S. Venkatesan, Sr. Vice-President

1. The facts of this case have been set out very fully in the Order-in-Original of the Collector of Central Excise, Baroda, and it is not necessary to reproduce them. Briefly, the appellants have been manufacturing patent and proprietary medicines falling under Central Excise Tariff Item 14E and pharmacopoeial preparations falling under Tariff Item 68. During the period 1978-79 to 1982-83 (upto January 83) they were manufacturing the abovementioned goods. In regard to the pharmacopoeial preparations they were availing themselves of the benefit of exemption available to small manufacturers of goods falling under that item. In regard to the patent and proprietary medicines, they were availing themselves of the separate exemption for small manufacturers, under Notification No. 71/78, dated 1-3-78, which was subsequently replaced by Notification No. 80/80, dated 19-6-80.

2. Following a visit of the preventive staff to the factory of the appellants, a show cause notice was issued to them on 12-8-83 for wrongfully availing themselves of the exemption under Notifications No. 71/78 and No. 80/80. It was alleged that during the financial years 1979-80 to 1982-83 (upto January 83), the appellants had manufactured and removed patent and proprietary medicines valued at about Rs. 12.31 lakhs from their factory, without accounting and without payment of duty. They were charged under various provisions of the Central Excise Rules for manufacture and removal of excisable goods falling under Tariff Item 14E without applying for a Central Excise licence, without filing classification lists and price-lists, without determining their liability to duty and preparing and issuing gate-passes, and without maintaining statutory accounts. They were called upon to show cause against imposition of penalty and against recovery of duty on the patent and proprietary medicines valued at about Rs. 12.31 lakhs.

3. After considering the reply of the appellants and after hearing them, the Collector held that the charges levelled against the appellants. in the show cause notice were conclusively proved, except with regard to committal of fraud. He accordingly demanded duty on the patent and proprietary medicines valued at about Rs. 12.31 lakhs held to have been illicitly manufactured and removed by them without payment of duty. As regards personal penalty, the Collector recorded that he was taking a lenient view, looking to the facts and circumstances of the case and he accordingly imposed a penalty of Rs. 10,000/-.

4. Appearing before us for the appellants, their Advocate, Shri Christian argued in great detail that they had throughout acted in good faith and disclosed all material facts to the excise authorities . During the relevant period both the manufacturers and the Central Excise officers in Surat Division were of the view that goods exempted from payment of the whole of the duty of excise leviable thereon were non-excisable goods. It had subsequently been clarified that this view was not correct, and they were not seeking to Advocate this view. It was, however, their case that their failure to comply with relevant Central Excise formalities, and pay duty was solely due to this general misapprehension about the legal position. In the present case, the show cause notice had been issued on 12-8-83, which was beyond six months from the period in respect of which duty had been demanded. Since they had at all times disclosed all material particulars to the excise authorities, there was no fraud, collusion or suppression of facts by them which would justify the invocation of the extended time-limit under Section 11A of the Central Excises and Salt Act. Accordingly, the entire duty demand was time-barred. For the same reasons there was no case for imposition of a personal penalty on them.

5. In support of this basic argument, Shri Christian drew our attention to the various Central Excise documents and correspondence.

6. A copy of