TaxTMI 
TaxTMI 
1986 (10) TMI 229
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....3, dated 27.2.1985, M.410/AUR.44/85, dated 26.7.1985, V. 15CC(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 t....
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....ha pits on the condition that the sugar factories should pay the duty leviable 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 :....
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....erintendent, 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/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 recorde....
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....Superintendent proceeded to Kagal. When he saw Molasses actually boiling and over-flowing, 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 kac....
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....e notice. 18. In appeal ED(BOM)18/85 the Collector of Central Excise and Customs, Pune, Shri S.D. Mohile, while narrating 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 e....
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....)71/85 the Collector of Central Excise and Customs, Aurangabad, Shri S.N. Karkhanis, while narrating the facts of the case, among other things, stated that M/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 st....
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....ith their application No. MFG/I/83, dated 19.12.1983 addressed to the Superintendent, Central Excise, Jalna Ranga, requesting therein for permission to allow them to destroy total quantity 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 an....
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.... is an action against the scheme of the Acts and Rules and opposed to public policy and therefore hit by Section 23 of the Indian Contract Act. To buttress the above argument reliance was placed on the 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 r....
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....well as on the decision of the Delhi High Court reported in 1979 E.L.T. (J581) Caltex Oil Refining (India) Limited v. Union of India and others. Reliance was also placed on the following decisions :- (a) 1980 E.L.T. 679 (Del.) - Synthetic & 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 ....
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....ectors in all the cases are not identical and in certain of the cases the Collector's findings were that the losses or damage was not due to natural causes but due to the sugar factories not taking adequate precautions; in other words due to the negligence of the sugar factories and therefore they became 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....
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....ectors against which the above-mentioned appeals were preferred. The Collector, Pune, in his order which is the subject-matter of appeal ED(BOM)33/84 had categorically stated that "due to heavy rains from 26.6.83 to 28.6.83, 1531.540 M/T of Molasses belonging to M/s. Shree Dudhaganga Vedganga Sahakari Sakhar Karkhana Ltd., which was preserved in 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....
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.... safely said that the sugar factory was able to establish that the loss was due to natural causes. 40. The Collector, Aurangabad, in his order which is the subject-matter of appeal ED(BOM)32/85, while narrating the facts stated "M/s. Sanjivani Sahakari Sakhar Karkhana Ltd., had stored 4841.300 M/T of Molasses falling under T.I. 15CC in kaccha pit No. 3 was burnt out 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 ap....
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....d have become unfit for distillation". In these cases also, the Collector did not record a finding that the case of the sugar factories that the Molasses became unfit for distillation due to deterioration was not true. Therefore, it could be said that the deterioration took place due to natural causes. 46. In his order which is the subject-matter of appeal ED(BOM)187/85, the Assistant Collector of Central 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 dis....
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....ment did not impose any other condition. There was no condition as to the quantum of Molasses that could be stored in a kaccha pit or the duration of the storage or other precautions required to be taken by the sugar factories. In the absence of any such condition, the findings of the two Collectors that if sufficient care and proper repairs had been effected at appropriate time, the loss would not have occurred, cannot 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 t....
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....hall not be required in respect of excisable goods made in a factory until they are about to be issued out of the place or premises specified under Rule 9 or are about to be removed from a store-room or other place of storage approved by the Collector under Rule 47". The first proviso reads "provided that the manufacturer shall on demand pay the duty leviable on any goods which are not accounted for in the manner specifically provided 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 fr....
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....Thus, the point of time when duty must be paid or may be collected is clearly given. Similarly, it is provided that there must be removal from the specified place to attract the payment of duty. If there is no removal there would be no question of payment. Removal is a positive act and cannot have-any reference to disappearance of the product. For example, evaporation would not be removal for that takes place by natural causes in the process of manufacture 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....
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....of which the transformer was one of the part. Such an agreement was held to be contrary to the provisions of Electricity (Supply) Act and the Electricity Act and as such void and the Board could not enforce the same, being against the public policy. 57. Shri Pattekar had contended that sugar factories were permitted to store Molasses in kaccha pits and it was an extra facility granted to them. Since a concession had been shown to the sugar factories they executed 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 fa....
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....unnecessary for me to repeat the facts of the cases, the arguments in the appeals advanced by both the sides, or the findings incorporated in Brother Hegde's order. The following paragraphs are, however, being added to put on record certain facts and reasonings which have not been incorporated in Brother Hegde's order. Hence this concurrent order. 62. As observed in para 4 of Brother Hegde's order, Molasses is a bye-product coming into existence in the process of manufacture of vacuum 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....
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....the Ministry of Law, was also sent with this letter. While many sugar factories executed this bond, some like M/s. Krishna Sahakari Sakhar Karkhana Ltd. or M/s. Shri Dudhganga-Vedganga Sahakari Sakhar Karkhana Ltd. did not execute the bond immediately. In fact, their appeals cover parcels of Molasses in storage with them from the earlier period than the date when they executed these specific bonds in terms of the Board's instructions in their letter dated 22.10.1982. These instructions seem to 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 ....
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....Rule 49 more circumspectly. Besides, the directions in the letter dated 22nd October 1982 were quite contrary to the other general directions issued by the Board in the case of same sugar industry, wherein the sugar factories are freely given permission to store excess production of sugar outside their L4 premises without execution of any bond or any condition for not claiming remission of duty. The risk of Govt. revenue in respect of sugar is much more than the risk to Govt. revenue in the case of 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....
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....apacity was full. Nor could they provide additional storage facilities immediately. Therefore, in such circumstances it cannot be accepted that the manufacturers were negligent and the Molasses were lost due to their negligence. Such a situation would not have arisen if the requests of the manufacturers for destruction under Rule 49 has been granted. The Molasses were stored in open pits and they deteriorated in quality by rains and floods and became unfit for consumption and marketing meriting destruction 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....
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....n's and the manufacturers are fully eligible to the remission of duty on the destroyed quantities under Rule 49. 66. As the foregoing facts, show, the main question which comes up for decision is the scope of Rule 49. It cannot be that this rule could be interpreted in one way where a manufacturer has executed a bond in terms of the Board's instructions dated 22.10.1982 and that the same rule can be interpreted differently where either these instructions do not apply as in the case of all other commodities, or 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 ....