judgement:
ppeal No.
239 of 1954.
Appeal from the judgment and decree dated December 12, 1950, of the Patna High Court in Appeal from Original Decree No. 188 of 1945 arising out of the judgment and decree dated December 18, 1945, of the Court of the Additional Subordinate Judge, IV Class, Gaya, in Title Suit No. 4 of 1945.
Purshottam Tricumdas and section P. Varma, for the appellant.
S.P. Sinha and R. C. Prasad, for respondents Nos. 1 4, 8 10, 13 and 14.
May 23.
The Judgment of the Court was delivered by SUBBA RAO J.
This appeal by certificate tinder article 133 (1) (a) of the Constitution of India is directed against the judgment and decree of the High Court of Judicature at Patna setting aside those of the Subordinate Judge, Gaya, in a suit for redemption of an usufructuary mortgage.
Deokinand, the common ancestor of plaintiff respondents 1 to 4 and proforma respondents 6 to 12, executed a document dated August 20, 1923, in favour of Mahant Tokhnarain Puri of Nadra, the predecessor ininterest of defendant 1, hypothecating eight annas milkiat share in mauza Lodipur, Mahimabigha, Tauze No. 4246 for the purpose of discharging a debt of Rs. 31,701 payable by him to the Mahanth.
There are conflicting versions in regard to the nature of this transaction respondents claim it to be a usufructuary 1087 mortgage, while the appellant asserts it to be a lease.
The plaintiff respondents instituted Title Suit No. 4 of 1945 in the Court of the Additional Subordinate Judge 1V, Gaya, for redemption of the said document on the basis that it was a usufructuary mortgage, for rendition of accounts and for the recovery of surplus profits due to them.
The appellant pleaded, inter alia, that the suit for redemption was not maintainable as the document was not a mortgage but lease, that on the assumption that it was a mortgage it would only be an anomalous mortgage in respect where of there was no statutory liability to render accounts to the plaintiff, that even if it was a usufructuary mortgage, it was governed by the provisions of section 77 of the Transfer of Property Act taking the mortgage out of the purview of section 76 (d) and (g) of the said Act.
It is not necessary to particularize other defences as nothing turns upon them in the appeal.
The learned Subordinate Judge held that the document created a usufructuary mortgage and not a lease and that section 77 of the Transfer of Property Act applied to the document exonerating the appellant from any liability to render accounts.
In the result, the learned Subordinate Judge gave a conditional decree in favour of respondents I to 4 for possession on their depositing in Court a sum of Rs. 26,839 7 0 within six months from the date of the decree.
The plaintiff respondents preferred an appeal against that decree to the High Court at Patna.
The High Court agreed with the learned Subordinate Judge that the document was a sufructuary mortgage but differed from him on the question of applicability of section 77 of the Transfer of Property Act.
The High Court set aside the decree of the learned Subordinate Judge and passed instead a preliminary decree for redemption and sale on default of payment: the decree also directed the rendition of accounts between the parties in the light of the directions given in the judgment.
The second defendant against whom the decree was passed preferred the above appeal.
The point to be first decided is whether the transaction is a lease as contended by the contesting respondents.
The only guiding rule that can be extracted 1088 from the cases on the subject is that the intention of the parties must be looked into and that 'once you get a debt with security of land for its redemption, then the arrangement is a mortgage by whatever name it is called ' (See Ghosh on Mortgages, V Edn., Vol. 1, p. 102).
Let us now examine the terms of the document Exhibit A (3) to ascertain the intention of the parties.
The document was obviously not drafted by a trained mind.
It appears to be a confused product of one of those village document writers.
We shall read the document, omitting the recitals not material to the question raised: The first part of the document recited that the executant was heavily indebted to the other party under mortgage bonds and also otherwise and that common friends settled that a part of the properties mortgaged should be let out in ijara with possession at a lower rate of interest so that 'the increment of interest may be checked and the present necessities may be met ".
It was also stated in the document that in respect of the said property there was a pre existing thika (lease) dated April 21, 1922, in favour of Munshi Dodraj Lal alias Munshi Jatadhari Lal, for a period of 9 years and that under the said lease, Rs. 2,205 was taken by the executant as peshgi money without interest and the rent was fixed at a sum of Rs. 2,205.
Then the document proceeds to state thus: " In respect of Rs. 29,496 the total sum of peshgi money, he should, for the satisfaction of interest thereon, get executed a usufructuary mortgage deed bearing a lower rate of interest in respect of 8 annas share i. e., half share in mauza Lodipur Mahima Bigha, principal with dependencies, together known and unknown tola and totals . . . . . . for term of 15 years on fixing Rs. 2,205 as the annual rental and by getting mortgaged there.
under 8 annas proprietary interest, thikadari interest together with peshgi money and the right to receive thikadari rent from the said thikadars.
Accordingly, at the request and entreaty of me, the executant, the said Mahanthji took pity at my condition and agreed to my request and got ready to get usufructuary mortgage deed executed.
Therefore, 1, the executant, 1089 ". . . have voluntarily let out in ijara with possession the whole and entire 8 annas i. e., half of Mauza Lodipur Mahima Bigha. .for a peshgi money of Rs. 31,701that Rs. 29,496, the peshgi money bearing interest at 1/2 per cent.
per month and Rs. 2,205, tile peshgi money without interest, at an annual rental of Rs. 2,205 including revenue and cesses, for a term of 15 years, commencing from 1331 Fasli to 1345 Fasli . . . and have put him in possession and occupation of the ijiara property as my representative.
It is desired that the said ijaradar should enter into and remain in possession and occupation of the ijara property and so long as the thika of ' Munshi Dodraj Lal alias Jatadhari Lal . . . . . . is intact and in force, he should realize the rent from the above named thikadars and their heirs and representatives in accordance with the stipulations made in the thika patta and kabuliat as representative of me, the executant, and bring it into his possession and use, that is to say, on his own authority he should set off Rs. 1,769 12 0 on account of the interest on the peshgi money bearing interest mentioned in this deed, year after year, and pay the remaining sum of Rs. 435 4 0, the amount of rent due by the ijaradar, i.e., the reserved rent, to me, the executant, and my heirs and representatives The ijaradar should not make any default.
If he does so, he and his heirs and representatives shall be held liable to pay interest at 1/2 per cent.
per month.
" Then the document proceeds to incorporate the terms agreed upon by the parties, to take effect after the termination of the thikadari interest.
It is stated: " The ijaradar of this ijara deed or his heirs and representatives on his own authority shall be competent to bring the thika property into his sir possession as ijara property as a representative of me, the executant, in accordance with the stipulations made in the patta and kabuliats after setting off Rs. 2,205 the peshgi money due to the thikadars by me, the executant, against the annual thikadari rent.
The said ijaradar should make his own arrangement for the cultivation of the ijara property, get it cultivated 1090 by others, realise the nakdi and jinsi income of the ijara property from the tenants and appropriate the produce of both the shares thereof.
1, the executant, and my heirs and representatives neither have nor shall have any right, claim and.
demand in respect of tile produce or the income of the ijara property so long as the ijara deed is intact except getting Rs. 435 4 0, the rent after the payment and deduction of interest on the peshgi money bearing interest.
" The document then allocates the liability in respect of improvements and sums spent in regard to boundary disputes to one or other of the parties to the document and then it continues to state: " The peshgi money amounting to Rs. 31,701 with and without interest as mentioned in this ijara deed has been realized from the ijaradar in this manner that I allowed Rs. 28,246, the amount of loan principal with simple and compound interest as per account given below after remission of the interest due to the ijaradar under all the three mortgage bonds to be set off against the peshgi money by getting a note made to that effect on the back of the said mortgage bonds which I allowed to remain with the ijaradar as a proof of pavnient of the peshgi money covered by this deed The term of this ijara deed with possession shall terminate in the month of Jeth, 1345 Fasli, when 1, the executant, or my heirs and representatives shall repay Rs. 31,701 being the peshgi money with and without interest mentioned in this deed in cash and in one lump sum to the said ijaradar or his heirs and representatives, 1 shall bring the ijara property into my sir possession.
If I do not repay the peshgi money with and without interest on the expiry of the term of this ijara deed with possession, then, till the repayment of the whole and entire peshgi money with and without interest, this ijara deed with possession shall precisely with all the stipulations remain in force and intact.
1, the executant, or my heirs and representatives shall not put forward any sort of claim or demand in respect of an increase in the produce save and except the claim 1091 for getting rent as fixed and the mentioned above. . . . . . . . . in security of the payment of the peshgi money with or without interest mentioned in this ijara deed I, the executant, have mortgaged, hypothecated, encumbered and made liable the ijara property.
I do hereby make a trustworthy declaration that till the repayment of the entire peshgi money of the ijaradar I shall not in any way directly or indirectly on any allegation mortgage, hypothecate.
encumber and transfer the ijara property.
" The gist of the aforesaid transaction may be stated thus: The executant was indebted to the other party in a large amount under mortgage bonds 'and otherwise.
Through the intervention of common friends, with a view to salvage some property, the amount due from the executant to the other party was fixed in the sum of Rs. 29,496 and it was settled that half share in mauza should be given as security to the other party.
At the time of the execution of the document there was an outstanding thika document in favour of a third party, whereunder the said party advanced a sum of Rs. 2,205 to the executant and agreed to pay Rs. 2,205 as annual rent.
As the other party agreed to discharge the advance paid by the third party to the executant, the right to collect the rent from him was also agreed to be given as security to the other party.
With the result, the executant received Rs. 31,701 under the document, out of which Rs. 29,496 bore interest at i per cent.
per month and Rs. 2,205 did not carry interest, presumably because the other party did not actually pay the amount to the executant.
The document divided the transaction into two parts.
The first part dealt with the terms governing the parties during the subsistence of the thikadari interest; the second part mentioned the terms binding on the parties after the expiry of the said interest.
