1. This is a revision petition filed before the Government of India which on transfer to this Tribunal is being treated as an appeal.
2. The appellants are a Partnership concern functioning within the jurisdiction of Cochin Collectorate. They are manufacturers of rubber products falling under Tariff Item 16-A (2). Among other items they also manufacture tread rubber, cushion compound, and cushion backed tread rubber. The cushion compound manufactured in the factory was used by the appellants within the factory for the manufacture of cushion backed tread rubber and without payment of duty. Cushion compound manufactured and consumed by the unit would fall under Tariff Item 16-A (2) and the same was not exempted from payment of duty till the issue of Notification No. 208/72-C.E., dated 14-10-1972.
3. On 20-9-1974 a show cause notice was issued to the appellants, stating, that duty on cushion compound used for captive consumption within the factory for backing tread rubber was not levied prior to 14-10-1972. For the period 1-4-1968 to 13-10-1972 there was a demand for the non-levy of excise duty of Rs. 1,24,371.18. The appellants were directed to show cause why they should not be required to pay the amount. In their reply the appellants submitted, that the Range officers had mentioned the products as 'cushion compound', whereas the product was known in trade parlance as "cushion" used for backing tread rubber. It is only an intermediary product which is not excisable. The appellants contended that the demand of duty on "cushion" amounts to double taxation as excise duty was payable only on the final product, namely, 'Tread rubber with cushion backing'. They urged that the "cushion" could not in any way be used for retreading or resoling purposes. They also objected to the demand on the ground that Rule 9 (2) of the Central Excise Rules, 1944 would not apply, as there was no surreptitious or clandestine removal.
4. After due notice to the party there was an enquiry and the Assistant Collector of Central Excise, Kottayam passed orders on 16-11-1978. In this order he rejected the contention of the appellants that 'cushion compound' used for backed tread rubber was not taxable, for, the products, tread rubber without cushion backing and cushion compound, were separately available in the market. He relied on the decision of the Kerala High Court in O.P. Nos. 1461-1464 of 1972 by some of the assessees in Changanacherry MOR and the Hon'ble High Court vide judgment dated 16-1-1974 had held that cushion compound captively consumed was a product falling directly within the description given against sub-item No. 2 of Item 16-A (2) and that the levy of of excise duty in respect of the said item was correct in law. The Assistant Collector also held that Rule 9 (2) would be applicable as the removal amounted to clandestine removal. The Appellate Collector of Customs and Central Excise, Madras confirmed these findings by his order dated 12-6-1980. Hence the revision.
5. Shri Markose Vellapally, the learned counsel for the appellants reiterated the grounds as put forward before the lower authorities. He argued that taxation of 'cushion compound' would amount to double taxation. According to him, the exemption Notification No. 208/72-C.E., dated 14-10-1972 was only clarificatory in nature and confirmed the earlier position that the cushion compound was not taxable. He relied on the decision reported in 1983 E.L.T. 1123 (Golden Paper Udyog (P) Ltd., Faridabad v. Collector of Central Excise, Delhi) and 1984 (16) E.L.T. 344 (Hico Products, Bombay v. Collector of Central Excise, Bombay) in support of his case. Regarding demand under Rule 9 (2) he urged that there was a demand only after the confirmation of the show cause notice by the Assistant Collector of Central Excise, Kottayam under the Order-in-Original. He also urged that there was no clandestine removal since entries were made in RG-1 and RG-12. He produced extracts from the Stock Register to indicate that 'cushion compound' was shown as one of the items manufactured by the appellants.
The main thrust of the argument was that the show cause notice should not be taken as a "demand". He placed reliance on the ruling reported in 1978 E.L.T. (J 399) N.B. Sanjana, Assistant Collector of Central Excise, Bombay and Ors. v. The Elphistone Spinning and Weaving Mills Co. Ltd.) and argued that there was no clandestine removal as the Department was aware of the captive consumption of the goods.
6. Shri N.V. Raghavan Iyer, JCDR and Smt. Dolly Saxena, SDR appeared for the department. They drew our attention to the fact that identical issues were considered in the earlier orders of this Tribunal in ED (SB) (T) A. No. 204/80-D (Order No. 756/83-D, dated 21-11-1983) (M/s.
Rani Rubber Factory, Changnacherry, Kerala v. Collector of Central Excise, Cochin) and also in ED (SB)(T) 187/80-D (Order No. 633/83-D, dated 15-10-1983) (M/s. Ruby Rubber Works Ltd., Changanacherry, Kerala v. Collector of Central Excise, Cochin). Shri Raghavan Iyer urged that notice to show cause itself was a demand under Rule 9(2). He also urged that since the proceedings under Rule 9(2) were also quasi-judicial proceedings there is reference to showing cause against the imposition of the demand. He placed reliance on AIR 1971 Bombay 386 (Prakash Cotton Mills Pvt. Ltd. v. B.N. Rangwani).
