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Collector of Central Excise Vs. Ultra Marine and Pigments Ltd. - Court Judgment

LegalCrystal Citation
CourtCustoms Excise and Service Tax Appellate Tribunal CESTAT Tamil Nadu
Decided On
Reported in(1985)(22)ELT413Tri(Chennai)
AppellantCollector of Central Excise
RespondentUltra Marine and Pigments Ltd.
1. appeal under section 35b of the central excises and salt act, 1944 praying that in the circumstances stated therein the tribunal will be pleased to set aside the order of the collector of central excise (appeals), madras, dated 6-9-83 in c. no. v/15aa/2/83 and restore the order of the deputy collector of central excise, madras, dated 12-5-83 in c. no. v/15aa/15/1/82 cx. adj. ii.2. this appeal coming up for orders upon perusing the records and upon hearing the arguments of shri s.k. choudhury, senior departmental representative for the appellant and upon hearing the arguments of shri c. natarajan, advocate for the respondents, the tribunal makes the following order : 3. the facts of the case may be summarised as follows. on 2-12-82, inspectors of central excise visited the factory.....
1. Appeal under Section 35B of the Central Excises and Salt Act, 1944 praying that in the circumstances stated therein the Tribunal will be pleased to set aside the order of the Collector of Central Excise (Appeals), Madras, dated 6-9-83 in C. No. V/15AA/2/83 and restore the order of the Deputy Collector of Central Excise, Madras, dated 12-5-83 in C. No. V/15AA/15/1/82 Cx. Adj. II.2. This appeal coming up for orders upon perusing the records and upon hearing the arguments of Shri S.K. Choudhury, Senior Departmental Representative for the appellant and upon hearing the arguments of Shri C. Natarajan, Advocate for the respondents, the Tribunal makes the following order : 3. The facts of the case may be summarised as follows. On 2-12-82, Inspectors of Central Excise visited the factory premises of M/s. Ultra Marine and Pigments Ltd., respondents herein, and verified the stock and accounts. They noticed that 19 different items, details of which are set out in the order of the Deputy Collector (Gold) dated 12-5-83 in C. No. V/15AA/15/1/82 Cx. Adj. II, were kept in the working hall of the factory in a fully packed condition and ready for despatch and that they had not been accounted for in the statutory R.G.I account.

Examination of some of the packages and cartons showed that some of the goods had been packed in 1/82, 4/82, 6/82, 8/82 and 12/82; and in some cases packing slips were found with dates of packing as 4-9-82, 24-11-82 and 9-10-82. The goods were seized for violation of the provisions of the Central Excise Rules as they were deemed to be unaccounted and considered to be meant for clandestine removal.

Statements were recorded from the factory Manager who indicated that the factory was not working due to Electricity Board regulations and the goods which were seized by the officers were not accounted for in the R.G.I due to clerical mistake, though they were manufactured and fully packed prior to 28-11-82 and were kept ready for despatch. Show cause notice was issued for contravention of the provisions of Rules 53, 173G (4) and 226 of the Central Excise Rules, 1944 and the respondents were called upon to explain why the seized goods should not be confiscated and a penalty imposed on them under Rule 173Q. After considering the reply of the respondents and granting of a personal hearing, the Deputy Collector of Central Excise, Madras, held that the goods under seizure were not in the process of manufacture but were finished goods; they should have been entered in the R.G. 1 account.

She also did not accept the plea of the respondents that only Rule 226 will apply and not Rule 173Q when the alleged violation was claimed to be due to some clerical mistake. In the result, she ordered confiscation of the seized goods, valued at Rs. 3,89,419.11 under Rule 173Q (b) and (d) with an option to redeem the same on payment of a fine of Rs. 40,000/-in lieu of confiscation. She also imposed a penalty of Rs. 25,000/-on the respondents under Rule 173Q (b) and (d). When the matter was taken up in appeal, the Collector of Central Excise (Appeals) found that there had been a practice of entering the goods manufactured in the R.G. 1 account at the point of their storage in the bonded store-room, the practice of which the Department was aware and perhaps allowed to continue because the Department was not able to determine the R.G. 1 stage for organic surface active agents. Hence, he held that the respondents had not contravened Rule 173G(4) with any wilful intention to evade payment of duty. He also felt that Rules 173G (4) and 53 should not have been invoked simultaneously and so too with Rules 173Q and 226. He further found that the lower authority was not correct in holding that in ens rea need not be established for imposing a penalty under Rule 173Q. Accordingly he allowed the appeal. The Collector of Central Excise, Madras, has come up in appeal before the Tribunal against this order of the Collector (Appeals).

