Customs, Excise and Gold Tribunal - Delhi
Lakshman Exports Ltd. vs Cce on 1 July, 1996
Equivalent citations: 1996(66)ECR752(TRI.-DELHI)
ORDER S.L. Peeran, Member (J)
1. (i) These appeals arises from an order in-original dt. 13.12.1991 passed by the Additional Collector of Central Excise, New Delhi, by which he has directed confiscation of the seized goods and granted option to redeem on payment of redemption fine of Rs. 25,000/- and to pay appropriate amount of duty on its further clearances. He has also imposed a penalty of Rs. 5,00,000/- for the contravention of the various rules cited in the show-cause notice alleging manufacture and clandestine removal of goods from the appellant's factory. The Revenue is aggreived to the extent of that portion of order in which the Addl. Collector has failed to take legal notice of the fact that once clandestine removal are held to have been established, the duty amounting to Rs. 3,71,750.40 payable on the goods so removed, should have been demanded from the party which he has failed to do. The Revenue is also aggreived on Additional Collector having not imposed any personal penalty on the owner of the truck having found him guilty, but having an exonerated him from imposition of any personal penalty. It is also prayed that liability of the truck to confiscation remained and therefore, the Additional Collector should have confiscated it and imposed fine in lieu of confiscation which he has failed to do so. The Revenue also submits that the Additional Collector while imposing personal penalty have failed to mention the provision of the law under which penalty was being imposed and also he had failed to give his findings or any order on the proposal for confiscation of plant and machinery as contained in the show-cause notice and hence they have asked for appropriate amendment of the Additional Collector's order under Section 35C of the Cenlral Excises & Salt Act, 1944. The facts that has gone in for adjudication of the case is that the appellants are said to be a DGTD Unit and in their factory they had installed Plant and machinery for the manufacture of T.V. Cabinets and parts thereof i.e. Front Covers and Back Covers of T.V. Cabinets of sizes 14" and 20" classifiable under sub-heading No. 8529.00 of the Schedule to the Central Excise Tariff Act, 1985 and for manufacturing these goods they had obtained a Central Excise Licence No. L-4 on 31.5.1988. It is alleged that the Anti-Evasion staff of Central Excise Collectorate, New Delhi during the course of nakabandi near Punjsons, Kalkaji, New Delhi on 10.3.1989 inter-alia intercepted a truck bearing registration No. DHL-5250 coming from Okhla Industrial Area at about 1540 hrs. The truck driver who identified himself as Tejpal on being enquired said that the truck was loaded with T.V. Cabinets and was being brought from the factory premises of the party. On asking for production of covering documents, he produced party's Challan No. 206 dt. 18.3.1989 and stated that he did not possess any other document. The driver was asked to record his statement in writing, which he did willingly. A spot scrutiny of the produced challan revealed that the number thereon had been written by hand and that the said challan did not bear any unit Code number of Central Excise. The truck along with the loaded goods was brought in front of the factory premises of the party in presence of two independent witnesses for further verification of the facts. In the factory premises of the party, one Shri Dinesh Kumar, was present at the time, and he introduced himself as a Director of the Company. From the preliminary enquiry it was learnt that they have a valid Central Excise Licence to manufacture the T.V. Cabinets falling under the said tariff item. On demand, Shri Dinesh Kumar could not produce the Central Excise records in respect of the goods seized from the truck. He however, stated that they were doing job work under Rule 57F(2) of the Central Excise Rules, 1944. Besides the contents of the truck which was found as per Challan No. 206 dt. 18.3.1989, the stock of the final product i.e. T.V. Cabinets and parts thereof (front cover and back cover) and the raw-material i.e. Plastic Powder in granules lying physically in the factory premises were verified in the presence of two independent witnesses and the said Shri Dinesh Kumar. The details of the goods found physically stored in the factory were as under:
S.No. Description of the goods/ No. ofPcs. Value
Raw Materials
1. T.V. Cabinets in finished and 1010 Rs. 80,000/- @
O.K. condition Rs. 80/- per kg.
2. Plastic Powder in Granuie 2000 kgs. in 80
bags 25 Kgs. each
(ii) It is alleged that the said Shri Dinesh Kumar failed to produce any statutory documents i.e. valid G.P.I or 57F(2) Challan for the transportation of goods loaded in truck. While tendering a statement under Section 14 of the said Act on the spot, it is alleged that he inter-alia mentioned the above facts in writing and stated that neither they have maintained R.G.1 register nor any job work register under Rule 57F(2) of Central Excise Rules, 1944. In view of the foregoing facts the finished goods i.e. T.V. Cabinets (Front cover) of 14" 1010 Pcs. lying physically in the factory premises and unaccounted for in any Central Excise records either under Rule 53 or 57F(2) of Central Excise Rules, 1944 valued at Rs. 80,000/- and the goods loaded in the truck of quantity 576 Pcs. valued at Rs. 46,080/- along with truck No. DHL-5250 valued at Rs. 1,50,000/-were placed under seizure as per Panchnama-cum-seizure memo dt. 18. 3.1989 under Section 110 of the Customs Act, 1962 as made applicable to the Central Excise Act on the reasonable belief that the same are liable to confiscation. The records found available in the factory and considered relevant were resumed for further detailed scrutiny vide Panchnama referred to above.
(iii) The above seized goods alon gwith the truck No. DHL-5250 were handed over to the said Shri Dinesh Kumar Parwande under proper superdignama dt. 18.3.1989 for a safe custody. The department further made enquiries and it revealed that the party had obtained the Central Excise Licence on 31.5.1988 and that prior to that the premises, plant and machinery of the party were being used by one M/s. Mutual Industries on payment of licence fees to the party. The resumed records inter-alia consisted of a blue cover 'Neelgagan Note Book" (hereinafter referred to as the note book) indicating datewise production of the party, production slips, 57F(2) Challans and the bills of the party. A collateral study/scrutiny, of these documents/records revealed that the details of production in the note book tallied with production slips but not with the details of 57F(2) challans and bills and that the facts relating to the production and clearances had been suppressed by the party in order to evade the Central Excise Duty to the extent given in the show-cause notice.
