P.K. Kapoor, Member (T)
1. This is an appeal against the order passed by the Collector of Central Excise, Aurangabad. Briefly stated the facts of the case are that on a surprise visit to the appellants' factory on 17-11-1988 the Central Excise Officers noticed that there was a shortage of 7 reams and 265 sheets of carbonless paper valued at Rs. 2,409.80. The officers also seized 1236 of slitted rolls of carbonless self-copying paper weighing 47688 kgs., - valued at Rs. 25,89,894.00 on the grounds that it had not been accounted for in the RG-1 register. The seized goods were, however, released provisionally to the appellants on 1-12-1988 on execution of a Bond for the value of the goods and on furnishing a Bank Guarantee for a sum of Rs. 6,47,473.50. After some investigations, by the show cause notice dated 5-5-1989, the appellants were asked to explain as to why Central Excise duty of Rs. 1,432.11 on 7 reams and 265 sheets of carbonless paper valued at Rs. 3,409.89 should not be recovered under Rule 9(2) read with Section 11A of the Act and why the seized 1236 rolls of carbonless paper valued at Rs. 25,89,894.00 should not be confiscated under Rule 173Q and why a sum of Rs. 1,99,151.61 should not be recovered under Rule 9(2) as excise duty on printing charges incurred on paper printed on behalf of customers after clearance from the factory. The appellants were also asked to show cause as to why penalty should not be imposed on the Directors and Administrative Officer under Rule 9(2) read with Rule 173Q of the Central Excise Rules. The appellants in reply to the show cause notice and also during the personal hearing denied the allegation in the show cause notice. However, by the impugned order the Collector rejected the contentions of the appellants and confirmed the demand. He also ordered the confiscation of the detained goods valued at Rs. 25,89,894.00 and in lieu of confiscation imposed a fine of Rs. 6,47,473.50. He also imposed a penalty of Rs. 1 lakh each on three Directors and Rs. 25,000.00 on the Administrative Officer of the Company.
2. On behalf of the appellants the learned Advocate Dr. P.V. Jois appeared before us. He stated in regard to the alleged shortage of 7.265 reams of paper valued at Rs. 3,409.80 in the Bonded Store Room the conclusions drawn by the Collector while confirming the demand were based entirely on the statements of the Administrative Officer on the date of the visit of the officers to the appellants' factory and the fact that the goods in question were subsequently found lying in the Bonded Store Room, was overlooked by him. The learned Counsel added that even though there was no shortage as alleged in the show cause notice, the appellants had deposited a sum of Rs. 1,432.11 being the duty payable in respect of the alleged shortage. In regard to the Collector's finding that 1236 rolls of self-copying paper had not been accounted for, the learned counsel submitted that the goods in question had not been entered in the prescribed records since they had not reached the deliverable state after completion of the packaging which on account of the delicate nature of the goods had to be highly specialised. He stated that the goods in question were only covered with kraft paper in order to avoid deterioration due to moisture, light and dust but they had not been packed after slitting to make them marketable. In this regard he cited the decision of the Supreme Court in the case of Collector of Central Excise v. Eastend Paper Industries Ltd., reported in 1989 (43) E.L.T. 201 (SC). He added that under these circumstances in respect of the goods which were available in the factory, the appellants had not committed any offence and even it is assumed that some procedural lapse relating to accountal of the goods was committed, there was no justification for imposition of the huge fine of Rs. 6,47,473.50 and penalty of Rs. 2,00,000.00 in addition to the penalties on the Directors and the Administrative Officer. In support of his submissions he cited the judgment of the Andhra Pradesh High Court in the case of Southern Steel Ltd. v. Union of India reported in 1979 (4) E.L.T. J402.
