1. The facts of this case in brief are that on 25-11-80, Central Excise officers paid a surprise visit to the factory of the appellants and found that they were engaged in manufacture of textile machinery and parts falling under item No. 68 of the Central Excise tariff but no central excise records were produced before the officers even when demanded by them. The officers thereupon seized textile machinery parts and one dyeing machine, in all valued at Rs. 49,900/-, which were found lying stored in various parts of the factory. Thereafter, between December 1980 and April 1981, the officers called upon the appellants seven times, including twice through formal summons, to produce their records for verification. But the appellants failed to do so. Finally, in May 1981, the appellants furnished particulars of their sales to the Asstt. Collector through their two letters dated 2-5-81 and 13-5-81 but when directed to produce their connected records for verification of those figures, they again failed to do so. Since it appeared from the figures that the appellants had manufactured and cleared dutiable goods without paying the duty thereon and had violated Rules 9(1), 47, 52A, 53, 173B, 173F, 173G, 174 and 226 of the Central Excise Rules, 1944 by not taking out a Central Excise licence, not maintaining the prescribed central excise accounts and not submitting the prescribed classification lists, price lists and returns etc., adjudication proceedings were started against them by the show cause notice dated 16-5-81. After hearing them, the Collector passed the impugned Order-in-Original in which he held that the appellants had suppressed the facts of their clearances wilfully and with the intention to evade payment of duty. He further held that the violation of various Rules by them stood established. He confiscated the seized goods valued Rs. 49,900/-, allowed their redemption on payment of fine of Rs. 20,000/-, demanded central excise duty of Rs. 2,71, 012.58 for 1979-80 and 1980-81 under Rule 9(2) and imposed penalty of Rs. 6 lakhs on the appellants under Rule 173Q of the Central Excise Rules, 1944. The appellants are in appeal against this order of the Collector.
2. The case was heard by us on 10th and 11th May, 1983. The main argument pressed for by the appellants in their defence was on the ground of limitation. They stated that the Collector's finding holding them guilty of wilful suppression of facts and evasion of duty and thereby invoking the extended time limit of 5 years for demand of duty was not correct and that since the show cause notice had been given to them on 16-5-81, they could be called upon to pay the duty only for the period of six months prior to that which was the normal time limit.
They explained their reasoning as follows. Theirs was a small scale industry. Upto 31-3-79, their goods were exempt from duty upto Rs. 30 lakhs in a financial year under notification No. 176/77-CE. With effect from 1-4-79, under notification No. 89/79-C.E., the full exemption was curtailed to Rs. 15 lakhs and clearances for a further value of Rs. 15 lakhs were entitled to half the rate of duty. On the midnight of 31st March/1st April, 1979, they had closing stocks worth Rs. 18.49 lakhs which they cleared in 1979-80. If these clearances were added to their total clearances of 1979-80 as the Department has done then their clearances for 1979-80 exceed the ceiling of Rs. 30 lakhs, making them totally ineligible for exemption in 1980-81. The appellants, however, thought that their closing stocks were free of duty as pre-Budget stocks and their clearances need not, therefore, be added to the total clearances of 1979-80. They had verbally discussed this matter with their Central Excise Officer and he had confirmed their view. It was only under this impression that they went on clearing their goods without payment of duty, without making any declaration to the Department and without maintaining any accounts or submitting any returns. For the same reason, they felt that they were not required to take out a central excise licence since entry 33 of notification No.31/76-C.E. waived the requirement of a licence by units manufacturing fully exempted goods falling under item 68. It was only when the Department issued them summons on 12-11-79 that they realised that their impression was not correct. They had no documentary proof to show that their earlier impression had the approval of the Department or that the Department was aware of what they had been doing. They maintain that the Department's knowledge and/or implied approval were proved by circumstantial evidence. The