Commr. of C. Ex. vs Vijayanand Textiles Mills (P) Ltd.

L.N. Reddy, J.

This reference is made at the instance of the Department under Section 35H(1) of the Central Excise Act, as it stood in the year 2003, with a request to direct the Customs, Excise & Gold (Control) Appellate Tribunal, South Zonal Bench, Bangalore (for short ''CEGAT'') to refer the following questions to this Court:

Whether the unaccounted finished goods can be confiscated, even though they are lying within the premises of the factory under Rule 173Q of CE Rules, 1944?

Whether the unaccounted raw material lying in the factory premises can be confiscated under Rule 173Q of the CE Rules, 1944?

The respondent is a manufacturer of man-made fabrics, which in turn are assessable to excise duty. The concerned Assistant Commissioner conducted a search in the premises of the respondent on 13-8-1993. He noticed 28,781.67 LMtrs of cloth and some raw material in the premises. A show cause notice was issued alleging that the same was not accounted for, particularly in the RGI register, as provided for under Rule 9 of the Central Excise Rules (for short ''the Rules''). Alleging that the explanation was not satisfactory, an order of confiscation was passed on 27-3-1996. Aggrieved by that, the respondent filed Appeal No. 335/96(H)CE before the Commissioner of Customs and Central Excise, Hyderabad. The appeal was allowed through order, dated 20-8-1998. Thereupon, the Department carried the matter in further appeal to CEGAT. The appeal was rejected through order, dated 3-9-2002. It is in this context that the reference is sought to be made.

Heard Sri Gopala Krishna Gokhaley, learned counsel for the applicant and Ms. Divya Datla, learned counsel for the respondent.

There is no dispute that the goods manufactured by the respondent are subjected to levy of central excise duty. It was not even alleged that the respondent has removed any manufactured goods, without payment of excise duty. The only allegation against the respondent is that it did not account for 28,781.67 LMtrs of cloth. The plea of the respondent was that the cloth was manufactured in the late hours of 12-8-1993 and early hours of 13-8-1993 and that when hardly before the occasion arose for making entry, the search was made. It was also stated that the relevant particulars were effected in the prescribed form. Assuming that there was some delay in making entries in the relevant form, the goods were not liable for confiscation. Rule 173Q of the Rules no doubt empowers confiscation of the goods on the ground that the entries are not properly made. However, every failure to make the entry or every defect therein does not constitute the basis for confiscation of the goods, as long as they are not removed from the premises. It is too fundamental to be reaffirmed that the liability to pay the excise duty arises only when the manufactured goods are removed from the premises. The rest of the measures are only regulatory in nature. Confiscation of goods that are not removed from the premises can be done, only when clear evidence exists to the effect that the goods were not manufactured but were stored with an oblique motive. No such grounds are even pleaded in the instant case. The Commissioner as well as CEGAT took note of the judgment of this Court in Southern Steel Ltd. Vs. Union of India (UOI) and Others, . We are of the view that no case is made out for directing CEGAT to refer the questions to this Court.