1. We have before us an appeal filed by the Hindustan Petroleum Corporation Limited (referred to henceforth as "HPC"), in which the Respondent is the Collector of Central Excise, Bombay II (referred to henceforth as "the Collector"), and also an appeal filed by the Collecror in which HPC are the Respondents. Both the appeals are directed against the Order-in-Appeal dated 15-10-1982 (issued on 29-10-1982) of the Collector of Central Excise (Appeals), Bombay. In this order, the Collector (Appeals) has directed that HPC shall be liable to pay duty on the "excess" quantity of oil despatched by them after making an allowance of .1% in respect of each consignment. HPC have appealed against this order on the ground that the entire "excess" should have been condoned. The Collector has appealed against this order on the ground that even the .1% should not have been condoned.
2. The basic facts are that the appellants are manufacturing Transformer Oil Base Stock (TOBS) in their refinery. This is classifiable under item 11A (3)(a) C.E.T. During the material time clearances of TOBS were eligible for assessment at a concessional rate of duty when cleared for being used in the manufacture of Transformer Oil elsewhere than in the factory of production, subject to the procedure in Chapter X of the Central Excise Rules being followed.
During the period February to October, 1980, the appellants supplied to M/s. Savita Chemicals Ltd. (hereinafter referred to as "the consignee", a total quantity of 1442.647 MT of TOBS against AR3A documents. Duty at the concessional rate was paid on the quantities despatched by the appellants (these quantities being determined on the basis of dip measurement of their own tanks). The gate passes and AR3As were also made out on the basis of these measurements. At the consignee's end the quantities received were shown by the consignees and these were certified by the Central Excise Officer having jurisdiction over their factory. In some cases it was found that the quantities shown at the consignee's end as received by them were in excess of the quantities shown by HPC as despatched by them. The Superintendent of Central Excise stationed at HPC's factory compiled a list of these cases of apparent excesses. Over the period 9-2-1980 to 11-10-1980 the total quantity despatched in these 13 consignments was shown as 1442.647 MT and the total quantity received was shown as 1448.457 MT. The Superintendent of Central Excise demanded duty amounting to Rs. 7152.84 on the "excess" quantity of 5.810 MT. HPC appealed to the Collector of Central Excise (Appeals) and raised two main points; firstly, that the question of supplying any excess quantity did not arise as the quantity supplied by them was properly measured by dipping their tanks and making necessary correction for temperature, density etc.; and secondly, that the responsibility for accounting for the quantity of goods taken from their tanks was on the consignee and not on them. The Collector (Appeals) rejected both these contentions. On the first contention, he agreed that the quantity released from the storage tank was determined on the basis of out-turn reports (of the appellants). He held, however, that in the case of clearances in bond or under Chapter X, measurements at the destination were also relevant. On the second point, he agreed that M/s. Savita Chemicals, as the consignees, had no doubt to account for the quantity received by them. However, according to him this could not absolve HPC from the liability to pay duty on the excess quantity noticed at the receiving end, as the goods in question were not fully exempted but enjoyed only a partial exemption (we have commented later on that we find it difficult to follow the logic of this distinction). The Collector (Appeals), however, went on to say that he found considerable force in HPC's argument that they should be permitted the benefit of the permissible limits in regard to variations noticed at the receiving end. He accordingly ordered that their duty liability should be re-determined by ignoring consignment-wise excess to the extent of 1% of the quantity despatched.
3. It is against the above order that, as already observed, both HPC and the Collector have come up in appeal before us.
4. Shri Bhave, on behalf of HPC, again based his arguments on the main grounds urged before the Collector (Appeals). Firstly, he reiterated that the measurements had been properly made at HPC's end by dip measurements of their tanks. As seen from their out-turn reports, the density and the temperature had also been duly taken into account. As against this, he felt that the measurements at the consignee's end might have been made by weighing the tank wagons in which the oil was transported, which would be less accurate than measurements by dipping of tanks. He, however, admitted that he had no precise information regarding the manner in which the quantity was measured at the consignee's end.
5. Shri Bhave placed reliance on the letter No. CBE & C. F. 261/6/23/75 CX-8 dated 10-9-1976 of the Central Board of Excise & Customs. The relevant part of this letter, as furnished to us by Shri Bhave, reads as under: - "It has been brought to the notice of the Board that in one of the Collectorates the internal Audit party observed excess/short removals of mineral oils in quantity despatched from the storage tanks on the basis of tank discharge system and the quantity actually found to be contained in tanks, lorries/wagons etc. After considering the matter in consultation with the view that assessment of petroleum products should continue to be made on the basis of tank discharge system.
