1. The question for decision in this appeal to the Tribunal is whether imposition of penalty of Rs. 3.000/- on the appellants and demand of duty from the appellants on 'Demo' records removed from the factory is justified and if so for what period. The appellants are manufacturers of Gramophone records falling under T.I. 37(iii) of the Central Excise Tariff. Appellants contend that during the manufacture of gramophone records, defective records called 'Demo' records are also produced, that this is inevitable, as it is inherent in the manufacturing process. The defective records so produced are not fit for sale or marketing. Between the period Nov., 1978 to Nov., 1980, the appellants removed from their factory to their headoffice 13,576 pieces of 'Demo' gramophone records. No statutory records like gate passes or R.G. 1.
were maintained in respect of these demo records though a number of other private documents in respect of these were maintained and produced by the appellants before the authorities. The Internal Audit of the Central Excise Department some time about March, 1981 noticed that the appellants had removed demo records from their factory to their head office at 45, Moti Sil Street, Calcutta without observing Central Excise formalities and payment of excise duty. The Excise authorities then checked records of the appellants and a show cause notice dated 25-3-1981 was served on the appellants by the Deputy Collector (IV C.E.), Calcutta calling upon the appellants why Central Excise Duty amounting to Rs. 33,676.68 be not realised from them and penalty not imposed on them under Rules 9(2) and 173Q of the Central Excise Rules, 1944. The appellants showed cause. The Deputy Collector of Central Excise, Calcutta by his order dated 23-9-1981 confirmed the demand of duty to the extent of Rs. 32,917.27 basic and Rs. 548.75 Special and further imposed a penalty of Rs. 5,000/- on the appellants.
2. In appeal, the Collector (Appeals) Central Excise, Calcutta by his order dated 28-8-1982 reduced the penalty from Rs. 5,000/- to Rs. 3,000/- and with this modification he upheld the order of the Deputy Collector and dismissed the appeal. Hence the present appeal.
3. In the grounds of appeal, it is mainly urged that demo records were defective or contaminated records and in their case stage of manufactured product for the purpose of accounting in R.G. 1 was not reached, that the defective records were not goods as they could not ordinarily come to the market to be bought and sold, that the findings by the Collector (Appeals) that 4,000 pieces of records had been sold was not based on evidence, that no penalty was called for on the facts and circumstances of the case and the demand of duty in any case was beyond time. The appellants have also filed a number of documents like Note on process of manufacturing gramophone records, machine performance report, daily production slips etc.
4. At the hearing of the appeal Sh. S.K. Chatterjee, Consultant was heard in support of the appellants and Sh. V. Lakshmi Kumaran, S.D.R.defended the order-under-appeal.
5. Sh. Chatterjee, learned Consultant for the appellants faintly tried to argue that as the records were defective or damaged, process of manufacture Was not complete. To a question by the Bench, whether Sh.
Chatterjee honestly felt that in case of damaged records as claimed by the Appellants process of manufacture had not been reached and whether it was not necessary before removal from their factory either to enter them in statutory records or obtain permission for the purpose from the Central Excise authorities, Sh. Chatterjee replied it would have been better if the appellants had made entries in the statutory records in respect of these demo gramophone records or obtained permission from the Excise authorities for removal of these demo records from the factory to their head office. He did not clearly or emphatically reply to this question but only submitted that these demo records were not goods for the purpose of Excise and that compliance of Excise formalities in their case were not necessary. In view of this, we have no hesitation in concluding that domo records even though damaged and contaminated, as claimed by the appellants, had to comply with the Excise formalities before removal from the factory. The demand of duty, therefore, on demo records removed from the factory without completing the excise formalities would be justified and legal.
6. The next question is for what period the demand of duty should be made from the appellants-for a period of 6 months preceding the show cause notice or 5 years. Sh. Chatterjee submitted that the show cause notice served on the appellants did not contain any mention that short levy was caused by reason of collusion, fraud or mis-statement on the part of the appellants and therefore the demand could rot be for the extended period of 5 years, but could only be limited to a period of 6 months preceding the show cause notice. Sh. Chatterjee for this argument relied on a decision of C.E.G.A.T. in the case of M/s.
Ravindra Steel Ltd., Nagpur v. Collector of Central Excise, Nagpur reported in 1983 ECR 294 (D) (CEGAT).
7. We have gone through the show cause notice dated 25-3-1981 served on the appellants. We find that except for mentioning Rule 9(2), the show cause notice does not allege any collusion, fraud, wilful mis-statement or suppression of facts on the part of the appellants. In the absence of these allegations in the show cause notice, the extended time limit of 5 years would not be applicable to the case and the time limit applicable could only be 6 months. The demand of duty, therefore, from the appellants would be restricted only to a period of 6 months preceding the date of show cause notice i.e. 25-3-1981and rest of demand of duty would have to be set aside.
8. As to penalty, it is seen that though the appellants did not enter the demo records in the statutory records at the time of removal to their head office, they did enter them in other records and the material placed before us shows that the Excise authorities were aware of the production of these demo records. It was not for the first time that the appellants produced these demo records but it would appear that this production had continued for quite some time and was in the knowledge of the Excise authorities. The removal of records from the factory to the head office, considering all the facts and circumances of the case and other records maintained by the appellants, which were produced by them before the Excise authorities, cannot be said to have been with intent to evade payment of excise duty. On the facts and circumstances, we do not think that imposition of penalty on the appellants is justified. If is therefore, set aside.
As a result, the penalty imposed against the appellants is set aside and the demand of duty is restricted to a period of 6 months preceding the date of show cause notice. The appeal is thus partly allowed.