4. Before proceeding further we would like to record that we had occasion to inspect some of the goods brought to Court and found that they have been packed in cartons, closed with paper tape all round and strapped with plastic ribbon. There is no date of manufacture marked on the outside of the packages. On opening one of the packages "Marc O" it was seen that it was marked and the date of manufacture, according to a slip inside, was 8/82.

5. The SDR pointed out that 665 bags which were entered in R.G.I account were found outside the store-room. The 19 groups of packages under confiscation were not entered in R.G. 1. account and were in the working hall. Though it was claimed that the factory was not working due to power regulations between 28-11-82 and 2-12-82, packing slips of December 1982 were found in one of the cartons. In respect of Sl. No. 6 of the statement of goods referred to in the show cause notice, out of 736 cartons, 720 were with mark 'O'; the claim of the respondents is that these goods were required to be reprocessed due to a complaint from Hindustan Marketing House, Calcutta, to whom similar goods had been sent earlier and they were kept for reprocessing; therefore, they are not in a fully manufactured condition. He adopted the arguments of the Deputy Collector as set out in para 31 of her order in respect of these goods.

6. Referring to the fact that the packages had not been numbered, the SDR urged that according to Rule 51 (i) (b) marking of serial number has not been done in the past nor is it part of process of manufacture.

Hence for purposes of Rule 53, non-marking of serial number is not relevant. To the plea that some of the packages had not been strapped, the SDR urged that even without strapping, manufacture is complete. If one were to agree that strapping alone would complete the process of manufacture, goods could be kept in the manufacturing area, though all processes of manufacturing have been completed, merely on the plea that they have not been strapped. This would be hardly in keeping with the scheme of accounting of and control over excisable goods. In this context, he relied on the decision of the Madras High Court in the case of E.I.D. Parry v. Collector of Central Excise, Madras, 1978 E.L.T.18-wherein the Court has held that packing is not part of manufacture.

He also referred to a letter No. UPL/2024/76, dated 26-10-76 from the respondents to the Superintendent, Central Excise, Ranipet M.O.R., stating that products are normally tested and then only released to the market. After conducting the tests, the products which [conform to accepted quality with respect to various characteristics are moved into the store-room and entered in R.G. 1 register. In the present case, the goods were found in packed condition and hence it must be presumed that they have already been tested. According to the letter of the respondents themselves, the goods ought to have been entered in R.G. 1 account and taken to the storage area. In regard to the plea that it was a long time practice to make entries only in col. 18 rather than in col. 17 of the register, he indicated that there is no entry in col. 18 nor for that matter in col. 3. If 'nil production' has to be shown in the R.G. 1-E.B. 4 register, col. 3 not being shown is itself a violation of Rule 53.

7. Continuing the SDR stated that for purposes of a penalty under Rule 173Q metis rea is not necessary in respect of all the Sub-clauses. In this connection, he referred to the case of Indo-China Steam Navigation Co. Ltd. v. Jasjit Singh, Additional Collector of Customs, Calcutta and Ors., reported in 1983 E.L.T. 1392 (SC). In the present case it is expressly provided in Sub-rule (d) of Rule 173Q that there should be "intent to evade payment of duty". By implication and direct inference, non-occurrence of similar expression in Sub-clauses (a), (b) and (c) of Rule 173Q would show that in respect of these Sub-clauses menu rea is not a criterion. He then referred to the case of Behari Lal Omar Rolling Mills v. Union of India and Ors., reported in 1983 E.L.T. 766 (All.) (paragraphs 7 and 11) according to which an adverse inference can be drawn from the circumstances of a case regarding intent to evade, if the purpose of the rule is to prevent evasion; in the present case it is so. The plea made on behalf of the respondents that R.G.I point has not been notified is not relevant. There is no legal obligation under the Rules to notify R.G.I point for each and every product. When it is so notified, it is to be followed. But non-notification does not imply that and point can be taken as the R.G.I point. Hence the observation of the Collector (Appeals) that Department had neither notified the R.G.I point, nor perhaps was able to do so, is unwarranted. The SDR also questioned the correctness of para 5 of the order of the Collector (Appeals) wherein he has observed that the respondents had not been directed by the Department earlier to enter production at a stage prior to packing or to at a stage immediately after primary packing, or even at the stage when secondary packing is done, viz. when soaps and detergent powders are put in cartons and cartons are batch numbered, and the lower authority has not recorded a clear cut finding on this substantive issue and hence the order suffers from infirmity. In this connection, he referred to para 38 of the Deputy Collector's order wherein a finding has in fact been given regarding the R.G. 1 point in respect of packed goods. The SDR urged that in the light of what has been observed earlier there is misdirection on the part of Collector (Appeals).

