Padmini
Products Vs. Collector of Central Excise, Bangalore [1989] INSC 245 (18
August 1989)
Mukharji,
Sabyasachi (J) Mukharji, Sabyasachi (J) Ray, B.C. (J)
CITATION:
1989 AIR 2278 1989 SCR (3) 873 1989 SCC (4) 275 JT 1989 (3) 404 1989 SCALE
(2)329
ACT:
Central
Excises and Salt Act 1944/Central Excise Rules, 1944: Section 11A Rules 8, 9
and 174--Persons required to take out licence-Recoveries of duty not levied not
barred--Failure to pay duty or take out licence is not necessarily due to
fraud, collusion or wilful misstatement.
HEAD NOTE:
The
appellant was a manufacturer of agarbatis, dhoop sticks, dhoop coil and dhoop
powder failing under Tariff Item No. 68 of the Central Excise Tariff. It
claimed exemption from duty of excise on the ground that these items being
handicrafts were fully exempt from such payment under notification No. 55/75.
The appellant's further case was that under Notification No. 111/78 all goods
which were exempt from the whole of duty of excise leviable thereon
unconditionally were exempted from the operation of Rule 174 of the Central
Excise Rules, which required a manufacturer to take out a licence.
The
Collector rejected the claim of the appellant and held that these items were
not handicrafts.
It was
contended before the Tribunal that dhoop sticks, coil and power were agarbaties
and agarbaties were accepted as handicrafts by various authorities including
the Central Government; mere use of power in the manufacture of these items did
not bar them from being called handicrafts; and, in any event, there was no
warrant in invoking longer time limit for five years for raising the demand.
The
Tribunal rejected the contentions of the appellant.
It was
found by the Tribunal that the main part of the manufacture of agarbaties, etc.
was done with the aid of power; only a very small part of the required work was
done by hand; and that it was difficult to accept that these were handicrafts
merely because some authorities had chosen to treat agarbaties as handicrafts.
The Tribunal held that the Revenue was entitled to levy tax for a period of
five years prior to the issue of show-cause notice and not six months pursuant
to rule 9(2) of the Central Excise Rules.
874
Before this court, it was contended on behalf of the appellant that in order to
sustain the order of the Tribunal beyond a period of six months and upto a
period of 5 years under section 11-A it had to be established that the duty of
excise had not been levied or paid by reason of either fraud or collusion or wilful
mis-statement or suppression of facts or contravention of any provision of the
Act or Rules made thereunder, with intent to evade payment, as provided in the
proviso to sub-section (1) of section 11-A. In this context, it was urged that
there was scope for believing that agarbaties were entitled to exemption and if
that was so, then there was enough scope for believing that there was not need
of taking out a licence under rule 174 of the Central Excise Rules, 1944. On
the other hand, the Revenue contended that the failure to take out the licence
and thereafter to take the goods out of the factory gate without payment of
duty was itself sufficient to infer that the appellant came within the mischief
of section 11-A of the Act.
While
partly allowing the appeal, and remanding the case to the Tribunal to modify
the demand, this Court,
HELD:
(1) In view of the evidence examined by the Tribunal and in the light of the
well settled principle and the background of the definition of handicrafts, the
Tribunal was right in holding that agarbaties were not handicrafts.
[881D-E]
M.S. Company Private Limited v. Union of India, [1985] ECR 110 SC, referred to.
(2)
Failure to pay duty or take out a licence is not necessarily due to fraud or
collusion or wilful mis-statement or suppression of facts or contravention of
any provision of the Act. Suppression of facts is not failure to disclose the
legal consequences of a certain provision.
[884B]
Collector of Central Excise, Hyderabad v.
M/s. Chemphar Drugs and Liniments, Hyderabad, [1989] 2 SCC 127, referred to.
(3)
Mere failure or negligence on the part of the producer or manufacturer either
not to take out a licence in case where there was scope for doubt whether goods
were dutiable or not, would not attract section 11-A of the Act. [884D]
(4) In
the facts and circumstances of the case, there were materials to suggest that
there was scope for confusion and the 875 appellants believing that the goods
came within the purview of the concept of handicrafts and as such were exempt.
