1. The captioned appeal was initially filed as a Revision Application before the Central Government which, under Section 35-P of the Central Excises and Salt Act, 1944, has come as transferred proceedings to this Tribunal for disposal as if it were an appeal filed before it.
(a) The appellants are manufacturers of Water-pigment finishes for leather (for brevity's sake to be called hereafter as W.P. finishes). Based on scrutiny of the private records of the appellants such as challans, delivery notes, Cash memos, private gate-passes, bills and outward challan registers, the Department charged the appellant with having removed, without accountal in the statutory record, without payment of duty and in a manner otherwise than as provided in the Central Excise Rules and in contravention of Rules 9(l),'52A, 53 and 226 of the Central Excise Rules (hereinafter to be referred to as the Rules), 2,81,656.884 Kgs. of W.P. finishes during the period 1-10-1960-19-1-1968. By a show cause notice issued on 17-7-1968, the appellants were asked to show cause why : (i) duty (basic+special) amounting to Rs. 96,0f 8.28 leviable on the aforesaid quantity of W.P. finishes should not be demanded from them under Rule 9(2); and (ii) Why the deficiency in duty amounting to Rs. 55,122.76 (basic-J-special) leviable and due on a quantity of 1,82,170.40 litres of W.P. finishes should not be demanded from them under Rule 10A. (b) On conclusion of adjudication proceedings, the Collector of Central Excise- (i) demanded from the appellants under Rule 9(2), duty amounting to Rs. 91,122.40 (basic+special) on 2,67,595.884 Kgs. of W.P. finishes produced without accountal and removed without observing excise formalities ; (ii) demanded under Rule 10A, deficiency in duty amounting to Rs. 55,122.76 (basic+special) arising out of the non-accountal of the said quantity of W.P. finishes during the financial years 1960-61 to 1967-68 (upto 19-1-1968); (iii) imposed a penalty of Rs. 2,000 on the appellants under Rule 9(2).
(c) The appeal against the Collector's order was rejected by the Board as time-barred by its order dated 11-2-1971. On revision, however, the Central Government directed the Board to consider the appeal on merits. The Board again rejected the appeal ; (d) It is against the Board's order that the appellants are before us.
3. The appeal was heard on 2-11-1983. Shri T.C. Seth, the learned Consultant, for the appellants, submitted that : (i) The appellants' factory commenced production in 1948 and came under excise control in 1955 when excise duty was first imposed on, among other things, W.P. finishes for leather.
(ii) During the entire period, relevant to the present matter, the factory worked under the system of physical excise control. Under this system, goods could be cleared only on assessment of the goods by the Central Excise Officer and after payment of duty, on gate passes countersigned by the officer. There was, therefore, no question of any clandestine removals since the factory was under continuous supervision by Central Excise Officers. The Department had not come across a single instance of clandestine removal of goods from the factory.
(iii) The figures have been wrongly worked out by the Department.
There has been double-accounting of production and clearances-once from the factory records and again from the records of the appellants' depots at Dhapd, Kanpur and Madras.
(iv) The Collector has partially accepted the double-accounting.
This would render the entire calculations questionable. Though it has not been possible to undertake a complete check, the mistakes pointed put to the Collector (partially admitted by the Collector) were only illustrative and not exhaustive.
(v) 1,82,170 litres, of W.P. finishes, alleged to have been removed during the financial years 1962-63, 1963-64, 1964-65, 1965-66 and 1966-67 as exempted goods without payment of duty and/or on payment of duty at concessional rates were removed on proper excise clearance documents-(AR forms), duly approved and signed by the Central Excise Inspector in View of the physical control system. As such, the demand under Rule 10A for Rs. 55,122.76 was not tenable.
It was a case of inadvertance, error or misconstruction on the part of the officer and, therefore, covered by Rule 10 which provided a time-limit of 3 months for demanding short-levies. The show. cause notice dated 17-7-1968 was clearly time-barred. The Board erred in holding that this quantity was not accounted in the excise records.
In fact, the goods were cleared on AR 1 documents and if there was misapplication of the relevant notification, it was due to inadvertance or error on the part of the officer.
(vi) In any event, Rule 10A was deleted on 6-8-1977 (i.e. before the issue of the present demand notice) when a period of 6 months was prescribed in Rule 10 for issue of demand notice.
(vii) The demand notice contains assumptions and presumptions, e.g.
doubling the production of October 1960-March 1961 for arriving at the production of the financial year 1960-61 in the absence of the records for April to September, 1960. Reliance was placed on ELT 1978-(J 152)-Oudh Sugar Mills Ltd. v. Union of India.
