D.C. Mandal, Member (T)

1. The facts of the case are that the appellants manufactured paints and varnishes falling under Item 14 of the Central Excise Tariff. In addition, they were also manufacturing goods falling under Tariff Item 68. In the Classification list filed subsequent to 7.2.74, they claimed exemption under Notification No. 71/78 dated 1.3.78 and Notification No. 80/80 dated 19.6.80. They also filed declaration that they were not manufacturing excisable goods other than those falling under Tariff Item 14. The Department found that they were manufacturing goods falling under Tariff Item 68 also, in or in relation to the manufacture of which no process was ordinarily carried on with the aid of power. They did not file declaration claiming exemption under Notification No. 179/ 77-CE dated 18.6.77. They also did not file declaration claiming exemption from licensing control as required under Notification No. 111/78-CE dated 9.5.78 for such goods. On verification of the accounts the Department found that the aggregate value of clearances of all excisable goods during the years 1979-80, 1980-81 and 1981-82 effected by the appellants exceeded Rs. 20 lakhs in each year. Moreover, the value of excisable goods falling under T.I. 68 during each of the aforesaid three financial years exceeded Rs. 20 lakhs. A show cause notice was issued by the Assistant Collector of Central Excise, Division K-l, Bombay on 2.6.83 alleging that the appellants contravened the provisions of Rules 173-B, 173-F, 173-1 read with Rule 9(1) of the Central Excise Rules, 1944 in as much as (i) they had not filed classification lists of all the products manufactured by them as required under Rule 173-B, (ii) they had not determined Central Excise duty on the excisable goods valued at Rs. 3,82,045.00 falling under Tariff Item 14 during the year 1980-81 and on goods valued at Rs. 83,318.75 falling under Tariff Item 14 during l981-82 before removal of the goods as required under Rule 173-F and (iii) they had not paid Central Excise duty on the aforesaid goods before removal of the goods as required under Rule 173-G(1) read with Rule 9(1) ibid. They were asked to explain why the Central Excise Duty as aforesaid should not be demanded and recovered from them under Rule 9(2) of the Central Excise Rules read with Section 11-A of the Central Excises and Salt Act, 1944 and why penalty should not be imposed on them under Rule 173-Q and Rule 9(2) and Rule 210 ibid.

2. The Additional Collector of Central Excise, Bombay I, who adjudicated the case, held that the Tariff Item 68 goods manufactured and cleared by the appellants were excisable goods although the same were exempted from duty by virtue of the fact that electric power was not used in the manufacture of the goods and the value of clearances of those goods should be included in the computation of value under Clause 2(ii) of the Notification No. 80/80-CE dated 19.6.80. He followed the judgment of Madras High Court in the case of Tamil Nadu (Madras State) Handloom Weavers Cooperative Society Ltd. v. Assistant Collector of Central Excise, Erode (1978-ELT-J-57). He also "held that the appellants deliberately attempted at suppression of facts and accordingly 5 year period was applicable for raising demand for duty under Section 11-A of the Central Excises and Salt Act. He asked the appellants to pay duty as stated in the show cause notice under Rule 9(2) read with Section 11-A of the Act and also imposed a penalty of-Rs. 6000/- on the appellants under Rule 173-Q of the Central Excise Rules.

3. Arguing for the appellants Shri Deshpande has stated that in their letter dated 9.5.79 (copy of the letter is at page 16 of the paper book submitted by the appellants) the appellants intimated to the Superintendent of Central Excise, Range IX, Division-K, Bombay that they were manufacturing the goods as per the list enclosed to that letter without the aid of power and their factory was not registered under Section 2(m) of t