A.P. RAVANI, J.U. MEHTA

(1.) The petitioner-Company is engaged in the business of manufacturing textiles and it is running a textile mill in the name and style of M/s. Soma Textiles. The petitioner-Company received two show cause notices dated 2/11/1972 and 8/12/1972 By these show cause notices the petitioner was called upon to show cause as to why penalty should not be imposed upon the petitioner-Company on the ground that cloth of Sort Nos. 315 and 319 of running cloth was converted into rags and cleared by paying duty at the lower rate The petitioner appeared before the authority concerned and submitted its explanation. After hearing the petitioner the Collector of Central Excise Baroda passed order dated 23/10/1973 and held that the petitioner had deliberately cut the second cloth into rags with a view to evading payment of excise duty livable thereon inasmuch as rags were exempted from payment of duty at the material time. The Collector further held that the petitioners had given incorrect marks as rags on cotton fabrics of Sort No. 319 showing that these cotton fabrics were damaged or sub-standard rags inspite of the fact that these goods were obtained from running length of cotton fabrics known as piece of cotton fabrics as defined in Rule 96-A(i) of the Central Excise Rules 1944 and not form damaged or sub-standard cotton fabrics as defined in Rule 96-A(ii). He further held that the petitioner had made incorrect entry of production manufacture and storage in the R. G. I. Register in respect of cotton fabrics weighing 11247 k. g. equivalent to 129340 sq. mt. or 115113.04 sq. mtrs. and removed the same from the factory premises as rags or damaged or sub-standard cotton fabrics without payment of any duty though the goods were not the cut pieces of damaged or sub-standard cotton fabrics. The Collector further held that the charges leveled against the petitioner for contra- vention of the provisions of Rules 96-B 96 226 53 173 173 173 and 173-Q(d) of the Central Excise Rules 1944 were proved. The Collector passed order imposing penalty of P.s. 2 0 under the provisions of Rule 173-Q(ii) of the Rules and further ordered confis- cation of goods under seizure valued at Rs. 59 60.5 ps. However the petitioner was given option to redeem the goods on payment of fine of Rs. 5 0 in lieu of confiscation within three months from the date of receipt of the order. The Collector also ordered to confiscate the land building plant and machinery etc. belonging to the petitioner but gave option to redeem the same on payment of fine of Rs. 250.00 in lieu of confiscation within three months from the date of receipt of the order. It is further ordered that the petitioners shall pay duty at the appropriate livable rate prevalent at the material time on the original piece of cotton fabrics measuring 18044.30 sq. mtrs. (20274.5 L. mtrs.) equivalent to 1763 k.g. of Sort No. 319 Fined Dyed Mercerized Cambric under seizure from which rags have been obtained in a manner otherwise than as provided by law. The Collector also passed order directing the petitioner to pay duty at the appropriate rate prevalent at the material time on the original pieces of cotton fabrics measuring 115113-04 sq. mtrs (or 129340.5 L. mtrs) (equivalent to kg. 11247 of Sort No. 319 from which rags had been obtained in a manner otherwise than as provided by law.

(2.) The petitioner carried the matter in appeal before the Central Board of Excise and Customs. There also the petitioner lost. The order passed by the Board of Central Excise and Customs dated 8/01/1975 is produced at Annexure E to the petition. However the Board held that about 2% of the total production of fabrics of each of the two varieties (i. e. No. 319 and 315) be taken as genuine rags and it should be allowed free of duty. Having regard to the facts and circum- stances of the case in respect of the entire Sort No. 319 the Board directed that the demand of duty be reduced by 2% and in case of Sort No. 315 the Board directed that the demand for duty be reduced by 5%. Subject to the aforesaid modifications the Board rejected the appeal. It appears that the petitioner carried the matter in revision before the Central Government. There also the petitioner has lost.

(3.) Legality and validity of the aforesaid orders have been challenged by the petitioner by filing this petition. The facts in brief may be stated:

(4.) The petitioner is a Textile Mill manufacturing textile goods liable to excise duty. On receipt of information that the petitioner-Company was resorting to the deliberate cutting of Sort No. 319 of Fine Dyed Mercerised Cambric in the rags the Officers of S. R. P. (Prev.) Group Ahmedabad visited the unit of the petitioner-Mill Company on 6/05/1972 It was noticed that cloth of Sort No. 319 though manufactured since 1971 was not at all packed as sound sub-standard or even fents but the entire production was entered in the record as rags and was packed and cleared as rags only. A visit to the B. S. R. showed that there was only one bale of rags of the above sort in balance which was got opened and the contents were examined. The bale contained rags of Sort No. 319 of Fine Dyed Mercerised Cambric of uniform length of 70 cms. A huge stock of the above sort was also found in the stamping section. Some of these pieces were already marked as rags while the others were in the process of being so marked. All pieces were cut to uniform size of 70 cms. When the visit was made by the officers of the S.R.P. (Prev.) an employee of the petitioner-Mill Company Shri Damani was present. He was asked to explain as to why there was no packing of sound sub-standard of fonts in Sort No. 319 and why the entire sort was cut into rags of a uniform size of 70 cms. Shri Damani could not render any plausible explanation except that this was done because the cloth of Sort No. 319 was damaged and because of 70 cms. were easily marketable. The Officer of the Central Excise reasonably believed that there had been deliberate and unjustified cutting of sound cloth of the said sort into rags with 8 view to evading payment of duty. Such attempts were also found in respect of the cloth manufactured as Sort No. 315. As stated hereinabove the appropriate Officer of the excise department issued Notice and the petitioner appeared therein and the petitioner carried the matter in revision upto the Government of India and lost.

