2006 (12) TMI 287 - AT - Central Excise

Summary

Issues:
1. Alleged removal of diluted and damaged molasses from open pits.
2. Compliance with Board Circular No. 35/88-CX regarding storage of molasses.
3. Applicability of case laws on revenue loss due to negligent storage.
4. Interpretation of excise duty demand based on self-assessment and clearance of disputed quantity.
5. Alleged violation of Central Excise Rules, 2002.
6. Assessment of penalty under Rule 10 for failure to maintain proper daily stock account.

Analysis:
1. The Revenue's appeal was based on the alleged removal of diluted and damaged molasses from open pits, leading to a demand for duty. However, the Commissioner (Appeals) found no evidence of such removal and noted that the molasses were in a non-marketable condition, lying in the pits for years. The Revenue's presumption based on the RG 1 Register entry was deemed insufficient to confirm excise duty, as mere presumptions cannot form the basis for duty demands. The penalty imposed on the assessee for incorrect RG 1 Register maintenance was upheld, as it was not challenged.

2. The issue of compliance with Board Circular No. 35/88-CX regarding the storage of molasses in katcha pits was raised. It was highlighted that both the appellant and the Departmental authorities failed to adhere to the circular's instructions, which stated that sugar factories should not store molasses in katcha pits. The failure to implement these instructions was noted, emphasizing the binding nature of Board Circulars on Departmental Officers.

3. The judgment referred to various case laws on revenue loss due to negligent storage, citing precedents such as Goavari Sugar Mills Ltd., Purna Shakari Sakhar Karkhana Ltd., and Commr. of C.Ex., Patna v. Cownpore Sugar Works Ltd. These cases addressed the implications of negligent storage on commercial value and duty liability, providing relevant precedents for assessing the current situation.

4. The interpretation of excise duty demand based on self-assessment and the clearance of disputed quantity was crucial. The appellant clarified the situation through letters to the Department, indicating the pumping of disputed molasses into storage tanks and subsequent clearance on payment of duty. The judgment emphasized that duty demands based on the alleged non-existence of disputed quantity were not legally sustainable.

5. The judgment analyzed the alleged violation of Central Excise Rules, 2002, and highlighted that the rules in force during the material period were those specified under Notification No. 30/2001-CE (NT). It was noted that the allegations in the show cause notice referred to Rule 4, which required clearance on payment of duty, but no evidence indicated clearance outside the factory without duty payment, thus refuting the violation of Rule 4 and Rule 21.

6. The assessment of penalty under Rule 10 for failure to maintain a proper daily stock account was addressed. While the appellant admitted to the failure in maintaining the stock account, no mens rea (intent) was evidenced. The judgment upheld the penalty under Rule 25 for violating Rule 10, despite the absence of intent, emphasizing the importance of proper record-keeping in excise matters.