JUDGMENT: MR. S.M. KAZIMI, MEMBER (TECHNICAL).-(1). This judgment disposes of the appeal filed by M/s. Shadman Metal Fabricators (Pvt.) Ltd. Nowshera, against the Order-in-Original No. 36/2000 dated 10.05.2000 (despatched on 13.05.2000) passed by the leamed Additional Collector, Sales Tax & Central Excise, Peshawar.
2. Briefly, the facts of the case are that in pursuance of an information, the Central Excise Officers of Peshawar Division office audited the record of M/s. Shadman Metal Fabricators (Pvt.)Ltd., Nowshera, for the period from 1996-97 to May, 1999 and observed that the unit had been paying central excise duty at 5% ad-val (instead of 15%), on the clearance of metal containers of various sized of PCT Heading 73.10, without complying with the provisions of Chapter X of the Central Excise Rules, 1944 (a condition precedent for concessionary rate of duty of 5%). The Additional Collector accordingly issued notice C. No. CE/Add:C- 1/35/99/397 dated 09.08.1999 requiring M/s. Shadman Metal Fabricators (Pvt.) Ltd. Nowshera, to show cause why central excise duty of Rs. 7,767,670/-, alongwith the additional duty due in terms of section 3-B of the Central Excise Act, 1944, should not be recovered from them under rules 7 and 10 of the Central Excise Rules, 1944, and also why penal action under mle 210 of the said Rules should not be taken against them. After taking into consideration their written reply in response to the above-said show cause notice and on hearing their arguments, the leamed Additional Collector decided the case of M/s. Shadman Metal Fabricators (Pvt.) Ltd. Nowshera, in terms of paragraph 11 of the impugned consolidated Order-in- Original No. 36/2000 and directed that the said mill should pay the short-assessed duty of Rs.
7,767,670/-, alongwith the amount of additional duty in terms of section 3-B of the Act. Hence this appeal.
3. During the course of hearing before us, the leamed counsel for the appellant stated that the appellant had supplied all the metal containers during the period involved only and exclusively to one consumer-cum-buyer i.e. M/s. Associated industries Ltd. Nowshera, a manufacturer of vegetable oils & ghee and holder of L-1 licence No. L-1 (Metal Container) 3/92 dated 27.04.1992 issued by the Collector of Customs & Central Excise, Peshawar, under rule 192 of the Central Excise Rules, 1944, duly revalidated upto 30.06.2000. He also produced copy of Form B-4 Bond (CE Series No. I6) executed by M/s. Associated Industries Ltd. Nowshera, on 12.02.1992, duly accepted by the Collector, Peshawar, on 27.04.1992, for Rs. 2 lac as security against bank guarantee of UBL, in terms of rule 192 of the Central Excise Rules, 1944, for purchase of duty-exempt metal containers of 16Kgs, 5 Kgs an 2.5 Kgs for manufacture of commodity in their factory. He pointed out that Central Excise conditional exemption Notification No. SRO. 455(I)/96 dated 13.06.1996, effective from 13.06.1996, provided that Metal Containers (of respective headings of Chapter 73 and 76) "if used for packing kerosene, vegetable products and edible oil of vegetable origin or mixture thereof having melting or could point below 10 degrees cefttigrade, provided that the provisions of Chapter X of the Central Excise Rules, 1944, are follows" shall be liable to a concessionary rate of central excise duty at 5% ad valorem. He stated that initially they supplied metal containers against 307 AR-1 applications from 10.07.1996 to 11.11.1996, only and exclusively to M/s. Associated Industries Ltd., Nowshera (who manufacture vegetable oils & ghee) after paying central excise duty at 5%. They made only AR-1 application because of the direction contained in paragraph 2 of the Superintendent, Central Excise & Sales Tax, Nowshera Circle's C. No, IV-CE-Misc/95/521 dated 02.07.1995. However, w.e.f. 12.11.1996 and until 07.05.1999 involving 360 they started preparing both AR-1 and AR-2 applications simultaneously for the same clearance i.e. AR-1 for payment of duty of 5% and AR-2 for remission of 10% duty under the aforesaid notification read with the provisions of Chapter X of the Central Excise Rules, 1944. He also claimed that both the dispatcher (the appellant) and the recipient (M/s. Associated Industries Ltd.) fulfilled all the provisions of Chapter X of the Central Excise Rules, 1944, and, therefore, nothing is payable by the appellant.
