1. This is an appeal against Order-in-Original No. 13/MP/83 dated 30-11-1983 passed by the Collector of Central Excise, Baroda. The facts of the case, briefly stated, are that Central Excise Preventive Officers of Bulsar Division paid a surprise visit on 30-1-1983 to the factory premises of M/s. Growel Chromates, a division of M/s. Grauer and Weil (India) Ltd., Bombay (hereinafter referred to as "the appellants") situated in plot No. 407, G.I.D.C., Vapi. It was found that Sodium Bichromate (falling under Item No. 14AA of the First Schedule to the Central Excise and Salt Act - GET, for short - and for which they held a licence) manufactured by them was removed on payment of duty under gate passes for captive consumption to their chromic acid sections situated adjoining their manufacturing premises, for the manufacture of chromic acid flakes (falling under Item No. 68 GET). The chromic acid flakes were found to be manufactured with the aid of power and removed under the delivery challans of the appellants without payment of duty. The officers detained 98 drums (4,900 kgs.) of chromic acid flakes lying in the chromic acid section for enquiries. On a subsequent visit on 2-2-1983, 126 drums (this included the 98 drums detained earlier), of chromic acid flakes (6,300 kgs. - valued at Rs. 1,89,000) in fully manufactured condition were seized in the belief that the goods were liable to confiscation as the appellants were not entitled to duty exemption under notification No. 46/81 dated 1-3-1981.
The goods were subsequently released to the appellants against a bond.
On investigation of the case, the department considered that the appellants had wrongfully availed themselves of duty exemption under notification 46/81 on the basis that the chromic acid section was not a "factory" within the meaning of the term in Section 2(m) of the Factories Act, 1948, though, according to the department, the said section, was part and parcel, of the appellants' factory. In due course, a notice was issued to the appellants on 14-7-1983 charging them with contravention of Central Excise Rule 173F read with Rule 9(1), Rule 173-B, Rule 173-C, Rule 173-G(2) read with Rule 52-A, Rule 173~G(4) read with Rule 53. They were called upon to show cause why penalty should not be imposed on them, why the goods seized and subsequently provisionally released should not be confiscated and why they should not be called upon to pay duty on 1,52,950 Kgs. of chromic acid flakes valued at Rs. 44,95,475.00 illicitly manufactured and cleared during the period from September, 1981 to January, 1983. The show cause notice said that the chromic acid section was nothing but a part of the appellants' factory since it was served by common electric and water connections, the payments for the same and the salaries of the staff and workers were paid by the appellants and further the raw material was supplied by the appellants and the final product was removed on the delivery challans of the appellants.
In due course, on consideration of the written and oral submissions of the appellants, the Collector, by his impugned order No. 13/MP/83 dated 30-11-1983, held that the charges levelled against the appellants were conclusively proved. He imposed a penalty of Rs. 5,00,000/- on M/s.
Growel Chromates of Vapi under Rule 173Q(1); he confiscated the chromic acid flakes valued at Rs. 1,89,000/- earlier seized and provisionally released under Rule 173Q(1) and ordered the appellants to pay a fine of Rs. 1,89,000/- in lieu of confiscation; he ordered that, on redemption, the confiscated goods should be properly accounted for by the appellants and cleared in accordance with law, if not already done and finally, he ordered M/s. Growel Chromates of Vapi to pay excise duty at the appropriate rates under item 68, GET on chromic acid flakes valued at. Rs. 44,95,475/- illicitly manufactured and cleared without payment of the duty leviable thereon during the period from September, 1981 to January, 1983 under the proviso to Section 11A(1) of the Central Excises and Salt Act, 1944 read with Central Excise Rule 9(2).
2. We have heard Shri K. Narasimhan, Advocate for the appellants and Smt. Vijay Zutshi, Senior Departmental Representative, for the Respondent-Collector. We have also gone through the record.
3. Notification No. 46/81 which is central to the dispute reads as follows : "In exercise of the powers conferred by Sub-rule (1) of Rule 8 of the Central Excise Rules, 1944, and in suppression of the notification of the Government of India, in the Ministry of Finance (Department of Revenue), No. 85/79-Central Excises, dated the 1st March, 1979, the Central Government hereby exempts all goods, falling under Item No. 68 of the First Schedule to the Central Excises and Salt Act, 1944 (1 of 1944), other than goods manufactured in a factory, from the whole of the duty of excise leviable thereon.
