1992 (5) TMI 129 - AT - Central Excise

Issues Involved:

1. Allegation of Suppression and Invocation of Extended Period for Duty Demand
2. Validity of Show Cause Notices Issued by Assistant Collector and Superintendent
3. Classification and Eligibility for Exemption under Notification No. 286/86 and 20/89
4. Applicability of Rule 9(2) and Section 11A for Duty Demand and Penalty
5. Quantum of Penalty Imposed

Issue-wise Detailed Analysis:

1. Allegation of Suppression and Invocation of Extended Period for Duty Demand:

The appellants argued that there was no ground for the Department to allege suppression and invoke a longer period for demanding duty. They had informed the Central Excise authorities about their intention to manufacture soya milk and provided necessary details through letters dated 27-1-1987 and 18-3-1987. The appellants contended that the Department was kept informed of the particulars of the product, hence there was no justification to allege suppression. They cited Supreme Court decisions in Collector of Central Excise, Hyderabad v. Chemphar Drugs & Liniments and Padmini Products v. Collector of Central Excise to support their claim that there was no deliberate withholding of information. The Tribunal agreed with the appellants, noting that the detailed declaration provided by the appellants negated the Department's contention of suppression.

2. Validity of Show Cause Notices Issued by Assistant Collector and Superintendent:

The appellants challenged the jurisdiction of the Assistant Collector and Superintendent to issue show cause notices, arguing that only the Collector could issue such notices when alleging suppression. They relied on the Tribunal's decision in M/s. Alcobex Metals (P) Ltd. v. Collector of Central Excise. However, the Department contended that under Rule 9(2), the proper officer in whose jurisdiction the factory is located could issue the notice. The Tribunal noted that the show cause notices invoked Rule 9(2) read with Section 11A, and the proper officer, as defined under Rule 9(2), was competent to issue the notices. The Tribunal found no merit in the appellants' contention regarding the jurisdiction of the officers who issued the notices.

3. Classification and Eligibility for Exemption under Notification No. 286/86 and 20/89:

The appellants claimed that their product, soya milk-based beverages, should be classified as soya milk and be eligible for exemption under Notification No. 286/86. They argued that worldwide, soya milk is known with added flavors, and their product was marketed as soya milk. The Department, however, held that the notification applied only to plain soya milk and not to soya milk beverages. The Tribunal examined the manufacturing process and found that the soya milk base, after blending with flavors and other ingredients, yielded soya milk beverages. The Tribunal upheld the Department's view that soya milk and soya milk beverages are distinct products, and the exemption under the notification did not apply to the latter. The Tribunal also referred to a clarification issued by the authority, which supported the Department's interpretation.

4. Applicability of Rule 9(2) and Section 11A for Duty Demand and Penalty:

The appellants argued that Rule 9(2) should be read in conjunction with Section 11A, which requires a notice for demanding duty. They contended that Rule 9(2) is not independent of Section 11A and that demanding duty without notice would violate principles of natural justice. The Department argued that Rule 9(2) covers situations of clearances without assessment, while Section 11A applies to short levy cases. The Tribunal referred to the High Court of Allahabad's decision in Kanpur Cigarettes (Pvt.) Ltd. v. Collector of Central Excise, which held that the provisions of Section 11A, as a whole, cannot be imported into Rule 9(2). The Tribunal found that the show cause notices issued under Rule 9(2) were valid and the appellants' arguments lacked merit.

5. Quantum of Penalty Imposed:

The appellants argued that there was no contumacious conduct on their part, and the penalty imposed was unwarranted. The Tribunal noted that the circumstances of the case did not indicate deliberate suppression of facts by the appellants to evade payment of duty. Considering this, the Tribunal found justification for reducing the quantum of penalty and accordingly reduced it to Rs. 25,000. The appeal was disposed of in these terms, and the Cross Objection filed by the Department, being supportive of the impugned order, was dismissed as misconceived.

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