4. With the consent of the appellant and Collectorate's representative, we directed Mr. Ishtiaq Ahmad, Law officer of Collectorate of Sales Tax & Central Excise, Peshawar, to personally visit the appellant M/s. Shadman Metal Fabricators (Pvt.) Ltd. Nowshera and the recipient Associated Industries Ltd. And report on the factual aspects, specially the extent of breach of the provisions of conditional exemption notification and of Chapter X of the Central Excise Rules, 1944. Mr. Ishtiaq Ahmad submitted his report on 11.1.2002 copies of which were handed over to the representatives of the appellant and respondent. The report read as hereunder:- "On 25.10.2002,1 visited M/s. Associated Industries Ltd., Nowshera in pursuance to the directions of his honourable forum to ascertain the following:- A. L-1 Licence issued by the Component Authority under Chapter X of the Central Excise Rules, 1944 and validity thereof during the period involved.
B. Ar-1 issued during the period 10.07.1996 to 11.11.1996 and AR-2 & AR-1 issued during the period 12.11.1996 to 07.05.1999.
C. To verify whether or not the procedure was adopted by the recipient and suppliers as laid down under Chapter X of the said rules and if not followed the procedure to what extent the procedure has been violated.
LICENCE UNDER CHAPTER X OF CENTRAL EXCISE RULES That M/s. Associated industries Limited Nowshera being the manufacture of Ghee/Vegetable oil applied to the Collector Central Excise and Sales Tax on the proper From B-4 (Central Excise Series No. I6) under Rules 192 of the Central Excise Rules stating therein quantities of I6 Kgs, 5 Kgs & 2.5Kgs tins as may be required not exceeding 10 lac per year and the Collector allowed the same on 27.04.1992.
(COPY OF FORM B-4 ANNEXED AS "A") That in pursuance thereof the Collectorate issued Licence No. L-1 (Metal Containers) 3/92 dated 27.04.1992. The same was checked and found that the same has been regularly renewed and valid during the period involved (copy of Licence Annexed as "B"). M/s. Associated Industries Limited maintained Storage and Accounts on a Register in the proper Form showing the quantity of Excisable goods received in the Store Room and Quantity used in the Industrial process as per Rule 194 of the said Rules.
SUPPLY OF METAL CONTAINERS AGAINST AR-1 M/s. Shadman Metal Fabricators (Pvt.) Ltd.
Manufactures of metal containers supplier the Excisable goods to M/s. Associated Industries Limited Nowshera during the period 10.7.96 to 11.11.1996 against AR-1 and Central Excise duty @ 5% has been assessed and paid on the same supplies. These supplies were received and entered in the RG-11 Register by M/s. Associated Industries Limited which were subsequently issued for filing of ghee and vegetable oil.
SUPPLY OF METAL CONTAINERS AGAISNT AR-2 & AR-1.
M/s. Shadman Metal Fabricators (Pvt. ) Ltd. Removed its excisable goods against AR-1 as well as AR-2 with payment of 5% Central Excise Duty w.e.f. 12.11.1996 upto 7.5.1999 but still the recipient of the supply i.e. M/s. Associated Industries Limited did not assess the central excise duty payable @ 5% against AR-1. It is worth mentioning that the goods were received during the period by M/s. Associated Industries Limited against form AR-2. Meaning thereby both the forms were used for the removal of excisable goods for industrial process.
EXTENT OF VIOLATION Mr. Shadman removed its excisable goods against Foim AR-! During the period 10.07.96 to 11.11.1996 and against AR-1 and AR-II during the period w.e.f. 12.11.96 to 07.05.99. The supplies removed against AR-1 has been entered in RG-II register only whereas the supplies removed against AR-2 and AR-1 during the period has been entered in bond as well as RG-II register.
The Central Excise Duty should have been paid by the recipient of the supply duly received against AR-2 without payment of Central Excise Duty. In both the cases entries have been made by AIL in the RG-II register.
Sd.- Ishtiaq Ahmed, Law Officer.".
5. Both the parties did not contest this report and consented that the Tribunal may decided the case on merit accordingly.