8. The SDR then assailed the finding of the Collector (Appeals) that Rules 173G(4) and 53 cannot be invoked together, or Rules 226 and 173Q referred to simultaneously. All that Chapter VII-A provides is when there is a conflict between the provisions of Chapter VII and the provisions contained in any other Chapter in respect of notified goods (detergents are notified), the provisions of Chapter VII-A will prevail. In the present case, Rule 226 has not been invoked in the Order-in-Original. The order is one under Rule 173Q (b) and (d). Hence reference to Rule 226 versus Rule 173Q in the appellate order is not relevant. In this connection he referred to Trade Notice No. 72/68 (l4/General/68), dated 23-5-68 issued by the Collector of Central Excise, Madras, dealing with Self Removal Procedure; in para 31 all assessees have been required to maintain a daily stock account in Form R.G.I according to the annexure prescribed. The annexure specifically mentions details to be given regarding quantity manufactured in col. 3 and the closing balance in finishing room in Col. 15 and that in bonded store-room in col. 16. He also submitted that all the material points have not been dealt with by the lower appellate authority and there is no application of mind to all the points raised.

9. The advocate for the respondents commenced his arguments by referring to Rule 6(b) of Packing Commodities Control Order according to which labels of one month can be used for the month immediately preceding one month to which they relate or the following month so that labels which have been got ready are not wasted. The mere finding that the labels with dates of December during the time when the factory was said to be not working would not by itself indicate that the statement regarding non-working was incorrect. Next, he referred to the R.G.I account maintained by the party from the very inception of the factory and drew particular attention to certain entries therein with particular reference to the production capacity of the factory (which works out to 350 cases per day-working on two shifts). It will be seen from an entry relating to 21-2-80 that the opening balance is shown as 491 and the quantity produced as 600. This should be an indirect evidence that col. 3 has been indicated as whatever was available for release on any particular day rather than the quantity manufactured on any particular day. He urged that the statement given by the factory Manager could not be considered as voluntary as the mahazar was completed after 11 P.M.; there was a threat that the goods might be removed from out of the factory; they would not stand the strain of additional transport. Hence when it was thought that if a statement was given, the goods might be left in the factory, the factory Manager gave the statement. There was thus an element of inducement and therefore the statement cannot be relied upon. He referred to a letter given by the consultant of the respondents on 3-12-82 wherein it has been stated that the seized goods were not in a fully manufactured or packed condition. It was so because there was shut down of electricity. He then referred to various entries made in R.G.I book of the Company and the visits of the officers where certain entries have been made and if the goods have been kept in the open hall, that would not have escaped the attention of these visiting officers. If storage in the open hall is an illegality it would have attracted the attention of such officers. Referring to the nature of the goods, he submitted that it will be seen from the classification list, submitted to the Department on 2-3-81 that Ultrawet 'HP' Blue and Ultrawet 'HP' White in bags were not in packed condition. Referring to items occurring at sl. nos. 5, 7(ii) and 8 of the seized goods as set out in the show cause notice, he claimed that they were not in packed condition. As will be seen from classification lists dated 2-3-81 approved by the Department, OOB blue detergent washing powder of 500 gms. is to be packed at 18 packets to a carton, and of 1 kg. at 12 packets to a carton. What was found was only 9 packets in one carton and six in another. The rest of the items were not strapped and in all these cases serial number was not indicated and hence the goods cannot be considered as in packed condition.

10. Referring to the provisions of Rule 173G (4) (a), he claimed that it is a self-contained provision, particularly when one refers to the over-riding clause in Rule 173A (1). Hence the provisions regarding R.G.I under Rule 53 and E.B.4 under Rule 51 are not relevant. What is being maintained is a combined form of R.G.l-cum-E.B.4 and the stage of accounting has not been dealt with under Rule 173G (4). Delayed posting cannot be a violation of Rule 226. Referring to Rule 173Q (b), he said that it will not apply. "Account for" merely means rendering of account relating to the goods and not necessarily relate to physical entry of the goods in a prescribed account. Insofar as Rule 173Q (d) is concerned, there is no intent to evade payment of duty and hence it will not apply.Indo-China Steam Navigation Company v. Jasjit Singh, Additional Collector of Customs, Calcutta and Ors.- AIR 1964 (S.C.) 1140 he stated that it was a prohibition or failure to carry out certain obligations. Such a situation does not apply in the present case. Next he referred to the case of Hindustan Steel Ltd. v. State of Orissa, 1978 E.L.T. 159 wherein the Supreme Court has held that technical or venial breach need not be visited with a penalty. Then he referred to the case of Southern Steel Ltd., Hyderabad v. Union of India and Ors.- 1979 E.L.T.402-wherein the Andhra Pradesh High Court has held that the practice existing for years and accepted by the Department should not be considered as a violation for purposes of Rule 173Q (d).

