1985 (10) TMI 217 - AT - Central Excise

Issues Involved:

1. Alleged clandestine manufacture and removal of excisable goods.
2. Validity of duty demand and penalty imposed.
3. Denial of natural justice due to inadequate opportunity to inspect records.
4. Question of limitation on raising the duty demand.

Issue-wise Detailed Analysis:

1. Alleged Clandestine Manufacture and Removal of Excisable Goods:

The appellants were accused of manufacturing and clandestinely removing significant quantities of paints and varnishes without accounting for them in statutory records, thus contravening several Central Excise Rules. The detection occurred during simultaneous searches of the factory premises, head office, and the residence of the proprietor by Central Excise Officers. Documents recovered indicated that the appellants disposed of their goods using the names of fictitious firms such as Northern Agency, Eastern Traders, B.A. Trading, and Mohd. Hashem. These firms were found to be non-existent, and the real manufacturer was identified as M/s. Paints and Colour. The Collector of Central Excise, Calcutta, found the appellants guilty and demanded duty amounting to Rs. 3,99,911.76 for the period from 1.1.69 to 22.3.1973. A penalty of Rs. 25,000 was also imposed, along with the confiscation of land, buildings, and machinery used in the manufacture of the excisable goods.

2. Validity of Duty Demand and Penalty Imposed:

The Central Board of Excise and Customs upheld the Collector's order, confirming that the charges were fairly established and the duty demand was correct. However, the penalty was reduced from Rs. 25,000 to Rs. 10,000 considering the financial position and smallness of the enterprise. The order regarding the confiscation of plant and machinery and the redemption fine was set aside. The appellants argued that the bulk of the purchases were from legitimate sources like M/s. Chemo Synthetics and M/s. Bose & Co., and that these were fully accounted for in their books. They also claimed that the employees engaged in other part-time jobs, including maintaining records for these firms, had no connection to the appellants' business. However, the tribunal found that the appellants failed to establish the independent identity of these firms and that the goods handled by their sales office were actually purchased or returned goods.

3. Denial of Natural Justice Due to Inadequate Opportunity to Inspect Records:

The appellants contended that they were denied natural justice as they were not allowed proper and sufficient opportunity to inspect the relevant records. They claimed that the department did not return the seized documents, which hampered their ability to produce documentary evidence in their favor. The tribunal found that the appellants were given ample opportunity to inspect the records, as evidenced by the correspondence between the appellants and the local authorities. The appellants had undertaken inspection of records on 62 days over a period of nearly three years, and the tribunal concluded that there was no violation of the principles of natural justice.

4. Question of Limitation on Raising the Duty Demand:

The appellants raised the issue of limitation, arguing that the demand of duty was barred by limitation. The departmental representative objected, stating that this issue was not raised at lower levels and could not be raised now. However, the tribunal considered it a question of law and allowed the appellants to raise it. The tribunal found that the show cause notice was issued on 2nd January 1976, and the demand of duty related to the periods from 1st January 1969 to 31st July 1969 and 1st August 1969 to 22nd March 1973. The demand for duty was made by invoking Rule 9(2) of the Central Excise Rules, 1944. The amendment to Rule 9(2) in 1977, which introduced a five-year limitation period, was not applicable to demands issued prior to the amendment. Therefore, the tribunal held that the demand for duty was valid and not barred by limitation.

Conclusion:

The tribunal upheld the order of the Central Board of Excise and Customs, confirming the duty demand and the reduced penalty of Rs. 10,000. The appeal was dismissed, and no further relief was granted to the appellants.

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