ORDER
R. Jayaraman, Member (T)
1. The appeal No. E/155/89 is directed against the order of the Collector of Central Excise, Aurangabad bearing No. V. 15CC (3) 2/MP.III/85 dated 4th March, 1989 and appeal No. E/156/89 is directed against the order pf the same Collector bearing No. V. 15CC (3) 443/MP.III/84 dated 24th Jan., 1989. Since both these appeals involve consideration of the same issue and points of law, they were heard together and hence proposed to be disposed of by this common order.
2. The appellants are manufacturers of sugar and in the process of manufacture of sugar, the by-product molasses is produced, which is also liable to excise duty under the erstwhile Central Excise Tariff Item 15CC. Though the appellants have provided for storage of molasses in steel tank, during the year 1981-82 because of unprecedented bumper crop they had to crush more sugarcane on account of which more molasses came to be produced. They, therefore, requested for permission to store the molasses in katcha pits, which was granted by the Asstt. Collector with a condition that the appellants should clear the molasses from katcha pits first and also execute special B-2 bond agreeing to pay Central Excise Duty, which may be leviable on the molasses stored in the katcha pits at their own risk and also agreeing that they will not seek remission of duty under the Central Excise Rules, even if such molasses get deteriorated, lost, damaged or destroyed, whether due to natural cause or otherwise. It was brought to the notice of the department by the appellants that molasses stored in katcha pits had been completely deteriorated and they sought for permission for destruction of the molasses stored in such katcha pits. In the case of appeal No. 155/89, a quantity of 1071.020 M.T. was claimed to have been deteriorated involving Central Excise duty of Rs. 33,737.13 and in the case of appeal No. 156/89, a quantity of 14963.510 M.T. got deteriorated involving Central Excise duty of Rs. 4,71,350.57. The Supdt. of Central Excise, issued a show cause notice in both the cases answerable to the Asstt. Collector why the aforesaid duty amounts should not be demanded from the appellants under Section 11A read with Rule 49 of the Central Excise Rules 1944. These show cause notices were subsequently amended by issue of corrigendum making it answerable to the Collector, Central Excise, Aurangabad, in view of the amendment made in Section 11A of the Central Excises & Salt Act, 1944 effective from 27-12-1985. In the adjudication proceedings initiated by the Collector, the demands aforesaid were confirmed by the Collector. The present appeals are against the orders of the Collector.
3. Shri Joshi, the learned advocate on behalf of the appellants, submitted that the Collector was not justified in demanding the duty involved on the loss, which has occurred due to natural causes. His arguments can be briefly summed up as below:
There was a heavy crushing of sugarcane and hence the storage capacity for molasses being inadequate, they have obtained permission to store the molasses in katcha pits. Only after obtaining such permission they have stored the molasses in katcha pits. The molasses is fully controlled and even removals are physically controlled by the State Excise authorities and hence there could not be any physical removal or clandestine removal by the appellants. The molasses being volatile in nature and also susceptible to deterioration, on account of heat, got damaged when they were stored in katcha pits, and hence became unmarketable. They, had therefore, asked for destruction of molasses, which was also granted by the Collector of Central Excise, Aurangabad.The power to grant remission of duty envisaged under Section 5 read with Rules 49 and 149 is a statutory provision, which cannot be ignored by the Collector merely because they have executed the B-2 bond undertaking to store the molasses in katcha pits at their own risk and agreeing not to claim remission of duty. This bond cannot take away the statutory remedy available to them. Such a bond cannot be a valid contract even under the provisions of Section 23 of the Indian Contract Act. He also contended that the provisions of Trade Notice No. 209/82 issued by the Pune Collectorate based on the Board’s instruction cannot be legally valid and binding on them, since the measure contemplated by the Board falls outside the scope of the legal remedies provided to them. He also contended that the High Court of Delhi in the case of Caltex Oil Refining (India) Limited reported in 1979 (4) ELT (J 581) have held that duty is payable only on removals. In this case, no removals have taken place and it is not the allegation of the department that the goods have been illicitly removed. He also stated that the very same issue with regard to the demanding duty on account of execution of Special B-2 bond was considered by this Bench in the case of Shri Dudhganga Vedganga Sahakari Sakhar Karkhana Ltd. and Ors. v. Collectors of Central Excise Pune & Aurangabad and Ors reported in 1987 (29) ELT 22 (Tri.) and both the Members in separately recorded concurring notes agreed that merely because of the Special B-2 bond, the department cannot demand the duty by forcing the appellants to forego remission of duty statutorily provided for. It was also held in the aforesaid decision that if the Department desires to enforce the B-2 bond, the proper forum is Civil Court and not the Adjudicating Authority or the Tribunal. In view of this decision squarely covering the identical issue, he submitted that both the appeals are required to be allowed.