If there was scope for such a belief or opinion, then failure either to take
out a licence or to pay duty on that belief, when there was no contrary
evidence that the producer or the manufacturer knew that these were excisable
or required to be licenced, would not attract the penal provisions of section
11-A of the Act. If the facts were otherwise, then the position would be
different. [884E-F]
CIVIL
APPELLATE JURISDICTION: Civil Appeal No. 4080 of 1988.
From
the Judgment and Order dated 18.3.88 of the Customs Excise and Gold (Control)
Appellate Tribunal, New
Delhi in Appeal No.
ED/SB/1201/84-C.
V. Lakshmikumaran, N.M. Popli and V.J. Francis for the Appellant.
A.K. Ganguli,
K. Swamy, T.V.S.N. Chari and P. Parmeswaran for the Respondent.
The
Judgment of the Court was delivered by SABYASACHI MUKHARJI, J This is an appeal
by the revenue under section 35L of the Central Excises & Salt Act, 1944
(hereinafter referred to as 'the Act') against the order No. 195 of 1988-C
dated 8th March, 1988 passed by the Customs, Excise and Gold (Control)
Appellate Tribunal (hereinafter referred to as 'the Tribunal').
The appellants
at all relevant times were manufacturing agarbaties, dhoop sticks, dhoop coil, dhoop
powder falling under Tariff Item No. 68 of the erstwhile Central Excise Tariff.
The relevant period involved in the present Civil Appeal is from the year 1979
to 1983-84. The appellants claimed exemption under notification No. 55/75 dated
1st March, 1975. By the said notification, the
Central Government had exempted goods of the description in the Schedule
annexed to the notification and falling under Tariff Item 68 of the First
Schedule to the Act from the whole of duty of excise leviable thereon. In the
serial No. 8 of the Schedule to the said notification, 'Handicrafts' were
listed. It is, therefore, clear that 'handicrafts' were fully exempt from
payment of duty of excise, according to the appellants.
Under
the notification No. 111/78 dated 9th May, 1978, the appellants were exempted from 876 licensing control.
That is the case of the appellants. The provision requiring a manufacturer to
take out a licence is controlled by Rule 174 of the Central Excise Rules, 1944.
The
relevant provision of Rule 174 at the relevant time provided, inter alia, as
follows:
"Rule
174. Persons requiring a licence:
Every
manufacturer, trader or person hereinafter mentioned, shall be required to take
out a licence and shall not conduct his business in regard to such goods
otherwise than by the authority, and subject to the terms and conditions of a licence
granted by a duly authorised officer in the proper Form" It is the case of
the appellants that by this notification, all goods which were exempt from the
whole of duty of excise leviable thereon unconditionally were exempted from the
operation of Rule 174. The appellants were manufacturing dhoop sticks, coil and
powder which the appellants contended before the Tribunal, were handicrafts
under notification No. 55/75 and as such were exempt from licensing control
under notification No. 111/78. It is, therefore, necessary at this stage, in
view of the contentions raised in this appeal, to refer to the notifications.
By first notification, i.e., notification No. 55/75, in exercise of the powers
conferred by sub-rule (1) of rule 8 of the Central Excise Rules, 1944, the
Central Government had exempted goods of the description specified in the
Schedule annexed thereto and falling under Item No. 68 of the First Schedule to
the Act from the whole of the duty of excise leviable thereon and, as mentioned
hereinbefore, Item No. 8 of the Schedule annexed to the notification included
among the exempted goods 'Handicrafts'.
The
second notification, i.e., notification No. 111/78-CE dated 9th May, 1978, the
Central Government exempted from the operation of rule 174 of the said Rules,
inter alia, all goods that are exempt from the whole of the duty of excise leviable
thereon. unconditionally. The effect of this notification, was that manufacture
of such goods were exempt from the operation of rule 174 of the said Rules. As
a result, it was not necessary to take out a licence as enjoined by rule 174.
The appellants had indicated the process of manufacture of dhoop sticks, coil
and powder before the Tribunal and the process was as follows:
"1.
The various ingredients/raw materials like perfumes, essential oils, natural
oils and other raw materials are first mixed in specific proportions, by manual
labour.