12. The advocate for the respondents also relied on the judgment of the Madras High Court in the case of B. Lakshmichand v. Government of India- 1983 E.L.T. 322 (Mad.)-in respect of See. 112 of the Customs Act, 1962 and submitted that where there is no reference to Sub-section when different considerations apply to what constitute an offence under different Sub-sections and absence of indication of the specific Sub-section would vitiate a show cause notice. Hence the order of the Deputy Collector based on a show cause notice which refers to Rule 173Q without reference to (a), (b), (c) and (d) would be bad in law.

13. In reply, the SDR submitted that the claim of the respondents is that the factory did not work in December 1982 at all and there was a complete shut down from 29-11-82 for four days. There are entries in R.G.I register on 29-11-82, 30-11-82 and 1-12-82. In a letter dated 26-10-76 there is a reference to goods being normally tested before being released in the market. In the present case there is no claim about test not having been done in respect of 10 entries. Regarding the various inspections and checks by the officers, he indicated that they have been dealt with fully in paragraphs 41 and 42 of the order of the Deputy Collector. When an officer went for a particular job, it does not necessarily mean that he did a complete check of all the factory work. This would be an impossible task nor is it a requirement under the regulations or administrative instructions. In respect of non-entry in the R.G.I register except when goods are ready for removal, he referred to para 40 of the original order from which it will be seen that though 442 bags of Ultrawet 'D' white, 159 bags Ultrawct 'D' blue and 64 bags of Ultrawet were lying in the working hall, they had indeed been entered in the R.G.I whereas the seized goods which were also lying in the hall were not entered. Hence, the so-called practice of making entry at the time of removal is not borne out by facts. In respect of goods being packed in 18s and 12s, he urged that the classification list is not relevant to the issue of completion of manufacture.

14. Referring to Rules 53 and 173G (4), the SDR indicated that the latter is different in content to the extent it permits the Collector to require the maintenance of account. It does not by any means over-ride the basic provisions in Rule 53 regarding the maintenance of Daily Stock Account. Referring to the point that the Order-in-Original does not refer to any Sub-section of Rule 173Q, the SDR urged that the judgment of the Madras High Court relied upon by the respondents is inapplicable, as in the show cause notice different factors that make up for an offence have been fully set out. He referred to 42 STC 121 and 1978 E.L.T. 159 (SC). He referred to the decision of the Gauhati High Court in the case of Green Tea in C.R. 262/73. In that case, the High Court has held that once plucking of green leaf was entered in the green leaf account, it. was for the tea factory to account for the tea leaf properly. The onus of proving the case would have been discharged by the Department by reference to the green leaf account and the absence of acceptable evidence as to how it was disposed of. In the present case also, ceritain explanations were offered by the respondents which were found to be nno correct. On analogy, it cannot be said that the burden of proof has not been discharged by the Department.

15. As a lot of discussions revolved around the 736 packages which were supposed to be remade for the use of the Calcutta party, we wished to see the correspondence with that party in the matter. Copies of the same were submitted on the last day of hearing. By a letter dated 12th July, 1982, Hindustan Marketing House, Calcutta, had written to the respondents as to the despatch plan for the next three consignments of Marc 1 detergent powder. Regarding first consignment sent round about 2nd June, 1982, various factors had been indicated therein, one of which refers to "the complaint of less foaming which would also be checked and from the third consignment we shall not face such type of problems". In a telegram dated 12-8-82 the respondents have informed the Calcutta party : "Arrange immediate remittance for third and fourth consignments Marc also forward road permit stop Matter urgent." On 13-8-82, there is a letter from Hindustan Marketing House, Calcutta, to the respondents (No. HMH/7/58) complaining about the second consignment, about inadequate packing of the product which resulted in damages at the time of transport. In a letter dated 30-8-82 from Hindustan Marketing House to the respondents (No. HMH/7/528), there is a reference to the discussion with Mr. Ramamurthy of the respondents-company regarding the telegram received by them on that day about payment and road permit against third and fourth consignments of Marc which had not been received by the respondents. In another letter dated 7-9-82 from the respondents to the Calcutta party, there is a reference that Mr. Vijayaraghavan would be arriving at Calcutta on the 14th night (September) and the various points raised could be discussed so that these matters might not come in the way of promotion of sales of 'Marc' in Calcutta. The letter reiterates the request for payment of the third and fourth consignments of 'Marc'. If we take note of the dates of the correspondence regarding third and fourth consignments of 'Marc' and the date of seizure of the goods in the respondents-factory, viz. 2-12-82, it is clear that these two consignments were ready for despatch and the plea of the respondents that there was some rectification to be done before the goods could be sent to Calcutta does not represent the true picture.