During the first period, the other party would receive the annual rent of Rs. 2,205 from the thikadars, set off Rs. 1,769 12 0 on account of interest on the peshgi money bearing interest and pay the 139 1092 remaining sum of Rs. 435 4 0 as reserved rent to the executant.
After the expiry of the thikadari interest in 1338 Fasli, the other party would take actual possession by setting off Rs. 2,205 the peshgi money due to the thikadars by the executant, against the annual thikadari rent.
After getting possession of the ijara property, the other party would make arrangements for its cultivation and appropriate the produce towards interest, paying the executant only a sum of Rs. 435 4 0 as rent.
The previous deeds were dis charged and endorsements to that effect made on the back of the documents.
If the debt was not discharged within 1345 Fasli, it was agreed that till the repayment of the entire peshgi money, the ijara deed with possession would precisely with all stipulations remain in force and intact.
The executant, in express terms, undertook not to put forward any sort of claim or demand in respect of the increase in the produce except and save to get rent as fixed in the document.
From the aforesaid summary of the recitals in the document, the following facts emerge: (1) The executant owed large sums of money to the other party; (2) interest at i per cent.
per month was agreed to be paid on the sum of Rs. 29,496, i.e., on the entire consideration excluding that amount which was advanced by the thikadars to the executant; (3) the manner of discharging the debt was prescribed in the document, namely, that during the subsistence of the thikadari interest, the other party would receive the rent from the thikadars and appropriate Rs. 1,769 12 0 on account of interest and pay a sum of Rs. 435 4 0 as rent to the executant and that after the expiry of the thikadari interest, the other party would take physical possession of the land and appropriate the produce towards interest and pay only a sum of Rs. 435 4 0 as rent to the executant; (4) on the expiry of 15 years period or after the extended period, the executant would pay the entire principal amount to the other party; (5) 8 annas share in the mauza was specifically given as security for the amount payable by the executant.
Under the document, there was a relationship of creditor and debtor between the 1093 parties and the property was given as security for the payment of the amount advanced with interest.
Though the document is described as a cowle, the parties, who have had earlier transactions, must be deemed to have known the nature of the transaction they were entering into.
In clear and express terms the nature of the transaction has been stated in more than one place.
The executant, requested the other party, in respect of the advance amount and interest to get executed by him a usufructuary mortgage deed bearing a lower rate of interest in respect of the 8 annas share.
After mentioning the various terms, the executant restated the intention of the parties in the following terms: "In security of the payment of the peshgi money with or without interest mentioned in this ijara deed, I, the executant, have mortgaged, hypothecated, encumbered and made liable the ijara property." Therefore, whatever ambiguity there might be in the recitals that was dispelled by the unambiguous declaration made by the parties that the property was given as security for the loan and the document was executed as a mortgage.
The gist of the document was not a letting of the premises, with a rent reserved, but a mortgage of the premises with a small portion of the income of it made payable to the plaintiff.
There is, therefore, no scope for the argument in this case that the document is a lease and not a mortgage.
We hold, agreeing with the High Court, that the document is a mortgage and not a lease.
Even so, it was contended by the learned Counsel for the appellant that the document did not create an usufructuary mortgage but only an anomalous mortgage.
This contention was raised as a foundation to the argument that if the document was an anomalous mortgage, the rights and liabilities of the parties would be governed by the terms of the contract between them and not by the provisions of section 76 of the Transfer of Property Act.
The question does not really fall to be decided in this case.
Whether the transaction is a usufructuary mortgage or an anomalous mortgage, in the circumstances of the case, there will 1094 not be any difference in the matter of rendition of accounts, for in the ultimate analysis, as we would presently show, the true construction of the relevant terms of the document would afford an answer to the question raised.
We shall, therefore, proceed to consider the question on the alternative basis.
If it was a usufructuary mortgage, it is contended by the appellant that he was not liable to render accounts to the mortgagor, as, Linder the mortgage deed, he was authorized to take the receipts in lieu of interest within the meaning of section 77 of the Transfer of Property Act.
The relevant provisions of the Transfer of Property Act are as follows: "Section 76: When during the continuance of the mortgage, the mortgagee takes possession of the mortgaged property, (g)he must keep clear, full and accurate accounts of all sums received and spent by him as mortgagee, and, at any time during the continuance of the mortgage, give the mortgagor, at his request and cost, true copies of such accounts and of the vouchers by which they are supported; (h)his receipts from the mortgaged property, or, where such property is personally occupied by him, a fair occupation rent in respect thereof, shall, after deducting the expenses properly incurred for the management of the property and the collection of rents and profits and the other expenses mentioned in clauses (c) and (d), and interest thereon, be debited against him in reduction of the amount (if any) from time to time due to him on account of interest and, so far as such receipts exceed any interest due, in reduction or discharge of the mortgage money the surplus, if any, shall be paid to the mortgagor; " Section 77: Nothing in section 76, clauses (b), (d), (g) and (h), applies to cases where there is a contract between the mortgagee and the mortgagor that the receipts from the mortgaged property shall, so long as the mortgagee is in possession of the property, be taken in lieu of interest on the principal money, or in lieu of such interest and defined portions of the principal.
" 1095 Section 76(g) of the Transfer of Property Act imposes a liability on a mortgagee to keep, full and accurate accounts supported by vouchers.
So too, he is under a statutory liability under cl. 'h ' to debit the nett receipts of the mortgaged property in deduction of the amount due to him from time to time on account of interest and where such receipts exceed any interest due, in reduction and discharge of the mortgagemoney and to pay the surplus, if any, to the mortgagor.
Therefore, every mortgagee in possession is bound to keep clear, full and accurate accounts and to render the accounts to the mortgagor in the manner prescribed in cl. 'h '.
But section 77 enacts an exception to the mortgagee 's liability under cls.
(g) and (h) of section 76.
Under that section (section 77), if there is a contract between the mortgagor and the mortgagee, whereunder it is agreed that the receipts of the mortgaged property should, so long as the mortgagee is in possession of the property, be taken in lieu of interest and a defined portion of the principal, the mortgagee is freed from the statutory liability to keep accounts or to render accounts to the mortgagor in the manner prescribed under cls.
(g) and (h) of section 76 of the Act.
This is so because, the receipts are set off against the interest, and there is nothing to account for.
Therefore, to insist upon the mortgagee to keep accounts or render accounts to the mortgagor would be an empty forma lity.
The essential condition for the application of this section is that the receipts of the property should be taken in lieu of interest or in lieu of interest and a defined portion of the principal.
The contention of the learned counsel for the respondents is that unless the contract authorizes the mortgagee to take the entire receipts in lieu of interest or in lieu of interest and defined portions of principal, this section cannot be invoked; for it is said that the principle behind the section is that one is set off against the other, with the result, there is nothing to be accounted for, whereas if only a part of the receipts is agreed to be paid towards interest or in lieu of such interest and defined portions of the" principal, there would be surplus in the hands of the mortgagee, which would have to be 1096 accounted for.
On the basis of that distinction, an argument is advanced to the effect that, as in the present case, the mortgagee had to pay a sum of ]Is.
435 4 0 to the mortgagor, he was not authorized by the mortgagor tinder the agreement to take the entire receipts in lieu of interest, etc., within the meaning of section 77 of the Transfer of Property Act.
To put it differently, the argument is that out of the receipts from the mortgaged property a portion was paid to the mortgagor and the mortgagee was authorized to take only the balance in lieu of interest and, therefore, there was no contract between the mortgagor and the mortgagee for the latter taking the entire receipts in lieu of interest.
We find it difficult to accept this argument.
Under Exhibit A(3), the mortgagee undertook an unconditional obligation to pay a sum of Rs. 435 4 0 in respect of the property mortgaged to him.
This obligation was not made to depend upon the receipts from the property in the possession of the mortgagee.
Whether there was yield from the land or not, he had to make the payment to the mortgagor.
Though he had to pay the rent as a consideration for his enjoyment of the land as a mortgagee, his liability did not depend upon the receipts from the land he had to pay, receipts or no receipts.
His liability was also not confined to the receipts, for he was under a personal obligation to pay the amount to the mortgagor.
On the other hand, the mortgagee was expressly authorized to take the entire income from the land and appropriate the same towards interest and the mortgagor agreed not to put forward any claim or demand in respect of any increase in the produce.
Shortly stated, the mortgagee was under a personal obligation to pay Rs. 435 4 0 to the mortgagor and had a right to take the entire receipts from the land in lieu of interest.
It is not a case, therefore, where receipts from the mortgaged property are divided between mortgagor and mortgagee, but one where the mortgagee pays a specified amount to the mortgagor and appropriates the entire receipts in lieu of interest.
We, therefore, hold that, under the mortgage deed, Exhibit A(3), there is a contract between the 1097 mortgagee and the mortgagor within the meaning of section 77 of the Transfer of Property Act, to the effect that the receipts from the mortgaged property should be taken in lieu of interest.
Relying upon the judgment of the High Court, a further attempt was made by the learned Counsel for the respondents to contend that the mention of a specified rate of interest in the document is indicative of the fact that under the document the mortgagee, would have to take only such part of the nett receipts sufficient to discharge the interest and credit the balance to the mortgagor.
The mere mention of a rate of interest does not necessarily lead to the conclu sion.
The rate of interest may be stipulated for estimating the amount payable towards interest so that the parties may visualize whether the nett receipts could reasonably be set off against the interest.
The rate may also be given for other reasons.
The Judicial Committee, in Pandit Bachchu Lal vs Chaudhri Syed Mohammad Mah (1), held that notwithstanding the fact that a particular rate of interest was mentioned in the mortgage deed, there was a contract within the meaning of section 77 of the Transfer of Property Act.
It was a case of a mortgage with possession and a particular rate of interest was mentioned in the mortgage deed.
There was a provision for repayment of the principal either in whole or in part before the stipulated period, but it was otherwise provided that the mortgagee should appropriate the surplus profits towards interest, he having no claim to interest and the mortgagors having no claim to the profits.
The Privy Council held, on a construction of the mortgage deed, that the said deed contained a contract within the meaning of section 77 of the .
