Priya Textiles (Pvt.) Ltd.and ors. vs Union of India

J.S. Sekhon, J.

The petitioners have invoked the inherent jurisdiction of this Court by filing petition under section 482 of the Code of Criminal Procedure, 1973, for quashing the complaint Annexure P3 for offences under sections 9(1), 9AA of the Central Excise and Salt Act, 1944 read with Rules 9(1), 52A, 53, 173G and 226 of the Central Excise Act, 1944, inter alia, on the ground that the manmade fabrics being still under the process of manufacture and not fit for marketing, the petitioners had not committed any offence punishable under the abovereferred sections of the Act and the Rules.

The resume of facts given in the complaint annexure P3 reads as under :

"1. That the complaint is being filed by the Assistant Collector, Central Excise Division, Amritsar in his official capacity. He is a witness in the case. It is, therefore, prayed that his presence on each and every date of hearing may kindly be exempted.

That accused No. 1 is a Private Ltd. concern which is operating under the direct and immediate supervision of accused Nos. 2 & 3 who are the only directors of the accused No. 1. All the managerial control, functions, operations are under accused Nos. 2 & 3 who are responsible for each and every act of commission of accused No. 1. Accused No. 4 who is an authorised signatory of the firm and accused No. 5 who is the manager of the firm are also responsible for the acts of commission and omission as they manage, control and supervise the functions of accused No. 1 and are accomplice of accused Nos. 2 and 3.

"On 19.3.88, the Preventive Staff of the Hqrs. Office Central Excise Collectorate, Chandigarh visited the factory premises of M/s Priya Textiles Private Limited, Gali Banke Behari, Batala Road, Amritsar (hereinafter called the accused). Shri Neelmani Khemka s/o Sh. S.K. Khema Managing Director of the accused firm was present there and the factory was working. On demand, the accused produced the unit''s statutory Central Excise Records. The RGI Register for manmade fabrics and cotton fabrics were found written upto the opening balance of 19.3.88, and the Grey Fabrics Registers for man made fabrics and cotton fabrics were found written upto lot Nos. 313 and 165 respectively. On physical verification of the stocks of fully finished man made fabrics lying in the accused party''s E. B. 4 store room, 617.05 mtrs/691 sq. Mtrs. of processed and fully finished manmade fabrics valued at Rs. 13,612.70 involving Central Excise Duty amounting to Rs. 1399.28 (AED Rs. 1382+CESS Rs. 17.28) were found short than the recorded balance on their R.G.I. Register. The stocks of processed and fully finished cotton fabrics lying in the accused parts E.B. 4 store room wore found tallying with the recorded balance in their R.G.I. Register. The physical verification of man made fabrics and cotton fabrics lying in the factory at different stages of processing was then conducted in the presence of the roof the accusedparty, which continued upto the evening of 21.3.88. As a result of this physical verification, 6533 mtrs./5884 Sq. Mtrs. of processed manmade fabrics (under process) valued at Rs. 1,17,871.46 involving Central Excise Duty amounting to Rs. 8,447.35(AED Rs. 8303.25 + CESS Rs. 147.10) were found in excess of the quantities, recorded against various/respective lot Nos. 1 and 45166.60 Mtrs/46133 Sq. Mtrs. of process manmade fabrics valued Rs. 8,80,754.28 involving Central Excise Duty amounting to Rs. 73,604.11 (AED Rs. 72,450.75 + CESS Rs. 1153.36). were found short than the quantities recorded against various/respective lot Nos. as per details in Annexures I&III attached with the complaint. The physical verification also revealed that 14971.35 Mtrs./13472 Sq. Mtrs. of processed cotton fabrics (under process) valued at Rs. 1,84,456.74, involving Central Excise Duty amounting to Rs. 5940.65 (BED Rs. 1887.60 + AED (T) Rs. 283.14 + AED Rs. 3433.11 + Rs. 336.80) were in excess of the quantity recorded against various/respective lot Nos. and 27147.35, Mtrs./24431 Sq Mtrs. of processed cotton fabrics valued it Rs. 2,92,533.33/ involving Central Excise Duty amounting to Rs. 10270.47 (BED Rs. 4093.00 + AED (T) Rs. 613.95 + AED Rs. 5052.75 + CESS Rs. 610.77) were shortthan the quantity recorded against various/respective lot Nos. as per details in Annexures II and IV.

In his statement dated 23.3.88; Shri Neelmani Khemka, Managing Director of the party, admitted the detection of the excess and shortage of the above mentioned quantities of manmade fabrics and cotton fabrics in their factory. He also admitted that they had not paid any Central Excise Duty on the abovementioned shortage of manmade fabrics and cotton fabrics.

