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Tata Iron and Steel Co. Ltd. Vs. Collector of Central Excise - Court Judgment

LegalCrystal Citation
CourtCustoms Excise and Service Tax Appellate Tribunal CESTAT Delhi
Decided On
Reported in(1986)(6)LC27Tri(Delhi)
AppellantTata Iron and Steel Co. Ltd.
RespondentCollector of Central Excise
Excerpt:
1. m/s. tata iron & steel company ltd., jamshedpur had filed a revision application to the joint secretary, government of india, ministry of finance, department of revenue, new delhi, being aggrieved from order no. 71 of 1982 dated 23rd day of march, 1982 passed by the central board of excise and customs, new delhi. after coming into existence of tribunal, the said revision application was transferred to the tribunal under section 35p of the central excises and salt act, 1944 to be disposed of as an appeal.2. briefly the facts of the case are that m/s. tata iron & steel company, ltd., jamshedpur manufacture coke from coal. during the course of decarbo-nisation of coal, coke oven gas is produced. the revenue authorities during the scrutiny of the records had found that the.....
Judgment:
1. M/s. Tata Iron & Steel Company Ltd., Jamshedpur had filed a Revision application to the Joint Secretary, Government of India, Ministry of Finance, Department of Revenue, New Delhi, being aggrieved from Order No. 71 of 1982 dated 23rd day of March, 1982 passed by the Central Board of Excise and Customs, New Delhi. After coming into existence of Tribunal, the said Revision application was transferred to the Tribunal under Section 35P of the Central Excises and Salt Act, 1944 to be disposed of as an appeal.

2. Briefly the facts of the case are that M/s. Tata Iron & Steel Company, Ltd., Jamshedpur manufacture coke from coal. During the course of decarbo-nisation of coal, coke oven gas is produced. The Revenue authorities during the scrutiny of the records had found that the appellant had supplied coke oven gas to M/s. Indian Tube Company Ltd., Jamshedpur from 1st March, 1975 to 31st July, 1979 without payment of duty. A Show Cause Notice was issued to the appellant vide C. No.1730/79/1076, dated 19th September, 1979. In the said show cause notice, it was alleged by the Revenue that the assessee had contravened the provisions of Rules 9 (1), 173-B, 173-C and 226 of the Central Excise Rules, 1944 inasmuch as he had removed 156.87 million cubic metre of coke oven gas assessable under Tariff Item 68 to M/s. Indian Tube Company Ltd., Jamshedpur between 1st March, 1975 to 31st July, 1979 without payment of duty. It was further alleged that they had not submitted any classification list or price list for the above commodity. It was also alleged that the assessee had failed to maintain accounts and removed the goods without observance of Central Excise procedures. The assessee was asked to show cause to the Assistant Collector of Central Excise, Jamshedpur why duty should not be recovered from them and why penalty should not be imposed on them under Rules 9(2), 173Q and 226 of the Central Excise Rules, 1944. In all, four demands amounting to Rs. 11,63,962.77 were issued on this account.

In addition, one demand of Rs. 1,72,503.17 was also issued for the gas consumed within their factory during 1st March, 1975 to 29th April, 1975. The appellant had sent a reply dated 30th October, 1979 and had stated that (a) There was no contravention on their part part of any provisions of the Central Excises and Salt Act, 1944 or the rules made thereunder as alleged in the above show cause notice.

(b) Coke oven gas is released during the course of carbonisation of coal while manufacturing coke. Coke oven gas was always declared by the Company in the classification list as "Particulars of other goods produced or manufactured and intended to be removed by the assessee". Therefore, the goods in question had not been removed without the knowledge of the excise authorities. In 1975, when T.I. 68 was introduced, while submitting the classification list, they continued to describe this item under "Particulars of other goods produced or manufactured and intended to be removed by the assessee." (c) Coke oven gas comes out during the course of carbonisation of coal. No electric power is used in the process of carbonisation.

Therefore, this product is exempt from payment of duty as "Manufactured without the aid of power" under Notification No. 179/77, dated 18-6-1977, read with Notification No. 105/76, dated 16-3-1976.

(d) There is no contravention of Rule 173B inasmuch as the Company had already declared coke oven gas in the classification list as stated above.