7. It is manifest from the materials placed that the appellants manufactured cushion compound during the period 1-4-1968 to 13-10-1972 (the period covered under the show cause notice) and captively used the same for production of cushion backed tread rubber. The appellants have not paid excise duty on the item. Under Notification No. 208/72-C.E., dated 14-10-1972 the Government exempted 'cushion compound' falling under sub-item (2) of Item No. 16-A of the First Schedule, used within the factory of manufacture for further production of rubber products falling under the said sub-item. It is well settled that a Notification is prospective in character unless a specific indication is given in the Notification itself that it is retrospective. Notification No.208/72 does not purport to be retrospective. In order to get over this contingency, the learned counsel for the appellants urged that the exemption notification was only clarificatory. We do not accept this contention in the absence of any material to support his plea. It may be safely concluded that prior to 13-10-1972 cushion compound used in the factory for the manufacture of cushion backed tread rubber was chargeable to duty. The plea of double taxation was considered in the earlier appeals cited supra and the same was negatived. Further, in 1982 E.L.T. 937 (All.) (Oudh Sugar Mills Ltd. v. Union of India and Ors.) "As cumulative reading of Rules 9 and 49 of the Central Excise Rules does not lead to any other conclusion except that so far as intermediate product is concerned, it is goods by itself and used in captive consumption for manufacturing of another by-product in the same compound and becomes chargeable to duty the moment it is removed in any manner out of the place where it is manufactured or produced in that campus or compound within those boundaries or is removed from the storage or storerooms where it collects after it comes into existence as a result of manufacturing process of the end-product for which the factory is established." We also notice that the question of dutiability of the goods has been upheld by the Kerala High Court in O.P. Nos. 1461-1464 of 1972. In view of the settled legal position, it is no longer open to the appellants to state that the product is not dutiable.
8. Shri Vellapally mainly emphasised that in any event there was no "clandestine removal" and hence the demand could not be sustained. Even at the outset we must say, that we are not impressed with his contention that the show cause notice issued on 20-9-1974 is not a demand as contemplated under Rule 9(2). In this notice, the period for which the non-levy is stated and the amount of levy has been specified.
The grounds on which the claim was made has also been set out therein.
Rule 9(1) envisages the leviability of excise duty on excisable goods removed from any place where they are produced, cured or manufactured, etc. Rule 9(2) contemplates that if any excisable goods are removed in contravention of Sub-rule (1) then the duty is leviable on such goods upon a written demand made within the specified period. The demand under Rule 9(2) had been issued in this case in the form of a show cause notice because the proceedings under Rule 9(2) are quasi-judicial. The appellants should be afforded an opportunity to show cause why the demand should not be imposed. There is no force in the contention of the learned counsel for the appellants that the order-in-original alone amounts to a demand.
9. It was vehemently urged on behalf of the appellants that there was no surreptitious removal of the product inasmuch as the stock books and the RG-l returns contained reference to "cushion compound". The extracts were produced before us and they were not disputed by the department. Nevertheless, as rightly urged by Shri Raghavan Iyer, the accounts are only from 2-2-1972 and the prior accounts have not been produced. That apart, the classification lists which form the basis for assessments have not been filed. If the classification lists had been produced, they would indicate whether the removal of these goods by the appellants was brought to the notice of the proper authorities. In the absence of the gate passes or the classification lists we are unable to hold, that on the basis of the entries in the stock taking report or RG-1 for the period from February 1972, knowledge for the earlier period could be attributed to the department. The appellants were admittedly clearing the cushion compound without payment of duty. It has been held in Ceakay Rubber Industries v. Collector of Central Excise, Madras [1983 ECR 687D (Cegat)] that if the party did not disclose the fact of manufacture and use of the goods, it would be a case attracting Rule 9(2). In the present case, it is clear on facts that even the factum of manufacture of goods in order that they were consumed in the factory was not brought to the notice of the Excise department. We may also point out that identical issues were considered in the case of M/s. Ruby Rubber Works Ltd. (Order No. 633/83-D, dated 15-10-1983) (supra) and the contentions were repelled. The ratio of that decision will apply to the facts of the present case. In 1981 E.L.T. 97 (Del.) (Gopal Paper and Board Mills, v. Union of India and Ors.) the Delhi High Court "...Rule 9(2) would apply in every case. Where, however, there has been a mis-statement on the part of the petitioner with regard to the quantity, description or value of the goods which are cleared, Rule 10 would apply. As already observed, a mis-statement can take place only if some statement has been made in respect of those goods by the petitioner. The finding of fact of the Excise Authorities in this case is that in respect of the goods in question no statement at all was made, either in the excise records or by issuance of the gate pass. This being the case, the provisions of Rule 10 can have no application and the case would be covered by Rule 9(2) or even Rule 10A." Under the circumstances we are of the view that the demand is in time for the period prior to 2-2-1972. It is, however, time-barred under Rule 10 for the period from 2-2-1972 to 13-10-1972 since during this period the department had the knowledge that the appellants were using cushion compound captively without paying duty thereon.
10. An additional plea has been taken that the different rates of duty prevailing at the time of captive consumption have not been set out in the show cause notice and there is an error in the calculation at a uniform rate, Moreover, there should be exclusion of charges towards cutting, packaging, etc. We find that in the earlier decision in Order No. 633/83-D, dated 15-10-1983 (supra) such a plea raised by the appellants was upheld. We also notice that duty has been calculated at a flat rate, though it appears, that there were various ates of duty during the period covered in the show cause notice.
11. In the result, we allow the appeal partially, in the following terms :- (i) The demand, insofar as it relates to the period from 2-2-1972 onwards, is set aside on the ground of time-bar under Rule 10 of the Central Excise Rules, 1944; (ii) On the question of rate applicable as well as computation of the duty on the appropriate assessable value for the period prior to 2-2-1972 the matter is remanded to the Collector (Appeals) of Central Excise, Madras with directions to re-assess the duty in the light of the observations contained in this order as well as other decisions of this Tribunal in Orders No. 633/83-D, dated 15-10-1983 (Ruby Rubber Works Ltd., Changanacherry, Kerala v. Collector of Central Excise, Cochin) and No.Rani Rubber Factory, Changanacherry, Kerala v. Collector of Central Excise, Cochin).