Customs, Excise and Gold Tribunal - Tamil Nadu
Mohammed Ghouse, Metal Weld ... vs Commissioner Of Central Excise on 20 December, 2006
ORDER P.G. Chacko, Member (J)
1. These appeals are against an order passed by the Commissioner in adjudication of show-cause notice dated 08.05.1997, wherein it was alleged by the department that M/s. Metal Weld Electrodes (MWE, for short) had clandestinely manufactured welding electrodes out of steel wire rods procured from M/s. Metal Trading Company (Electrodes) Pvt. Ltd. (MTC, for short) and had removed the same without payment of duty from 1993-94 to 1996-97 (up to November, 1996). The show-cause notice, apart from demanding duty on the welding electrodes from M/s. MWE, also proposed penalties on them as well as on S/Shri G. Padmanabhan (Consultant for M/s. MTC), N.B. Mohammed (Partner of M/s. MWE and Managing Director of M/s. MTC) and Mohammed Ghouse (Supervisor of M/s. MWE). The notice also sought to confiscate welding electrodes seized from the premises of M/s. MWE and M/s. MTC. In the impugned order, learned Commissioner confirmed demand of duty of Rs. 53,19,377/- against M/s.MWE for the above period, confiscated the seized goods with option for redemption on payment of fine, imposed composite penalty of Rs.10 lakhs on M/s. MWE under Section 11AC of the Central Excise Act and Rules 173Q and 209 of the Central Excise Rules, 1944 and imposed penalties under Rule 209A on S/Shri N.B. Mohammed (Rs.3 lakhs), Shri Mohammed Ghouse (Rs. 2 lakhs) and G. Padmanabhan (Rs.l lakh). All parties "affected by the Commissioner's order are in appeal before us.
2. There is no representation for Slid G. Padmanabhan despite notice, nor any request for adjournment. The other appellants are represented by their Counsel. The respondent is represented by Learned SDR,
3. After examining the records and hearing both sides, we note that M/s. MWE were found to have clandestinely manufactured welding electrodes during the aforesaid period out of steel-wire rods which were found to have been procured from M/s. MTC. The duty demanded on these welding electrodes was quantified on the basis of the value of the steel wire rods. In the reply to the show-cause notice, M/s. MWE denied the department's allegations and submitted that, in the absence of evidence of other raw materials having been procured and used in the manufacture of welding electrodes, the above demand was liable to be dropped. The method of manufacture of welding electrodes from the various raw materials as stated in Para 5.2 of Annexure-A to the show-cause notice is as under:
As regards manufacturing process, Shri Mohammed Ghouse stated that MS wires purchased from market are sent for redrawing and the redrawn wires are led into the extrusion plant; materials like rutile sand, ilmenite, mica, felspar, cellulose etc. are mixed in a particular ratio in the mixer machine and then fed into the sledge press wherein they are made into cakes; then the premixed materials are fed into the extrusion plant where the MS wires get coated with the chemical materials, and such coated rods are tested for quality to see the evenness of the coating; in case the rods do not have been coating they are put into a deflexing machine where the coating in the rods are removed and the rods are once again fed into the extrusion plant for a fresh coating; after the rod pass through the quality control test, they are baked in the oven, after which the rods randomly undergo quality checks to ensure quality; and that the welding rods manufactured by them are used by the customers for welding purposes.
In their reply, the definite case of M/s. MWE was that, in the absence of evidence of procurement of raw materials like rutile, ilmenite, mica, felspar and cellulose and utilization [hereof in the manufacture of the final product, it was not open to the department to allege clandestine manufacture and removal of welding electrodes on the sole basis of procurement of just one raw material viz. steel wire rods by M/s. MWE. They also contested the quantum of duty demanded in the show-cause notice by suggesting an alternative formula for quantification of duty. This formula, which was stated in their reply to the show-cause notice, was also reiterated in their written submissions filed with the Commissioner. The formula as stated in the written submissions is as under:
In a welding electrode the proportion of flux coating to steel as 1 : 2.5. The percentage of Rutile in the coating is ordinarily 55%.
Beneficiated ilmenite contains the active ingredient of (T1O2)(SIC) of 60%. The corresponding figures for Rutile is 96%; hence for our purposes 1.6 M.T. of ilmenite can be equaled to 1 M.T. of Rutile.
During the period under notice the two units have acquired the chemicals as below:
RUTILE - 144 M.T. Less stock on hand -1.25 M.T: Nett 142.75 M.T. RUTILE - 64 M.T, Less stock on hand - 10.04 M.T: Nett 53.60 M.T. Hence weight in Rutile equivalence is 33.5.
Thus the total effective quantity of ilmenite and Rutile expressed as Rutile is 142.75 + 33.5 = 176.25 M.T. The quantity of steel utilized in using 0.55. M.T. of Rutile will be 2.5 M.T. rod. Hence the quantity of steel utilized against 176.25 M.T. of Rutile will be 801 M.T. rod (176.25 X 2.5)70.55 = 801 M.T rod. The average cost per kg of steel during the period was Rs.26 per Kg. Hence the value of 801 M.T. of steel is Rs.2,08,26,000.