circumstantial evidence, according to them, was two-fold. First, they maintained that the Department's summons dated 12-11-79 to them were prompted by their contacts and discussion with the Central Excise officers. Secondly, even after they replied to these summons in November 1979 itself, the Department took no action against them for nearly one year which showed that the Department accepted their view-point that they were entitled to clear closing stocks free of duty. In November 1979, they applied for and obtained a central excise licence also. In view of the Department's silence till the seizure in their factory in November 1980, they felt reassured that their interpretation of the law was correct. After replying to the summons and after taking out a licence in November 1979, they submitted themselves to full central excise control, they presented the classification list, submitted R.T. 12 returns and paid duty on their clearances till March 1980. When, as a part of 1980 Budget, notification No. 89/79-C.E. was replaced by notification No. 105/80-C.E., restoring the small scale industry exemption limit to Rs. 30 lakhs, they felt that their clearances in 1980-81 would not exceed Rs. 30 lakhs in value, that is, within the exemption limit, they surrendered their central excise licence and they again went out of central excise control. In retrospect, they felt now that their interpretation that they were entitled to clear any pre-Budget stocks free of duty was not correct. But since at that time they felt differently and since their interpretation had the knowledge and implied approval of their Central Excise officers, the duty short levied in their case could only be collected within the normal time of six months. Apart from this ground of limitation, the only other arguments pressed for by the appellants before us were that the Collector was not justified in refusing to grant them duty remission for textile machinery parts worth Rs. 9,45,360.00 which were manufactured in their factory without the aid of power and were thus entitled to be cleared free of duty during 1979-80. Secondly, they submitted that the Collector ought also to have excluded a small quantity of niekel scrap valued Rs. 18,875/- cleared by them on 8-8-79.
3. The Department's representative stated that there was no evidence whatsoever to show that the appellants had disclosed their manufacturing activity to the Department. They applied for licence and submitted the classification list only after they had been served with the summons dated 12-11-79. Textile machinery parts manufactured by the appellants fell under Tariff item 68 which was introduced on 1-3-75.
The appellants were already in production on that date. The question of pre-Budget stocks could arise only on 1-3-75 when their goods became excisable for the first time and not thereafter. Exemption from licensing control under notification No. 31/76-C.E. was applicable only to the goods which were unconditionally and fully exempt. The goods manufactured by the appellants enjoyed only a slab exemption upto a certain value limit and subject to fulfilment of various conditions.
There could be no exemption under notification No. 31/76-C.E. in such a situation. The relevant notification applicable to the appellants was notification No. 111/78-C.E. which was subsequent to notification No.31/76-C.E. and which required the manufacturer to submit a declaration to the Department! Exemption from the requirement of taking a central excise licence and following other excise formalities was given to such a manufacturer after his declaration had been checked and approved by the Department. The appellants never gave such a declaration. The appellants did not start paying duty during 1979-80 when their clearances exceeded the free slab of Rs. 15 lakhs. They were not entitled to any exemption in 1980-81 since their clearances in the preceding financial year 1979-80 had exceeded the stipulated ceiling of Rs. 30 lakhs. Yet, they went on clearing their goods without paying any duty, without taking out a licence and without submitting any declaration, classification list, price list or return to the Department. Thus, there was complete suppression of facts on their part throughout the material period. Even after the seizure, they never cooperated with the Department. The Department wanted to verify the figure furnished by them but they never produced their records for this purpose even though repeatedly asked by the Department to do so. The Department's representative stated that in the facts and circumstances of this case the appellants deserved no leniency.