Explanation : In this notification, the expression "factory" has the meaning assigned to it in Clause (m) of Section 2 of the Factories Act, 1948 (63" of 1948).
2. This notification shall come into force with effect, from the 1st April, 1981." 4. Section 2(m) of the Factories Act, 1948, in so far as it is relevant for our present purpose reads thus : (i) whereon ten or more workers are working, or were working on any day of the preceding twelve months and in any part of which a manufacturing process is being carried on with the aid of power, or is ordinarily so carried on,'.
5. It is the appellants' contention that the chromic acid section of the appellants' premises constituted a unit different from the unit where sodium bichromate was being manufactured and that the chromic acid' unit was not a "factory" within the meaning of Section 2(m) of the Factories Act. If this contention is correct, then, the chromic acid manufactured therein would not attract duty under item No. 68-CET and the Department's case fails. On the other hand, if the appellants' contention is not correct, then, the chromic acid manufactured in the said unit would attract duty under item 68 GET and we will have to examine the other contentions of the appellants.
6. Shri Narasimhan's contention is that, in terms of Section 2(m) of the Factories Act, different manufacturing activities carried out in different sections of a premise might not be combined or aggregated.
What matters is whether in the part of the premises where a manufacturing activity is being carried on with the aid of power, ten or more workers are working, or were working on any day of the preceding twelve months. Since this condition is not fulfilled, the chromic acid section does not come within the mischief of Section 2(m) of the Factories Act. Considerations of common ownership, payment of electricity and water charges etc. are not relevant for determining whether the chromic acid section is a "factory" or not.
7. In support of his contention, Shri Narasimhan relied upon the decision of the Madras High Court in the case of K.V.V. Sarma, Manager, Gemini Studios, Madras, A.I.R. 1953 (Madras) 269. In this case, the Court was concerned with the interpretation of the Factories Act, 1948, the Payment of Wages Act, 1936 and the Workmen Compensation Act, 1923.
The main question was whether the studio in which films were produced was a "factory" within the meaning of the term in the Factories Act and whether the persons employed were "workers" as defined in the Act. The case was an appeal against the conviction of the Manager of the Gemini Studios, Madras for having contravened the provisions of the Factories Act. The appellant contended that except for the three departments connected with carpenters, moulders and tinkers, the rest of the portions of the studio could not be called "factory" and that these three departments were housed in a separate building where all the requirements of the Factories Act had been attended to. It was stated that there were a number of buildings in the Gemini Studios in which various departments were housed. The Court observed that each of these buildings would be a factory if they employed 10 or more workers as defined in Section 2(1) of the Factories Act. The Court also considered the further question whether, if any of these departments was a "factory" as being situated within the precincts of the Gemini Studios, then it was legally possible to separate these departments from others which could not be styled as "factories". The building where carpenters, moulders and tinkers were carrying on their work was admittedly a factory. It was permissible to separate the carpentary, moulding and tinkering departments which were really unnecessary for the production of films from the others. There was no evidence to show that the other Departments were so intertwined as to be a composite one without being able to be separated. The Court said that it was possible, even if some of these Departments or factories separated those which were not factories from those which were factories.
This decision, in our view, is not of any assistance to the appellants.
It could be said that carpentry and such activities are not integral to filmmaking. In the present case, the chromic acid section was admittedly served by the same electricity and water connections.
Payments for electricity and water were made by the appellants for the chromic acid section as well as the other sections. The wages and salaries of the workers in the chromic acid section were paid by the appellants. The raw material sodium bichromate was supplied by the appellants to the chromic acid section and the chromic acid manufactured out of the sodium bichromate was removed under the appellants' challans.
