ORDER
R. Jayaraman, Member (T)
1. This is an appeal against the Order-in-Original No. 911992 dated 25-6-1992 passed by the Collector of Central Excise, Nagpur.
2. The facts of the case are that the appellants who are manufacturing springs for automobiles and railways were found to be in possession of 16472 numbers of springs, which were not accounted for in the RG 1 register though they were painted and allegedly found to be in fully manufactured condition. This was noticed by the Supdt. of Central Excise (P) during the visit to the appellant’s factory. Consequent on this, the goods were seized and in the adjudication proceedings held by the Collector, an amount of Rs. 10 lakhs was ordered to be recovered towards the redemption fine in terms of the bank guarantee furnished at the time of provisional release of the goods and a penalty of Rs. 25,000 was also imposed on the appellant. The present appeal is against the aforesaid order.
3. Shri Nankani, the learned advocate, pointed out that out of the aforesaid quantity of 16472 springs, 15032 springs were found to be painted but not accounted for in the RG 1. Their value is Rs. 90.92 lakhs. The balance of 1440 numbers though painted and accounted for in RG 1 were not deposited in the bonded store room. Hence all the goods were seized and subsequently held to be liable to confiscation. He also submitted that 1578 numbers of springs were manufactured on job work basis on behalf of Mukund Iron. It was alleged that no separate accountal of these goods in terms of Rule 57F was done by the appellant and there was no authorisation from M/s. Mukund Iron in respect of these goods. His main contention was that the springs though painted were not inspected and hence they were not accounted for in the RG 1 records. Only in respect of 1440 numbers of springs, which have been inspected, they were accounted for in the RG 1. As regards the number of springs received under Rule 57F, it was the mistake of M/s. Mukund Iron in not giving the authorisation. The goods were received under delivery challan and since full duty was paid by the appellant subsequently, no serious view could be taken with regard to the alleged breach of Rule 57F. He contended that the goods can be construed to be manufactured only after they are fully inspected. In this context, he referred to the contracts with the railways to say that ‘RITES’ inspection is a must before despatch and he also referred to the technical specifications for such springs prescribed by the Govt. of India, Research Designs and Standards Organisation of the Ministry of Transport to point out that after inspection, the Inspecting Officer shall affix his stamp or seal on each spring, as a token of the spring having passed the test. He therefore pleaded that after these tests are completed, they would be accounted for before delivery. Hence no serious view should be taken. On a query from the Bench as to whether there are any production records of their own showing the manufacture pending inspections by the authorities of the Railways or by the other agencies, he said that he has no instructions. He also referred to the various types of tests which are required to be carried out particularly in respect of railways springs. He sought to rely on the following decisions of the Tribunal.
1991 (56) E.L.T. 408 (Tribunal) – Tekno Valves
1991 (56) E.L. T. 245 (Tribunal) – Uptron Powertronics Ltd.; and
1989 (39) E.L.T. 689 (Tribunal) – General Cement Products (P) Ltd.
He sought to rely on these decisions to support the view that accountal can be made only after inspection.
4. Shri Mondal, the learned SDR, on the other hand contended that even according to their own letter dated 16-11-1989, they have agreed to account for the springs immediately after painting. Notwithstanding this, they continued non-accountal of the springs after painting without any plausible explanation. If there had been any difficulty in accountal, because of non-inspection, they would not have agreed for the accountal, after painting, but would have made a representation to the department. This clearly indicates that most of the tests are carried out even prior to the painting and even if some tests are to be carried out after painting, they themselves construed them to be manufactured goods, which could be accounted for in the RG 1, because in their letter dated 16-11-1989, they have agreed to account for such goods after painting. He also questioned as to when they could account for 1440 springs in the RG 1, why they could not account for the remaining goods. He thus supported the order and pleaded that the non-accountal of the fully manufactured goods is deliberate. On a query from the Bench, he fairly stated that he is not aware whether there are any previous cases of clandestine removals of the excisable goods by the appellant. Shri Nankani, however, pleads that during the past 17 years, there has been no allegation of clandestine removal and the fine and penalty imposed are therefore excessive and disproportionate.
