1. These three appeals arise out of Order in-Appeal Nos. 36/ASM to 38/ASM of 1979 dated 30-4-1979 passed by the Appellate Collector of Central Excise, Calcutta by which he confirmed Order-in-Original Nos.
(i) 3/M. Oil/Dy. Collr/CE/78, (ii) 4/M. Oil/Dy. Collr./CE/78 both dated 16-5-1978 passed by the Dy. Collector of Central Excise, Gauhati/Shillong and (iii) I/HSD/Acg. 78 dated 11-1-1978 passed by the Asstt. Collector of Central Excise, Gauhati.
2. The brief facts of the case are that the appellants were served with Show Cause Notices by the Deputy Collector of Central Excise/Asstt.
Collector of Central Excise, Shillong/Gauhati for the losses of H.S.D./Motor Spirit appearing in their monthly loss/gain statements for the months of October 1976, March 1977 and May 1977. In reply to the Show Cause Notices, the appellants explained the losses stating that they are mainly due to different natural factors combined with human error in making entries in different records. The Asstt. Collector as well as the Deputy Collector did not accept this explanation. They, however, condoned the loss of some quantities, but in respect of the remaining, they directed the appellants to pay the duty. Feeling aggrieved by the 2 orders of the Deputy Collector and one order of the Asstt. Collector, the appellants preferred 3 separate appeals before the Appellate Collector of Central Excise, Calcutta who clubbed them together, the facts of the case and the submissions of the appellants being identical, and passed a common order.
3. The Appellate Collector found as per the loss/gain statement for the month of October 1976, there was a loss of 63.418 KL of HSD. Out of this total loss, there was a loss of 62.311 KL on 28-10-1976 alone.
Similarly, during the month of March 1977, total loss was 62.071 K1 but the losses on 12-3-1977, 21-3-1977 to 25-3-1977 and 30-3-1977 were found to be abnormal. As regards the month of May 77, total loss was 22.650 KL and there was an abnormal loss of 18.244 KL on 16-5-1977 alone. In the circumstances, the Appellate Collector held that "while it has been decided as a working device to compute the loss/gain on monthly basis, the abnormal shortage noticed on a particular day as revealed in the log book cannot be ignored by the taxing authorities in view of the fact that the abnormal loss to be revealed on a particular day is merged with the losses on other days, lowering the p.c. of loss considerably. The plea that the loss was due to the possibility of human error in dip reading is vague as how the dip reading was wrong and leading to what result has not been explained. That being so, I do not find much substance in the contentions of the appellants. The orders of the Deputy Collector and the Assistant Collector are upheld".
4. Feeling aggrieved by this order, the appellants filed a Revision Application before the Central Government which stood statutorily transferred to this Tribunal and hence this appeal.
5. During the hearing of the appeal, the appellants were informed that as there were three appeals before the Appellate Collector, they should have preferred 3 Revision petitions and appellants undertook to file 2 more appeals and they have done so, their numbers being 206/83 and 207/83.
6. As common questions of law and facts are involved in all these 3 appeals, they are clubbed together, hence this common order.
7. On behalf of the appellants, Shri R. Venkataraman, Dy. Manager, Excise & Customs, contended that the p.c. of losses in these three cases is well within the condonation limit of 0.5%. The loss/gain statement is prepared for the purposes of monthly computation of loss and on the basis of monthly computation, the loss comes within the condonation limit of 0.5% and it deserves condonation. The adjudicating authorities as well as the Appellate Collector have not taken into account this simple factor. He further urged that the loss on 28-10-1976 was due to an error in recording the dip of the Tank No. 21 after effecting the transfer on 27-10-1976. It was his contention that this mistake in recording the closing dip on 27-10-1976 led to the loss, abnormally high, while opening the tank on 28-10-1976 and in fact there was neither any loss of the product nor any product was taken out of the tank. As regards the loss for the month of March, 1977, Shri Venkataraman submitted that H.S.D. being of highest demand, the batch loading tank is very frequently filled up for regular despatch and in course of the frequent transfer operations, dip of the tanks, both the mother tank and the batch loading tanks, is to be taken for a number of times in a particular day. Under the circumstances, the possibility of dipping error is very high, resulting in losses of products in accounting. Further, such recorded losses are always inclusive of other losses like dormant loss, evaporation loss, spillage loss, loss due to temperature variation etc. As regards the losses in May, 1977 Shri Venkataraman submitted that there was some water-cut after filling the tanks from the mother tank as recorded in the previous day and this water-cut, though recorded in the log book was not taken into account while preparing the monthly loss/gain statement. As a result, this water-cut was shown as loss in the loss/gain statement. Finally, Shri Venkataraman submitted that the adjudicating authorities as well as the Appellate authorities have ignored the Board's instructions in not computing the losses on monthly basis. He, therefore, prayed for setting aside the orders under appeal.
