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TMI Blog1985 (6) TMI 112X X X X Extracts X X X X X X X X Extracts X X X X ..... asses for captive consumption to their chromic acid sections situated adjoining their manufacturing premises, for the manufacture of chromic acid flakes (falling under Item No. 68 CET). The chromic acid flakes were found to be manufactured with the aid of power and removed under the delivery challans of the appellants without payment of duty. The officers detained 98 drums (4,900 kgs.) of chromic acid flakes lying in the chromic acid section for enquiries. On a subsequent visit on 2-2-1983, 126 drums (this included the 98 drums detained earlier), of chromic acid flakes (6,300 kgs. - valued at Rs. 1,89,000) in fully manufactured condition were seized in the belief that the goods were liable to confiscation as the appellants were not entitled to duty exemption under Notification No. 46/81 dated 1-3-1981. The goods were subsequently released to the appellants against a bond. On investigation of the case, the department considered that the appellants had wrongfully availed themselves of duty exemption under Notification 46/81 on the basis that the chromic acid section was not a factory within the meaning of the term in Section 2(m) of the Factories Act, 1948, though, according to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ord. 3. Notification No. 46/81 which is central to the dispute reads as follows : In exercise of the powers conferred by sub-rule (1) of rule 8 of the Central Excise Rules, 1944, and in supersession of the notification of the Government of India, in the Ministry of Finance (Department of Revenue), No. 85/79-Central Excises, dated the 1st March, 1979, the Central Government hereby exempts all goods, falling under Item No. 68 of the First Schedule to the Central Excises and Salt Act, 1944 (1 of 1944), other than goods manufactured in a factory, from the whole of the duty of excise leviable thereon. Explanation : In this notification, the expression factory has the meaning assigned to it in clause (m) of Section 2 of the Factories Act, 1948 (63 of 1948). 2. This notification shall come into force with effect from the 1st April, 1981." 4. Section 2(m) of the Factories Act, 1948, in so far as it is relevant for our present purpose reads thus : Factory means any premises including the precincts thereof - (i) whereon ten or more workers are working, or were working on any day of the preceding twelve months and in any part of which a manufacturing process is being carrie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sed in a separate building where all the requirements of the Factories Act had been attended to. It was stated that there were a number of buildings in the Gemini Studios in which various departments were housed. The Court observed that each of these buildings would be a factory if they employed 10 or more Workers as defined in Section 2(1) of the Factories Act. The Court also considered the further question whether, if any of these departments was a factory as being situated within the precincts of the Gemini Studios, then it was legally possible to separate these departments from others which could not be styled as factories . The building where carpenters, moulders and tinkers were carrying on their work was admittedly a factory. It was permissible to separate the carpentary, moulding and tinkering departments which were really unnecessary for the production of films from the others. There was no evidence to show that the other Departments were so intertwined as to be a composite one without being able to be separated. The Court said that it was possible, even if some of these Departments or factories separated those which were not factories from those which were factories. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fter to complete the process would be included within the definition. In this view, the Court held that the composing section of the newspaper which was located on a particular road came within the definition of the word factory though the actual printing of the newspaper took place at a premise located on a different road. This decision, again, in our view, cannot come to the rescue of the appellants since it was rendered in the context of a dispute regarding payment of wages and we are not able to read from the judgment, even by implication, that a part of the premises belonging to a manufacturer could be segregated from the rest of the premises and a manufacturing activity could be carried on in the part so segregated such that that part of the premises may escape the mischief of Section 2(m) of the Factories Act. In the case before the Court, two premises situated on two different roads were held by the Court to be factories because the activities in one were held to be crucial to those in the latter. In the case before us, both units are in the same plot and have common power, water connections, etc. The activities in the two units are not unrelated. 