1962 (3) TMI 75 - SC - Central Excise

Evasion of duty on 11,606 maunds of sugar at the rate of Rs. 5-10-0 per cwt - Held that - Appeal allowed. Not because an error due to carelessness in maintaining the registers properly as required by Rule 83 does not amount to a contravention of that rule; the only reason why we mention this is that in a factory where the turnover of sugar is so considerable and the operations conducted in which the human element plays a significent part it would not be right to base calculations on the surmise that over filling of the tanks was being practised systematically. No doubt, during the test, the tanks were slightly over filled on nine out of ten occasions as pointed out by the Assistant Chemical Examiner. But this could be att ributed to a slight failure of the human element resulting from the fact that a special operation was being conducted by the operators in the presence of a Government official. We would, however, make it clear that these observations are just incidental and are not the basis of our decision. Quash the order of the Central Government and the two tribunals below as well as the directions requiring the appellant to pay the additional excise duty of Rs. 90,921-14-0 on 11,606 maunds of sugar and fine of Rs. 2,000. If the appellant has paid the duty and the penalty it should be refunded.

Issues Involved:
1. Short accounting of sugar.
2. Proper maintenance of registers as required by Rule 83.
3. Assumptions made by the Assistant Chemical Examiner.
4. Alleged erroneous accounting conceded by the appellant.

Detailed Analysis:

1. Short Accounting of Sugar:
The primary issue was whether the appellant had failed to account for 11,606 maunds of sugar. The Assistant Chemical Examiner's report alleged that the appellant had not kept correct accounts of the mixed juice used in sugar production, resulting in a shortfall. The report was based on a test conducted on May 7, 1957, which found a 1% discrepancy in the mixed juice accounting. The calculations assumed that this discrepancy was uniform throughout the crushing season. The Court noted that these calculations involved several assumptions, such as uniformity in the filling of tanks and the average sugar recovery rate. The Court found these assumptions to be unwarranted and concluded that the finding of short accounting was based on inferences without tangible evidence, thus vitiated by an error of law.

2. Proper Maintenance of Registers as Required by Rule 83:
The second issue was whether the registers were properly maintained as required by Rule 83. The finding that the registers were not properly maintained was also based on the calculations made by the Assistant Chemical Examiner. Since these calculations were found to be based on unwarranted assumptions, the Court held that they could not form a legal basis for concluding that more juice went into sugar production than recorded in the registers.

3. Assumptions Made by the Assistant Chemical Examiner:
The Assistant Chemical Examiner's calculations were based on several assumptions:
- The 1% discrepancy observed during the test was uniform throughout the crushing season.
- The tanks were uniformly overfilled beyond the fixed mark.
- The average sugar recovery rate of 10.11% was a safe basis for calculating unaccounted sugar.
- The milling performance of the factory was uniformly efficient throughout the period.
The Court found that if any of these assumptions failed, the ultimate conclusion would be incorrect. The Court emphasized that human elements involved in the operations and variability in sugar content in sugarcane made these assumptions unreliable. Consequently, the Court rejected the conclusions based on these assumptions.

4. Alleged Erroneous Accounting Conceded by the Appellant:
The respondent contended that the appellant's representatives had conceded to some erroneous accounting during a personal hearing. However, the Court noted that no reliance was placed on this confession in the respondent's statement of the case. The Court also observed that given the large scale of operations and the significant human element involved, it was more likely that any discrepancies were due to carelessness rather than a deliberate attempt to evade duty. The Court emphasized that these observations were incidental and not the basis of their decision.

Conclusion:
The Court quashed the orders of the Central Government and the lower tribunals, as well as the directions requiring the appellant to pay additional excise duty and a fine. The Court held that the findings were based on inferences involving unwarranted assumptions and lacked tangible evidence. If the appellant had paid the duty and penalty, it should be refunded. The respondent was ordered to pay the costs of the appellant in the Supreme Court.

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