8. Shri A.K. Saha, Sr. D.R., for the department, however, supported the orders under appeal. It was the contention of Shri Saha, that condonation is permissible only in respect of losses due to natural causes and on no other grounds. He further pointed out that the appellants themselves have admitted that on certain dates, the losses were due to faulty dip readings and if the loss was due to the negligence of the employees of the appellants, no condonation is permissible. He, therefore, prayed for the dismissal of the 3 appeals.
9. Having regard to the rival contentions, the only point that falls for determination is whether the orders passed by the authorities below require to be interfered with.
10. The appellant have produced before us the monthly loss / gain statement for the months of October, 1976, March, 1977 and May, 1977.
The statement for the month of October, 1976 contains 10 entries.
Excepting on 4-10-1976 and 5-10-1976 when again of 0.460 KL and 0.208 KL respectively was recorded, all other days showed losses. The loss on 28-10-1976 was 62.311 KL. The maximum loss on any other day did not exceed 0.369 KL. The total net loss during the month was 63.418 KL. So it cannot be disputed and it is also not disputed that the loss on 28-10-1976 is an abnormal loss. In the statement for the month of March, 1977, in all, there are 36 entries. Some of the entries relate to dormant loss. There were gains also on some days. The maximum gain was 1.611 KL. on 29-3-1977. On 24-3-1977 there was a gain of 1.397 KL.
Dormant loss did not exceed 3.414 KL. on any day. Losses on 12-3-1977 (8.202 KL), 21-3-1977 (13.696 KL), 22-3-1977 (6.648-KL), 23-3-1977 (6.
674 KL), 24-3-1977 (5.377 KL) and 30-3-1977 (5.185 KL) when compared to the losses on other days, are certainly abnormal. Similarly, for the month of May, 1977, in all there are 17 entries. The net loss was 22.650 KL. Maximum operational gains was on 18-5-1977 which was 3.549 KL. The losses consist of both operational loss and dormant losses.
Excepting on two days, or any other day, neither the operation loss nor the dormant loss exceeded 1.682 KL. But then the dormant loss for the day 16-5-1977 was 15.244 and operational loss on 18-5-1977 was 14.276.
Compared to the loss on other days these losses are certainly abnormal.
11. Section 5 of the Central Excises and Salt Act, 1944 (hereinafter referred to as the Act), empowers the Central Government to make rules, providing for remission of duty of excise leviable on any excisable goods which due to any natural cause are found to be deficient in quantity. Sub-section (2) of this section reads as follows - "Any rules made under Sub-section (1) may, having regard to the nature of the excisable goods or of processing or of curing thereof, the period of their storage or transit and other relevant considerations, fix the limit or limits of percentage beyond which no such remission shall be allowed; provided that different limit or limits of percentage may be fixed for different varieties of the same excisable goods or for different areas or for different seasons." The First proviso to Rule 49 of the Central Excise Rules provides that "the manufacturer shall on demand pay the duty leviable on any goods which are not accounted for in the manner specifically provided for in these rules, or which are not shown to the satisfaction of the proper officer to have been lost or destroyed by natural causes or by unavoidable accident during handling or storage in such store-room or other approved premises." From the provisions of the Act and the Rules, it is clear that in respect of losses which are due to natural causes, no duty need be paid. The Central Government has been empowered by Section 5 of the Act to fix the limits or percentage of remission to be allowed. We are informed that the Central Board of Excise & Customs has issued departmental instructions regarding the condonation of losses.