9. The third deci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t was intended to denote any premises as a composite whole with a central source of power and that a saw mill and a ginning factory under the same roof and worked by the same motive power was a factory . Though this decision was rendered in the context of the definition in the 1911 Act, it nevertheless constitutes an authority for the proposition that a premise in which unrelated (in the present case, the activities are related) activities are being carried on with a central common source of power constitutes a factory . Shri Narasimhan urged that this would not be a true test especially in the context of industrial estates where the source of power may be common for a number of factories. But then each factory would pay its own bills which was not the case with the chromic acid section here. Smt. Vijay Zutshi cited also the Tribunal s Order No. 227-234/85 -C dated 4-3-1985 in the Tide Water Oil Co. Ltd. case. We have gone through the order. The dispute in that case was on the question who should be taken to be workers for the purpose of duty exemption. The question was not about the number of workers which was 56. The assessee claimed that only those workers who were engaged ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... han told us in the course of the hearing that the notation was made by the appellants themselves. That this was so is confirmed by a perusal of the letter dated 20-6-1983 from the appellants to the Senior Factory Inspector, Bulsar in which it is stated that the appellants had demarcated the chromic acid section and had shown it as not a factory" within the meaning of the Factories Act, 1948. The entire ground plan was, according to Shri Narasimhan, approved by the Factories Act authorities. It was not necessary that each and every notation, in the plan had to be separately signed by the authorities. This is rather strange logic. The consequences of a part of the factory premises being declared to be not a factory are quite significant. That part goes out of the mischief of the Factories Act, together with the responsibilities, duties and obligations cast upon the occupier of the Factory by or under the Act. Surely, one would have thought that such an important notation would have been got signed by the authorities. Let us, however, examine the evidence on record on this aspect. The show cause notice dated 7-1-1983 issued by the Supdt. of Central Excise alleged, inter alia, tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pproved drawing clearly showed the details of the chromic acid section and that it was confirmed that the said section would be segregated from the bichromate section by ordinary fencing and, therefore, the chromic acid section would not be treated as a factory under Section 2(m) of the Factories Act, 1948. There was no intention to extend the premises or vary or alter the approved premises. It is Mr. Narasimhan s contention that despite the threat of legal action, nothing further has been heard in the matter from the Inspectorate of Factories. It is thus seen that, to put it mildly, there is serious doubt whether the Inspectorate of Factories had, in fact, approved the appellants declaration that the chromic acid section was not a factory within the meaning of Section 2(m) of the Factories Act. Quite apart from this, we have discussed earlier the authorities cited before us and found that the chromic acid section could not be said to be not a factory since it was an integral part of the appellants factory premises. The fact that less than 10 workers were employed in the chromic acid section - which fact has not been challenged by the Respondent - is of no avail since the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cy was pointed out, the Counsel for the appellants said that the declaration was not of the appellants but that of Growel Chromates Pvt. Ltd. This firm was taken over by the appellants on 2-9-1981. On 19-9-1981, the appellants wrote further to the declaration of 15-4-1981 to say that the premises wherein chromic acid was manufactured was not a factory within the meaning of Section 2(m) of the Factories Act, 1948. It further said the premises were completely segregated and that the goods manufactured therein were exempted from duty by virtue of Notification No. 46/81 dated 1-3-1981 as amended by Notification No. 92/81 dated 1-4-1981. It is Shri Narasimhan s contention that both Growel Chromates Pvt. Ltd. before its take-over by the appellants as well as the appellants genuinely believed that the chromic acid section and the sodium bichromate section were different units, the former, however, not being a factory . The premises were, according to Shri Narasimhan, inspected by the Central Excise authorities on 8-12-1981 and 19-2-1982. Therefore, Shri Narasimhan said, it was not as though the department was not aware of or was not kept informed of the state of affairs. In fact, the sod ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... her