1. In this Appeal to the Central Board of Excise and Customs in terms of Sec. 35 (as it read at the relevant time), of the Central Excises and Salt Act, 1944, (hereinafter referred to as the Act), and transferred to the Tribunal pursuant to Sec. 35(F) of the Act, the questions that arise for consideration are- (a) Whether, in the facts and circumstances of the case, the proviso to Rule 10 of the Central Excise Rules, as it read at the relevant time, was applicable to the issue of the show-cause notice for recovery of duty If not, was the show-cause notice dated 5-9-1980 barred by limitation (c) Did the show-cause notice dated 5-9-1980 abate in consequence of the repeal of Rule 10 and its re-enactment as Sec. 11 of the Act with effect from 17-11-1980 without providing for any saving of pending proceedings (d) Whether, in the facts and circumstances of the case, there has been a "manufacture" of the pistons in question, and if so, the process carried out by the Appellant came within the scope of Rule 173-H of the Rules 2. The material facts are not in controversy and can briefly be set out as under - (a) The Appellant manufactures high precision pistons for use as original equipment in automobiles.
(b) Prior to 1976, the Appellant submitted a claim for refund of duty paid under Rule 173-L of the Rules, in respect of such of those duty paid pistons as were rejected and returned for replacement.
(c) The Assistant Collector, however, informed by his letter dated 28-7-1976 (S.No. 1 of the Paper Book) that it was Rule 173(H) that was applicable and not Rule 173(L).
(d) Subsequently, the procedure to be followed in terms of Rule 173(H), for- was mutually discussed and settled on two different occasions, and was alleged to have been scrupulously adhered to. The Appellant placed on record, by the letter dated 10-1-1977 (at S.No. 2 of the Paper Book), the clearance accorded by the Excise authorities for "remelting all our returned goods" and of their intent to do so. The receipt of the aforesaid letter admits of no dispute.
(e) Nevertheless, a show-cause notice (at S. No. 3 of the Paper Book), alleging, inter-alia,- (i) inapplicability of Rule 173(H) to the process of remelting of rejected pistons, (ii) contravention of Rule 173(H) in letter and spirit, in that manufacture of new pistons after remelting the rejected ones was not comprehended in the said rule, (iii) violation of Rules 9(1), 52(A) and 173(G) in the clearance of newly manufactured pistons identical in quantity to those rejected for sale to buyers other than those from whom the rejected pistons were received without Gate Passes and proper account, and (iv) infringement of Rule 173(D) for failure to maintain any raw material account, and requiring the Appellant to show-cause as to why a penalty should not be imposed on them under Rule 9 and 173(Q) of the Central Excise Rules, 1944 and why the duty amounting to Rs. 4,42,159/- @ 25% in respect of goods valued at Rs. 22,10,195/- in respect of which the offence appears to have been committed should not be demanded under Rule 9(2) of the Rules, was issued on 5-9-1980.
(f) In adjudication, the Collector, Central Excise, Meerut by order dated 19-3-82 (S.No. 6 of the Paper Book), inter-alia, found that- (i) there has been a fresh remanufacture of the pistons rather than a remaking of the rejected pistons in that there was no nexus whatsoever between the pistons rejected and returned for replacement and those freely replaced; (ii) the pistons removed without duty, consequently was in contravention of the provisions of Rule 173-H of the Rules ; (iii) in such circumstances, the pistons removed under the Self-removal Procedure was "obviously clandestine" ; (iv) the whole process, having been entirely in their special knowledge, there was wilful mis-statement, suppression of facts and contravention of the provisions of Rules 9(1), 52(A) and 173(G) of the Rules with intent to evade duty; (v) in the premises, the extended period of limitation in terms of five years was applicable; (vi) again, since there was no specific period during which the processes adverted to in Rule 173(H) could be undertaken and duty had been evaded under cover of this Rule, the extended period of limitation alone was applicable and not six months as contended by the Appellant.
In the result, the Appellant was ordered to pay the duty amounting to Rs. 4,42,159/- under Rule 9(2) of the Rules and a penalty of Rs. 25,000/- under Rule 173(Q) of the Rules. There was no penalty levied under Rule 9.