(iv) A further scrutiny of the note book and 57F(2) Challans revealed that M/s. Sargodha Enterprises, C-134, Naraina Industrial Area, Phase-I, New Delhi had sent 500 kgs. of M.C.H. 114 of plastic powder and 125 kgs. of Master Black vide 57F(2) challan No. 13 dt. 27.5.1988 and the details of despatches as endorsed on this Challan revealed that against the material of this challan and the previous balances of raw-materials of 1.085 kgs., there were despatches of 59 pcs. on 11.6.1988, 44 pcs. on 12.6.1988 and the remaining quantity, leaving 2.770 kgs. In balance, was despatched as scrap and powder or as powder scrap on 12.6.1988 and 29.6.1988. Scrutiny also revealed that M/s. Sargodha Enterprises had sent 8600 kgs. of Natural Plastic Powder and 114 kgs. of Master Black to the party on 15.7.1988 vide 57F(2) Challan No. 14 enclosed as Annexure-V to the show-cause notice. File containing 57F(2) challans resumed from the party did not contain any 57F(2) Challans issued by M/s. Mutual Industries for sending the material to the party. Thus the party though obtained L-4 licence on 31.5.1988, yet did not have any raw-material till 15.7.1989 for manufacturing the goods for the manufacture of which they obtained the licence. But a scrutiny of the note book revealed that the party manufactured 4958 Pcs. of parts of T.V. Cabinets 14" (Front cover) for M/s. Sargodha Enterprises between 31.5.1988 to 21.6.1988,4210 Pcs. of parts of T.V. cabinets 14" (Back cover) for M/s. Mutual Industries between 21.6.1988 to 27.6.1988 and 6216 pcs. of parts of T.V. Cabinets 14" for M/s. Sargodha Enterprises between 29.6.1988 to 14.7.1988. Production slips resumed from the party on 18.3.1989 also confirm this production. Shri Dinesh Kumar Parbanda, Director of the party, in spite of being asked specifically as to from where and how the raw-material, out of which the goods in question were manufactured was received, he could not produce any document showing the receipt of raw material and in his statement dt. 3.9.1989 and 8.9.1989 stated the production to be directly relating to M/s. Mutual Industries. It is alleged that this statement of Shri Parbanda appeared to be incorrect as the party had obtained L-4 on 31.5.1988 and taken over the factory from M/s. Mutual Industries. It is alleged that Shri Parbanda also failed to produce any documentary evidence to show that agreement between the party and M/s. Mutual Industries existed even after 31.5.1988. Since there is no 57F(2) challan to cover the receipt of the raw-material out of which these goods were produced, the party appear to have produced these goods on their own account and not on job work basis under Rule 57F(2) of Central Excise Rules, 1944. It is alleged that the party is a unit registered with DGTD and therefore, not admissible for the exemption under Notfn. No. 175/86 dt. 1.3.1986 as amended. The party was, therefore, required to follow the procedure laid down under Rules 173C, 173F, 173G read with 53, 52A and 9(1) and 226 of the Central Excise Rules, 1944. Since these goods were not found in the factory during the course of physical verification on 18.3.1989, it appears that the same had been removed by the party clandestinely in contravention of Rules mentioned above to evade the Central Excise duty as given hereinafter.
(v) It is further alleged that on scrutiny of 57F(2) challans further revealed that the balance of raw material out of which the goods in question were manufactured by the party had become Nil on 24.8.1988 as per the endorsement of the party on challan No.19 dt. 13.8.1988 of M/s. Sargodha Enterprises and that 11500 kgs. of Natural Plastic Powder and 50 kgs. of Master Black had been received by the party from M/s. Diamond Plastic Pvt. Ltd., A-36/1, Narairta Industrial Area, Phase-I, New Delhi vide 57F(2) Challan No. 14 dt. 13.9.1988. Thus there was no raw-material of any 57F(2) challan with the party between 24.9.1988 to 12.9.1988 in the account of M/s. Diamond Plastic Pvt. Ltd. or M/s. Sargodha Enterprises. But the scrutiny of the note book revealed that the party had manufactured 7338 pcs. of part of T.V. Cabinets 14" (Front cover) for M/s. Diamond Plastic Pvt. Ltd. Since the material of these 7338 pcs. is also not covered by any 57F(2) challans therefore these pcs. also appeared to have been produced by the party on their own account and removed without payment of Central Excise duty in contravention of Rules mentioned hereinbefore.
(vi) It is alleged that on further scrutiny of the note book and production slip revealed that the party had manufactured (total quantity of 30586 pcs. of 14" T.V. Cabinets Front Cover for M/s. Diamond Plastic Pvt. Ltd., between the period from 27.9.1988 to 28.2.1989 but the endorsements on 57F(2) challans received by the party from M/s. Diamond Plastic Pvt. Ltd. during the period in question revealed that the party despatched 25774 pcs. of T.V. Cabinet Front cover leaving 4812 pcs. unaccounted for. As these 4812 pcs. of the parts of T.V. Cabinets did not exist in the stock of the party on 18.3.1989 as is evident from the result of the physical verification of stock on that date, these appear to have been cleared by the party without payment of Central Excise duty leviable thereon and in contravention of Central Excise Rules mentioned hereinbefore. It is further alleged that scrutiny of the note book and the production slips further revealed that the party had produced/manufactured 9205 pcs. of T.V. Cabinets 20" Front cover for M/s. Evershine Electronics Pvt. Ltd., B-78, Okhla Industrial Area, Phase-II, New Delhi during the period from 9.9.1988 to 25.11.1988 but the endorsement on 57F(2) challans of the relevant period and respective party show that only 8368 pcs. had been despatched to M/s. Evershine Electronics Pvt. Ltd. and thus, 842 pcs. were left unaccounted for. Since on 18.3.1969 on physical verification of the stock of the party, no finished goods were found of the account of M/s. Evershine Electronics Pvt. Ltd., and as the balance of raw-material has been shown to be 1.24 kgs. only by the endorsement made by the party on 57F(2) challan No. 29 dt. 7.12.1988 of M/s. Evershine Electronics Pvt. Ltd. it appears that 842 pcs. of T.V. Cabinets Front Covers left unaccounted for as mentioned above were cleared by the party without payment of Central Excise duty leviable thereon, as calculated hereinafter, in contravention of rules mentioned hereinbefore. It is further alleged that scrutirty of the 57F(2) challan No. 56 dt. 8.3.1989 of M/s. Evershine Electronics Pvt. Ltd. revealed that as per endorsement made by the party thereon against the material received thereunder, the party had despatched 744 pcs. of T.V. Cabinet front cover and that a balance of 999.32 kgs. of raw material remained as on 17.3.1987. But on physical verification a quantity of only 600 kgs. of raw material was found to be of the account of the parties other than M/s. Sargodha Enterprises. Thus, there was a shortage of 399.32 kgs. of plastic powder out of quantity received against the 57F(2) challan referred to above in this paragraph. The note book revealed that the party had manufactured during the period from 9.3.1989 to 12.3.1989, a quantity of 1296 pcs. of T.V. Cabinets (front cover) of account of M/s. Evershine Electronics Pvt. Ltd. Thus, there was non-accountal of 552 pcs. As these 552 pcs. were not found in the party's stock on physical verification on 18.3.1989, it appears that the party cleared the same without payment of Central Excise Duty leviable thereon, and in contravention of the Central Excise Rules mentioned hereinbefore.
