1991 (11) TMI 68 - HC - Central Excise

Normal production of tread rubber arrived at by taking into account only the amount of sulphur found short

Summary

Issues Involved:

1. Unauthorized removal of tread rubber.
2. Determination of unaccounted production of tread rubber.
3. Consideration of evidence relating to production capacity, energy consumption, wages, and raw materials.
4. Validity of the Tribunal's findings based on the evidence.

Issue-wise Detailed Analysis:

1. Unauthorized Removal of Tread Rubber:

The officers of the Headquarters Preventive in the Collectorate of Central Excise, Cochin intercepted a tempo van containing 63 rolls of tread rubber without any valid documents and seized the goods. Further search recovered an additional 56 rolls from the building. The driver and a partner of M/s. Metal Rubber Agencies confirmed the unauthorized transportation. The Collector held the assessee liable for duty and confiscated the goods under Rule 9(2) and Rule 173Q of the Central Excise Rules, 1944, and imposed a penalty of Rupees two lakhs.

2. Determination of Unaccounted Production of Tread Rubber:

The department examined the raw materials, particularly sulphur, and concluded that 6,500 kgs. of sulphur were used to manufacture 2,18,833 kgs. of tread rubber, which was unaccounted for. The Collector determined that the tread rubber was illicitly manufactured and cleared without payment of duty, arriving at the quantity based solely on the shortfall of sulphur.

3. Consideration of Evidence Relating to Production Capacity, Energy Consumption, Wages, and Raw Materials:

The assessee contended that the shortfall of sulphur was due to damage from rain and not used for production. The assessee argued that under Rule 173E, the normal quantum of production should be determined with reference to various factors such as installed capacity, raw material utilization, labor employed, and power consumed. The Collector, however, did not consider these factors and based his determination solely on the sulphur shortfall.

4. Validity of the Tribunal's Findings Based on the Evidence:

The Tribunal upheld the Collector's order regarding the duty demand but reduced the penalty to Rupees one lakh. The High Court observed that the Tribunal failed to consider all relevant factors under Rule 173E for determining normal production. The High Court cited precedents, including Venkataswami Naidu & Co. v. Commissioner of Income-Tax and Omar Salay Mohamed Sait v. Commissioner of Income-Tax, emphasizing that findings based on improper admission or exclusion of evidence are subject to challenge. The Court also referred to the doctrine of Wednesbury unreasonableness, highlighting that decisions must be based on relevant considerations and not on conjectures or surmises.

Conclusion:

The High Court concluded that the Tribunal's order was vitiated due to the failure to consider all relevant factors required under Rule 173E. Consequently, the High Court refused to answer the referred question and directed the Tribunal to restore the appeal and pass an appropriate order after giving the assessee an opportunity to be heard according to law. The judgment emphasized the necessity of basing findings on proper material and relevant evidence, adhering to principles of fairness and reasonableness.