1. M/s. Ceakay Rubber Industries stated to be a partnership concern doing business of manufacture of rubber products within the jurisdiction of Changanacherry Range, Kottayam Division in Cochin Collectorate (Kerala), had filed this revision petition before the Central Government under provisions of Section 36 of the Central Excises and Salt Act, 1944 (hereinafter referred to as the Act). The same has been received by the Tribunal as an appeal by virtue of Section 35P of the said Act, and is being disposed of as such.
2. The appeal is directed against order passed by the Appellate Collector, Customs and Central Excise, Madras on 11-2-1980 whereby he confirmed the order passed by the Assistant Collector, Kottayam Range on 3-7-1978 confirming demand of duty amounting to Rs. 1,42,230.02 against the appellant being excise duty for the period 1-2-1970 to 13-10-1972 in relation to the product described as 'Cushion Compound'.
This was pursuant to a notice to show cause having been issued on 28-8-1974 by the Range Officer concerned and after the party had filed reply, and after consideration of ail the contentions, the Assistant Collector came to the view that the demand had been rightly made and held the appellant liable to pay the same.
3. The facts giving rise to this controversy are to the effect that the appellant's factory manufactures a number of rubber products, including one which they described as 'cushion' but concede that it is also commonly known as 'cushion compound'. Their main plea is that this item was not marketed or traded by them directly but was only used in a semi-finished stage as an intermediary product for the purpose of cushion backing of tread rubber, which is sent out to the market after due payment of duty. They thus contend that this product having been captively consumed in their factory in the same premises before reaching the stage of finished goods was not excisable to any excise duty and that the Excise authorities have erroneously held these goods to be dutiable.
4. It was further contended that, in any case, the goods having been manufactured and used within the knowledge of the concerned Excise authorities, there could be no demand by invoking Rule 9(2) of the Central Excise Rules which pre-supposes clandestine removal, and that consequently, the show cause notice having been issued under Rule 9(2), the confirmatory demand with reference thereto was not sustainable.
5. The Assistant Collector rejected all the contentions of the party, after consideration of all the pleas set forth in reply to show cause notice holding that 'cushion compound' was a product known separately in the market and there was no evidence to support the contention of the party that the 'cushion compound' which they were using for backing tread rubber, was not capable of use for resoling or retreading. He further observed that in the case of tread rubber cleared from the factory without cushion backing, duty was being collected at the time of removal and on the same basis, 'cushion compound' manufactured in the factory, which was used for backing the tread rubber, was also liable for assessment to excise duty and payment of the same, and holding that as these goods had been exempted only with effect from 14-10-1972 by virtue of Government Notification No. 208/72, dated 14-10-1972, duty for the period covered by demand notice was payable, confirmed the demand.
6. The Appellate Collector, by means of the impugned order upheld the findings of the Assistant Collector, after taking note of the contentions canvassed before him in the appeal petition as well as during personal hearing, finding that 'cushion compound', which was called by the appellant as cushion, used for captive consumption for the manufacture of cushion backed tread rubber, would also attract duty under Item 16A(2) of the Central Excise Tariff for the period up to the issuance of the Exemption Notification No. 208/72, dated 14-10-1972. He also observed that the party, along with certain others who were also appellants before him, had even taken up this issue before the Kerala High Court and the Hon'ble High Court, by means of judgment dated 16-1-1974, had held that cushion compound captively consumed was a product directly falling within the description given against Item 16A(2) and the levy of excise duty in respect thereto was correct in law. He thus felt that, in face of this position, there was no justification for reopening the issue on merits.
7. He also turned down the plea of the appellant that demand under Rule 9(2) of the Rules could be enforced only if there were surreptitious or clandestine removals and that in their case, the goods which were being produced and used for backing of tread rubber, were very much within the knowledge of the Excise authorities and that as such, the demand was not enforceable. He also observed that Rule 10 would not apply in such cases nor was there any time limit in this rule during the relevant period 1968 to 1972 and as such, he rejected the appeal.