(vii) The value of the Front cover of T.V. Cabinet was stated to be Rs. 80/-per pc. by Shri Dinesh Kumar Parwanda in his statement dt. 18.3.1989 and the same value has been taken to be in respect of back cover also.
(viii) From the foregoing facts it has been alleged to appear that the party manufactured and cleared T.V. Cabinets Front cover/Back cover as detailed in Annexure XVII to the show-cause notice, and valued at Rs. 23,14,240/- plus Rs. 46,080/- involving Central Excise Duty of Rs. 3,71,750.40 (Rs. 3,54,040/- as BED and Rs. 17,702.40 as SED) on suppression of the facts relating to production and clearance of the same, without filing the price list as required under Rule 173C of the Central Excise Rules, 1944, without accounting for the production in the Daily Stock Account i.e. R.G.-1 as required under Rule 53 read with Rule 173G ibid, without covering the removal of the same by a proper G.P.I as required under Rule 173F read with Rule 52A ibid, without determining and paying the Central Excise Duty leviable thereon as required under Rules 173F and 9(1) read with 173G ibid respectively and without properly maintaining the statutory record as required under Rule 226 ibid. The party thus, appears to be liable for penal action under Rules 9(2), 173Q, 209 and 226 ibid and that for the recovery of Central Excise Duty the extended period of time limit as laid down under Section 11A of the Central Excises & Salt Act, 1944 is invocable.
(ix) Consequent upon the above, the party i.e. M/s. Lakshman Exports Pvt. Ltd., A-58/2, Okhla Industrial Area, Phase-II, New Delhi-110020 was issued with a show-cause notice vide C.No. V(8529) 15/98-CE/89/3215 dt. 15.9.1989 along with its all the enclosures alleging therein the above given facts and also calling upon the party to show cause as to why:
(i) The Central Excise Duty amounting to Rs. 3,71,750.40 not be demanded from the party under Rule 9(2) of Central Excise Rules, 1944 by applying the extended time limit of 5 years as laid down under Section 11A of the Central Excises & Salt Act, 1944.
(ii) the seized goods should not be confiscated under Rules 173C, 9(2) and 226 ibid, and
(iii) as to why the land, building, plant and machinery used for manufacturing the goods in question should not be confiscated under Rule 173Q ibid.
Shri Nirmal Singh, owner of Truck No. DHL-5250, C/o Nirmal Transport Service, 36-B, Gali No. 1, Gobindpuri, opposite Bus Depot, New Delhi, was also called upon to show cause as to why the Truck No. DHL-5250 should not be confiscated under Section 115 of the Customs Act, 1962 as made applicable to like matters of Central Excise vide Notfn. No. 68/63-CE dt. 4.5.1963 as amended for transporting 576 pcs. of T.V. Cabinets parts on 18.3.1989 without the cover of proper document.
(x) A corrigendum to the show-cause notice mentioned above was also issued vide this office letter of even No. 96 and 97 dt. 8th Jan., 1990 whereby it was further informed that the seized truck bearing registration No. DHL-5250 had been provisionally released to Shri Nirmal Singh, owner of the truck on 11.12.1989 on his executing a B-ll(Sec) Bond of the value of Rs. 1,50,000/- with a security of Rs. 5000/- in the form of Post Office Saving Bank A/c No. 104775 dt. 21.9.1989 in the G.P.O., New Delhi. Further as per the terms and condition of the provisional release the party was held bound to produce the truck at the time of show-cause or in case of their inability to do so they should also show cause as to why the said B-ll (Sec) Bond should not be enforced to realise the dues, if any, adjudged in respect of the said seized truck.
2. (i) On behalf of the appellants, a reply was filed wherein it was contended by them that they had taken Central Excise Licence on 31.5.1988 for the manufacture of T.V. Cabinets but they could not start the manufacture of the same on their own behalf and were able to produce semi-finished cabinets of plastics on job basis. Such goods were being produced from the plastic powder in granules form which was being supplied to them by their customers who wanted them to convert the same into the articles of plastics viz. semi-finished Cabinets.
(ii) The suppliers of the material, i.e. the plastic powder to the party are either the manufacturer of T.Vs. or the supplier of T.V. Cabinets who after procuring the semi-finished cabinets would further undertake some more processes on such goods to enable to produce and manufacture the T.V. Cabinets which can be used as such in manufacture of T.V. Cabinets. Thus, it is only after undertaking further processes namely painting, buffing, fittings etc. at their end that the T.V. Cabinets would get manufactured at the premises of the supplier of the raw material and the goods at the time of clearance from my clients were a mere 'Article of Plastic' falling under Heading No. 3926.90. Since these goods are manufactured only from the materials specified under Chapter 39 of the Central Excise Tariff that these are exempt from payment of any Central Excise Duty in terms of Notfn. No. 53/88 dt. 1.3.1988 as amended. It has thus been submitted that the goods on which the demand had been raised in the impugned show-cause notice in fact are totally exempt in terms of Notfn. No. 53/88 as at the premises of the supplier of the raw material by undertaking certain more processes by such supplier. Thus the very basis of raising the demand has been on wrong interpretation towards the classification of the goods in question. It has been submitted that on this ground alone the demand as raised needs to be set aside.
