P. Karthikeyan, Member (T)
1. This is an appeal filed by M/s. The Dharmapuri Dist. Co-op. Sugar Mills Limited against the Order-in-Original No. 03/2005 dated 27.1.2005 passed by the Commissioner of Central Excise, Salem.
2. Brief facts of the case are as follows:
M/s. The Dharmapuri Dist. Co-op. Sugar Mills Limited had sought remission of duty on 6174.317 M.Ts. of molasses manufactured by them vide their three letters dated 19.6.2003, 17.9.2003 and 19.12.2003 as the same had become deteriorated on account of natural causes such as admixture with rain water, frequent atmospheric changes and prolonged stagnation. The said molasses had been stored in payable only when the goods were removed from the factory and that the tanks in which the assessee had stored the molasses with the approval of the department were there right from the inception of the factory. It was explained how they were compelled to crush excess sugar cane in 1995-96 and 1996-97 and 1997-98 on the directions of the Government in view of the bumper production of sugar cane and had to store molasses also in their masonry tanks in addition to their four steel tanks. The Forensic Science Laboratory vide their test report dated 3.4.01 had certified the samples of molasses drawn from masonry tanks No. 3 and 4 (the impugned goods) to be not of specifications laid down for the three grades of cane molasses in IS/1162/58. All the tanks were covered by ground plan approved by the department. In May 1997, the jurisdictional Superintendent had permitted transfer of molasses from the steel tanks to masonry tanks and also shifting of molasses from masonry tanks to the steel tanks in December, 1997. The Commissioner had categorically observed that the open masonry tanks. A show-cause notice was issued by the Commissioner of Central Excise, Salem proposing to reject the request for remission on the ground that CBEC Circular No. 126/12/5/87-CX.8 dated 1.8.1988 did not permit storage of molasses in open masonry pits and that the assessee had not taken reasonable steps to safeguard the excisable goods. In the adjudication order, the Commissioner observed that the molasses had become deteriorated. The assessee had caused considerable loss of revenue to the department. Even though the assessee had cited several judicial authorities upholding remission in similar situation, the Commissioner rejected the request for remission of duty on the deteriorated molasses on the basis that the Board's Circular No. 261/12/5/87-CX.8 dated 1.8.88 and another Circular No. 62/88 dated 24.11.1988 were binding on him. The duty involved is Rs. 30,87,159/-.
3. Shri S. Ramachandran, ld. Counsel appeared for the appellants and Smt. R. Bhagya Devi, ld. SDR for the Revenue. The counsel argued that duty was assessee had allowed the molasses to deteriorate by storing them in open masonry tanks. The assessee claimed that the Board had not stipulated any condition for remission of duty in the Circulars cited by the Commissioner. They relied on the Tribunal's decision in Puma Sahakari Sakhar Karkhana wherein the Tribunal had observed that Rule 49 of the Central Excise Rules, 1944 did not limit grant of remission to cases where the loss could not have been prevented. The Commissioner rejected the claim for remission on the ground that the assessee had not followed Board's instructions (supra). He cited the case of CCE v. Cownpore Sugar Works Ltd. 2001 (137) ELT 577 (CEGAT-Kol) wherein the Tribunal had rejected the appeal of the Revenue against the order of remission issued in respect of molasses stored in open kutcha pits which had got deteriorated owing to dilution with rain water. The Tribunal held that they had been convinced that molasses had been deteriorated by natural causes and was entitled for remission of duty. In the case of UP State Sugar Corporation v. CCE, Allahabad 2003 (57) RLT 911 dealing with a similar case of claim for remission of duty on the deteriorated molasses, the Tribunal observed as follows:
In this case it is not disputed by the Revenue that the molasses became unfit for marketing due to natural causes. In this situation, the Tribunal in the case of Shree Dudhagana Vedganga Sahakari Sakhar Kharkana Ltd. and others (supra) held that where the molasses were deteriorated due to natural cause, no duty can be demanded in respect of such molasses. This view was followed in number of decisions by the Tribunal. In view of the above discussion the impugned order is set aside and the appeal is allowed.