(5.) The learned Counsel for the petitioner submits that as per the provisions of Rule 9 (as it then stood and as it applied to the procee- dings) of the Central Excise Rules 1944 liability to pay excise duty arises only at the time of removal of the goods and not before. Even though it may be taken as proved that the petitioner had stamped the goods in question as rags deliberately then also the stage of accruel of liability to pay excise duty had not reached. The liability to pay excise duty would arise only at the point of removal of the goods. Therefore in his submission as far as the goods seized are concerned the order passed by the respondent authorities should be quashed ant set aside.

(6.) It is fairly conceded by the learned Counsel for the petitioner that this point was not raised before the departmental authorities. This point is being raised for the first time in this petition. Even so we may examine the argument urged by the learned Counsel for the petitioner. The records disclose that from December 1971 onwards upto 20/06/1972 the malpractice of evading the excise duty was being practiced by the petitioner-Company. The search was made some time in the month of May 1972 The previous conduct of the petitioner clearly shows that sound cloth was being converted into rags in order to evade payment of excise duty. Therefore the respondent authorities were justified in drawing inference in respect of the goods which were seized and which were marked as rags though the same were not rags. In above view of the matter the contention raised by the learned Counsel for the petitioner cannot be accepted.

(7.) The learned Counsel for the petitioner submits that what the petitioner removed from the factory premises were rags and not sound cloth In the factory premises sound cloth might have been converted into rags or damaged or sub-standard cloth. Therefore in his Submitted the product which was being removed at the factory 8ate would be chargeable for excise duty and not which was lying in the factory premises. In support of the aforesaid submission reliance is placed on Sec. 4 of the Central Excises and Salt Act 1944 read with Rule 9 of the Central Excise Rules 1944 The contention cannot be accepted for the simple reason that the excise duty is livable on manufactured goods. Removal of articles so manufactured at the factory gate is the point of time at which assessable value of the article is being determi- ned and that is the point at which excise duty is liable to be recovered. The event of manufacture of an article and the point at which the article is removed from the factory gate are altogether two different things. In the case of Calico Mills v. Union of India reported in [1983 (1)] 24 GLR 1 Full Bench of this High Court has observed in para 18 of the judgment as follows:

Excise Duty is payable on manufacture (at the time of clearance Since the rules so provide and yet it is linked to manufacture of the article) not to its sale. Even if the manufacturer does not sell the goods he has to pay excise duty.

Excise duty is an indirect tax. The manufacturer passes on the burden of the same to the purchaser. As held by the Supreme Court in the case of R. C. Jall v. Union of India AIR 1962 SC 1281 [LQ/SC/1962/92] excise duty may be recovered at any convenient stage and not necessarily at the initial stage from the manufacturer. In the case of R. C. Jall (supra) excise duty was sought to be recovered from the consignee but it was linked to the manufacture of the article in question. Therefore it retained the character of excise duty and though it was sought to be recovered from the consignee it was considered to be excise duty. In this view of The matter what is to be seen is what the petitioner has manufactured This is material. After manufacturing particular articles if the petitioner again manipulates the articles and converts the same into different types of articles with a view to evade the excise duty the petitioner is not absolved from paying the duty on the articles originally manufactured. It is even conceded by the learned Counsel for the petitioner that the petitioner had manufactured sound cloth and had not manufactured damaged sub-standard cloth which can be called rags. Therefore once it is found that the petitioner manufactured sound cloth the petitioner bad become liable to pay duty on the product manufactured by it. In the instant case it was a device adopted by the petitioner to convert sound cloth manufactured by it into rags by cutting the same into pieces of shorter length. The petitioner knew that which was being removed out of the factory premises was not rags but was sound cloth having outward appearance of rags. Rags were not manufactured by the petitioner. only with a view to evade payment of excise duty a device was adopted by the petitioner. Therefore the contention raised by the learned counsel for the petitioner by referring to the provisions of Sec. 4 of the Act read with Rule 9 of the Rules has also no merits.

(8.) No other contentiOn is raised.

(9.) There is no substance in the petition. Hence rejected. Rule discharged Ad interim relief granted earlier stands vacated. (KMV) Petition dismissed.