8. In the revision petition before the Central Government, the appellant reiterated the same pleas, namely that what they were manufacturing was plain cushion, and not 'cushion compound' as known in commercial pariace and that process of manufacture was not complete in the case of this item, as it was being used in a semi-finished stage inside the factory and was only an intermediary product. They also contended that, reliance by the Appellate Collector on the decision of the Kerala High Court was misconceived and that the judgment of the High Court had been occasioned because of faulty arguments by the counsel for the party and should not be said to be against them. They also pleaded that in any case mere clearance of the goods without payment of duty could not attract Rule 9(2) which contemplated contravention of the existing directions issued by the Collector to pay the excise duty in a particular manner before the clearing of the goods and that there being no directions by the Collector, the goods manufactured by the appellant were not brought relevy at any time before, the Excise authorities could not have raised and enforced the demand by reference to the said rule. They further contended that Rule 10 which has also been cited in the notice of demand was inappropriate and that related only to cases of short levy which was a result of error, inadvertence, collusion or misconstruction on part of an officer or mis-statement on the part of the owner and that none of these situations prevalid in the present case and as such reference to Rule 10 in the demand notice is not justified.
9. They also pleaded that the computation of the demand was also erroneous inasmuch as the value had been calculated for the purpose of duty with reference to the approved rate for tread rubber with cushion backing whereas this item 'cushion compound', when captively consumed, carried much lower price and further that the prices prevalent in the period covered by the demand, namely 1970-72 were much lower than the period when notice was given, that is, in the year 1974 and that assessment of duty with reference to the prices prevailing in 1974 was not justifiable.
10. During hearing, Shri D.N. Kohli, Consultant for the appellant reiterated all these pleas and besides arguing on merits pleaded that this product which is used inside the factory for the preparation of another finished product, known as 'tread rubber with cushion backing' was not leviable to excise duty, by pointing out that the finished product was subject to excise duty under the very same item and there could not be any intention to assess the finished product as well as the intermediary product at the same rate. He laid great stress on the unenforceability of the demand by reference to Rule 9(2) of the Central Excise Rules. He built his arguments in this regard by referring to certain authorities to the effect that in order to attract the aforesaid rule, there ought to be clandestine removal, and that in cases where the party had been manufacturing and clearing goods within the knowledge of the Excise authorities, there could be no question of any removal of goods without the knowledge of the Excise authorities so as to give rise to a demand subsequently, and that in this view of the matter, the demand was barred by the time. Shri Kohli also at the end pointed out that the valuation of the goods for the purpose of calculation of duty has also been wrongly worked out on a highly exaggerated basis and that the Appellate Collector erred ;n not considering this aspect, though the point was raised before him.
11. Shri K.D. Tayal, Senior Departmental Representative appearing for the respondent controverted all these arguments by contending that the argument that the finished product was being subjected to duty and consequently the semi-finished product used in the manufacture thereof could not be charged to duty was not available inasmuch as principle of 'double levy' was an accepted proposition in excise laws, and that in any case, the matter stands concluded by the judgment of the Kerala High Court in the appellant's own case and further drew our attention to a previous judgment of the Tribunal in Appeal No. ED(SB)(T) A.No.205/80-D, decided on 11th February, 1983, in the case of. Goodwin Rubber Works, Changanacherry v. Collector of Central Excise, Cochin 1983 (12) ELT 578 = 1983 ECR 504D. He further pointed out that after the amendment brought about by the Finance Act, 1982 by virtue of Section 51 thereof, retrospectively in the Central Excises and Salt Act, 1944 with effect from the date of its commencement i.e., 1-3-1944, making all the goods, when captively consumed, liable to duty, the objection of the appellant was devoid of force. He also contended that the principle of clandestine removal was enunciated by judicial authorities with reference to cases where there had been proper declaration of goods at the time of clearance and when they had been assessed to "nil" duty and it was in that context that courts held in those cases that the authorities could not turn round and demand duty subsequently, and that those cases could not be pressed into aid by the appellant when they had not shown the goods separately while submitting the classification list. He however, had nothing to say on the question of calculation of value of purposes of duty.
