Customs, Excise and Gold Tribunal - Mumbai
Modern Denim Ltd., K.K. Sharma And R.K. ... vs Commissioner Of Central Excise on 18 May, 2005
ORDER S.S. Sekhon, Member (T)
1.1 M/s Modern Denim Ltd (herein after referred to a MDL or EOU for short) is an 100% EOU engaged in the manufacture of Denim fabrics and have obtained necessary sanction licenses & registrations as required under the Policy, the Custom Act 1962 and the Central Excise Act 1944. They were permitted towards the Self Removal Scheme.
1.2 The Limited Company has another unit namely Modern Denim (hereinafter referred to as MD or DTA) which is working under the EPCG Scheme in the Domestic Tariff Area and has the required registration as under the Central Excise Act, 1944.
1.3 MDL situated at village Moraiya, Sorbhaji Bevla Road, Dist. Ahmedabad, Gujarat and MD is also alleged to be a subsidiary is situated as same address Shri K K Sharma is Vice President (Commercial) of MDL & MD & Shri R K Kalla is Executive Director of MDL.
1.4 The officers, acting on basis of an intelligence to the effect that MDL & MD had been indulging in evasion of Central Excise Duty, searched the premises, rolls of Denim fabrics them recorded in the account of MDL & MD i.e. 2209 Rolls measuring 153197 meters and 81857 linear meter respectively. Two separate notices were issued to MDL & MD proposing confiscation of the seized goods as from the detailed enquiries made it appeared:-
i) MDL had not recorded for entire production of Grey Denim fabrics in stock registers.
ii) MD had recorded production of 634670 meters of Denim fabrics in RGI whereas their machine were not fully operations till July 1996 & they had not processed more than 25,000 meters during April to June 1996. Therefore excess production of 609670 meters (634670-25000) of finished Denim fabrics in their records were actually manufactured by MDL and clandestinely cleared to MD.
iii) Even after the finishing section was fully operational, MD had continued to account for part of the production of MDL as they were still not able to account for 331934 meters of excess production (1230874-898340) shown in the accounts when production as per the register was much less and in no case they could have manufactured 934332 meters of finished Denim and of 10992144 meter of less production alleging 15% processing loss
iv) MDL should have recorded a production of about 2825062 meters of finished fabrics where by showing 1306312 meters 1518750 meters was shown less than actual i.e. 50% of production. This appeared to be a deliberate act, as MDL was 100% EOU, while MD was registered EPCG unit manufacturing same commodity and rate of duty on clearance for DTA was more than rate applicable on clearance for EPCG unit.
v) Shri K K Sharma, could not explain the excess quantity on 29.12.97 in his statements as recorded in RG1 than the loom record of MD & less production than loom record in MDL was explained as in process stock. Fabricated records were produced as an after thought & clarifications were not satisfactory.
vi) The value of 474506 meters of Denim removed at Rs. 75 plus 930612 meters removed clandestinely worked out at Rs. 35587950 & Rs. 69795900 & Value of Grey Denim of 101721 meter under valued of Rs. 71611865.00
vii) Violation of rules 100B, 100D & 100E of Central Excise Rules was alleged & liability to penalty under Section 11AC was proposed.
ix) Shri K K Sharma, Vice President & Shri R K Kalla Executive Director were found to be aware of switching of production of MDL to MD clandestinely and had thus rendered themselves liable to penalty under rule 209 A
x) MD was also asked to show cause why penalty under rule 209A should not be imposed on them.