Shri Narasimhan's contention that chromic acid could be manufactured out of sodium bichromate brought from outside (and not from the appellants' production) and that, therefore, the manufacture of chromic acid could not be said to be a manufacturing activity dependent on that of manufacture of sodium bichromate misses the realities of the situation. If, indeed, the appellant was not having any manufacturing activity besides the manufacture of chromic acid, the picture would have been entirely different. Here, the appellants were engaged in the manufacture of sodium bichromate, a vital input for manufacture of chromic acid and using it as such. How the two activities can be said to be independent of each other passes our comprehension, especially considering the other features of the case, i.e. common water and power connections, common payments for these facilities, common payments to workers, common delivery challans, etc. This is not, therefore, a case in which it can be said that the activities in the chromic acid section were not connected with but were totally independent of the activities in the rest of the premises.
8. The next decision relied upon by Shri Narasimhan is that of Allahabad High Court reported in AIR 1955 (Allahabad) 702. The Court held that composition is a necessary part of the process of printing itself and is included in the definition of the expression "manufacturing process". The Court rejected the contention that the expression should be confined to the process by which impression is created on paper and to no other process preceding or succeeding of the making of the impression on the paper to be printed. Everything that is necessary before or after to complete the process would be included within the definition. In this view, the Court held that the composing section of the newspaper which was located on a particular road came within the definition of the word "factory" though the actual printing of the newspaper took place at a premise located on a different road.
This decision, again, in our view, cannot come to the rescue of the appellants since it was rendered in the context of a dispute regarding payment of wages and we are not able to read from the judgment, even by implication, that a part of the premises belonging to a manufacturer could be segregated from the rest of the premises and a manufacturing activity could be carried on in the part so segregated such that that part of the premises may escape the mischief of section 2(m) of the Factories Act. In the case before the Court, two premises situated on two different roads were held by the Court to be "factories" because the activities in one were held to be crucial to those in the latter.
In the case before us, both units are in the same plot and have common power, water connections, etc. The activities in the two units are not unrelated.
9. The third decision is that of the Bombay High Court in Kaushalya Narayanan and Ors. v. Dadajee Dhackjee & Co. (P) Ltd., 1980 ELT 102 (Bom). What the Court said was that it was not permissible to interpret the words "any manufacturing process" in the definition of "worker" in Section 2(1) of the Factories Act so as to include within its scope manufacturing or production of excisable goods. A process which has nothing to do with the manufacture or production of excisable goods and person's employed in such a process are not to be taken into account.
In this view, the Court held that only the workers employed in the manufacture or assembly of batteries should be taken into account and not those engaged in repairs to motor cars or in recharging of batteries since no manufacturing or production of excisable commodity or goods was carried on in those sections. The Court further held that regard should be had to the number of workers employed in the manufacturing process connected with or incidental to the assembling of batteries.
This decision, again, in our view, does not help the appellants. Unlike in the above case, where, as a matter of fact, it was found by the Court that neither in the motor vehicle repair section nor in the battery recharging section was any manufacturing process connected with the production of batteries was carried on, in the case before us, the manufacture of sodium bichromate, the essential input for manufacture of chromic acid, was being carried or in the appellants' premises and that sodium bichromate was being supplied to the chromic acid section for production of chromic acid. We do not see how it can be said that manufacture of sodium bichromate was a process totally unconnected with the manufacture of chromic acid given the facts and circumstances of the case.
10. On her part, Smt. Vijay Zutshi, SDR, relied on the Bombay High Court decision in Jaichand Somchand Shah v. Vithal Baji Rao Maratha, AIR 1933 Bombay 109. The Court was concerned with Section 2(3)(a) of the Factories Act, 1911 which defined "factory" thus :- "any premises wherein or within the precincts of which on any one day in the year not less than twenty persons are simultaneously employed and steam, water or other mechanical power or electrical power is used." The Court held that the above section was intended not to cover merely incidental business in any premises but was intended to denote any premises as a composite whole with a central source of power and that a saw mill and a ginning factory under the same roof and worked by the same motive power was a "factory".
Though this decision was rendered in the context of the definition in the 1911 Act, it nevertheless constitutes an authority for the proposition that a premise in which unrelated (in the present case, the activities are related) activities are being carried on with a central common source of power constitutes a "factory". Shri Narasimhan urged that this would not be a true test especially in the context of industrial estates where the source of power may be common for a number of factories. But then each factory would pay its own bills which was not the case with the chromic acid section here.