(e) The demand in this case is barred by limitation under Section 11A of the Central Excises and Salt Act, 1944, inasmuch as the demand has been raised after a lapse of six months from the date of cause of action. The proviso to this section is not attracted in the absence of any intention what-so-ever on their part to contravene any provision of law, If the company is compelled to pay duty for the past period, they would suffer irreparable loss because they would not be in a position to recover the duty from their customers.

(f) The demand in this case is issued under Rule 9(2) which is not applicable in their case because the authorities themselves did not object to the clearance of goods without payment of duty. Besides, unless there is a contravention of Rule 9(1), provisions of Rule 9(2) will not be attracted.

The Assistant Collector after going through the reply to show cause notice and personal hearing, transferred the case to the Collector of Central Excise and the learned Collector of Central Excise, Patna had desired the appellant to confirm whether the defence reply filed before the Assistant Collector, Jamshedpur might be treated as defence before the Collector or whether the appellant wished to add any fresh point and the party was also asked whether the appellant wanted personal hearing or not. In reply to the said letter, the appellant stated that the defence reply filed by the Assistant Collector may be considered as reply to the Collector but had requested for personal hearing and accordingly a personal hearing was granted. It was argued before the learned Collector that what they were producing in the coke oven was coke; incidentally other by-products like sulphate of ammonia, benzene, naphthalene, etc. were also manufactured. It was further argued that the coke oven gas which comes out was not the product of their manufacturing activity. It was the by-product and was mostly used in appellants' own factory. However, soms coke oven gas was sold outside also. It was also added that this gas is not known in the market as coke oven gas. If the intention of the legislature had been to levy excise duty on it, they would have specifically included this gas in the Central Excise Tariff under Item 14H. It is also stated that they have also described this item in the classification lists both before 1975 and after 1975 as non-excisable item. These lists were duly approved by the Central Excise Department. In support of their argument, classification list No. 2/75, wherein, inter alia, coke oven gas was accepted by the Central Excise authority as non-excisable, was also produced. Another classification list No. 10/78, effective dated 15th November, 1978, was also produced. At page 25 of this classification list, it seemed that the item coke oven gas had been held by the Assistant Collector concerned as excisable. The Revenue authorities took a view that as per definition of the word 'manufacture' under Section 2(f) of the Central Excises and Salt Act, 1944, 'manufacture' includes "any process incidental or ancillary to the completion of the manufactured product". In the case of coke oven gas, starting from 1st stage, i.e., when coke is charged into the oven till the coke oven gas is taken out after undergoing various processes terminating at the gas booster state, all the processes undergone are manufacturing processes since the gas is cleared only after it is boosted by the gas boosters. The appellant had contended that he had no coke oven battery for manufacture of coke oven gas but only for manufacturing primary coke. The appellant had conceded that he was also manufacturing other by-products like ammonia sulphate, benzene, naphthalene, etc. The appellant was duly paying duty on the same and these by-products arc manufactured from the impurities which are contained in the coke oven gas as it comes out of coke oven. It was also argued that the assessec did not use any electric power for the manufacture of coke oven gas and the word 'power' with reference to Central Excise Tariff Item No. 68 is only in the context of electric power. The appellant had further contended that the Revenue had accepted the classification list No. 2/75 to the effect that the coke oven gas was not excisable and it was within the knowledge of Revenue authorities that the appellant was clearing such gas without payment of duty. The appellant had claimed the benefit of Notification No. 179/77, dated 18th of June, 1977 and had further stated, as the coke oven gas was manufactured without aid of power, it was exempted from the excise duty. For the maintenance of accounts, the appellant had stated that he was maintaining some accounts in his own way but were not maintaining in the prescribed Excise forms and their own account proformae were not approved by the Central Excise authorities. For the period 1st March, 1975 to 29lh April, 1979 for the demands of Rs 1,72,503.17, it was argued that it was used for the manufacture of excisable goods in their own factory and as such the same should have been considered as use of intermediary products. The appellant had also disputed the levy of the penalty. The Revenue authorities had verified the classification lists filed by the appellant as under :- (a) In classification list No. 2/75 effective from 1-3-1975, coke oven gas had been declared under particulars of other goods (Item No. 5) and was classified by the then Assistant Collector as non-excisable.

