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PETITIONER: KUIL FIREWORKS INDUSTRIES

       Vs.

RESPONDENT: COLLECTION OF CENTRAL EXCISE & ANR.

DATE OF JUDGMENT:       12/09/1997

BENCH: S.C. AGRAWAL, G.T. NANAVATI

ACT:

HEADNOTE:

JUDGMENT:                       J U D G M E N T S.C. AGRAWAL, j.:-      This appeal  is directed  against the  judgment of  the Customs  Excise   and  Gold   Control   Appellate   Tribunal (hereinafter referred  to  as  ’the  Tribunal’)  dated  July 2,1976 in  Appeal No.E/SB/1395/91/MAS.   The appellant, Kuil Fireworks  Industries,  manufactures  fireworks  which  fall under Heading  3604.14 of  the Central  Excise Tariff.    By notification No.  167/86 dated  March 1,1986  exemption from excise  duty   has  granted  in  respect  of  various  goods including goods  falling under Heading 3604.10 provided that no process  in or in relation to the manufacture of the said goods is  ordinarily carried on which the aid of power.  The appellant  claimed   exemption  in   respect  of   fireworks manufactured by  it on the basis of the said notification on the ground that no process in relation to the manufacture of the said  goods was  ordinarily carried  on with  the aid of power.  On September 2, 1987 the excise authorities dotained 6,222 wooden  cases of  fireworks valued  at Rs.39,83,698-50 and a  sum of  Rs.5,97,555/- was  demanded  as  excise  duty payable on  the said  good on the ground that the goods were not entitled  to exemption  from excise  duty under the said notification.   The appellant  filed a  writ petition in the Madras High  Court passes  an interim order on September 29, 1987 and  permitting the  appellant to  clear the  goods for sale without  payment of  excise duty.   In  the  meanwhile, notification No.167/86  dated March  1, 1986  was amended by notification  No.222,87   dated  September  17,1987  whereby exemption in  respect of  fireworks  falling  under  Chapter 36.04 was  withdrawn.   Since the good had been permitted to be cleared on the basis of the interim order dated September 29, 1987 passed by the Madras High Court, the Superintendent of Central  Excise issued a show cause notice dated February 16,1988  under   Section  11A  of  the  Central  Excise  Act Demanding duty  of Rs.5,97,555/- being the duty on the goods detained on  September 2,1987  valued at  Rs.39,83,698.50 on the ground that the said goods were cleared after September, 1,1987 when  the exception from duty was not available.  The appellant submitted  their reply  to  the  said  show  cause notice wherein it was submitted that the goods were detained