16. Quite apart from the picture that emerges from an examination of the correspondence with the Calcutta party, we also had the advantage of examining representative samples of the said goods amongst others in Court. We found the cartons to be all closed with paper tape and strapped with plastic ribbon. We consider these goods to be in a finished condition based on such examination as well.

17. In the light of the discussions in paragraphs 15 and 16 above, we are satisfied that the packages meant for Hindustan Marketing House, Calcutta, had been packed and kept ready for despatch well before the date of search and seizure of these goods from the factory premises.

Hence, if according to law or the procedures to be followed they ought to have been kept in the bonded store-room and not outside, they would be liable for action.

18. On the basis of an examination of the representative samples produced in Court, we also find that goods covered by serial numbers 1,2, 3, 7(1), 9 and 13 of the Schedule in para 1 of the order of the Deputy Collector are also in a finished stage and our observations in para 17 would apply in their cases as well.

19. Regarding the plea of the learned Counsel for the respondents that in terms of Packing Commodities Control Order labels of one month can be used for the preceding month, we note that no. particular evidence has been brought on record as to the quantity of labels available during the month of November 1982 and the production during that month to draw an inference that labels of December 1982 have in fact been used for production of November 1982. In the absence of such evidence, the marking regarding goods having been manufactured in December 1982 has to be taken at its face value. If so, the plea of complete shut down from 29-11-82 to 2-12-82 has to be accepted with a pinch of salt-it is particularly so when one considers that there are entries in the R.G.I register for 29-11, 30-11 and 1-12-82. Thus, in respect of the goods marked as having been produced during this period and not kept in the store-room, the position would be similar to what we have observed in respect of the packages meant for Hindustan Marketing House, Calcutta, in para 17 above.

20. We now take up the submissions made on legal points. For the sake of easy reference we set out the relevant portions of Rules 53 and 173G (4) : "53. Daily stock account.-(1) Every manufacturer shall maintain a stock account in such Form as the Collector may in any particular case or class of cases allow, and shall enter in such account daily- (d) quantity deposited in the store-room, or other place of storage approved by the Collector under Rule 47, (e) quantity removed, after payment of duty from such store-room or other place of storage or from the place or premises specified under Rule 9, (f) quantity delivered from the factory without payment of duty for export or other purposes, and "173G (4) (a) Every assessee shall maintain such accounts, as the Collector may from time to time require or permit, subject to such conditions as may be specified by him, of the production, manufacture, storage, delivery or disposal of the goods, including the material received for or consumed in the manufacture of excisable or other goods, the goods and materials in stock with him and duty determined and paid by him.

(b) Unless specially exempted by the Collector by order in writing, all books of accounts maintained under clause (a) shall be sent by him, before these are brought into use, for authentication by the proper officer in such manner and at such time as the Collector may direct.

(c) In respect of any assessee, or class of assessees, the Collector may direct that all books of accounts maintained under Clause (a) subject to what has been stated in Clause (b) shall be deemed to be the proper form for the respective purpose." The record prescribed under Rule 173G (4) is the one notified by the Collector in Trade Notice No. 72/68 (H/General/68), dated 23-5-68 which is a combined record of both production as envisaged in Rule 53 (R.G.1) and account of goods deposited in approved store-room (R.B.-4). A reading of Rule 173G(4) indicates that the account to be maintained by an assessee, amongst other things, is in respect of manufacture, storage and delivery of excisable goods. Rule 53 also speaks of maintenance of stock account in a form as may be prescribed by the Collector with details to be entered as set out in parts (a) to (g) of Sub-clause (i) of that rule. Part (c) deals with quantity manufactured, (d) quantity deposited in the store-room, and (e) and (f) deal with quantity removed from the store-room. The two rules thus cover the same area of application insofar as accounts regarding manufacture, storage and delivery are concerned. Rule 173A provides that only in case of conflict between Rules 173G and 53, the provisions of Rule 173G will prevail. As the rules cover the same area and no conflict arises between the two, the question of Rule 173G(4) having over-riding application over Rule 53 does not arise. Hence invocation of both Rules 53 and 173G(4) would not be an infirmity in the order of the Deputy Collector, contrary to the finding of the Collector (Appeals).

