of its obligation." Considering that the appellants were a Government department, we would leave out the reference to dishonest conduct as not applicable here.
However, the various other criteria, namely deliberate defiance of law, contumacious conduct and conscious disregard of obligation, all appear to be present in this case. Therefore, far from helping the appellants the Hindustan Steel judgment fully justifies the imposition of penalties on them.
138. So also the judgment of the Supreme Court in the Cement Marketing Company of India case does not help the appellants. Shri Rangaswamy asserted that according to this judgment a person should not be penalised for "fighting for his rights". Certainly one is entitled to fight for his rights, but the fighting should be according to the rules. An assessee can contest the levy of duty, but not by continuing to remove goods which the competent authorities have told him are dutiable. It is open to him to ask for provisional assessment or to pay duty under protest. Had the appellants adopted these permissible measures, the position would have been different. What they did, however, was to adopt a course of conduct which amounted to defiance of statutory requirements. (In passing, we may mention that "fighting for ore's rights" does not appear to be a wholly appropriate description of what has happened in these cases. Thus, one of the arguments before us was that even if duty was leviable, we should look for payment, not to the appellants themselves, but to the respective contractors. Without wishing to be unfair to the Board, it appears to us that their arguing, in the face of all the facts and their own arguments, that the petty contractors employed by them were independent manufacturers and that we should look to them for payment of duty if due, is not consistent with the position of a statutory authority carrying out an essential public function, as the Board is said to be.) 139. In the result, we find that the imposition of penalties on the appellants was not unjustified. It may be that some of the adjudicating officers who refrain-en from imposing penalties (in three out of the 15 cases before us) were more lenient than the others. This only shows that each adjudicating officer was exercising his independent judgment.
It does not show that the other officers were wrong in imposing penalties. The argument that there should be uniformity in the matter of penalties, and that we should uniformly adopt the least penalty "imposed", namely a 'NIL' penalty, has no substance.
140. While we find that the imposition of penalties was not unjustified, we nevertheless feel that at this stage of the proceedings we can afford to show some leniency to the appellants. It is apparent that they were obsessed by the thought that they were carrying out statutory functions. Although this does not excuse their conduct, it explains it to some extent. In this view we consider that the penalties (in those cases where they were imposed) can be reduced to a nominal amount of Rs. 5,000/ (Rupees five thousand only) in each case, except, of course, where they are below this amount. In doing so we would make it clear that this reduced amount is not to be regarded as a measure of the gravity of the offence committed. That offence was not only a serious one in itself, but even more so as setting a bad example to other assessees, particularly Government undertakings. We have, however, taken into account the efflux of time and the fact that the duty amounts have since been paid. We would repeat that the appellants should not take this as an indication that we consider the offences as trivial.
141. In the light of the foregoing discussion, we dispose of the 15 appeals before us as follows :2. No. 133/82 The part of the order which relates to duty on "workshop material" is set aside and the3. No. 147/82 The personal penalty of Rs. 50,000/- is reduced to Rs. 5.000/-(Rupees five4. No. 149/82 The penalty of Rs. 1 lakh is reduced to Rs. 5.000/- (Rupees five thousand only).5. No. 700/82 The penalty of Rs. 2 lakhs is reduced to Rs. 5,000/- (Rupees five thousand only).6. No. 745/82 The penalty of Rs. 50,000/- is reduced to Rs. 5,000/- (Rupees five thousand only).7. No. 227/83 The appeal is only) rejected- (Penalty imposed was Rs. 2,000/- (only)8. No. 304/83 The penalty of Rs. 10,000/ is reduced to Rs. 5,000/- (Rupees five thousand only).9. No. 2057/83 For the reasons stated in para 48 above, the Collector's order is set aside, with a11. No. 2059/83 The demand for duty, which is deemed to have been made under Rule 9(2), shall be limited to a period of five years from the date of the revised show cause notice. The appeal is otherwise rejected (no penalty was imposed).12. No. 2060/83 Penalty of Rs. 10,000/- is reduced to Rs. 5.000/- (Rupees five thousand only). The appeal is otherwise rejected.13. No. 2061/83 The appeal is rejected. (The penalty imposed was Rs. 1.000/-only).14. No. 2063/83 The penalty of Rs. 7,000/- is reduced to Rs. 5,000/- (Rupees five thousand only). The appeal is otherwise rejected.15. No. 2082/83 The penalty of Rs. 12.000/- is reduced to Rs.5.000/- (Rupees five thousand only). The appeal is otherwise rejected.________________________________________________________________________Sl.
No. of appeal No. & date of Order-in- No. & date of OrderNo. to Tribunal Appeal (if any) and by Original and by whom passed whom passed1.
481/80 115/80 dt. 3-4-80 No. 603/79 (RCC Poles) Appellate Collector of dt. 29/9/79 ACCE,2.
133/82 19/82 dt. 26/6/82 CCE, Hyderabad.3.
147/82 17/82 dt. 8-6-82 CCE, Hyderabad.4.
149/82 6/82 dt. 19-3-82 CCE, Hyderabad.5.
700/82 7-B/1922 dt. 14-1-82 27/82 dt. 13/8/81 Central Board of Excise CCE, Hyderabad6.
745/82 22/82 dt. 22-7-82 CCE, Hyderabad.7.
227/83 24/82 dt. 11-8-82 Addl. CCE, Hyderabad.8.
304/83 33/82 dt. 30-9-82 Addl. CCE, Hyderabad.9.
2057/83 16/83 dt. 8-4-83 CCE, Hyderabad.10.
2058/83 23/83 (G) dt. 22-3-83 31/82 dt. 7-10-82 CCE (Appeals), ACCE, Eluru.11.
2059/83 l5/83(G)dt. 29.1.83 No. 29/82 dt. 24-6-82 CCE (Appeals), Madras ACCE, Vijayawada.12.
2060/83 2/83 dt. 25-1-83 Addl.
2061/83 14/83 dt. 31-3-83 CCE, Hyderabad.14.
2063/83 1/83 dt. 25-1-83 Addl.
2082/83 8/83 dt. 5-4-83 Addl. CCE, Hyderabad.