3. The learned Counsel contended that duty having been paid on the fully manufactured goods at the time of clearance from the appellants' factory the Collector's finding that duty was also recoverable on the printing charges paid to independent printers to whom self-copying paper was sent for printing according to the requirements of particular customers was erroneous and not sustainable. He stated that printing of paper under Chapter 49 of the Tariff was exempt but whenever self-copying paper was sent for printing under Rule 57F(2) and the goods were finally cleared from the factory in printed form, the appellants were paying duty on the value of goods inclusive of printing charges. He contended that printing of papers by an independent printer after clearance of self-copying paper on payment of duty from the appellants' factory could not affect the assessable value of the appellants' products and even if it is assumed that printing of paper amounts to manufacture under Section 2(f) of the Act, no duty liability could be fastened to the appellants since it is well settled that the person who undertakes job-work to carry out any process has to pay duty. He argued that in any case the demand was time-barred since the appellants as well as the departmental officers had entertained the bona fide belief that printing charges which were reimbursed by the customer after the clearance of the self-copying paper on payment of duty from the appellants' factory did not form a part of the value of the product and relevant RT-12 returns submitted by the appellants were duly assessed. He contended that under these circumstances it was not permissible for the Department to invoke the proviso to Section 11A. In support of his submission he cited the following case law:
(i) Airconditioning Corporation v. CCE - 1985 (19) E.L.T. 201,
(ii) Indian Explosives v. CCE -1986 (24) E.L.T. 345,
(iii) CCE v. Indo Pharma - 1988 (33) E.L.T. 548 (Tribunal).
4. On behalf of the respondents the learned SDR Smt. C.G. Lal stated that appellants' contention that the seized goods were in semi-finished condition and had not reached the RG-1 stage did not have any force at all since they were found in packed kraft paper with the markings of the company on it. She added that the Administrative Officer of the Company, Sh. Gonsalves, had admitted in his statement that certain finished rolls were lying in the store room without being accounted for in the records. As regards the appellants' claim that no duty was recoverable on printing charges collected by the appellants when duty-paid self-copying paper was sent to job workers for printing, she stated that since on a part of their production, the appellants were paying duty on the value of the goods inclusive the printing charges, they were evading duty on printing charges by sending duty-paid plain paper to the premises of printers for direct despatch to customers.
5. We have examined the records of the case and considered the submissions made on behalf of both sides. As regards the Collector's finding that there was a shortage of 7 reams and 255 sheets self-copying paper valued at Rs. 3,409.80, the appellants' case is that this small quantity of paper which could not be located when the officers had visited the appellants' factory on 17-11-1988, was later traced in the bonded store room and they had brought this fact to the notice of the Assistant Collector vide their letter dated 24-11-1988. The appellants have also contended that they had cleared the said goods on 24-1-1988 on payment of duty amounting to Rs. 1,432.11. In this regard we find that the appellants' claim that 7 reams and 255 sheets of paper which was found missing on 17-11-1988 was later traced in the bonded store room and the same goods were cleared by them on 24-11-1988 on payment of duty, is not backed by any documentary evidence, such as extracts from the records relating to the stocks in the bonded store room. We hold that the appellants having failed to satisfactorily account for the goods in question were liable to pay the duty leviable thereon.
6. The appellants have further contended that the Collector's order confiscating 1236 rolls of self-copying paper weighing 47,668 kgs. valued at Rs. 25,89,894.00 and imposing penalties on the company, its Director and the Administrative Officer on the ground that the goods had not been entered in the RG-1 is erroneous and not sustainable. In this regard they have submitted that self-copying paper which at all times is required to be protected from light, humidity and outside temperature can be considered as 'fully manufactured' only when on receipt of a firm order, it is put in deliverable state by placement of rolls in special corrugated boxes after wrapping in three layers of bituminised kraft paper and providing plugs on either side of the rolls to avoid collapsing. They have contended that the goods in question, even though covered by single ply kraft paper to avoid damage due to dust, light and moisture, were not entered in RG-1 since not being in a deliverable state they could not be deemed to have been fully manufactured. We found that while dealing with those points, in the impugned order, the Collector has made the following observations:
"I have carefully considered the party's submissions. The said chapter heading read as under :-
4809 - Carbon paper, self-copy paper and other copying or transfer papers (including coated or impregnated paper for duplicator stencils or off set plates) whether or not printed, in rolls of a width exceeding 36 cm or in rectangular (including square) sheets with at least one side exceeding 36 cm in unfolded state.