From the above imputations, it is clear the accused has contravened the provisions of Rule 9(1), 52A, 53, 173G and 226 of the Central Excise Rules, 1944 (at amended) inasmuch as

(i) 457.83 Mtrs./46824 Mtrs. of manmade Fabrics found short in the factory of the accused, have been removed by them clandestinely after processing and finishing without accounting in their statutory Central Excise Records and without payment of Central Excise Duty amounting to Rs. 75,003.45;

(ii) 27147.85 Mtrs./24431 Sq. Mtrs. of cotton fabrics found short in their factory have been removed by them clandestinely after processing and finishing without accountant in their statutory records and without payment of Central Excise Duty amounting to Rs. 1,370.47 only.

(iii) They have not accounted in their Central Excise Records the abovementioned excess quantities of 5884 Sq. Mtrs. of manmade fabrics and 13472 Sq. Mtrs. of cotton fabrics.

Show cause notice bearing C. No. V (54) 15/33/88/539598 dated 2.6.88 was issued to M/s Priya Textiles Private Ltd. calling upon to show cause to the Deputy Collector, Customs and Customs and Central Excise, Amritsar as to why

(1) the Central ExciseDuty amounting to Rs. 85373.86 chargeable on the abovementioned clandestinely removed, processed and finished manmade fabrics and cotton fabrics should not be recovered from them under Rule 9(2) of the Central Excise, Rules 1944, and

(2) Penal action should not be taken against the accused party under Rules 9(2), 173Q and 226 of the Central Excise Rules, 1944, for contravention of the aforesaid provisions of Central Excise law. The accused party appeared before the Adjudicating Authority to put forward their defence. The case was thoroughly discussed, argued before the adjudicating authority and the said authority imposed a personal penalty of Rs. 50,000/ on the accused party besides demanding duty of Rs. 75,003.39 on a quantity of 45.783 Mtrs./86834 Sq. Mtrs. of manmade fabrics and Re. 10,370.47 on a quantity of 27147.85 Mtrs./24431 Sq. Mtrs. of cotton fabrics found short by Central Excise Officers under Rule 9(2), read with section 11A of the Central Excise and Salt Act, 1944. The adjudicating authority also ordered that the excess quantity found be entered in the Grey Fabrics Register and duty paid accordingly."

I have heard the learned counsel for the parties besides perusing the record.

The perusal of the impugned complaint, reproduced above reveals that the officials of the Central Excise Staff found fully finished manmade fabrics lying in the accusedparty''s E. P. 4 store room, 617.05/691 Sq Mtrs. of processed and fully finished manmade fabrics valued at Rs. 13,612.70 involving Central Excise Duty amounting to Rs. 1,399.28 (AED Rs. 1382/ CESS Rs. 17.28) were found short than the recorded balance in their R.G.I. Register.

Similarly, as a result of further physical verification, 6533 Mtrs./5884 Sq. Mtrs. of processed manmade fabrics (under process) valued at Rs. 1,17,871.46 involving Central Excise Duty amounting to Rs. 8,447.35 (AED Rs. 8300.25 + CESS Rs. 147.10) were found in excess of the quantities recorded against various/respective lot numbers and 45166.60 Mtrs./46133 Sq. Mtrs. of processed manmade fabrics valued at Rs. 8,80,754.28 involving Central Excise Duty amounting to Rs. 73,604.11 (AED Rs. 72,450.75 +CESS Rs. 1153.36) were found short than the quantities recorded against various/respective lot Nos. The physical verification also revealed that 14971.35 Mtrs./13472 Sq. Mtrs. of processed fabrics (under process) valued at Rs. 1,84,456.74 involving Central Excise Duty amounting to Rs. 5930.65 (BED Rs. 1887.60 X AED(T) Rs. 283.14 + AED Rs. 4433.11 + CESS Rs. 336.80) were in excess of the quantity recorded against various/respective lot numbers and 27,147.35/2443l Sq. Mtrs. of processed cotton fabrics valued at Rs. 2,92,533.33 involving Central Excise Duty amounting to Rs. 10273.47 (BED Rs. 4093.00 + AED (T) Rs. 613.95 + AED Rs. 5052.75 + CESS Rs. 610.77) were short than the quantity recorded against various/respective lot numbers.

Relevant provisions of section 9(1)(a), (b) and (d) of the Act react as under :

"Offences and penalties. (1) Whoever commits any of the following Offences, namely,

(a) contravenes any of the provisions of a notification issued under section 6, or of Section 9, or of a role made under notification issued under S.6 or of Section 8, or of a rule made under clause (ii) of subsection (2) of Section 37;

b) "evades the payment of any duty payable under this Act;

bb) removes any excisable goods in contravention of any of the provisions of this Act or any rule made thereunder or in any way concerns himself with such removal;

bbb) acquires possession of, or in any way concerns himself in transporting, depositing, keeping, concealing, selling or purchasing, or in any other manner deals with, any excisable, goods which he knows or has reason to believe are liable to confiscation under this Act or any rule made thereunder;

d) attempts to Commit, or abets the commission of any of the offences mentioned in clauses (a) and (h) of this Section.