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by detention  order dated September 2,1987 by the department and could  be cleared  only pursuances  of the interim order dated September  29, 1987  passed by the High Court and that no duty  was payable  in respect  of the  said goods.    The Assistant  Collector   Of  Central  Excise  by  order  dated December  18,1990   confirmed  the   demand   of   duty   of Rs.5,97,555/- granted  under notification  No.175/86 on  the ground that  the appellant a small scale industry.  The said contention was, not raised before the lower authority and it could not be urged at the appellate stage.      Shri. S.  Muralidhar, the learned counsel appearing for the appellant  has urged  that the  decision of the Calcutta High Court  in Priyunka  Overseas (P)  Ltd. (supra) has been upheld by this Court in Priyanka Overseas Pvt.Ltd. & Anr. v. Union Of India & Ors., 1991 Supp.(1) SCC 102.  The appellant in that  case had,  on December  17,1987, filed the bills of entry for  home consumption  as required under Section 68 of the Customs  Act with  a prayer  for debonding  the goods of 3935.364 MT  which were  stored in a private warehouse.  The customs authorities, on that very day,i.e. December 17,1987, cancelled the  license for warehousing the quantity of goods in respect  of which  the  bills  of  entry  were  filed  by cancelling the  bond and  deleting the  said godown from the relevant licence  issued for  the quality of 11,500 MT.  The keys of  the godown  were also  handed over to the appellant simultaneously, as  a  result  of  which  though  the  goods remained in  the said  godown but not as a warehouse and the appellant was allowed to remove the goods without payment of any duty.  It was not disputed that the remaining goods were also stored  in a  private warehouse  and the  appellant had filed bills  of entry  and compiled  with all  the  required formalities for  debonding and  clearance of  the  goods  on January 28,  1988 and  that the appellant was entitled to an order made  in the  show cause notice dated February 16,1987 in view of the decision of this court in Wallace Flour Mills Co.Ltd. v.  Collection of Central Excise, Bombay Division II 1989 (4)  SCC 592,  wherein it  was decided that the rate of duty prevalent  on the  date of  removal is only applicable. It  was  held  that  since  the  goods  were  removed  after September 17, 1987 excise duty was payable on the same.  The Assistant Collection did not go into the merits of the claim of  the  appellant  that  they  were  not  using  power  for manufacture of  fireworks.   The said order of the Assistant Collector of  Central Excise  was affirmed  in appeal by the Collector  (Appeals)  in  his  order  dated  August  1,1991. Before the  Tribunal reliance was placed by the appellant on the decision  of the  Calcutta High  Court in  Collector  of Customs v.  Priyanka Overseas  (P) Ltd.  1989  (41)  ELT.195 (Cal.) and  it was  urged that  as the  goods were  detained illegally by  the customers authorities, the appellant could not be  penalised for the illegal act of the authorities and that since  the goods  were manufactured  prior to September 17,1987 and  in the  normal course the goods would have been put in  the market  stream much  before the  withdraw of the exemption notification,  the duty  applicable will be at the rate when the goods were detained and from date of clearance of the  goods.   The Tribunal,  however, rejected the appeal and held  that the  decision  of  the  Calcutta  High  Court Priyanka Overseas  (p) Ltd.(supra)  could not  be invoked in view of  the decision  of this  Court in Wallace Flour Mills Company (supra) and Collector of Central Excise, Hyderabad & Ors. v.  Vazir Sultan  Tobacco Co.  Ltd.  Hyderabad  &  Ors, 1996(3) SCC 434, Wherein it has been laid down that the rate of duty applicable will be the one applicable on the date of clearance of  the goods.   Before the Tribunal the appellant

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also sought  to place  reliance on  the exemption cancelling the licence  of the  private warehouse enabling it to remove the goods.  On these facts this Court Observed:-      "Had the customs authorities passed      order in  accordance with  law  the      same result  would have followed as      had   been    done   on    December      17,1987...........  There   is   no      valid reasons  as to  why the  same      procedure  should   not  have  been      followed   in    respect   of   the      remaining goods in respect of which      the bills  of entry  were filed  on      January 28,1988  for debonding  and      clearance of goods.  Merely because      the officer failed to discharge his      duties by making illegal demand for      deposit  of   redemption  fine,  by      making illegal  demand for  deposit      of redemption  fine, The  appellant      is        there()/7?he      deli,.+      out  paying  any  duty  as  on      January  28,   1988  no   duty  was      payable on the goods." [p.124]      The submission of Shri Muralidhar is that the principle laid down  in  the  aforesaid  decision  of  this  Court  in Priyanka Overseas  apvt. Ltd & Anr. v. Union of India(supra) is applicable  in the  facts of  this case because the goods had been  wrongly and  illegally  detained  by  the  customs authorities on  September 2,1987  and by  the time the goods were released  for clearance  on the  basis of  the  interim order passed  by the  High Court  on September  29,1987, the exception from  duty under  notification No.167/86  had been withdrawn by notification No.222/87 dated December 17,1987 . He has  urged that the appellant cannot be made to suffer on account of  illegal act  of the  excise authorities and that the principle  laid down  in  Wallace  Flour  Mills  Company (supra) and Vazir Sultan Tobacco Co.Ltd (supra) will have no application in the facts of this case.      Shri  K.N.Bhat,   the  learned   Additional   Solicitor General, does  not dispute  that in  view  of  the  decision Priyanka Overseas  Pvt. Ltd.(supra)  the appellant could not be made  to suffer on account of an illegal act of detention of the  goods by the excise authorities and the principle of Wallace Flour Mills Company (supra) and Vazir Sultan Tobacco Co. Ltd. (supra) will have no application in this case.  The learned additional  Solicitor General  has,  however,  urged that even on September 2,1987 the appellant was not entitled to claim exception from duty in respect of goods which where detained since  there was use of power in the manufacture of the goods.   In  this  connection,  the  learned  Additional Solicitor has  placed reliance  of on  the decision  of this Court in  Standard Fireworks Industries Ors. v. Collector of Central Excise 1987 (28) ELT 56.      We have  Unable to  accept the  said contention  of the learned Additional Solicitor General for the reason that the Assistant Collector  of Central  Excise has  issued  a  show cause notice dated November 29,1987 demanding central excise duty of  Rs. 11,94,122.94 on the fireworks declared from the factory of  the appellant for the period from August 1, 1981 to September  16,1987 on  the ground that certain operations were carried  on with  the aid of power outside the premises of the  factory  by  outsiders  and  hence  exemption  under notification No.  167/88 dated  march 1,1986  could  not  be