(viii) In the above circumstances, the demands and the penalty should be set aside.
4. Shri A.K. Jain, the learned Departmental Representative, contended on behalf of the Revenue, that: (i) The findings of the lower authorities were based on the private records maintained and recovered, from the appellants. The entries therein were never disputed by the appellants ; (ii) Eligibility to exemption under C.E, Notification No. 137/60 depended on the total output not exceeding 300 tonnes. If the unaccounted for production was added to the recorded production, this limit of 300 was exceeded and the exemption Notification was, therefore, not at all applicable. As a result, even the clearances at nil or concessional rates in terms of the notification were liable to be re-assessed; (iii) There was no rebuttal by the appellants of the Department's allegation of "suppression of removals"; (iv) In the facts of the case, Rule 10A and not Rule 10 was applicable. In this connection, reliance was placed on the decision of the Gujarat High Court in Cencus 1975-35C. The situation in the present case was on all fours with that in the said case.
(v) Since the unaccounted for production was removed without compliance with Central Excise formalities no assessment took place and, therefore, Rule 9(2) was rightly invoked. In this context reliance was placed on the decision of the Bombay High Court in 1983 ELT 338 ; (vi) There was nothing improper in doubling the production of the six months October 1960 to March 1961 to arrive at the production for the lull financial year April 1960 to March 1961 in the absence of any other data.
(i) The appellants were not disowning or disputing the entries in the private records but only disputing the correctness of the interpretation of the entries ; (ii) There could be no question of mis-statement or suppression when, under the physical control system, all goods had to be cleared on ARI forms and gate passes duly checked and countersigned by the Central Excise Inspector; (iii) Rule 10A was not in existence at the time of issue of the show cause notice ; (iv) The Central Excise Inspector had misled the appellants by his erroneous interpretation of Notification No. 137/60 and, therefore, it could not be said that the appellants had cleared goods without payment of the full duty leviable with deliberate intent to evade duty.
6. We have carefully considered the submissions of both sides. The following points are, in our view, quite relevant in coming to a decision in the present case ; (i) The period in question spanned 7 years and more. During this period, the appellant's factory was working under the physical control system. This system envisaged a Central Excise Inspector to be in charge of the factory whose duty was to assess goods to duty and verify and countersign statutory registers and documents including production records and gate passes. Every consignment under clearance was required to be verified and assessed to duty and gate passes in relation thereto checked and countersigned by him.
The raw material registers, the production registers etc. were also subject to his scrutiny and check as also the stocks of excisable goods in the factory.
(ii) In the above context, if the department alleges clandestine production and removal of goods without due accountal in the statutory records and without payment of duty, the onus of establishing the allegation would lie heavily on the department in comparison to the situation obtaining under what is known as the self-removal procedure under which the assessee is, by and large, taken on trust and is expected to maintain statutory records, assess the goods to duty and clear them on gate passes subject to occassional physical checks by the Central Excise staff and scrutiny of assessment on the basis of monthly returns.
(iii) In the above view of the matter, it could not be said that the department has discharged the onus on it to a reasonable degree. It is difficult to believe that over a period of 7 years and more, the asses-see could have systematically suppressed the production and cleared the unaccounted production without such violations ever having been noticed by the Central Excise staff. There is no instance on record of any of the goods allegedly produced and removed in violation of the Central Excise law having been seized by the Central Excise staff. Nor has any evidence in the shape of statements of the buyers of the goods or about payments received for such clandestine sales been brought on record. It is seen that there is an element of arbitrariness in the method of computation of the alleged clandestine clearances: the production for the financial year 1960-61 has been arrived at by doubling the production of the second half of the year in the absence of any record relating to the first half. In the matter of charging duty and taking penal action, this manner of computation could surely not be a satisfactory basis.
If there is no record or other evidence about the first half year, the proper thing would have been to ignore that half year. Again, it is seen, the Collector has accepted the assessee's plea of double accounting under various heads and given due allowance for the same.
This would tend to show that the assessee's plea was prima facie tenable and should have been investigated more thoroughly.
(iv) If it is held, as we must, that the department has not established beyond reasonable doubt that the alleged clandestine production and removals did take place, the other allegation of deficiency in duty on the ground that Notification No. 137/60 (slab exemption) would not apply, must also fall to the ground.
7. Having regard to the foregoing discussions, we are inclined to give the benefit of doubt to the appellants and, consequently, we set aside the impugned order with consequential relief to the appellants.