The tax calculations will be as follows:
TOTAL VALUE Rs.2,08,26,000
Less Rs.30 lakhs per year Rs.1,20,00,000
(30 x 4) ________________
Rs. 88,26,000
Taxable value per year (-/4) Rs. 22,06,500
Rs. 22,06,500 @ 10% Rs. 2,20,650
Duty per year is Rs. 2,20,650.
Hence for four years the amount is Rs. 8,82,600
Learned Commissioner, however, was not inclined to accept the above formula on the ground that the method of preparation of flux material to be coated on wire rods in the course of manufacture of welding electrodes was kept as a trade secret and not disclosed by the party.
4. The show-cause notice had quantified steel content of welding electrodes on the basis of the statement of Shri N.B. Mohammed, Partner of the assessee-firm. It appears from the records that this statement was retracted after one month. Learned Commissioner rightly rejected .this belated retraction. However, he was inclined to accept an alternative formula suggested by M/s. MWE in their reply to the show- cause notice, which was based on scientific considerations. Therefore, if it be held that quantification of duty demand on the basis of quantification of steel content in the welding electrodes based on the scientific formula suggested by the party is sustainable to the exclusion of other contentions, our decision is bound to go against M/s. MWE. Having realized this situation, learned Counsel has today submitted that substantive case of M/s. MWE is that there can be no finding of clandestine removal of welding electrodes in the absence of evidence of procurement of all raw materials required for the manufacture of that product. He has added that, if it be held that such a finding is sustainable on the basis of evidence of procurement and utilization of one raw material viz. steel wire rods, then it would be the case of M/s. MWE that the quantity of final product should be determined on the basis of the quantity of rutile procured during the period" of dispute and used in the manufacture of electrodes. It is this formula which was emphatically placed before the Commissioner by M/s. MWE through their reply to the show-cause notice and later through their written submissions. Unfortunately, this was not examined by the adjudicating authority. We have also heard learned SDR who has reiterated the findings of the Commissioner.
5. After considering the submissions, we have found substance in the Counsel's submission that: the rutile-based formula suggested by M/s. MWE for calculation of the steel content in the welding electrodes was not considered by learned Commissioner in the impugned order. Along with the said formula, the party had also claimed Modvat credit on steel rods. This claim was rejected by learned Commissioner on the ground that the party had not followed the relevant procedure for claiming Modvat credit. It appears from the records that documents evidencing payment of duty on steel wire rods were available to the adjudicating authority. Perhaps, there was no evidence of any declaration having been filed by the party under Rule 57G of the Central Excise Rules, 1944 for the purpose of claiming input duty credit. Learned, Commissioner apparently took notice of the fact that M/s. MWE were not even registered with the department. We find that the claim for input duty credit was made by the party in the context of pleading for quantization of demand of duty on the basis of rutile-based formula. The fact remains mat this formula was not considered at all by the adjudicating authority.
6. As regards penalty on M/s. MWE, we find that a composite penalty was imposed on that under Section 11AC and Rules 173Q and 209. We find infirmities in this decision of the Commissioner. Firstly, where a penalty was imposed under Rule 173Q, it was not open to the adjudicating authority to impose any penalty under Rule 209, a residual provision. Secondly, there is no quantification of Section 11AC penalty. It is settled law that any composite penalty cannot be imposed on a person under different penal provisions. Hence the penalty of Rs. 10 lakhs (Rupees Ten lakhs) imposed on M/s. MWE requires to be set aside. In the above factual background, the case requires to be remanded 10 ihe Commissioner for de novo adjudication as against M/s. MWE. As one of the issues in this case is whether the welding electrodes seized from the premises of M/s. MTC are liable for confiscation and as this issue is directly related to the confiscability of similar goods seized from the premises of M/s. MWE, the case as against M/s. MTC also will have to be remanded.
7. In relation to the penalties imposed by the Commissioner on the other appellants, it appears from the records and submissions that a separate penalty on Shri N.B. Mohammed (Partner of M/s. MWE) cannot be sustained. Shri Mohammed Ghouse was only an employee of M/s. MWE. Where the penalty on the partner is done away with, that on his employee also will be vacated. Shri G. Padmanabhan was only a Consultant of M/s. MTC. It is noted that there is no penalty on M/s. MTC and that no cogent reason has been stated for penalty' on their Consultant. In the result, the penalties on the appellants in Appeal Nos. E/3804, 3806 and 3808/1998 will get vacated.
8. Appeal Nos. E/3805/1998 and E/3807/1998 are allowed by way of remand and learned Commissioner is directed to pass a fresh speaking order of adjudication in relation to them in terms of the observations/directions contained in this order as regards both duty and penal liabilities. It goes without saying that the parties concerned should be given a reasonable opportunity of being heard.
9. Appeal Nos. E/3804, 3806 & 3808/1998 are allowed.
(Dictated and pronounced in open court)