(b) In a subsequent classification list (No. 2/77) effective from 18-6-1977, coke oven gas was declared in Item 5 but was cancelled along with other 3 items, i.e., zinc dross, alagared, flux skimmings. Hence effectively there was no entry in Item No. 5. In memorandum of approval by the proper officer, nothing was mentioned about non-excisable goods as effectively there was no entry in Item No. 5 of the classification list.

(c) In the classification list effective during 1-3-1978 to 31-3-1978, coke oven gas was mentioned by M/s. Tisco and the same was held excisable by the Assistant Collector in his memorandum of approval.

(d) In classification list No. 7/78 effective from 1-4-1978, coke oven gas was not mentioned under particulars of other goods in Item No. 7 of the classification list by M/s. Tisco.

(e) In the classification list No. 10/78 effective from 15-11-1978, coke oven gas was held excisable by the Assistant Collector in his memorandum of approval.

The learned Collector of Central Excise had observed that the manufacture of coke oven gas starts from the first stage, i.e., when the coke is charged into the oven and is complete only when the coke oven gas is taken out after undergoing various processes including the separation of products like benzene, naphthalene, etc. during this course, electricity is being used at more than one place e.g., at the stage of primary coolers, deep coolers, in the refrigeration plant, etc. Gas which is ultimately taken out and sold by the asscssce to M/s.

Indian Tube Company, is not the same gas which is released at the time of carbonisation of coal in the coke oven. In between, a large number of processes are carried out including the separation of a number of products like sulphate of ammonia, benzene, naphthalene, etc. from the gas which is released in the oven at the first stage. The gas which is ultimately cleared from the factory is entirely different from that which is released from the oven after carbonisation of coal. The appellants' argument was that they were using electricity in the intermediary processes for the separation of other products but not for the purification of coke oven gas, while the fact is that the purification of gas takes place only because these products were removed from the gas which is admittedly done with the aid of power.

The coke oven gas supplied by the assessee to Indian Tube Company was not the same which was generated in coke oven at the time of carbonisation of coal, but the gas which was purified after taking out of it other products, admittedly the electric power was being used. The learned Collector had held that the coke oven gas supplied to M/s.

Indian Tube Company was manufactured with the aid of power and had added that the same was excisable to duty under Tariff Item 68 of the First Schedule to the Central Excises and Salt Act, 1944.

Regarding declaration of the coke oven gas in the classification lists, the appellant had claimed that they had always declared coke oven gas in the classification lists and it was accepted by the department as non-excisable. The appellant had further stated that the demand was time-barred as it was issued after more than six months of the cause of action, especially when in the classification list No. 2/75, the then Assistant Collector had approved coke oven gas as non-excisable. The learned Collector of Central Excise had held that the coke oven gas was cleared by M/s. Tisco during the period 18th June, 1977 to 31st July, 1979 and thereafter was chargeable under Tariff Item 68 of the First Schedule to the Central Excises and Salt Act, 1944 and had further held that the demands from 1-3-1975 to 17-6-1977 were time-barred and had also imposed a penalty of Rs. 6 lakhs under Rule 173Q of the Central Excise Rules, 1944. Being aggrieved from the aforesaid order, the appellant had filed an appeal before the Central Board of Excise and Customs. The Hon'ble Board had upheld the findings of the Collector of Central Excise and had rejected the appeal. Being aggrieved from the aforesaid order, the appellant has come in appeal before this Court.

3. Shri Ravinder Narain, the learned Senior Advocate, has appeared on behalf of the appellant. He has reiterated the facts. He has pleaded that the Tariff Item 68 was introduced in 1975 and the appellant was under the honest belief that it was not excisable. He has referred to classification lists and has laid a special emphasis on classification list No. 2 of 1977. The learned Advocate has pleaded that the appellant pays excise duty of about Rs. 60 crores per annum and from 1st August, 1979, the appellant is paying the excise duty on coke oven gas regularly and has pleaded that even the Collector of Central Excise has himself granted relief from 1st March, 1975 to 17th June, 1977. The learned Advocate has pleaded that in the subsequent classification lists filed by the appellant, the Revenue authorities had cut the exemption as claimed by the appellant on coke oven gas, but there was no such mention in the memorandum of approval by the proper Excise officer which is part of the classification list. The learned Advocate has pleaded that since there was no cutting on the memorandum, the appellant was under the honest belief that he was entitled to exemption. The learned Advocate has further pleaded that the learned adjudicating authority had imposed a penalty of Rs, 6 lakhs, which is highly excessive and unjustified. He has also pleaded that in the show cause notice, there is no mention for the demand of duty and there was only mention of the levy of penalty and as such there cannot be any proceedings for the demand of Central Excise duty. He further pleaded that the demand is time-barred and in the case of the appellant, six months period is applicable. There had been no suppression of facts on the part of the appellant and there is no mention of Rule 10 of the Central Excise Rules, 1944 in the show cause notice. There are also no allegations of clandestine removal. The learned Advocate has again mentioned that the coke oven gas was in the nature of waste and there was no manufacturing activity and coke oven gas was not manufactured with the aid of power. He has also referred to Notification No. 179/77, dated 18th June, 1977. He referred to the order passed by the learned Collector of Central Excise and has also referred to para Nos. 21 and 29 of the Revision application and has again mentioned that there was no mention of Rule 10 and as such the duty cannot be reserved from the appellant. He has pleaded for the acceptance of the appeal. In the alternative, he has pleaded for the reduction of penalty or remand of the case for a limited purpose for detailed observation.