Smt. Vijay Zutshi cited also the Tribunal's Order No. 227-234/85-C dated 4-3-1985 in the Tide Water Oil Co. Ltd. case. We have gone through the order. The dispute in that case was on the question who should be taken to be workers for the purpose of duty exemption. The question was not about the number of workers which was 56. The assessee claimed that only those workers who were engaged directly in the manufacturing processes should be considered as workers for the purpose of exemption and not workers like durwans, sweepers, etc. The decision of the Tribunal in that case has no relevance to the present matter as riqhtly contended by Shri Narasimhan.
11. Shri Narasimhan had contended that all that Section 2(m) of the Factories Act, 1948, laid down was that the number of workers in the precincts in which each manufacturing activity took place should conform to the prescribed form. The argument appears to be that if in any premise, different manufacturing activities are carried out in different precincts or parts thereof, and the number of workers in any such manufacturing activity is less than 10, then, such precint or part of the premise would not constitute a "factory". It appears to us that such an interpretation is a strained one and does not seem to flow naturally from the definition clause. If this were the correct interpretation, it would not be difficult - at least in some situations - to so arrange affairs that a premise having many manufacturing activities using power and having considerably more than 10 workers may yet. escape the mischief of the definition. That is not the intention is, in our view, clear from a reading of Section 4 of the Factories Act : "4. Power to declare different departments to be separate factories or two or more factories to be a single factory. - The State Government may, on an application made in this behalf by an occupier, direct, by an order in writing, that for all or any of the purposes of this Act different departments or branches of a factory of the occupier specified in the application shall be treated as separate factories or that two or more factories of the occupier specified in the application shall be treated as a single factory." No such order as envisaged in the above Section in respect of the chromic acid section has been produced before us.
12. This brings us to another aspect of the case. It is that, according to the appellants, the Factories Act authorities had declared in the lay-out plan of the factory that the chromic acid section was not a "factory" in the words : "This premises does not come under Section 2(m) of the Factory Act, 1948". Strangely enough, such an important notation has not been signed by a duly empowered officer administering the Factories Act. Shri Narasimhan told us in the course of the hearing that the notation was made by the appellants themselves. That this was so is confirmed by a perusal of the letter dated 20-6-1983 from the appellants to the Senior Factory Inspector, Bulsar in which it is stated that the appellants had demarcated the chromic acid section and had shown it as not a "factory" within the meaning of the Factories Act, 1948. The entire ground plan was, according to Shri Narasimhan, approved by the Factories Act authorities. It was not necessary that each and every notation, in the plan had to be separately signed by the authorities. This is rather strange logic. The conseguences of a part of the factory premises being declared to be not a "factory" are quite significant. That part goes out of the mischief of the Factories Act, together with the responsibilities, duties and obligations cast upon the "occupier" of the Factory by or under the Act. Surely, one would have thought that such an important notation would have been got signed by the authorities. Let us, however, examine the evidence on record on this aspect. The show cause notice dated 7-1-1983 issued by the Supdt.
of Central Excise alleged, inter alia, that the chromic acid section was nothing but a part of the assessee's factory and that the said section could not be stated to be a separate one. The notice further stated that the documents relied upon for the purpose of the notice were listed in the annexure attached to the notice, and copies thereof, wherever not earlier supplied were enclosed or would be made available for inspection, on demand being made. The annexure lists at serial No.10 "Letter No. 2199 dated 25-5-1983 of the Senior Inspector of Factories, Bulsar" with the remark "available for inspection".
Referring to this letter in their reply dated 30-8-1983 to the notice, the appellants stated that they had not received such a letter from the Senior Inspector of Factories, Bulsar or a copy thereof from the department along with the show cause notice. They, therefore, wanted inspection of the said letter. There is no indication in the record whether the appellants took inspection of the said letter. The memorandum of appeal does not say that inspection was refused. When the show cause notice said the document was available for inspection, it was upto the appellants to have availed themselves of the offer. Shri Narasimhan made the point that the said letter had been made use by the Collector without the same having been disclosed to the appellants.