1.5 The Commissioner, confirmed the demands of duty & imposed penalties. Hence these appeals.
2.1 After hearing both sides & considering the material on record it is found -
a) The allegation that MD was not capable of manufacturing the goods, as machinery was not installed, is based on the statement of Shri Sanjay Ghelebhai & Shri L P Parwani; these statements without verification of facts and from memory are in direct conflict with the Certificate dtd 15.4.97 issued by the Assistant Commissioner of Central Excise, Ahmedabad, after due verification. The appellants have produced correspondence exchanged between MD & Range Superintendent dtd 1.11.95 initiating installation of 155 sulzer looms in their premises; 1/2/96 of having started production; 25/3/96 about completion of erection. The Asst Commissioner in-charge of the unit for EPCG installation verification on 15/4/97 has issued an installation certificate. The annexure to this certificate gives the BE no of import & dates of installation of Machines imported under EPCG Scheme. There installation dates range during the period September 95 to May 96. If that be so, and it is, since this certificate & date of installation have been verified by the Range Superintendent & found to be correct, then on 24/25.10/96, when the Anti Evasion Officers visited the premises of MD, it could not have been said or alleged & upheld or there were any reasons to conclude that machinery was not installed in MD premises to manufacture. Parwani's statement recorded on 25.10.96, is therefore false on record it cannot be relied. the jurisdictional officers certificate issued even after the search on 24/25.10.96, & the statements speak about the reliability of the same. No jurisdictional officer, after search of a factory by Anti Evasion officers will venture to issue a certificate, contrary to records. We rely more on the certificate of the jurisdictional Assistant Commissioner In-charge & the verification of the installation by the Range Superintendent over the statements as relied upon by the Ld. Commissioner. The Ld. Commissioner's rejection of this certificate issued by his own Assistant Commissioner only on ground of the same being dated 15.4.97 & statements recorded on 25.10.96 cannot be upheld. We find no material to confirm the allegation of no machinery installed in MD, in view of the documentary evidence, to the contrary which is based on contemporaneous verification & exchange of correspondence even before the search of MD took place.
b) Sanjay G Naik's statement informing the diversion to be at behest behalf of Shri K K Sharma has not even been put to Sharma. No efforts have been made to ascertain work in process. The loom production reports & RGI figures & assumptions made thereafter cannot sustain the charges & quantification armed at. From loom production to RGI stage there are number of steps of verification i.e. in folding/packing departments, which have been ignored or not found fault with, as Commissioner has ignored the submissions of the appellants made as regards stocks in process. No correlation with raw materials received & consumed has been brought out to substantiate the quantity of production. Demands made on assumptions & presumptions as in this case cannot be upheld.
c) The allegation of excess stocks allegedly made out and seized have been not upheld & the seizure had been vacated by the jurisdictional Assistant Commissioner. the Commissioner not finding this lifting of seizure to be relevant & an appeal had been filed, will not call for acceptance of his interpretation. No material on record in appeal filed has been shown to be in favour of Commissioner's view.
d) Reading of Boards circular 618/9/2002-CX dtd 13/2/2002 and the provision of notification 125/84 CX would indicate that the fabrics beyond the quota of DTA, allowed to be sold in India would be and should be levied to duty under the main section 3(1) of the Central Excise Act 1944 and that would grant the benefit of exemption of full duty of Excise as levied. Benefit under notification 174/84-CE Dated 26/5/84 granting exemption from Additional Duty of Excise (Goods of Special Importance) Act would be also available.
e) The reliance of the appellant on the Tribunals decision in case NCC Blue Water Products Ltd 2005 (183) ELT 148 (Tri-Bang) is well founded to arrive at levy of duty only under Section 3(1) of the Central Excise Act, 1944 on goods cleared from an EOU to DTA without obtaining permission of competent authority. That decision was arrived at after referring to and relying upon Sam Spintex's Ltd under 2004 (163) ETA 212 (Tri Dell) which relied upon the decision of CCE v. Pratap Singh (2003 (153) ELT 711 which has been affirmed by the Apex Court (2003 (156) ELT 382.
f) The Ld. D Rs. reliance on the case of Himalaya International Ltd (2003 (154) ELT 580 of the Larger Bench, to claim that following the same, the rate applicable whether the clearance is made with or without the permission obtained would be interims of proviso to Section 3 (1) in case of EOU, cannot be upheld, since the Apex Court has set aside & remitted the referring bench's decision arrived at, after applying the above law, as laid down by the Larger bench, with the observations -
"... The matter is reverted back to the Commissioner for consideration of not only the rate but also it to decide the question whether the Respondent is entitled to exemption .... " 2005 (179) ELT A100 SC) Thus Himalaya International Larger Bench stipulation, as to rate with or without, being under proviso to section 3(1) cannot be applied. The rate applicable under section 3(1) is applicable. The same is NIL for Gray Denim fabrics of exempt under Act 125/84 read with 174/84-CE.
g) Once goods cleared from MDL the EOU are found to be at NIL or fully exempt, the question of demand on MDL does not arise. It was submitted that there was no charge of processed Denim having been cleared without payment of duty, if not exported under EPCG obligations. Thus when no duty demands under the Central Excise Act are to be upheld / found there can be no case/ cause for penalty
h) The duty demands, interest or & penalties imposed are to be set aside
3.1 In view of the finding the appeals are allowed.