# M/s Triveni Engineering & Industries Ltd v. Commissioner of Central Excise, Allahabad

- **Citation:** (2016) 3 ILRA 4
- **Court:** High Court of Judicature at Allahabad
- **Decided:** 2016-02-23
- **Case number:** Central Excise Appeal No. 316 of 2010
- **Bench:** Tarun Agarwala, Vinod Kumar Misra
- **Source:** https://unisonlegal.in/judgment/allahabad-high-court/m-s-triveni-engineering-industries-ltd-v-commissioner-of-central-excise-43543
- **Pages:** 5

## Headnote

Central Excise Act, 1944 - Sections 11-A, 11-AC - Central Excise Rules, 2002 - Rule 25 - Molasses
- Excess stock - Presumption of clandestine manufacture - Requirements of corroborative evidence -
Burden of proof - Limitation - Extended period - Penalty

## Text

4 INDIAN LAW REPORTS ALLAHABAD SERIES
9. It is clarified that the observations, if any, made in this order are strictly confined to
the disposal of the bail application and must not be construed to have any reflection on the
ultimate merits of the case.
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APPELLATE JURISDICTION
CIVIL SIDE
DATED: ALLAHABAD 23.02.2016

BEFORE

THE HON'BLE TARUN AGARWALA, J.
THE HON'BLE VINOD KUMAR MISRA, J.

Central Excise Appeal No. 316 of 2010

M/s Triveni Engineering & Industries Ltd. ...Appellant
Versus
Commissioner of Central Excise, Allahabad ...Respondent

Counsel for the Appellant:
Sri Nishant Mishra

Counsel for the Respondent:
Sri Siddharth Shukla

Central Excise Act, 1944 - Sections 11-A, 11-AC - Central Excise Rules, 2002 - Rule 25 - Molasses
- Excess stock - Presumption of clandestine manufacture - Requirements of corroborative evidence -
Burden of proof - Limitation - Extended period - Penalty

1. Excess molasses found on dip-reading cannot, by itself, establish clandestine manufacture of sugar.
Molasses is a volatile by-product whose volume increases due to temperature, foaming, chemical
reaction and ingress of sprayed/rain water. Dip-reading is only an estimated measurement. Hence,
increase in volume after closure of the factory cannot give rise to a presumption of clandestine
production. (Paras 8-12)

2. Charge of clandestine removal requires clinching evidence, such as purchase of extra sugarcane,
excess electricity consumption, production of unaccounted sugar and its removal/sale. No such
investigation was made. Mere assumptions and conjectures cannot sustain duty demand. (Paras 1215)

3. Where the Tribunal itself records that there was no suppression or misstatement, the extended
period under Section 11-A is not available. Consequently, penalty under Section 11-AC also cannot be
levied. (Paras 16-18)

Held (Paras 15, 19-20): Demand of duty, interest and penalty, being based solely on presumption
arising out of excess molasses stock, is unsustainable in law. Orders of the authorities and of the
Tribunal are quashed. Appeal allowed.

Case Law discussed:
1. Continental Cement Co. v. Union of India, 2014 (309) ELT 411 (All.)-[Para 14]
3 All. M/s Triveni Engineering & Industries Ltd. Vs. Commissioner of Central Excise, Allahabad
5
2. ECE Industries Ltd. v. CCE, 2004 (164) ELT 236 (SC)-[Para 17]

3. Commissioner v. M.M.K. Jewellers, 2008 (225) ELT 3 (SC)-[Para 17]

(Delivered by Hon'ble Tarun Agarwala, J.)

1. The appellant is a Company incorporated under the Indian Companies Act and is
engaged in the manufacture of sugar. During the course of manufacture of sugar, molasses
emerges as a by-product. This molasses is stored in steel tanks/pucca pits and are cleared on
payment of duty from time to time. The storage and clearance of molasses is physically
controlled by the State Excise Department as molasses is a raw material for the manufacture
of potable alcohol. An Excise Inspector stays in the factory premises and undertakes
frequent physical verification of the stock of molasses. This physical verification is done at
random by a dip rod method. Whenever a physical verification is undertaken, the physical
stock of molasses is ascertained and the same is intimated to the State Excise Department as
well as to the Central Excise Department.

