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TMI Blog2010 (2) TMI 416X X X X Extracts X X X X X X X X Extracts X X X X ..... e Commissioner are not borne out from records and are merely based on assumptions and secondly, on the ground that there was no case for invoking extended period of limitation. 3. The appellants are engaged in the manufacture of V.P. sugar/molasses falling under chapter 17 of the Schedule to the Central Excise Tariff Act, 1985. On 8th of December, 2006 the preventive team of the Central Excise Department detected that the appellants had declared excess quantity of molasses in their storage tanks well after the expiry of period of the cane supply season for the years 2001-02, 2004-05 and 2005-06. It was noticed that the appellants had declared 2,153.349 MTs. for the year 2001-02 season, 1,050.000 MT for the year 2004-05 and 1315.000 MT for the year 2005-06 after the closure of the factory for respective cane supply seasons and when the records did not disclose any molasses having been pumped in the tank for a period of two months prior to filling of declarations and therefore, the said show cause notice dated 26th of June, 2007 came to be issued to the appellants. It was the case of the Department that since the quantity of molasses was required to be declared at the time of cleara ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cal reaction of the elements present in the molasses. Since in the storage tank of molasses, the heat used to get generated automatically, to control the temperature inside the tanks, water was showered from all sides of the tank. It was noticed that the same at times used to percolate into the tank and get mixed with molasses. These also used to be rain water seepage into the molasses tank resulting in increase in quantity of molasses. Besides, there was seepage of ground water which used to get mixed with the molasses. All these factors added to the increase of the quantity of the molasses and the same was declared from time to time to the Department. According to the appellants, there was no suppression of any fact nor any mis-declaration and the records regarding the production and storage of the products manufactured in the factory of the appellants were regularly verified by the Department's personnel. For the above reasons according to the appellants the demand was not sustainable apart from the fact that it was barred by limitation and there was no case for imposition of penalty or for demand of interest. 5. The Commissioner by the impugned order held that the appellants t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the factory, presence of which has not been satisfactorily explained, is a clear evidence of clandestine production and clearance of sugar from the factory. 6. As regards the point regarding bar of limitation, it has been observed by the Commissioner that it was mandatory for the appellants to submit RT-8(c) statement under the Central Excise Rules to provide quantity of sugar cane crushed as also VP sugar and molasses manufactured during the crushing season. Any shortage or excess observed was required to be recorded under revised RT-8(c) statement, which was never done by the appellants. The same discloses willful misstatement of fact to evade the payment of excise duty corresponding to the VP sugar clandestinely manufactured and removed from the factory which justifies penalty. It has also been observed that mere sending of letter to the department was not sufficient and party should have complied with the requirements of law in that regard. The fact that the excess quantity of molasses was not mentioned in their Returns being clearly established, the extended period was invokable and, therefore, bar of limitation was not attracted. 7. As regards the first ground of challenge ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The appeal carried against the same to the Central Board of Revenue did not yield any success. The revision application to the government also was rejected and hence the company had approached the Apex Court. It was the case of the company that the allegation of short accounting of the sugar was based on assumption and not on factual data. It was specific contention of the company before the Apex Court that it could not be held guilty of short accounting of sugar unless it was established that they had manufactured sugar and had removed the same from the factory or there was some loopholes in the working of the factory, which could provide the particulars in respect of clandestine removal of sugar by the company, and therefore only on the basis of calculations made by the Asstt. Chemical Examiner, the authorities could not have confirmed the demand of duty. Taking note of the said contention as well as the report made by the Asstt. Chemical Examiner, it was observed by the Apex Court that those calculations were certainly based on some assumptions. Firstly, that the difference of 56 mounds noticed by the Asst. Chemical Examiner during two and quarter hours test which was conducted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e working of the factory. In that letter, they have taken explanation to the calculations of the percentage of mixed juice to the quantity of sugarcane made by the Asstt. Chemical Examiner on the ground that it is merely inferential and based upon the factor which was first evolved in 1921 by one Noel Deer by taking average of number of analysis conducted by him." 10. Having so observed, it was held by the Apex Court that apparently, the particular ratio upon which the calculations of the Asstt. Chemical Examiner was based was founded on analysis of Java cane and, therefore, could not have been the guide for determination of the ratio in respect of Indian cane. Besides, the point raised was a highly technical one and yet neither of the Counsels was able to throw any light upon it, and, therefore, it was not possible to arrive at any conclusion upon it but only to observe that the said contention was not considered by the Collector or by the Central Board of Revenue or the Central Government. In the circumstances, therefore, the Apex Court held that the finding that 11,606 mounds of sugar were not accounted for by the company was arrived at without any tangible evidence and was bas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 07.06.06 150.000 Steel Tank 30.07.06 200.000 Steel Tank No.1 31.07.06 65.000 Total 1315.000 12. The above quoted table clearly discloses the method adopted for arriving at the quantity of the sugar which was manufactured by the appellants clandestinely which resulted in production of the excess quantity of molasses and the same correspondence to the quantity of undisputed amount of molasses found in the factory of the appellants for the relevant period. By 'relevant period' means the period immediately following the relevant crushing season. It is apparent to note that the Commissioner on analysis of the materials on record apart from observing that the authorized signatory of the appellants company in his statement, had not disputed the quantity of excess molasses having been declared subsequent to the closer of the crushing season for the relevant year, has also observed that the appellants have failed to produce any evidence to show as to how additional molasses came to be stored in the pits after the closure of the crushing season and when the factory had already closed. In the backgro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s a clear finding to that effect by the Commissioner and we find no challenge to the same rather we have not been informed either across the bar in the course of argument nor we find on record, any explanation in this regard forthcoming from the appellants. 