ORDER
S.L. Peeran, Member (J)
1. This appeal arises from Order-in-Original dated 30-11-1988 by which the Commissioner has confirmed duty demand of Rs. 4,79,490.71 under Rule 9(2) of Central Excise Rules read with proviso to Section 11A of Central Excises & Salt Act, 1944 on the excisable goods manufactured and cleared without payment of Central Excise duty during the period 1983-84, 1987-88 (up to December, 1987). He has also imposed a penalty of Rs. 50,000/- besides ordering for confiscation of 12 Card Board Boxes of cola/orange concentrates/flavours valued at Rs. 13,710/- under Rule 9(2) of Central Excise Rules. However, he has granted release on payment of redemption fine of Rs. 1,500/-.
2. The facts of the case are that the appellants have issued with show cause notice on 7-6-1988 alleging that the appellants had fully suppressed the fact of manufacture of cola/orange concentrates /flavours falling under T.I. 68 of erstwhile Central Excise Tariff and Chapter sub-heading 3301 of Central Excise Act in their factory and cleared the said goods without obtaining Central Excise licence and without following Central Excise procedures and without payment of Central Excise duty during the year 1983-84,1987-88 (up to December, 1987) and thereby evaded payment of Central Excise duty to an extent of Rs. 4,79,490.71. Statements were recorded on the deduction of goods cleared through autorickshaw bearing No. MED 1517 on 29-12-1987 by inspecting squad. The goods carried in the autorickshaw was not accompanied by Central Excise Gate Pass. One Karunanidhi, Accountant of the appellant had informed the officers that the company is manufacturing Industrial Flavours and concentrates and stated that neither they had Central Excise Licence nor filed any declaration to Central Excise Department. The consignment contained 12 card board boxes valued at Rs. 13,710/- and there was no proof of Central Excise payment. On follow up action, the department took the statement of T.S. Gulati, Director of the appellant factory who admitted for not having filed any declaration to Central Excise department or having taken licence. He has informed the officers that they had made enquiries for the year 1986 at the range level and he had been told that their products are exempted since no power is used in the manufacture of their products since all the products manufactured and cleared as final products that they have lighting connection and no power, this connection is used by them for quality control test for the incoming raw materials and outgoing finished products in their laboratory and this quality control test is a must for their finished products and that the equipment shown in Mahajar dated 30-23-1987 (sic) used for quality control only. The officer collected the details of clearances and issued the show cause notice. In reply, the appellants had taken a contention that the goods are manufactured without the aid of power and therefore by virtue of Notification . No. 236/86, dated 3-4-1986 the whole of duty leviable on the said goods are exempted.
3. The Commissioner in the impugned order held that the appellants had suppressed the fact of manufacture of cola/orange concentrates/flavours in their factory and cleared the same without following Central Excise procedures. He has noted the installation of the following machines/equipments :-
(a) Spectrometer – To check the optical density of liquids;
(b) P.H. Meter – To check acidity of flavours and raw materials;
(c) Vacuum Pump – For vacuum distillation of incoming raw materials fortosting;
(d) Distillation apparatus – For distilling water and for removing impurities if any from incoming materials;
(e) Water Purifier – To get clinically pure water and for laboratory use and for drinking and also to be added in some flavours;
(f) Pouch Sealer – To seal samples of powder flavours.
The Commissioner has noted the statement of T.S. Gulati who admitted that all incoming raw materials and outgoing finished products are subjected to laboratory test and the above equipment function with the aid of power and that the test is a must for finished goods. During the personal hearing he also admitted that lighting power is used for this purpose, therefore the Commissioner has held the activity as activity of manufacture and the term ‘manufacture’ under Section 2(f) of the Central Excise Act includes any process incidential or ancillary to the completion of a manufactured product. Since power is used in the manufacturing process of Cola/orange concentrates for testing the incoming raw materials and outgoing finished products which is incidential and ancillary in the completion of the manufactured product, therefore he held that testing the goods with the aid of power which is a must, amounts to manufacture of goods with the aid of power. He noted that the party did not contest the classification. He has held that benefit of the Notification No. 179, dated 18-6-1977 is not applicable and the said notification covers only goods falling under T.I. 68 in or in relation to manufacture of which no power is ordinarily carried on with the aid of power, from the whole of duty leviable thereon. He has also held that from 1-3-1986 onwards, the goods filed under sub-heading 33.03 of Central Excise Act as claimed by the party as the goods are used as raw material in the food and beverage industry and they are classifiable under Heading 33.02. He has held that Notification No. 230/86, dated 3-4-1986 is not applicable as the said notification covers only goods which are manufactured without the aid of power.