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available.   In their  replay to  the said show cause notice the appellant  stated that they had not used power in any of the processes  in the  manufacture of the fireworks in their factories or  outside their premises and it was claimed that the chemicals  used for  such manufacture were hand-pounded. By order  dated December  18,1990, the  Assistant  Collector held that  the it  is incredible  and highly improvable that flour mills  which are  run by power should under take hand- pounding  and  that  the  flour  mills  had  undertaken  the grinding of chemicals only by using power.  It was also held that paper tubes, paper cones were also made by use of power and, therefore,  the appellant was not entitled to exception under notification No. 167/86 dated March 1, 1986.  The said order of  the Assistant Collector was set aside in appeal by the Collector(Appeals)  by order dated August 29, 1991.  The Collector (Appeals) held:      "Although it alleged that appellant      purchased paper tubes from Standard      Paper Containers, Sivakasi and made      paper  tubes   though  Paper  Tubes      Works,   Sivakasi,    no   evidence      confirming the above allegation was      cited  either  in  the  show  cause      notice  or in the original order".      "The appellants  denied making  any      tubes through  paper  Tubes  Works,      Sivakasi.   In the  absence of  any      evidence to  the appellants version      has to be accepted."      "The  conclusion   that  the  Flour      Mills run  by power  would not have      undertake     hand-pounding     and      ignoring the bills produced stating      that  they   have  been   carefully      managed   will    not   prove   the      department case  since it  is based      on presumption and suspension."      "In view  of the foregoing there is      no evidence at all in the available      records to  the effect  that  power      has been  used in or in relation to      the manufactures  of  fireworks  by      the   appellant    rendcring   them      incligible  for   exemption   under      notification N.167/86  dated  March      1,1986."      The  said  order  of  the  Collector(Appeals)  was  not challenged by  the department and has become final.  In view of  the  order  of  the  Collector  (Appeals)  dated  August 29,1991, it  cannot be  said that  in respect of goods which were detained  on the  basis or order dated September 2,1987 exception was  not available  under  notification  No.167/86 dated march 1,1986.      The  appeal   is,  therefore,   allowed,  the  impugned judgement of the Tribunal is set aside and the demand raised by the Assistant Collector of Central Excise on the basis of the show cause notice dated February 16,1988 is quashed.  he appellant had  paid  a  sum  of  Rs.1,50,000/-  towards  the impugned demand  of excise  duty  on  March  30,1991  and  a further sum  of Rs.  50,000/- was  paid by  the appellant in pursuance of the intcrim order of the Tribunal dated January 27,1992.   In pursuance  of the  order dated  April  25,1997 passed by  this Court  the appellant  has furnished  a  bank guarantee of  Rs.1,50,000/-.   Since  the  demand  has  been quashed, it  is directed  that the  amount of  Rs.2,00,000/-

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whose has  been deposited  by the  appellant be furnished by the appellant shall stand discharged.  No order as to costs.