2. The Board further desire that in the case of petroleum products cleared under Chapter X procedure also the above system may be adopted." Shri Bhave contended that this clearly showed that the quantity of oil which was deemed to be taken out should be calculated on the basis of measurements in the tanks at the consignor's end and not on the basis of measurements of tank wagons etc. He also pointed out that this letter specifically provided that the same procedure should be adopted for petroleum products cleared under Chapter X procedure, as had been done in this case. Shri Bhave also cited an order of the Ahmedabad Central Excise Collectorate, apparently based on instructions from the Board, to the effect that the figure of .1% should be taken as a guideline for condonation of losses of goods falling under Tariff Item 11 A, but giving special consideration to the merits of each individual case. On the basis of these orders, Shri Bhave contended that no reliance should have been placed on the measurements taken at the consignee's end for the purpose of concluding that there was a gain in the quantity. Alternatively, the allowance should not have been limited to .1%, since that figure was only a general guideline.
6. As regards the second ground, viz., that it was the consignee and not HPC who should be held liable to duty on shortages or excesses, Shri Bhave referred to the wording of the relevant form of bond (Form B-8). He pointed out that this bond was required to be entered into by the L-6 licensee, viz., the consignee, who was the "obligor" for the purpose of the bond. The liability under the bond was clearly placed on the "obligor" as would be seen from the relevant paragraph in the bond, which reads as follows :- "And if all dues, whether excise duty or other lawful charges, which shall be demandable on the goods obtained by the obligor(s) without payment of the whole or part of the duty and transported from the place of procurement to the premises of the obligor(s) as shown by the records of the proper officer of the Central Excise, be duly paid into the treasury to the account of the Collector within ten days of the date of demand thereof being made in writing by the said officer of Central Excise ; Accordingly, HPC could not in any case be held liable. Shri Bhave added that the Department seemed subsequently to have accepted this view, as HPC had not received any similar demands subsequently. (Shri Pattekar did not controvert this, but said it was not 'in the record').
7. In reply to a query from the Bench, Shri Bhave stated that a representative of the consignee was invariably present when measurements were taken at HPC's premises and therefore they were fully aware of the quantity of goods for which they were accountable.
8. Shri Bhave also referred to two decisions of the Calcutta Bench of the Tribunal in which, according to him, that Bench had taken a view that condonation of small differences was applicable not only for shortages but equally for excesses. He stated that these decisions had been reported in 1984 ECR 282 : 1984 ECR 379.
9. For the Department, Shri N.K. Pattekar contended that the measurements taken at the consignee's end could not be ignored and if they showed an excess, then duty was payable on the excess quantity. On the point that the bond in Form B8 placed the entire responsibility for variations on the consignee, Shri Pattekar contended that this bond as well as the relevant provisions of Chapter X dealt only with shortages.
If there was an excess, it would have to be considered separately as an excess removal by the consignors. Shri Pattekar argued that the matter could then be considered as one of unauthorised removals, falling under Rule 9. He admitted, however, that Rule 9 had not been invoked in this case.
10. It was put to Shri Pattekar by the Bench that when it came to computing losses and demanding duty thereon, the measurements taken at the consignor's end were taken as the starting point. In other words, when the quantity found on measurement at the consignee's end was less than the quantity at the consignor's end, the latter quantity was assumed as correct. However, where the reverse was the position, that is, when there was an apparent gain, the department sought to contend that the measurements at the consignee's end was correct. In other words, the contention of the department appeared to be that whichever measurement was higher, was the one which correctly showed the quantity of goods removed, and on which duty was leviable. This approach not only appeared to lack consistency but also to be at variance with the Board's order in its letter dated 10-9-1976. On this point Shri Pattekar had no reply except that the measurement at the consignee's end should not be disregarded.
11. We asked Shri Pattekar whether there was any special reason to think that in the present case the measurements at the consignor's end were incorrect; Shri Pattekar fairly replied that he had no information to this effect.
12. We have given our very careful consideration to the facts of this case, since it appears to involve certain questions of principle. The first question is as regards the basis for calculating the losses or "excesses". The point immediately arises that while losses in warehousing and in transit are understandable, excesses are more difficult to understand. A little thought would however show that while a genuine increase cannot take place except in very special circumstances, apparent excesses are quite possible. An obvious explanation would be an error in measurement at the consignor's end or at consignee's end or both. There are also other possibilities such as contamination by water etc. Thus there are several circumstances in which there could be an apparent excess or gain in transit.