3. In the Appeal before us, it was contended by Shri Ravinder Narain, appearing for the Appellant that- (a) the Collector was in error in levying penalty and demanding duty under Rule 9(2) because- (i) the said rule applied only if there had been a wilful mis-statement, suppression of facts and a positive intent to contravene the provisions of Central Excise Rules, i.e. there had been a clandestine removal [AIR 1971 S.C. 2039-N.B. Sanjana v. Elphinston Spinning and Weaving Mills-1978 E.L.T. (ii) in the facts and circumstances of the case, there could have been no clandestine removal and it cannot be that the processes undertaken were only in the exclusive knowledge of the Appellant; (b) nor did Rule 10 apply in consequence of its repeal on 17-11-1980 by Notification No., 177 of 1980 without any saving for the pending proceedings and Sec. 6 of the General Clauses Act not being applicable to Rules, (1970 S.C.R. 639-Rayala Corporation v. Director of Enforcement), the proceedings abated. ( 1982 ELT 201- D.B. Ajanla Paper Products v. Collector of Central Excise Kanpur); (c) in any view, the show-cause notice dated 5-9-1980 in respect of the period between 12-11-1976 and 14-6-1979 was barred by limitation; (d) Rule 173(H) has to be strictly construed and there is no restriction therein against used goods coming back for repairs etc.
(e) the Collector ened in holding that since no period of limitation was prescribed in Rule 173(H), the extended period of 5 years applied; (f) "manufacture" implies conversion of one distinct commercial commodity into another [AIR 1981 S.C. 1014- Chowgule and Co. v. Union of India] and even if there was remelting of the rejected pistons, the process did not amount to manufacture on the basis of the ratio in 1981 ELT 676 (Century Spinning & Manufacturing Co. v. Union of India) ; no new product emerged ; it was pistons that were received and it was again pistons that were remade ; and it was impossible to rectify the defects without remelting.
4. Shri Raghavan Iyer for the Revenue, in effect, argued for a remand, so as to enable evidence of gate passes and other documents to be adduced to prove affirmatively the fraudulent clearances made by the Appellant in the guise of acting in terms of Rule 173(H). He urged further that - (a) singularly enough, there was no single statement of full and strict compliance with the requirements of Rule 173(H) on the part of the Appellant, and if there was no strict compliance with the pivotal requirements of the said Rule, that by itself amounted to fraud; (b) notification No. 5/70 requiring accounts to be maintained was not complied with; (c) notwithstanding that "remaking" means, in common parlance, "make again," "to repeat the processes by which the original article came into existence", consistent and in harmony with Rule 173-HC2), the expression has to be construed to imply merely a process which does not amount to "manufacture". So construed, it would be clear that unless the article sought to be remade retains its identity, it is not the process of "remaking" that is involved but fresh "manufacture"; (d) even though Rule 10 was repealed with effect from 17-11-1980, Sec. 11-A, in pari materia with the repealed Rule, was enacted on the same day and since a rule framed under the Act was part of the Act for all purposes of construction or obligation (A.I.R. 1961 S.C. 751- Stale of U.P. v. Baburam), there was neither repeal nor omission of an enactment but continuance thereof in one part of the statute or another and consequently the principles relating to repeal or omission of an enactment cannot apply. [1982 E.L.T. 844-Gwalior Rayon Mfg. (Wvg.) Co. v. Union of India-M.P-D.B.5. We are disinclined to remand the matter so as to enable the Revenue to make good the deficiencies in evidence -to be afforded a second opportunity to prove the gravemen of the charge when they had the evidence in their possession all the time and no attempt would appear to have been made to bring it on record. Indeed, one would look in vain in the adjudication order for a reference to a single identifiable document like e.g. any single gate pass, that would substantiate contravention of the relevant provisions in the Rules or fraudulent or even questionable process of removal of the pistons. On the contrary, it would appear that fraudulent contravention of the Rules and Rule 173(H) in particular, can be taken to have been proved to the satisfaction of judicial conscience by mere repetition of the charge or the ipse dixit of the Collector. There can, in the circumstances, be no question of a remand for admission and proof of the documents in question which were, during the adjudication, by no means out of reach of the Revenue or could not have been produced and proved despite due deligence.