4. Ld. Commissioner has also confirmed the allegation pertaining to invokation of larger period under proviso to Section 11A of the Act. He has noted that they did not file declaration or the classification list with the Department. Further they had mentioned in their ‘consumer public price list’ of their products as ‘we do not charge Excise Duty’. The Commissioner observed that this clearly shows that they knew their obligation towards Central Excise Rules and Acts but in spite of it they had failed to comply with the same and hence there are suppression of facts and proviso to Section 11A is invokable.
5. Arguing for the appellants ld. Advocate Shri A. Vijayaraghavan submits that the party does not contest the classification or even the aspect pertaining to the process being carried out with the aid of power in view of the Supreme Court judgment rendered in the case of CCE v. Rajasthan State Chemical Works as reported in 1991 (55) E.LT. 444. However, he submits that there is no wilful suppression in the case and therefore larger period is not invokable in the present case. In this case he relies on the following judgments :- .
(1) Intercity Cable System (P) Ltd. v. CCE as reported in 1995 (80) E.L.T. 445 (Tribunal).
(2) Indian Aluminium Cables Ltd. v. CCE as reported in 1998 (97) E.L.T. 507 (Tribunal).
(3) CCE v. Chemphar Drugs & Liniments as reported in 1989 (40) E.L.T. 276 (S.C.).
(4) Padmini Products v. CCE as reported in 1989 (43) E.L.T. 195 (S.C.).
(5) Tamil Nadu Housing Board v. CCE as reported in 1994 (74) E.L.T. 9 (S.C.).
(6) Cosmic Dye Chemical v. CCE as reported in 1995 (75) E.L.T. 721 (S.C.).
Ld. Counsel submits that the understanding with regard to power not being used in the manufacturing process but only in the testing process was a bona fide belief held by the appellants and such belief should be a ground for holding that the demands are time barred. He submits that in the case of Mr ma Chemicals Works and Ors. v. UOI and Ors. – 1981 (8) E.L.T. 617 (Gujarat) the Gujarat High Court has held that mere use of power in transferring the raw materials from motor tank to storage tank cannot be said to be use of power in the process of manufacture of final product because it is not a process of manufacture. Likewise, he relied on the judgments rendered in the case of Jain Soaps Mills v. Union of India and Ors. as reported in 1979 (4) E.L.T. (J 147) which was also on the like terms. He also relied on the judgment of Sandoz India Limited v. U.O.I. and Ors. as reported in 1980 (6) E.L.T. 696 (Bombay) which laid down that mere change in physical form does not amount to manufacture.
6. Ld. DR submits that the appellants were carrying on the process with the aid of power and the final product cannot be manufactured without using machines which were run on power and they were fully aware of the process of manufacture and hence they ought to have taken Central Excise licence and paid the duty. They have not filed any declaration and therefore having suppressed facts wilfully to department and hence larger period liable to be invokable.
7. On a careful consideration of the submissions, we notice that the appellants are not contesting the case on merits. Even they are not contesting with regard to use of power for the manufacture of the final product. Their only contention is that the activity which they had carried on with the use of power for the purpose of testing their raw material and final product. This aspect has been considered by the Commissioner in the impugned order. He has noted that they have in fact installed 6 machines which are electrically operated. He has also noted the functions of the 6 machines and has noted from the statement of Shri Gulati that the incoming raw materials and outgoing finished products are subjected to laboratory test with the above noted equipments functioning with the aid of power and that the test is a must for finished goods. In the light of this statement of Shri Gulati, it is difficult to say that the appellants held a bona fide belief that such activity did not amount to activity of manufacture and hence they were covered by Notification exempting the goods from Excise leviability and dutiability. The appellants ought to have declared their goods and should have sought clarification in writing from the department with regard to the activity carried out by them and contested on merits. They have not done so. They have also not stated that they held bona fide belief in view of the judgment rendered in the case of Nirma Chemicals Ltd. and Jain Chemicals. These are all after thought pleas placed before the hearing by the Counsel. These judgments are in a different context; in respect of power used for transfer of raw material from motor tank to storage tank and such transfer of raw material was held to be not a process of manufacture. However, this decision has been reversed by the Supreme Court in the case of Rajasthan State Chemicals. In order to establish that they held such a bona fide belief, it is for the party to plead at the earliest point and show the same through evidence. In this case no such evidence is forthcoming. The fact that they have installed 5 sets of machines which are used on power and each of the activity carried on is admitted by them to be necessary for the purpose of clearing the finished goods; therefore it