In Exhibit A 3, though the rate of interest is stated at i per cent.
per month, it was obviously mentioned to enable the parties to approximately fix the amount to be appropriated by the mortgagee from and out of the rent received from the thikadar.
No doubt, the same rate of interest is also mentioned when the (1) 1098 parties are dealing with their rights after the expiry of the thikadari interest, but in more than one place they have stated in clear and unambiguous terms that the mortgagee could appropriate the produce towards interest and that the mortgagor would not put forward any sort of claim or demand in respect of any increase in the produce.
In view of the clearly expressed intention of the parties, we cannot hold from the mere fact that the rate of interest is mentioned that the document does not come under the purview of section 77 of the .
We hold that section 77 of the applies to the document and therefore the mortgagee is not liable to render any account to the mortgagor.
On the footing that the mortgage is an anomalous mortgage, we arrive at the same result.
The learned Counsel for the appellant contends that if the mortgage is an anomalous mortgage, the parties are only governed by the provisions of section 98 of the and not by the provisions of section 77 of the Act.
Section 98 says: " In the case of an anomalous mortgage, the rights and liabilities of the parties shall be determined by their contract as evidenced in the mortgage deed, and, so far as such contract does not extend, by local usage.
The question whether this section excludes the operation of other relevant provisions of the Act, including s.77, need not be considered in this case, for, whether s.77 applies, as the learned Counsel for the respondents contends, or the terms of the contract would govern the rights of the parties, as the learned counsel for the appellant argues, the result would be the same for the question to be decided is whether under the terms of the mortgage, the mortgagee has the right to appropriate the entire nett receipts in lieu of interest,.
We have already held that in Exhibit A(3) not only there is such a recital but there is a specific term whereunder the mortgagor expressly agreed not to claim any produce received by the mortgagee.
Whether section 77 applies or not, under the express terms of the contract, 1099 the appellant is not liable to render accounts for the excess receipts.
No other point is raised before us.
In the result, the decree of the High Court is set aside and that of the Subordinate Judge is restored.
The appellant will have his costs throughout.
Appeal allowed.

summary/full:
D executed a document in favour of M hypothecating an eight annas share in a village for the purpose of discharging a debt of Rs. 29,496 payable by him to Al.
In respect of this property there was a pre existing think in favour of j for a period of 9 years, under which D took Rs. 2,205 as peshgi money without interest and the annual rent was fixed at RS.
2,205.
The document provided that (i) interest at 1/2 per cent.
per month was payable on the sum Of Rs. 29,496 ; (ii) (luring the subsistence of the thika M would receive the rent from j and appropriate Rs. 1,769 12 o towards interest and pay Rs. 435 4 o as rent to D ; (iii) after the expiry of the thika M would take physical possession of the land and appropriate the produce towards interest and Pay Rs. 435 4 o as rent to D; (iv) on the expiry of the thika M would repay the peshgi amount of Rs. 2,205 to j and this sum was added to principal amount due ; (v) on the expiry of 15 years, or after the extended period, D would repay the entire principal amount; (vi) and the property was given as security for the amount payable by D.
The respondents who are successors of D instituted a suit for redemption on the basis that the transaction was a usufructuary mortgage, for rendition of accounts and for recovery of surplus profits.
The appellant, successor of M, contended that the suit for redemption was not maintainable as the transaction was not a mortgage but a lease, and that even if it was a mortgage there was no statutory liability to render accounts as the document provided that the receipts were to be taken in lieu of interest and the case was governed by section 77, Transfer of Property Act : Held, that the transaction was a mortgage and not a lease.
The guiding rule of construction is that the intention of the parties must be looked into and that once there is debt with security of land for its redemption the arrangement is a mortgage by whatever name it is called.
Held, further, that there was a contract between the mort gagor and the mortgagee within the meaning Of section 77, Transfer of Property Act to the effect that the receipts from the mortgaged property be taken in lieu of interest and consequently the mortgagee was not liable to render accounts.
The stipulation 1086 in the document for payment of Rs. 435 4 0 to the mortgagor was a personal obligation of the mortgagee and he had a right to take the entire receipts from the land in lieu of interest.
Though the rate of interest is stated as per cent.
per month it was mentioned to enable the parties to approximately fix the amount to be appropriated by the mortgagee from and out of the rent received from the thikadar.
The mere fact of the mention of the rate of interest could not make section 77 inapplicable in view of the clearly expressed intention of the parties.
Pandit Bachchu Lal vs Chaudhri Syed Mohammad Mah, (1033) , referred to.


judgement:
Civil Appeal No. 22 15(NA) of 1988.
From the Judgment and Order dated 2.11.87 of the Customs Excise and Gold (Control) Appellate Tribunal, New Delhi in Appeal No. 478 of 86 D (Order No. 877 of 1987 D.) A.K. Ganguli, T.V.S.N. Chari, P. Parmeswaran and Sushma Suri for the Appellant.
Soli J. Sorabjee, R. Narain, Kamal Mehta, P K. Ram and D.N. Misra for the Respondent.
The Judgment of the Court was delivered by SABYASACHI MUKHARJI, J.
This is an appeal under section 35L(b) of the Central Excises & Salt Act, 1944 (hereinafter referred to as 'the Act ').
The appeal is directed against the order dated 2nd November, 1987 passed by the Customs, Excise and Gold (Control) Appellate Tribunal, New Delhi (hereinafter referred to as 'the Tribunal ').
The respondent, viz., M/s Ambalal Sarabhai Enterprises manufacture sorbitol failing under item 68 of the erstwhile Central Excise Tar iff.
There was a visit to the factory premises of the re spondent by the Central Excise Officers on 26th February, 1985.
It was 787 allowed that it was found that the respondent manufactured and captively consumed starch hydrolysate but the respondent had failed to take out a licence with reference to the said manufacture of starch hydrolysate and had been removing the same without, according to the appellant, payment of duty and without observing the necessary central excise formali ties.
It was the view of the revenue that starch hydrolysate was glucose and, therefore, fell under Item 1 E of the Central Excise Tariff, which covered glucose in whatever form including liquid glucose.
Accordingly, a show cause notice was issued to the respondent.
A reply was filed on behalf of the respondent contending that starch hydrolysate was not "goods" since the same was not marketable and, therefore, no excise duty would be payable on the same.
In those circumstances, it was submitted that the proposed adjudication by the Collector following the aforesaid notice was without jurisdiction in view of section 11A of the Act.
It was urged that starch hydrolysate is not glucose and that even if the same was liable for duty it would not be under item E.
According to him, starch hydrolysate was an interme diate product in the manufacture of sorbitol and no duty could be demanded on the same.
There were adjudication proceedings thereafter.
In the said proceedings, affidavits were filed on behalf of the respondent, witnesses on behalf of the revenue were cross examined and the Collector also cross examined the witnesses of the respondent.
By an order dated 6th December, 1985, the Collector of Central Excise, Baroda rejected frae contention of the respondent.
It was held by him that starch hydrolysate was glucose and fell under item 1 E of the Central Excise Tariff and that the respondent had suppressed the fact of manufacture thereof for consumption in the further manufacture of sorbitol.
In the premises, he ordered the respondent to pay excise duty amounting to Rs.34,92,559.55 paise and imposed a penalty of Rs. 10 lakhs.
Aggrieved by the said order of the Collector, the respondent preferred an appeal before the Tribunal.
The Tribunal by its order dated 2nd November, 1987, being the order under appeal, held that starch hydrolysate manufac tured by the respondent is not and never was marketable commodity, and hence that would not be "goods" on which excise duty could be charged.
In the premises, the Tribunal allowed the appeal filed by the respondent and set aside the order of the Collector.
Aggrieved thereby, the appellant has come up in appeal to this Court under section 35L(b) of the Act.
On behalf of the appellant, Shri Ganguly contended that the Tribunal misdirected itself in applying the proper test for the determination of the question.
He urged that the true test to determine in a 788 matter of this nature was to consider not only whether starch hydrolysate was actually marketable but also to consider whether conceptually the said goods in question were capable of being marketable.
It was urged by Shri Ganguly that the Tribunal had misdirected itself in not appreciating this aspect of the matter and did not as such examine or view the evidence on record in the proper per spective.
He urged that in the aforesaid light and in view of the findings made by the Collector, there was no ground for the Tribunal to interfere with the order of the Collec tor.
He further submitted that in any event, if the Tribunal was not fully satisfied with the evidence on record to determine whether starch hydrolysate were goods in the sense of being marketable, then the Tribunal should have, in the facts and the circumstances of the case and in the interest of justice, remanded the matter back for appraisement and examination in the light of the true principle or the Tribu nal should have examined or called for the fresh evidence to determine this question.
The Tribunal not having done so, has failed to render justice and as such the order of the Tribunal is bad, according to Shri Ganguly.
Shri Ganguly further submitted that in starch hydrolysate the percentage of dissolved solids present is 64.
It was submitted that the criterion laid down in the IS Specification for liquid glucose or glucose syrup, the two terms are being used synonymously by the Indian Standard Institution, was not satisfied in this case.
The IS Specification defines liquid glucose or glucose syrup as "a refined and concentrated non crystalizable aqueous solution of d glucose, maltose and other polymers of d glucose, obtained by controlled hydroly sis of starch containing material".
The United States Phar meopeia XIX describes liquid hydrolysis of starch, consist ing chiefly of dextrose, dextrins, maltose and water and in these circumstances and in view of the components and the dictionary meaning as discussed by the Tribunal in its order, it is urged that it cannot be said that the said goods is the same thing as glucose or glucose syrup.
In the premises, it was contended that the Tribunal has not consid ered this aspect of the matter.
We are concerned in this appeal with starch hydrolysate and, therefore, if the process or activity of the assessee brings into existence an article different and distinct from what it was before the process and a new identifiable arti cle known in the market as such comes into being, then the use of such starch hydrolysate captively would attract duty on the part of the assessee even in captive consumption.