6. Having heard the parties and on perusal of record of the case we find that the exemption in excess of 5% excise duty was available if metal containers were supplied for manufacture of kerosene or vegetable products or vegetable oils or mixture thereof provided that the provisions of Chapter of the Central Excise Rules, 1944, were followed. The provisions of the said Chapter X envisage as hereunder in relation to despatch/supply of excisable goods under the said provisions:~ The recipient mills should apply on form AL-1 (Central Excise Series No. 1) for a licence under rules 192 to engage in business in connection with the goods relating estimated annual requirement of receipt of excisable goods; The applicant (recipient mill) mill should possess a licence in Form L-1 (Central Excise Series No. 21) issued by the Collector under rule 192 of the Central Excise Rules. This licence should be duly renewed; The recipient mill (licencee) should furnish B-4 Bond (Central Excise Series No. I6) with such surety, security, bank or insurance guarantee, in such amount as the Collector may approve; The goods shall be transported to the recipient mill in terms of rules 193 against AR-2 application (Central Excise Series No. 5) in case of receipt from other mills/supplier and against R.N. 1 (Center Excise Series No. 39) if received from the same factory i.e. Where despatcher and recipient mills are on or and the same legal person; and Goods, so removed/despatched are stored and accounted for by the recipient mill, in terms of rule 194 of the Central Excise Rules, 1994, in a separate store- room in the recipient's mills in RG-11 register (Central Excise Series No. 34)
7. The report submitted by Mr. Ishtiaq Ahmad shows total compliance of all the aforesaid provisions of the notification and the rules except that:-
(1) AR-2 applications were not mad for the supplies (307 clearances) during 10.07.1996 to 11.11.1996 and instead clearances were made against AR-1 only. However, these too where duly entered in the RG-II register of the recipient mill and the recipient mill was holder of valid licence under rule 192, had executed B-4 bond to the satisfaction of the Collector and had entered these in RG-II register.
Mr. Ishtiaq reports non-entry in the Bond Register. However, we find that Bond Register is to be maintained by the Central Excise Officer incharge of the recipient mills and not by the mill itself.
Therefore, the default of non-entry in Bond Register cannot be termed as a breach of Chapter X of the Central Excise Rules, 1944, by the appellant or by the recipient mills.
(2) . Duty at 5% should have been paid by AIL (the recipient mill).
8. On perusal of record of the case, we do not agree with Mr. Ishtiaq that the duty at 5% should have been paid by the recipient mill against AR-2 application. The duty (non-remitted/non- exempted) at 5% is payable, in terms of rule 9 of the Central Excise Rules, 1944, by the manufacturer on the eve of its removal whether under AR-1 or under AR-2. The recipient mill takes over the liability of the (remitted/exempted) 10% duty if the gods are not properly received, stored and accounted for in the recipient mills. We, therefore, discard this portion of the report submitted by Mr. Ishtiaq Ahmad.
The only breach of law is the removal of metal containers from 10.07.1996 to 11.11.1996 without any prescribed AR-2 application. However, this too is mitigated by the fact that there was an inappropriate direction by the Central Excise Circle Officer in his aforesaid letter C. No. IV-CE- Misc/95/521 dated 02.07.1995. Moreover, the appellant supplied metal containers only and exclusively to a recipient mills who was duly licenced for the purposes of rule 192 of Chapter X of the Central Excise Rules, 1944, had a valid B-4 bond as required under the said rule 192, had duly received the metal containers and duly stored and according the same in the store-room after entering it in RG-II register in terms of rule 194 of Chapter X of the Central Excise Rules, 1944, and there is no report about any shortage or mis-use or misappropriation of the conditionally- exempted (in excess of 5% ad. Val) metal containers in the recipient mills. For the above- specified mitigating circumstances of the case showing compliance of all the provisions of Chapter X of the Central Excise Rules, 1944, by the recipient mills, we are inclined to take a lenient view and condone the non-issuance of AR-2 applications in this case by the appellants during the period from 10.07.1996 to 11.11.1996. For the period from 12.11.1996 onwards, there is no noncompliance of the provisions of Chapter X of the Central Excise Rules, 1944, as verified by Mr. Ishtiaq Ahmad, Law Officer and accepted by representatives of both the appellants and the Collectorate. As a result, the impugned order is set aside and the appeal stands disposed o as accepted accordingly.
9. Inform all concerned accordingly.
10. Announced.