(iii) Further, the premises at A-58, Okhla Industrial Area belong to M/s. Lakshman Exports Pvt. Ltd. to whom the impugned show-cause notice has been issued. Even the plant and machinery installed in the factory belong to the party itself. Prior to 31.5.1988 the said premises were let out, along with the machinery installed, to a manufacturer M/s. Mutual Industries who also held a Central Excise Licence for producing the goods as that of the party. On 31.5.1988, as per the evidence on record, the party also took out the Central Excise Licence of the said premises for the manufacture of T.V. Cabinets and it is pertinent to point out here that M/s. Mutual Industries continued to retain the Central Excise Licence for the said premises. The party states that as is also evident from the records that M/s. Mutual Industries had also been engaged in producing plastic cabinets on job basis, and on the strength of the permission granted to the suppliers of the raw material under Rule 57F(2) that they had been receiving such material for converting the same into plastic cabinets. Therefore, the goods produced by them would invariably will be cleared without payment of duty in view of the permission granted to the supplier of the material under Rule 57F(2) read with Notfn. No. 214/86 dt. 25.3.1986. However, the party had took out the Licence on 31.5.1988 and there existed in stock of M/s. Mutual Industries the raw material received under Rule 57F(2). The raw-material was converted into plastic cabinets even after 31.5.1988 by the workers of M/s. Mutual Industries who, as submitted in this para, were also holding a Central Excise Licence for the said premises. Since the machinery installed and the premises belong to the party that they in lieu of such use of plant and machinery along with the premise build M/s. Mutual Industries on the basis of number of pieces of plastic cabinets produced by M/s. Mutual Industries. This arrangement was done on of (sic) objection from the financial institutions. In his statement recorded on 5.9.1989 Shri Dinesh Kumar Parbanda clarified the same before the department. He submitted that the labour employed was of M/s. Mutual Industries who are keeping record for the same. It has thus been submitted that being a holder of Central Excise Licence till July, 1988 and the fact that M/s. Mutual Industries had employed their own labour, that the party submit that it is M/s. Mutual Industries who remained as a manufacturer of the Plastic Cabinet till July, 1988 i.e. when they surrendered their licence. In the impugned show-cause notice the demand for supply of certain plastic cabinet as appearing at S.No. 1 and 3 of Annexure XVII to the impugned show-cause notice has been raised against the party solely on the ground that there existed bills raised by them in favour of M/s. Mutual Industries for the production of goods taken place from 31.5.1988 to 27.6.1988. The party has submitted that having explained all the facts in detail in their statement dt. 5.9.1989 and the fact that the bills raised to M/s. Mutual Industries by the party in fact was only the consideration towards the use and utilisation of the party's plant and machinery and its premises that such demands should not have been raised against the party but against M/s. Mutual Industries. Reference in this connection was also invited to the provision of Section 2(f), which defines the.word 'Manufacturer' and states that it shall include not only person who employs hire labour in the production or manufacture of excisable goods, but also any person who engages in their production or manufacture on his own account. The party submit that M/s. Mutual Industries thus are squarely covered by the definition of word 'manufacturer' as defined in Section 2(f) of the Act. It has thus been submitted that the duty and the demand raised against the party towards the production taken place in May & June, 1988 on the ground that there exists the bill of job charges raised by my clients to M/s. Mutual Industries, is thus not sustainable and the party is not obliged to be proceeded against or to pay such sum.
(iv) Further in respect of the plastic cabinets cleared as mentioned against S.No. 1 to 3 of Annexure XVII it had been submitted by the party that it should not have been asked to pay any duty as it is M/s. Mutual Industries who are in fact the material received by M/s. Mutual Industries and out of it the goods at S.No. 1 to 3 of Annexure XVII had been manufactured, was received under Rule 57F(2) challan issued in favour of M/s. Mutual Industries. This fact also stands corroborated and established by going through the provisions of para 6 to the impugned show cause notice. It would thus be seen that the goods i.e. the raw material received by M/s. Mutual Industries under Rule 57F(2) thus had to be accounted for. The party stated to understand that the goods manufactured out of such raw material had in fact been despatched by M/s. Mutual Industries on the body of the challans issued under Rule 57F(2) and the same thus should have been accounted for by the supplier of raw materials and M/s. Mutual Industries. The party however submits that they may be allowed to cross examine the representative of M/s. Sargodha Enterprises and M/s. Mutual Industries to establish that the goods in question as appearing at S.No. 1 to 3 had duly been accounted for in their books of account and on which appropriate amount of Central Excise Duty had been paid.
(v) The party further submits th?t it had took out the licence on 31.5.1988 and was not aware of the intricacies of the Central Excise Law, like that the Challans required to accompany the raw material had to be the prescribed challan. They thus went on to produce the goods from such raw material and such production was incidentally being stored in their factory. It was only when the party's supplier of raw material could get the permission from their jurisdictional Assistant Collector under Rule 57F(2) to incorporate the party's name that only then they could issue a regular 57F(2) challans covering the quantity of the material despatched to the party from 31.5.1988 till the date the suppliers received the amended permission under Rule 57F(2).
(vi) The production of semi-finished cabinets from the raw material received from 31.5.1988 till the date of issuing the regular 57F(2) chalan i.e. whether supplier of the raw material actually received the permission under Rule 57F(2) from their Asstt. Collector was actually cleared only after such permission and such clearance duly appears on the body of the challans issued under Rule 57F(2). There is a reference in the show-cause notice about the production slip and a Neelgagan diary which as per the show-cause notice tally with each other but not with the Challans under Rule 57F(2). The reason is very simple that the quantity of raw material sent to the party as shown on a challan issued under Rule 57F(2). The reason is very simple that the quantity of raw material sent to the party as shown on a challan issued under Rule 57F(2) covers the quantity already sent by the supplier on their private challans. The Neelgagan diary and production slips, therefore, do not reflect any further account of production from the raw material entered under Rule 57F(2) challan. There is absolutely no evidence on record to show that the material as entered on Rule 57F(2) was other than the material received by the party on the private challans from the supplier of the raw material. The party had raised only one bill to its customer and which can be verified also from its book of accounts. The party submits that in fact there arises no question of raising any demand against itself in as much as the goods were cleared only after the date on which the supplier of the raw material received the requisite permission from their Asst. Collector under Rule 57F(2) read with Notfn. No. 214/86 dt. 25.3.1986 as amended. It may thus be submitted that on this ground alone the demand as raised may be ordered to be set aside.
(vii) The party has further submitted that Notfn. No. 214/86 speaks of exempting an item manufactured in a factory, and which subsequently have to be used in or in relation to the manufacture of final product at the premises of the supplier of raw material. It has thus been submitted that the goods manufactured by the party had in fact reached the premises of the supplier of raw material and had duly been accounted for and used by the supplier of the raw material in or in relation to the manufacture of his final product. It had therefore, been submitted that since the element of Excise Duty had already been paid by the party, so there arises no question of again raising a demand against the party.
(viii) As regards the goods listed at S.No. 4 to Annexure 7 to the show-cause notice and delivered to M/s. Diamond Plastics that the party submits they having received the raw material on 24.4.1988 weighing 1525 kgs., 25.5.1988 weighing 10,000 kgs. and 28.8.1988 weighing 25 kgs. from M/s. Diamond Plastics for converting the same into plastic Cabinets parts. It is submitted and as explained above in the aforesaid paras that the party received the permission subsequently for removal of goods under Rule 57F(2) and accordingly after taking such permission raised their challan No. 14 dt. 13.9.1988 wherein 11,550 kgs. was shown and which in fact covered only the raw material sent on the above dates. It, therefore, shows that the Challan No. 14 dt. 13.9.1988 was only issued under Rule 57F(2) by M/s. Diamond Plastics to cover their despatch of raw material referred to above and which would further show that such material had duly been accounted for in their R.G. 23A Part-I Register and on which they had availed the MODVAT credit as would be evident from their R.G. 23A Part II Register. The goods manufactured out of such material had been despatched on the body of Rule 57F(2) challan, i.e. subsequent to taking out the permission and therefore should have been accounted for in their books of account, and which means payment of appropriate amount of duty at the premises of M/s. Diamond Plastic on these goods. It may thus be submitted that there is no question of raising of any demand against the party as far as the clearance of 7,338 pieces of plastic cabinet front cover are concerned.
