1. The writ petitioner, who is the appellant herein, is a dealer in tobacco. On a stock taking being conducted by the Central Excise department, between 17-1-1973 and 19-1-1973, it was found that there was a total shortage of 12091 kgs. in the warehouse. A notice to show cause as to why penalty should not be imposed on him for contravention of Rule 223-A and Rule 151 of the Central Excise Rules, 1944, herein after referred to as the Excise Rules, and why duty should not be demanded on the said quantity of 12091 kgs. tobacco was issued.
2. The explanation given by the appellant shows that there was heavy driage of the tobacco and it had undergone too many turnings for preservation which has resulted in loss of weight.
3. The Collector of Central Excise took the view that the loss in some cases was unduly large and by way of illustration he referred to a loss of 41.3% in the case of Cheroot tobacco which was stored for a period of 3 months and 21 days while in another case though the tobacco was stored for over one year, the loss was only 21%. He took the view that if the climate was hot, it should have affected all the consignments. Having rejected the explanation of the appellant, the Collector made no allowance for different percentages of deficiency in respect of different lots of tobacco. The loss varied between 5 per cent to 20 per cent. Accordingly, the appellant was called upon to pay excise duty of the quantity of 7471.36 kgs. of tobacco. No further action by way of penalty was taken because according to the Collector, the record of the appellant was quite clean. This order of the Collector was upheld in appeal by the Central Board of Excise and Customs and by the Government of India dismissing the revision petition filed by the appellant.
4. When these adverse orders were challenged in this Court by the appellant by a writ petition, the learned Single Judge dismissed the writ petition with the observation that if there was abnormal deficiency, it could not be accepted and the excise authorities had condoned the shortage to a limited extent and this Court could not interfere with such orders.
5. In this appeal, Mr. P. Shanmugham, who appears for the appellant has very vehemently contended that Rule 223-A of the Rules requires certain instructions to be issued by the Central Board of Excise and Customs to enable the excise authorities to make allowances for waste by evaporation or other natural causes and no such instructions having been given, there are no guidelines available to the excise authorities to determine the allowance which should be made on account of the loss by evaporation or other natural causes. Consequently, according to the learned counsel, the orders of the excise authorities determining the percentage of allowances to be made would amount to an arbitrary exercise of power under Rule 223-A of the Rules. Reference has been made to Section 5 of the Central Excise Act, which was brought into force in 1978, which enabled the Central Government by rules made under that section to provide for remission of excise duty leviable on any excisable goods which duty to any natural causes are found to be deficient in quantity. Sub-section (2) provides that 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. There is a proviso to Section 5(2) which provides 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.
6. Now Rule 223-A of the Rules enables the Collector to have the stock of excisable goods remaining in a factory warehouse or store-room, licensed or approved for the storage of such goods, weighed, measured, counted or otherwise ascertained in the presence of the proper officer. While this has to be done at least once in every year, the Collector can do it more often as he may deem it necessary or proper. That rule further provides that if the quantity so ascertained is less than the quantity which ought to be found in such premises (after taking into account receipts and deliveries, and making such allowance for waste by evaporation, of other natural causes) as the proper office may consider reasonable, and as may be in accordance with any instructions issued by the Central Board of Excise and Customs, the owner of such goods or if the premises be a public bonded warehouse, the keeper thereof, shall, unless the deficiency be accounted to the satisfaction of the proper officer be liable to pay the full amount of duty chargeable on such goods as are found deficient and also a penalty which may extend to two thousand rupees.
7. Now undoubtedly Rule 223-A contemplates that instructions should be issued by the Central Board of Excise and Customs in respect of making of the allowance for waste by evaporation or other natural causes, but if the rule properly read, the power of the Collector to determine the allowance which should be made for waste by evaporation or any other natural causes is not controlled only by the instructions issued by the Central Board of Excise and Customs. The more important part of Rule 223-A is that which vests jurisdiction in the proper officer to determine the allowance to be made to such extent as he deems it reasonable. Primarily, it is his discretion to determine as to what will be the reasonable allowance to be made on account of waste by evaporation or other natural causes. The words used in the rule are '..... and as may be in accordance with any instructions issued by the Central Board of Excise and Customs'. These words will show that while the decision of the Collector with regard to the extent of the allowance has also to be in accordance with any instructions issued by the Central Board of Excise and Customs, the fact that no instructions have been issued by the Central Board of Excise and Customs, does not affect the power vested in him by the earlier part of the Rule which requires him to arrive at a reasonable estimate of the allowance to be made for waste by evaporation or other natural causes.
8. In the very nature of things which become relevant when a decision has to be taken with regard to the extent of the allowance to be made for waste by evaporation or other natural causes, there has to be vested in the Collector a wide discretion. But the exercise of that wide discretion has to be reasonable. There are hundreds of excisable goods and the conditions of such goods may differ from goods to goods or from place to place or with the surroundings and the nature of the place of storage. The climatic conditions in different parts of the country are different and while any guidelines or instructions to be issued by the Central Board of Excise and Customs could only be of a general nature, it is primarily the Collector, having regard to the circumstances in each case, who has to decide what allowance will be reasonable.
