1998 (7) TMI 393 - AT - Central Excise

Summary

Issues involved:
The judgment addresses the issues of duty demand on excisable goods based on production quantity, compliance with Rule 173E, consideration of wastage in production shortfall, contractual obligations regarding production quantities, and the applicability of franchise agreements in determining production norms.

Duty Demand Based on Production Quantity:
The appellants, manufacturers of sweetened aerated waters, faced duty demands due to alleged shortfall in production quantities compared to the prescribed formula. The department invoked the extended period for duty demand, leading to penalties imposed by the Commissioner. Appellants contended that the formula was a working guide, not a strict requirement, and losses during production were not considered in duty assessment. They argued against duty demand solely based on a single raw material consumption without considering other factors.

Compliance with Rule 173E:
The Departmental Representative argued that Rule 173E was applied correctly, justifying duty demand based on consumption patterns of essential raw materials. However, the appellants contested that the norm should consider various factors, not just one raw material, and the demands spanned a 5-year period without ensuring continuous normal production.

Consideration of Wastage in Production Shortfall:
Wastage, including start-up losses and shut-down losses, was cited as a significant factor contributing to production shortfalls. The appellants emphasized that wastage should be accounted for in determining production quantities, especially in cases of machinery switchovers and maintenance shutdowns.

Contractual Obligations and Franchise Agreements:
The appellants argued that there was no contractual obligation to strictly adhere to the formula, emphasizing the need for flexibility in production. The franchise agreements stipulated adherence to the formula and procedure provided by the company, but the appellants contended that this did not guarantee a predetermined quantity of goods.

Applicability of Franchise Agreements in Determining Production Norms:
The judgment highlighted that acceptance and application of a formula did not necessarily mandate the production of a specific quantity of goods. The franchise agreements did not explicitly hold the franchisees accountable for producing exact quantities as per the formula, leading to doubts regarding the establishment of production quantities based solely on raw material consumption.

Conclusion:
The Appellate Tribunal allowed the appeals, setting aside the duty demands and penalties. The judgment emphasized the insufficiency of considering only raw material consumption in determining production norms under Rule 173E, highlighting the need for a comprehensive assessment of various factors. The decision underscored the importance of not basing duty demands solely on one raw material and the necessity of considering all relevant aspects in production quantity assessments.