Gopiram Banka vs Collector of Central Excise

Anil K. Sen, J.—This appeal under Clause 15 of the Letters Patent raises a short question as to whether a demand in respect of excise duty which escaped assessment in the facts and circumstances of the case would be recoverable under Rule 10 or Rule 10A of the Central Excise Rules, 1944, (hereinafter referred to as the said Rules) framed under the Central Excises and Salt Act, 1944 (hereinafter referred to as the said Act). While, according to the Appellant, such a demand would come within the scope of Rule 10 of the said Rules, according to the Respondents, it comes within Rule 10A thereof. The learned Judge in the trial Court having upheld the claim of the Respondents in this respect and having dismissed the writ petition preferred by the Appellant disputing such a claim of the Respondents, the Appellant has come with this appeal.

Material facts are not in dispute and may be shortly set out. The Appellant is the proprietor of a firm Rajkumar Dyeing and Printing Works and carries on the business of processing cotton fabrics in his factory at No. 11 Strand Road, Dakshineswar, under a licence issued by the Excise authorities under the said Act. Between December 1962 and August 1963, on different occasions the Appellant removed cotton fabrics processed in his aforesaid factory obtaining on each occasion the necessary permission from the Inspector of Central Excise. Such permission was sought for on applications filed in the statutory form, A.R.I., on which the Appellant claimed exemption from payment of excise duty admissible under the notification dated April 24, 1962, read with the notification dated June 13, 1962, issued by the Central Government under Rule 8 of the said Rules (hereinafter referred to as the said notifications). Under the notifications an exemption in the matter of payment of excise duty in the manner specified therein was admissible on the maximum of 20,000 sq.metres of cotton fabrics per month processed in the factory and that such exemption was available only to an independent processor which had been defined by the explanation to the notification dated June 13, 1962, to mean

A manufacturer who is engaged exclusively in the processing of cloth with the aid of power and who has no proprietory interest in any factory engaged in the spinning yarn or weaving of clothes.

On each occasion necessary exemption was granted to the Appellant by the Inspector of Central Excise in issuing the permission for removal of the cotton fabrics so processed on the basis of his claim that he was an independent processor and in this manner between December 1962 and August 1963, the Appellant could remove 1,08,227-83 sq.metres of cotton fabrics processed by him without payment of necessary excise duty.

The Appellant, however, was also the proprietor of a firm known as Rajasthan Weaving Factory situate at No. 2 Brojodayal Saha Road, Cossipore, where he had been carrying on the business of weaving cotton fabrics since February 1962. Therefore, he was not an independent processor and, as such, was not eligible for the exemption under the said notifications. The authorities, however, in allowing him the exemption did so being misled by the misstatement made in the application for permission for removal of the cotton fabrics processed in his processing factory as the appropriate officer was not aware that the Appellant was also carrying on the business of weaving cotton fabrics. The said position, however, was later found out in August 1963 when on August 31, 1963, a demand for payment of excise duty to the tune of Rs. 5,411-39 P. was issued under Rule 10A of the said Rules. The said demand was issued on the following terms:

Take notice on behalf of the Central Government, I hereby demand payment by you of the sum of Rs. 5,411-39 P. towards Central Excise Duties, on processed Cotton Fabrics within 10 days hereof.

Particulars of Demand.

It has come to light that the proprietor of M/s. Raj Kumar Dyeing and Ptg. Works, Shri Gopiram Banka had also the proprietory interest in a Powerloom unit styled as M/s Rajasthan Weaving Factory, Licence No. 23-CF-62. The firm M/s. Raj Kumar Dyg. and Ptg. Works failed to intimate the same to the Central Excise authority and enjoyed monthly exemption of 20,000 sq.mtrs. of processed Cotton Fabrics as per Notification No. 44/62 dated 24.4.62 read with Notification No. 123/62 dated 13.6.62 claiming them as an independent processor as defined in Govt. of India''s Notification Nos. 111/62 dt. 13.6.62 and 112/62 dt. 13.6.62 which he was not.

Therefore, he is to pay the C.E. duty on 1,08,227-83 sq.mtrs. of processed cotton @ 5 nP. per sq. meter for which exceptions was enjoyed by him upto 7.8.1963.

Yours faithfully, Sd/illegible 31.8.63 Inspector, Central Excise, Processing Unit No. 2(II). M.O.R.--I.C.F.