9. Section 5 of the Act, which has been introduced in 1978, undoubtedly provided that the Central Government can make rules for remission of duty of excise leviable on any goods which due to any natural causes are found to be deficient in quantity. This power was already there in the Collector under the rules of Rule 223-A which is still in force in none referable to Section 5(2) merely contemplates either an outer limit or the minimum limit and the maximum percentage beyond which such percentage shall not be allowed. Substantially, therefore, the question as to whether the allowance made by the Collector in a given case is reasonable or not has to be determined on the facts of each case and unless it is shown that the discretion has been arbitrarily exercised, it would not be permissible to interfere with the quantum of allowance because a certain amount of arbitrariness is implicit by the very nature of the duty which is cast on the Collector.
10. It is not possible to hold that a power vested in the Collector is an arbitrary power. If any guideline is needed, that guideline is in the rule itself when it says that the allowance must be so fixed that it should be considered reasonable by the proper officer. This itself is a fetter on the power of the Collector and controls and exercise of the power.
11. It is an established proposition that vesting of an arbitrary power would be violative of Art. 14 of the Constitution of India. We do not, therefore, think it necessary to refer tax in detail to the two authorities cited by the learned counsel for the appellant in M/s. Dwarka Prasad v. State of U.P. - : 1SCR803 , and M/s. Devi Das v. State of Punjab - : 3SCR557 which only deal with different aspects of Art. 14 of the Constitution. We are, however, unable to hold that Rule 223-A vests any arbitrary power in the Collector.
12. Now, admittedly if a warehouse belongs to the manufacturers, then the goods stocked in the warehouse are exclusively under his control and naturally if there is any shortage found as compared with the stock which was originally put in the warehouse, which was checked and weighed, then the burden to explain the deficiency is clearly on the owner of the goods and the warehouse concerned. It is this which Rule 223-A has done when it says that a deficiency has to be accounted for by the owner of the goods or if the premises be a public bonded warehouse, the keeper thereof and if the deficiency is not accounted for, then the owner will be liable to pay the full amount of duty chargeable on such goods as are found deficient.
13. In the instant case, we are concerned with tobacco which, it is well-known, has some moisture in it. The longer the period of storage, it is possible the reduction in weight will be higher because more moisture will evaporate. But when determining whether the entire deficiency is explained away on the ground that the moisture has evaporated or on account of driage, as it is normally called, it would be permissible for the Collector to take into account the fact that the tobacco stored in the same store-house for a longer period of time has lost a lesser percentage of weight. It appears to us that while determining the percentage of permissible deficiency, the Collector has taken into account the duration for which the stock had been lying in the warehouse. Now when fault is sought to be found with the deficiency held permissible by the Collector, it is not enough to contend that more percentage should have been made permissible. The appellant must further show why more percentage should have been made permissible. Apart from contending that there are no guidelines, nothing has been shown to us as to why the appellant is entitled to an allowance of deficiency at a higher figure than the one which is given by the Collector.
14. This Court had occasion to deal with the similar matter in Loganathan v. Uninon of India, 1978 E.L.T. (J 707). In that case, the learned judge of this Court has held that if the appellant has not been able to produce any material before the authorities to conclusively establish that the deficiency of 49.4% in that case could have been really due to driage and evaporation there is no room for the High Court to interfere under Art. 226 of the Constitution with the allowance made permissible by the Collector. The learned Judge has referred to a decision in K. Nataraja Pillai v. Union of India, W.P. 2609 of 1969 in which the Division Bench has expressed the view that it is not possible to lay down with any rigidity that certain percentage of driage ought to be allowed as a matter of course throughout the country in respect of tobacco and that it has to depend on so many factors. The Division Bench in that case has taken the view that if any rigid formula is prescribed, it would be arbitrary and observed as follows -
'The effect of nature in variable from place to place and it is impossible to lay down with, any rigidity that a certain percentage of driage ought to be allowed as a matter of course throughout the country and wherever the goods are and wherever the bonded warehouse is. It is in this context that the executive has left to the expertise of the authorities concerned who are duly qualified, to weigh the pros and cons and arrive at a reasonable percentage as being due to such natural causes.'
It may be mentioned that in one case the percentage of deficiency is as high as 55%. No attempt has been made to show that this high percentage is possible as a result of natural causes, apart from the statements that the deficiency is due to natural causes.
15. An argument was advanced before us that in the case of one A. Loganathan, the shortage at 25.7% and 33% was found. The Assistant Collector has accepted the explanation that the loss was routine loss and had filed the proceedings. Now merely because in some other case a certain amount of loss has been accepted as routine loss, the appellant is not relieved of the burden of showing that in the circumstances that appeared in his case, the loss should be accepted as a routine loss.
16. In our view, there is no substance in this appeal. Consequently, the appeal fails and it is dismissed with costs Rs. 500.