Criminal Appeal No 524 of 1989
From the Judgment and Order dated 2551989 of the Punjab and Haryana High Court in Criminal Appeal No 175 of 1986
MC Bhandare NP 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 Ms 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 Rs2000 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 358249 quintals of rice should have been obtained from that much of quantity of paddy
As per levy rules the firm ought to have supplied 322421 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 171417 quintals of levy rice to the Government
On another occasion the firm purchased 235379 quintals of superfine paddy out of which 156662 quintals of rice could be ob tained
From that the firm gave the Government 93389 quintals of rice as against 117496 quintals
Here again there was a short supply of 24107 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 2a 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
PSS Appeal allowed


Summary:
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