(ix) As regards the goods listed at S.No. 5, 6, 7 of Annexure 17 and as appeared at Paras 8 to 10 of the impugned show cause notice that it has been alleged that the plastic cabinet covers have been removed clandestinely by the party, it has been submitted the show-cause notice reveals that all the raw-material out of which the alleged figure of clandestine removal has been worked out has been received under Rule 57F(2). The party submits that as per the requirement of Rule 57F(2) read with Notfn. No. 214/86 dt. 25.3.1986 as amended, it becomes the liability of the supplier of the raw material to pay the duty towards any lapse/shortage etc. Therefore, it is not for the party to pay the duty on such alleged shortages. The party submits that the raising of demand on such alleged shortages is against the provisions of Notfn. No. 214/86 and on this ground alone the demand may be set aside.
(x) The party has submitted that there is no shortage as alleged. The Cabinets are the parts after being manufactured if not found in order are re-cycled by my client in their machine. The party has submitted that this aspect has not been considered and appreciated. It has therefore been submitted that the material manufactured out of the raw material sent to the party under Rule 57F(2) by its customers is duty accounted for in its customers books of accounts. The party has also requested to summon its customer's books of accounts.
(xi) Finally it has been submitted that the party has not contravened any provision of law, hence not liable for any penal action and are not required to pay any demand or duty. Therefore, the impugned show cause notice may kindly be dropped.
3. (i) The Id. Addl. Collector after careful consideration of the submissions made by the appellants rejected their contention and upheld the allegations made in the show-cause notice.
(ii) He has held that the appellant did not maintain any excise record except "Neelgagan Diary, which shows that the raw-material supplied is much less than the numbers of T.V. Cabinets manufactured out of it. He has held as if from where the raw-material i.e. plastic granules, was received by the party for the production of unaccounted cabinets is...absolutely in the possession of the party and in accordance with the Judgment of Hon'ble Supreme Court rendered in the case of Collector of Customs, Madras v. Bhhoratnal 1985 ECR 2281, the department is not under obligation to prove these facts. The Id. Addl. Collector has further held that the party's submission that they produced articles of plastic is not acceptable. Tine parts of TV have specific entry under sub-heading 8529.00 and Chapter Note 2 of Chapter 39 against Clause (n) excludes the goods of Section XVI i.e. Chapter 84 & 85 from the scope of Chapter 39 in which the party pleads the classification of their goods. He has held that even according to Interpretative Rule 2(a) if the unfinished or semi-finished goods come to acquire the character of the finished goods then they are to be classified as if they are finished goods and hence he has rejected the party's contention. The Id. Addl. Collector has also rejected the contention that the plant and machinery in the factory belong to them and the same was let out to M/s. Mutual Industries upto 31.5.1988. He has held that the party M/s. Laxman Exports Pvt. Ltd., New Delhi took out a L-4 Licence w.e.f. 31.5.1988 from Central Excise Authority to manufacture the T.V. Cabinets and parts thereof. He has held that it is untrue that M/s. Mutual Inds. remained as manufacturers of Plastic T.V. Cabinets and parts thereof till July 1988. He has held that at the investigation stage the party could not produce any documentary evidence to the department to clarify that M/s. Mutual Industries remained and carried on their manufacturing activities in their factory premises upto July 1988. He has referred the statement dt. 8.9.1988 of Shri Dinesh Kumar Parvanda who had stated that when being questioned specified that the party applied for the L-4 Licence on the basis of their own plant and machinery and he is not aware as to why M/s. Mutual Inds. still retained their Central Excise Licence is best known to M/s. Mutual Inds. On being further questioned to produce the documents which can depict definite date upto which the initial agreement was signed and further extended, the said Dinesh Kumar Parvanda could not produce any documents on which agreement was extended further between them. Ld. Additional Collector has held that the party's plea that M/s. Mutual Industries manufactured the plastic cabinets from the raw material lying in balance on 31.5.1988 and even after 31.5.1988 is also not agreeable. Therefore, he has confirmed the demand raised for the period from 31.5.1988 to 27.6.1988.
(iii) In respect of bills No. 42 dt. 30.6.1988 and 44 dt. 16.6.1988 raised by the party to M/s. Mutual Industries, the ld. Additional Collector has noted the following description:
Total amount payable by you towards processing charges for the period from 21st to 27th June, 1988.
14" back cover 4210 pcs".
Total processing charges for the period from 31st May to June 12, 1988 payable by you.
14" front cover despatched 5244 pcs.
Therefore, he has held that it is clear that the party had manufactured and removed the said goods clandestinely without manufacturing and without maintaining records and without payment of duty. They had also not produced 57F(2) challans out of which said goods have been manufactured. The ld. Addl. Collector has also rejected the party's plea that the goods had been manufactured out of the material which was received under Rule 57F(2) challans issued in favour of M/s. Mutual Industries. He has referred to para 6 of the show-cause notice which has made very specific allegations. He has also held that in respect of raw-material receipt neither any 57F (2) nor other challan could be produced by the party even at the time of reply dt. 6.9.1990 to the show-cause notice. He has also held that the party did not discuss the matter in their reply to the show-cause notice for the period 27.5.1988 to 15.7.1988 and they could not produce any evidence for receipt of any raw-material, therefore, during the said period they deemed to have manufactured the said goods and producing the raw material with unlawful manner, and removed the goods without any challan/document and without observing Central Excise formalities.
