R.Modholkar - (1.) JUDGMENT per :
(2.) THIS is an appeal by special leave from the Order of the government of India, Ministry of Finance (Department of Revenue), rejecting the appellant's application preferred under S. 36 of the central Excises and Salt Act, 1944 (1 of 1944). The appellant is a public limited company and has been carrying on the business inter alia of manufacturing sugar from sugarcane since the year 1933 at its factory-situated at Hargaon in the State of Uttar Pradesh. In May, 1957 an Assistant Chemical Examiner inspected the factory and made a report to the government to the effect that the appellant had not, kept correct accounts of the amount of mixed juice which went into the production of sugar, as required by Rule 83 of the rules framed under the Act taken along with the Form R.G 6 (c) prescribed by the aforesaid rule. The report also stated that for the period between the commencement of the crushing season and 7/05/1957, 11,606 maunds of sugar have been short accounted for. On the basis of this report a show cause notice was issued to the appellant and after hearing its representative the Collector of central Excise, Allahabad, passed an order on 19/02/1958, requiring the appellant to pay duty on 11,606 maunds of sugar at the rate of Rs. 5-10-0 per cwt. In addition, he imposed a penalty of Rs. 2,000.00 on the appellant for not maintaining the accounts correctly and in the manner prescribed by rule 83 read with rule 226 of the central Excise Rules, 1944. Against this order, the appellant preferred an appeal before the central Board of Revenue under S. 35 of the Act and asked for a personal hearing. After granting it and hearing the appellant's representation the Board dismiss- ed the appeal. It then preferred an application for Revision before the central Government under S. 36. This application was dismissed on 17/11/1959. After that the appellant sought special leave to appeal from this Court under Art. 136 of the Constitution which having been granted, the appeal has come up before us. 173 What is urged on behalf of the appellant in the appeal is that the Order of the Collector holding that 11,606 maunds of sugar were short accounted for and that the accounts had not been properly kept was based on assumptions for which there was no basis. In order to appreciate the point it is necessary to bear in mind, the process of manufacturing sugar employed in the factory. This has been set out in the petition for special leave as well as the statement of the case and it is not contended on behalf of the respondent that there is any error in what the appellant has stated in this behalf. The process, in so far as it is material for the purposes of this case is as follows:- Sugarcane received at the factory is weighed mechanically cut into pieces and fed into the mills called "crusher and mills" where it is crushed. During this process, a certain quantity of water as introduced. The mixture of cane guise and water obtained from the crushing operation is called mixed juice. The mixed juice is led from the crusher and mills to two tanks placed over weigh bridges. The two tanks are attached to weigh bridges with lever arrangement which have markings on their beams. The persons incharge of the operation adjust each beam at a certain mark. A movable indicator is also fitted on to the tanks which begins to move up as more and more juice finds its way in the tank. When that indicator comes up to the fixed mark on the beam, the persons in-charge of the operation immediately stop the further in flow of mixed juice. The gross Weight of the tank with its content of mixed juice when the fixed mark is reached is 7.5 tons. The tare weight of the tank being known, the actual weight of mixed juice is ascertained by deducting the tare weight from 7.5 tons. The mixed juice is then introduced into the manufacturing process where it is clarified, the water is evaporated and, eventually, sugar crystals are formed. The by-products obtained during this process are press cakes and molasses. The entire operation is thus carried out in a closed system and the quantity of the sugar as well as of the by-products is known. The percentage of sugar in sugarcane, mixed juice, filter cake and molasses is determined. In spite of this, a certain amount of sugar remains undetermined. That is a well accepted fact and is recognised in Form R.T. 7(c) under the heading "Central Excise Series No. 74." This Form is to be used by central Sugar factories for periodical/monthly manufacturing reports under Rule 83, the relevant portion of which runs as follows : * * * *. It is common ground that under the rules framed under the Act, a Resident Inspector is posted in every central Sugar factory. The sugar is filled in gunny bags after being duly weighed which are kept in the godown. Appropriate entries are made in the godown register. It is also not disputed that nothing is allowed to go out of the factory without the knowledge of the Resident Inspector and without obtaining a gate pass. All the bags going out of the factory are weighed in his presence.
(3.) IT is, therefore, contended on behalf of the appellant that it cannot be held guilty of short accounting of sugar unless it is established that any part of the sugar manufactured in the factory has been removed from the factory or there were some loopholes in the working of the factory which provide opportunities for clandestine removal of sugar. The only basis for the finding arrived at by the Collector, it is pointed out, was that provided by the calculations made by the Assistant Chemical Examiner. These calculations were attacked on behalf of the appellant upon the ground that they were based not on factual 174 data but on certain assumptions. IT is, therefore, necessary now to examine the report of the Assistant Chemical Examiner. The relevant portion of the report runs thus: "On scrutiny of this register, I was astonished to note that the gross weight of each tank was being taken as 7.5 tons each time. Since in any weighing arrangement, it is difficult to have constant gross weight, it appears to me that there is a short accounting of mixed juice. IT is evident from the fact that it is rather impossible to have the gross weight as 7.5 tons each time when the pipe through which the juice is received is about 8 in diameter. This short accounting of mixed juice was confirmed by me by the actual weightment in my presence. During a period of about 2 hours of milling test carried out in my presence it was noticed that there was a difference of about 1 % of mixed juice cane between the actual gross mixed juice obtained by me and calculated by the factory's usual method, taking the gross weight as 7.5 tons per tank as per details given below :- JUDGEMENT_172_ELT2_1978Html1.htm Thus from the above data, it appears that there is a short accounting of mixed juice per cent cane at least to the extent of 1%. IT is clear from the fact that by the time the juice is filled in the tank up to 7.5 tons and the man on duty closes the valve there is a small time gap. However, small this gap may be, it is definite that some extra mixed juice must drop into the tank. IT amount will depend upon the flow of mixed juice, the man on duty and his activeness to close the valve, to weigh the tank and to record in the register. Thus, this extra mixed juice is supposed to remain as unaccounted for during the whole season. IT is, therefore, certain that the factory has been showing low mixed juice per cent cane through- out this season. Calculating on this basis the total mixed juice short accounted from beginning of the season upto 7th May, comes to- Wt.of cane x 1/100 = 10029633 x 1/100 = mds. Taking the net mixed juice per cent came to date as 87.36, this works out equal to 100297 x 100 = 114800 maunds of cane. 87.36 Taking 10.11% as to date recovery % cane this loss is equivalent to. 114800 x 10.11/100 = 11606 mds. of sugar. Thus it appears that there is short accounting of sugar at least to the extent of 11,000.00 maunds. Hence the factory is liable to be charged for submitting wrong data of mixed juice in central Excise record. For this, the factory may be asked to explain and justify on scientific basis the short accounting of 11,000.00 maunds sugar. If no satisfactory explanation is forthcoming then they are liable to be charged for reporting less quantity of recoverable sugar." 175 Now, these calculations certainly involve some assumptions. The first is that the differenceof56 maunds noticed by the Assistant Chemical Examiner during the two and quarter hours test conducted by him on 7/05/1957 was uniform for every 21 hours working throughout the working hours of the crushing season which began on 4/11/1956 upto May 7, 1957 when the test was conducted. The second assumption is that the persons in-charge of the operation of letting in mixed juice fill the tanks uniformly upto a level beyond the fixed mark and never below that level or at that level. ;