A bare glance through the abovereferred provisions of Section 9 leaves no doubt that this section envisages the contravention of any provision of a notification issued under Section 6 or of Section 8 of the Act or of the rules made under clause (iii) of subsection (2) of Section 37 or evades. the payment of any duty payable under this Act, or removes any excisable goods in contravention of any of the provisions of this Act or any rulemade thereunder or in any way concerns himself with such removal or concerns himself in transporting, depositing, keeping, concealing, selling or purchasing or in any other manner deals with, any excisable goods. which he knows or has reason to believe are liable to confiscation under the Act or any rule made thereunder. Subclause (d) further makes attempts to commit or abet the commission of the abovereferred offences figuring in clauses (a) and (b) also punishable. The provisions of section 9AA relate to the liability of the companies for such offences and provides that any person incharge of and responsible to the Company for the conduct of the business of the Company, as well as the Company shall be deemed to be guilty of the abovereferred offences, unless such person proves that he exercised all due diligence to prevent the commission of such offence. Rule 53 of the Rules provides maintenance of stock account in such form as the Collector in a particular case or class of cases may require and enjoins the making of entry in such account daily qua the description of goods, opening balance, quantity manufactured, quantity deposited in the storeroom or other place of storage approved by the Collector. Under Rule 47, quantity removed, after payment of duty from such storeroom or other place of storage or from the place or premises specified under rule 9, quantity delivered from the factory without payment of duty of export or other purposes, and the rate of duty and the amount of duty are required to be entered Rule 173 G of the Rules provides the procedure or maintaining current account of the excisable goods in such form and manner as the Collector may require. Rule 225 of the Rules provides for the manner and the maintenance of entry books, stock accounts and warehouse register.

Thus, in the light of the abovereferred provisions contained in the Act as well as in the Rules it transpires that sole controversy involved in this petition centres around the definition of "manufacture" figuring in section 2(f) of the Act. This definition is inclusive in nature and not exhaustive. The relevant portion of definition applicable to the manufacture of yarn figures in subclause (iv) of clause (f) of section 2 which reads as under :

"in relation to goods comprised in Item No. 18A of the Schedule to the Central Tariff Act, 1985) including sizing, beaming, warping, wrapping winding or reeling or any one or were of these processes or the conversion of any form of the said goods into another form of such goods;"

A bare glance through the same reveals that the process of manufacture includes sizing, beaming, warping, wrapping, reeling etc. or any one or more of these processes. This clause refers to the items comprised in Item No. 18A of the Schedule to the Central Tariff Act, 1985, which reads as under :

"19A Cotton Twist, Yarn, And Thread All. Sorts sized or unsized, in all forms, including skein, hanks, cops, cones, bobbins, pins, spools, reels, cheeses, balls or on warp beams, in or in relation to the manufacture of which any process is ordinarily carried on with the aid of power

(1) of counts 29 or more One rupee per kilogram

(2) of counts less than 29 Fifty naye paise per kilogram.

Explanation : (1) Count means the size of grey yarn expressed as the number of 1000 metre bans per one half kilogram.

(2) For multiple fold yarn "count" means the count of the basic single yarn.

Thus, there is doubt that Item No. 18A covers the yarn as well as thread of all sorts. The only qualification for the applicability of this rule is that power should have been used for the manufacture of such cloth, yarn or thread. There is no dispute that the petitioners manufacture the yarn through powerlooms.

In view of the above facts, it cannot be said by any stretch of imagination that the pieces of yarn seized in the case in hand which were yet to be cut to size, rolled and put in different packages were finished goods. On the other hand, in view of the definition of "manufacture" reproduced above, these pieces of cloth were still under the process of manufacture and had not reached the stage where it can be said that these were ready for marketing. If that is so, then the petitioners were not required to enter these goods in any of the registers including R.G.I. under the above referred rules. Thus, it can be wellsaid that even if the entire allegations contained in the complaint are taken to be true, the petitioners had not committed violation of any of the rules or the provisions of law punishable under section 9 of the Act. The decision of the Special Bench of the Tribunal in Collector of Central Excise v. General Cement Productions (P) Ltd., 1989 E.L.T. 689 can be quoted with advantage in this regard. In that case the cement concrete poles meant for installing the lines of electricity wore yet to go through the prescribed quality control test. Thus, it was held that if such poles are destroyed during the quality control test, the duty was not payable while remarking in para 3 of the judgment that unless the goods reach a stage where they are fit for delivery, these cannot be considered at fully manufactured goods. A similar view was taken by the Customs, Excise and Gold (Control) Appellate Tribunal, New Delhi in Collector of Central Excise, Indore v. M/s PCC Pole Factory, 1989(22) ECR 568.

For the reasons recorded above, as there are not even remote chances of conviction for the above referred offences even if the entire allegations in the complaint are taken to be true, the prosecution of the accused on the basis of the complaint would certainly amount to abuse of process besides resulting in harassment to the parties and wastage of precious time of the Court. Therefore, the complaint Annexure P. 3 and the entire proceedings resulting therefrom the quashed by accepting this petition.