TMI Blog1986 (10) TMI 229X X X X Extracts X X X X X X X X Extracts X X X X ..... (30)185/TB/83/2463, dated 21.2.1985, V. 15CC(30)63/ TB/A bad/83, dated 21.2.1985, and V.15CC(30)64/TB/A bad/83, dated 21.2.1985 respectively. The three cross-objections are by the Department. They are not cross objections in the real sense. In fact, they are briefs probably intended to be furnished to the Department Representative to effectively put forward Department s case. In none of the cross-objections any relief is claimed. As a matter of fact, in the appeals in which these cross objections were filed no relief could have been claimed by the Department because the adjudicating authorities have not disallowed any of the claim of the Department. 2.Since no relief is claimed in any of the cross-objections and in view of our observations that they are not cross-objections contemplated by the Act, we unhesitatingly reject them all. Coming to the appeals excepting one appeal, viz., ED(BOM)187/85, the rest of the appeals were filed by the Co-operative Sugar Factories. ED (BOM) A.No. 187/85 was filed by the Collector aggrieved by the order of the Collector (Appeals) allowing the sugar factory s appeal and setting aside the demand of duty in respect of Molasses which according to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... able on the Molasses stored in kaccha pits even if the Molasses was to be destroyed by natural causes and to that effect Bonds were executed. 5. The Molasses stored in kaccha pits are known to burn by spontaneous internal combustion and whatever precautions the manufacturer may take such combustion cannot be prevented. There was also the possibility of Molasses stored in the kaccha pits being damaged and destroyed if there is excessive rain in the area. The Central Excise Department was aware of these possibilities, but even then taking unfair advantage of the critical situation faced by the sugar factories they (Central Excise authorities) obtained Bonds from the Appellants under duress. As ill-luck would have it, there was exceptionally heavy rains in and around , the factory areas during the last week of June 1983, as a result of which, the earthen walls of the kaccha pits collapsed and the Molasses stored was washed away. The total loss in the case of Appellants in this appeal was 1,531.540 M/T. 6.As regards the cause of destruction of Molasses the appeals may be divided into three categories : Destruction due to excessive rain and washing out of Molasses from the k ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fter investigations, it was found that one corner between south and west of pit No. 5 was in broken condition and Molasses inside pit No. 5 was flowing upto 1 km. away towards west side of the said pit. The quantity of Molasses lost in the damage worked out to 1202.180 M/Tons, then the same would not have been lost if sufficient care would have been taken. Though M/s. Kada Sahakari Sakhar Karkhana Ltd., are permitted to store the Molasses in kaccha pit No. 5 by the Additional Collector, Central Excise, Pune, they are required to observe the condition as laid down in Trade Notice No. 209/82, dated 10.11.1982 in which it has been laid down that in case of loss or damage whether by natural cause or otherwise, the factory would be liable to pay duty on such Molasses stored in kaccha pit. As such it was obligatory on the party M/s. Kada Sahakari Sakhar Karkhana Ltd., to pay the Central Excise duty on Molasses lost, that is, flown away on 18.5.1983 from kaccha pit No. 5, hence the demand has been made..... 11. After referring to the contentions urged on behalf of the Appellants herein, the Collector recorded the finding that he was not inclined to accept the contention of the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he drew the panchanama of the situation. 14. After referring to the various contentions urged on behalf of the Appellants herein, the Collector observed in view of the inherent risk involved in storage of Molasses in kaccha pits, the permission was made conditional on the party s agreeing not to claim remission of duty in the event of loss. The assessee with his full knowledge has therefore entered into bond so as to avoid immediate payment of duty. Hence the bond so executed cannot be said as void in terms of Section 28 of Indian Contract Act. As it was open to the party to store the Molasses in pucca tanks, it cannot be said that the loss of Molasses was unavoidable or that the condition imposed was unreasonable or impossible to comply with". Finally, he directed recovery of the duty payable in respect of the loss of Molasses. 