The main contention of the appellants in this case is that the adjudicating authorities as well as the appellate authority have not borne in mind the instructions issued by the Board in the matter of condonation of losses. It is their contention that if the instruction issued by the Board has been followed, the losses noticed in all the three months are within the permissible limits and therefore, no duty is chargeable. The Assistant Collector and the Dy. Collector though did not in turn refer to the administrative instructions they did condone certain losses. From the order of the Appellate Collector, it can be gathered that certain guidelines have been laid down in the matter of condonation of losses. In paragraph 5 of his order, the Appellate Collector observed that "losses on particular dates during the months are more than normal. While it has been decided as a working device to compute the loss/gain on monthly basis, the abnormal shortage noticed on a particular day as revealed in the log book cannot be ignored by the taxing authorities in view of the fact that the abnormal loss to be revealed on a particular day is merged with the losses on other days lowering the p.c. of loss considerably." From this observation, it is possible to spell out that certain guidelines have been laid down regarding the computation of loss/gain on monthly basis.
12. As early as in the year 1957, the Board has prescribed 2 procedures for determination and condonation of evaporation losses during storage and handling operations at the bonded installations. While in the case of the first procedure the losses have to be determined monthly and condoned on the basis of quantities received during the month. In terms of the second procedure the accounts have to be maintained consignmentwise and losses determined on the basis of difference between the final dip of the preceding and the final dip of the succeeding operations The losses, so ascertained, have to be apportioned to the various consignments in the ratio of their stock balances on the 'first-in-first out' principle. The losses so ascertained from time to time in respect of a particular consignment have to be totalled up and condoned up to the permissible limits.
13. According to the appellants, their tanks contain only one excisable category of petroleum product and the operations are almost continuous.
They contended that the authorities below should have taken the monthly loss/gain and thereafter determined the net loss and if the net loss exceeds the permissible limits, the excess loss should have been charged to duty. There is considerable force in this contention. It is true that the administrative instructions issued by the Board may not be binding on the adjudicating authorities who perform quasi-judicial functions. But then, if the object of the administrative instructions is to achieve uniformity in the matter of condonation of evaporation and handling losses, it is desirable to have due regard to such administrative instructions by the adjudicating authorities. Excepting stating that certain losses on certain dates are abnormal, neither the Assistant Collector nor the Deputy Collector nor the Appellate Collector has given any reasons for not following the method or procedure laid down by the Board in the matter of allowing condonation of evaporation loss/operation loss. It is nowhere stated by the Asstt.
Collector or the Deputy Collector or even the Appellate Collector that the abnormal losses noticed on certain dates are due to pilferage or due to wanton negligence on the part of the appellants or their employees. Certain losses on certain dates to which we have already made reference are certainly abnormal and cannot by any stretch of imagination, be considered as evaporation loss. But then from the statements produced by the appellants, certain gains have also taken place during the 3 months in question. Reason would have to be adduced that these 'gains' were not real but were just to offset the abnormal loss to achieve the permissible overall limit at the end of the month for purposes of condonation, if they are to be disregarded. In the circumstances, it is not only fair and reasonable, but also just to follow the procedure prescribed by the Board for the purposes of condoning the losses. The appellants desire monthly computation basis in condoning the losses. Their request, it appears to us, is not unreasonable, particularly, when the authorities have been following this recognised method not only in their case on previous occasions but in case of all other refineries. From the orders of Assistant Collector and Deputy Collector as well as the Appellate Collector we are unable to make out how and in what manner they granted condonation in respect of losses other than the losses which they considered abnormal. Being quasi-judicial authorities, they are required to assign reasons if they are not allowing the maximum permissible limits of condonation. No such reason is forthcoming in the orders under appeal.
14. Considering all aspects, we allow these appeals and set aside the orders passed by the Appellate Collector as well as the Asstt.
Collector and Deputy Collector and remand the cases back to the Deputy Collector/Asstt. Collector for fresh determination of duty payable in respect of the losses. They shall for the purposes of determination of losses, find out the stock on the last date of the month which has to be determined by ascertaining the quantities originally present in the tanks, quantities received, quantities cleared and the closing stock.
After so determining the loss, it should be worked out as a percentage of the quantity on the whole taken in during the month. If the percentage is within the permissible limit or within the limit which the Asstt. Collector or the Dy. Collector considers as permissible in the circumstances of the case, that should be written off. If on the other hand, the loss is more than the permissible limit which they consider as permissible, in the circumstances of the case, duty should be collected on the excess after due process.