4. In reply Shri V. Lakslimi Kumaran, the learned Senior Departmental Representative pleaded that the coke oven gas is obtained and fully falls within the definition of 'manufacture'. He has pleaded that the coke oven gas manufactured by the appellant comes within the definition of 'goods' and Central Excise duty is leviable. He has pleaded that the appellant cannot get the benefit of Notification No. 179/77, dated 18th June, 1977. He has referred to a judgment of the Hon'ble Kerala High Court in the case of Metro Ready-wear Company v. Collector of Customs reported in 1978 E.L.T. (J 520), where the Hon'ble High Court had held that the ironing of brassiers with electric iron amounts to a process of manufacture with the aid of power and had further held that ironing of stitched brassiers is incidental or ancillary to their manufacture since the said process was intended to give a finishing touch in order to render them marketable. He has also referred to another judgment of the CEGAT in appeal Nos. 1529/82D and 1530/82D of 1982 vide order Nos.

56 and 57/85D, where this Tribunal had held that the cutting of wires with the aid of power, done by a third person for fireworks amounts to manufacture. The learned Senior Departmental Representative has relied on the order passed by the learned Collector of Central Excise and has laid special emphasis on para No. 16 of the adjudication order which deals with the detailed process of the manufacture of coke oven gas.

The Notification No. 179/79, dated 18th June, 1977 does not help the appellant. Mr. Lakslimi Kumaran, the Senior Departmental Representative has pleaded that the argument of the learned Advocate that there was no mention of demand in the show cause notice, does not help him in any way as the demand notices were issued on the same date and there is no requirement under the law to issue a show cause notice before the issue of the demand notice, and the appellant had duly filed a consolidated reply to the demand notices. Mr. Lakshmi Kumaran, the learned Senior Departmental Representative has further pleaded that the status of the appellant is not material and no benefit should be given to him for this fact that he is paying excise duty to the tune of Rs. 60 crores per annum. He has referred to a judgment of the CEGAT in the case of Collector of Central Excise, Guntur v. Hindustan Shipyard Ltd., Visakhapatnam reported in 1984 (16) E.L.T 156, where the Tribunal had held that where neither the fact of manufacture of Floating Cassain Gate and a Flap Type Gate falling under Tariff item 68 was declared, nor classification list filed, nor shown in RG 1 and RT 12 etc., and the said goods were removed without the knowledge and permission of the excise authorities in violation of Rule 9(1), demand was validly made under the provisions of Rule 9(2) of Central Excise Rules, 1944 within a period of five years against the petitioner. The learned Senior Departmental Representative has also referred to another judgment of the CEGAT in the case of Abilities (India} Ltd. Gaziabad v. Collector of Central Excise, Meerut reported in 1984 (16) E.L.T 619 where this Tribunal had held that a note in the remarks column'this also includes Pistons meant for original equipment' cannot lead to an inference that the appellants were availing of the Notification Nos. 10)/71.-and 151/71 in respect of original equipment. .To say the least, remark vya-s Vague and was likely to mislead and had in fact misled the Excise authorities. Had the notification numbers been mentioned, the appellant would no.t have got the benefit of Notification No. 71/78. The appellants were "guilty .of suppression. He has pleaded that in the instant case, five years limitation period is applicable and not six months. He has referred to the order passed by the Hon'ble Board. He has referred to another judgment of CEGAT in the case of Shree Hanuman Metal Industries, Jagadhari v. Collector of Central Excise, Delhi reported in 1984 (18) E.L.T. 652 where the Tribunal had held that the demand was not time-barred, because the Excise Department was in full knowledge of their activities, does not have any merit. There is no clear evidence that excise authorities were in full knowledge of appellants' quantum of production. The mere fact that the excise authorities were coining to the appellants' factory, as claimed by them, would not mean that the former knew of the quantum of the appellants' production. From this state of evidence, the learned Collector was right in holding the appellants guilty of suppression of facts. He has pleaded that the levy of duty as well as the penalty is fully justified. The appeal filed by the appellant needs to be dismissed.