12. We have given our careful thought to all these respective contentions. We find that so far as the argument, that this product, which the appellant has described alternatively in the ground of appeal as 'cushion compound' or 'compound' was not covered by item 16A(2) of the Central Excise Tariff, is concerned, the matter stands concluded not only by the Tribunal by its judgment in. Goodwin Rubber Works v.Collector of Central Excise, Cochin in Appeal No. ED(SB)(T) 205/80-D, decided on 11th February, 1983 but also by the Hon'ble High Court of Kerala. It is pertinent to note that the appellant was also one of the writ petitioners before the High Court, their Writ Petition being No.1464/73, wherein it has been positively held with reference to the very same item that it was leviable to excise duty under Item 16A(2) of the Central Excise Tariff. It is not open to a party to get out of judgment of a Court by merely urging that it was owing to defective arguments by their Counsel nor thsir fresh or supplementary arguments could be allowed to be urged in respect of the same matter. There would be no finality to judgments of Courts, if such a plea were to be entertained.
13. Consequently, we are of our firm view that the party cannot be allowed to urge any contention with reference to the excisability of the goods. Otherwise also, as observed in Tribunal's previous judgment in M/s. Goodwin Rubber Works case, that this argument was not open because of Notification No. 20/82-C.E., dated 20-2-1982, which was incorporated in the Act, itself by virtue of Section 51 of Finance Act, 1982, giving it a retrospective operation with effect from the date of commencement of the Act, providing that all goods even when captively consumed as intermediary products, would be deemed to have been cleared from the factory of their manufacture for the purpose of levy of duty.
The orders of the Excise authorities thus remain unassailable on this count.
14. The Tribunal also held in its previous judgment that Rule 9(2) of the Central Excise Rules has been rightly invoked. There is no reason to hold otherwise even after citation of some authorities by the learned Consultant for the appellant because those are the cases where there had been no concealment of fact of production. For instance, in the basic case of the Hon'ble Supreme Court reported as N.B. Sanjana, Assistant Collector of Central Excise, Bombay and Ors. v. The Elphinstone Spinning and Weaving Mills Co. Ltd. - AIR 1971 S.C. 2039 = 1978 ELT (J 399), it was clearly found on facts that the party had declared the' goods as having been manufactured at the time of clearance and pointedly stated that in their view they were not excisable and on that declaration, the Excise authorities had assessed them to 'nil' duty. It was in that situation that it was held that it was not a case of clandestine removal. Similarly, in the case of Surgichem v. Union of India (1980 Cen-Cus 1D), there had been proper declaration by the party and 'nil' assessment had been made on that basis. Even the case most vehemently relied upon by Shri Kohli, namely Murugan and Co. v. Deputy Collector of Central Excise, Tiruchirapaili - 1977 ELT (J 193) = 1980 Cen-Cus 250D, proceeded on this assumption that Rule 9(2) could be invoked only where there was no proper declaration of goods but in cases where there is no concealment on the part of the manufacturers and the clearance was made within full knowledge of the Excise authorities, subsequent demand could not be raised by invoking Rule 9(2) of the Central Excise Rules.
15. The facts of these authorities are distinguishable from the present case inasmuch as wherein all those cases there had been proper declaration and even the statement that they were not considered to be excisable and acceptance on the part of the authorities of that position, in this case it discovered that the party has not even disclosed the fact of manufacture and use of this item though classification lists were filed in relation to other goods manufactured by them. It is pertinent to note that the proforma for the classification list, namely Form I, categorically provides by means of Column 5 for 'particulars of other goods' produced or manufactured and intended to be removed by the assessee.
