M/S Oriental Carbon & Chemicals ... vs The Commissioner, Customs & ...
2015 Latest Caselaw 3184 ALL

HIGH COURT OF JUDICATURE AT ALLAHABAD
 
 

AFR
 
(Judgment reserved on 17.09.2015)
 
(Judgment delivered on 14.10.2015)
 

 
Court No. - 37
 
Case :- CENTRAL EXCISE APPEAL No. - 31 of 2005
 

 
Appellant :- M/S Oriental Carbon & Chemicals Ltd
 
Respondent :- The Commissioner, Customs & Central Excise
 
Counsel for Appellant :- Gaurav Mahajan,Bharatji Agrawal,Nishant Misra,Piyush Agrawal
 
Counsel for Respondent :- C.S.C.,K.C. Sinha,S.K. Rai,V.K.Singh Raghuvanshi
 

 
Hon'ble Tarun Agarwala,J.

Hon'ble Surya Prakash Kesarwani,J.

(Per: Surya Prakash Kesarwani,J.)

1. Heard Sri A.R. Madhav Rao, learned counsel, assisted by Sri Nishant Misra, learned counsel for the appellants and Sri B.K. Singh Raghuvanshi, learned senior standing counsel for the respondents.

2. This appeal was admitted on 03.03.2005 on the following questions of law:

"A. Whether the Tribunal in its remand order having affirmed the finding with reference to the excess weight over and above weight of packing material (Standard excess weight) the Tribunal was not justified in confirming the demand with reference to the weight of packing material also?

B. Whether in view of the directions in the earlier order of remand regarding denovo adjudication, the entire matter was at large for denovo adjudication and not only the question where excess weight over and above standard excess weight was part of the trade practice of Industry manufacturing and selling carbon black?

C. Whether the order passed by the Central Excise and that of the Tribunal being violative of principles of natural justice as no opportunity was given to the appellant regarding the evidence obtained from Hitech Carbon and Philips Carbon Ltd., behind the back of the appellant, specific ground has been taken by the appellant in ground no.8A/11 and the Tribunal was not justified in considering and deciding the same?

D. Whether in spite of the weight of packing material having been mentioned in the invoice and in spite of the fact that standard excess weight, which only represent weight of the packing material being entirely different than weight of excess quantity of Carbon black, the Tribunal was not justified in not deciding the said question while confirming the demand?

E. Whether no additional consideration having been admittedly received by the appellant in respect of the alleged excess quantity hence no duty was paid following the trade practice and various judgments of the Tribunal and hence no penalty can be legally imposed?"

3. Learned counsel for the appellants submits that the Tribunal by its Final Order No.A/907-909/2000-NB (DB), dated 19th October, 2000, in Appeal No.E/832-34/1999-NB of 1999 remanded the matter to Adjudicating Authority for de-novo adjudication and as such, all the points were open for determination, but by the impugned Final Order No.103 to 105/05/NB (A), dated 19.10.2004 passed in Appeal No.E/3441-43/04-NB (A), the Customs, Excise and Service Tax Appellate Tribunal (hereinafter referred to as ''the Tribunal') arbitrarily and incorrectly dismissed the appeal of the appellants on the ground that findings regarding removal of excess carbon black were confirmed in the earlier Final Order of the Tribunal dated 19.10.2000 and the matter was remanded for limited purpose to examine the trade practice of slightly over-filling carbon black. He further submits that the finding of the Tribunal with regard to trade practice of over-filling of bags in respect of carbon black being without any material is incorrect. The adjudicating authority neither confronted the assessee with the alleged inquiry report regarding trade practice of overfilling nor afforded opportunity to rebut it. He submits that the excise duty has been paid on ad valorem basis and the packing material was in addition to the weight of carbon black. The nature of carbon black is such that it sticks with the surface of the bag to which it comes into contact and for that reason, they were dispatching a slightly excess quantity to avoid any complaints of the customers for short supply. He further submits that in an invoice of 10 M.Ts. of carbon black, the net weight brought on record was 10.240 M.Ts. Out of this, 0.240 M.T. excess weight, 0.160 M.T. was packing material and 0.080 M.T. was the excess quantity of carbon black, but the respondents had demanded duty, both on 0.160 M.T. of packing material as also on 0.080 M.T. of carbon black filled in bags. He, therefore, submits that the impugned order of the Tribunal is unsustainable inasmuch as the duty liability has been discharged on ad valorem basis and even if they had supplied excess carbon black, they had not charged or realised any excess amount in regard to the excess quantity supplied. The remand was made by the Tribunal, vide its order dated 19th October, 2000 for de novo adjudication, and therefore, the finding in the impugned order that the remand was for limited purpose, is incorrect. He submits that the finding of clandestine removal is not based on any evidence on record.