13. Where there is a loss (or apparent loss) in transit, duty on the shortage (after allowing. .1% or whatever percentage is considered appropriate) is demanded on the basis that the measurement at the consignor's end correctly shows the quantity despatched and can be relied upon. In the less common case of an apparent gain in transit, as in this case, the duty has been demanded on the apparent excess. This obviously implies that it is the measurement at the consignee's end which is taken as correct. As we pointed out to Shri Pattekar, there appears to be no basis for preferring the measurement at the consignee's end to the measurement at the consignor's end except that the former measurement shows a larger quantity which is more favourable to the revenue. This does not appear to us to be a proper criterion.
Basically, the position is that a certain quantity of dutiable goods has been removed from the consignor's premises without payment of duty (or full duty) and that this quantity has to be properly accounted for,, This is. also evident from the wording of the B8 bond which has been referred to in para 6 above. In a case where there is an apparent excess at the consignee's end it would follow that the quantity of goods taken from the consignor's end without payment of (full) duty has been fully accounted for and there would appear to be no justification (in the absence of exceptional circumstances) for seeking to levy duty on the apparent excess quantity. The principle "whichever is greater" in such a circumstances does not seem to have any legal backing. We find that the Board's order of 10-9-1976 is fully in consonance with this approach, as it fixes the quantity ascertained at the consignor's end as the quantity which has to be accounted for : duty could be demanded if this quantity is not fully accounted for, but if it is more than fully accounted for, there would be no question of holding the consignor liable for duty on the apparent excess, which could be due to a variety of reasons. This observation is subject to one exception viz.
where special circumstances exist. This could be where there are strong grounds to believe that the measurement at the consignor's end was not correct, whether as a result of bona fide mistake or otherwise. In such a case the department might be justified in rejecting the measurement taken at the consignor's end and seeking to base the assessment on the measurement at the consignee's end. That circumstance does not however apply to the present case, since as admitted by Shri Pattekar there is no evidence to show that there was anything wrong in the measurement made at the consignor's end in this case (the mere fact that the measurement at the consignee's end showed a higher quantity would not serve for this purpose as it would amount to begging the question).
14. Shri Bhave had referred to two decisions of the Calcutta Bench of the Tribunal. We are not able to comment further on these judgments, since copies of these are not readily available to us and Shri Bhave did not furnish us with copies. However, from what he said they appeared to be broadly consistent with the line of reasoning which we have adopted.
15. The above discussion indicates that the Excise authorities were not justified in making any demands for duty on the basis of apparent excesses observed as a result of measurement at the consignee's end. In this view, the appeal of HPC deserves to succeed. But quite apart from this, the matter is concluded by the second ground which they have advanced, viz., that in any event it was the consignee and not themselves who was responsible for any duty found leviable as a result of the differences between the quantity removed and the quantity found on measurement at the consignee's end. It is not disputed that the bond for this purpose is given by the consignee, who is the 'obligor', and this has also been admitted in the order of the Collector (Appeals). He has, however, sought to draw a distinction on the basis of the fact that this is a case of partial exemption and not complete exemption. We do not see how this can affect the principle of the case, or the liability of the L6 Licensee, who is the consignee and the obligor under the bond. We have noted that, according to Shri Bhave, the department itself has subsequently accepted that it was the consignee and not the consignor who was responsible in such cases and again according to Shri Bhave, no such demands were made from the consignors subsequently.
16. We do not find anything on record to support Shri Pattekar's suggestion that the demand in this case should be deemed to have been made with reference to Rule 9. Shri Pattekar had also argued that Rules 192 et seq in Chapter X refer only to loss of goods in transit and therefore, a reference to Chapter X was not relevant when considering the question of gain. It appears obvious to us that references in this Chapter are made only to loss and not to gain because, as we have already observed, there can be no question of any real gain in the quantity of goods. Basically what is required under Rule 196, which is the most important rule in this context, is that excisable goods obtained under Mule 192 should be duly accounted for. As we have already pointed out, there should be some logic and consistency as regards the accountable quantity, which is the quantity obtained under Rule 192; and the Board's order of 10-9-1976 very properly and clearly lays down that it should be the quantity ascertained by measurement of the tank at the consignor's end. The quantity ascertained (by whatever means) at the consignee's end cannot suddenly become the accountable and dutiable quantity merely because in a particular case it is (or appears to be) higher than the quantity ascertained at the consignor's end.
17. We have considered it desirable to discuss in detail the entire question relating to the correctness of seeking to demand duty on apparent "excesses", since it is a general question and it appeared to us that the approach which we found the department to have adopted in this case was wanting in logic and consistency. So far as the present case is concerned, the appeal of HPC succeeds on the short point that it was the consignee and not HPC who was liable to account for any discrepancy between the quantity of goods procured by the consignee and the quantity subsequently accounted for by them. In this view, the Collector's appeal becomes infructuous and has to be dismissed.
18. We accordingly allow the appeal of HPC and dismiss the appeal of the Collector.