4809.10 Carbon or similar copying paper
4809.20 Self-copy paper
From the above it is dear that as soon as the self-copy paper is manufactured in roll form it is accountable in statutory record whether they are printed or not. Where such rolls needed to be removed for further processing i.e. for printing under Rule 57F(2), the entry should have been made under column No. 10 in RG-1 record "For other purposes" under heading removal without payment of duty. So, whenever such rolls are removed under Rule 57F(2), the quantity so cleared will have to be shown in the above column. The plea of the party that those 1236 rolls were not finished but were in semi-finished condition is also not acceptable for the reason that the evidence recorded in panchanama dated 24-11-1988 shows that the detained seized goods were duly packed bearing company's monogram and other details like weight, width, etc. pasted on such packed goods. Further those packed goods were also slitted rolls of karbonless copy paper and coating nature like CF, CFB, CB, SC were also mentioned on such packed rolls with serial numbers coating nature-wise. Moreover Shri Gonsalves, the Administrative Officer had also admitted before the pancha-witnesses that such type of rolls were also cleared and sold from the factory on payment of duty. In the circumstances these 1236 rolls cannot be considered to be in semifinished condition. The case of J.K. Synthetics Ltd. cited by the assessee is not directly relevant in this case. In that case the excisable goods involved were M.T. Filter and surge Tanks and CEGAT have held that accounting stage of goods in statutory record can only be the stage the goods are completely manufactured to buyers' specification and stage of accountal can only be decided when facts of manufacture are verified. In this case the commodity involved is self copy paper and if stage of accountal is allowed as per buyers' specification then there will be numerous sections in the RG-1 and there cannot be any co-relation between the raw material consumed and finished goods manufactured. The accountal stage in RG-1 will differ commodity to commodity. I also find from the records of the case that the party has filed classification list showing unit qty. rolls, sheets, and reams; there is also evidence that the party had cleared similar type of non-printed paper on payment of Central Excise duty and in this case considering the classification of description, the nature of goods and the fact of marketability as such, it is clear that the goods were in fully manufactured stage and ready for despatch, but unaccounted for, and the party's plea is nothing but to escape the liability and consequences of unaccounting. Therefore, I hold that the party failed to account for 1236 rolls of self-copy paper weighing 47,668 kgs. valued at Rs. 25,89,894.00 and thereby contravened the provisions of Rule 53 read with Rules 173G(4) and 225 of the Central Excise Rules, 1944 and rendered the said goods liable to confiscation under Rule 173Q of the said rules."
It is seen that the seized goods were in packed condition and apart from the company's monogram, the outer covering was found to bearing other details such as weight, width, etc. The Administrative Officer of the Company had also confirmed that similar rolls were being finally-cleared from the factory on payment of duty and also under Rule 57F(2) for printing at the premises of job workers. Under these circumstances, we are inclined to agree with the adjudicating authority that the seized goods were fully manufactured and were fit for being marketed. It has, therefore, to be held that in terms of Rule 53, the goods in question had attained the stage at which they were required to be entered in the RG-1 register.