to Growel Chromate Pvt. Ltd. s declaration of 15-4-1981 which, it now transpires, did not stake a claim for exemption of chromic acid under Notification No. 46/81 but under Notification No. 105/80. But, the letter of 19-9-1981 was from the appellants and specifically referred to the chromic acid section and the claim for exemption under Notification No. 46/81. The endorsement regarding the non-"factory" status of the chromic acid section was (according to the appellants) approved by the Inspector of Factories on or around 9-2-1982 which means that the statement about the non-"factory" status of the said section in their letter of 19-9-1981 did not have the backing even of the purported approval of the Inspector of Factories. This factor, coupled with the discrepancy noticed earlier between the declaration dated 15-4-1981 filed before the department and the copy furnished in the paper book, lends support to the Collector s conclusion that the intention of the appellants was mala fide. This conclusion is further strengthened by the fact that the correspondence between the Inspector of Factories and the appellants does not bear out the latter s stand that the former had approved t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2) had no application to the present case. The first authority is Acme Metal Industries Pvt. Ltd. v. S.S. Pathale, Inspector of Central Excise Others - 1980 E.L.T. 156 decided by the Bombay High Court. It was held that to attract the provisions of Rule 9(2), the goods should have been removed in contravention of Rule 9(1) and the removal must be clandestine and without assessment. But if the goods were cleared openly and with the knowledge and consent of the department, Rule 9(2) would not be attracted. In the above case, certain goods were removed during the period of the dispute with assessment at nil rate of duty. The Inspector failed to enforce the provisions of law and to charge and collect the proper amount of duty leviable. Therefore, duty was short-levied through inadvertance or error on the part of the Inspector. The Court held that the demand would be governed by Rule 10 and that Rule 10A had no application. This authority is of no avail to the appellants. We have already held on the authority of the N.S. Metal Industries case (supra) that when goods are manufactured and cleared without licence, Rule 9(2) would be attracted. Apart from this, the present case is not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nal said that if there was no allegatior of fraud or mis-statement or suppression of faots or contravention of the provisions of the Act or the Rules with intent to evade payment of duty in the show cause notice, the extended period of 5 years would not be available. The same is the ratio of the Tribunal s decision in Ganga Spinning Weaving Mills, Ludhiana v. Collector of Central Excise, Chandigarh-1983 E.L.T. 1674 as also in Raymond Woollen Mills Ltd. v. Collector of Central Excise, Bombay - 1984 (15) E.L.T. 243. Our observations in the preceding paragraph apply here also. 22. On the subject of penalty levied by the Collector on the appellants, Shri Narasimhan submitted that there was no mens rea on their part. They had placed their cards on the table and did not hide anything from the department. They honestly believed that the chromic acid section was not a factory and that, therefore, the acid produced was exempt. In this background, said Shri Narasimhan, no penalty was leviable. He cited the Supreme Court s decision in Hindustan Steel Ltd. v. State of Orissa - 1978 E.L.T. J-159. In that case, penalty was levied by the Sales Tax authorities on Hindustan Steel Ltd. for fai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this decision can have no application. 23. While the imposition of penalty in the facts and circumstances of the case was correct, the amount of penalty levied was, in our opinion, excessive having regard to the duty involved. We would accordingly reduce the penalty from Rs. 5 lakhs to Rs. 1 (one) lakh only. 24. The last point remaining to be considered is Shri Narasimhan s contention that in terms of the B-11 bond executed by the appellants in order to get the goods provisionally released, they should have been asked to produce the goods before the adjudicating authority. This was, however, not done. The bond amount was ordered by the Gujarat High Court to be returned to the appellants. The goods had already been released provisionally. Nothing was, therefore, available to be confiscated by the Collector. Shri Narasimhan, therefore, submitted that there could be no fine in lieu of confiscation. The only way the Collector could have gone about was to enforce the bond in a Court of law. We are inclined to agree with Shri Narasimhan. Once the goods are released provisionally against a bond and the goods are not physically available for confiscation, we fail to see how the Colle ..... X X X X Extracts X X X X X X X X Extracts X X X X
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