ORDER
D.C. Mandal, Member (J)
1. The facts of the case, in brief, are that M/s. Royal Paints, Baroda are holders of Central Excise L-4 licence for the manufacture of paints and varnishes falling under Item 14 of C.E. Tariff. They were manufacturing paints and varnishes with the aid of power. M/s. Royal Paints Products, Baroda were also manufacturing paints and varnishes, but without the aid of power. On 21.3.1975, the Central Excise Preventive Officers of S.R.P. HQrs. Office, Baroda paid a surprise visit to the premises of M/s. Royal Paint Products and found 67 drums of 20 Kgs. each, of synthetic oil bound distemper lying in the factory without markings. The drums were received from M/s. Royal Paints without any Central Excise Gate Pass. The said synthetic oil bound distemper weighing 1340 Kgs. valued at Rs. 6,700/- had been removed by M/s. Royal Paints from their factory without payment of Central Excise duty. The goods were seized by the Officers. It is alleged that further investigations made by the Department revealed that M/s. Royal Paints suppressed their production and diverted the same to M/s. Royal Paints Products, a non-power operated unit without accounting for in R.G. 1 Register and without payment of duty, and wrongly availed of the benefit of exemption Notification No. 116/74-C.E., dated 1.8.1974 in respect of accounted for goods, with intent to evade payment of duty. It was alleged that the goods valued at Rs. 89,577.80 as mentioned in paragraph 2 of the order-in-original were manufactured by M/s. Royal Paints, but were cleared under delivery challans of M/s. Royal Paint Products as their manufactures. It is also alleged that in addition to the goods valued at Rs. 89,577.80 mentioned above, M/s. Royal Paints had also manufactured and cleared excisable goods valued at Rs. 1,46,472.00, as detailed in para 3 of the Collector’s order-in-original, during the financial year 1974-75, which value exceeded the exemption limit of Rs. 1,33,000/- laid down in the Notification No. 116/74-C.E., dated 1.8.1974, rendering M/s. Royal Paints ineligible for exemption from duty in respect of paints and varnishes manufactured by them. Show cause notice was issued to M/s. Royal Paints charging them with contravention of the provisions of Rules 173-B, 173-C, 173-F, 173-G, 9, 52-A and 53, and calling upon them to show cause against imposition of penalty and recovery of duty on (i) 67 drums oil bound distemper seized from the premises of M/s. Royal Paint Products, (ii) goods valued at Rs. 89,577.80 and (iii) goods valued at Rs. 1,46,472.00, as mentioned earlier. M/s. Royal Paint Products were asked to show cause against imposition of penalty under Rule 52A(5) of the Central Excise Rules. On adjudication of the case, the Collector of Central Excise, Baroda held the charges as established and passed the following orders :-
(i) Confiscation of 67 drums of oil bound distemper weighing 1340 Kgs. and valued at Rs. 6,700/-, with a redemption fine of Rs. 2500/-;
(ii) Ordered M/s. Royal Paints, under Rule 9(2) of Central Excise Rules, to pay Central Excise duty on the goods valued at Rs. 89,577.80 and Rs. 1,46,472/-;
(iii) Imposed penalty of Rs. 25,000/- on M/s. Royal Paints under Rule 173Q of Central Excise Rules; and
(iv) Imposed penalty of Rs. 1000/- on M/s. Royal Paint Products under Rule 52A(5) ibid.
Being aggrieved, the appellants have filed these appeals.
2. We have heard Shri 3ain for the appellants and Shri Shishir Kumar for the respondent. The gists of the arguments of Shri 3ain are as follows :-
(i) 67 drums of oil bound distemper were sent by M/s. Royal Paints without Gate Pass through mistake. There is a breach of Rule 52-A of the Central Excise Rules. Contravention of other Rules are not admitted. Gate Pass was subsequently issued vide No. 78 dated 29.3.1975 and debit entry was made in R.G. 1, and
(ii) So far as the goods valued at Rs. 89,577.80, vide para 2 of the Collector’s order, are concerned, the same are the products of M/s. Royal Paint Products, except 67 drums oil bound distemper seized from the premises of M/s. Royal Paint Products. The goods of Royal Paint Products should not be added to the clearance figures of M/s. Royal Paints.
(iii) As against Rs. 1,46,472/- shown in para 3 of the order-in-original, the correct value of clearance was Rs. 1,27,828/- which is below the exemption limit of Rs. 1,33,300/-. The correct value of items 1 and 4 of para 3 of the said order is Rs. 73,724/- and Rs. 11,310/-respectively, as against Rs. 74,234.80 and Rs. 29,454.00.