15. In appeal ED(BOM)123/84 the Collector of Central Excise and Customs, Pune, Shri S.D. Mohile, while narrating the facts of the case stated on 29.6.1982 the assessee reported that the entire quantity of 1148.700 M/Tons of Molasses stored in the kaccha pit was washed away by rain water and flown into river. On 23.6.1982, there was heavy rainfall whic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arrating the facts of the case stated on 1.8.84, the assessee vide their letter No. MFG/36-A/178/11539/84, dated 1.8.1984 applied for permission to destroy the Molasses weighing 4912.063 M/Tons lying in storage in open kaccha pit Nos. 1 and 2, as the same had become unfit for distillation purpose due to natural causes such as rains, atmospheric changes and long storage period . 19. After referring to the contentions urged on behalf of the Appellants herein, the Collector observed in the instant case the damage to the Molasses had occurred on account of assessee s own risk involved in storing the same in open kaccha pits, therefore, assesses plea is not entertainable . 20. From the above discussions I am inclined to hold that the assessees could have saved the Molasses from damage by making timely arrangements of storing the said Molasses in pucca pits/steel tanks; thus the loss/damage was avoidable .... Further, they had been allowed to store the Molasses in kaccha pits on the specific undertaking that they will not claim remission in the event of losses etc. . Thereafter the Collector confirmed the demand raised in the show cause notice. 21. In appeal ED(BOM)32/85 the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /s. Dnyaneshwar Sahakari Sakhar Karkhana Ltd., had stored 4210.920 M/Tons of Molasses in kaccha pit Nos. 2 and 3 which was burnt out due to spontaneous combustion on 29.6.1983 and became unfit for distillation purposes. 25. After considering the contentions urged on behalf of the Appellants herein, the Collector observed whereas in the instant case the factory had already executed B-2 bond for the Molasses contained in kaccha pit Nos. 2 and 3 and therefore the instructions contained in para 3 of the Trade Notice No. 209/82, dated 10.11.1982 issued by the Pune Collectorate hold good. Under the circumstances M/s. Dnyaneshwar Sahakari Sakhar Karkhana Ltd. are not entitled for remission of duty on the Molasses contained in kaccha pit Nos. 2 and 3 amounting to Rs. 1,32,643.98". 26. Thereafter the Collector directed the Appellants herein to pay the duty within ten days. 27. In appeal ED(BOM)103/85 the Collector of Central Excise and Customs, Aurangabad, Shri S.N. Karkhanis, while narrating the facts of the case stated M/s. Panzarakhan Sahakari Sakhar Karkhana Ltd., Bhadne, has produced the Molasses during the year 1977-78 out of which they have destroyed Molasses weighing 462.620 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of 7132.84 M/Tons of Molasses ....... lying in their kaccha pit Nos. 1 and 2 as due to natural causes as the same is in deteriorated condition and thus unfit for distillation . The Assistant Collector also recorded a finding that the damage of Molasses stored in kaccha pit Nos. 1 and 2 could have been avoided and goods could not have been damaged but for human error and not because of natural causes. The Collector (Appeals), however, set aside the finding of the Assistant Collector and held that the deterioration/damage caused to Molasses were due to natural causes, beyond the control of the appellants herein. He further held that the remission of duty claimed in the case was within the scheme of Central Excise Act and Rules. The assessee was, therefore, entitled to remission under Section 5 read with Rule 49. 32. On behalf of the Appellants in appeal at serial numbers 1 to 13 and on behalf of the Respondents in appeal at serial number 14, arguments were advanced by Shri B.D. Deshmukh and Shri K.P. Joshi, Advocates and their contentions are summarised as under :- (i) During the sugar year 1981-82 there was bumper crop of sugarcane. There was a direction to the sugar factories ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... decision of the Allahabad High Court reported in A.I.R. 1971 Allahabad page 499 U.P. State Electricity Board v. Smt. Lakshmi Devi Sehgal and anr. (ii) The Molasses came under the dual control of the Central Excise Act as well as the State Excise Act. The State of Bombay passed an Act called Bombay Molasses (Control) Act, 1956 : In exercise of the power conferred by Section 6 of the Bombay Molasses (Control) Act, the Bombay Molasses (Sale, Supply and Price) Control Order, 1960 came to be passed. This order placed certain restrictions on the manufactures of Molasses in regard to sale, supply and price of Molasses. The sugar factories were required .to sell the entire quantity of Molasses produced by him or held in stock to a person or persons as may be specified by general or special order in each case by the Directorate of Sugar or the authorised officer and the sugar factories had no right to dispose of the Molasses in any other manner. The following were the restrictions regarding storage. The occupier of a sugar factory should ensure (a) that the storage accommodation provided for Molasses is such as to prevent the mixing of old and deteriorated Molasses with fresh Molas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Chemicals Ltd., Bombay v. Government of India. (b) 1980 E.L.T. 320 (Del.) - Modi Carpets Ltd. and anr. v. Union of India and others. (c) 1983 E.L.T. 2095 (Bom.) J.K. Vacuum Flasks Ltd. v. Union of India and others. (v) The demands in the show cause notices were confirmed by the two Collectors mainly on the ground of the clause contained in the B-2 bond agreeing not to claim remission of duty under Rule 49 even if the loss or damage was caused due to natural causes. It was urged that Rule 48 of the Rules which empowered the Collector to obtain the bond and B-2 bond is also prescribed and neither Rule 48 nor the prescribed bond permitted incorporation of a condition of the nature incorporated in .the bond and on this ground also the bond is unenforceable. (vi) As regards the Department s appeal the learned Advocates contended the scheme of Central Excise Act and Rules, particularly Rules 49, 160 and 223-A clearly envisages that no duty is leviable in respect of the goods which were destroyed or became unsuitable for marketing due to natural causes. The Collector (Appeals) was justified in setting aside the order of the Assistant Collector. They also relied upon the order o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ame disentitled to claim any remission of duty. (e) The liability to pay excise duty arises no sooner the manufacture of excisable commodity is completed. Since admittedly Molasses were manufactured and stored the sugar factories has become liable to pay excise duty on the manufactured quantity. In support of this contention, Shri Pattekar relied upon (1) 1978 E.L.T. page 833 (M.P.) and (2) 1979 E.L.T. (Jaipur) page 796. (f) As against the order of Collector, Shri S.N. Karkhanis, the Department had preferred an appeal and the same is pending for consideration. (g) Section 37(2)(xx) authorises the Central Board of Excise and Customs as well as the Collector of Central Excise to issue written instructions for supplemental matters arising out of any rule made by the Central Govt. Under this section Trade Notices are issued as supplemental matters and therefore they are valid in law. In support of this contention, Shri Pattekar relied upon a case reported in 1979 E.L.T. (J.377) Ramkrishna v. Assistant Collector. (h) For the Appellant in appeal 187/85 Shri Pattekar contended that the Respondent sugar factory had executed a B-2 bond for Rs. 50,000/- furnishing a security of Rs. 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n pit Nos. 1 and 2 was washed away". It was also stated in his order on receipt of the intimation from the factory, Superintendent, Central Excise, Bidri, visited the factory and found that the incident had occurred due to natural calamity and not on account of any mischief". Thus it could be said that the loss of Molasses which is the subject-matter of appeal ED(BOM)33/84 was due to natural causes. 36. In his order which is the subject matter of appeal ED(BOM)69/84, the Collector, Aurangabad, had referred to the report of the Chief Chemist of M/s. Kada Sahakari Sakhar Karkhana Ltd., about the flowing of Molasses from kaccha pit No. 5 which had happened due to tumbling down of one corner of the said pit. He had also stated that the Superintendent, Central Excise, Beed, visited the factory on 27.5.1983 and after investigations, it was found that one corner between south and west of pit No. 5 was in broken condition and Molasses inside pit No. 5 was flowing upto 1 Km. away towards west side of the said pit. The quantity of Molasses lost in the damage worked out to 1202.180 M/T. From the facts narrated it is clear that the Molasses was not removed by the factory but was lost due to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... due to spontaneous combustion on 4.6.1983. The said quantity of Molasses was reported to be destroyed and the duty involved on the above quantity of Molasses works out to Rs. 1,52,500.95". In view of this statement, it is reasonable to hold that the loss of Molasses was due to natural causes. 