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Triveni Rubber and Plastics Vs. Collector of Central Excise - Court Judgment

LegalCrystal Citation
CourtCustoms Excise and Service Tax Appellate Tribunal CESTAT Delhi
Decided On
Reported in(1994)(72)ELT897TriDel
AppellantTriveni Rubber and Plastics
RespondentCollector of Central Excise
1. the appellants, m/s. triveni rubber & plastics are manufacturers of tread rubber, a commodity assessable under tariff item no. 16a(2) of the central excise tariff. they started production on 8-10-1979. a search was conducted on 30th september, 1981 by the assistant collector of central excise, kottayam and his officers when they found that 5807 kgs. of tread rubber had been removed from the factory without account in the factory's manufacturing records. the officers seized other things also and verified the stocks of raw materials - carbon black, rubber compound, sulphur, tread rubber stocks etc. etc. they then took a statement from one mr. m.v. gopinathan, managing partner of the factory in which the partner admitted a number of things which the officers thought were evidence of.....
1. The appellants, M/s. Triveni Rubber & Plastics are manufacturers of tread rubber, a commodity assessable under Tariff Item No. 16A(2) of the Central Excise Tariff. They started production on 8-10-1979. A search was conducted on 30th September, 1981 by the Assistant Collector of Central Excise, Kottayam and his officers when they found that 5807 kgs. of tread rubber had been removed from the factory without account in the factory's manufacturing records. The officers seized other things also and verified the stocks of raw materials - carbon black, rubber compound, sulphur, tread rubber stocks etc. etc. They then took a statement from one Mr. M.V. Gopinathan, managing partner of the factory in which the partner admitted a number of things which the officers thought were evidence of illegal operations. Among other things, he admitted that the 13 consignment notes covering the 5807 kgs. of tread rubber related to clearance of tread rubber from the factory without proper account. He admitted also that a quantity of 2000 kgs of carbon black and 1000 kgs of raw rubber has been received without any bill and that these were used for the production of tread rubber which were then cleared without accounting. He wrote in his statement that his factory would make a profit only if it stood within the exemption limit. Hence they committed the offences to show the annual turnover of the factory within the exemption limit. This statement was written by the office manager Mr. K. Appukkuttan Nair as his own (Gopinathan's) handwriting was not legible. Furthermore, this statement was read by another partner by the name of Sasikumar who vouched for its truth and correctness.

2. One thing led to another and eventually the factory was charged with having manufactured upto 326,126.26 kgs.of tread rubber without taking out any central excise licence during 1980-81 and 1981-82 upto 30th September, 1981; removing this quantity of tread rubber valued at Rs. 3,663,190.20 from the factory without payment of duty and removing the goods without gate pass and without maintaining statutory accounts; failing to submit classification lists and price lists; failing to maintain current account; and failing to observe central excise formalities in respect of the goods. M/s. Triveni Rubber & Plastics were, therefore, asked to show cause to the Collector of Central Excise, Cochin why duty of Rs. 1,346,222.40 payable on the 3,26,126.26 kgs. of tread rubber valued at Rs. 3,663,190.20 should not be demanded from them under Rule 9(2) of the Central Excise Rules, 1944 and why duty at the appropriate rate on the goods cleared from the factory after 30-9-1981 should not be demanded under Rule 9(2) and why penalty should not be imposed on them under Rules 9(2), 52A(5), 173Q, 210 of the Central Excise Rules, 1944.

3. The learned counsel for M/s. Triveni Rubber & Plastics attacked the order of the Collector saying that it is a faulty and arbitrary order.

It was based on fanciful calculations on the amounts of electricity the factory is accused of having consumed. There are many reasons why this can never be a basis for arriving at the conclusion the Collector did.

They had had a faulty electricity meter which had been recording low consumption. This meter was replaced in May, 1980 and this was a fact that has been proved from their record. The consumption of electricity was taken by the Collector as having been used only for production of tread rubber, completely ignoring that electricity was vised by them for not only lighting and other work but even in the production of goods which were not tread rubber. For example, in the months of January, February and March, 1980, when the central excise found that they had consumed large amounts of electricity without producing any tread rubber, they had, in actual fact, used the power to produce 71 tonnes of masticated rubber as job work on behalf of three customers.

This is a fact that can be testified by their records and this operation has been reflected in their returns for the year and in their returns to the Income Tax authorities.

4. The Collector did not take into account the capacity of their unit.

They had a mixing mill 16" x 42" with an extruder of 4". These equipment have a capacity of mixing 25.75 kgs. of rubber and chemicals in 30 minutes in one batch. In one shift of 8 hours, 14 batches can be mixed to produce 25.75 kgs. x 14 = 360.50 kgs. This mixed extrude would be extruded in the next batch to produce 360 kgs. of tread rubber, allowing for a wastage of O.S. kg. Even if it is assumed that the factory works continuously for 300 days in a year, the total output of the unit works out to 360 x 300 = 108,000 kgs. tread rubber per annum.