(iv) Regarding 1000 Kgs. included in item 1 of para 2 of the Collector’s order, the date of Gate Pass is 1.4.1975, which is the date of actual clearance. Date of advance delivery challan 351/31.3.75 is not the date of clearance.
(v) Unless the Collector specifies, raw material account is not required to be maintained.
(vi) Public Works Department addressed the Order to M/s. Royal Paints through mistake. The goods were to be supplied by M/s. Royal Paint Products.
(vii) In para 3 of the Collector’s order, the dates of clearance are not given, which means that the dates are not known to the Department.
(viii) Receipt of the goods without Gate Pass is no offence under Rule 52A. So, the penalty of Rs. 1000/- on M/s. Royal Paint Products is not sustainable.
3. Shri Shishir Kumar has argued as follows :-
(i) Shri Vikram Shah of M/s. Royal Paints admitted that 67 drums were not accounted for in R.G. 1. There is no evidence of endorsement of Range officer on Gate Pass No. 78, dated 29.3.1975. Gate Pass is to be issued before clearance from the manufacturing factory. This was not done.
(ii) Regarding 1000 Kgs., the Collector described the challan as “delivery challan” and not “advance delivery challan”. Delivery challan is issued on the date of delivery. Though the clearance took place on 31.3.1975, Gate Pass was issued on 1.4.1975. This quantity should be included in the clearance of 1974-75.
(iii) Regarding the clearances claimed to be of M/s. Royal Paint Products, the Collector saw from the records, though the records are not specified, that those were the manufactures of M/s. Royal Paints.
(iv) The value of oil bound distemper @ Rs. 2.35 per Kg. is not correct. There is no material to show that this price as per appellants letters dated 31.12.1974, 26.3.1975 and 31.3.1975 was approved by the Department. The sale price of M/s. Royal Paint Products from the Public Works Department is now known. Price list for supply of Public Works Department was filed by M/s. Royal Paints, but no supply was made by them to Public Works Department. Raw material account was also not maintained. It can be inferred that the transactions of two firms are not above board.
(v) There is no explanation why 67 drums of oil bound distemper were received by M/s. Royal Paint Products. There was no Gate Pass, delivery challan or any other documents.
4. We have considered the case records and the arguments of both sides. It is an admitted fact that 67 drums of oil bound distemper seized from the premises of M/s. Royal Paint Products were manufactured and removed by M/s. Royal Paints before 20.3.1975. The value of these goods, viz. Rs. 6700/- should be included in the clearance of M/s. Royal Paints for 1974-75. Regarding the other goods detailed in paragraph 2 of the order-in-original, the contention of the learned Consultant is that the same were manufactured by M/s. Royal Paint Products without the aid of power and the same should not be; included in the clearance figures of M/s. Royal Paints. In Paragraph 19 of the order-in-original the Collector has stated that “It is seen from the records that the actual supplies of the paints mentioned in para 2 of the notice were the supplies made by M/s. Royal Paints….” The Collector has not specified the records on which he had based this finding, nor has the learned S.D.R. thrown any light in this matter during the hearing before us. In the circumstances, it is necessary to remand this issue to the Collector of Central Excise, Baroda, who should re-examine the matter and take a decision after detailed discussion of the records on the basis of which he came to the conclusion that those goods were the supplies made by M/s. Royal Paints and after supplying details of those records to the appellants and giving them an opportunity of personal hearing. We order accordingly.