However, he did not press for a remand of the case to the lower authorities on this score. Aside from this, certain correspondence exchanged between the appellants and the Inspector of Factories, Bulsar (copies at pages 98-101 of the appellants' paper book) show that the appellants were aware of the objection taken by the latter with respect to the chromic acid section. From the letter of 27-5-1983 to the appellants, it is seen that the drawing in connection with the bichromate division, approved on 9-2-1982, did not include the chromic acid division plant. The letter asks the appellants to produce copies of drawing of extension of chromic acid plant with details. The letter also refers to the remarks made on 19-5-1983 by the Junior Factory Inspector in thye appellants' register. The said remark is to the effect that in the plan earlier approved on 9-2-1982, the chromic acid section was not shown. It calls upon the appellants to submit plans and particulars regarding the chromic acid section. The appellants in their letter of 20-6-1983 contends that the approved drawing clearly showed the details of the chromic acid section and that it was confirmed that the said section would be segregated from the bichromate section by ordinary fencing and, therefore, the chromic acid' section would not be treated as a "factory" under Section 2(m) of the Factories Act, 1948.
There was no intention to extend the premises or vary or alter the approved premises. It is Mr. Narasimhan's contention that despite the threat of legal action, nothing further has been heard in the matter from the Inspectorate of Factories.
It is thus seen that, to put it mildly, there is serious doubt whether the Inspectorate of Factories had, in fact, approved the appellants' declaration that the chromic acid section was not a "factory" within the meaning of Section 2(m) of the Factories Act. Quite apart from this, we have discussed earlier the authorities cited before us and found that the chromic acid section could not be said to be not a "factory" since it was an integral part of the appellants' factory premises. The fact that less than 10 workers were employed in the chromic acid section - which fact has not been challenged by the Respondent - is of no avail since the entire premises comprising also of the chromic acid section was, admittedly, a "factory". In this view of the matter, the benefit of Central Excise Notification No. 46/81 was rightly denied to the appellants in so far as chromic acid was concerned.
13. Now, let us turn to the limitation aspect. The show cause notice dated 7-1-1983 called upon the appellants to explain why duty should not be recovered on chromic acid manufactured and cleared during the period from September, 1981 to January, 1983 under the proviso to Sub-section (1) of Section 11-A of the Central Excises & Salt Act read with Rule 9(2). The extended period of five years could have been invoked by the department only if there was fraud, collusion or any wilful misstatement or suppression of facts, or contravention of any of the provisions of the Act or the Rules with intent to evade payment of duty. The show cause notice, as noted earlier, alleged that the appellants had wrongfully availed themselves of exemption from duty on chromic acid by treating the chromic acid section to be not a "factory" within the meaning of Section 2 (m) of the Factories Act. We have already found that the chromic acid section was part of the appellants' premises and it could not be considered to be not a "factory". The corollary is that the duty exemption which was not due was wrongfully availed of.
14. Shri Narasimhan drew our attention to the declaration dated 15-4-1981 filed by Growel Chromates before the Supdt. of Central Excise (page 22-23, Paper book). This declaration was required from manufacturers who fell in the exempted sector - exempted from duty and from licensing. Against the column "Reference to the notification under which exemption from duty is claimed" is the remark "105/80 dated 19-6-1980. Notification No. 92/81 (Not falling under Factories Act having less than 10 workers)". It must be noted that notification 105/80 has no application to the present case. It pertains to factories wherein the total investment on plant and machinery is not over Rs. 10 lakhs). At the time of the hearing, Smt. Zutshi, however, produced before us the original of the declaration form (a photo copy is on the file) in which the remark "Not. No. 92/81. Not falling under Factories Act having less than 10 workers" does not appear. The copy filed in the paper book is apparently not a true copy. When this discrepancy was pointed out, the Counsel for the appellants said that the declaration was not of the appellants but that of Growel Chromates Pvt. Ltd. This firm was taken over by the appellants on 2-9-1981. On 19-9-1981, the appellants wrote further to the declaration of 15-4-1981 to say that the premises wherein chromic acid was manufactured was not a factory within the meaning of Section 2(m) of the Factories Act, 1948. It further said the premises were completely segregated and that the goods manufactured therein were exempted from duty by virtue of notification No. 46/81 dated 1-3-1981 as amended by notification No. 92/81 dated 1-4-1981. It is Shri Narasimhan's contention that both Growel Chromates Pvt. Ltd. before its take-over by the appellants as well as the appellants genuinely believed that the chromic acid section and the sodium bichromate section were different units, the former, however, not being a "factory". The premises were, according to Shri Narasimhan, inspected by the Central Excise authorities on 8-12-1981 and 19-2-1982.