It is not in dispute as the Tribunal noted in the instant case that starch is hydrolysed by the respondent.
The operation of hydrolysis, it is contended, results in bringing into being starch hydrolysate which is utilised in the manufac ture of sorbitol.
The question is whether 789 starch hydrolysate is "goods".
The case of the respondent was that the starch hydrolysate being wholly unstable and quickly fragmented and losing its character in a couple of days, the same could, therefore, neither be stored nor marketed.
In the premises, it was the case of the respondent that starch hydrolysate was not marketable product and would not, therefore, be "goods" on the manufacture of which excise duty could have been demanded or would have been payable and, therefore, for non payment of duty, there has been no negligence or failure on the part of the respondent and as such section 11 A of the Act was not applicable.
In this connection, it would be instructive to refer and it would be necessary to rely on the principles laid down by this Court in South Bihar Sugar Mills Ltd., etc.
vs Union of India & Ors.
, ; There, the appellant compa nies manufactured sugar by carbonation process and paid excise duty on sugar manufactured by them under Item I of Schedule I to the Act.
According to one affidavit filed on behalf of the respondents, filed in those proceedings, these manufacturers employed a process of burning lime stone with coke in a lime kiln with a regulated amount of air whereby a mixture of gases was generated consisting of carbon dioxide, nitrogen, oxygen and a small quantity of carbon monoxide.
The gas thus produced was thereafter compressed so as to achieve pressure exceeding atmospheric pressure and then passed through a tank containing sugarcane juice so as to remove impurities from it and to refine the juice.
For that process of refining it was only the carbon dioxide in the gas which was used and the other gases, i.e., nitrogen, oxygen and carbon monoxide escaped into the atmosphere by a vent provided for the purpose.
The carbon dioxide content in this mixture of gases ranged from 27 to 36.5%.
Similarly, another company manufactured Soda ash by solvay ammonia soda process for which also carbon dioxide was required and this was produced by the petitioner therein by burning lime stone with coke in a kiln in the same manner as the appellant sugar manufacturing companies employing the carbonation process.
The respondents therein regarded all the companies as manufacturers of compressed carbon dioxide and levied excise duty on them under Item 14 H in Schedule I to the Act.
Writ petitions were filed in the High Court challenging the validity of the excise duty but the same petitions were dismissed.
It was contended, inter alia, on behalf of the appellants therein that the lime kiln was maintained to generate a mixture of gases and not carbon dioxide and at no stage in the process of generating this mixture and passing it through the sugarcane juice was carbon dioxide which formed one of the contents of the mixture either com pressed, liquidified or solidified.
The mixture of gases so generated was not carbon dioxide as known to the market nor was it accord 790 ing to the specifications laid down by the Indian Standards Institution which required the carbon dioxide content to be at least 99%.
It was, therefore, contended that the excise duty sought to be recovered on the contend of carbon dioxide in the mixture of gases could not fall under Item 14 H.
It was further contended that the duty being on goods it could be charged only on goods known as carbon dioxide in the trade and marketable as such.
As is evident from the said narration of facts the contentions urged were more or less similar to the contentions involved in the instant appeal before us.
It was held by this Court that the gas generated by the appellant companies was kiln gas and not carbon dioxide as known to the trade, i.e., to those who dealt in it or who used it.
The kiln gas in question, therefore, was neither carbon dioxide nor compressed carbon dioxide known as such to the commercial community and therefore, could not attract item 14 H in the First Schedule.
This Court reiter ated at p. 31 of the report that the Act in question charges duty on manufacture of goods.
The word "manufacture" implies a change but every change in the raw material is not manu facture.
There must be such a transformation that a new and different article must emerge having a distinct name, char acter or use.
The duty is levied on goods.
As the Act does not define goods, the legislature must be taken to have used that word in its ordinary, dictionary meaning.
The diction ary meaning of the expression is that to become goods it must be something which can ordinarily come to the market to be bought and sold and is known to the market.
It would be such an article which would attract duty under the Act.
This Court referred to the previous decision in the case of Union of India vs Delhi Cloth & General Mills Ltd., [1963] Suppl.
1 SCR 586.
Therefore, in this instant appeal, in order to determine whether starch hydrolysate was "goods" or not, it is necessary to determine whether there was any application of process to the raw materials and as a result of that application there emerged new and different article having a distinctive name, character or use and the resultant product being goods in the sense of being marketable or marketed.
In this connection, Shri Soli Sorabjee referred us to the observations of this Court in Union Carbide India Ltd. vs Union of India and Ors., There, this Court reiterated that in order to attract excise duty, the article manufactured must be capable of being sold to a consumer.
Entry 84 of List I of Schedule VII to the Consti tution specifically speaks of "duty of excise on tobacco or other goods manufactured or produced in India" and it is now well accepted that excise duty is an indirect tax, in which the burden of the imposition is passed on to the ultimate consumer.
This Court held that in that context, the expres sion "goods manufactured or produced" must refer to articles which 791 are capable of being sold to a consumer.
To become "goods", an article must be something which can ordinarily come to the market to be bought and sold.
The Court found in that case that aluminium cans prepared by the appellants therein were employed entirely by it in the manufacture of flash lights and were not sold as aluminium cans in the market.
It also appeared from the records that aluminium cans at the point of levy of excise duty existed in a crude and elemen tary form which were incapable of being employed as a compo nent in a flashlight.
These cans had sharp uneven edges and in order to use them as a component in making flashlight cans, these cans had to undergo various processes such as trimming, threading and redrawing.
After that these were reeded, beaded and anodized or painted, it was at that point only that these became distinct and complete component capable of being used as flashlight cans for housing battery cells and having a bulb fitted to the can.
This Court noted that it was difficult to believe that the elementary and unfurnished form in which these existed immediately after extrusion sufficed to attract a market.
The assertion of the appellant on affidavit that aluminium cans were unknown in that form in the market had not been proved to the contrary by any satisfactory material by the respondents therein.
This Court further found that not a single instance had been provided by the respondents domenstrating that such alumini um cans had a market.
The conduct of the appellants in the past, having regard to the circumstances of the case, would not serve as evidence of the marketability of the aluminium cans, it was in that case.
This Court noted that record disclosed that whatever aluminium cans were produced by the appellants were subsequently developed by it into a complet ed and perfected component for being employed as flashlight cans.
In those circumstances, the aluminium cans produced by the appellants were not liable to excise duty under section 3 of the Act read with Item 27 of the Central Excise Tariff.
In the case of Bhor Industries Ltd., Bombay vs Collector of Central Excise, Bombay, ; , this Court had to deal with the liability to duty on intermediate products and it was reiterated that liability to excise duty arises only when there is manufacture of goods which is marketable or capable of being marketed.
It was held that excise is a duty on goods as specified in the Schedule.
The taxable event in the case of excise duties is the manufacture of goods.
Under the Act, in order to be goods as specified in the Entry, it was essential that as a result of manufacture goods must come into existence.
For articles to be goods, these must be known in the market as such or these must be capable of being sold in the market as goods.
Actual sale 792 is not necessary.
User in the captive consumption is not determinative but the articles must be capable of being sold in the market or known in the market as goods.
It is, there fore, necessary to find out whether these are goods, that is to say, articles as known in the market as separate distinct identifiable commodities and whether the tariff duty levied would be as specified in the Schedule.
Marketability, there fore, is an essential ingredient in order to be dutiable under the Schedule to .
In that case, the Court found that crude PVC firms as produced by the appellant were not known in the market and could not be sold in the market and was not capable of being marketa ble.
The Court further reiterated that it was the duty of the revenue to adduce evidence or proof that the articles in question were goods.
The Tribunal went wrong, it was held, in not applying the test of marketability.
There being no contrary evidence found by the Tribunal in that case, it was held that in those circumstances, no excise duty should be charged.
It is in this light, therefore, that the evidence dis cussed by the Tribunal in this case, have to be viewed in order to test the validity of the order impugned.
The case of the respondent had always been that starch hydrolysate was not being marketed and is not capable of being marketed in view of its highly unstable character resulting in fer mentation even if kept for a day or two.
Shri Ganguly ap pearing for the revenue sought to urge that the Tribunal was wrong in approaching the problem in that light.
The test was not whether the starch hydrolysate was not of a highly unstable character and resulted in fermentation even in a day or two, but whether it was capable of being marketable.
He submitted that the test applied was not the true test.
He urged that even transient items of articles can be goods, provided that these were known in the market as distinct and separate articles having distinctive and separate uses, these would still become goods if these were capable of being marketed even during short period.
From a conceptual and jurisprudential point of view, Shri Ganguly is right.
But we are concerned with the question whether actual goods in question were marketed or, in other words, if not, wheth er these are marketable or not.
It is true that the goods with unstable character can be theoretically marketable if there was a market of such transient type of articles which are goods.
But one has to take a practical approach.
The assessee produced evidence in the form of affidavit.
One Shri Khandot.
who filed an affidavit in support of the case of the respondent, had stated in his affidavit that com pletely hydrolysed starch would start fermenting and decom posin and at higher concentration it would start crystaliz ing out within two or three days.
This is evidence indicat 793 ing propensity of its not being marketed.
It is good evi dence to come to this conclusion that it would be unlikely to be marketable as it was highly unstable.
There was evi dence as noted by the Tribunal that it has not been marketed by anyone.
There is also an admission of the Superintendent of the appellant that no enquiry whatsoever was conducted by the Department as to whether starch hydrolysate was ever marketed by anybody.
It was pointed out by the revenue that even according to the respondent, it stored starch hydroly sate in tanks before transporting it through pipes but according to the appellant, the storage of starch hydroly sate was only for a period of a few hours only as a step in the process of transfer thereof to sorbitol.
It, therefore, appears to us that there was substantial evidence that having regard to the nature of the goods that this was unlikely that the goods in question were marketable.
This should be judged in the background of the evidence that the goods have not been marketed in a pregmatic manner.