5. In reply Shri Revinder Narain, the learned Advocate has pleaded that in the show cause notice, there is no mention of the extended period of limitation of five years. He has referred to a judgment of the CEGAT in the case of Jay Engineering Works Ltd., Calcutta v. Collector of Central Excise, Calcutta reported in 1985 (5) E.T.R. 390, wherein the Tribunal had held that where the show cause notice did not contain any allegation or ingredient so as to attract the longer time limit of five years and that if six months' time limit was applied to the demand, the whole demand was time-barred. The departmental representative submitted that even though the show cause notice may not have contained all the details and allegations, it sufficiently complied with the requirement of law and that even if there be no fraud, collusion, wilful mis-statement or suppression of facts on the part of the appellants, the demand of duty for the longer period of five years would be legally justified. It was held in that case, there was no allegation of fraud, collusion, wilful mis-statement or suppression of facts. There was no allegation of intent to evade payment of duty. For invoking the longer time limit of five years for demand of duty, it was necessary to allege and prove the ingredients aforesaid and intent to evade payment of duty; that is lacking in the show cause notice. That not having been done, on the strength of the show cause notice the invoking of five years' period for making the demand cannot be sustained and if the shorter time limit of six months be invoked in the case, the whole demand against the appellants is time-barred. He has also referred to another judgment of the Hon'ble Madras High Court in the case of Light Roofings Ltd. v. Superintendent of Central Excise, Kancheepuram reported in 1981 E.L.T. 738, where the Hon'ble High Court had held that Rule 10 of the Central Excise Rules, provides ordinarily six months for duty short levied/non-levied and period of five years for duty not levied on account of fraud, mis-statement or suppression of facts.