877
2.
These raw materials along with jigget and saw dust after serving by hand are
mixed in a barrel with a stirrer with hand and made into a paste.
3.
This paste is kneaded in the kneading machine operated by power.
4.
This paste is put by hand in the extruder.
5. The
extruder extrudes the paste in the form of needles with the aid of power.
6. As
the paste is extruded from the extruder it is collected on a wooden tray which
is of a particular size. As it is collected on the tray it is cut on both sides
to the accurate size by hand.
7. The
thin long incense is then transferred by hand from the individual trays of long
big tray by hand.
8.
After transferring it is properly arranged by hand in a consolidated manner on
the long big tray.
9.
Another tray which has four slits called the cutting tray is placed on top of
the long tray with the incense.
10.
After placing the cutting tray a hand roller cutter is rolled along the slits
of the cutting trays to cut the incense to the required sizes.
11.
The extra length or width of the incense on the tray is then removed by hand.
12.
The cut incense is then transferred to a drying tray by hand.
13.
The incense is dried by stocking the trays in the drying yard.
14.
The dried incense is broken at the cut ends.
15.
The ten incense sticks are inserted into the packet.
878
16.
The incense packets are first punched with an eyelet.
17.
Then twelve packets are wrapped in a cellophone wrapper." The revenue had
issued trade notices indicating that agarbaties were handicrafts and were
eligible to the exemption contained in the notification No. 55/75 dated 1st March, 1975. Our attention was drawn by Shri V.
Lakshmi Kumaran appearing for the appellant to the trade notice issued on 10th October, 1977, which read as follows:
"PUNE
TRADE NOTICE NO. 258/1977, (NO. 3/T.I. 68/ 1977) DT. 18.10.77 Agarbaties are
exempt under Notfn. 55/75 Attention of the trade is invited to this Collectorate
Trade Notice No. 179/1975 (No. 4/T.I. 68/1975) dated 4.10.75 on the above
subject.
2. The
issue has been reconsidered and it has been advised that Agarbaties are
handicrafts and would be eligible to the exemption contained in the
notification No. 55/ 75-CE dated the 1st March, 1975 (as amended)." He also drew our attention to the
certificate furnished by the Basic Chemicals, Pharmaceuticals & Cosmetics
Export Promotion Council, which stated as follows:
"This
is to certify that Dhoop Sticks, Incense Cubes and Cone, Coils, Joss Sticks,
are agarbaties in different physical forms. The ingredients as well as end use
for Agarbaties, Dhoop Sticks, Incense cubes and Cone, coils, joss sticks are
one and the same.
Government
of India has therefore categorised Dhoop Sticks, Incense cubes and cone,
.coils, joss sticks as agarbaties and thus eligible for the same rate of export
incentives." It was contended before the Tribunal on behalf of the
appellants that dhoop sticks had been recognised by the Indian Handicrafts
Board as handicrafts and that these were nothing else but agarbaties.
879 As
indicated hereinbefore, Basic Chemicals, Pharmaceuticals and Cosmetics Export
Promotion Council had also indicated that dhoop sticks, incense cubes and cone,
coils joss sticks are agarbaties in different physical forms and that the
end-use of these and the ingredients used therein were one and the same and for
that reason these had been made eligible for the benefit of export incentives
as agarbaties.
Learned
counsel for the appellants submitted that in the report on the Marketing of
Handicrafts under the title "Survey of Indian Handicrafts" sponsored
by the All-India Handicrafts Board, which was brought out by Indian Cooperative
Union, agarbaties were mentioned, which according to counsel, indicated that
these were recognized as handicrafts. A letter was placed before the Tribunal
which was issued by the Deputy Director, All India Handicrafts Board
functioning under the Ministry of Commerce, Department of Export Production
which had certified that the agarbaties were the products of the Indian
Handicrafts Board, Ministry of Commerce. Certain notifications were also drawn
attention to of the Tribunal which indicated that agarbaties were handicrafts
eligible for exemption under notification No. 55/75. It was, therefore,
contended that dhoop sticks, coil and powder were agarbaties and agarbaties
were accepted as handicrafts by various authorities including the Central
Government and mere use of power in the manufacture of these did not bar them
from being called as handicrafts. It was further contended that in any event,
there was no warrant in invoking longer time limit of five years for raising
the demand and if at all demand should be raised it should be for a period of
six months reckoned from the date of six months prior to the issue of the show
cause notice. In those circumstances, it was submitted that the appellants
should not be made liable beyond the period of six months from the date of
issue of the show cause notice. The Tribunal, however, referred to the
definition of the term 'handicrafts' given in the Concise Oxford Dictionary;
7th Edition, which stated as follows:
"Manual
skill; manual art or trade or occupation; man skilled in a handicraft."