All this again would have to be judged in the light of the fact that revenue has not adduced any evidence whatsoever though asked to do so.
It was pointed out that if the Department was to charge duty of excise on this starch hydrolysate as one form of glucose it would be the burden on the Department to establish that starch hydrolysate was not merely marketable but was being marketed as glucose in some form.
This would be so since what is liable for duty under item E is glucose in any form and, therefore, in order to demand duty under that section, the Department must establish that the product on which duty was demanded was known in the market as glu cose in one form or the other.
There .is no such evidence as observed by the Tribunal.
The Tribunal noted and, in our opinion, rightly that revenue cannot be said to have dis charged its burden of establishing that by applying the process of hydrolysis to starch for production of starch hydrolysate the respondent manufacturers any excisable goods in the sense of being goods known in the market and being marketed or marketable.
Our attention was drawn to the affidavit of Shri P.D. Khander, Chemist, who was a Food Technologist and was holding a degree of B.Sc.
(Chemistry).
He was carrying on business of dealing in glucose.
He stated in his affidavit as follows: .
I have been the starch hydroly sate made by Sarabhai M. Chemicals.
It is completely hydrolysed starch.
It appears as aqueous syrup containing about 66 71% reduc ing sugars expressed as Dextrose.
It is nei ther glucose or dextrose in any form nor glucose in liquid state nor liquid glucose.
In order to find out the market for completely hydrolysed starch as is made in Sarabhai M. Chemicals, at 794 their instance, I had made trade inquiries.
However, there is no market for such sub stance.
Since it can act only as an intermedi ate product for the manufacture of Sorbitol.
Dextrose or Glucose and Fructose and every manufacturer of Glucose, Dextrose, Sorbitol and Fructose would have his own plant for hydrolysing starch, it is commercially not a viable proposition both the manufacturers of Glucose, Dextrose, Sorbitol or Fructose or the persons undertaking the process of hydrolysing starch either to purchase completely hydroly sed starch from the market or sell or under take process of hydrolysing starch for the purpose of sale in the market, because at lower concentration, starch which is complete ly hydrolysed would start fermenting and decomposing.
At higher concentration, it would start crystallising out within two or three days.
" This affidavit evidence remains uncontradicted Shri Ganguly, however, drew our attention to an order of the Tribunal in M/s. Anil Starch Products Ltd., Ahmedabad vs The Collector of Central Excise, Ahmedabad being Appeal No. ED(SB)(T) 1534/81 D arising out of the Revision Order No. 820/81.
He referred to the observations at page 117 of the Paper Book which dealt with the evidence of one Shri Khabho lia, where, according to Shri Ganguly, the Tribunal came to a different conclusion.
But the Tribunal in that case relied on the decision of the Allahabad High Court in the case of Union of India vs Union Carbide India Ltd., There the Allahabad High Court held that things would be nevertheless goods even these did not have a general market, where they can be easily bought and sold.
The High Court hold that the fact that products might not be known to the general public or to the traders in general would not change the position and therefore the test did not appear to be sound.
This decision of the Allahabad High Court which was relied upon by the Tribunal was set aside by this Court in Appeal in the case of Union Carbide India Ltd. vs Union of India & Ors.
(supra).
In view of the test laid down and in view of the evidence discussed, it is difficult to sustain the order of the Tribunal.
In this connection, it appears that there was no market enquiry by the Revenue.
Reference may be made to the crossexamination of Shri Shukla, Superin tendent (Central Excise) by Shri Nanawati as appears at pp.
235 237 of the present paper book.
In view of the fact that there was positive evidence that starch hydrolysate was never marketed and in view of further fact that in the light of the nature of the goods being highly unstable, it is highly improbable that the goods were capable of being marketed and there being in spite of 795 the opportunities, no evidence produced at all that the goods, in fact, were capable of being marketable, in our opinion, it must be held as did the Tribunal that the starch hydrolysate were not dutiable under the Act.
In the premises, the revenue has failed to discharge its onus to prove that starch hydrolysate was dutiable.
In the premises, the Tribunal cannot be said to have committed any error.
The appeal must, therefore, fail and is, accordingly, dismissed.
In the facts and the circumstances of the case, there will, however, be no orders as to costs.
R.S.S. Appeal dis missed.

dataset_name: IN-Abs

summary/full:
The respondent was engaged in the manufacture of sorbi tol, which fell under items 68 of the Central Excise Tariff.
During a visit to the factory premises by the Central Excise Officers it was found that the respondent also manufactured and captively consumed starch hydrolysate which, according to the appellant, was glucose and fell under Item E of the Central Excise Tariff.
In reply to the show cause notice issued by the appellant, the respondent contended that starch hydrolysate was not 'goods ' since the same was not marketable and therefore no excise duty was payable on it; and that even if the same was liable for duty it would not be under Item 1 E.
There were adjudication proceedings thereafter, and the adjudicator held that starch hydrolysate was glucose and fell under item E, and that the respondent had suppressed the fact of manufacture thereof.
In the premises, the adjudicator ordered payment of excise duty and further imposed a penalty.
The Tribunal, however, allowed the respondent 's appeal and held that starch hydrolysate manufactured by the re spondent was not, and never was, a marketable commodity, and hence that would not be 'goods ' on which excise duty could be charged.
The Revenue appealed to this Court.
Before this Court, it was inter alia contended on behalf of the appellant: (i) that the Tribunal misdirected itself in applying the proper test for the determination of the question, and that the true test to determine in a matter of this nature was to consider not only whether starch hydrolysate was actually marketable but also to consider whether conceptually the said goods were capable of being marketed, and the Tribunal should have examined or called for fresh evidence to deter mine that question; and (ii) even transient items of arti cles could he 'goods '.
provided these were known in the market as distinct and separate articles having distinct and separate uses, and if these were capable of being marketed even during short period.
784 785 On behalf of the respondent it was contended that; (i) starch hydrolysate which was utilised in the manufacture of sorbitol, was not being marketed and was not capable of being marketed in view of its highly unstable character resulting in fragmentation even if kept for a day or two; and (ii) starch hydrolysate was not marketable product and would not therefore be "goods" on the manufacture of which excise duty could have been demanded or would have been payable and therefore for non payment of duty, there had been no negligence or failure.
Dismissing the appeal, this Court, HELD: (1) If the process or activity of the assessee brings into existence an article different and distinct from what it was before the process and a new identifiable arti cle known in the market as such comes into being, then the use of such article in the instant case starch hydrolysate would attract duty on the part of the assessee even in captive consumption.
[788G] South Bihar Sugar Mills Ltd., etc.
vs Union of India & Ors.
, ; , referred to.
(2) The word "manufacture" implies a change but every change in the raw material is not manufacture.
There must be such a transformation that a new and different article emerges having a distinct name, character or use.
[790D] Union of India vs Delhi Cloth & General Mills Ltd., [1963] Supp. 1 SCR 586.
(3) Duty is levied on goods.
As the does not define "goods", the legislature must be taken to have used that word in its ordinary, dictionary meaning.
The dictionary meaning of the expression is that to become goods it must be something which can ordinarily come to the market to be bought and sold and is known to the market.
It would be such an article which would attract 'duty ' under the Act.
[790E] Union Carbide India Ltd. vs Union of India & Ors., (4) It is true that the goods with unstable character can be theoretically marketable if there was a market of such transient type of articles which are goods.
But one has to take a practical approach.
[792G] 786 (5) It was the duty of the Revenue to adduce evidence or proof that the articles in question were goods.
If the Department was to charge duty of excise on this starch hydrolysate as one form of glucose it would be the burden on the Department to establish that starch hydrolysate was not merely marketable but was being marketed as glucose in some form.
The Revenue has not produced any evidence whatsoever though asked to do so.
Bhor Industries Ltd. Bombay vs Col lector of Central Excise, Bombay; , [793A F] (6) It appears that there was no market enquiry by the Revenue.
In view of the fact that there was positive evi dence that starch hydrolysate was never marketed and in view of further fact that in the light of the nature of the goods being highly unstable, it was highly improbable that the goods were capable of being marketed and there being in spite of the opportunities, no evidence produced at all that the goods, in fact, were capable of being marketable, it must be held, as did the Tribunal, that the starch hydroly sate were not dutiable under the .
[794G 795A]


judgement:
ivil Appeal No. 4080 of 1988.
From the Judgment and Order dated 18.3.88 of the Customs Excise and Gold (Control) Appellate Tribunal, New Delhi in Appeal No. ED/SB/1201/84 C. V. Lakshmikumaran, N.M. Popli and V.J. Francis for the Appellant.
A.K. Ganguli, K. Swamy, T.V.S.N. Chari and P. Parmeswa ran for the Respondent.
The appellants at all relevant times were manufacturing agarbaties, dhoop sticks, dhoop coil, dhoop powder falling under Tariff Item No. 68 of the erstwhile Central Excise Tariff.
The relevant period involved in the present Civil Appeal is from the year 1979 to 1983 84.
The appellants claimed exemption under notification No. 55/75 dated 1st March, 1975.
By the said notification, the Central Govern ment had exempted goods of the description in the Schedule annexed to the notification and falling under Tariff Item 68 of the First Schedule to the Act from the whole of duty of excise leviable thereon.
In the serial No. 8 of the Schedule to the said notification, 'Handicrafts ' were listed.
It is, therefore, clear that 'handicrafts ' were fully exempt from payment of duty of excise, according to the appellants.
Under the notification No. 111/78 dated 9th May, 1978, the appellants were exempted from 876 licensing control.
That is the case of the appellants.
The provision requiring a manufacturer to take out a licence is controlled by Rule 174 of the Central Excise Rules, 1944.
The relevant provision of Rule 174 at the relevant time provided, inter alia, as follows: "Rule 174.
Persons requiring a licence: Every manufacturer, trader or person hereinafter mentioned, shall be required to take out a licence and shall not conduct his business in regard to such goods otherwise than by the authority, and subject to the terms and conditions of a licence granted by a duly authorised officer in the proper Form" It is the case of the appellants that by this notifica tion, all goods which were exempt from the whole of duty of excise leviable thereon unconditionally were exempted from the operation of Rule 174.
