Customs, Excise and Gold Tribunal - Delhi
Ess Bee Packagers (P) Ltd. vs Collector Of Central Excise on 28 February, 1994
Equivalent citations: 1994(71)ELT67(TRI-DEL)
ORDER P.K. Kapoor, Member (T)
1. This is an appeal against the order passed by the Collector of Central Excise, Kanpur. Briefly stated the facts of the case are that the appellants are engaged in the manufacture of Printed Plastic Films, Printed Laminates and Pouches made of Printed Laminates. On the basis of intelligence that they were removing excisable goods without obtaining Central Excise licence and without payment of Central Excise duty, the officers of the Directorate of Anti-Evasion searched their Registered Office and the factory premises and seized certain documents and 825 Kgs. of flexible laminated printed polyster film valued at Rs. 1,07,250/- and other finished goods/Pouches valued at Rs. 30,510/- and semi-finished goods weighing 779.200 Kgs. They also recorded the statement of Shri S.R. Maheshwari, Director of the company who in his statement dated 1-8-1989 stated that the appellants had not filed any declaration seeking exemption from licensing control. He also confirmed that the value of the goods cleared during 1988-89 was Rs. 93,36,912.89 and between 1-4-1989 to 31-7-1989 they had cleared goods valued at Rs. 35 lacs. Since no invoices in respect of sales made by the appellants from 1-4-1989 onwards were available, on the basis of the records of the sale proceeds of the goods obtained from the appellants' bankers, the officers estimated that between 1-4-1989 to 31-7-1989 the appellants had manufactured and sold goods valued at Rs. 41,43,388.00. Having regard to the nature of the goods seized from the appellants' factory and the available sales invoices, the officers concluded that the appellants were clearing only laminated printed films and pouches made from such films. After further investigations the appellants were served with a Show Cause Notice dated 29-1-1990 alleging that during the period February, 1989 and July, 1989 they had manufactured and cleared dutiable goods without obtaining Central Excise licence required under Rule 174 and without filing any classification/price lists as required under Rules 173B and 173C. It was further alleged that during the years 1988-89 and 1989-90 (upto 31-7-1989) the appellants had evaded Central Excise duty amounting to Rs. 14,26,122.57 and Rs. 4,38,497 respectively by clandestinely removing excisable goods without issuing any gate passes and without discharging the duty liability thereon as required under Rule 9(1). The show cause notice also stated that while filing the declaration under Rule 174A in April, 1989, the appellants had deliberately given incomplete information. For these reasons the appellants were asked to show cause as to why the seized goods should not be confiscated and duty amounting to Rs. 18,64,619 should not be recovered. The show cause notice also sought to impose penalty on the appellants and all the Directors of the Company.
2. The appellants denied the charges in the show cause notice. They contended that the Department's contention that they were manufacturing only laminated plastic material was incorrect since a large part of their clearances consisted of non-laminated printed films on which no duty was attracted since they were made out of duty-paid plain films received from other manufacturers. They also submitted a break up of the sales of various products claimed to have been manufactured during the relevant period. They further contended that laminated plastic films in roll form and pouches made therefrom were not classifiable under Headings 39.20 and 39.23 as presumed by the Department. They claimed that since printing was not merely incidental to the primary use of the films, the printed plastic films were classifiable under Chapter 49 in terms of Note 2 to Section VII of the Schedule to the Central Excise Tariff Act, 1985. It was also contended that the printed polyster polycoated films were not known in the market as 'laminates' which were incapable of being sold. They also contended that it was evident from Circular No. 41/89 dated 13-7-1989 issued by the Board and Trade Notice No. 140/89 issued by the Central Excise Collectorate that prior to 31-7-1989 the Department itself was having doubts as regards the classification of printed plastic sheets. They denied that they had deliberately tried to evade duty or suppress any facts because of omission to fill up the details against Column 5 of the declaration filed in terms of Rule 174A. They also filed a certificate from their Chartered Accountant certifying the figures of sales of various products. However, by the impugned order, the Collector rejected the appellants' contention and held that during the relevant period there were no sales of non-laminated printed polyster films and only printed films were being subjected to lamination by the appellants. For this reason and having regard to the fact that only laminated films had been seized, the Collector held that the figures of evasion of Central Excise duty during the years 1988-89 and 1989-90 as indicated in Para 15 of the Show Cause Notice were correct. The Collector also held that the laminated printed films produced by the appellants not being products of Printing Industry were correctly classifiable under Headings 39.20 and 39.23 as the case may be. The Collector rejected the appellants' contention that the goods could not be treated as marketable. The Collector also rejected the appellants' contention that there was no deliberate attempt to evade Central Excise duty and it was not permissible for the Department to invoke the extended period under the proviso to Section 11A. On these grounds the Collector ordered the confiscation of the seized coated and printed plastic film/rolls of different varieties of the value of Rs. 1,87,250.00. They were, however, given the option to redeem the confiscated goods on payment of a fine of Rs. 20,000/- and duty leviable thereon. The Collector also confirmed the demand of duty amounting to Rs. 18,42,456.22 on the printed laminated plastic rolls held to have been cleared without payment of duty and imposed a penalty of Rs. 1,00,000/- on the appellants.