Therefore, in order to be handicrafts, the Tribunal proceeded, on the basis
that it should be the result of manual skill. But the respondent before the
Tribunal pleaded that the raw materials for the dhoop are kneaded with the aid
of power and after kneading the same, are extruded and the manual work that was
done in the process was only in feeding of the raw materials by hand and later
in the cutting of the sticks to the desired length. The distinction between
handicrafts and 880 those which are machine-made, would be clear from the
definition adopted by UNCTAD. The same reads as follows:
"Some
good may. be produced partly by machine and partly by hand: (i.e. a dress made
up by hand from machine made cloth, perhaps with additional hand embroidery or
other decorations) . .. in such cases a product should be regarded as hand-made
or handicrafts if the essential character of the product in its finished form
is derived from the 'hand made' aspect of its production." In the Import
Policy of 1984-85, handicrafts and agarbaties and dhoop figured under a Heading
apart from handicrafts and stated that dhoop and agarbaties had been listed
under traditional item in Appendix 17 at Serial No. V under Group Heading
"Toiletry and Perfumery" while the handicrafts had been given
separately in that Policy and this envisaged the handicraft to be manufactured
by hand. General Note I against the entry 'Handicrafts' in the Policy Book
stated as follows:
"Articles
which are classifiable elsewhere in this policy will be deemed to be
'Handicrafts' falling in this group only if such articles, besides being made
by hand, have some artistic or decorative value; they may or may not possess
functional utility value in addition.
Artistic
or decorative value of the article exported need not necessarily come out of
any art work, engraving or decoration done on the article but the very form,
shape or design of the article could also be artistic and suggestive of the
fact that the article is primarily meant for decorative and not for utility
purposes." After analysing the findings and the trade notices and relying
on the decision oil this Court in M.S. Company Private Limited v. Union of
India, [1985] ECR 110 SC, the Tribunal in the light of the definition of
"handicrafts" in the Encyclopaedia Britannica, came to the conclusion
that in the manufacture of a product skill of the worker and the use of hand
are two pre-requisites for a product to qualify as a handicraft. In the Encyclopaedia
Britannica, handicraft has been defined as follows:
"Occupation
of making by hand usable products graced with visual appeal. Handicrafts
encompass activities that 881 require a broad range of skills and equipment,
including needle work, lace-making, weaving printed textile, decoration,
basketry, pottery, ornamental metal working, jewelling, leather working, wood
working, glassblowing, and the making of stained glass." It was found by
the Tribunal that raw materials were mixed by hand and the first essential
procedure in the manufacture of dhoop etc., is kneading of the raw materials
and the next essential stage is the formation of the dhoop into sticks or
coils. Both these processes were carried out by the aid of power. Only cutting
of the sticks to the desired length was stated to be by hand. It was not the
case of the appellant that the formation of the dhoop sticks or coils, etc.,
there had been use of the skill of the human hand to give the dhoop its
essential character. But the Tribunal found that it was difficult to accept
that these were handicrafts merely because some authorities have chosen to
treat agarbaties as handicrafts. Therefore, the Tribunal agreed with the
Collector that these were not handicrafts.