4. Heard Shri Deepak Kumar. He contended as below:
The sugar factories were permitted to store molasses in katcha pits only on the condition that they enter into a bond agreeing not to claim remission of duty, even if loss or damage occurred due to natural causes. The appellants had executed such a bond fully knowing the implication of the same, without any objection. Having taken advantage of storage in katcha pits, the appellants are now estopped in contending that they are not liable to duty on the ground that certain quantity of molasses have got deteriorated due to natural causes. Storage of molasses in katcha pit is a concession extended to the sugar factory in the peculiar situation and it is clear even in the B-2 bond that the katcha pits were not approved by the Department as approved place of storage. Hence the loss occurred mainly due to deliberate storing of molasses in unapproved katcha pits on their own risk and responsibility and the Department cannot be asked to abandon the revenue due thereon, which has been lost on account of wilful negligence on the part of the appellant. He, therefore, sought for dismissal of both the appeals.
5. After hearing both the sides we find that the facts involved and the points to be considered are identical to the very same issue considered in great detail by this Bench in the case of Shri Dudhganga Vedganga Sahakari Sakhar Karkhana Ltd. and Ors. reported in 1987 (29) ELT 22 (Tri.). In that case also storage of molasses was permitted in katcha pits by the Departmental authorities on execution of Special B-2 Bond agreeing not to claim remission of duty on loss, which may occur due to natural causes or otherwise. This Bench, consisting of the Hon’ble Members S/Shri Dilipsinhji and K. Gopal Hegde held that demands even in terms of Special B-2 Bond executed are not enforceable and the statutory remedy and exercise of judicial decision vested under Rule 49 cannot be extinguished. On the question of legal authority to enforce the Special B-2 Bond it was held by the Bench that this is not a matter which falls within the purview of the Tribunal and the question of legality of the bond carmot be agitated before the Tribunal and if the Department desires to enforce the Special B-2 Bond, the proper forum is the Civil Court and not the Appellate Authority of the Tribunal. Since this Bench has gone elaborately into the merits of the identical arguments, which are now advanced before us and given detailed findings thereon, with which we have no reason to disagree, we hold that both the appeals are to be allowed following the ratio of the decision already taken in the case of Shri Dudhganga Vedganga Sahakari Sakhar Karkhana Ltd. reported in 1987 (29) ELT 22 (Tribunal). While doing so, we also would like to add the following:
In both the cases, show cause notices as originally issued were answerable to the Asst. Collector, but have been transferred to the Collector by issue of corrigendum on account of amendment to proviso to Section 11A of the Central Excises & Salt Act. The aforesaid proviso as amended contemplates issue of the show cause notice and adjudication by the Collector, only where any duty of excise has not been levied or paid or has been short levied or short paid by reason of fraud, collusion or any wilful mis-statement or suppression of facts or contravention of any other provisions of the Act or Rules with an intention to evade payment of duty. We find that none of the ingredients has been either alleged in the show cause notice or given in the findings of the Collector. It is not disputed by the Department that the loss noticed in the molasses stored in katcha pits was brought to the notice of the Department by the appellants themselves by claiming remission of duty, on the basis of which proceedings have been initiated. Show cause notice was initially issued by the Supdt. answerable to the Asstt. Collector. In view of this factual position, we are unable to appreciate the transfer of the case to the Collector citing the reason that under proviso to Section 11A as amended, the case is required to be decided by the Collector. It is not the case of the Department that the Collector has thaken up the proceedings because powers of remission of duty are vested in him. We are, therefore, unable to appreciate the basis, on which the adjudication has been done by the Collector without any allegation of fraud, collusion or wilful mis-statement or suppression of facts.
6. Another aspect which we would like to highlight is the concerned Rule 49 of the Central Excise Rules. The first and second provisos to the said Rule 49(1) reads as below:
“Provided that the manufacturer shall on demand pay the duty leviable on any goods which are not accounted for in the manner specifically provided in these rules, or which are not shown to the satisfaction of the proper officer to have been lost or destroyed by natural causes or by unavoidable accident during handling or storage in such store-room or other approved premises :
Provided further that the proper officer may not demand duty due on any goods claimed by the manufacturer as unit for consumption or for marketing subject to such conditions as may be imposed by the Collector by order in writing.”
7. From the above it can be seen that the proper officer may not demand duty due on goods claimed by the manufacturer as unfit for home consumption or for marketing subject to such condition as may be imposed by the Collector by order in writing. In this case, even if it is held that the loss is not on account of natural causes but on account of human error or negligence, it is not disputed that the goods have become unfit for consumption or for marketing. It is also observed that the Collector has granted permission for destruction as is evident from the letters produced by the learned advocate. Though in these letters the Collector has indicated that this permission is without prejudice to the right of the Department for recovery of duty, this cannot be construed as a condition for permitting destruction because the proviso contemplates that there may not be any demand for duty on such goods claimed by the manufacturer as unfit for consumption or for marketing. Duty liability on such goods gets extinguished by virtue of this proviso, once such goods are ordered for destruction and they have been destroyed by following the prescribed procedure and conditions. In view of these provisions also we hold that even otherwise duty is not liable to be paid by the appellants. We, therefore, allow the appeals and set aside both the orders of the Collector of Central Excise, Aurangabad.