(iv) The ld. Additional Collector has held that the party has produced the certificate from M/s. Mutual Industries, New Delhi dt. 5.4.1991, M/s. Sargodha Enterprises, New Delhi dt. 3.4.1991 and Diamond Plastic (P) Ltd., New Delhi dt. 4.4.1991 to the effect that the goods were got manufactured under Rule 57F(2) by supplying the raw-material. He has observed that necessary permission was not obtained in time from the department and therefore, he has rejected the plea of the party. He has also held that the party did not produce any document to show that the Central Excise Duty was paid for the supply of 842 and 552 pieces of TV Cabinets front cover to M/s. Evershine Electronics as mentioned in Annex. XVII of the show-cause notice. He has also referred to the file containing 57F(2) challans for the said period was resumed on 18.3.1989 and scrutiny of the file revealed that on 27.5.1988, M/s. Mutual Industries received the raw-material i.e. Plastic Powder under challan No. 13 dt. 27.5.1988 and challan No. 14 dt. 15.7.1988 from M/s. Sargodha Enterprises. Therefore, he has held that it is clear that during the period from 27.5.1988 to 15.7.1988, the party had not manufactured the goods on job basis. In fact he has held that they had produced and removed the goods on their own account. He has also rejected the plea that the goods were manufactured on job work basis under Rule 57F(2) read with Notfn. No. 214/86 dt 25.3.1986 as amended is not acceptable. He has held that the benefit of Notfn. No. 214/86 can only be extended if the party had got the raw-material either under Rule 57F(2) or under Notification No. 214/86 after observing the excise formalities. He had held that the party could not produce any private challan on which the raw-material was received from their suppliers of raw materials for the period from 27.5.1988 to 15.7.1988. He has referred to the submissions of the party that they have received the raw material of 1525 kg. on 24.8.1988,10,000 kg. on 25.8.1988, and 25 kg. on 28.8.1988 subsequently received the 57F(2) challan No. 14 dt. 13.9.1988 from M/s. Diamond Plastics Cover (sic) the said material but he has observed that the party could not produce any documentary evidence in this regard and has rejected the plea.
(v) He has also scrutinised the challan issued under Rule 57F(2) in respect of the following units and the goods found in excess as shown against the were removed without observing any Central Excise Formalities and without payment of duty:
Name of Unit Period Excess Qty
M/s. Sargodha Enterprises 31.5.1988 to 21.6.1988 4958
M/s. Sargodha Enterprises 29.6.1988 to 14.7.1988 6216
M/s. Mutual Industries 1.6.1988 to 27.6.1988 4210
M/s. Diamond Plastics 24.8.1988 to 9.9.1988 7338
M/s. Diamond Plastics 27.9.1988 to 28.2.1989 4812
M/s. Evershine Electronics 8.9.1988 to 25.11.1988 842
M/s Evershine Electronics 9.3.1989 to 12.3.1989 552
_____________
Total: 28928 pcs.
_____________
Value @ 80% per piece
Central Excise Duty 23,14,240.00
Central Excise Duty:
BED 3,47,136.00
SED 17,356.80
Seized goods:
576 pcs. 46,080/-
BED 6,912/-
SED 345/-
Total Duty 3,71,750.80
(vi) He has held that the unit being registered under D.G.T.D. the exemption under Notfn. No. 175/86-CE dt. 1.3.1986 as amended is not entitled to the party. In view of the matter, he has upheld the contravention of the provisions of Rules 173B, 173C and 173G read with Rules 53, 52A and 9(1), 173F and 226 of the Central Excise Rules, 1944 and clandestine manufacturing and removal having been established. Therefore, he has held that penal action under Rules 9(2), 173Q, 209 and 226 ibid and that for the recovery of Central Excise Duty for extended period of time limit as laid down under Section 11A of Central Excises & Salt Act, 1944 is invocable.
He has held that the Truck No. DHL 5250 of Shri Nirmal Singh of Nirmal Transport Service, Gobind Puri was seized on 18.3.1989 without the cover of proper documents of Central Excise. As per the statement of Shri Raj Pal, the truck driver, the truck was used to carry the goods and he was having challan of the goods. Therefore, he has held that there is no fault of the truck owner Shri Nirmal Singh and the fault has not been established.
4. We have heard Shri Naveen Mullick, Id. Advocate and Shri K.K. Jha, Id. SDR, Ld. Advocate submitted that the goods cannot be classified under Chapter 85 by applying interpretation Note Rule 2(a) and Chapter Note 2(n) of Chapter 39 relied by the Collector is not correct and the same is also not applicable. He further argued that the seized items are the intermediate items and they are not goods for charging duty. He submitted that Rule 57F(2) mentioned that for the manufacture of semi-finished goods the same could be sent for processing to another unit without payment of duty and in this regard he argued that party had duly complied this Rule. He also argued that the item is an article of plastic and being an article of plastic, it is exempted from levy of duty. He submitted that goods manufactured by M/s. Mutual Industries have been manufactured independently on their own Central Excise Licence and therefore, they cannot be held to have been manufactured by the appellant and duty demanded from them. He submitted that even if on verification, it is held that the documents produced by the appellants are bogus, even then the figures shown in the seized Neelgagan Diary are required to be accepted and'therefore, the findings to be arrived are that all the goods manufactured have been accounted and no duty is leviable. He further submitted that no penalty is leviable in the present case and that the Addl. Collector had rightly dropped the proceedings against the truck driver and owner as they have not been issued with any show-cause notice.
5. Ld. DR submitted that the appellants are trying to confuse the issue. The case against them is about the clandestine removal which has not been explained. He submitted that all the clearances made under Rule 57F(2) has been taken into consideration by the Addl. Collector and on scrutiny has found the documents are not correlatable and therefore, the same has been rejected. It is a very clear case in which M/s. Mutual Industries was not in existence during the said period when the appellants were manufacturing the goods as the L-4 Licence of Mutual Industries had expired. He submitted that the Mutual Industries cannot be recognised as manufacturer from the appellants premises as the licence issued to them was only upto 31.5.1988. The challan shows that Mutual Industries have been manufacturer of the goods but in fact it was actually manufactured by the assessee as the Challan is dt. 27.5.1988. He has pointed out that the allegation of the department is that the manufacturer had started manufacturing from a date earlier to the date of licence. He also pointed out that the records revealed that manufacture & clearances had been done for the period 24.9.1988 to 12.9.1988 and that there was no raw material available in account of M/s. Diamond Plastic Pvt. Ltd. or M/s. Sargodha Enterprises. Ld. DR further submitted that the goods manufactured by them were in semi-finished condition and they have to be treated as T.V. Cabinets by applying the interpretation rules. He submitted that the tariff chapter notes and the rule of interpretation have taken into consideration; the classification adopted is correct in law and it cannot be classified under residuary heading under Chapter 39, when there is a specific heading for classification.
6. On a careful consideration of the submissions made by both the sides, we are of the view that the appellants have not made out any case for interfering with a well considered order passed by Addl. Collector. They have not been able to show that M/s. Mutual Industries or the other parties have manufactured the goods in their premises specially during the period when the appellants were holding the licence. The appellants' contention is that the goods are to be considered as articles of plastics and to be classified under Chapter 39 and same is exempted under the relevant Notification. The Id. Additional Collector has noted Chapter Note 2(n) of the Chapter 39 which excludes Articles of Section XVI (Machines and mechanical or electrical appliances) and in view of this exclusion has held that the article cannot be classified under Chapter 39.