7. The appellants have also contended that even if it was assumed that some procedural lapse of a technical nature in regard to accounting of the seized goods in RG-1 was committed, there was no justification for the confiscation of the goods and imposition of a huge fine of Rs. 6,47,473.50 and penalties on the company, its Directors and also on one of its employees. In support of their submissions, they have placed reliance on the judgment of the Andhra Pradesh High Court in the case of Southern Steel Ltd., Hyderabad v. Union of India (supra) in which it was held that under Rule 173Q(a) goods become liable to confiscation only when they were removed from the factory in contravention of any of the rules and for this reason with the aid of this clause, goods cannot be seized before they are actually removed from the factory. In this regard we find that in respect of 1236 rolls of self-copying paper weighing 47,668 kgs., which was held by the Collector as fully manufactured, the appellants were adjudged to have contravened the provisions of Rule 53 read with Rules 173G(4) and 226 rendering the goods liable to confiscation under Rule 173Q. Though the particular clause under Rule 173Q invoked while ordering the confiscation of the goods, was not mentioned, evidently the goods were held as liable to confiscation under Rule 173Q(b) which provides for the confiscation of excisable goods which are not accounted for by any manufacturer. Since the appellants were not charged with the removal of the goods in question in contravention of the provisions of the Rules, Rule 173Q(a) was not attracted. Under these circumstances, the judgment of the Andhra Pradesh High Court cited by the appellants is not relevant. We find that in the case of Collector of Central Excise, Madras v. Ultra Marine arid Pigments Ltd. reported in 1985 (22) E.L.T. 413, the Tribunal held that non-conformity with Rules 53 and 173G(4) would attract the provisions of Rule 173Q(b) and mens rea is not necessary ingredient for an offence under Rule 173Q(b). Under these circumstances, we do not find any force in the appellants' contention that non-accountal of the seized goods in RG-1 was a mere technical breach. We, therefore, hold that there was no infirmity in the Collector's order holding 1236 rolls of self-copying paper which was not accounted for in the RG-1 register as liable to confiscation and imposing penalty on the appellants. However, having regard to the fact, that there is no allegation of clandestine removal, we are of the view that on this count, the appellants deserved some leniency.
8. The next point to be considered is whether duty was recoverable on the printing charges incurred on duty-paid self-copying paper sent by the appellants for printing to independent job workers. In this regard the appellants' case is that no duty was recoverable on printing charges incurred at the behest of customers in respect of self-copying paper which was cleared after payment of duty. While admitting that when self-copying paper sent under Rule 57F(2) was received back after printing, they were paying duty on the value of such goods inclusive of printing charges, they have contended that no duty could be recovered on printing charges when self-copying paper was cleared on payment of duty for being sent for printing to independent job workers since printing of paper does not amount to manufacture. It has been contended that even it is held that printing of duty-paid self-copying paper amounted to manufacture under Section 2(f) of the Central Excises and Salt Act, 1944, it would solely be the responsibility of the job-worker to discharge the duty liability, if any, on the printed self-copying paper. The appellants have also claimed that the demand for Rs. 1,99,151.61 issued to them on this count after the expiry of the limitation of 6 months was not enforceable since the relevant RT-12 returns having been finalised by the Department, there could be no allegation of suppression, or mis-statement or fraud.
9. It is an admitted fact that the appellants were clearing plain un-printed self-copying paper on payment of duty. In certain cases such paper was being sent for printing under Rule 57F(2) and the printed paper after being received back from independent printers was also being cleared by the appellants on payment of duty. It is seen that the Collector's finding that the appellants were bound to include printing charges in the assessable value of self-copying paper even when printing was done after the clearance of plain self-copying paper on payment of duty was based on the following reasoning :
"It is also evident from the records of the case and party's own statement that in the case of paper sent for printing under Rule 57F(2) and received back, they have paid Central Excise duty on the value of the said paper inclusive of printing charges. They have also admitted that they had undertaken to do the printing as an additional service to the customers; as the customers requested to carry out the printing and supply full stationery. They have therefore orders to supply printed self-copy paper and in fact they have supplied printed stationery and also recovered printing charges from the customers to the extent of Rs. 4,74,170.51. The party was bound to include the printing charges in the assessable value of self-copy paper sold after printing whether under Rule 57F(2) or through outside party even after payment of duty on imprinted paper. This was necessary because the printing is done on manufacturers instance and not by the Customers after receipt of the self-copy paper cleared from the factory. I therefore hold that the party is liable to pay Central Excise duty on the printing charges so recovered during the period 15-7-1987 to 24-11-1988."