5. After hearing both sides, we find the following position undisputed. The springs were found painted after completion of manufacture and such springs are cleared only in loose condition. The object behind the accounting of the manufactured goods is to ensure that the potential duty leviable thereon is secured, the moment they are manufactured.
There is no dispute that the appellants had agreed to account for the springs after they are painted. After having agreed to such a position, prima facie, it appears that they themselves were satisfied that the springs are fully manufactured after painting. Now, they raise the plea that they can be accounted for only after inspection by the ‘RITES’ on behalf of the Railways and by their own internal inspection agency for Automobile springs. Even if we are to consider this as a legal proposition sought to be covered by the case laws cited, we cannot ignore the fact that the appellants have agreed on their own to account for these springs after painting.
6. Now we consider the question whether the springs duly painted (but not inspected) can be regarded as manufactured goods which are required to be accounted for in RG 1. As already stated, the object of recording in the RG1 is to secure the potential revenue involved on the goods manufactured. The law postpones recovery of duty till the stage of clearance for home consumption. RG1 itself provides for recording the goods in the finishing room as also those deposited in the bonded store room. If we accept the argument that goods, which are manufactured, painted and delivered only in that condition need not be accounted for, because inspection is yet to be carried out, it would-frustrate the very object of recording the goods in the finishing room. The procedural instructions also provide for removal of such goods manufactured but found to be defective either in the finishing room or bonded store room, by making suitable entries in the RG 1 and such removals can be under their internal delivery challans. We also take note of the fact that even as per the contract with the Railways that only delivery is to be effected after inspection. There is bound to be a time lag between the date of manufacture and date of inspection by the Railways. Hence, we cannot agree to a proposition in law that fully finished goods can be allowed to be kept without any accountal and accountal of such goods can be left to the sweet will of the inspection agency, who will take their own time for completing inspection before they take delivery of the goods. This is not a case like drugs or other chemicals, which are packed and marketed only after testing. We have also carefully considered the case laws cited. In none of those cases, there is a tacit agreement for accountal of the goods, after painting, as is found in this case. No data is also forthcoming as to what is the percentage of rejections on inspection rendering such accountal before inspection, a technical impossibility. In view of all these factors, we are to hold that the painted springs are manufactured goods, which are to be recorded in the RG 1 and non-accountal thereof renders the goods liable to confiscation and the appellants exposed to penal liability.
7. We would have viewed this case as a mere technical violation, had the appellants produced their own internal records showing the production of these springs figuring in their daily production reports. Though they were asked to produce such records, no such evidences are forthcoming. However, as regards 1440 springs, there is no dispute that they are accounted for in RG1. But they have been ordered confiscation only on the ground of non-deposit in the bonded store room. We are inclined to view this lapse as a technical one and give the benefit in regard to this quantity.
8. As regards 1578 springs, there is no dispute that the goods have been manufactured in respect of inputs received under Rule 57F of the Central Excise Rules. These are required to be separately accounted for, since they are to be returned to the supplier of inputs, on which Modvat credit has been taken by the supplier of inputs. Hence this requirement cannot be dismissed lightly.
9. In the context of the above analysis, we are to sustain the order of confiscation of all the springs (excepting 1440 springs) which are not accounted for. There is an apparent deliberate violation of the legal requirement noticed; because of the fact that the appellants, having agreed to account for the goods after painting, seemed to have ignored the same. Hence, penalty is also required to be upheld.
10. Now, we come to consider the quantum of fine and penalty. The plea raised is that in the past 17 years, there was no case of any attempted clandestine removal from the factory. We also find from the order that there is no allegation of past misconduct, justifying a fine of Rs. 10 lakhs and a penalty of Rs. 25,000. Moreover, much of the goods are tailor-made for Railways and hence in the absence of any evidence of previous misconduct, we would deem it proper to extend the leniency. Accordingly, we reduce the fine to Rs. one lakh and the penalty to Rs. 10,000 only.
Appeal is disposed of in the above terms.