Since in the instant case, the Central Excise authorities have been frequently visiting the factory seeing the process of manufacture and were determining the excisability of the goods manufactured and the show cause notice did not allege any fraud, suppression or mis-statement of facts, therefore, the period of five years as envisaged by Rule 10 would not apply. The learned Advocate has also referred to another judgment of the Bombay High Court in the case of The Calcutta Silk Mfg. Co. Ltd. v. Assistant Collector of Customs, reported in 1984 (17) E.L.T. 244 (Bom.) where the Hon'ble High Court had held that "it is not possible to appreciate how and on what basis the officer came to the conclusion that there was any collusion or any wilful mis-statement or suppression of facts on the part of the importer ... where the initiation of proceedings are challenged, then the respondents must come out with the material to establish that the officer had sufficient material, prima facie, to come to the conclusion that the duty was short levied. As the respondents have produced no material whatsoever, in my judgment, the proceedings commenced by the impugned show-cause notice are required to be struck down." The learned Advocate has referred to another judgment of the CEGAT in the case of Motilal & Company, Thane v. Collector of Central Excise, Bombay reported in 1984 (15) E.L.T. 157 where the Tribunal had held that a reading of Section 35A(3) (b) and Section 35A (4) shows that "it is the former sub-section that is applicable to the present matter and not the latter. The time limit was six months under Section 35A (3)(b) and the show cause notice in the instant case had to be issued within six months from the date of the Assistant Collector's orders as the normal time limit specified in Section 11A is six months. We also notice that in the show cause notice issued by the Collector on 7-6-1980, there was no allegation of any suppression of facts or mis-statement. Therefore, in the absence of such an allegation the extended time limit provided in Section 11A is not applicable here." The learned Advocate has also referred to another judgment of CEGAT in the case of Ashok Engineering Works v. Collector of Central Excise, Jaipur reported in 1984 E.C.R.1122 where the Tribunal had held that if the department wanted to rely on suppression of materials as a ground for claiming an extended period of limitation, the same should have been specifically set out in the show cause notice. In its absence it cannot now be argued at this stage that there was mis-statement or suppression of facts. The demand is therefore clearly time barred. The learned Advocate also referred to another judgment of the CEGAT in the case of M/s. Ravindra Steel Ltd., Nagpur v. Collector of Central Excise, Nagpur reported in 1983 E.L.T.413-1983, where the Tribunal had held that the show cause notice did not contain any allegation that part of the short levy was caused by reason of fraud etc., the time bar of 12 months was applicable and the extended period of five years was not attracted. He has laid special emphasis to para No. 10 of the said judgment. He has also pleaded that the judgment in the case of Collector of Central Excise, Guntur v.Hindustan Shipyard Ltd., Visakhapatnam reported in 1984 (16) E.L.T. 156 does not help the respondent. In that case the fact of manufacture was not intimated to the Revenue authorities and the appellant had not filed any classification list. He has also pleaded that the judgment in the case of Abilities (India) Ltd., Gaziabad v. Collector of Central Excise, Mcerut reported in 1984 (16) E.L.T. 619 also does not help the respondent. He has also referred to the judgment in the case of Shree Hanuman Metal Industries, Jagadhari v. Collector of Central Excise, Delhi reported in 1984 (18) E.L.T. 652. He has pleaded that in the case of the appellant, there is no clandestine removal by the appellant and as such the said judgment is not applicable. The learned Advocate has pleaded that no penalty can be imposed in the case of the appdlant and that there is complete absence of the element of mens rea. He has pleaded that the penalty proceedings are quasi-criminal proceedings and there is a bona fide mistake on the part of the appellant and the order to the levy of penalty of Rs. 6 lakhs should be quashed. He has referred to another judgment of the Hon'ble Supreme Court in the case of Hindustan Steel Limited v. State of Orissa reported in 1978 E.L.T. J 159, where the Hon'ble Supreme Court had held that no penalty should be imposed for technical or venial breach of legal provisions or where the breach flows from the bona fide belief that the offender is not liable to act in the manner prescribed by the statute. He has also referred to another judgment of the Hon'ble Supreme Court in the case of CIT v.Anwar Ali reported in AIR 1970 Supreme Court 1782, where the Hon'ble Supreme Court had held that the penalty proceedings are different to assessment proceedings. The learned Advocate has also referred to a judgment of the Hon'ble Madras High Court in the case of B.Lakshmichand v. Government of India reported in 1983 E.L.T. 322, where the Hon'ble Supreme Court had held that proceedings should not be allowed to be prosecuted on vague and camouflaged hypothesis and prejudice must be presumed to have been caused to the accused in those circumstances and the onus of establishing essential ingredients of a penal provision will be on the Department in the absence of any statutory provision in that behalf. The learned Advocate has also referred to another judgment in the case of Steel Authority of India Ltd., Calcutta v. Collector of Central Excise, Calcutta reported in 1983 E.L.T. 2024, where the Tribunal had held that since the show cause notice prior to the raising of demand was a statutory requirement, therefore, the demand raised straightway without following the required procedure was illegal. The contention that such practice was continuing since long would not make illegal demand as legal. The learned Advocate has pleaded for contravening the provisions of Rule 9 of the Central Excise Rules, 1944; a penalty of Rs 2,000/- can be levied. The learned Advocate has again pleaded for the acceptance of the appeal.

6. The learned Senior Departmental Representative, Shri Lakshmi Kumaran has pleaded that the learned Advocate has cited some more judgments in reply to his arguments and as such he should be granted opportunity to reply to his new arguments. He has pleaded that the judgment of Motilal &, Company reported in 1984 (15) E.L.T. 157 does not help the appellant as it is a Review case. He has referred to the provision of Rules 173Q.He has also pleaded that the judgment of the Hon'ble Supreme Court in the case of Hindustan Steel Ltd. does not help the appellant. He has pleaded for the dismissal of the appeal.