3. On behalf of the appellants, Shri D.C. Mandal, Learned Consultant appeared before us. He stated that it was evident from the Board's Circular No. 41/89 dated 13-7-1989 and the Collectorate Trade Notice No. 140/89 dated 25-8-1989 that prior to 25-8-1989 the Department itself was in doubt about the classification of printed plastic sheets. He contended that the question of classification was finally decided in August, 1989 after the matter was discussed in the Tariff Conference in June, 1989. He submitted that from 8-7-1987 onwards plastic films were held as classifiable under Chapter 49 of the Schedule to the Central Excise Tariff Act, 1985 and the Board's decision to change the classification to Chapter 39 vide their Circular No. 6/89-CX 3 dated 16-1-1989 was not implemented prior to 25-8-1989 when the Collectorate Trade Notice No. 140/89 was issued changing the classification to Heading 39.20 or 39.21 as the case may be. He argued that under these circumstances there was no justification for alleging that prior to the date of the Trade Notice, the goods were classifiable under Chapter 39. He contended that the impugned order suffers from gross violation of principles of natural justice since cross-examination of Shri Jnanendra, an officer of Anti Evasion Directorate, who made enquiries from customers of the appellants regarding the details of the products produced and sold by them was denied and the opinions of 14 parties from the Trade which were filed by the appellants were not even referred to in the impugned order. In this regard he added that the Collector had neither given any reasons for disallowing the exemption under Notification No. 53/88-C.E., dated 1-3-1988 nor dealt with a number of submissions made by the appellants and judgments that were cited. He contended that the entire demand was time-barred since there was no suppression or misrepresentation by the appellants with the intention of evading duty. In support of his submission, he placed reliance on the following case law :-
(1) Brakes India Limited and Ors. v. Collector of Central Excise, Madras -1987 (31) E.L.T. 1030 (Tribunal). (2) Padmini Products v. Collector of Central Excise - 1989 (43) E.L.T. 195 (S.C.). (3) Collector of Central Excise v. Chemphar Drugs & Liniments - 1989 (40) E.L.T. 276 (S.C.). (4) Collector of Central Excise v. Indian Cardboard Industries Ltd. -1989 (43) E.L.T. 75 (Tribunal). (5) Indian Oxygen Ltd. v. CCE -1990 (47) E.L.T. 449 (Trib.).
Shri Mandal further submitted that printed plastic films and printed plastic films laminated with other plastic films were made out of duty-paid base films, no duty was payable. In a number of judgments it has been held that printing is not a process of manufacture and even otherwise according to Note 10 to Chapter 39 unprinted and printed films fall under the same heading. He argued that under these circumstances any further recovery would amount to double taxation. In support of this contention he placed reliance on the following case law :-
(1) Extrusion Process Pvt. Ltd. v. CCE -1988 (36) E.L.T. 531 (Bom).