6. A perusal of Rules 9 and 10, as they stood when the show cause notice was issued on 5-9-1980, would disclose that- (a) the removal of excisable goods from the place of manufacture without payment of duty leviable in the manner prescribed and permission of the proper-officer on an application made to him in an appropriate form is prohibited, subject, however, to some exceptions, not germane for the present purpose [Rule 9 (1)]; (b) the manufacturer is bound to pay on written demand within the period specified in Rule 10, the leviable duty, in respect of goods removed from the place of manufacture, in contravention of Rule 9(1) [Rule 9(2)] ; (c) in any case of such contravention, the manufacturer becomes liable to a penalty extending upto two thousand rupees and the goods shall be liable to confiscation [Rule 9 (2)]; (d) when duty had not been levied or has been short levied, or where there has been an erroneous refund, the proper officer may, within six months of the "relevant date" (i.e. when the duty was required to be paid in terms of the rules), serve a notice requiring the manufacturer to show cause as to why he should not pay the amount specified in the notice [Rule 10] ; (i) fraud, collusion or any wilful mis-statement or suppression of facts by such person or his agent; or (ii) contravention of any of the rules with intent to avoid payment of duty; the period within which the aforesaid notice could be issued is 5 years instead of six months (proviso to Rule 10).
(f) the appropriate officer shall consider the reply to the show-cause and determine the appropriate quantum of duty payable by the manufacturer and thereupon the amount so determined shall be paid.
7. Rule 173(Q) of the Rules provides for confiscation and penalty, inter alia, for removal of goods in contravention of any of the Rules, failure to account, manufacture without licence, and contravention of the rules with intent to evade duty, when the goods are liable to confiscation and a penalty not exceeding three times the value of the goods in respect of which the rules had been contravened or Rs. 5,000/- whichever is greater, has to be imposed.
8. If Sec. 9 of the Central excises and Salt Act, 1944, Rules 9, 10 and 173(Q) are examined in juxtaposition, it would be observed that- (a) Rules 9, 10 and 173Q would appear to have been made pursuant to Sec. 37(4) of the Act ; (ii) removal of excisable goods in contravention of the provisions of the Act or the Rules, as offences punishable after prosecution, Rule 9(2) merely penalizes in adjudication removal of excisable goods in contravention of Rule 9 (1) (i.e. without payment of duty or in other words, evasion of duty) but not contravention of the Act or the Rules ; (i) removal of excisable goods in contravention of any of the rules, (S. 9 of the Act); and (ii) contravention of any of the rules with intent to evade payment of duty? (e) curiously enough, the intent in the removal of goods in contravention of the Act or the rules is immaterial for the enforcement of the penal provision in Sec. 9 of the Act in a prosecution. Nevertheless, for the levy of a penalty in adjudication for contravention of the rules, the intent to evade duty is an essential requisite; (f) again, while for the issue of a notice to show cause as a preclude to adjudication for recovery of duty not levied by reason of contravention of any rule with intent to avoid payment of duty, a period of five years had been prescribed in terms of the proviso to Rule 10, no period of limitation is prescribed for the levy of a penalty for the identical contravention in terms of Rule 173(Q) ; (g) indeed, no period of limitation is prescribed for the levy of a penalty either in terms of Rule 9(2) or Rule 173Q ; just as the limitation prescribed in Sec. 468 of the Cr. P.C. is inapplicable to a prosecution under Sec. 9 of the Act.