4. In support of his submissions, he relied upon the judgment of Hon'ble Supreme Court in the case of Mann Aluminium Vs. Commissioner of Central Excise, Indore, 2015 (322) E.L.T. 184 (S.C.) and the judgment of Privy Council in the case of M.R. Ramanujam Vs. King Emperor (1935) ILR 58 PR 523.

5. Learned counsel for the respondents submits that the impugned order of the Tribunal does not suffer from any infirmity inasmuch as by the earlier Final Order dated 19th October, 2000, the Tribunal has remanded the matter to the Adjudicating Authority for limited purpose. He further submits that the Tribunal has recorded a finding of fact that the matter was remanded to the Adjudicating Authority with limited direction to ascertain trade practice of over-filling of carbon black, but, the appellants could not bring any material on record to show that such a trade practice did exist in respect of carbon black.

6. We have carefully considered the submissions of learned counsel for the parties and perused the record.

7. Briefly stated, the facts of the present case are that the appellants are engaged in the manufacture of carbon black falling under Sub-Heading 2803.00 of the Schedule to the Central Excise Tariff Act,1985 on which duty is payable on ad valorem basis. Central Excise Officers visited their factory premises on 30.05.1996. On physical stock taking of the finished goods and raw material, certain discrepancies were found and certain records were also resumed including a file containing date-wise loose sheets indicating the tank level of carbon black during the year 1996-97, which was found at variance with the physical stock vis-à-vis the balance as per books. Similar sheets were also found in another file covering the period of the year 1994-95. A show cause notice, after due investigation, was issued to the appellants, and thereafter an Order in Original No.01, dated 05.01.1999 confirming demand of central excise duty of Rs.85,57,626/- under Section 11A of the Central Excise Tax (hereinafter referred to as ''the Act') and imposing penalty of Rs.85,57,626/- was passed. Penalty was also imposed under Rule 209A of the Central Excise Rules, 1944 (hereinafter referred to as ''the Rules'). Being aggrieved the appellants preferred Central Excise Appeal No.E/832-34/1999-NB before the Tribunal, which was disposed of by Final order No.A/907-909/2000-NB (DB), dated 19.10.2000 observing as under:

"6. All the three noticees are in appeal against the above order of the Commissioner. We have heard Sh. G. Shiv Das, Advocate for the appellants and Sh. Mewa Singh, SDR for the Revenue. We have carefully considered the submission made before us. It is observed that the difference in production figures as ascertained from the production and other records maintained by the party and those recorded in the RG-I register and on which the central excise duty is paid is not in dispute. To reconcile this difference, the party has advanced the defense that the precise measurement of the quantity of carbon black manufactured and stored in the silos is not possible. Therefore, the daily production (work in progress material) is calculated on the basis of raw material consumed which is cross checked with dip measurement of carbon black stored in silos. They have also stated that approximately the input output ratio between carbon black feed stock and the carbon black was to the order of 2 : 1 and therefore, yield percentage would be approximate 50%. If this is the ground reality as advanced by the party, then they could have computed and submitted the figures of the raw material consumed and the end product cleared on payment of duty during the relevant period in order to enable the Commissioner to examine the proposition as advanced by them but it has not been done. The appellants also do not quarrel with the findings of the Commissioner that the expression 'net weight' is to denote the difference between the gross weight and the tare weight and therefore, net weight is exclusive of the packing material namely the empty paper bags and wagon liners. They however contest the findings that the tare weight would represent only the weight of empty truck. The difference between the gross weight and the tare weight being the net weight, such a net weight would include weight of the packing material and the weight of the paper bags/ wagon liners that are used for transporting the carbon black. The Commissioner, on examination of this submission of the party in his order has observed that the quantity of the carbon black subject matter of the notice is the quantity found in the silos which was measured by dip reading and had been compared with the stock in BSR. He has observed that the weight of empty bags and wagon liners could not have been included in the quantity of loose carbon black found in silos. Besides, it is observed that the invoices raised by the party reflected the weight of paper bags i.e. packing material in addition to the weight of carbon black. Therefore, if the contention that the total excess quantity included the weight of the standard excess weight of the carbon black and the packing material is correct then the sum of the weight of the packing material and the weight of carbon black, should conform to the total quantity removed, which, however, is not the case. Based on these facts, the Commissioner has arrived at the conclusion that the quantity over and above the standard excess quantity as mentioned in the show cause notice was not the weight of bags and wagon liners but was that of carbon black. The Ld. Counsel for the appellants has not been able to counter these findings with any plausible explanation and therefore, we find no infirmity in it. We accordingly confirm these findings.