41. The Collector of Central Excise and Customs, Aurangabad, in his order which is the subject-matter of appeal ED(BOM)71/85 has stated M/s. Dyaneshwar Sahakari Sakhar Karkhana Ltd., had stored 4210.920 M/T of Molasses in kaccha pit Nos. 2 and 3 which was burnt out due to spontaneous combustion on 29.6.1983 and became unfit for distillation purposes". In view of the Collector s statement, it could be said that the loss of Molasses was due to natural causes. 42. In his order which is the subject-matter of appeal ED(BOM)197/84, the Collector of Central Excise and Customs, Aurangabad, observed the assessee have stored Molasses weighing 4961.010 M/T of the seasons 1980-81 and 1981-82 in kaccha pit No. 1. Due to old stock and admixture of rain water, whole quantity is spoiled and became useless for distillation as per the certificate of analysis by the Government Distillery, Chaitali . The C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tral Excise and Customs, Nanded, stated the assessee M/s. Jai Bhavani Sahakari Sakhar Karkhana Ltd., requested the Superintendent, Central Excise, Jalna Range, for permission to allow them to destroy total quantity of 7132.844 M/T of Molasses lying in kaccha pit Nos. 1 and 2, as the same was in deteriorated condition and thus unfit for distillation . The Assistant Collector did not record a finding that the Molasses stored in kaccha pit Nos. I and 2 did not become unfit for distillation. In appeals ED(BOM)197/84, ED(BOM)68/85, ED(BOM) 103 to 105/85 and ED(BOM)187/85, the appellants have produced documentary proof by way of certificates issued by the State Government agencies that the Molasses stored in kaccha pits after testing in the laboratories was found to be unfit for distillation. The documentary evidence in the form of certificates were not challenged by the Department. It is also necessary to remember that no sugar factory can in fact privately sell the Molasses produced and stocked by it. It can release the quantity only to the person or distillery in favour of which there is a release order by the State agency. We have already referred to the Molasses Control Order 1960. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... annot be accepted. No Central Excise Officer ever visited the kaccha pits. It was only when the sugar-factories reported regarding the loss or deterioration that the Department woke up and issued the show cause notices. Even after the sugar factories reported such incidents, no investigations were carried out as to whether the alleged loss or deterioration of Molasses could have been avoided if timely action had been taken. As has been stated earlier, the loss occurred due to heavy rains, internal combustion and deterioration due to mixing of rain water and in some cases due to long storage. In the said circumstances the findings of the two Collectors that loss or deterioration of Molasses was not due to natural causes cannot be accepted. 48. In order to examine the liability of the sugar factories to pay excise duty on the Molasses lost or deteriorated due to natural causes, it is necessary to refer to the provisions of the Act and the Rules. Section 3 of the Act provides for levy and collection of duty of excise on excisable goods produced or manufactured in India. Section 5(1) authorises the Central Government by rules to provide for remission of duty of excise leviable on any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d in these rules, or which are not shown to the satisfaction of the proper officer to have been lost or destroyed by natural causes or by unavoidable accident during handling or storage in such store-room or other approved premises". The second proviso to this rule reads provided further that the proper officer may not demand duty due on any goods claimed by the manufacturer as unfit for consumption or for marketing subject to such conditions as may be imposed by the Collector by order in writing . 52. Rule 147 empowers the Collector to remit duty in respect of goods lodged in a warehouse which are lost or destroyed by unavoidable accident. 