4. We have given our earnest consideration to the matter. The question of duty free pre-Budget stocks arises only when duty is imposed on some goods for the first time. Duty on textile machinery parts falling under Item 68 of the Central Excise Tariff was imposed for the first time on 1-3-75. The appellants were already in production at that time. The question of pie-Budget stocks in their case could have arisen only at that time and not later. There is nothing on record to show that they declared any pre-Budget stocks at that time which were verified and so endorsed by the Department in their books. Secondly, exemption notification No. 176/77-C.E. under which they are claiming pre-Budget stocks was a notification which did not give a full, unconditional and automatic exemption to their goods. The exemption under this notification was limited to a certain value ceiling for each financial year and the exemption was further subject to fulfilment of numerous conditions. To quote just one such condition the aforesaid exemption was admissible only if the Asstt. Collector was satisfied that the manufacturing unit concerned had plant and machinery installed of a value of not more than Rs. 10 lakhs. Therefore, unless the appellants came forward and made a declaration of their plant and machinery and likely clearances in a financial year, there could be no question of their getting the exemption under notification No. 176/77-C.E.automatically. Notification No. 111/78-C.E. which required the small scale manufacturing unit to file a declaration was tailor-made for such situations so that after checking the declaration made by a manufacturer and finding him eligible for the exemption, the Department could exempt such units from licensing and central excise control. A unit claiming small scale industry exemption under notification No.176/77-C.E. could not presume exemption from duty as well as licensing control on its own. For this reason, entry 33 of notification No.31/76-C.E., which covered fully exempted goods falling under item 68, did not apply to the appellants. It was notification No. 111/78-C.E.which was applicable to them. This notification was also subsequent to notification No. 31/76-6.E. The appellants made no declaration under notification No. 111/78-C.E. Another condition of notification No.176/77-C.E. was that the exemption contained therein was in relation to a particular financial year. As soon as one financial year closed, the exemption quota for that year lapsed and the quota for the new financial year began. There was no question of any unutilised exemption quota of one financial year being carried over to the next financial year. The question of any pre-Budget stocks could not, therefore, arise in such a situation. Further, the exemption quota for each financial year was limited to a value ceiling of Rs. 30 lakhs. As per the figures furnished by the appellants themselves to the Collector during May 1981, they cleared goods free of duty to the tune of Rs. 27.75 lakhs during 1977-78. During 1978-79, they cleared goods of the value of Rs. 29.78 lakhs. Thus, in both these financial years there was only a marginal short-fall in their utilisation of the exemption quota. We do not understand from where the so-called pre-Budget stocks of Rs. 18.49 lakhs came as on 1-4-79, i.e., at the beginning of the new financial year 1979-80.
5. Thus, from whatever angle we see, whether in law or on facts, there could have been no question of any pre-Budget stocks in the case of the appellants as on 1-4-79. It is beyond our comprehension as to how the appellants could believe that they were entitled to clear any pre-Budget stocks free of duty during 1979-80. They say that their jurisdictional Central Excise officer confirmed their belief regarding pre-Budget stocks in verbal discussions. There is absolutely no evidence to substantiate their statement and we simply cannot believe such a contention. Their further plea that the Department's summons dated 12-11-79 were prompted by their contacts and discussions with the Central Excise officers carries no conviction. As a revenue collecting agency, the Department must have various ways to collect their information and intelligence. If the appellants had really been behaving in a straightforward manner and cooperating with the Department, there would have been no need for the Department to resort to the extreme course of issuing formal summons to them for eliciting information. The conduct of the appellants as brought out in the impugned Order of the Collector shows that even after the seizure of their goods in November 1980, they did not produce their books to the Department for verification even though the Department issued them written directions and summons to do so on eight different occasions.