From the Collector's findings in the impugned order in regard to 1236 rolls of self-copying paper which was seized on account of not having been accounted for in the RG-1 register, we find that imprinted self-copying paper in the form of rolls having outer covering of kraft paper bearing the manufacturers' monogram, and other details such as weight, width, etc. was being treated as fully manufactured and was being cleared on payment of duty in terms of the approved classification list. In this regard we find that in the case of Indian Oil Corporation Ltd. v. Collector of Central Excise, Calcutta reported in 1987 (27) E.L.T. 482, the Tribunal had held that in terms of Section 4, Mineral, Turpentine Oil removed in bulk from the refinery was to be assessed to duty on the value of the goods in the condition in which they were at the time and place of removal. We are, therefore, of the view that plain unprinted self-copying paper and self-copying paper received back after being sent for printing under Rule 57F(2) had to be deemed as belong to different categories of self-copying paper which were required to be valued and assessed having regard to the condition in which they were at the time of removal. Under these circumstances, we are of the view that the Collector's finding that duty was also recoverable on the printing charges incurred on plain self-copying paper cleared on payment of duty from the appellants factory is not sustainable. We are also inclined to agree with the appellants that even if it is assumed that printing of plain self-copying paper after clearance from the appellants' factory amounted to manufacture under Section 2(f), then the duty liability on the resultant product should have been discharged by the printer, who in the capacity of a job worker, would have been treatable as the manufacturer.
10. We are also inclined to agree with the appellants that the Collector's order confirming the demand of Rs. 1,99,151.61 for the period 15-7-1987 to 24-11-1988 by invoking the extended period under proviso to Section 11A cannot survive. The relevant RT-12 returns having been finalised by the Department, there could be no charge of wilful mis-statement or suppression or collusion or fraud against the appellants. For these reasons, we also hold that Collector's order confirming the demand by invoking the extended period beyond six months is not sustainable.
11. The appellants have also contested the penalties imposed on three Directors and the Administrative Officer on the grounds that there was no evidence to show that they were concerned in any clandestine removal of goods. In this regard it is seen that in the case of Santanu Ray v. Union of India reported in 1988 (38) E.L.T. 264, the Hon'ble Delhi High Court has held that "so far as individual liability of a Director to the payment of excise duty and penalty is concerned, no liability can be fastened on him unless the department is able to show as to how and to what extent a particular Director is liable". Since there is no finding in the impugned order that the Directors and the Administrative Officer on whom penalties have been imposed were knowingly concerned with any evasion of duty by reason of fraud, collusion or wilful mis-statement or suppression of facts or contravention of the provisions of the Act and the Rules made thereunder, we hold that the penalties imposed on three Directors and the Administrative Officer of the company are not legally sustainable.
12. In view of the foregoing, we see no reason to interfere with the Collector's order confirming the demand of duty on 7.265 reams of self-copying paper valued at Rs. 3,409.80 found short in the Bonded Store Room and also the order holding the unaccounted 1236 rolls of self-copying paper valued at Rs. 25,89,894.00 as liable to confiscation under Rule 173Q. The order confirming the demand of duty of Rs. 1,99,151.00 on printing charges incurred on duty-paid self-copying paper during the period 15-7-1987 to 24-11-1988 is, however, set aside. We also set aside the penalty of Rs. 1 lakh each on three Directors of the company and the penalty of Rs. 25,000/- on the Administrative Officer. Having regard to our findings and the overall facts and circumstances of the case, we reduce the redemption fine in respect of the confiscated 1236 rolls of self-copying paper weighing 47,668 kgs. from Rs. 6,47,473.50 to 1,00,000.00 (Rs. one lakh only) and the penalty on the appellants from Rs. 2,00,000.00 to Rs. 50,000.00 (Rs. fifty thousand only).
13. The appeal is disposed of in the above terms.