9. In the facts and circumstances of the case, however, it is abundantly clear that the resort to Rule 173(H) by the Appellant in respect of the pistons rejected for replacement was not merely to the knowledge of the appropriate officer of the Respondent but at his insistence and with his entire approval. The idea was mooted, the modalities discussed threadbare, and the Appellant's letter dated 10-1-1977 was the last word on the subject. The relevant period was between 12-11-1976 and 14-6-1979. Surprisingly enough, till the issue of the show cause notice on 5-9-1980, there was no check on the manner and method adopted in actual practice by the Appellant for compliance either with the requirements of the said Rule or the instructions furnished to the Appellant in regard thereto. After 10-1-1977, it cannot be said that either the process undertaken or the manner and method of the receipt of the rejected pistons and clearance of freshly manufactured pistons in lieu thereof was within the exclusive knowledge of the Appellant or that there was a breach of trust reposed in the Appellant or that therefore the clearances were clandestine, despite the discussions, and despite the letter of the Appellant of that day, just because no attempt was made to ascertain what exactly was being done pursuant to the discussions and whether the requirements of the Rule in question were being fulfilled. The Revenue were singularly quiescent after 10-1-1977. After the discussions arid the letter of 10-1-1977 and the silence thereafter, how was it necessary for the Appellant to come out on his own and make a statement that he had been fully and strictly complying with the requirements of Rule 173(H) and his failure to do so, per se, an act of "fraud" 10. "Fraud", occurring in Clause (9) of the proviso to Rule 10 had not been defined, in the Rules. Going by the definition of the word in the Contract Act, it would mean and imply- (i) the suggestion, as to a fact, of that which is not true by one who does not believe it to be true; (ii) the active concealment of a fact by one having knowledge or belief of the fact; suppresio veri, suggestio falsi; It would be observed that "wilful misstatement" or "suppression of facts" occurring in the proviso to Rule 10 after "fraud" fall within the ambit of (i) and (ii) supra in the definition of "fraud".
11. In the premises, it cannot, but be held that the proviso to Rule 10 was altogether inapplicable for the recovery of the duty, for, (a) when the entire process was discussed and ultimately the Revenue were told that they would start "remelting all our returned goods" in accordance with the clearance given by the excise authorities, there has been no suppression of the truth of any fact in which the Appellant did not believe in, i.e., no misstatement; no suppressio veri suggestio falsi; and no promise made without intent to perform.
Shri Raghavan Iyer was hard put to it to disclose any single aspect of the entire process as fraudulent. It was a plea of despair that the failure of the Appellant to claim strict adherence to the requirement of the rules was, per se, an act of fraud; (b) "fraud" has not only to be alleged but particulars thereof have necessarily to be furnished; there was not even an allegation of fraud in the show cause notice; or of misstatement or suppression of facts ; but yet the Collector proceeds to observe that it was alleged in the show cause notice that the Appellant had illegally availed of the facility under Rule 173(H) by "misrepresenting facts and suppressing vital details" and further proceeds to hold that there was wilful misstatement, and suppression of facts; the observation as well as the finding are as unwarranted since they fell outside the ambit of the show cause notice, as they are untenable in the absence of particulars; (c) even if we are to take it that "wilful misstatement" or "suppression of facts" do not come within "fraud" occurring in Rule 10 and they are apart from what strictly came within its scope, still, no misstatement or suppression of facts at any stage had been either alleged or proved; (d) in the premises, the case does not fall within Clause (i) to the proviso to Rule 10 so as to attract the five year period of Limitation to govern the adjudication in question; (e) the second clause of the proviso to Rule 10 is equally inapplicable seeing that- (i) it speaks of contravention of the provisions of the Rules with "intent to evade payment of duty"; (ii) no such intent had been either alleged in the show cause notice nor proved in the proceedings; (iii) in actual fact the discussions that preceded the commencement of the actual resort to 173(H) negate the intent to evade payment of duty; one would hardly expect correspondence and discussions of the entire procedure to be followed if the intent were actually to evade payment of duty; (iv) even if, therefore, there was contravention of any of the Rules, it was not with intent to evade payment of duty; (v) on similar facts, the A.P. High Court in 1979 ELT 402 held that there was no intent to evade payment of duty.
(f) Reliance on the proviso to Rule 10 was clearly an after thought and ill-conceived when there was no foundation laid for it in the show cause notice. It is not a question of competency or jurisdiction to treat a demand made under one provision to have been made under another. It is on the contrary a question of making the necessary averments in the show cause notice so as to define the scope of the enquiry and justify resort to the proviso to Rule 10 to avail of the larger period of limitation provided for therein. It is strange logic to say that since there was no specific period prescribed in Rule 173(H) for carrying out repairs etc., the larger period of limitation in the proviso to Rule 10 was applicable.