Therefore, Shri Narasimhan said, it was not as though the department was not aware of or was not kept informed of the state of affairs. In fact, the sodium bichromate manufactured by the appellants was transferred to the chromic acid section for manufacture of the acid during the period. The department, however, did not at any time raise any objection.
15. Smt. Zutshi, however, argued that the appellants' letter dated 19-9-1981 by itself and without the department's reply did not constitute or amount to the department's permission or approval to the chromic acid section being considered as not a "factory". The ground plan submitted to the department by the appellants for approval of licence for manufacture of sodium bichromate did not show the chromic acid section. Had it shown that section with the appellants' stand being made clear as to the non-"factory" status of the said section, things might have been different. The statements recorded during the investigation showed that the chromic acid section was part of the appellants' factory premises.
16. We have carefully considered the material on record and the submissions before us. It is the position of the appellants (as see from their averments in W.P. 3470 of 1983 filed before the Gujarat High Court) that the ground plan submitted to the Inspectorate of Factories showed the chromic acid section separately with the legend about its not being a "factory" whereas the ground plan submitted to the Excise authorities did not show the place of manufacture of chromic acid. The verification and approval of the ground plan by the Excise authorities cannot, therefore, be taken to mean that they had approved the non-"factory" status of the chromic acid section because that section was simply not shown in the ground plan. However, it is true that the appellants, by their letter dated 19-9-1981, told the Supdt. of Central Excise about the status (according to them) of the chromic acid section and what is more important, told the Supdt. that the goods manufactured therein were exempt by virtue of notification No. 46/81 as amended by notification No. 92/81. Why the Excise authorities did not investigate the matter on receipt of this letter is a mystery and has not been explained. While the appellants have been less than candid and forthcoming in that they did not show the chromic acid section in the ground plan submitted to the Central Excise authorities, they have made their position known in their letter dated 19-9-1981 to the Supdt. It is true that this was further to Growel Chromate Pvt. Ltd.'s declaration of 15-4-1981 which, it now transpires, did not stake a claim for exemption of chromic acid under notification No. 46/81 but under notification No. 105/80. But, the letter of 19-9-1981 was from the appellants and specifically referred to the chromic acid section and the claim for exemption under notification No. 46/81. The endorsement regarding the non-"factory" status of the chromic acid section was (according to the appellants) approved by the Inspector of Factories on or around 9-2-1982 which means that the statement about the non-"factory" status of the said section in their letter of 19-9-1981 did not have the backing even of the purported approval of the Inspector of Factories. This factor, coupled with the discrepancy noticed earlier between the declaration dated 15-4-1981 filed before the department and the copy furnished in the paper book, lends support to the Collector's conclusion that the intention of the appellants was mala fide. This conclusion is further strengthened by the fact that the correspondence between the Inspector of Factories and the appellants does not bear out the letter's stand that the former had approved the non-"factory" status of the chromic acid section.
17. For availing oneself of duty exemption, the assessee has not merely to stake a claim for exemption but should have the claim accepted by the proper excise authorities. In this case, in particular, notification No. 46/81 read with Section 2(m) of the Factories Act reguired the manufacturer to fulfil one or the other of the two prescribed conditions. The basis for the claim has to be set out clearly. It is not enough to say baldly that the goods are exempt since the place of production is not a "factory", especially bearing in mind the fact that the purported approval of the Factory Inspector was of February, 1982, i.e. long after the claim of 19-9-1981 was made. It will not do to stake a claim and take it for granted that the department had accepted the claim. It is the contention of the appellants that the excise authorities had "accepted, acknowledged and recognised that the place of manufacture of chromic acid is not the (sic) "factory" and allowed us the benefit of exemption of central excise duty under the said notification." (See reply dated 30-8-1983 to the show cause notice). However, no material has been placed before us in support of this averment. We fail to see, therefore, how the question of the department abruptly and arbitrarily withdrawing the benefit of the exemption already granted could arise - nor how the question of estoppel against the department could arise.