The appellants were manufacturing dhoop sticks, coil and powder which the appellants contended before the Tribunal, were handicrafts under notification No. 55/75 and as such were exempt from licensing control under notification No. 111/78.
It is, therefore, necessary at this stage, in view of the contentions raised in this appeal, to refer to the notifications.
By first notification, i.e., notification No. 55/75, in exercise of the powers conferred by sub rule (1) of rule 8 of the Central Excise Rules, 1944, the Central Government had exempted goods of the description specified in the Schedule annexed thereto and falling under Item No. 68 of the First Schedule to the Act from the whole of the duty of excise leviable thereon and, as mentioned hereinbefore, Item No. 8 of the Schedule annexed to the notification included among the exempted goods 'Handi crafts '.
The second notification, i.e., notification No. 111/78 CE dated 9th May, 1978, the Central Government ex empted from the operation of rule 174 of the said Rules, inter alia, all goods that are exempt from the whole of the duty of excise leviable thereon.
unconditionally.
The effect of this notification, was that manufacture of such goods were exempt from the operation of rule 174 of the said Rules.
As a result, it was not necessary to take out a licence as enjoined by rule 174.
The appellants had indicat ed the process of manufacture of dhoop sticks, coil and powder before the Tribunal and the process was as follows: "1.
The various ingredients/raw materials like perfumes, essential oils, natural oils and other raw materials are first mixed in specif ic proportions, by manual labour.
877 2.
These raw materials along with jigget and saw dust after serving by hand are mixed in a barrel with a stirrer with hand and made into a paste.
This paste is kneaded in the kneading machine operated by power.
This paste is put by hand in the extruder.
The extruder extrudes the paste in the form of needles with the aid of power.
As the paste is extruded from the extruder it is collected on a wooden tray which is of a particular size.
As it is collected on the tray it is cut on both sides to the accurate size by hand.
The thin long incense is then transferred by hand from the individual trays of long big tray by hand.
After transferring it is properly arranged by hand in a consolidated manner on the long big tray.
Another tray which has four slits called the cutting tray is placed on top of the long tray with the incense.
After placing the cutting tray a hand roller cutter is rolled along the slits of the cutting trays to cut the incense to the re quired sizes.
The extra length or width of the incense on the tray is then removed by hand.
The cut incense is then transferred to a drying tray by hand.
The incense is dried by stocking the trays in the drying yard.
The dried incense is broken at the cut ends.
The ten incense sticks are inserted into the packet.
878 16.
The incense packets are first punched with an eyelet.
Then twelve packets are wrapped in a cellophone wrapper.
" The revenue had issued trade notices indicating that agarbaties were handicrafts and were eligible to the exemp tion contained in the notification No. 55/75 dated 1st March, 1975.
Our attention was drawn by Shri V. Lakshmi Kumaran appearing for the appellant to the trade notice issued on 10th October, 1977, which read as follows: "PUNE TRADE NOTICE NO.
258/1977, (NO. 3/T.I. 68/ 1977) DT.
18.10.77 Agarbaties are exempt under Notfn.
55/75 Attention of the trade is invited to this Collectorate Trade Notice No. 179/1975 (No. 4/T.I. 68/1975) dated 4.10.75 on the above subject.
The issue has been reconsidered and it has been advised that Agarbaties are handicrafts and would be eligible to the exemption contained in the notification No. 55/ 75 CE dated the 1st March, 1975 (as amend ed).
" He also drew our attention to the certificate furnished by the Basic Chemicals, Pharmaceuticals & Cosmetics Export Promotion Council, which stated as follows: "This is to certify that Dhoop Sticks, Incense Cubes and Cone, Coils, Joss Sticks, are agar baties in different physical forms.
The ingre dients as well as end use for Agarbaties, Dhoop Sticks, Incense cubes and Cone, coils, joss sticks are one and the same.
Government of India has therefore categorised Dhoop Sticks, Incense cubes and cone, .coils, joss sticks as agarbaties and thus eligible for the same rate of export incentives.
" It was contended before the Tribunal on behalf of the appellants that dhoop sticks had been recognised by the Indian Handicrafts Board as handicrafts and that these were nothing else but agarbaties.
879 As indicated hereinbefore, Basic Chemicals, Pharmaceuticals and Cosmetics Export Promotion Council had also indicated that dhoop sticks, incense cubes and cone, coils joss sticks are agarbaties in different physical forms and that the end use of these and the ingredients used therein were one and the same and for that reason these had been made eligi ble for the benefit of export incentives as agarbaties.
Learned counsel for the appellants submitted that in the report on the Marketing of Handicrafts under the title "Survey of Indian Handicrafts" sponsored by the All India Handicrafts Board, which was brought out by Indian Coopera tive Union, agarbaties were mentioned, which according to counsel, indicated that these were recognized as handi crafts.
A letter was placed before the Tribunal which was issued by the Deputy Director, All India Handicrafts Board functioning under the Ministry of Commerce, Department of Export Production which had certified that the agarbaties were the products of the Indian Handicrafts Board, Ministry of Commerce.
Certain notifications were also drawn attention to of the Tribunal which indicated that agarbaties were handicrafts eligible for exemption under notification No. 55/75.
It was, therefore, contended that dhoop sticks, coil and powder were agarbaties and agarbaties were accepted as handicrafts by various authorities including the Central Government and mere use of power in the manufacture of these did not bar them from being called as handicrafts.
It was further contended that in any event, there was no warrant in invoking longer time limit of five years for raising the demand and if at all demand should be raised it should be for a period of six months reckoned from the date of six months prior to the issue of the show cause notice.
In those circumstances, it was submitted that the appellants should not be made liable beyond the period of six months from the date of issue of the show cause notice.
The Tribunal, howev er, referred to the definition of the term 'handicrafts ' given in the Concise Oxford Dictionary; 7th Edition, which stated as follows: "Manual skill; manual art or trade or occupa tion; man skilled in a handicraft." Therefore, in order to be handicrafts, the Tribunal proceeded, on the basis that it should be the result of manual skill.
But the respondent before the Tribunal pleaded that the raw materials for the dhoop are kneaded with the aid of power and after kneading the same, are extruded and the manual work that was done in the process was only in feeding of the raw materials by hand and later in the cut ting of the sticks to the desired length.
The distinction between handicrafts and 880 those which are machine made, would be clear from the defi nition adopted by UNCTAD.
The same reads as follows: "Some good may.
be produced partly by machine and partly by hand: (i.e. a dress made up by hand from machine made cloth, perhaps with additional hand embroidery or other decora tions) .
. in such cases a product should be regarded as hand made or handicrafts if the essential character of the product in its finished form is derived from the 'hand made ' aspect of its production." In the Import Policy of 1984 85, handicrafts and agar baties and dhoop figured under a Heading apart from handi crafts and stated that dhoop and agarbaties had been listed under traditional item in Appendix 17 at Serial No. V under Group Heading "Toiletry and Perfumery" while the handicrafts had been given separately in that Policy and this envisaged the handicraft to be manufactured by hand.
General Note I against the entry 'Handicrafts ' in the Policy Book stated as follows: "Articles which are classifiable elsewhere in this policy will be deemed to be 'Handicrafts ' falling in this group only if such articles, besides being made by hand, have some artistic or decorative value; they may or may not possess functional utility value in addition.
Artistic or decorative value of the article exported need not necessarily come out of any art work, engraving or decoration done on the article but the very form, shape or design of the article could also be artistic and sugges tive of the fact that the article is primarily meant for decorative and not for utility purposes.
" After analysing the findings and the trade notices and relying on the decision oil this Court in M.S. Company Private Limited vs Union of India, SC, the Tribunal in the light of the definition of "handicrafts" in the Encyclopaedia Britannica, came to the conclusion that in the manufacture of a product skill of the worker and the use of hand are two pre requisites for a product to qualify as a handicraft.
In the Encyclopaedia Britannica, handicraft has been defined as follows: "Occupation of making by hand usable products graced with visual appeal.
Handicrafts encom pass activities that 881 require a broad range of skills and equipment, including needle work, lace making, weaving printed textile, decoration, basketry, pot tery, ornamental metal working, jewelling, leather working, wood working, glassblowing, and the making of stained glass.
" It was found by the Tribunal that raw materials were mixed by hand and the first essential procedure in the manufacture of dhoop etc., is kneading of the raw materials and the next essential stage is the formation of the dhoop into sticks or coils.
Both these processes were carried out by the aid of power.
Only cutting of the sticks to the desired length was stated to be by hand.
It was not the case of the appellant that the formation of the dhoop sticks or coils, etc., there had been use of the skill of the human hand to give the dhoop its essential character.
But the Tribunal found that it was difficult to accept that these were handicrafts merely because some authorities have chosen to treat agarbaties as handicrafts.
Therefore, the Tribunal agreed with the Collector that these were not handicrafts.
In that view of the matter, the Tribunal upheld the order of the Collector on this point and held that these were dutia ble.
In view of the evidence examined by the Tribunal and in the light of the well settled principle and the background of the definition of handicrafts, it appears to us that the Tribunal was right in coming to the conclusion that only a very small portion of required work was done by hand.
The main part of the manufacture of agarbaties, etc.
was done with the aid of power.
It was the machine that produced predominantly the end product.
In that view of the matter, we are of the opinion that the Tribunal was right in holding that agarbaties were not handicrafts.
In coming to the aforesaid conclusion the tribunal had considered all rele vant materials and records and applied the correct princi ples of law.
These findings of the tribunal on this aspect are unassailable.
In the premises, when the appeal was filed and came up before this Court for hearing on 2nd March, 1989, on examination of these materials, this Court was satisfied that this contention of the appellant cannot be accepted and agarbaties were not handicrafts.