(2) Extrusion Process Pvt. Ltd. v. N.R. Jadhav, Superintendent, Central Excise - 1979 (4) E.L.T. (J 380). (3) Collector of Customs, Madras v. Paper Products Ltd. - Tribunal's Order No. 39/92-C dated January, 1992 in A. No. C/3131/90-C. (4) Timblo & Timblo Pvt. Ltd., Bombay v. CCE - 1986 (26) E.L.T. 435 (Trib.).
(5) Garware Plastic & Polyester Ltd. v. Union of India - 1991 (52) E.L.T. 506 (Bom). (6) Rexor India Ltd. v. CCE -1991 (52) E.L.T. 392 (Trib.).
(7) Collector of Customs and Central Excise and Anr. v. Oriental Timber Industries -1985 (20) E.L.T. 202 (S.C.).
Continuing his submission, Shri Mandal submitted that as per trade opinion Printed Laminates are used for packaging. He contended that under these circumstances they have to be deemed as classifiable under Heading 39.23 and no duty would be chargeable on such laminates in terms of Notification No. 53/88-C.E., dated 1-3-1988. He added that the impugned order suffers from factual errors and the demand had been worked out incorrectly since the Collector had assumed without any basis that there was no production and sale of unlaminated printed films. In this regard he also contended that the films and laminated printed films printed with names/brand names of customers are not saleable to other customers and in that sense they cannot be treated as goods. He also submitted that there was no case for confiscation of any goods or imposition of any penalty on the appellants since they were under the bona fide belief that no duty was payable on the goods and the Department was also in doubt about the classification of the goods.
4. On behalf of the Revenue, Shri Sharad Bhansali, Learned SDR stated that the appellants' contention that they had produced and cleared even printed unlaminated films cannot be accepted since during the search of the appellants' premises only laminated printed films were recovered. He added that the Chartered Accountant's certificate giving the break up of various types of products filed by the appellants was rightly rejected by the Collector, since it could not be correlated with the details of the appellants' products furnished in the show cause notice. He stated that Board's Telex dated 7-8-1987 and subsequent letter dated 16-1-1989 were issued to clarify doubts in the minds of certain quarters regarding the classification of the goods in question. He con tended that it would not be correct to say that even the Board entertained doubts about the classification of those goods. He added that the Collector had correctly held that the extended period under Section 11A was invokable since the appellants had deliberately not furnished complete information in the declaration filed by them under the provisions of Rule 174A. He contended that when duty-paid plain polyester film is used for printing and production of laminated printed film, the new item, being a different product, will be chargeable to duty even if the duty-paid base film and the printed laminated film are found to be classifiable under the same Tariff Heading. In support of his contention, he cited the following case law :
(1) Laminated Packagings (P) Ltd. v. CCE -1990 (49) E.L.T. 326 (S.C);
(2) Union of India v. Babubhai Nylchand Mehta -1991 (51) E.L.T. 182 (S.C);
(3) Paper Products Ltd. v. Assistant Collector of Central Excise - 1993 (68) E.L.T. 731 (Mad).
As regards the appellants' contention that printed films/laminated films made to the requirements of particular customers and bearing their names could not be deemed as "goods", Shri Bhansali contended that the only requirement to be satisfied in respect of excisable goods is that they should be marketable and that test is satisfied even when goods are manufactured according to the requirements of particular customers. He stated that the appellants' claim that their products were eligible for exemption under Notification No. 53/88-C.E. has no force at all since Sr. No. 39 of the said notification would cover final products like 'pouches' and not intermediate products such as printed laminated films. He submitted that denial of cross-examination of Shri Jnanendra, Intelligence Officer of the Directorate of Anti-Evasion, did not amount to violation of principles of natural justice since the show cause notice did not refer to any enquiries made by him. He contended that the order confiscating the seized goods and imposing penalty on the appellants was legal and proper since the appellants had given misleading and incorrect information. On these grounds, he pleaded for the rejection of the appeal.