In
that view of the matter, the Tribunal upheld the order of the Collector on this
point and held that these were dutiable. In view of the evidence examined by
the Tribunal and in the light of the well settled principle and the background
of the definition of handicrafts, it appears to us that the Tribunal was right
in coming to the conclusion that only a very small portion of required work was
done by hand. The main part of the manufacture of agarbaties, etc. was done
with the aid of power. It was the machine that produced predominantly the end
product. In that view of the matter, we are of the opinion that the Tribunal
was right in holding that agarbaties were not handicrafts. In coming to the
aforesaid conclusion the tribunal had considered all relevant materials and
records and applied the correct principles of law. These findings of the
tribunal on this aspect are unassailable. In the premises, when the appeal was
filed and came up before this Court for hearing on 2nd March, 1989, on
examination of these materials, this Court was satisfied that this contention
of the appellant cannot be accepted and agarbaties were not handicrafts. It
was, however, further held by the Tribunal that the revenue was entitled to
levy tax for a period of five years prior to the issue of show-cause notice and
not six months pursuant to rule 9(2) of the Central Excise Rules. The relevant
portion of rule 9(2) provides as follows:
"(2)
If any excisable goods are, in contravention of subrule (1) deposited in, or
removed from, any place specified therein, the producer or manufacturer,
thereof shall pay 882 the duty leviable on such goods upon written demand made
within the period specified in section 11A of the Act by the proper officer,
whether such demand is delivered personally to him, or is left at his dwelling
house, and shall also be liable to a penalty which may extend to two thousand
rupees, and such goods shall be liable to confiscation." It may be
mentioned that rule 9(1) of the said Rules stipulated that no excisable goods
shall be removed from any place where they are produced, except in the manner
provided in the rules. Therefore, the question that arises in this appeal is
whether section 11-A of the Act applies or not.
The
relevant provisions of section 11-A are as follows:
"11-A.
Recovery of duties not levied or not paid or shortlevied or short-paid or
erroneously refunded. (1) When any duty of excise has not been levied or paid
or has been short-levied or short-paid or erroneously refunded, a Central
Excise Officer may, within six months from the relevant date, serve notice on
the person chargeable with the duty which has not been levied or paid or which
has been short-levied or short-paid or to whom the refund has erroneously been
made, requiring him to show cause why he should not pay the amount specified in
the notice:
Provided
that where any duty of excise has not been levied or paid or has been
short-levied or short-paid or erroneously refunded by reason of fraud,
collusion or any wilful misstatement or suppression of facts; or contravention
of any of the provisions of this Act or of the rules made there under with
intent to evade payment of duty, by such person or his agent, the provisions of
this sub-section shall have effect, as if the words "Central Excise
Officer" the words "Collector of Central Excise", and for the
words "six months", the words "five years" were
substituted.
Explanation.--Where
the service of the notice is stayed by an order of a Court, the period of such
stay shall be excluded in computing the aforesaid period of six months or five
years, as the case may be." Shri V. Lakshmi Kumaran, learned counsel for
the appellant drew our attention to the observations of this Court in Collector
of 883 Central Excise, Hyderabad v. M/s Chemphar Drugs and Liniments,
Hyderabad, [1989] 2 SCC 127 where at page 131 of the report, this Court
observed that in order to sustain an order of the Tribunal beyond a period of
six months and up to a period of 5 years in view of the proviso to sub-section
(1) of section 11-A of the Act, it had to be established that the duty of
excise had not been levied or paid or short-levied or short-paid, or
erroneously refunded by reasons of either fraud or collusion or wilful
misstatement or suppression of facts or contravention of any provision of the
Act or Rules made there under, with intent to evade payment of duty. It was
observed by this Court that something positive other than mere inaction or
failure on the part of the manufacturer or producer or conscious or deliberate
withholding of information when the manufacturer knew otherwise, is required before
it is saddled with any liability beyond the period of six months had to be
established.