It was, howev er, further held by the Tribunal that the revenue was enti tled to levy tax for a period of five years prior to the issue of show cause notice and not six months pursuant to rule 9(2) of the Central Excise Rules.
The relevant portion of rule 9(2) provides as follows: "(2) If any excisable goods are, in contraven tion of subrule (1) deposited in, or removed from, any place specified therein, the produc er or manufacturer, thereof shall pay 882 the duty leviable on such goods upon written demand made within the period specified in section 11A of the Act by the proper officer, whether such demand is delivered personally to him, or is left at his dwelling house, and shall also be liable to a penalty which may extend to two thousand rupees, and such goods shall be liable to confiscation.
" It may be mentioned that rule 9(1) of the said Rules stipulated that no excisable goods shall be removed from any place where they are produced, except in the manner provided in the rules.
Therefore, the question that arises in this appeal is whether section 11 A of the Act applies or not.
The relevant provisions of section 11 A are as follows: "11 A. Recovery of duties not levied or not paid or shortlevied or short paid or errone ously refunded.
(1) When any duty of excise has not been levied or paid or has been short levied or short paid or erroneously refunded, a Central Excise Officer may, within six months from the relevant date, serve notice on the person chargeable with the duty which has not been levied or paid or which has been short levied or short paid or to whom the refund has erroneously been made, requiring him to show cause why he should not pay the amount specified in the notice: Provided that where any duty of excise has not been levied or paid or has been short levied or short paid or erroneously refunded by reason of fraud, collusion or any wilful misstatement or suppression of facts; or contravention of any of the provisions of this Act or of the rules made thereunder with intent to evade payment of duty, by such person or his agent, the provisions of this sub section shall have effect, as if the words "Central Excise Officer" the words "Collector of Central Excise", and for the words "six months", the words "five years" were substi tuted.
Explanation.
Where the service of the notice is stayed by an order of a Court, the period of such stay shall be excluded in computing the aforesaid period of six months or five years, as the case may be." Shri V. Lakshmi Kumaran, learned counsel for the appel lant drew our attention to the observations of this Court in Collector of 883 Central Excise, Hyderabad vs M/s Chemphar Drugs and Lini ments, Hyderabad, [1989] 2 SCC 127 where at page 131 of the report, this Court observed that in order to sustain an order of the Tribunal beyond a period of six months and up to a period of 5 years in view of the proviso to sub section (1) of section 11 A of the Act, it had to be established that the duty of excise had not been levied or paid or short levied or short paid, or erroneously refunded by reasons of either fraud or collusion or wilful misstatement or suppression of facts or contravention of any provision of the Act or Rules made thereunder, with intent to evade payment of duty.
It was observed by this Court that some thing positive other than mere inaction or failure on the part of the manufacturer or producer or conscious or delib erate withholding of information when the manufacturer knew otherwise, is required before it is saddled with any liabil ity beyond the period of six months had to be established.
Whether in a particular set of facts and circumstances there was any fraud or collusion or wilful misstatement or sup pression or contravention of any provision of any Act, is a question of fact depending upon the facts and circumstances of a particular case.
The Tribunal, however, had held con trary to the contention of the appellants.
The Tribunal noted that dhoop sticks are different products from agar baties even though they belonged to the same category and the Tribunal was of the view that these were to be treated differently.
Therefore, the clarification given in the context of the agarbaties could not be applicable to dhoop sticks etc., and the Tribunal came to the conclusion that inasmuch as the appellant had manufactured the goods without informing the Central Excise authorities and had been remov ing these without payment of duty, these would have to be taken to attract the mischief of the provision of rule 9(2) and the longer period of limitation was available.
But the Tribunal reduced the penalty.
Counsel for the appellants contended before us that in view of the trade notices which were referred to by the Tribunal, there is scope for believ ing that agarbaties were entitled to exemption and if that is so, then there is enough scope for believing that there was no need of taking out a licence under rule 174 of the said Rules and also that there was no need of paying duty at the time of removal of dhoop sticks, etc.
Counsel further submitted that in any event apart from the fact that no licence had been taken and for which no licence was required because the whole duty was exempt in view of notification No. 111/78, referred to hereinbefore, and in view of the fact that there was scope for believing that it was exempt under Schedule annexed to the first notification, i.e., 55/75, being handicrafts, the appellants could not be held to be guilty of the fact that excise duty had not been paid or short levied or short paid or erron 884 eously refunded because of either any fraud or collusion or wilful misstatement or suppression of facts or contravention of any provision of the Act or Rules made thereunder.
These ingredients postulate a positive act.
Failure to pay duty or take out a licence is not necessarily due to fraud or collu sion or wilful misstatement or suppression of facts or contravention of any provision of the Act.
Suppression of facts is not failure to disclose the legal consequences of a certain provision.
Shri Ganguly, appearing for the revenue, contended before us that the appellants should have taken out a licence under rule 174 of the said Rules because all the goods were not handicrafts and as such were not exempted under notification No. 55/75 and therefore, the appellants were obliged to take out a licence.
The failure to take out the licence and thereafter to take the goods out of the factory gate without payment of duty was itself sufficient, according to Shri Ganguly, to infer that the appellants came within the mischief of section 11 A of the Act.
We are unable to accept this position canvassed on behalf of the revenue.
As mentioned hereinbefore, mere failure or negli gence on the part of the producer or manufacturer either not to take out a licence in case where there was scope for doubt as to whether licence was required to be taken out or where there was scope for doubt whether goods were dutiable or not, would not attract section 11 A of the Act.
In the facts and circumstances of this case, there were materials, as indicated to suggest that there was scope for confusion and the appellants believing that the goods came within the purview of the concept of handicrafts and as such were exempt.
If there was scope for such a belief or opinion, then failure either to take out a licence or to pay duty on that belief, when there was no contrary evidence that the producer or the manufacturer knew that these were excisable or required to be licenced, would not attract the penal provisions of section 11 A of the Act.
If the facts are otherwise, then the position would be different.
It is true that the Tribunal has come to a conclusion that there was failure in terms of section 11 A of the Act.
Section 35 L of the Act, inter alia, provides that an appeal shall lie to this Court from any order passed by the Appellate Tribunal relating, among other things, to the determination of any question having a relation to the rate of duty of excise or to the value of goods for purposes of assessment.
Therefore, in this appeal, we have to examine the correctness of the decision of the Tribunal.
For the reasons indicated above, the tribunal was in error in applying the provisions of section 11 A of the Act.
There were no materials from which it could be inferred or established that the duty of excise had not been levied or paid or short levied or short paid or erroneously refunded by reason of fraud, collusion or any wilful misstatement or suppression of facts, or 885 contravention of any of the provisions of the Act or of the rules made thereunder.
The Tribunal in the appellate order has, however, reduced the penalty to Rs.5,000 and had also upheld the order of the confiscation of the goods.
In view of the fact that the claim of the revenue is not sustainable beyond a period of six months on the ground that these dhoop sticks, etc.
were not handicrafts entitled to exemption, we set aside the order of the tribunal and remand the matter to the tribunal to modify the demand by confining it to the period of six months prior to issue of show cause notice and pass consequential orders in the appeal on the question of penalty and confiscation.
The appeal is allowed to the extent indicated above and the matter is, therefore, remand ed to the tribunal with the aforesaid directions.
This appeal is disposed of accordingly.
R.S.S. Appeal allowed.

summary/full:
The appellant was a manufacturer of agarbatis, dhoop sticks, dhoop coil and dhoop powder failing under Tariff Item No. 68 of the Central Excise Tariff.
It claimed exemp tion from duty of excise on the ground that these items being handicrafts were fully exempt from such payment under notification No. 55/75.
The appellant 's further case was that under Notification No. 111/78 all goods which were exempt from the whole of duty of excise leviable thereon unconditionally were exempted from the operation of Rule 174 of the Central Excise Rules, which required a manufacturer to take out a licence.
The Collector rejected the claim of the appellant and held that these items were not handicrafts.
It was contended before the Tribunal that dhoop sticks, coil and power were agarbaties and agarbaties were accepted as handicrafts by various authorities including the Central Government; mere use of power in the manufacture of these items did not bar them from being called handicrafts; and, in any event, there was no warrant in invoking longer time limit for five years for raising the demand.
The Tribunal rejected the contentions of the appellant.
It was found by the Tribunal that the main part of the manufacture of agarbaties, etc. was done with the aid of power; only a very small part of the required work was done by hand; and that it was difficult to accept that these were handicrafts merely because some authorities had chosen to treat agarbaties as handicrafts.
The Tribunal held that the Revenue was entitled to levy tax for a period of five years prior to the issue of show cause notice and not six months pursuant to rule 9(2) of the Central Excise Rules.
874 Before this court, it was contended on behalf of the appellant that in order to sustain the order of the Tribunal beyond a period of six months and upto a period of 5 years under section 11 A it had to be established that the duty of excise had not been levied or paid by reason of either fraud or collusion or wilful mis statement or suppression of facts or contravention of any provision of the Act or Rules made thereunder, with intent to evade payment, as provided in the proviso to sub section (1) of section 11 A.
In this context, it was urged that there was scope for believing that agar baties were entitled to exemption and if that was so, then there was enough scope for believing that there was not need of taking out a licence under rule 174 of the Central Excise Rules, 1944.
On the other hand, the Revenue contended that the failure to take out the licence and thereafter to take the goods out of the factory gate without payment of duty was itself sufficient to infer that the appellant came within the mischief of section 11 A of the Act.
While partly allowing the appeal, and remanding the case to the Tribunal to modify the demand, this Court, HELD: (1) In view of the evidence examined by the Tribu nal and in the light of the well settled principle and the background of the definition of handicrafts, the Tribunal was right in holding that agarbaties were not handicrafts.
[881D E] M.S. Company Private Limited vs Union of India, SC, referred to.
(2) Failure to pay duty or take out a licence is not necessarily due to fraud or collusion or wilful mis state ment or suppression of facts or contravention of any provi sion of the Act.