7. The other point raised by the appellants is that the duty on carbon black is on ad valorem basis. The department had conducted investigation with one of the purchasers namely Modi Tyres who had confirmed that no excess amount was paid for the excess quantity. It is also not disputed by the Commissioner that the party had not received any excess amount for excess quantity of carbon black. Thus, it is contended that even assuming that the difference between the standard quantity and the gross weight represented the weight of carbon black, no further duty would be payable. In support of this proposition, the appellants are relying on the ratio of the following decisions:-

a) Reckitt & Collman of India Ltd. Vs. CCE Calcutta I 1993 (44) ECR 33 (T)

b) Manisha Pharma Plast Ltd. Vs. CCE, 1999 (108) ELT 273 (T)

7. In the decision at (a) above, it is held that where the assessment is linked to value, the realisation of the price is the same even if the packed quantity is slightly more than the quantity projected. This would not have any revenue significance. On consideration, we find force in this submission. It is observed that the appellants did raise the contention before the adjudicating authority that the carbon black packed and stored in bags for despatch was incapable of precise measurement and it was impossible for them to precisely weight 25 kg. of carbon black. Consequently they were slightly over-filling the bags so that in instance of weighment of bags by customers, the bag of less than 25 kg. of material could not be found. The Commissioner has dismissed this proposition by observing that such practices is not normally adopted in the trade. This observation by the Commissioner does not seem to be tenable. The department has not conducted any query regarding the trade practice of over-filling the bags in respect of this commodity. That there does not exist such trade practice in respect of some other commodities is evidenced even by the decisions cited before us by the appellants (supra), which led to the dispute and consequently the cited decisions. We therefore, feel that this aspect needs to be looked into in depth by the original authority. We accordingly set aside the order of the Commissioner and remand the matter to him for de novo consideration. The appellants, within one month of the receipt of this order, should furnish to the Commissioner the facts and figures relating to the cu-mulative excess quantity or supply of carbon black to the buyers by way of overfilling of the bags vis-a-vis the total quantity of these goods cleared by them on payment of duty during the material period. The Commissioner will thereafter verify these figures and allow the relief to the party to the extent admissible with reasons. The quantum of confirmation of duty, if any, and penalty on all of the appellants should thereafter be adjudged in the light of the relief allowed to M/s OCCL. The appellants should be afforded a reasonable opportunity of personal hearing by the adjudicating authority."

8. From the above quoted first Final Order of the Tribunal, dated 19th October, 2000, it is clear that two points were raised by the appellants before the Tribunal. The first point was with regard to the excess quantity of carbon black, which was decided against the appellants and the finding of the Adjudicating Authority in this regard was upheld in paragraph-6 of the order. The second point raised by the appellants was that the duty on carbon black was on ad valorem basis and they had not received any excess amount for excess quantity of carbon black, therefore, even if the quantity packed was slightly more than the quantity projected yet it would not have any revenue significance. The Tribunal found force in the second submission of the appellants. The Tribunal further observed that the question whether over-filling was a trade practice in respect of carbon black, needed to be examined in depth by the original authority. Accordingly, the matter was remanded. Thus, it is clear that with respect to first point noted above, the Tribunal upheld the findings recorded in the Order in Original dated 05.01.1999 and remanded the matter to the Adjudicating Authority only with respect to second point.