5. Replying to the points made on behalf of the respondents, Shri D.C. Mandal, Learned Consultant stated that the demand confirmed by the Collector was without any basis. He submitted that the Collector's finding that the appellants had not manufactured and cleared any plain printed films during the relevant period was not based on facts. He added that the appellants had submitted a certificate from their Chartered Accountants giving details of various items manufactured and cleared during the relevant period, which was rejected by the Collector without any valid reasons. He stated that the certificate was based on the records placed before the Chartered Accountant by the appellants and had the Collector asked for the relevant records they would have been produced before her.
6. We have examined the records of the case and considered the submissions made on behalf of both sides. We find that an important point that arises for consideration in this case is whether during the relevant period the appellants were engaged in the manufacture and clearance of only printed laminated polyster films and pouches made therefrom as held by the Collector or a major part of their production and clearances consisted of plain printed polyster films as contended by the appellants. During the adjudication proceedings before the Collector the appellants had filed a certificate issued by their Chartered Accountant giving the following details in regard to the quantum of printed films all sorts cleared from the appellants' factory during the period February, 1988 to July, 1989 :-
Period Value of Clearances February 1988 to March 1988 Rs. 4,85,903.05 April 1988 to March 1989 Rs. 32,80,847.44 April 1989 to 31-7-1989 Rs. 18,57,242.75
It is seen that the main considerations which weighed with the Collector while arriving at the finding that the appellants had not been manufacturing and clearing plain printed polyester films was that at the time of seizure only printed laminated films were found and no unlaminated printed films were found to have been manufactured. The claim made by Shri Sanjeev Kumar Maheshwari, Director of the Company, in his statement dated 1-8-1989, that they had manufactured unlaminated polyester printed films during the year 1982-89 (upto March 1989) for sale to their sister concern M/s. Agarwal Products was not accepted by the Collector on the grounds that there was no evidence in the form of samples or bills evidencing manufacture and sale of unlaminated printed polyster films. In this regard the Collector also observed that since Shri Sanjeev Kumar Maheshwari being the Director of M/s. Ess Bee Packagers (P) Ltd. as well as proprietor of M/s. Agarwal Products, Chawal Mandi, Kanpur, the so-called sales of unlaminated printed polyester films appeared to be a paper transaction and could not be accepted as proof in support of their contention. It is also seen that in regard to the finding that printed polyester films were being subjected to lamination by the appellants and the Chartered Accountants' certificate relating to the figures of production and sales of plain printed polyester films could not be accepted, the Collector made the following observations :-
"Shri Maheshwari has informed the seizing officers on 1-8-1989 that they purchased basic raw materials - polyster films, metallized polyster films, polythene films, adhesive etc. and manufactured the following items:
1. Printed polyster films - "This is manufactured by subjecting the polyster films to printing".
2. Laminated films - "Laminated films are manufactured by sub-jecting printed polyster films to the process of lamination with polythene film or with metallized film and polythene film".
3. Printed polythene films/tubes - "for this polythene films/tubes are subjected to the process of printing".
Thus, it would be evident from Shri Maheshwari's statement that only printed polyster films were subjected to lamination and there was no lamination of plain films.
The certificate submitted by the Chartered Accountant which has been submitted to show the product-wise sales figures has however been furnished for items different from the aforesaid three categories and furnishes figures in respect of sales of:
(i) "Laminated rolls This heading would indicate that
(all sorts)" these laminated rolls could be
printed as well as plain. However,
as per party's own statement only
printed films were laminated.
(ii) "Printed pouches which would indicate that such
(all sorts)" pouches could be unlaminated
also, and
(iii) "Printed pouches which again would indi-
(all sorts) cate that the figures are
in respect of both
laminated and unlaminated
printed films.
Whereas the party had never differentiated between rolls and films when intimating the products manufactured by them, the Chartered Accountant's statement makes a distinction between laminated rolls (all sorts) and printed films (all sorts) implying that rolls are different from films.