This, however, was not taken into account; things do not go according to calculations and there would be various disturbances that would upset the programme, such as labour troubles, electricity failure, machinery failure etc. etc. to say nothing of raw materials constraints and short supply. The quantity of 249,891.360 kgs. computed by the central excise is unrealistic and is impossible to achieve.

Furthermore, they have to manufacture cushion gum and allowance must be made for the time taken for this. A quantity of 108,000 kgs. of tread rubber requires about 6480 kgs. of cushion gum. This manufacture will require time and power and will thus cut into the manufacture of tread rubber.

5. The learned counsel for the Triveni Rubber & Plastics referred to the list of days in the Collector's orders in which the factory is shown to have produced more than 800 kgs. of tread rubber. He said that these were exceptional days and moreover they are not consecutive days and were separated by long periods. They do not prove anything that the Collector sought to prove. The determination by the Collector was purported to be done in exercise of his powers under Rule 173E of Central Excise Rules, 1944. In this rule, regard was required to be had by the Collector "to the installed capacity of the factory, raw material utilisation, labour employed/power consumed and such other relevant factors as he may deem appropriate." Instead the Collector had regard only to the consumption of electricity and totally ignored the other factors that bear upon a determination under these rules. For the months of January, February and March, 1980, he failed to take into account that the consumption of power was not for the production of tread rubber but was in the work of mastication of rubber as job work on behalf of three customers. The Collector is said to have found no evidence of purchase of masticated rubber by the three customers, but this is beside the point. There would have been no purchase by these people as the masticated rubber belonged to them and was returned to them by M/s. Triveni Rubber & Plastics after mastication job work.

6. The learned counsel for the department opposed the appeal and said that the order of the Collector is self-sufficient and explains the whole problem clearly. The fact that a number of consignment notes had been seized which testified to clandestine clearances of tread rubber proves that the factory habitually indulged in fraudulent operations.

The findings of the Collector are quite reasonable and cannot be said to have no basis, considering the background and conduct of the appellants. He urged rejection of the appeal.

7. The learned counsel for M/s. Triveni Rubber & Plastics said that they are not raising any argument in respect of valuation of this tread rubber and that they accepted the Collector's figures. Our discussion here, therefore, will not deal with it.

8. The charge of the central excise against Triveni Rubber & Plastics was that by suppressing the full production from the knowledge of the central excise, they stood to gain under Notification No. 71/78-C.E.and 80/80-C.E. as well as Notification No. 111/78-C.E. as amended by Notification No. 2/81-C.E. It is indeed true that the Collector went largely by the power consumed by the factory to arrive at his figures.

It is, therefore, a question of whether in doing so, there has been a failure on his part to exercise his powers properly or whether there has been any capriciousness in such exercise.

9. The explanation given by Triveni Rubber & Plastics was that their electricity meter was unreliable and had to be replaced in May, 1980 and that this was a proven fact. However, they also say that the readings of the meter between October, 1979 and May, 1980 were totally incorrect and the units said to be consumed in 1979-80 were below the actual consumption, and that, therefore, the average production of 2927 kgs per unit calculated on the basis of consumption of 12000 units was vitiated by this error and could not be relied upon. What they seem to miss by this argument is that it would mean that they had actually consumed more power than was shown in the meter reading, and that, therefore, there were good reasons for Collector to hold that the figures of actual production of goods were much more than would be warranted by the figures of power consumption. This fact does not seem to have been fully realised by the central excise when they drew up these proceedings; but it is a very significant fact which will play a material role in the culmination of the proceedings.

10. We must now note very carefully that January, February and March are the last three months of a financial year; it is in these months that a person would make adjustment of his production if he must, so that he can stay within the exemption limits of Notification Nos.

71/78-C.E. and 80/80-C.E. We have seen the managing partner Mr.

Gopinathan making a statement on 30-9-1981 to the central excise saying that they had been suppressing their production in order to keep within the expemption limits. He has elsewhere said that they programmed their production suitably in order not to exceed the limits under the exemption notifications. The appellants' explanation for the non-production of tread rubber during January, February and March, 1980 was that they had used the electricity power in the mastication of 71 tonnes of rubber on behalf of three customers. If the actual consumption of the power was higher because of the defective meter, then it is reasonable to say that mastication of rubber was not all that they used their power for in those months. We have seen that the customers denied having purchased masticated rubber from M/s. Triveni Rubber & Plastics, although the latter explained this as due to the fact that there could have been no purchase as the masticated rubber belong to those customers. This in our view is not a sufficient explanation. If there was no purchase of masticated rubber, there would have been at least a receipt of masticated rubber. The appellants say that the bill calculations on account of the 71 tonnes of masticated rubber had been put in their annual return which had been submitted to Income Tax and that they had produced this to the Collector. This is no way to prove a definite charge of this kind. If they had bills to vouch for the mastication of 71 tonnes of rubber on behalf of those three customers, they should have produced those bills to the Collector, instead of referring to a lump sum that relates to an entire year. It would not be possible for the Collector to separate or distinguish the payments for the masticated rubber from other payments received by the appellants. The audited account that they are supposed to produce cannot serve the purpose of answering this charge.

