Excise liability created at time of excisable goods removal from factory: Supreme Court

The Supreme Court has ruled that the liability of manufacturer to pay excise duty is created at the time of removal of the excisable goods from the factory, and such liability is determined on the basis of the record of the goods so removed.
A full bench of the Court, headed by Justice Rana Bhagwandas, gave this ruling on an appeal of Pakistan Tobacco Co against the judgement of Lahore High court. Business Recorder got a copy of this ruling here on Saturday.
The facts of the case are that the High Court had dismissed the appeal of Pakistan Tobacco Company against the judgement of the Customs, Central Excise and Sales Tax Appellate Tribunal, Islamabad, and upheld the order-in-original of Additional Collector.
The Additional Collector had found that the appellant had removed from its factory, situated in Jhelum, a certain number of packages of cigarettes without payment of excise duty and sales taxes in contravention of the relevant provision of Central Excise Rules and Sales Tax Act 1990 and thereby ordered the appellant to pay Rs 8,80,716 as central excise duty and Rs 2,11,948 as sales tax along with additional taxes and penalties.
The contravention for which the appellant was penalised was detected by the Customs Intelligence and Investigation Gujranwala when it detained truck No AJKA-1983 carrying cigarettes manufactured by the appellant for verification of the documents pertaining to central excise duty and sales tax.
Upon examination it came to light that the gate pass No 2611 dated 8.4.1904 was issued for another truck bearing registration No PRJ 7373 and the same neither showed serial number of the packages nor the time of departure of the vehicle from the factory.
Some other discrepancies between the information recorded in the documents and the consignment in the truck were also detected.
It was found that whereas the gate pass mentioned 200 cartons of "Wills King" brand cigarettes, only 190 cartons were available in the truck. Further that out of the 250 cartons of "Gold Flake" cigarettes, 59 did not carry any serial No and serial No of 171 cartons were not legible.
The truck and the goods were, therefore, seized under section 168 and 157 of the Customs Act 169 read with rule 200 of the Central Excise Rules 1944 and section 39 of the Sales Tax Act 1990.
After issuing show-cause notice to the appellant, and upon receiving reply thereto, the Additional Collector levied duty and taxes and imposed penalty.
In the Supreme Court, the counsel for the petitioner made mainly two submissions. First, that the mere contravention of certain rules of the Central Excise Rules would not per se amount to evasion of duties and taxes, and may only attract the imposition of penalty prescribed for contravention of Rules in question.
He further argued that all duties and taxes had been paid for the cigarettes removed from the factory, and referred to a challan showing payment of Rs 31,338,031.30 dated 22.6.1994.
He submitted that the manufacturers of cigarettes have been allowed 15 days within which to make payments of the CED after removal of the cigarettes from the factory and thus the payment of duty and taxes on 22.6.1994 leviable on cigarettes removed from the factory on 8.6/1994 were within the permissible period.
He did not dispute the discrepancies in the official record of the department maintained at the appellant's factory and the facts revealed by physical verification of the consignment in the truck.
However, the Court observed that the explanation furnished to the Collector by the representative of PTC that since the truck for which the gate pass was issued had broken down and the cigarettes were then loaded by the contractor on to another truck was found false.
Dismissing the appeal the Supreme Court observed that the appellant's contention of payment of all the duties and taxes through challan dated 22.6.199 does not carry much force as it is not an answer to the contravention already made on 8.6.1994, since Section 3 of the Central Excise Act provides for the levy and collection of duty on excisable goods in such manner as may be prescribed .
The Court said that the time and manner of payment of duty is prescribed in Rule 9 of the Central Excise Rules which prohibits the removal of excisable goods from the place of its production or manufacture until excise duty leviable is paid after obtaining permission of the proper office on the prescribed form.
The Court said that the fourth provision to the rule empowers the Central Board of Revenue to allow manufactures of any goods to pay Central Excise Duty within a specified period after removing the goods.
The Court said that in exercise of this power, the Board issued S.RO .No 603(1)/96 dated 14.7.1996 permitted the manufacturers of cigarettes to pay the duty within 15 days of their removal.
The Court pointed out that Rule 53-A obligates the manufacturers to maintain proper account and record particulars of each removal in accordance with the prescribed form before the goods are removed from the factory.
The Court said that combined reading of the above provisions shows that the liability of the manufacturer to pay excise duty is created at the time of removal of the excisable goods from the factory and that such liability is determined on the basis of the record of the goods so removed.
The Court said that the power of the Board allowing the manufacturer of cigarettes under the fourth proviso to rule 9 is only to extend the time for payment of the duty, the liability for which has already been created.
The Court ruled that the payment of duty later would not exonerate the manufacturer from the charge of evasion of duty which takes place when the excisable goods are removed from the factory in violation of the rules prescribed for maintaining proper account and obtaining authorisation from the proper officer prior to removing the goods.
The Court concluded its judgement saying "Admittedly, such rules were violated and the sales tax invoice as well as the ARI (Application for removal) did not carry the signature and authentication of the Central Excise Officer, a mandatory requirement of Rule 9; therefore the petition is dismissed.
The full bench comprised Justice Rana Bhagwandas, Justice Nasir-ul-Mulk and Justice Syed Jamshed Ali.