1. The facts of this ease have been set out very fully in the Order-in-Original of the Collector of Central Excise, Baroda, and it is not necessary to reproduce them. Briefly, the appellants have been manufacturing patent and proprietary medicines falling under Central Excise Tariff Item 14E and pharmacopoeial preparations falling under Tariff Item 68. During the period 1978-79 to 1982-83 (upto January '83) they were manufacturing the abovementioned goods. In regard to the pharmacopoeial preparations they were availing themselves of the benefit of exemption available to small manufacturers of goods falling under that item. In regard to the patent and proprietary medicines, they were availing themselves of the separate exemption for small manufacturers, under Notification No. 71/78, dated 1-3-78, which was subsequently replaced by Notification No. 80/80, dated 19-6-80.
2. Following a visit of the preventive staff to the factory of the appellants, a show cause notice was issued to them on 12-8-83 for wrongfully availing themselves of the exemption under Notifications No.71/78 and No. 80/80. It was alleged that during the financial years 1979-80 to 1982-83 (upto January '83), the appellants had manufactured and removed patent and proprietary medicines valued at about Rs. 12.31 lakhs from their factory, without accounting and without payment of duty. They were charged under various provisions of the Central Excise Rules for manufacture and removal of excisable goods falling under Tariff Item 14E without applying for a Central Excise licence, without filing classification lists and price-lists, without determining their liability to duty and preparing and issuing gate-passes, and without maintaining statutory accounts. They were called upon to show cause against imposition of penalty and against recovery of duty on the patent and proprietary medicines valued at about Rs. 12.31 lakhs.
3. After considering the reply of the appellants and after hearing them, the Collector held that the charges levelled against the appellants. in the show cause notice were conclusively proved, except with regard to committal of fraud. He accordingly demanded duty on the patent and proprietary medicines valued at about Rs. 12.31 lakhs held to have been illicitly manufactured and removed by them without payment of duty. As regards personal penalty, the Collector recorded that he was taking a lenient view, looking to the facts and circumstances of the case and he accordingly imposed a penalty of Rs. 10,000/-.
4. Appearing before us for the appellants, their Advocate, Shri Christian argued in great detail that they had throughout acted in good faith and disclosed all material facts to the excise anthorities.
During the relevant period both the manufacturers and the Central Excise officers in Surat Division were of the view that goods exempted from payment of the whole of the duty of excise leviable thereon were non-excisable goods. It had subsequently been clarified that this view was not correct, and they were not seeking to Advocate this view. It was, however, their case that their failure to comply with relevant Central Excise formalities, and pay duty was solely due to this general misapprehension about the legal position. In the present case, the show cause notice had been issued on 12-8-83, which was beyond six months from the period in respect of which duty had been demanded. Since they had at all times disclosed all material particulars to the excise authorities, there wa s no fraud, collusion or suppression of facts by them which would justify the invocation of the extended time-limit under Section 11A of the Central Excises and Salt Act. Accordingly, the entire duty demand was time-barred. For the same reasons there was no case for imposition of a personal penalty on them.
5. In support of this basic argument, Shri Christian drew our attention to the various Central Excise documents and correspondence.
6. A copy of a classification list No. 191/76, dated 1-2-76 was referred to. This lists under Item 5, viz. "particulars of all excisable goods produced, manufactured or warehoused", 4 products falling under Item 14E. Under Item 5 of the list, showing "particulars of other goods produced or manufactured and intended to be removed by the assessee" three items have been shown such as tetracycline hydrochloride capsules. On the reverse of the form, containing the "memorandum by the Superintendent of Central Excise" there is the endorsement "All goods 1 to 3 below item goods described against serial No. (5) below item-are non-excisable", and this has been signed by the Assistant Collector of Central Excise, Surat. A subsequent classification list bears a similar endorsement dated 26-4-78 of the Assistant Collector. Thereafter the appellants did not submit classification lists, since this was not required in respect of manufacturers whose production was less than 80% of the exemption limit.
7. Shri Christian emphasized the point that in the second classification list it was specifically indicated that exemption on the Item 14E goods was being claimed in terms of Notification No. 71/78 as amended.
8. Shri Christian also drew our attention to a number of letters dated 15-1-79, 5-1-80, 1-9-80, etc. addressed to the appellants by the Superintendent of Central Excise. These are evidently in reply to letters addressed by the appellants enclosing labels of various products falling under Item 68. The letters of the Superintendent are on the following lines : "I forward herewith a set of labels of your pharmacopoeial formulations duly approved as non-excisable by the Assistant Collector of Central Excise, sent for your record." 9. Shri Christian drew our attention to a copy of a declaration dated 15-4-82 stated to have been addressed by the appellants to the Superintendent of Central Excise, enclosing a statement of the sales of their various items of patent and proprietary medicines. The statement snows in addition "sale of I.P./B.P. medicines Rs. 31,11,955/86". Shri Christian submitted that this showed very clearly the nature and value of all the goods manufactured by the appellants and they had referred to this in the reply to the show cause notice. This was also mentioned at the personal hearing before the Collector, but it was discounted by the Collector with the remark that the appellants could not produce an acknowledgment of the officer for receipt of the same. Shri Christian submitted that the Collector had not troubled to verify whether the declaration was in fact received in the office of the Superintendent.