The Appellant objected to such a demand but such objection was overruled by the Assistant Collector of Central Excise by an order dated March 20, 1963. A further appeal was dismissed by the Collector for non-deposit of the demand u/s 129(1) of the Customs Act, 1962. The Appellant then moved this Court with a writ petition disputing the validity of the aforesaid demand and the orders made by the Assistant Collector of Central Excise and the Collector affirming the demand. Before the learned Judge in the trial Court two points were raised. Firstly, it was contended that the demand as made could be made only under Rule 10, but the period of limitation prescribed therefor having expired, the demand is wholly inadmissible. Secondly, it was contended that when the original assessment was a nil assessment and no duty was at all paid earlier, no demand is at all admissible under Rule 10 as it is not a case either of any short levy or deficiency in the matter of payment of excise duty. Both the contentions were overruled by the learned Judge in the trial Court by the judgment and order dated May 3, 1968, under appeal. According to him, though Rule 10A, the residuary provision would be attracted only if the demand does not fall within Rule 10, yet on facts when the impugned demand arises because of evasion of the duty on a positive mis-statement by the Appellant/ Assessee about his eligibility for a particular exemption it would not come within the four corners of Rule 10. So far as the other point raised before him is concerned, the learned Judge held that nil assessment in the facts and circumstances would constitute short levy or deficiency in the matter of realisation of excise duty.

In this appeal Mr. Banerjee, the learned Advocate for the Appellant, has strongly reiterated the first of the aforesaid two points raised before the trial Court--the second one obviously being covered by the decision of the Supreme Court in the case of N.B. Sanjana, Assistant Collector of Central Excise, Bombay and Others Vs. The Elphinstone Spinning and Weaving Mills Company Ltd., . According to Mr. Banerjee, if the Appellant was allowed the benefit of the exemption under the said notifications he was so allowed due to the error of the authorities. Any claim for reimbursement of any duty which had escaped realisation due to such error could only be now realised under the provisions of Rule 10 of the said Rules. On facts, Mr. Banerjee contends it was not a case of mis-statement on the part of the Appellant because the Excise authorities themselves had issued licence to the Appellant both for the processing factory and weaving factory and it was well-known to them that the Appellant was not an independent processor. So the real reason for non-realisation of the excise duty was the mistake or the error committed by the Inspector, Central Excise, who granted necessary permission for the removal of cotton fabrics processed by the Appellant on assessment of the duty payable as nil. To support this contention strong reliance is placed by Mr. Banerjee on the decision of the Supreme Court in the case of N. B. Sanjana (Supra) referred to hereinbefore.

The contention thus raised by Mr. Banerjee has been contested by Mr. Sanyal, the learned Advocate for the Respondents.

Rule 10, in the material part, provides that

when duties or charges have been short levied through inadvertence, error, collusion or mis-construction on the part of an officer or through mis-statement as to the quantity, description or value of such goods on the part of the owner

the deficiency in the duty or the charge would be recoverable in the manner prescribed by that Rule; but the Rule prescribes a limitation, viz. that it must be recovered within three months from the date on which the duty or the charge was paid or adjusted. Rule 10A, on the other hand, provides for the residuary powers for recovery of sums due to the Government and provides that

where these Rules do not make any specific provision for the collection of any duty or of any deficiency in duty if the duty has for any reason been short levied or of any other sum of any kind payable to the Central Government under the Act or these Rules

the same would be recoverable in the manner prescribed by the said Rule.