Whether
in a particular set of facts and circumstances there was any fraud or collusion
or wilful misstatement or suppression or contravention of any provision of any
Act, is a question of fact depending upon the facts and circumstances of a
particular case. The Tribunal, however, had held contrary to the contention of
the appellants. The Tribunal noted that dhoop sticks are different products
from agarbaties even though they belonged to the same category and the Tribunal
was of the view that these were to be treated differently. Therefore, the
clarification given in the context of the agarbaties could not be applicable to
dhoop sticks etc., and the Tribunal came to the conclusion that inasmuch as the
appellant had manufactured the goods without informing the Central Excise
authorities and had been removing these without payment of duty, these would
have to be taken to attract the mischief of the provision of rule 9(2) and the
longer period of limitation was available. But the Tribunal reduced the
penalty. Counsel for the appellants contended before us that in view of the
trade notices which were referred to by the Tribunal, there is scope for
believing that agarbaties were entitled to exemption and if that is so, then
there is enough scope for believing that there was no need of taking out a licence
under rule 174 of the said Rules and also that there was no need of paying duty
at the time of removal of dhoop sticks, etc. Counsel further submitted that in
any event apart from the fact that no licence had been taken and for which no licence
was required because the whole duty was exempt in view of notification No.
111/78, referred to hereinbefore, and in view of the fact that there was scope
for believing that it was exempt under Schedule annexed to the first
notification, i.e., 55/75, being handicrafts, the appellants could not be held
to be guilty of the fact that excise duty had not been paid or short-levied or
short-paid or erron884 eously refunded because of either any fraud or collusion
or wilful misstatement or suppression of facts or contravention of any
provision of the Act or Rules made thereunder. These ingredients postulate a
positive act. Failure to pay duty or take out a licence is not necessarily due
to fraud or collusion or wilful misstatement or suppression of facts or
contravention of any provision of the Act. Suppression of facts is not failure
to disclose the legal consequences of a certain provision. Shri Ganguly,
appearing for the revenue, contended before us that the appellants should have
taken out a licence under rule 174 of the said Rules because all the goods were
not handicrafts and as such were not exempted under notification No. 55/75 and
therefore, the appellants were obliged to take out a licence. The failure to
take out the licence and thereafter to take the goods out of the factory gate
without payment of duty was itself sufficient, according to Shri Ganguly, to
infer that the appellants came within the mischief of section 11-A of the Act.
We are unable to accept this position canvassed on behalf of the revenue. As
mentioned hereinbefore, mere failure or negligence on the part of the producer
or manufacturer either not to take out a licence in case where there was scope
for doubt as to whether licence was required to be taken out or where there was
scope for doubt whether goods were dutiable or not, would not attract section
11-A of the Act. In the facts and circumstances of this case, there were
materials, as indicated to suggest that there was scope for confusion and the
appellants believing that the goods came within the purview of the concept of
handicrafts and as such were exempt. If there was scope for such a belief or
opinion, then failure either to take out a licence or to pay duty on that
belief, when there was no contrary evidence that the producer or the
manufacturer knew that these were excisable or required to be licenced, would
not attract the penal provisions of section 11-A of the Act. If the facts are
otherwise, then the position would be different. It is true that the Tribunal
has come to a conclusion that there was failure in terms of section 11-A of the
Act. Section 35-L of the Act, inter alia, provides that an appeal shall lie to
this Court from any order passed by the Appellate Tribunal relating, among
other things, to the determination of any question having a relation to the
rate of duty of excise or to the value of goods for purposes of assessment.
Therefore, in this appeal, we have to examine the correctness of the decision
of the Tribunal. For the reasons indicated above, the tribunal was in error in
applying the provisions of section 11-A of the Act. There were no materials
from which it could be inferred or established that the duty of excise had not
been levied or paid or short-levied or short-paid or erroneously refunded by
reason of fraud, collusion or any wilful misstatement or suppression of facts,
or 885 contravention of any of the provisions of the Act or of the rules made
there under. The Tribunal in the appellate order has, however, reduced the
penalty to Rs.5,000 and had also upheld the order of the confiscation of the
goods. In view of the fact that the claim of the revenue is not sustainable
beyond a period of six months on the ground that these dhoop sticks, etc. were
not handicrafts entitled to exemption, we set aside the order of the tribunal
and remand the matter to the tribunal to modify the demand by confining it to
the period of six months prior to issue of show-cause notice and pass
consequential orders in the appeal on the question of penalty and confiscation.
The appeal is allowed to the extent indicated above and the matter is,
therefore, remanded to the tribunal with the aforesaid directions. This appeal
is disposed of accordingly.
R.S.S.
Appeal allowed.
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