cannot be said that such activity is an activity without use of power and such activity is not a process of manufacture. They themselves now admit that the Supreme Court judgment covers the point on merit, but only wants to take support from the judgments to show that there is no suppression in the matter. The appellant has not taken out licence nor filed declaration in the present case. In circumstances like this, each of the judgments cited above are clearly distinguishable. In the case of Intercity Cable System (P) Ltd., the Tribunal noted the facts and also examined the clarification issued by the Board in their letter S/213/41/88-CX. 6, dated 30-12-1988 to come to conclusion that the appellants were carried away with such clarification to hold that there is no suppression of facts. There is no such clarification in the present case which could be said to come to the rescue of the party. Even in the case of CCE v. Music India Ltd. -1988 (97) E.L.T. 171 (Tribunal), the Tribunal noted the controversy pertaining to the valuation on job work basis and the includibility of cost of raw materials provided by customer to job worker, which had been a subject matter of much controversy and the issue came to settled only through Supreme Court judgment in the case of Ujagar Prints Ltd. v. UOI – 1988 (38) E.L.T. 535 (S.C.). This judgment is also not applicable to the facts of the case. Even in the case of Indian Aluminium Cables Ltd. the Tribunal noted the plea of the appellants as regards exemption of waste of scrap in view of the number of judgments they had disclosed the fact of clearance of waste and scrap falling under exemption by submitting copies of the invoices covering them along with their monthly RT 12 returns. The party had filed classification lists claiming such benefits therefore in those circumstance it was held that there was no suppression or mis-statements. In the present case the party has not filed any declaration or classification list or taken out licence, hence this judgment is distinguishable. The judgment of the Supreme Court in the case of CCE v. Chemphar Drugs & Liniments is also distinguishable as Hon’ble Supreme Court has noted that the Department had full knowledge of the activity. It was also noted that the assessee had claimed exemption in respect of patent and proprietary medicines falling under T.I. 14E, but had not indicated in the declaration the value of clearances of exempted goods falling under T.I. 68. On facts, the Supreme Court noted that the party had produced classification list duly approved by Excise authorities and Survey Register showing visit of Excise officers to the factory and therefore Hon’ble Supreme Court concluded that the Department had full knowledge of the facts about the manufacture of all the goods. The value of clearances of exempted goods was not indicated in the belief that it was not required to be indicated. Therefore, in such circumstances, Hon’ble Supreme Court held that there was no case made out for wilful mis-statement, suppression of facts or contravention of any provision under Section 11A. In this case, as noted earlier, no such information was given to the department to come to conclusion that the party had not wilfully suppressed any facts. Even in the case of Padmini Products v. CCE, Hon’ble Supreme Court likewise examined the whole facts to come to a conclusion that the party was carried away by trade notices in believing that the goods were entitled to exemption and subsequently no licence is required to be taken out. Therefore, in those facts and circumstances and on evidence on record in terms of trade notices drew the conclusion that there was no grounds for invoking larger period. In the present case there are no such grounds available to hold that the party held such belief. In the case of Tamil Nadu Housing Board, the Hon’ble Supreme Court held that proviso to Section 11A is in the nature of exception to the principal clause. It was held that its exercise is hedged on one hand that existence of such situation as have been visualised by the proviso by using such strong expression as fraud, collusion, etc. and on the other hand it should have been with intention to evade payment of duty. Both must concur to enable the Excise officer to proceed under this proviso and invoke exceptional power. In the present case, the department has satisfied the legal requirement as laid down in this ratio. The appellants have been clearly manufacturing the goods by use of power and clearing the same clandestinely without payment of duty and therefore, the proviso to Section 11A has been satisfied. In the case of Cosmic Dye Chemical v. CCE, Hon’ble Supreme Court has again reiterated its view that there has to be intention to evade duty and that is inbuilt in the expression “fraud” and “collusion”. In the present case the intention of the party not, to pay duty is explicit inasmuch as they were clearing the goods without paying duty and without even taking licence and without filing classification list and seeking clarifications from the department. Therefore, the larger period in the present case is clearly invokable and hence the order confirming the duty for larger period and imposing penalty of Rs. 50,000/- (Rupees fifty thousand only) is sustainable. There is no merit in this appeal and hence the appeal is rejected.