Non-conformity with Rules 53 and 173G(4) would attract the provisions of Rule 173Q(b).

"Rule 226. How entry books, stock account and warehouse registers should be maintained.-Where any person is required by these Rules to maintain an entry book, stock account, or warehouse register in respect of goods produced, manufactured or stored by him, he shall- (ii) correctly keep such book, account or register... and shall not make any entry therein which is untrue in any particular; and any person who fails to enter the required particulars within the time prescribed in the relevant rule, ... or makes any false entry therein..., shall be liable to a penalty which may extend to two thousand rupees...".

"Rule 173Q. Confiscation and penalty.-(1) If any manufacturer, producer or licensee of a warehouse, (b) does not account for any excisable goods manufactured, produced or stored by him; or (d) contravenes any of the provisions of these rules with intent to evade payment of duty, then all such goods shall be liable to confiscation and the manufacturer, producer or licensee of the warehouse... shall be liable to a penalty not exceeding three times the value of the excisable goods in respect of which any contravention of the nature referred to in Clause (a) or Clause (b) or Clause (c) or Clause (d) has been committed, or five thousand rupees whichever is greater." 21A. The combined R.G. 1-E.B. 4 register is to show the quantity of goods produced on any particular day and kept in the finishing room as well as in the store-room. To the extent that goods kept in the finishing room have not been entered in the register, there has been an incorrect maintenance of the register in terms of Rule 226 (ii) and infraction of Rule 226 by itself renders the concerned goods liable to confiscation.

22. Rule 173Q(b) refers to non-accounting of any excisable goods manufactured by a manufacturer. The goods which were found outside the approved store-room, as indicated earlier, should have been entered in the relevant register. To the extent that they were not so entered, they had not been "accounted for" as required under that Rule as well.

23. The plea on behalf of the respondents that all that Rule 173Q (b) involves is to account for the manufactured goods in the sense that the manufacturer has to indicate where exactly the goods are or how they have been disposed either within the factory or outside is not maintainable. The combined R.G.l-E.B.4 register is a prescribed document. When a manufacturer is called upon to account for any goods manufactured, he has to do so in the manner prescribed and not in any manner that he chooses. When accounting is not done in the manner prescribed, it is not accounting according to the rules. In this view of the matter, we consider that in the present instance provisions of Rule 173Q(b) are attracted.

24. We note in the show cause notice the respondents were put on notice for contravention of Rule 226 inasmuch as they failed to enter excisable detergent items in the R.G. 1 register. Rule 226 deals with the correct maintenance of books (in this case R.G. 1-E.B.4 register) and making true entries therein. It also provides that if in respect of any goods such entries are not made or the register not duly written up, the relevant goods would be liable to confiscation. Though both in the show cause notice issued by the Department and in the Order-in-Original passed by the Deputy Collector, Rule 226 has been invoked along with Rule 173Q for purposes of holding that concerned goods are liable to confiscation, we see no conflict between the provisions of Rule 226 and of any other rule in Chapter VIIA such as Rule 173G(4) and/or 173Q(b), so as to bring in the over-riding provisions contained in Rule 173A. Thus we hold that the goods referred to in para 34 below are liable to confiscation for contravention of Rule 226 even without reference to Rule 173Q(b).

25. In dealing with mens rea, Maxwell on the Interpretation of Statutes has this to say : "Where an offence is created by statute; however comprehensive and unqualified the language of the statute, it is usually understood as silently requiring that the element of mens rea should be imported into the definition of the crime unless a contrary intention is expressed or implied". Thus, where a contrary intention is expressed or implied, mens rea is not an ingredient of an offence. The issue came to be examined in some detail by the Supreme Court in the case of Indo-China Steam Navigation Company Ltd. v. Jasjit Singh, Additional Collector of Customs, Calcutta and Ors., 1983 E.L.T. 1392 (S.C.) when the Court was considering the provisions of Section 52A of the Sea Customs Act, 1878. According to that section no vessel constructed, adapted, altered or fitted for the purpose of concealing goods shall enter, or be within the limits of any port of India or the Indian customs waters. The Court noted that offences in respect of which mens rea is not required to be established are usually of a comparatively minor character and sentences imposed against the offenders are therefore not of a severe type but in the present case, it cannot be disputed that the confiscation of the ship may mean a serious loss to the owner of the ship, or imposing a fine against him by way of giving him option in lieu of confiscation of his ship may also involve the payment of a very large amount. The Court then went on to consider the intention of the Legislature in providing for the prohibition prescribed by Section 52A and then found that in the Court's opinion there is no doubt that the Customs authorities were right in holding that the mere fact that the owners of the vessel or the Master were not shown to have been privy to the alteration, etc., or the concealment of gold bars recovered from the offending ship would not take the case of appellant outside the purview of Section 52A. The knowledge of the owners, or even the Master is, in the context of Section 52A, entirely irrelevant. This was an instance where by necessary implication the Court held that mens rea was not an essential ingredient in relation to an offence under the Sea Customs Act.