The appellants prayed that the impugned order passed by the Commissioner be set aside and remission of duty granted on 6174.317 M.Ts. of molasses in terms of the proviso to Sub-rule 1(A) of Rule 49 of Central Excise Rules, 1944. Ld. Counsel for the appellants also reiterated the arguments contained in their appeal memorandum.
4. Ld SDR sought to support the order of the Commissioner on the basis of the judgment of the Patna High Court in Harinagar Sugar Mills Ltd. v. UOI 2001 (138) ELT 3 (Pat), several decisions of the Tribunal and the Circulars of the Board. The orders of the Tribunal she cited are to the effect that remission is not to be allowed and duty is to be paid in respect of molasses stored in kutcha pits on its deterioration in the pits.
5. We have given our earnest consideration to the facts of the case. Rule 49 of the erstwhile Central Excise Rules 1944, provided for remission of duty on excisable goods which are lost or destroyed due to natural causes or unavoidable accident, or which the assessee claims to have become unfit for human consumption or marketing, before removal. The same provisions are contained in the present Rule 21 of the Central Excise Rules, 2002.
5.1. The Mumbai Bench of this Tribunal vide its Final Order No. 1116/1132/86-WRB dated 14.10.1986 had upheld the appellants' claim that since the molasses stored in kutcha pits had deteriorated in quality and had become unfit for marketing, duty on them should be remitted under Rule 49. This decision was accepted by the Board vide Circular No. 35/88-CX.8 dated 1.8.88 (F.No. 261/12/5/87-CX.8). The Board also instructed in the Circular that the sugar factories should not be permitted to store molasses in kutcha pits.
5.2. There are a number of decisions of the Tribunal upholding remission of duty in respect of molasses which deteriorated in kutcha pits and had become unfit for marketing. In the instant case, there is no dispute that the impugned goods qualified for remission of duty as it had become unfit for marketing and consumption. The decisions of Tribunal cited by the SDR cover cases where duty had been paid/demanded. The High Court also considered a case where duty had been demanded. Thus all these decisions covered cases different on facts.
6. We notice that the Commissioner has rejected the application for remission of duty due on the deteriorated molasses for the reason that the assessee had not followed the instructions contained in the Circular No. 35/88-CX.8 dated 1.8.88 of the CBEC. Instructions were issued by the Board in 1988 on the basis that molasses cannot be cleared from the approved place of storage in the factory without payment of duty and remission cannot be claimed on molasses cleared from the place of storage without payment of duty and that it has to suffer duty even if it deteriorates after removal from the approved place of storage.
7. In the instant case, it is seen that the approved ground plan of the factory contained both the steel and masonry tanks involved since its inception in the factory. Part of the molasses in question had been shifted from steel tanks to masonry tanks and later, part of it shifted from masonry tanks to steel tanks. These transfers in May '97 and December '97 had been made with the specific permission of the Department. Therefore, obviously, storage in the masonry tanks had been done with the approval of the department whether masonry tanks had formed part of the approved place of storage of molasses without payment of duty or otherwise. In any case no bond was obtained from the assessee, as per the Circular of the Board, to recover duty on molasses in a contingency as in the subject case when the molasses deteriorated outside apparently its approved place of storage but before removal out of the factory. It is not disputed that molasses got deteriorated and became unfit for marketing as certified by the Forensic Science Laboratory. The Commissioner himself has categorically observed that the impugned goods had become deteriorated as claimed.
8. In the absence of a bond, the proper course of action to be followed in case the assessee had removed the molasses from its approved place of storage within the factory and stored it elsewhere was to demand duty due on the same. This was not done even though molasses lay in the masonry pits for a few years with the full knowledge of the department. Therefore, it is not also possible to demand duty on the impugned goods rejecting their claim for remission. In the circumstances, we allow the party's appeal.
(Operative portion of the order pronounced in open court on 15.3.2006)