In view of the aforesaid facts there is no clear correlation between the data as furnished in the Chartered Accountant's statement and the data on the basis of which demand has been worked out in show cause notice and in view of the aforesaid contradictions, the said Chartered Accountant's statement cannot be accepted as conclusive evidence with regard to the quantum of production of laminated plastic materials in roll forms as well as in the form of pouches, in respect of which show cause notice has been issued. In paras 10 to 15 of the show cause notice details were furnished as to how duty was calculated and a chart in this regard was also enclosed as Annexure-X to the show cause notice. In their reply to show cause notice M/s. Ess Bee Packagers (P) Ltd. have not contested these calculations or furnished any reasons for disagreement with these figures. (It may be pointed out that various summons were issued to Shri S.K. Maheshwari by the officers of Directorate General of Anti-Evasion and sufficient opportunity was given to him to explain the position even earlier). With reply to show cause notice submitted four months after the date of seizure M/s. Ess Bee Packagers (P) Ltd. forwarded a one page statement from a Chartered Accountant certifying "the product-wise sales of M/s. Ess Bee Packagers (P) Ltd. for the periods Feb. '88 to March '88, April '88 to March '89 and from April '89 to 31st July '89" in accordance with the books of accounts produced before the Chartered Accountant. As discussed above, there are sufficient reasons to doubt the veracity of this statement in the absence of any evidence of sale of non-laminated printed polyster films to any independent party other than M/s. Agarwal Products which was Mr. S.K. Maheshwari's concern also. The particulars of the goods in the statement are also not in consonance with the particulars of the goods stated to be manufactured by the party at the time of seizure and in accordance with which the show cause notice has been issued. Whereas in the show cause notice there is clear reference to manufacture of laminated rolls and pouches only, an attempt has been made to split up the product into "laminated rolls (all sorts)" and "printed films (all sorts)".
In view of the aforesaid facts, reliance cannot be placed on the aforesaid statement dated 28-2-1990 of M/s. Tandon & Mahendra, Chartered Accountants which is a limited statement based on apparently limited facts placed before the Chartered Accountants, and which does not explain the reasons for reaching the said conclusions in contradiction of the allegations contained in show cause notice. I, therefore, hold that the figures relating to evasion of Central Excise duty as incorporated in para 15 of the show cause notice during the financial year 1988-89 and 1989-90 are correct."
7. The appellants have contended that the Collector's finding that during the relevant period they had not produced and cleared any plain printed polyster films is without any basis. They have stated that during the relevant period a large part of the total clearances from their factory was of non-laminated printed polyster films and this fact was confirmed by their Chartered Accountant who had issued a certificate showing the quantum of printed non-laminated films produced by them during the period February, 1988 to July, 1989. It has been submitted on behalf of the appellants that the Collector had rejected the Chartered Accountant's certificate on flimsy and baseless considerations without making any effort to verify its contents since the only reason given for the rejection of the certificate was that it did not explain the reasons for arriving at conclusions different from the allegations contained in the show cause notice. In this regard, the learned Consultant on behalf of the appellants has submitted that the Chartered Accountant's certificate filed by the appellants before the Collector was based on the relevant records which were placed before him and if the Collector had asked for the relevant records, they would have been placed before her.
8. We find considerable force in the appellants' contention that no serious effort was made by the adjudicating authority to verify the details given in the Chartered Accountant's certificate regarding the quantum of plain printed polyster films manufactured and cleared by the appellants during the relevant period. For this reason we find that the impugned order is not a reasoned and speaking order and has been passed without proper application of mind. It is seen that the answer to the question whether the appellants were actually producing printed plain polyster films shall have an important bearing on the various other points that arise for consideration in this case and particularly on the quantum of short levy, if any. The Chartered Accountant's certificate has been claimed to have been issued on the basis of the relevant records placed before the Chartered Accountant and the Learned Consultant on behalf of the appellants has stated that the appellants would have produced for verification the records which were placed before the Chartered Accountant in case the adjudicating authority had asked them to do so. Having regard to these considerations, we set aside the impugned order and remand the matter to the adjudicating authority for de novo consideration of all the issues including the question whether the appellants had produced and cleared plain printed polyster films during the relevant period. For this purpose we direct that before deciding the matter the appellants should be given an opportunity for personal hearing. We also direct that the appellants to produce before the adjudicating authority all the records on the basis of which the Chartered Accountant had issued the certificate mentioned above.
9. The appeal is therefore allowed by way of remand.