26. If we now turn to the structure of Rule 173Q(1) of the Central Excise Rules, we note that it consists of four Sub-clauses (a), (b), (c) and (d), infringement of any one of which will render relevant goods liable to confiscation and invite penalties on the manufacturer, licensee or owner of a warehouse. Sub-clause (a) deals with the liability of a manufacturer if he removes any excisable goods in contravention of the provisions of the rules. The manufacturer will always be in the knowledge of goods produced and if removal of such excisable goods is not in accordance with the rules, liability is attracted. Sub-clause (b) refers to accounting. Here too, a manufacturer is aware of the goods manufactured by him and has to necessarily account for the same in the prescribed manner. Sub-clause (c) refers to engaging in the manufacture without a licence when one is needed. In all these cases certain amount of knowledge is inherent in the commission or omission simpliciter. It is hardly necessary to import metis rea. Per contra, Sub-clause (d) refers to contravention of any of the provisions of these rules with intent to evade payment of duty. The absence of reference to intent in the other Sub-clauses (a), (b) and (c) would show that in the case of violation of the types referred to in those Sub-clauses, intention is not a material consideration. The act simpliciter would invite penal action.

27. The Collector (Appeals) has not dealt with the various Sub-clauses of Rule 173Q individually but done so as a whole and observed that to sustain a penalty under Rule 173Q, the Department has to establish mens rea on the part of the assessee. Adopting the rationale of the Bench decision referred to in para 25, we find that guilty knowledge is not a necessary ingredient for an offence under Rule 173Q (1) (a), (b) or (c) whereas it would be necessary in a case covered by (d). In the light of what we have set out in para 23 supra the finding of the Collector (Appeals) that mens rea is necessary for a penalty under Rule 173Q is not in accordance with law, so far as a penalty under Rule 173Q (1) (b) is concerned.

28. The Deputy Collector has in her order of 12-5-83 found that there has been violation of Rule 173Q (1) (d) as well in view of the various circumstances referred to by her therein. She has dealt with the action of the respondents with intent to evade payment of duty in paras 48 and 49; and in para 54 it is observed : "The manner in which the factory has conducted its affairs in so far these relate to observance of relevant provisions of Central Excise Rules, I am satisfied that the factory has acted in deliberate defiance of the Central Excise law and Rules and is guilty of conduct contumacious. They have also acted in conscious disregard of their obligations. This is not a case where production of a single day or two were not accounted for in the statutory record for certain factors beyond the assessee's control. On the other hand, it is a case where the assessee has been perpetuating his illegal acts of not making entries of goods produced over a period of time. It is therefore not a case where a plea of clerical mistake can be taken to claim immunity from legal consequences." The conduct of the respondents in not serially numbering the packages, keeping them outside the store-room and making various statements regarding such conduct may lead to a suggestion that these could be in furtherance of a plan to remove the goods without payment of duty. But the finding would not, in our view, substantiate a conclusion that all this was done with intent to evade payment of duty so as to attract the provisions of Rule 173Q (1) (d). We therefore do not agree with the finding of the Deputy Collector insofar as penalty under Rule 173Q (1) (d) is concerned.

29. In passing we would refer to the plea of the learned Counsel for the respondents that the statement of Sampathkumar given on the date of seizure was under an inducement. Considering that the goods have been already packed and in a number of instances strapped with plastic straps, the plea that the fear of handling of the goods by way of removal from the place of seizure to the office of the Assistant Collector would damage them, and if a statement was made the goods might not be removed (though in fact they were finally removed) the statement was given does not appeal to us. If goods are of such a delicate nature, surely the Department would take suitable steps for removing them in their own interest, in the sense that the goods have to be preserved intact and without damage, both for purposes of establishing the alleged offence and to preserve the value of the goods, should they finally be confiscated, as was in fact done in the present case.

30. We would also refer to a point canvassed at length regarding the non-marking of the packages and hence their not being in a fully manufactured condition. Reliance was placed on Rule 51 for this purpose.

