ORDER
V.T. Raghavachari, Member (J)
1. Show cause notice dated 7-10-83 was issued to the appellants M/s. Madhoprasad Mahabirprasad (Supplies) Pvt. Ltd. alleging that they had, during the period 20-5-79 to 9-12-1982 removed a large quantity of processed cotton fabrics without observing the necessary excise formalities and had evaded duty to the extent of Rs. 15,16,738.58 paise. On adjudication after receipt of reply, the Collector of Central Excise, Calcutta under his order dated 11-10-85 held the charges to be established. He confirmed the duty demand as abovesaid. He further imposed a penalty of Rs. 15,00,000.00. This appeal is against the said order.
2. We have heard Shri V. Lakshmi Kumaran, advocate for the appellants and Smt D. Saxena for the department.
3. Shri Lakshmikumaran submitted that he would not be advancing any arguments to controvert the finding of the Collector that as alleged in the show cause notice goods had been removed without observing excise formalities and without payment of duty. He further submitted that he would not be advancing any arguments on the finding that separate sets of accounts had been maintained by the appellants. He, therefore, submitted arguments only on the issues as to whether the demand for duty was properly quantified (and confirmed) and whether, in the circumstances of the case, the penalty of Rs. 15,00,000.00 was justified.
4. On the question of quantification of duty the submission of the learned counsel was that the authorities erred in quantifying the processed cloth removed on assumptions (regarding the quantity and value) that were not justified. The show cause notice has been prepared with elaborate details, attempting to correlate various accounts, loose slips etc. recovered from the appellants. Shri Lakshikumaran pointed out that in indicating the principles of valuation for assessment it is mentioned in the show cause notice that “value taken for the purpose of assessment is the highest for the quality mentioned in private Gate Pass in respect of the consignee”. That is to say, the show cause notice proceeded on the basis that though different values had been mentioned in the Gate Passes, the highest value was being adopted in quantifying the total value in order to levy demand on the basis thereof. It is again pointed out for the appellants that whenever the quantum of the cloth was mentioned in the nature of Thans/bales/rolls etc. the highest meterage had been taken for quantifying the extent of the cloth and again whenever there was variation of width, the highest for that quality was taken.
5. It is, therefore, argued for the appellants that the show cause notice erred in proceeding on the assumption that the highest should be taken (in respect of value, length and width) and therefore the consequent quantification of duty was also in error. It appears to us that this argument is sound. We are of opinion that the average, rather than the highest, should have been taken if no sufficient material was available for ascertaining the exact figure (of value, length and width).
6. It was then submitted that duty had been demanded in respect of all processed cloth, even where the process involved was not one that gave rise to a demand for duty. This argument had been dealt with by the Collector in paragraph 8(iv) of his order. He had held that he was unable to accept the submission in the absence of evidence produced by the appellants. The learned counsel for the appellants points out that the demand was being raised with reference to the description of the fabric in the slips recovered. It is submitted that since the department proceeded to demand duty on the basis of the slips, which referred to processed fabric, the department should not ignore, the nature of the process as disclosed in those slips and that if the nature of the process (as mentioned in the slip) was such that it could not give rise to a demand for duty, the Collector erred in raising a demand on such fabric also. This argument appears to us to be correct. If the demand for duty was on the basis that the cloth of the description mentioned in the slips recovered had been removed, then the department could not ignore the nature of the process as mentioned in the said slips. If the nature was such that the said process would not give rise to a demand for duty, then the demand for duty to that extent must be held unjustified.
7. It is again submitted that if the value of the fabrics, and the extent of the fabrics, is redetermined in the manner mentioned earlier the rate of duty also may, in proper cases, be lower than the rate at which duty had been demanded on those fabrics. Since we have held that the value etc. have to be on an average basis, rather than the highest, the department will have to look into the question whether, consequently, the rate of duty will also have to be re-fixed, in cases where the rate depended on the value.
8. On the question of penalty, Shri Lakshmi Kumaran submitted that in respect of the period prior to the Ordinance 12/79 dated 24-12-79 (later Act 16 of 80), the removal would not give rise to any penalty since Section 5 specified that while duty could be demanded on the basis of the retrospective amendment, penalty could not be levied. He further submitted that the company was taken over by the present management on 22-6-1983 and the show cause notice had been issued subsequently on 7-10-83 with reference to improper removals during 1979 to 1981 and this circumstance should also be kept in mind in quantifying the penalty to be imposed on the present appellants who had no part in the management during the relevant period.
9. The quantum of penalty would depend upon quantum of duty also apart from other circumstances. We have earlier held that the quantum of duty will have to be reworked in the light of the directions earlier. That would mean that there is every likelihood of the demand being scaled down, though we are not aware of how much it would go down by. Therefore, we are unable to indicate as to by how much the penalty would have to be reduced, if the duty demand comes down on the matter being read-judicated in the manner indicated earlier. As to the argument that the present appellants had no hand in the management of the firm at the relevant period, we have only to observe that the penalty is on the firm and hence the question as to whether the persons who are incharge of the firm now were incharge at the relevant period is not very relevant. In the circumstacnes while we are of the opinion that the order may require to be modified with reference to quantum of penalty, we are unable to indicate the extent by which penalty should be reduced. We leave the same to be decided at the time of read-judication.
10. In the result, the appeal is allowed and the order of the Collector is set aside, remanding the matter to the Collector for readjudication, in the manner indicated earlier, to properly quantify the demand for duty and then consider the question of the proper penalty to be imposed.