1996 (4) TMI 230 - AT - Central Excise

Summary

Issues involved:

1. Alleged evasion of excise duty by M/s. Standard Pencils Pvt. Ltd. (SPPL) on eyebrow pencils by misdeclaring them as kumkum pencils.
2. Determination of duty liability based on raw material consumption.
3. Eligibility for exemption on kumkum pencils.
4. Penalty under Rule 209(A) on M/s. Lakme Pvt. Ltd. and M/s. Aravind Laboratories.
5. Confiscation of goods and penalties under Rule 173Q.

Summary:

Issue 1: Alleged evasion of excise duty by SPPL on eyebrow pencils by misdeclaring them as kumkum pencils

SPPL was accused of evading excise duty on "Eyebrow Pencils" by removing them as Kumkum Pencils (Bindi Pencils) and claiming exemption under Notification No. 235/86. The Collector held that all quantities of kumkum pencils cleared by SPPL to M/s. Lakme and M/s. Aravind Laboratories were actually eyebrow pencils cleared without payment of duty.

Issue 2: Determination of duty liability based on raw material consumption

The Collector observed that four raw materials (Beeswax, Liquid Paraffin, Stearic Acid, Calcium Stearate) used exclusively in manufacturing eyebrow pencils were regularly consumed by SPPL. The production of eyebrow pencils reflected in RG 1 was not proportionate to the raw materials consumed, leading to the inference that eyebrow pencils were removed without payment of duty. The Tribunal held that duty liability should be based on the quantity of raw materials used exclusively for eyebrow pencils as indicated in the Raw Materials Accounts.

Issue 3: Eligibility for exemption on kumkum pencils

The Tribunal followed its earlier decision in C.C.E., Madras v. Standard Pencils (P) Ltd. - 1994 (70) E.L.T. 118, holding that kumkum pencils are not eligible for exemption.

Issue 4: Penalty under Rule 209(A) on M/s. Lakme Pvt. Ltd. and M/s. Aravind Laboratories

The Tribunal found no sufficient evidence to sustain penal action under Rule 209(A) against M/s. Lakme and M/s. Aravind Laboratories. The evidence did not support the charge that they knew the goods were liable to confiscation.

Issue 5: Confiscation of goods and penalties under Rule 173Q

The Tribunal held that confiscation of goods could be sustained only if related to the quantity of eyebrow pencils removed without payment of duty. The matter was remanded to the Collector for de novo proceedings to determine the actual quantity and pass fresh orders regarding penalty under Rule 173Q.

Order:

1. Duty on eyebrow pencils to be worked out based on raw material consumption.
2. No exemption for kumkum pencils.
3. Duty payable cannot be deducted from the sale price.
4. Penalty under Rule 209(A) on M/s. Lakme and M/s. Aravind Laboratories set aside.
5. Fresh orders to be passed regarding penalty under Rule 173Q for SPPL and its directors.
6. Confiscation of goods to be decided in light of the directions regarding liability to confiscation.

The matter was remanded to the Collector, Central Excise, for de novo proceedings regarding quantification, confiscation, and penalty under Rule 173Q, observing the principles of natural justice.