"51. Packing and weighment of goods.--Unless specially exempted by the Collector by order, every manufacturer shall, as soon as practicable, after any excisable goods are packed and weighed in the factory or otherwise made ready for removal from the factory- (b) a running serial No. which will commence from the 1st of January of every year; (c) the number of retail packages contained in each wholesale package, and the quantity of goods contained in each retail package; (d) a distinguishing letter or letters, or a word or words or a combination thereof, denoting the kind and quality of the goods : (ii) deposit the goods in an approved bonded store-room unless they are intended to be cleared on payment of duty immediately after completion of manufacture : Explanation: -For the purpose of this rule, in case of a doubt regarding what is a wholesale package or, as the case may be, a retail package, the same shall be determined by the Assistant Collector of Central Excise having regard to the normal trade practice for clearing such goods." The Rule 51 provides that as soon as practicable after any excisable goods are packed and weighed in the factory or otherwise made ready for removal from the factory, (i) the packages shall be marked and (ii) the goods shall be deposited in an approved bonded store-room.

Though part (ii) comes after (i), it does not necessarily lead to an inference that marking of the packages must be done prior to their being deposited in the store-room. In fact, the introductory part of Rule 51 makes it clear that as soon as the goods are packed and weighed, deposit has to be made in an approved bonded storeroom.

While marking of a package is a necessary requirement under Rule 51 (i), it does not seem to be a pre-requisite before storage in a bonded storeroom. A reference to the account prescribed for goods stored in the bonded store-room under Rule 54 (E.B.4) will also show that account is by number of packages, quantity, etc. and is not necessarily dependent on their being numbered with batch number, serial number, etc. Hence the plea that without numbering, the goods were not in a fully packed condition and therefore were not ready to be deposited in the store-room is not an acceptable one.

32. Another point was made that the practice of entering details of the packages in the R.G.I-E.B. 4 register only at the time they were being delivered out of the factory had been in vogue for some time and has gone unchallenged; it was therefore claimed on behalf of the respondents that no adverse inference should be drawn in the present instance or goods subjected to penal action. There is nothing similar to the law of estoppel in a taxing statute. If a manufacturer is expected to conform to a certain prescribed procedure and is found to be not doing so on any particular occasion, the fact that he has been observing the wrong procedure even in the past cannot be a justification. We note that according to Trade Notice No. 72/66 issued by the Collector of Central Excise, Madras, closing balance both in the finishing room and in the bonded store-room had to be shown in columns 15 and 16. The headings of the columns are fairly straightforward and are not capable of the type of interpretation that has been put on it by the respondents in the past. We therefore reject the plea that the goods are not actionable in view of the past practice. However, we keep this aspect in view in fixing the fine in lieu of confiscation as well as the penalty to which the respondents have been held liable.

33. Yet another point made on behalf of the respondents was that the show cause notice does not indicate which Sub-clause of Rule 173Q has been violated. In this connection the Lakshmichand case, 1983 E.L.T.322 (Mad.)- was cited by the learned Counsel for the respondents. A perusal of the show cause notice shows that it clearly charges the respondents with contravention of the provisions of Rules 53, 173G (4) and 226-vide para 5 of the memo. In the next paragraph, the respondents have been asked to show cause why a penalty should not be imposed under Rule 173Q. The recitation of the facts as well as the actual contravention of the particular rules in the show cause notice distinguishes it from the Lakshmichand case, in that in the present instance respondents have been clearly put on notice as to the nature of the violation. In the order itself, the Deputy Collector has indicated that the penalty is under Rule 173Q (b) and (d). Thus, we find no illegality in the show cause notice or the order on the score of vagueness.

34. Accordingly we set aside the order of the Collector of Central Excise (Appeals) appealed against and restore the order of the Deputy Collector of Central Excise dated 12-5-83 with the following modifications : (a) The order of confiscation of the goods under the following serial numbers referred to in para 1 of the Deputy Collector's order, under Rule 226, Rule 173Q (1) (b) read with Rule 226, and under Rule 173Q (1) (b) read with Rules 173G (4) and 53 is upheld : Serial Nos. 1, 2, 3, 6, 7 (i), 9 and 13. However an option is given to the respondents to redeem the same on payment of a fine of Rs. 18,000/- (Rupees eighteen thousand only); (b) the order in so far it relates to confiscation of goods, other than those referred to in (a) above is set aside, giving the benefit of doubt regarding completion of packing to the respondents; and (c) regarding the imposition of penalty under Rule 173Q, to the extent that it relates to Rule 173Q (b), it is confirmed; the penalty imposed on the respondents is reduced from Rs. 25,000/- to Rs. 9,000/-(Rupees nine thousand only).

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