2. Molasses is a highly sensitive and volatile goods. The volume of molasses, which are
stored in steel tanks and pucca pits, expands with the rise of temperature and there is a heavy
risk of auto combustion. Consequently, the physical stock of molasses is affected due to a
number of factors, namely, dip reading method which is not an accurate method and is based
on estimation as it also includes the foam level and the foam level is deducted only by
estimation and, therefore, there is a margin of error. Further, volume of molasses increases
with the rise in temperature, inasmuch as, carbon dioxide is generated and the carbon
dioxide gas bubbles in the molasses increases the volume and consequently, shows a higher
reading in the physical stock at the time of dip reading. Further, in order to ensure that the
temperature of the molasses does not exceed beyond alarming limits, the steel tanks are
frequently sprayed with water in order to avoid auto combustion and also to control the
temperature. Not only the above, since sugar is present in the molasses due to decomposition
foaming is generated in the molasses and consequently, water is sprayed on the outer surface
of the steel tanks. The water so sprayed on the tanks often finds it way into the tanks through
the gaps in joints and open spaces at the top. This ultimately results in the increase in the
volume of molasses. Similarly, rain water also increase the volume of molasses which are
kept in open pucca pits.

3. In view of the difficulty in the storage of molasses, physical verification is done from
time to time and the volume of molasses is recorded. As per practice, a physical verification
was done on 7.4.2006 and molasses to the tune of 5000 quintals was found in excess.
Information of this excess stock was given to the U.P. Excise Department as well as to the
Central Excise Department.

4. The Central Excise Department directed the appellant by letter dated 8.6.2006 to
clarify the circumstances which caused an increase in the stock of the molasses. The query
of the Department was duly replied, in spite of which, a show cause notice dated 26.6.2007
was issued alleging that the increase in the volume of molasses after closure of the factory
indicated clandestine manufacture of sugar which was cleared without payment of duty and
6 INDIAN LAW REPORTS ALLAHABAD SERIES
consequently, directed the appellant to show cause as to why duty on clandestine removal of
sugar should not be imposed along with penalty, etc. The appellant filed a detailed reply to
the show cause notice. The Commissioner of Central Excise passed an order in original
confirming the duty demand and imposed penalty. Being aggrieved, the appellant preferred
an appeal before the Tribunal, which was partly allowed.

5. The Tribunal set aside the duty demanded beyond one year prior to the issuance of
the show cause notice dated 27.6.2007 holding that the extended period of limitation under
Section 11-A of the Central Excise Act could not be invoked and, consequently, also set
aside the imposition of penalty under Rule 25 of the Central Excise Rules, 2002 (hereinafter
referred to as the Rules). The Appellate Tribunal, however, directed the appellant to pay the
duty which fell within the period of limitation along with interest and further imposed
penalty for this period under Section 11-AC of the Central Excise Act.

6. The appellant, being aggrieved, has filed the present appeal under Section 35-G of
the Central Excise Act, which was admitted on the following substantial questions of law:

A.Whether in facts & circumstances of present case, impugned order passed by
Appellate Tribunal is liable to set aside in as much as even after holding that
extended period of limitation cannot be invoked in present case, penalty under
Section 11AC has been imposed?

B.Whether the impugned order passed by Appellate Tribunal to the extent that
Tribunal has directed for payment of duty along with interest is legally justified in as
much as the same has been passed on the basis of assumptions, conjectures and
surmises & ignoring evidence on record?

7. We have heard Sri Nishant Mishra, the learned counsel for the appellant and Sri
Siddharth Shukla, the learned counsel for the Department.

8. We find that demand of duty is based on an assumption that declaration of excess
quantity of molasses by the appellant is indicative that the appellant must have purchased
and crushed the additional quantity of sugar cane and that corresponding quantity of sugar
was manufactured and cleared clandestinely. This assumption for imposition of duty and
penalty is based purely on surmises and conjectures and is totally unwarranted.

9. We find that the sugar industry is a completely controlled industry. Sugar cane is the
basic raw material from which sugar is manufactured. Sugar cane is procured from the cane
centers which are allotted by the Cane Commissioner. The sugar factory is under an
obligation to purchase cane only from the cane centers and from nowhere else. The cane,
which is purchased from the cane growers, is received in the factory premises which is
weighed on computerized weigh bridge under the supervision of a representative of the
Cane Society. The purchase and issue of sugar cane are accounted and documents are
prepared on a daily basis. The sugar, which is manufactured is weighed and kept in gunny
bags of one quintal each. Daily stock account is maintained under Rule 10 of the Central
3 All. M/s Triveni Engineering & Industries Ltd. Vs. Commissioner of Central Excise, Allahabad
7
Excise Rules, 2002. Removal of sugar takes place under the cover of invoices issued under
Rule 11 of the Central Excise Rule, 2002. The removal of sugar is accounted for in the daily
stock account. The aforesaid procedure makes it apparently clear that every detail right from
the stage of procurement of raw material till the stage of manufacture of sugar and molasses
are maintained and clearances are also recorded in the appropriate registers.