16. It is further significant to note that from the copies of the classification lists provided by the appellant themselves in the paper book, as many as 8 products were shown in Column 5 and there is no mention of this item known as cushion or 'cushion compound' being internally used for backing of tread rubber. It is thus a clear case on facts that even the factum of manufacture of these goods or their use was not brought to the notice of the Excise authorities nor the stand of the appellant that these were not leviable to excise duty. In this situation, the argument of the appellant that the Excise authorities ought to have drawn the necessary inference from the fact that they knew that cushion backing of tread rubber was being done in this factory by making enquiries or investigations as to from where the cushion for such backing was being obtained, is too far-fetched to be considered.
17. We thus do not find it possible to accept the contention that demand under Rule 9(2) was not enforceable and we also observe that there is no built in limitation at the time in this rule. The argument that Rule 10 was not applicable does not seem to be arising because the Appellate Collector himself has held that this rule did not come in the picture in this case, and the demand has been confined only to Rule 9(2).
18. The argument of the learned Consultant based on another judgment of Hon'ble Supreme Court, namely, Commissioner of Agricultural Income-tax and Sales Tax, Quilon v. Travancore Rubber Tea Co. [1981 ECR 389D (S.C.)], contending that the onus of proving that the assessee was carrying on business aid was a dealer, was on the departmental authorities, also does not seem to be available in this case because the reported case was with reference to the provisions of Central Sales Tax Act, 1976, where the basic requirement of the concerned party being found to be a dealer was required to be established whereas there is no such dispute in this case and the goods were admittedly manufactured and the only dispute was as to their excisability which has been conclusively decided by Kerala High Court, in the appellant's own case, and the doubt has also been resolved by means of a retrospective amendment in the Act itself.
19. We would also like to dispose of, in passing, the contention set forth by the learned Consultant for the appellant to the effect that the finished product, namely, tread rubber with cushion backing, is also assessable under Tariff Entry 16A(2) and that this item known as 'cushion' or 'cushion compound', if also held assessable under Tariff Item 16A(2), the result will be double levy of excise duty. We do not find this argument arising for consideration in the present case because, apart from the fact that, as already observed, the Hon'ble High Court of Kerala in party's own case has held this item to be leviable to excise duty under Entry 16A of the Central Excise Tariff, otherwise also concept of double levy is an accepted principle in excise law if the basic or intermediary article had undergone transformation after process of manufacture and Rule 56A of the Central Excise Rules provides situation where relief can also be granted in appropriate cases in discretion of the Government. This argument would be relevant only where the article is said to be charged to duty under the same Tariff Entry and description without having undergone any further process of manufacture in the sense in which that term has been judicially interpreted.
20. We, therefore, find no merit in the appeal and hold it liable to be rejected. However, we find that the party had, even before the Appellate Collector, pleaded that valuation had been wrongly worked out for purposes of levy of excise duty. The Appellate Collector has not applied his full mind to this aspect and summarily rejected this plea by saying that the value has been rightly calculated. The appellant has challenged this on two premises, firstly, that the prices as prevalent for the years 1970-71 to which the demand relates are to be taken as the basis and not prices of 1974 when the demand notice was issued and further that the price of this item which is named as cushion or 'cushion compound' is far lower than the finished product known as tread rubber with cushion backing and that the authorities erred in taking the value of the cushion or cushion compound to be the same as that of "tread rubber with cushion backing" and marketed out from the factory. We find both these pleas requiring verification.
21. As a result, whereas the appeal is dismissed on merits and the goods known as 'cushion' or 'cushion compound' consumed in the factory for the period in dispute, namely, 1-2-1970 to 13-10-1972 for backing of tread rubber are held liable to excise duty for the period 1-2-1970 to 13-10-1972, the amount of duty worked out is quashed and the matter is remanded to the Appellate Collector with direction to re-assess the duty after taking into consideration the prices prevalent for this item known as 'cushion' or 'cushion compound' before its use for backing of tread rubber during the relevant period, namely, 1-2-1970 to 13-10-1972.