The Section XVI covers Chapter 85 and therefore, the goods have been classified under sub-heading 85.29 by applying Interpretative Rule 2(a), which reads as follows:
Parts suitable for use solely or principally with the apparatus of heading Nos. 85.25 to 85.28 by application of Note 2(A) of Section XVI which has classified the goods under this sub-heading. Note 2(a) of Section XVI reads as follows:
Subject to Note 1 to this Section Note 1 to Chapter 84 and to Note 1 to Chapter 85, parts of machines (not being parts of the articles of heading No. 84.84, 85.44, 85.45, 85.46 or 85.47) are to be classified according to the following rules:
a) Parts which are goods included in any of the heading of Chapter 84 or Chapter 85 (other than heading Nos. 84.85 and 85.48 are in all cases to be classified in their respective headings.
The articles in question are T.V. Cabinets and parts thereof i.e. front covers and back covers of T.V. Cabinets of sizes 14" and 20". By application of Note 2(a) of Section XVI as well as Interpretative Rule 2(a), the classification adopted by the Addl. Collector is correct in law and cannot be challenged. In view of the fact that the main article is classifiable under heading 85.28 and its parts suitable for use solely or principally with the said apparatus falls under sub-heading 8529.00 of the Central Excise Tariff, 1985.
7. The ld. Additional Collector has rightly come to the conclusion that the appellants have not produced proper records and also not obtained permission for removal of goods under Rule 57F(2) of the Central Excise Rules. The Id. Advocate has produced certain documents for scrutiny by misc. application. We have taken on record those documents which had been relied before the lower authorities. On perusal, it is seen that the documents do not tally with the details of facts pertaining to the removal and therefore, these documents are not correctable and has not been corroborated and therefore, not acceptable. The case of the department is fully established and the appellants have not been able to show any convincing evidence to dispute the allegation. It is on record that M/s. Mutual Industries were not having any machinery of their own and that they were utilising the machinery of the appellants for a specific period and thereafter the appellants had taken the licence to resume their production and when these facts have been established, nothing remains and survives for consideration and therefore, there is nothing on records to controvert the findings arrived at by the Addl. Collector. We have gone through the statement also, as recorded by the department and these statements are all self-incriminatory in nature and they implicate the appellants and of manufacture and removal of goods clandestinely. The appellants have produced certain documents to show that those appellants have not suppressed any facts and the goods had been received under cover of gate passes issued under 57F(2). Ld. DR has been able to show to us that these documents are fabricated and have been produced at a belated stage only as an after-thought. On perusal and cross check of these documents, we find the submissions made by the DR is correct. The appellants have not shown any convincing documents and the documents produced do not tally and inspire confidence in us for acceptance.
8. We notice that the department had not issued show-cause notice to the driver and owner of the truck and therefore, the Additional Collector has rightly dropped the proceedings against them. We notice that the Addl. Collector has rightly invoked the penal provisions to impose penalty and therefore, the plea of the Revenue in their cross appeal that there has been no mention of the penal provision is not correct. We also notice that the prayer of the Revenue is that the duty on the clandestine removal is required to be confirmed is correct and the Addl. Collector has in fact confirmed the duty which is required to be paid by the appellants on such goods on clearances. The appellants have already deposited the said duty amount at the time of stay and therefore, the prayer of the Revenue on this aspect is confirmed. The Addl. Collector has imposed a penalty of Rs. 5 lakhs against duty evasion of Rs. 3,71,750.80. We notice that this imposition of penalty of Rs. 5 lakhs is too excessive and it is required to be scale down in the facts and circumstances of the case. We therefore, reduce the penalty to Rs. one lakh. With this modification, we do not find any reason to interfere with the order. There is no merit in the appellant's appeal and the same is rejected and the Revenue appeal is allowed to the extent mentioned herein.
Ordered accordingly.
Separate Order Sd/-
(S.K. Bhatnagar) (S.L. Peeran)
Vice-President Member (J)
Dt. 3.1.1996
S.K. Bhatnagar, Vice-President--With due respects to Hon'ble Member (Judicial), my views and orders in the matter are as follows:
9.1 observe that one of the main submissions before the authorities was that the appellants were doing job work and manufacturing semi-finished T.V. cabinets or parts of such cabinets from the raw material supplied by the customers under Rule 57F(2) Challans and returning the goods to the suppliers and the latter had made entries in their RG-1 to that effect. They have, in their grounds of appeals as well as hearing, emphasised that in order to substantiate their contention, they had requested for cross-examination of the raw material suppliers and for summoning their records (and that they had made the request only in respect of such firms/suppliers of materials who had been named in the body of the show cause notice) but the Additional Collector had denied them the opportunity of cross-examination without giving any reasons and also did not summon the prescribed records of the suppliers and in his finding, he has not touched this aspect at all.
10. I consider that the appellants had made a very reasonable request and their grievances were justified as would be apparent from the discussions that follows.
11. It is also seen that another of their main submissions had been that plant and machinery and the factory premises belonged to the appellants but the same were let out to a firm called M/s. Mutual Industries who were engaged in the manufacture of cabinet made of plastics for T.V.s and had taken the central excise licence for their premises at A-58/2, Okhla Industrial Area, Phase-II (i.e. in respect of the portion let out to them) and from 31.5.1988 onwards till July, 1988, there were two manufacturers holding independent central excise licence for portions of one and the same premise i.e. A-58/2, Okhla Industrial Area, Phase II.
12. Obviously, all these facts were capable of verification particularly when the licences had been issued by the central excise authorities themselves and if there were two separate licences, then the quantity of the excisable goods manufactured by each one of them was required to be separately determined for the periods for which they were engaged in such manufacture. It was all the more necessary when M/s. Mutual Industries had admitted that they had manufactured the goods falling under SI. Nos. 1 & 3 of Annexure VII to the impugned notice and 57-F(2) challan and 'certificate' had been produced. In these circumstances, normally, the show cause notice ought to have be issued to both these parties and M/s. Mutual Industries should have been impleaded and further proceedings, if necessary, were required to be conducted with reference to them as well. There is, however, no indication in the order that this has been so done.
13. Similarly insofar as the nature of arrangements as between the appellants and M/s. Mutual Industries, was concerned, it was capable of further enquiry and verification, and if it was established in such enquiry that rent was charged for use of the premises or machinery on a per piece basis or any other basis, the Department could hardly object to it unless a violation of central excise procedure could be shown to have been involved and established beyond doubt.