9. Pursuant to the aforesaid Final Order of the Tribunal dated 19.10.2000, the Adjudicating Authority again considered the matter and passed the Order in Original No.07, dated 31.03.2004 crystallising in para 7.1.1 and 7.1.2 of the order the two issues as under:

"(i) Whether there exists a trade practice of over filling of bags in respect of carbon black as the party had pleaded that there does exist such practice in respect of some other commodities?

(ii) Whether the facts & figures, submitted by the party of cumulative excess filling of carbon black vis-a-vis total quantity dispatched by them on payment of duty to various parties furnished by them in terms of CEGAT's order are correct or not?"

10. Being aggrieved the appellants filed Central Excise Appeal No.3441-43/2004-NB(A) before the Tribunal, which was dismissed by the impugned Final Order dated 19.10.2004 observing that the matter was remanded only to ascertain the trade practice of over-filling bags in respect of carbon black, but the appellants could not bring any material to show that such a trade practice did exist in respect of carbon black. Being aggrieved, the appellants filed the present appeal.

11. The first point as reproduced above was considered by the adjudicating authority in para 7.2 to para 7.3.5 and it was held that the assessee's contention that there was trade practice of overfilling carbon black in bags does not seem to be correct in view of the inquiry report received from Central Excise Commissionerates Allahabad and Bolpur with respect to two manufacturers of carbon black namely M/s Hightiech Carbon Renu Koot and M/s Philips Carbon Black Ltd. Durgapur District Bardhaman, which revealed that the precise measurement of carbon black at the time of packing is possible as it is filled automatically in bulk bags and paper bags from storage tanks. He also relied upon the statement of Sri Shambhu Shah-warehouse incharge dated 13.04.1998 (RUD7). Before the Tribunal, the assessee raised several contentions including the violation of principles of natural justice by the Adjudicating Authority by not affording any opportunity against the alleged inquiry reports. We find from perusal of the order in original that the Adjudicating Authority neither confronted the assessee with the alleged inquiry report nor afforded any opportunity to rebut it. In para-6 of the impugned order the Tribunal observed that the assessee has not countered the aforesaaid two inquiry reports by bringing any material/ evidence to show that there exist a trade practice of overfilling. The Tribunal noted the contention of the assessee in para-2 of the impugend order that copies of the aforesaid two reports were not furnished by the Adjudicating Authority which was not even denied by the Department. Thus, we are of the view that the order in original was passed in violation of the principles of natural justice.

12. With regard to the point No.(ii) as noted in para (9) above, we find that the Adjudicating Authority held in para 7.4.4. and para 8.1 that the excess quantity shown in the show cause notice has been found to be that of carbon black only hence no contrary view to the earlier finding of the Commissioner of Central Excise Meerut-I recorded in the earlier order in original dated 05.01.1999 is taken in which it was held that the goods found in excess were subsequently bagged and removed clandestinely. In the impugned order, the Tribunal held in para-7 that in the present matter, usable carbon black was packed and cleared and since excise duty is levied on manufacture irrespective of the fact whether any value is realized or not and as such duty is payable by the assessee. The Tribunal completely ignored its own observation recorded in para-7 of its first final order dated 19.10.2000 which has been reproduced in para (7) above that where the assessment is linked to value, the realisation of the price is the same even if packed quantity is slightly more than the quantity projected then this would not have any revenue significance. In the case of Commissioner of Central Excise Mumbai vs. Fiat India Pvt. Ltd. 2012 (283) ELT 161 (S.C.) Para-24, the Hon'ble Supreme Court held as under:

"24. Section 3 of the Act provides for levy of duty of excise and Section 3(i) thereof states that there shall be levied and collected in the prescribed manner, a duty of excise on excisable goods manufactured in India at the rates set forth in the first Schedule. Neither Section 3 nor the first Schedule lays down the manner in which ad valorem price of the goods has to be calculated. This is found in Section 4 of the Act. Section 4 of the Act lays down the measure by reference to which the duty of excise is to be assessed. The duty of excise is linked and chargeable with reference to the value of the exercisable goods and the value is further defined in express terms by the said Section. In every case, the fundamental criterion for computing the value of an excisable article is the normal price at which the excisable article is sold by the manufacturer, where the buyer is not a related person and the price is the sole consideration. If these conditions are satisfied and proved to the satisfaction of the adjudicating authority, then, the burden which lies on the assessee under Section 4(1)(a) would have been discharged and the price would not be ignored and the transaction would fall under the protective umbrella contained in the Section itself. "

13. We further find that in remand proceedings, the Adjudicating Authority passed the Order in Original No.07, dated 31.03.2004, observing in paragraph-5.2 that "The case is now under de-novo adjudication proceedings before me." In paragraph-6, the Adjudicating Authority noted the submissions of the appellants including the submission that the excise duty on carbon black had been paid on ad valorem basis. No evidence was brought on record by the Department that the appellants had received any amount as additional consideration in respect of overfilled excess quantity of carbon black.

14. It is not the case of the respondents that the report of investigation conducted by the department with one of the purchasers, namely, M/s Modi Tyres, who confirmed that no excess amount was paid for the excess quantity, was not on record. In the Order in Original passed pursuant to the remand direction, the Adjudicating Authority could neither place any evidence nor could record any finding that any excess amount for the excess quantity of carbon black was received by the appellants. The Adjudicating Authority merely referred to certain opinions or statements that it was possible to fill the exact weight since packing process was automatic but it completely overlooked the fact that the appellants themselves had stated that they were over-filling a little quantity of carbon black in excess of the standard weight so that there may not be any complaint from the purchasers for receiving lesser quantity of carbon black which sticks with the packing bags. This factual aspect of non-receipt of any additional consideration had neither been denied nor could be disproved by the respondents. Neither the Adjudicating Authority considered the submissions of the appellants and the details furnished by them as briefly noted in paragraph-6 of the Order in Original dated 31.03.2004 nor the Tribunal took pain to consider it.

15. In the case of Maan Aluminium Ltd. Vs. Commissioner of Central Excise Indore, 2015 (322) ELT 184 (S.C.), Para-16, Hon'ble Supreme Court held as under:

"16. It is unfortunate that in spite of the fact that the aforesaid plea was specifically raised by the appellant in explaining that there was no difference in the quantities and thus, no question of any clandestine removal of the goods from the premises, the said plea has not been adverted to and there is no reference made to the aforesaid material produced by the appellant. It is stated at the cost of repetition, that only on the basis of so called admissions made by Mr.Mansukhani and Mr. Deepak Das, the authorities jumped to the conclusion without undertaking any further exercise. Such an order of the CESTAT which is confirmed by the High Court does not stand legal scrutiny and therefore, these orders are liable to be set aside. We, accordingly, allow this appeal and quash the demands raised by the authorities."

16. In view of the above discussions, the impugned Final Order of the Tribunal dated 19.10.2004 cannot be sustained and is hereby set aside. To do justice, the matter is remitted back to the Tribunal with the following directions to pass an order afresh in accordance with law, expeditiously, preferably within six months from the date of production of a certified copy of this order:

(i) The Tribunal shall examine whether there was any evidence of removal of carbon black by the appellants without invoices/ clandestinely?

(ii) The Tribunal shall examine whether the appellants had received any additional consideration than the consideration mentioned in the invoices for the invoiced quantity of carbon black including slightly excess quantity?

(iii) If Tribunal finds that the appellants had not received any additional consideration for the slightly over-filled quantity of carbon black in the packing bags dispatched to buyers, then it shall examine whether central excise duty can be demanded on such slightly excess/ overfilled quantity of carbon black when the duty was payable on ad-valorem basis?

17. In result, the appeal succeeds and is hereby allowed to the extent indicated above.

 
Order Date :- 14.10.2015
 
NLY
 

 

 
(Surya Prakash Kesarwani,J.)               (Tarun Agarwala,J.)