22. [Order in Dissent per : S.D. Jha, Member (J)]. - I have gone through the majority order (and hence binding) of learned sister Smt.
S. Duggal, Member (J) with which learned Brother Senior Vice-President has concurred. I find it difficult to agree in the applicability of Rule 9(2) of Central Excise Rules as then existing to the facts and the circumstances of the present case. I set out my reasons for doing so.
23. The Supreme Court in N.B. Sanjana v. E.S.W. Mills Co. Ltd. - 1971 S.C. 2039 = 1978 ELT (3 399), held that in order to attract Sub-rule (2) of Rule 9 of the Central Excise Rules, the goods should have been removed clandestinely and without assessment.
24. From the findings of the Appellate Collector of Customs and Central Excise, Madras set out in para 4 of his orders, it would appear that he found that clandestine removal was not proved but held that the Sub-rule could be attracted even in cases where there was no clandestine removal. From his findings, it would also appear that he found the appellants liable under the Sub-rule for contravention of Rule 9(1) for their failure to mention in the Classification List the fact that Cushion Compound would be cleared for captive consumption without payment on duty.
25. From the rulings cited before us and mentioned in majority order it would appear that where Department was in full knowledge of the fact of production of the goods and their clearance Rule 9(2) could not be attracted. Detailed mention of these rulings again is not necessary. On behalf of the appellants, Shri Kohli, the learned Consultant for the appellants has argued that the goods were removed after filing the Classification List with full knowledge and under supervision of the Excise authorities and on behalf of the Department it has been contended that even if it may be so, as fact of use of 'cushion compound' in the factory for captive consumption was not mentioned in the Classification List, the Excuse authorities and Department could not be expected to know that goods were manufactured or produced in the factory and consumed therein. An inference of clandestine removal should therefore be drawn.
26. I have already pointed out that from the findings of the Appellate Collector, it would appear that he found clandestine removal not proved. Without entering into the argument of the learned Consultant Shri Kohli; in my view, available record overwhelmingly establishes that the Department was aware of the fact that the appellants had been manufacturing cushion compound in their factory and using it for captive consumption. For this, I may refer to the Kerala High Court judgment dated 16-1-1974 in O.P. numbers 1461 to 1464 filed before us.
The appellants were petitioners in O.P. No. 1464 of 1972. The respondents were Range Officer, Central Excise, Assistant Collector of Central Excise, Collector of Central Excise and the Union of India represented by the Secretary, Ministry of Finance. For the purpose of the present appeal Paras 1 and 2 of the judgment are material. The relevant portions of the same, for proper appreciation, are extracted below : 1. "The petitioners contend that "Cushion Compound" is being prepared in their factories for being Used as a component for the manufacture of "tread rubber with cushion backing" and that therefore it cannot be validly regarded as a finished product liable to Excise duty. The Collector of Customs and Central Excise, Cochin issued orders as per letter dated 17-1-1972 that duty should be collected on "Cushion Compound" which is utilised within the factory of production in the manufacture of "Cushion backed tread rubber" regardless of the duty payable on the end product. The Central Excise Range officer at Changanacherry accordingly informed the writ petitioners in these four cases about the said decision given by the Collector as per the communication dated 21-2-1972, copies of which have been produced and marked as Ext. PI in each of these cases. The relief asked for by the petitioners is the quashing of Ext. PI and the issuance of a writ of mandamus or other appropriate writ or decision directing the respondents, namely, the Range Officer, Central Excise Officer, Changanacherry, the Assistant Collector of Customs and Central Excise, Kottayam, the Collector of Customs and Central Excise, Cochin and the Union of India respectively to forbear from compelling the petitioners to pay excise duty on cushion compound prepared by them in their factories pursuant to the direction given as per Ext. PI." 2. "In the counter-affidavit filed on behalf of the respondents it has been submitted that cushion compound is a finished product which is marketed as such and that therefore it is perfectly permissible to levy excise duty in respect of the said product. It is stated in the counter-affidavit that the petitioners were paying duty on cushion compound without any objection for the past several years and that the allegation put forward by them that the said payment had been made by inadvertence and mistake is not correct or tenable.