7. After hearing both the sides and going through the facts and circumstances of the case we would like to observe that the process of manufacture of coke oven gas starts from the first stage i.e. when coke is charged into oven and is complete only when the coke oven gas is taken out after undergoing various processes including the separation of the so called by-products like Benzene, Napthalcne etc. During this course electricity is being used at more than one place for e.g. at the stage of primary Coolers, deep coolers and in the refrigeration plant etc. and the gas which is ultimately taken out and is partly used by the Appellant's firm and the remaining was sold to M/s. Indian Tube Company is not the same gas which is released at the time of carbonisation of coal in the coke oven. In between a number of products like Sulphate of Ammonia, Benzene, Napthalenc etc. are taken out from the gas which is released from the oven at the first stage. The gas which is ultimately cleared from the factory is entirely different from that which is released in the oven for carbonisation of coal. The Appellant's argument that they were using electricity in the intermediary processes for the separation of other products and for the purification of coke oven gas does not help him. The purification of the gas is only possible with the aid of power. During the processes of separation of Sulphate of Ammonia, Benzene, Napthaleiie etc. power is used. All the processes from the coke oven stage till the gas is ready for delivery are incidental or ancillary to the manufacture of the final product, i.e. coke oven gas which is ultimately produced by the Appellants and sold to an independent party. We, therefore, hold that the coke oven gas produced, by the Appellant comes within, the definition of manufacture. The Appellant is not entitled to the benefit of Notification No. 179/77, dated 18-6-1977. The Appellant's argument that there is no use of power does not help him, the judgments cited by the learned Advocate on behalf of the Appellant also do not cover the Appellant's case as the facts are different.

8. The learned Advocate during the course of his argument-had compleatfed that the show cause notice issued by "the Revenue Authorities was only for penalty and there was no mention of demand of duty in the show cause notice. The show cause notice No. 173Q/79/1076 dated 19-9-1979-is reproduced as under :- ' .

Whereas it appears that M/s. Tisco Ltd., Jamshedpur, have contravened Rules 9(1), 173-B, 173-C and 226, of the Central Excise Rules, 1944, in as much as they have removed 156.67 million cubic meter of coke oven gas to M/s. Indian Tube Co. Ltd., Jamshedpur from 1-3-75 to 31-7-79 under T.I. 68 without payment of duty. They have not submitted classification list and price list for the above commodity. M/s. Tisco Ltd. also failed to maintain stock account of production and clearance.

The said M/s. Tisco Ltd. Jamshedpur is/are hereby required to show cause to the Assistant Collector of Central Excise, Jamshedpur, why a penalty should not be imposed on them under Rules 9(2), 173Q and 226 of Central Excise Rules, 1944 and why the said (goods) in respect of which the offence appears to have been committed should not be confiscated under Rule(s) 9 (2), 173Q, 226 of the Central Excise Rules, 1944.

2. M/s. Tisco Ltd,, Jamshedpur is/are further directed to produce, at the time of showing cause, all the evidence upon which he/they intends/ intend to rely in support of his/their defence.

3. M/s. Tisco Ltd., Jamshedpur, should also indicate in the written explanation whether he/they wishes/wish to be heard in person before the case is adjudicated.

4. If no cause is shown against the action proposed to be taken within ten days of the receipt of this notice or he/they does/do not appear before the adjudicating officer when the case is posted for hearing, the case will be decided ex-parte." 9. A simple perusal of the said show cause notice shows that there is no mention of the demand of excise duty. During the course of argument Shri Lakshmi Kumaran, Sr. D.R. had stated that the Revenue Authorities had duly issued demand notices on the same date separately i.e. 19th September, 1979. We are of the view that the demand cannot be created without issue of show cause notice under Rule 10 of the Central Excise Rules, 1944 which was in force from 6-8-77 till 16-11-80. Relevant extract from the then rule in force is reproduced as under :- Reproduced below is the old Rule 10 which was in force from 6th August, 1977 till 16th November, 1980.

(1) Where any duty has not been levied or paid or has been short levied or erroneously refunded or any duty assessed has not been paid in full, the proper officer may, within six months from the relevant date, serve notice on the person chargeable with the duty which has not been levied or paid, or which has been short-levied, or to whom the refund has erroneously been made, or which has not been paid in full requiring him to show cause why he should not pay the amount specified in the notice : (a) where any duty has not been levied or paid, has been short-levied or has not been paid in full, by reason of fraud, collusion or any wilful mis-statement or suppression of facts by such person or his agent, or (b) where any person or his agent, contravenes any of the provisions of these rules with intent to evade payment of duty and has not paid the duty in full, or (c) where any duty has been erroneously refunded by reason of collusion or any wilful mis-statement or suppression of facts by such person or his agent, the provisions of his sub-section shall, in any of the cases referred to above, have effect as if for the words "six months", the words "five years" were substituted.