11. On the other hand, January, February and March are crucial months.

A factory can legitimately order its production and clearances so as not to exceed the limits laid down by the exemption notification. Some may not stop at this but carry on the production clearances but will fail to record them, thereby showing adherence to the limits, on paper.

This appears to have been what M/s. Triveni Rubber & Plastics did. The learned counsel for the appellants says that the statement was given by managing partner Mr. Gopinathan when he was under great nervous tension and fear. This statement should not be relied upon because he also made certain incorrect statements like saying that the factory purchased tread rubber when the factory would never purchase the commodity, being a manufacturer of tread rubber itself. We can find no statement to this effect in the statement given by the managing partner on 30-9-1981.

Instead, he talks of purchase of raw rubber and carbon black for production of tread rubber. It has to be remembered furthermore, that the statement was written not by the managing partner himself but by a manager Mr. Appukkuttan Nair who, therefore, would have corrected any inaccuracy on this account. In any case, even if he made such a statement, it must be put down to an error of the pen. When the writer wrote tread rubber he meant of raw rubber. The statement has everything to command itself and reads like a statement of person who knows what he is talking about. The deponent Mr. Gopinathan is a 40 years old graduate, and appears in full and complete possession of his faculties.

There is nothing in the statement which strikes a jarring note as would be bound to happen if he was making a statement in fear and under tension. He even goes into details of prices quoted in their bills.

Indeed, it is difficult for us to envisage why any responsible person would make an admissional guilt if he was innocent. He admits for example that the 5807 kgs. covered by the 13 consignment notes were unaccounted clearances and we know for a fact that those tread rubber consignments went illegally and without proper accounting. This is what he said "We know the production and sale of tread rubber without accounting and underinvoicing are offences. But we will be able to make profit only if the factory stands within the exemption limit.

Therefore, we committed these offences to show the annual turnover of the factory within the exemption limits." These are very revealing words and show the mind of a man who had executed the operation according to a plan and would have carried it off but for the unexpected appearance of the central excise officers on 30-9-1981. He made a belated attempt on 23-10-1981 to give a statement in which he said "To limit the turnover within the exemption limit, the production was stopped as soon as the turnover reached Rs. 4 crores." Strangely enough he says nothing about the mastication of 71 tonnes of rubber.

12. The counsel's argument about the Collector's findings that the factory can produce anything between 600 kgs. and 1000 kgs. in a shift of 8 hours was so as to say that the figures of production listed in the Collector's order were only occasional figures and do not represent the normal average and that the days were not consecutive days but are separated by gaps in some cases running to several days. This is to miss the point. The Collector has successfully exhibited by this that the unit can produce much more than the 360 kgs. per shift that the factory claims it was capable of with its single mixing mill and extruder. It cannot escape anybody's notice that the daily figures listed by the Collector sometimes exceed 4 times the claimed rated capacity of the unit of 360 kgs. per day. On most other days listed, the production was more than twice. That the days are not consecutive is not an answer to the charge that the unit can produce, when it sets up to do so, a quantity of 600 kgs. to 1000 kgs. of tread rubber in a shift of 8 hours. If anything, the fact the days are not consecutive would point to the very high possibility that on the other days production was not accounted fully and was suppressed.

13. There have been too many untruths. We have seen how 13 consignments covering 5807 kgs. of tread rubber were cleared without proper accounting in the factory records. We have seen the factory had been buying raw materials like raw rubber, carbon black etc. without proper bills and accounts. The factory owners stood to gain very substantially from doing what they were charged with doing and their conduct lent credence to these charges. It is not easy to dismiss the Collector's conclusions as being surmises and conjectures because we think that he had sufficient grounds for coming to the conclusion he did. We are not impressed by the argument that Rule 173E requires not only one fact but a number of factors for determination of the production. The question that would arise would be what does the central excise do when figures have been doctored so that they can get no evidence of raw materials utilised and other relevant factors. The total circumstances must be taken, not forgetting the overall conduct and operations of the assessee; and in this case we have in the background, the statement of the managing partner admitting in categorical terms that they had concealed their production and clearances in order to benefit under the exemption notifications. A person of his status and experience would not make such statements merely out of fear. He is not only an educated man but one who has sufficient skill to start an industry, which, to all appearances, had been doing quite well. And let us not forget that a second partner corroborated the statement of the first partner. It is too much to expect such experienced man of the world to make such an admission as made by the statement of 30-9-1981 unless it was true. The conduct of the factory in other respects also satisfy us that the statement was true. The Collector's calculation of the figures of production in the different times cannot be said to be arbitrary or without foundation. If anything, there would be a case for saying that the figures arrived at by him were low because he took the power consumption recorded by the defective meter which recorded low consumption. We have this on the statement of the appellants themselves. There is more than a likelihood that the actual figures of production and clearances were higher than those arrived at by the Collector but we will not go into this now.

14. We are, therefore, satisfied that there is nothing of the Collector's order that requires us to interfere. It does not appear to be unjust or baseless or whimsical. Therefore, we are unable to interfere with it.

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