He further submitted that it was a well-known fact that at the relevant time the Central Excise officers were very much over-worked, and had a heavy accumulation of papers with them. The appellants had specifically requested that the papers pending with the concerned excise officers should be checked, but this had not been done.
10. Shri Christian drew our attention to Order No. V46/15-8/OA/82, dated 20-10-83 issued by the Assistant Collector of Central Excise, Balsar in another case. In that case the assessees had taken the plea that none of the officers of Central Excise were aware of the fact that the value of fully exempted goods falling under Tariff Item 68 had to be added to the value of the specified goods to determine whether they were entitled to the exemption contained in Notification No. 80/80, dated 19-6-80. It had also been submitted that senior retired officers of the Central Excise Department shared this view, as seen from articles written by two.'such officers in the October and December 1982 issues of the Excise & Customs Reporter. The Assistant Collector had in that case accepted the pleas of the assessees and held that no suppression of facts or misstatement had been established.
11. Shri Christian stressed that the relevant Clause in the two exemption notifications referred to overall clearance of "all excisable goods". The appellants had specifically been informed by the Central Excise authorities that the Item 63 goods manufactured by them were "non-excisable". In these circumstances, if they failed to take such goods into account for the purpose of computing their total clearance of "all excisable goods", it could not be said that there was any fraud, suppression or misstatement on their part. In support of his argument he also cited certain judicial decisions.
12. Shri Christian also referred to the Collector's observation that the consultant who had previously appeared for the appellants, Shri Koruthu, had conceded that the view taken by the appellants was not correct. The Collector had held that from what was clarified by Shri Koruthu, it was quite evident that the appellants were in full knowledge of the fact that their pharmacopoeial preparations were excisable under Tariff Item 68, though exempted by notification. Shri Christian submitted that in making this observation the Collector had gone wrong. What Shri Koruthu had said referred to the position as it had become known at the time of personal hearing, whereas at the material time when the alleged offences had taken place they had been under quite a different impression.
13. Replying on behalf of the Department, Shri Senthivel submitted that there was no general confusion on the part of the Department between "non-excisable" and "exempted" goods as had been claimed by the appellants. He submitted that the appellants should have been aware of the correct position in law and should have complied with the requisite Central Excise formalities and paid the duty. Therefore, according to him, the findings of the Collector were correct and the appeal deserved to be rejected.
14. We have carefully considered the submissions on both sides. The documents presented to us show clearly that there was a misunderstanding in the minds of the concerned Central Excise officers, even at the level of the Assistant Collector. The goods falling under Item 68 but exempted from duty were termed as "non-excisable". We, therefore, find force in the submission of the appellants in this regard. Further, the classification lists we have referred to show that they had very clearly specified the goods falling under Item 68 which they were manufacturing but which according to their understanding were not excisable. The declaration dated 15-4-82 enclosed a very detailed statement of clearances of their patent and proprietary medicines and also indicated sale of I.P./B.P. medicines of value over Rs. 31 lakhs.
This had not been accepted as evidence by the Collector on the ground that the appellants could not furnish proof of receipt of the declaration. On this point the appellants had referred to alleged accumulation of papers in the office of the concerned Central Excise officers, and they have argued that if a check had been made this letter would be found to have been duly received by them. Even apart from this request, having regard to the general conduct of the appellants, we are inclined to accept that they had duly filed the declaration.
15. We, therefore, find that the appellants had at every stage furnished the Department with all material information about their operations and the goods manufactured by them. However, because of the confusion which existed as between non-excisable and exempted goods, their clearances of goods falling under Item 68 but exempted were not taken into account by the Central Excise authorities while determining their eligibility for the exemption under Notifications No. 71/78 and No. 80/80. As already stated, the show cause notice dated 12-8-83 was issued more than six months after the period which it covered (the period ending in January '83). In the circumstances set out above, this would not be a case which would justify the invocation of the extended time-limit under Section 11 A, as it cannot be said that there was any fraud or misstatement or suppression of facts by the appellants. (It is interesting that the Collector himself, in his finding, has held that the charges levelled against the appellants are conclusively proved "except with regard to committal of fraud", which is tantamount to absolving them of misstatement, etc.). We accordingly hold that the demand for duty in this case was barred by limitation. We further hold, in the light of the circumstances set out above, that there was no case for imposition of a penalty on the appellants.
16. In the result, we allow the appeal and set aside the penalty and the demand for duty.