12. Once the proviso to Rule 10 was inapplicable to the facts of the case, obviously a demand on 5-9-80 for payment of duty in terms of Rule 9(2) for the period between 12-11-76 and 14-6-79 is obviously barred under Rule 10(1), being beyond six months from "the relevant date/s" assuming that the returned pistons were cleared, indeed, after remanufacture and not merely repair, remaking etc. in terms of Rule 173(H).
13. The penalty of Rs. 25,000/- was levied under Rule 173(Q) only and not under Rule 9 as well although it was also cited in the show cause notice. While it may be that no period of limitation is prescribed, it would still appear that - (a) apart from contravention of Rules 9(1), 52(A), 173(D), 173(G) and 173(H), neither removal of goods in contravention of any of the Rules, nor any of the other acts or omissions attracting the levy of penalty under Rule 173(Q) had been alleged in the show cause notice; (b) accordingly, in the adjudication order as well, it was only contravention of the rules that was the basis for the levy of penalty, little realising that, while mere contravention of the rules is punishable under Sec. 9, in terms of 173(Q), it has to be with intent to evade payment of duty; (c) indeed, there was no contravention of any rules "with intent to evade payment of duty as already discussed in para 11(e) (i) to (iv) supra ; 14. In the view we had taken, it may be unnecessary for us to consider the other issues that arise in this case. Nevertheless, we proceed to give our findings on the other issues as well; having had the benefit of hearing the submissions made by either side in regard to them.
15. (a) On the question of abatement of the proceedings in consequence of the repeal of Rule 10 and its re-enactment as Section 11A of the Act w.e.f. 17-11-1980, without providing for any savings of pending proceedings, conflicting decisions of two High Courts, (both Division Bench rulings) had been cited before us. They are the decisions reported in -(Gwalior Rayon Mfg. (Wvg.) Co. v. Union of India).
(b) In the first of these (1982 E.L.T. 201), a Division Bench of the Allahabad High Court had held- "We were, at one stage, of the view that the proceedings could continue, but in view of the decision of the Supreme Court in the case of Rayala Corporation (P) Ltd. v. The Director of Enforcement (A.I.R. 1970 S.C. 494-1970(1) SCR 639) it has to be held that with the omission of Rule 10 a notice issued under that Rule will lapse and no proceedings under that provision can now be taken. The Notification omitting Rule 10 did not contain any provision for continuance of the proceedings already initiated and neither did Act 25 of 1978 which introduced Section 11A of the Act adopt the legal device of creating a fiction by virtue of which proceedings under Rule 10 could be deemed to be proceedings under Sec. 11A of the Act.
The Supreme Court in the case of Rayala Corporation has held that Sec. 6 of the General Clauses Act does not apply to cases of omission and further that it does not apply to the case of repeal of a Rule. Once help of Sec. 6 of the General Clauses Act is not available, proceedings under Rule 10 cannot be continued for, the provision under which they were taken no longer exists on the statute book." (c) In the case reported in 1982 E.L.T. 844, however, the decision of the Supreme Court in the case of M/s. Rayala Corporation was distinguished on the grounds that - (i) the Rule omitted and re-enacted in the Supreme Court case was one providing for the offence itself and not one dealing with any ancillary matter; (ii) in consequence of omission of Rule 10 there was no change in the provisions for levy of the exise duty contained in the Act and the Rules, material for the purpose of the liability of the assessee for short levy, like e.g., Rules 173-C of the Central Excise Rules read with Rule 6-B of the Central Excise (Valuation) Rules, 1975 and Sections 3 and 4(1) (b) of the Act along with Rule 173-Q of the Central Excise Rules; (iii) again, the repeal of Rule 10 and enactment of Section 11A of the Act was simultaneous and they in substance provided merely the manner in which the liability arising out of short levy has to be enforced; (iv) it is not exactly a case of repeal or omission of an enactment without a saving clause in the true sense, for, a Rule has to be treated for all purposes of construction or obligation as if it were in the Act itself (A.I.R. 1961 S.C. 751- State of U.P. v. Babu Ram) and it makes little difference if a provision in force till 17-11-1980 in the shape of a Rule forming part of the Act was continued from 17-11-1980 in the shape of a provision in the Act itself. Accordingly, it was a case "of continuance of the same provision as part of the Act, the only difference being that prior to 17-11-1980 it was in one part of the Act and subsequent to that date in another part of the same Act".