5. So far as the goods detailed in paragraph 3 of the Collector’s order are concerned, the appellants have disputed the value of item No. 1, which, according to them, should be Rs. 73,724.85. They have also disputed the value of item No. 4, which, according to their contention, should be Rs. 11,310/-. Their contention is that the value per Kg. of item No. 4 should be Rs. 2.35 only, at which price they contracted to supply the goods to M/s. Royal Paint Products for supply to Government. In paragraph 20 of the Collector’s order, he has held that the price of Rs. 2.35 per Kg. is not correct. He has given convincing reasons in support of his finding. The appellants have not been able to rebut the Collector’s finding. But Shri Jain appearing for the appellants has argued that the dates of clearances of the goods mentioned in paragraph 3 of the order-in-original have not been given, which means that the dates were not known to the Department. We find that at no stage before the lower authorities, the appellants disputed the fact that these goods had been cleared during the financial year 1974-75. Even in the Revision Petition filed before the Central Government which stood transferred to us for disposal as an appeal, they did not raise any dispute about the dates of clearances. It is now too late for the appellants to raise the question of dates of clearance of the goods. We, therefore, reject this plea. In the light of these discussions, the total clearances of M/s. Royal Paints should be computed as follows :-
(i) Value of 67 drums oil bound distemper seized = Rs. 6,700.00
(ii) Value of item No. 1 of para 3 of Collector's
Order = Rs. 73,724.85
(iii) Value of item No. 2 of para 3 of Collector's
Order = Rs. 37,035.20
(iv) Value of item No. 3 of para 3 of Collector's
Order = Rs. 2,326.00
(v) Value of item No. 4 of para 3 of Collector's
Order = Rs. 29,454.00
(vi) Value of item No. 5 of para 3 of Collector's
Order = Rs. 3,432.00
Total = Rs. 1,52,672.05
The total clearances of M/s. Royal Paints for the year 1974-75 thus exceeded the exemption limit of Rs. 1,33,300/- prescribed by the Notification No. 116/74-C.E., dated 1.8.1974. They are, therefore, not entitled to the benefit of this Notification and Central Excise duty is payable by them on the clearances computed above.
6. The clearances shown in paragraph 3 of the order-in-original were reflected in R.G.I., R.T.-12 returns and Gate Passes of M/s. Royal Paints as it appears from para 16 of the said order. It cannot, therefore, be said that these goods were removed clandestinely, attracting Rule 9(2) of the Central Excise Rules, 1944. The demand for duty on these goods should, therefore, be restricted to the normal time limit prescribed under Rule 10 of the Central Excise Rules and the Central Excise duty payable by them should be determined accordingly. So far as the duty on 67 drums oil bound distemper is concerned, the same being clandestine removal without Gate Pass demand for duty under Rule 9(2) is sustainable.
7. The seized 67 drums of oil bound distemper have been correctly confiscated by the Collector. The order of confiscation with fine in lieu thereof is, therefore, upheld by us.
8. In paragraph 6 (supra) we have held that there was no clandestine removal in respect of the goods detailed in paragraph 3 of the order-in-original. There is no material before us to come to the conclusion that in respect of these goods the appellants contravened any of the provisions of Central Excise Rules with intent to evade payment of Central Excise duty. 67 drums of oil bound distemper valued at Rs. 6700/-, included in item No. 1 of paragraph 2 of the Order-in-original were removed without any Central Excise Gate Pass with intent to evade payment of duty. Having regard to these facts, we are of the view that the penalty imposed under Rule 173Q on M/s. Royal Paints should be substantially reduced. Accordingly, we reduce the penalty from Rs. 25,000/- to Rs. 5,000/- only.
9. The Collector has imposed a penalty of Rs. 1000/- on M/s. Royal Paint Products under Rule 52A(5) of the Central Excise Rules, which reads as follows :-
52A(5). “If any person –
(a) Carries or transports excisable goods from a factory without a valid Gate Pass, or
(b) While carrying or removing such goods from a factory, or does not on request by an officer, forthwith produce a valid Gate Pass, or
(c) enters any particulars in the gate pass which are, or which he has reason to believe to the false;
he shall be liable to a penalty not exceeding one thousand rupees, and the excisable goods in respect of which the offence is committed shall be liable to confiscation”.
In this case, in the Memo of Appeal of M/s. Royal Paint Products filed before the Central Board of Excise and Customs, it was stated that the 67 drums oil bound distemper had been carried and transportec by M/s. Royal Paints. This has not been controverted by M/s. Royal Paints, who removed the goods in 67 drums without a Gate Pass and without payment of Central Excise duty. M/s. Royal Paints were, therefore, liable to penalty under Rule 52A(5) of the Central Excise Rules and not M/s. Royal Paint Products. Collector has not, however, imposed any penalty on M/s. Royal Paints under this rule. Accordingly, we set aside the penalty of Rs. 1000/- imposed by Collector on M/s. Royal Paint Products and allow their appeal.
10. In the light of the above discussions, we pass the following orders :-
(i) The appeal filed by M/s. Royal Paints is disposed of in terms of our findings and conclusions in paragraphs 4 to 8 (supra);
(ii) The appeal filed by M/s. Royal Paint Products is allowed and the penalty imposed on them is set aside.