18. Shri Narasimhan has contended before us that there has been no violation on the part of the appellants of Rule 9(1). This Rule applies only to licensed premises. The appellants had not taken out a licence in respect of the chromic acid section for manufacture of the acid.
Therefore, there could be no question of "specification" of a place or premise by the Collector or "removal" from such place or premise, as contemplated in the said Rule.
This contention is not tenable in view of the Calcutta High Court decision in N.S. Metal Industries v. Union of India and Ors. [Matter No. 226 of 1970, 1977 TLR (NOC) 31 (Cal.)]. The Court held that duty was leviable under Rule 9(2) and not Rule 10 when no licence is obtained for manufacture and the goods manufactured are removed without observing excise procedure and without payment of duty.
19. Shri Narasimhan cited certain authorities in support of the proposition that Rule 9(2) had no application to the present case. The first authority is Acme Metal Industries Pvt. Ltd. v. S.S. Pathale, Inspector of Central Excise and Ors., 1980 ELT 156 decided by the Bombay High Court. It was held that to attract the provisions of Rule 9(2), the goods should have been removed in contravention of Rule 9(1) and the removal must be clandestine and without assessment. But if the goods were cleared openly and with the knowledge and consent of the department, Rule 9(2) would not be attracted.
In the above case, certain goods were removed during the period of the dispute with assessment at nil rate of duty. The Inspector failed to enforce the provisions of law and to charge and collect the proper amount of duty leviable. Therefore, duty was short-levied through inadvertence or error on the part of the Inspector. The Court held that the demand would be governed by Rule 10 and that Rule 10A had no application.
This authority is of no avail to the appellants. We have already held on the authority of the N.S. Metal Industries case (supra) that when goods are manufactured and cleared without licence, Rule 9(2) would be attracted. Apart from this, the present case is not one where there has been any assessment. The goods were presumed by the appellants to be exempt from duty and were never presented for assessment to the proper officer.
The second authority cited is an order of the Central Government in revision in the case of Dabur Pvt. Ltd., Calcutta, 1980 ELT 117. In this case the assessee had manufactured and cleared goods after the approval of the Central Excise officers regarding the non-excisability of the goods. Against this background, the Central Government held that Rule 9(2) applies only to cases where goods are manufactured and cleared from a licensed premise fradulently without giving notice to the Central Excise officers. In the facts and circumstances of the case, the Central Government held that Rule 10 read with Rule 173-J and not Rule 9(2) was attracted.
In the case before us, the Central Excise officers had not approved the claim that the chromic acid section was not a "factory" and, therefore, the acid was exempt from duty in terms of notification No. 46/81. This decision is of no application.
20. Another point taken up by Shri Narasimhan was that the show cause notice must allege fraud, collusion or suppression in order that the longer period of 5 years for demand of duty might be attracted. He cited the Tribunal's decision in G.D. Industrial Engineering, Faridabad v. Collector of Central Excise, Chandigarh, 1983 ELT 1994. The Tribunal held therein that the show cause notice must allege fraud or mis-statement or suppression of facts and furnish particulars thereof.
Otherwise, the case would not fall within Clause (1) of proviso to Section 11A of the Central Excises & Salt Act so as to attract the extended period of 5 years. Nor would the 2nd Clause of the proviso apply where there was no contravention of the Rules with intent to evade payment of duty.
In our opinion, the show cause notice sets out sufficient particulars and lays a foundation for the charge of suppression of the fact that the chromic acid section was a "factory". We have already found that in the facts and circumstances of the case the malafide intention of the appellants was apparent. In this view, the decision cited is of no help to the appellants.Shri Ram Piston & Rings Ltd., Ghaziabad v. Collector of Central Excise, Meerut, 1983 ELT 1927. Here again, the Tribunal said that if there was no allegation of fraud or mis-statement or suppression of facts or contravention of the provisions of the Act or the Rules with intent, to evade payment of duty in the show cause notice, the extended period of 5 years would not be available. The same is the ratio of the Tribunal's decision in Ganga Spinning &. Weaving Mills, Ludhiana v. Collector of Central Excise Chandigarh-1983 ELTRaymond Woollen Mills Ltd. v.Collector of Central Excise, Bombay, 1984 (15) ELT 243. Our observations in the preceding paragraph apply here also.