(d) On careful consideration of both the aforesaid cases, we are inclined to agree with the ratio of the ruling of the Madhya Pradesh High Court in 1982 E.L.T. 844 for the reasons stated therein.
16. (a) On a perusal and harmonious construction of the clauses of Rule 173(H), it would appear that to avail of the benefit of the said rule the process of "remaking" should be such that it falls short of remanufacture. A contention to the contrary ignores Clause (2) of the said Rule altogether.
(b)(i) In 1981 E.L.T. 676 (Bombay) (Century Spinning and Manufacturing Co. Ltd. v. Union of India), it was the construction and applicability of a notification (No. 58 of 1961) under Sec. 23 of the Sea Customs Act, exempting duty in excess of the fair cost of repairs carried out prior to reimport that came up for consideration. One of the conditions of its applicability was that the Customs Officer was to be satisfied of the identity of the imported goods with those exported for repairs. Such identity having been established by specification, description, weight, invoices, etc., it was held mere melting for repair does not impair or negate the identity; "6...Mr. Bhaba rightly contended that it was an error on the part of the Customs authorities to hold that the identity of the goods is changed merely because the material of the worn out spinnerettes was melted and the new spinnerettes were manufactured...".
"9. ...Merely because the worn out spinnerettes are melted for the purpose of repair, it cannot be concluded that the said spinnerettes have lost their identity."; (iii) a bare perusal of the head note for the report in juxtaposition reveals the extent of its erroneousness. Adverting to para (6) of the judgment, the head note reads -- "Merely because the worn out spinnerettes were melted or repaired, it cannot be said that a new product was manufactured liable to payment of duty."; (iv) it will be observed that in terms of the judgment, identity of the goods was the issue and not their manufacture (irrelevent altogether for the purpose of application of the notification).
Manufacture was conceded. Identity was contested. It was held that notwithstanding manufacture, the identity could still be established. To say in the head note that no new product was manufactured on remelting and repairing is misleading.
(v) on the contrary, in this case, the issue is manufacture.
Identity becomes relevant only to the extent it disproves manufacture. Since identity could not be established, there has been a manufacture ; (vi) in the premises, the ratio of the aforesaid decision is inapplicable to the facts of this case. If at all, it supports the contention of the Respondent that there has been a manufacture on melting the pistons in question.
(c) It is too facile to assume that there was no manufacture since no new product emerged. To say that it was pistons that were received and it was again pistons that were remade is to miss the point that the rejected pistons partook of the character of mere scrap. They did not qualify to be anything other than scrap. They were useless as pistons. Had it not been so, they need not have been rejected at all to be remade.
(d) If the defects could not be rectified unless they were melted and remade i.e. manufactured, obviously, Rule 173(H) should not have been resorted to at all. One cannot transgress a provision and yet be heard to say, in defence, that transgression was inevitable in availing of the benefit of the said provision. If a provision cannot be availed of without transgressing it, resort to it should be ruled out.
(e) In the premises, it has to be held that the process carried out by the Appellant did not come within the scope of Rule 173(H) of the Rules, inasmuch as it amounted to "manufacture" of the pistons in question.
17. Accordingly, we hold on questions (a) and (b) in para 1 supra in favour of the Appellant and questions (c) and (d) against him.
18. Incidentally, it is observed that cross-objections on behalf of the Revenue would appear to have been despatched to the Tribunal, as is quite often happening in other cases as well. Cross-objections are in the nature of an Appeal preferred by the Respondent and cannot be entertained unless the Appellant had gained some relief through the order under appeal and the Respondent wants to canvass against such relief granted to the Appellant. No relief has been granted to the Appellant in the order under appeal and hence there is no question of entertaining any cross-objection.