15. It is also necessary to note the fact that the excess quantity of molasses declared by the appellants was not in small quantity. For the year 2002, the declarations made from July 2002 to November 2002 was in relation to excess quantity of 2100.249 MT of molasses, for the year 2005 declaration was for the quantity of 1050 MTs and for the year 2006, it was for 1315 MTs. It is the case of appellants that the entire excess quantity of molasses increased on account of mixing of water therein. As already seen above, the total excess quantity of molasses was 4,518.349 MTs, which is equivalent to 30 Lakhs of litres. Considering that each ton would comprise of 700 Ltrs., the total quantity of excess molasses would comprise of nearly 30Lakh Ltrs of water. However, it is their own case that molasses in question were sold to the distillers which apparently show the molasses were in consumable state and not barred for use of human cons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sses in question were already consumed. 18. As regards the specific defence raised in this respect by the appellants in reply to the show cause notice was as under:- "5.12. That the temperature of the tanks are recorded daily to see the behaviour of molasses stored in the tanks. It is necessary because due to reaction in chemicals present in the molasses, heat is generated and unless it is controlled, it may reach to flash point and may result in auto-combustion. With a view to lower down the temperature inside the tanks, water is showered from all sides including top of the tanks to reduce internal temperature. In addition to cooling system the circulation of Molasses is also carried out by way of taking Molasses from the bottom and adding it at the top level of the steel tank. It so happened that from the top cooling water being spread at the top find place to enter into the steel tank of Molasses and cause quantity got mixed with the Molasses which ultimately resulted in increase the total quantity of Molasses over a period of time. In case of open underground pucca pits total rain water entered into the Molasses which again resulted in increase the total quantity of Molasses. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 84 (18) ELT 225 (2) Reported in 1986 (26) ELT 583. 21. On merits, for the reasons stated above, we find no fault with the findings arrived at by the Commissioner. 22. The other point sought to be raised relates to bar of limitation and the absence of facts for invocation of extended period of limitation for issuance of show cause notice. 23. Undoubtedly the period involved in the matter is 2001-02, 2004-05 & 2005-06. The show cause notice was Issued on 27th June, 2007. 24. The ld. Advocate for the appellants drawing our attention to the copies of the letters dated 14th July, 2002, 21st August, 2002, 21st September, 2002, 20th October, 2002, 7th November, 2002, 18th November 2002, 23rd May, 2005, 10th June 2005, 7th April 2006, 23rd May, 2006, 4th June, 2006, 19the June, 2006, 30th July, 2006, 31st July, 2006 addressed to Inspector of the State Excise Department, the ER-1 forms and copies of RG-1 Register for the relevant period submitted that these records clearly disclose timely intimation of excess molasses found in the factory, as also verification of the records by the respondent's officers which would disclose sufficient knowledge of excess generation of molasses much pri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e declarations were detected by the preventive officers while checking the factory premises on 8th December, 2006. While having noted those facts in the show cause notice, the Department sought to justify the action by invoking extended period of limitation by saying as under:- "This reply of the party is illogical/impractical regarding declaration of excess quantity of molasses by them. The molasses is stored in storage tanks/ pucca pits after taking its actual weight in calibrated tank and the same is cleared too on actual weighment. Further, the party used to verify physically the stock of molasses time to time (weekly) stored in the tanks/pucca pits. Therefore, it is practically not possible that such a huge quantity of molasses remains unnoticed in the tanks for about two months after the closure of factory. Moreover, the trend of declarations of excess quantity of molasses in a particular storage tank provides the solid basis to infer that the party had made these declarations erroneously and as such this act of theirs cannot be explained satisfactorily. This is further evident with the fact that a huge quantity like 600 MT, 600 MT & 356.649 MT of molasses were found excess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re was a clear case of fraud played in the matter and hence the plea on bar of limitation is not available to the appellants. Undoubtedly, as ruled by the Apex Court, fraud would compel the wrong doer to face the consequence of his wrong doing. However, in the case in hand, even to assume that there is a fraud , taking into consideration the fact, which reveal periodical intimation of the fact of generation of excess molasses to the Department, payment of duty on excess molasses, periodical visits by the officers to the factory premises for verification of stock, in spite of preventive officers noting excess generation declaration on 8th of December, 2006 and no documentary evidence regarding any further investigation thereafter having been produced, it is difficult to believe that a fraud, if any, could not have been played without the connivance of the officers and employees of the respondent Department. Very fact that there were declarations, may not be in the form prescribed for the same filed by the appellants in relation to the excess molasses, the fact remains that the factum of excess generation of molasses was communicated periodically under letters to the Superintendent o ..... 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