The appellants are a limited company and as such they must have been maintaining quite detailed accounts of all their transactions. If, in spite of this they failed to produce their books for verification, the conclusion is obvious that they had something to conceal. Nearly six months were wasted by the Department in giving them different dates for production of their books. This, in part, explains the delay in issuing the show cause notice to them. From all the facts of the case, we are in no doubt that their failure to produce their books for verification, must have also been mainly responsible for the Department's slow action after the appellants furnished some figures by their letter dated 27-11-79 in the wake of the summons issued to them a fortnight earlier and not because the Central Excise officers agreed with their presumed entitlement to pre-Budget stocks. We find neither any documentary evidence nor any circumstantial evidence to show that the Department was aware of, or had given their implied approval to, what the appellants were doing in 1979-80 in the name of pre-Budget stocks. With effect from 1-12-1979, there was a short interlude during which, in the wake of the Department's summons, the appellants submitted a classification list on 10-12-79, cleared goods on payment of duty and submitted R.T. 12 returns. In one of these R.T. 12 returns, submitted on 5-2-1980, they showed a small quantity of goods cleared free of duty as closing stocks. But bulk of the so-called closing stocks or pre-Budget stocks had already been unauthorisedly removed earlier. We find from the records that the Collector has already allowed them full relief in respect of the duty paid by them from December 1979 to March 1980. Not only that, the Collector was also generous enough to allow the appellants full exemption from duty on first 15 lakhs and 50 per cent exemption from duty on the next 15 lakhs worth of clearances during 1979-80 in accordance with the provisions of notification No.89/79-C.E. in spite of lapses on the part of the appellants. He has held the appellants guilty of suppression of facts only for the earlier period-from 1-4-79 to 30-11-79 - and the later period from 1-4-1980 onwards. When the 1980 Budget restored the small scale industry exemption limit to Rs. 30 lakhs under notification No. 105/80-C.E., the appellants again made no declaration to the Department and without the Asstt. Collector's approval they, themselves presumed full exemption under this notification for their unit, which they were not entitled to do as already discussed above in the context of the similar earlier notification No, 176/77-C.E., surrendered their licence and completely went out of excise control. Since their clearances in 1979-80 had exceeded the ceiling limit of Rs. 30 lakhs, they were not entitled to any exemption at all under notification No. 105/80-C.E. Yet they went on clearing goods unauthorisedly without payment of duty during 1980-81 without making any declaration to the Department and without observing any central excise formality. In the circumstances, we agree with the Collector's finding that the appellants had suppressed the facts of their clearances wilfully and with the intention to evade duty and as such the limitation period of 5 years will apply in their case for demanding duty under Rule 9(2) of the Central Excise Rules, 1944.
6. As regards the appellants' argument that textile machinery parts worth Rs. 9,45,360/- should be excluded from the total clearances of 1979-80 on the ground that they had manufactured these goods without the aid of power, we find it difficult to examine the merits of their plea since at no stage have they shown any records to the Department to substantiate this plea. The goods had already been manufactured and cleared from the factory long ago. In the absence of any documentary evidence furnished by the appellants, it was naturally impossible to know as to what was the nature and description of these machinery parts and whether they were really manufactured with manual labour only. We find no merit in this plea of the appellants.
7. That leaves us only with one more plea of the appellants which was pressed for before us. This relates to a small quantity of nickel scrap valued Rs. 18,875/- said to have been sold on 8-8-79. Even though the appellants have not produced any evidence to substantiate this plea, we are inclined to agree with them and exclude this sale from the total clearances of 1979-80 because we feel that they were essentially manufacturing textile machinery parts and the nickel scrap sold by them must have only been the remnant of duty paid nickel purchased by them from outside. We dire ct that this sale of nickel scrap be excluded from the clearances of 1979-80 and the demand for duty for that year be reduced correspondingly. No other relief in respect of the duty demanded by the Collector is called for.
8. Since we have already held that the appellants had suppressed the facts of their clearances wilfully and with the intention to evade payment of duty and worse still they deliberately concealed their books and records from the Department even after the seizure in their factory in November 1980 and left no choice for the Department except to proceed on the basis of the figures which they themselves chose to reveal to the Department by means of their letters, we find no justification to interfere with the fine in lieu of confiscation (Rs. 20,000/-) and the penalty (Rs. 6 lakhs) adjudged by the Collector. The penalty is even otherwise not excessive when viewed in the light of the amount of duty evaded and the numerous provisions of the Central Excise Rules violated.
9. Accordingly, except for the relief in respect of clearances of nickel scrap valued Rs. 18,875/-as already ordered in para 7 above, we reject this appeal.