53. Rule 149 requires an owner of the goods stored in a warehouse who wishes to claim immunity from duty in respect of any goods unfit for consumption or manufacture shall destroy them in the presence of an officer or shall show to the satisfaction of the officer that they are being applied to some purpose which render them eligible for remission of duty. 54. Rule 223-A provides for annual stock taking of goods in a factory or warehouse. It further provides for accounting for goods manufactured or produced to the satisfaction of the prope ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or even afterwards. Similarly, waste or product while in the pipe-line or in storage may take place on account of natural causes or otherwise. In Synthetics and Chemicals Ltd. v. Government of India 1980 E.L.T. 675 (Del.) the Division Bench of the Delhi High Court ruled that Rule 49 clearly provides that no excise duty shall be levied: until the goods are about to be issued out of the place or premises specified under Rule 9". The Court further observed the contention on behalf of the Respondents that the excise duty is leviable the moment the goods are manufactured is accepted, these words would be redundant which is also belied by the provisions of Rule 49". Same view was expressed in another case by the Division Bench of the Delhi High Court reported in 1980 E.L.T. 320 (Del.) Modi Carpets Limited and anr. v. Union of India and ors. The Division Bench of the Bombay High Court in J.K. Vacuum Flasks Ltd. v. Union of India and ors. 1983 E.L.T. 2095 (Bom.) observed when Rule 223-A cast a duty on the appropriate officer to take info-account receipts and deliveries and make allowance for waste by evaporation, or other natural causes, it would be irrational for the officer to say bec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed a bond with open eyes and knowing the consequences that they would not claim remission of duty even if loss or damage occurred due to natural causes. Therefore, they cannot be heard to say that no duty is recoverable in respect of the Molasses lost or deteriorated due to natural causes. For the purpose of deciding these appeals, it is not necessary for us to make any pronouncements regarding the validity or otherwise of the B-2 bond. If the Department desire to enforce B-2 bond the proper forum is not the adjudicating authority or even this Tribunal but a Court of Law. Therefore, we restrain from recording any finding as to the validity of the Bond. 58. We have in the course of this order referred to the facts narrated by the Assistant Collector in his order which is the subject-matter of appeal ED(BOM)187/85 filed by the Collector. The factory in question had sought permission to allow them to destroy the Molasses lying in their kaccha pit Nos. 1 and 2 as the same has been deteriorated due to natural causes. The Assistant Collector s finding was that the damage of Molasses stored in kaccha pit Nos. 1 and 2 could have been avoided and goods could not have been damaged but for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pan sugar falling under Item 1 of the Central Excise Tariff as prevalent at the relevant time. The sugar factories had therefore L4 licences for the manufacture of sugar falling under old Tariff Item 1 and these L4 licences of the sugar factories have been in existence for the past Several years. The sugar factories manufacture sugar and in the process molasses is also obtained. Before 1.3.1975, Molasses was not excisable goods. The Budget of 1975 introduced Item 68 into the Central Excise Tariff with effect from 1.3.1975. This item covered all goods which were not elsewhere specified in the Tariff Schedule. Hence Molasses came to be covered under this item from 1.3.1975 and became subject, to excise duty. This position continued upto 18.6.1980. The Finance Bill No. 2 of 1980 brought into existence a separate item 15CC for Molasses with effect from 19.6.1980. While the Central Excise Tariff in respect of Molasses underwent these changes, the practical situation prevailing in the sugar factories for the storage of molasses changed with more leisurely tempo. Before 1.3.1975, Molasses were stored in many factories in open kuccha pits without requiring any approval by the Central Excis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have been incorporated in the Trade Notice No. 209/82 dated 10.11.1982 of the Collector of Central Excise, Pune. However, it appears on the basis of the present proceedings before us that the Collectors have taken a common stand of turning down the request for remission of duty under Rule 49 of the Central Excise Rules irrespective of the fact whether the sugar factories executed the bonds for Molasses produced earlier to the date of execution of the bond or