The respondents contend that duty on cushion compound is leviable under Item 16A(ii) of the Central Excise Tariff." 27. The present demand relates to the period from 1-2-1970 to 13-10-1972. From Para 1 of the judgment extracted above, it would be seen that the Excise authorities had by communication dated 17-1-1972 and 21-2-1972 called upon the appellants and other manufacturers to pay duty on Cushion Compound. It appears that alter receipt of this communication, the appellants and other assessees approached the Kerala High Court to quash these demands through an appropriate writ. From para 2 of the judgment, it is noticed that in the coulter-affidavit filed on behalf of the respondents, it was submitted that the petitioners (manufacturers) were paying duty on Cushion Compound without any objection for the past several years and allegations put forward by them that the said payment has been made through inadvertence and mistake is not correct or tenable.
28. Now, in view of such a counter-affidavit having been given before the Kerala High Court by the Union of India and respondent Excise Officers, the contention now advanced before us that for the failure of the appellants to mention in the classification list about the manufacture of Cushion Compound and its captive consumption the Excise authorities could not have known about such production or consumption is clearly not tenable where the authorities were clearing the end product consisting of Cushion Compound. The counter-affidavit shows that the authorities were very well aware that the appellants had been manufacturing and consuming this product for a number of years and in fact had been paying duty on the same. Whether or not the product was liable to duty is a different question. The question is whether on these facts Rule 9(2) could be said to be attracted. On these facts, it cannot be at all said that the appellants concealed something. The Excise authorities were fully aware of the fact of production and consumption which they have themselves admitted before the High Court.
It cannot therefore, be said that the appellants concealed something which was very well known to the Excise authorities. In these circumstances, in view of the pronouncement of the Supreme Court in N.B. Sanjana's case Sub-rule (2) of Rule 9 of Central Excise Rules cannot be said to be attracted to the present case.
29. 1 must, however, express that the facts have not been brought out in proper perspective in the present case by the parties. The appellants did not mention about the Kerala High Court judgment before the Assistant Collector for reasons best known to them; it was the Appellate Collector who in his orders referred to the Kerala High Court judgment. As already stated above, the Excise authorities were aware of the fact of manufacture of the goods. It appears that while the appellants and other manufacturers were earlier paying duty for some reasons they discontinued doing so. The authorities then issued letters dated 17-1-1972 and 21-2-1972 calling upon the appellants and other manufacturers to pay duty. Thereafter manufacturers seem to have approached the Kerala High Court. It is not clear why in the circumstances Show Cause Notice was issued on 28-8-1974. If this was due to any stay order passed by the Kerala High Court, the same should have been clearly brought out by the parties, which none has done. In fact, if it was so, I would except the Show Cause Notice to make the mention of the same to explain the delay in issue of Show Cause Notice.
There is no proper explanation for this time lag. The appellants were earlier paying Excise duty . on the product but subsequently discontinued the same. They also have not explained why they did so, in proper sequence. Be whatever it may, there can be no doubt that the authorities were not only aware of the fact but were in full knowledge of the fact of manufacture and consumption of Cushion compound in the appellants factory, long before the issue of Show Cause Notice and the matter was subject to litigation between the parties in the Kerala High Court. In these circumstances, I am clearly of the view that the appellants cannot be said to have concealed the fact of manufacture of Cushion. Compound and its captive consumption by mere non-mention of the same in the Classification List. To my mind Sub-rule (2) of Rule 9 of the Central Excise Rules would not be attracted on the facts and circumstances of this case. I would, therefore, hold that the Show Cause Notice and the demand of duty were barred by limitation.