On the provisions, as aforesaid, it cannot be disputed that if the duty which had escaped realisation in the present case on the exemption being granted to the Appellant could be recovered either under Rule 10 or any other provision in the Rules, Rule 10A would have no application and in that event the impugned demand made under Rule 10A would be wholly unsustainable in law. It is in this retrospect that Mr. Banerjee has strongly endeavoured to impress upon us that the demand as made in the facts and circumstances would come within Rule 10. We are, however, unable to accept this contention of Mr. Banerjee. Rule 10 could apply only if the impugned exemption had been granted through the inadvertence, error, collusion or mis-construction on the part of the officer or through mis-statement as to the quantity, description or value of the goods on the part of the owner. Though Mr. Banerjee suggests that the impugned exemption was granted by the Inspector through inadvertence or error, we are unable to accept such a suggestion. Had the Appellant truly disclosed all basic facts to the Excise Inspector in applying for the necessary permission for, removal in his application in the statutory A.R.I. form and if in spite of such disclosure the Inspector had granted him necessary permission on a nil assessment, it would have been a case of error or inadvertence on the part of the Inspector. But in the present case, in the application for permission in cols. 8 and 9 under the heading ''Duty'' the Appellant stated, "Exempted upto 20,000 sq.metres in a month". Or, in other words, he claimed exemption under the said notifications which was admissible only to an independent processor. In doing so the Appellant obviously and wilfully suppressed the fact that he was not an independent processor when he was running a weaving factory as well and, as such, was not eligible for the exemption. It was thus a clear case of misrepresentation on the part of the Appellant as to his eligibility to get the exemption under the said notifications which in reality he was not eligible to get. The Appellant might have obtained licences for both the factories from the Excise authorities, but it would appear from the affidavit-in-opposition filed by the Respondents that as the two factories fell within the jurisdiction of different Excise Superintendents, the Inspector of Central Excise who granted the permission for removal could not detect the mis-statement and proceeded to grant the exemption on the basis of such a misrepresentation. It was, in our opinion, not a case of inadvertence or error on the part of the Inspector of Central Excise. On the other hand, it was clearly a case where the exemption was obtained on a misrepresentation as to the Appellant''s eligibility for the exemption. Such misrepresentation is not a mis-statement as to quantity, description or value of the goods within the meaning of Rule 10 and the said Rule, therefore, could have no application. In our opinion, the learned Judge in the trial Court was, therefore, right in his conclusion that in facts of the present case the demand would not come within the scope of Rule 10 and, as such, the authorities could legitimately invoke the residuary provision in Rule 10A.

The decision of the Supreme Court in N.B. Sanjanu''s case (Supra) strongly relied on by Mr. Banerjee would not help the Appellant in our view. That was a case where exemption was granted in terms of a notification dated January 5, 1957, in respect of certain cloth manufactured by the Respondent before the Supreme Court on an error or mis-construction on the part of the officer. There was no mis-statement or suppression of fact by the Assessee in respect of the goods for the removal whereof the necessary permission was claimed. But, the authorities in granting the exemption and the permission failed to appreciate that the goods so produced did not really come within the description of the goods exempted by the notification. This mistake having been found out later, the demand was made under Rule 10A obviously to avoid the limitation of Rule 10. The Assessee having challenged such a demand the High Court held that when the demand really comes within Rule 10 recourse to Rule 10A was not in accordance with the law. That view was upheld by the Supreme Court and what was argued before the Supreme Court on behalf of the assessing authorities was that the case under consideration being a case of nil assessment it would not come within Rule 10 which provides for short-levies. On that ground alone recourse to Rule 10A was sought to be justified. But, such a contention on behalf of the assessing authorities was over-ruled by the Supreme Court when the said Court held that Rule 10 should not be construed literally but should be so done, in the context in which it occurs and so construed it would apply to cases of nil assessment inasmuch as in such a case the entire duty later assessed must be considered to be a duty originally short-levied. This decision of the Supreme Court, in our opinion, does not advance the case of the Appellant before us in any manner inasmuch as in the case now under consideration unlike the case before the Supreme Court, the exemption was not due to any error or mis-construction on the part of the Inspector, Central Excise, but was due to a mis-representation on the part of the Appellant which takes the case out of Rule 10 altogether.

At one stage, Mr. Banerjee suggested that even if Rule 10 be not applicable, Rule 9(2) would be applicable on the facts and circumstances of the present case so that if the deficit duty could be recovered under the provisions of Rule 9(2) that would necessarily exclude Rule 10A. This contention, in our opinion, would not really help the Appellant apart from the fact that such a plea is not well-conceived. Assuming for a moment that Rule 9(2) would have its application on the facts of the present case, since the said provision does not provide for any limitation, the demand as made can well be justified on the provisions thereof and a mere wrong recital of the provisions of Rule 10A would not invalidate the demand if the same is otherwise lawfully sustainable under Rule 9(2). But that apart Rule 9(2) could have no application in the facts like those in the present case. Rule 9(2) could have application only in case of contravention of Rule 9(1). The provision in Sub-rule (2) as pointed out by the Supreme Court is a penal provision and it applies only to cases where there has been an evasion in payment of duty--the goods having been removed clandestinely and without assessment. Such is not the case here as admittedly the Appellant removed the goods on an appropriate permission being obtained from the authorities.

These are the only points raised by Mr. Banerjee in support of the appeal and for reasons given they fail. The appeal fails and is dismissed. There will be no order as to costs.

M.N. Roy, J.

I agree.