subsequent to it. 63. It has been contended by the learned advocates that the Collectors had no legal authority to enforce these specific bonds. They have further attacked the bonds as being outside the Central Excise Act and the Central Excise Rules. They have accordingly argued that the terms of the bond are not enforceable. It is seen that these arguments have been advanced only now when the sugar factories requests for remission of duty have been turned down. However, this is a matter which does not fall within the preview of this Tribunal and the question of legality of the bonds cannot be agitated before this Tribunal. In this behalf, I agree with the findings and decision of Brother Hegde in para 57 of his order. How ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Molasses. Yet for inexplicable reasons, the Board seem to have taken contrary stands in respect of the same industry. However, this additional bond intended to safeguard revenue in terms of Rule 48 cannot take away the manufacturer s right for remission of duty under Rule 49 as made explicit in Brother Hegde s order and for the reasons which follow. 64. The sole use of Molasses is for the purpose of distillation in the production of alcohol. From this angle, Molasses have been under the control of the State Government authorities for the past several years long before Molasses became excisable with effect from 1.3.1975. Under the Bombay Molasses (Control) Act, 1956 and the Bombay Molasses (Sale, Supply and Price) Control Order, 1960 the State Government authorities have been exercising very strict supervision on the production, storage, allocation and movement of Molasses from the sugar factories. No Molasses can be removed from a sugar factory without the permission of the State Govt. As urged by learned advocate Shri Deshmukh, the officers of the Prohibition and Excise Department of the State Government exercise physical control on the storage and movement of Molasses. He submi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n and remission of duty under Rule 49. 65. It has been urged that the Molasses became unfit for consumption and marketing and the principal reasons in this behalf can be broadly categorised into two types. One was deterioration due to excessive rain and floods. In the case of the appeal No. ED(BOM)67/84, it has been urged on behalf of the appellant M/s. Kada Sahakari Sakhar Karkhana Ltd. that the Molasses flowed out of the Kaccha pit to a distance of over one kilometre. In this case the walls of the Kaccha pits collapsed and rendered the Molasses unfit for consumption. The second primary reason for the Molasses becoming unfit for use or marketing was the internal combustion generated in the Molasses despite the sugar factory taking precautions in this behalf as in the case of the appellants in appeal No. 91/84 who tried to control internal combustion by spraying foam, turkey red oil and stirring by rod. In either case, the destruction of the Molasses was by natural causes and it could not be prevented. The goods therefore become unfit for consumption and the test reports by the different authorities including the Central Excise chemical laboratory and the State Government Distill ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r in the case of Molasses where the manufacturer has chosen not to give a bond in terms of the aforesaid directions. The appellants brought to our notice an order dated 25.5.1984 passed by the same Collector permitting destruction and allowing remission vide para 32(II) of Brother, Hegde s order. In this case, no special bond was obtained from the manufacturer. Under Rule 49, the basic question to determine is whether the goods have become unfit for consumption or for marketing. When therefore a manufacturer applies for destruction for aforesaid reasons he not only takes into account the duty leviable on the goods but also the value of goods which he would lose through their destruction. In answer to our question, the learned advocates of the appellants have stated that the value of Molasses is Rs. 60/- per quintal while the duty leviable is Rs. 31/- per quintal. Thus, the manufacturers have a greater deal of stake as regards the value of the Molasses than the Department with reference to duty. When the manufacturers applied for destruction under Rule 49, they would have done so after being convinced that the goods are unfit for consumption or for marketing. In certain cases, even ..... X X X X Extracts X X X X X X X X Extracts X X X X
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