22. On the subject of penalty levied by the Collector on the appellants, Shri Narasimhan submitted that there was no mens rea on their part. They had placed their cards on the table and did not hide anything from the department. They honestly believed that the chromic acid section was not a "factory" and that, therefore, the acid produced was exempt. In this background, said Shri Narasimhan, no penalty was leviable. He cited the Supreme Court's decision in Hindustan Steel Ltd. v. State of Orissa, 1978 ELT J-159. In that case, penalty was levied by the Sales Tax authorities on Hindustan Steel Ltd. for failure to register itself as a dealer. The Supreme Court said that the liability to pay penalty did not arise merely upon proof of default in registering as a dealer. An order imposing penalty for failure to carry out a statutory obligation is the result of a quasi-judicial proceeding and penalty will not ordinarily be imposed unless the party either acted deliberately in defiance of law or was guilty of conduct contumacious or dishonest or acted in conscious disregard of its obligation. The Court further held that the authority competent to impose penalty would be justified in refusing to do so when there is a technical or venial breach of the provisions of the Act or where the breach flows from a bonafide belief that the offender is not liable to act in the manner prescribed by statute.
In the case before us, the statutory obligations of the appellants did not cease merely by writing a letter on 19-9-1981 to the Supdt. of Central Excise that the chromic acid section was not a "factory" and that the goods were, therefore, exempt from duty. We have, in the earlier part of this order, analysed at length how the chromic acid section was not shown in the ground plan submitted to the Central Excise authorities for approval, how in the declaration of 15-4-1981 there was a material discrepancy between the original as produced by the departmental representative and the copy as filed in the paper-book, how the appellants had acted unilaterally and without approval of the Central Excise authorities in treating the chromic acid produced in the chromic acid section as exempt from duty and other circumstances which, in our opinion, show the mala fide intention of the appellants. We do not, therefore, think that the Supreme Court decision has any application to the present case.Cement Marketing Co.
of India Ltd. v. Assistant Commissioner of Sales Tax and Ors., 1980 ELT 295, has application to the present case. In that case, the Court held that a return cannot be said to be false unless there is an element of deliberation in it. Where the assessee does not include a particular item in the taxable turn-over under a bonafide belief that he is not liable to include it, it would not be right to brand the return as a false return inviting penalty. In the light of our finding that the appellants had mala fide intention, this decision can have no application.
23. While the imposition of penalty in the facts and circumstances of the case was correct, the amount of penalty levied was, in our opinion, excessive having regard to the duty involved. We would accordingly reduce the penalty from Rs. 5 lakhs to Rs. 1 (one) lakh only.
24. The last point remaining to be considered is Shri Narasimhan's contention that in terms of the B-11 bond executed by the appellants in order to get the goods provisionally released, they should have been asked to produce the goods before the adjudicating authority. This was, however, not done. The bond amount was ordered by the Gujarat High Court to be returned to the appellants. The goods had already been released provisionally. Nothing was, therefore, available to be confiscated by the Collector. Shri Narasimhan, therefore, submitted that there could be no fine in lieu of confiscation. The only way the Collector could have gone about was to enforce the bond in a Court of law.
We are inclined to agree with Shri Narasimhan. Once the goods are released provisionally against a bond and the goods are not physically available for confiscation, we fail to see how the Collector could have confiscated the goods and given an option to the appellants to pay a fine in lieu of confiscation to redeem the goods. The proper course would have been to enforce the bond for breach of its provisions either by forfeiting the bond amount or by enforcing the terms of the bond in a Court of law. We, therefore, set aside the order of confiscation and imposition of fine in lieu of confiscation.
25. In the result, the demand for duty by the Collector is confirmed.
The penalty is reduced to Rs. 1,00,000/- (Rupees one lakh) only. The order of the Collector confiscating a quantity of chromic acid and imposing a fine in lieu of confiscation is set aside. But for these modifications, the Collector's order is upheld. Whatever relief flows from this order must be granted to the appellants within 4 months from the date of communication of this order.