10. The fact that temperature in the molasses tanks rises and foam is generated due to
combustion of the chemicals present in the molasses is well known. It is also a known fact
that if the temperatures are not controlled, it may result in auto combustion and, therefore, it
is necessary to keep the temperatures at a lower level for which purpose water is sprinkled
on the tanks in order to reduce the internal temperature. The sprinkling of the water at times
seeps into the molasses tank and pucca pits, which results in the increase in the volume of
molasses.

11. We are of the opinion, that the mere fact that the volume of molasses has increased
after the closure of the factory, i.e., after the manufacturing of sugar comes to an end cannot
lead to a presumption of clandestine manufacture of sugar and consequently, removal of
sugar without payment of duty nor can it lead to a presumption that a fraud has been played
by the appellant.

12. We are of the opinion that there should also be clinching evidence in the nature of
purchase of raw material, i.e., sugarcane, use of electricity, removal of the final product, i.e.,
sugar and its sale. Such evidence is missing. No investigation in this regard has been made
by the Department. It is a known fact that if there was excess production in which case there
would be excess consumption of electricity, which fact was not examined by the
Department. Consequently, on the basis of presumption, a serious charge of clandestine
manufacture and removal of sugar has been imposed, which in our opinion is wholly
erroneous.

13. We are of the opinion that the charge of clandestine removal of sugar is required to be
discharged by the Department by production of sufficient and tangible evidence, which in the instant
case was lacking. In the absence of any evidence of extra consumption of electricity purchase of extra
raw material, absence of evidence of extra goods being manufactured, we are of the opinion, that no
case is made out for clandestine manufacture of sugar and its removal.

14. In Continental Cement Company vs. Union of India, 2014 (309)E.L.T. 411 (All.), a
Division Bench of this Court held that the demand of duty on the ground of clandestine removal
cannot be recovered on the basis of presumptions and assumptions. The Court held that clinching
evidence is required with regard to purchase of raw materials, use of extra electricity, sale of final
products and realisation of sale proceeds before imposing any demand. The Court held that in the
absence of any such evidence demand cannot be imposed. The said decision is wholly applicable in
the instant case.

15. Consequently, the authority including the Tribunal committed an error in imposing payment
of duty on clandestine removal of sugar, which is based on surmises and conjectures and on
8 INDIAN LAW REPORTS ALLAHABAD SERIES
assumption without there being any tangible evidence. The payment of duty, interest and penalty
consequently cannot be sustained and are set aside. Question No.B is, accordingly, answered in
favour of the appellant and against the Department.

16. In view of the aforesaid, it is not necessary for us to decide question No.A as the same has
becomes academic. However, we are of the opinion, that once a finding has been given by the
Tribunal that there has been no suppression or misstatement by the appellant under Section 11-A of
the Act, consequently, imposition of penalty under Section 11-AC of the Act does not arise.

17. In ECE Industries Limited vs. Commissioner of Central Excise, New Delhi,
2004(164)E.L.T.236, the Supreme Court held, that if there was no willful suppression or
misstatement, the extended period under Section 11-A could not be invoked and since there was no
suppression, penalty could not be imposed also. Similar view was also given by the Supreme Court
in Commissioner of Customs, Mumbai vs. M.M.K.Jewellers, 2008(225) E.L.T.3 (S.C.), wherein
the Supreme Court held:-

"42. Penalty under Section 114A is imposable only when the demand is confirmed under
the proviso to Section 28(1) of the Act. In view of the clear findings of the Commissioner that
the respondent-assessees are not guilty of suppression of facts or are guilty of collusion or
misstatement and, therefore, duty cannot be imposed by invoking the extended period of
limitation. When the duty itself cannot be imposed, no order of imposing the penalty under
Section 114A of the Customs Act can be sustained."

18. The provision of Section 28(1) and Section 114-A of the Customs Act being pari materia
with the provision of Section 11-A and Section 11-AC of the Act, the aforesaid decision is wholly
applicable. Consequently, question No.A is also answered in favour of the appellant and against the
Department.

19. In view of the aforesaid, the order in original as well as the Tribunal's order are quashed.

20. The appeal is allowed.
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APPELLATE JURISDICTION
CRIMINAL SIDE
DATED: ALLAHABAD 29.02.2016

BEFORE

THE HON'BLE MRS. RANJANA PANDYA, J.

Criminal Appeal No. 4242 of 2011

Vinod Kurmi ...Appellant
Versus
State of U.P. ...Respondent