Explanation.-Where the service of the notice is stayed by an order of court the period of such stay shall be excluded in computing the period of six months, or five years, as the case may be." A simple reading of Sub-rule (1) of Rule 10 shows that before duty can be demanded a show cause notice has to be issued. The learned Advocate had referred to the judgment of the CEGAT in the case of Steel Authority of India Ltd. Calcutta v. Collector of Central Excise, Calcutta reported in 1983 E.L.T. 2024 (C.E.G.A.T). We are in full agreement with the observations of our learned Brothers. Paragraph 5 of the said judgment is reproduced as under :- "5. We are not impressed with the arguments advanced by Shri Kumaran; show cause notice to the appellants about the demands was a statutory requirement. Having not done so, the Excise authorities without following the required procedure could not have straightway made the demand. The argument that such a practice is continuing since long would not make something which is illegal, legal. On this count alone the four demands would as a matter of fact deserve to be set aside and the appeal allowed." 10. Accordingly, we hold that no demand can be created against the appellant as there was no mention of the demand of the duty in the show cause notice.

11. We would also like to observe that in the instant case the Appellant had duly filed the classification lists and had claimed exemption from the levy of Central Excise duty which was accepted on coke oven gas. The same was not accepted by the Revenue Authorities in the subsequent classification lists. The revenue authorities had deleted the claim of exemption by a cutting on the classification list but did not make any appropriate entry in the memorandum of approval.

We hold that there had been no suppression of facts or clandestine removal on the part of appellant and as such six months period of limitation is applicable under Rule 10 of the Central Excise Rules, 1944. The period of five years in the instant case is not applicable.

The learned Advocate has cited a number of authorities on the subject which have been discussed above. The authorities cited by the learned SDR do not help him.

12. Accordingly, we also hold that demand from 1-3-75 to 19-3-79 is also hit by limitation. In view of our above findings the whole of the demand created is quashed.

13. On the question of the imposition of penalty, the arguments of the learned Advocate do not help him. The Revenue authorities had rejected the appellants' claim of exemption from the levy of Central Excise duty on the Classification lists. The appellant should have paid the Central Excise voluntarily. The judgments cited by the appellant on imposition of penalty do not help him. We hold that the learned Collector of Central Excise was fully justified in levying penalty under Rule 173Q.However, the penally imposed is highly excessive. While imposing a penalty, the Court or the quasi-judicial authority must look into the gravity of the offence. The broad principle that punishment must be proportioned to the offence is or ought to be universal application save where the statute bars the exercise of judicial discretion either in awarding punishment or in releasing an offender on probation in lieu of sentencing him forthwith. It was so held by the Hon'ble Supreme Court in the case of Arvind Mohan Sinha v. Amulya Kumar Biswas reported in AIR 1974 Supreme Court 1818. The relevant extract from para No. 10 of the said judgment is reproduced as under :- "10. We are unable to accept the appellant's contention that the Probation of Offenders Act can have no application to offences consisting of the contravention of the Customs Act or the Gold Control Rules contained in Part XIIA of the Defence of India Rules, 1962. True, that these offences are fundamentally of a different gender and are calculated to involve consequences of a far reaching character, as compared with offences under the general law of crimes. These are mostly economic offences which in conceivable cases may pose a grave threat to the economy and the security of the country. But every contravention of the Customs Act or the Gold Control Rules cannot, without more, be assumed to be fraught with consequences of national dimensions. The broad principle that punishment must be proportioned to the offence is or ought to be of universal application save where the statute bars the exercise of judicial discretion either in awarding punishment or in releasing an offender on probation in lieu of sentencing him forthwith. The words of Section 4 (1) of the Probation of Offenders Act are wide and would evidently include offences under the Customs Act and Gold Control Rules." In the present case before us, the appellant had been claiming exemption from the levy of duty but had been ignoring the rejection of exemption since there is no clandestine removal. Keeping in view the gravity of offence to meet the ends of justice, we reduce the penalty to Rs. 50,000. In the result, the appellant is entitled to a relief of Rs 5,50,000 in respect of quantum of penalty. The Appeal is partly accepted, in terms of these orders.


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