Suppression of facts is not failure to disclose the legal consequences of a certain provision.
[884B] Collector of Central Excise, Hyderabad vs M/s. Chemphar Drugs and Liniments, Hyderabad, [1989] 2 SCC 127, referred to.
(3) Mere failure or negligence on the part of the pro ducer or manufacturer either not to take out a licence in case where there was scope for doubt whether goods were dutiable or not, would not attract section 11 A of the Act.
[884D] (4) In the facts and circumstances of the case, there were materials to suggest that there was scope for confusion and the 875 appellants believing that the goods came within the purview of the concept of handicrafts and as such were exempt.
If there was scope for such a belief or opinion, then failure either to take out a licence or to pay duty on that belief, when there was no contrary evidence that the producer or the manufacturer knew that these were excisable or required to be licenced, would not attract the penal provisions of section 11 A of the Act.
If the facts were otherwise, then the position would be different.
[884E F]


judgement:
Criminal Appeal No. 524 of 1989.
From the Judgment and Order dated 25.5.1989 of the Punjab and Haryana High Court in Criminal Appeal No. 175 of 1986.
M.C. Bhandare, (N.P.) and Gopal K. Bansal for the Appellants.
Mahabir Singh for the Respondent.
The Judgment of the Court was delivered by K. JAGANNATHA SHETTY, J.
We grant special leave and proceed to dispose of this appeal.
On June 28, 1980 the appellants formed a partnership firm for the purpose of running a rice mill in the name and style of M/s Panna Lal Prem Nath Rice Mills at Shahput.
They have been convicted by the Presiding Officer of the Special Court, Karnal by judgment dated March 10, 1986 for contra vention of the provisions of the Haryana 888 Rice Procurement (Levy) Order, 1979, read with section 7 of the .
They were sentenced to six months ' rigorous imprisonment and a fine of Rs.2,000 each.
The High Court of Punjab and Haryana has confirmed that conviction and sentence.
They now appeal against conviction.
The facts which gave rise to the charge, in so far as material, were these: In 1984, the firm purchased 5373 quintals 69 kgs.
and 400 gms of common paddy from the mar ket.
By the rate of conversion of paddy into rice an average 3582.49 quintals of rice should have been obtained from that much of quantity of paddy.
As per levy rules the firm ought to have supplied 3224.21 quintals of rice to the Government but the firm failed to supply it.
Instead it supplied only 15 10 quintals of rice.
There was thus a short supply of 1714.17 quintals of levy rice to the Government.
On another occasion the firm purchased 2353.79 quintals of superfine paddy out of which 1566.62 quintals of rice could be ob tained.
From that, the firm gave the Government 933.89 quintals of rice as against 1174.96 quintals.
Here again there was a short supply of 241.07 quintals of superfine levy rice.
The short supply of levy rice is a contravention of the Haryana Rice Procurement (Levy) Order 1979 and punishable under section 7 of the .
All the partners of the firm were charge sheeted and put to trial for the said offence.
They were also convicted and sentenced as earlier stated.
Counsel for the appellants urged that there is no evi dence adduced by the prosecution that the appellants were in charge of the business of the firm when the offence was committed and in the absence of any such evidence the con viction could not be sustained.
Counsel rested his submis sion on the text of section 10 of the .
This section provides: "10.
Offences by companies (1) If the person contravening an order made under section 3 is a company, every person who, at the time of contravention was committed, was in charge of, and was responsible to, the company for the conduct of the business of the company as well as the company, shall be deemed to be guilty of the contravention and shall be liable to be proceeded against and punished accordingly: 889 Provided that nothing contained in this sub section render any such person liable to any punishment if he proves that the con travention took place without his knowledge or that he exercised all due diligence to prevent such contravention.
(2) Notwithstanding anything con tained .in sub section where an offence under this Act has been committed by a company and it is proved that the offence has been commit ted with the consent or connivance of, or is attributable to any neglect on the part of, any director, manager, secretary or other officer of the company, such director, manag er, secretary or other officer shall also be deemed to be guilty of that offence and shall be liable to be proceeded against and punished accordingly.
" Explanation For the purposes of this section, (a) "Company" means any body corporate, and includes a firm or other association of indi viduals, and (b) "director" in relation to a firm means a partner in the firm.
From explanation to section 10 it will be seen that the company includes a firm and other association of persons.
Section 10 provides that the person shall be deemed to be guilty of contravention of an order made under section 3 if he was incharge of and was responsible to the firm for the conduct of the business of the firm.
What is of importance to note is, that the person who was entrusted with the business of the firm and was responsible to the firm for the conduct of the business, could alone be prosecuted for the offence complained of.
Counsel for the State, however, relied upon the legal liability of partners and he argued that it would be for the accused partners to prove that the offence was committed without their knowledge or in spite of exercising due dili gence on their part.
He relied upon the proviso to sub section (1) of sec. 10.
It is true that under the , a 'firm ' or 'partnership ' is not a legal entity but is merely an association of persons agreed to carry on business.
It is only a collective name for individuals, carrying on business in partnership.
The essen tial characteristic of a firm is that each partner is a representative of other partners.
Each of the partners is an agent as 890 well as a principal.
He is an agent in so far as he can bind the other partners by his acts within the scope of the partnership agreement.
He is a principal to the extent that he is bound by acts of other partners.
In fact every partner is liable for an act of the firm.
Section 2(a) of the Part nership Act defines an "act of a firm" to mean any act or omission by all the partners, or by any partner or agent of the firm which gives rise to a right enforceable by or against the firm.
But we are concerned with a criminal liability under penal provision and not a civil liability.
The penal provi sion must be strictly construed in the first place.
Second ly, there is no vicarious liability in criminal law unless the statute takes that also within its fold.
Section 10 does not provide for such liability.
It does not make all the partners liable for the offence whether they do business or not.
It is, therefore, necessary to add an emphatic note of caution in this regard.
More often it is common that some of the partners of a firm may not even be knowing of what is going on day to day in the firm.
There may be partners, better known as sleeping partners who are not required to take part in the business of the firm.
There may be ladies and minors who were admitted for the benefits of partner ship.
They may not know anything about the business of the firm.
It would be a travesty of justice to prosecute all partners and ask them to prove under the proviso to sub section (1) that the offence was committed without their knowledge.
It is significant to note that the obligation for the accused to prove under the proviso that the offence took place without his knowledge or that he exercised all due diligence to prevent such offence arises only when the prosecution establishes that the requisite condition men tioned in sub section (1) is established.
The requisite condition is that the partner was responsible for carrying on the business and was during the relevant time in charge of the business.
In the absence of any such proof, no part ner could be convicted.
We, therefore, reject the contention urged by counsel for the State.
We have perused the evidence of the prosecution.
Santlal Inspector, Food and Civil Supplies (PW 1) has deposed that the accused were partners of the firm.
He has stated that the statement exhibit P. 8 regarding purchase of paddy and supply of levy rice was signed by Lajpat Rai as partner on behalf of the firm.
The rest of his statement relates to the short supply of levy rice, and it does not indicate that other partners were also conducting the business during the relevant time.
The statement of PW 3 who investigated the case does not indicate anything further.
He has seized the relevant docu 891 ments like stock register and recovery memo and arrested all the four accused.
These documents do not indicate even remotely that all the partners were doing the business of the firm.
There is no other evidence on record on this aspect.
With these tit bits, it is impossible to hold that when the offence was committed all the partners were con ducting the business of the firm.
However, Lajpat Rai ac cused No. 3 cannot escape the liability.
The material on record indicates that he was conducting the business of the firm and in fact, he has signed the statement exhibit P. 8 on behalf of the firm.
His conviction cannot therefore be disturbed.
But the conviction of other partners is absolute ly uncalled for.
In the result we allow the appeal, set aside the convic tion and sentence of appellant Nos. 1, 2 and 4 and acquit them from all the charges.
The conviction and sentence of appellant No. 3, however, are maintained.
P.S.S. Appeal allowed.

summary/full:
The short supply of levy rice to the State Government by licensed millers is a contravention of the Haryana Rice Procurement (Levy) Order, 1979 made under section 3 of the Essen tial Commodities Act, 1955.
The said contravention is pun ishable under section 7 of the Act.
Under section 10(1) of the Act a person is deemed to be guilty of contravention of such an order, if he was in charge of and was responsible to the company for the conduct of its business.
Under the proviso thereto, a person is, however, not liable to any punishment if he proves that the contravention took place without his knowledge or that he exercised all due diligence to prevent such contravention.
Under explanation (a) to the section the term "company" includes a firm or other association of individuals.
The appellants, partners of a firm running a rice mill, were convicted for contravention of the provisions of the procurement order read with section 7 of the Act, and sentenced to rigorous imprisonment and fine.
The High Court confirmed the conviction and sentence.
In this appeal by special leave, it was contended for the appellants that there was no evidence adduced by the prosecution that they were in charge of the business of the firm when the offence was committed and in the absence of any such evidence the conviction could not be sustained.
Partly allowing the appeal, 887 HELD: 1.
There is no vicarious liability in criminal law unless the statute takes that also within its fold.
Section 10 of the does not provide for such liability.
It does not make all the partners liable for the offence whether they do business or not.
[890C] 2.1 The obligation for the accused to prove under the proviso to section 10(1) that the offence took place without his knowledge or that he exercised all due diligence to prevent such offence, arises only when the prosecution establishes that the requisite condition mentioned in sub section 1 that the partner was responsible for carrying on the business and was during the relevant time in charge of the business, is satisfied.
[890E] 2.2 In the instant case PW 1 had deposed that the state ment regarding purchase of paddy and supply of levy rice was signed by appellant No. 3 as partner on behalf of the firm.
There is no other evidence on record to indicate that other partners were also conducting the business of the firm when the offence was committed.
[890G 891A] The conviction and sentence of appellant No. 3 are, therefore, maintained.
The conviction and sentence of appel lant Nos. 1, 2 and 4 are set aside.
They are acquitted from all the charges.
[891C]