14. Further, once the appellants had produced what they called "certificates" from their customers and the customers were manufacturing units known to central excise authorities and were on their record and therefore, the assertions and related facts were capable of easy verification, there is no reason why it should not have been so done. Thus, for instance, in respect of goods claimed to have been manufactured by the appellants themselves on job work basis, once they had produced 57-F(2) challan from M/s Sargodha Enterprises, M/s. Diamond Plastic or M/s. Evershine Electronics Pvt. Ltd. or the 'certificates' to the effect that the goods had been manufactured from raw material supplied by them and the goods received were accounted for in their RG-1 register and that they had due permission under Rule 57F(2), this aspect of the matter was also required to be further verified and the facts determined in the light of such enquiry. The appellants have admitted that some of the raw material was received before the date of permission under Rule 57F(2) but the challans were made-out later on but asserted that the raw material received was utilised for job work and the manufactured articles were returned to the suppliers who had entered them in the records.
15. Again, it was necessary to determine whether there was a substantive compliance with the provisions of 57F(2) and only a procedural irregularity had been committed or there was substantive non-compliance of provisions. In case of procedural irregularity, a penalty could have been imposed depending upon the degree, the extent and the nature or seriousness of the matter as could be established on an enquiry but the duty could be demanded only if it was found to be payable and to the extent payable.
16. Similarly, as to which of the items were full-fledged, ready to use, cabinets for T.V. and which of the articles were semi-finished ones and which were only part of such cabinets being only the front or the back covers and as to whether they were also in finished or semi-finished stage is a matter of fact which was required to be verified and since on one hand, seizure of goods was involved and on the other hand, documents were available and the personnel/firms concerned were available and within knowledge of the Department, it was necessary to verify the facts before proceeding further in the matter.
17. Further, in respect of the item which was said to have been manufactured on priority basis whether the appellants had claimed the benefit of Notfn. No. 214/86. Again, it was necessary to verify by appropriate enquiry from or with fererence to the customers i.e. the suppliers of the raw material such as M/s Sargodha Enterprises etc. in view of their challans because if anyone or more of them had assumed the responsibility for paying the duty on final goods, and had entered the goods in statutory records such as RG-1 on receipt for subsequent payment of duty, then the liability, if any, shifts to them along with responsibility. There is no reason why in view of such a clearly stated position, the request for verification/enquiry should have been allowed to go unheeded. Again, if the Additional Collector observed that the raw material was less than the number of TV cabinets manufactured out of it, the charge was first required to be mentioned in the show cause notice and along with the reason for such belief including the way it has been worked out was required to be disclosed and an opportunity allowed to be given to defend even if it could be show that it flows from the show cause notice read as a whole. But, in the absence thereof, it would amount to travelling beyond the show cause notice.
18. There is also a lot of force in the arguments of earned Counsel that the suppliers of the raw materials were either TV manufacturers or TV cabinet manufacturers and once the permission under Rule 57F(2) was granted, it was necessary to see whether the items got manufactured on job work basis were in semi-finished stage or required further processing or else they were in ready to use or ready to fit condition or finished form in order to decide which Chapter or Heading was more appropriate for their classification. Again, the conditions of the goods or the state in which they were found or received by the customers and their exact manner of use were capable of verification and the classification could be correctly arrived at only after the facts had been ascertained and duly established and not before that.
19. In view of the above position, I find that there is a lot of force in the learned Counsel's contention that the whole case has been made out of the basis of incomplete investigation and there has been a violation of principles of natural justice during adjudication. In fact, the learned Additional Collector has erred in neither allowing cross examination nor summoning the record for verification as per appellants' request or otherwise taking steps to verify the correctness of certificates issued by M/s Mutual Industries and the customers of the appellants who had got the goods manufactured from the appellants on job work basis. I think, in the process, there has been a mis-carriage of justice and the order is required to be set aside and the matter remanded for further enquiry and verification and de novo adjudication after giving due opportunity to the appellants in the light of above observations and findings.
Sd/-
Dt. 22.3.1996 (S.K. Bhatnagar)
Vice-President
POINT OF DIFFERENCE
In view of the difference of opinion between Hon'ble Member (Judicial) and the Vice-President, the matter is submitted to Hon'ble President for reference to a Third Member on the following point:
Whether in view of the facts and circumstances of the case, the impugned order is required to be modified with reference to the penalty imposed and the appeal is otherwise required to be rejected as proposed by Hon'ble Member (Judicial) or in view of the observations and findings of the Vice-President, the impugned order is required to be set aside and the matter required to be remanded for de-novo consideration in accordance with the law and the observations in the Vice-President's order.
Sd/- Sd/-
(S.L. Peeran) (S.K. Bhatnagar)
Member (J) Vice-President
Dt. 23.3.1996
Justice U.L. Bhat, PresidentThe two-Member Bench which heard the above appeals referred the following point of difference to a third Member:
Whether in view of the facts and circumstances of the case, the impugned order is required to be modified with reference to the penalty imposed and the appeal is otherwise required to be rejected as proposed by Hon'ble Member (Judicial) or in view of the observations and findings of the Vice-President, the impugned order is required to be set aside and the matter is required to be remanded for de-novo consideration in accordance with the law and the observations in the Vice-President's order.
2. Appellant in appeal No. E/2041/1992 (a proprietary concern) has been manufacturing T.V. Cabinets and parts thereof, namely, front covers and back covers in the premises in Okhla Industrial Area. The Anti-Evasion staff of C.E.C., New Delhi detected unauthorised movement of T.V. Cabinets brought from the appellant's factory, supported only by an ordinary challan issued by the appellant in favour of M/s. Sargodha Enterprises not Rule 57F(2) Challan written in hand and without bearing unit code number of Central Excise. The Truck with the goods was brought to the factory premises. Shri Dinesh Kumar, Director of the appellant was present at the factory. The relevant central registers and other records were not maintained. The stock of raw materials and finished products was physically verified. The Truck and the goods in the Truck and the factory as also the records available were seized. A note book and production slips found in the factory showed date-wise production and clearance statistics. The documents showed production of finished products far in excess of goods covered by 57F(2) challans and bills. The documents revealed discrepancies which were summarised in the annexure to the show cause notice. It is necessary to refer to further particulars as they are seen in the impugned order. It was found that by clandestine clearances, duty to the extent of Rs. 3,71,750.40 had been evaded. Show cause notice was issued and after considering the reply and granting personal hearing, the Additional Collector passed the impugned order confiscating the seized goods with option to redeem on payment of fine of Rs. 25,000.00 and appropriate amount of duty and imposing penalty of Rs. 5,00,000.00 on the appellant. The impugned order proceeded on the basis that the finished goods attracted T.I. No. 8529.00.
3. Appellant contended that he had leased the factory premises with plant and machinery to M/s. Mutual Industries, that both were manufacturing T.V. Cabinets and parts thereof in the premises and the Note Book contained production and clearance data of both the concerns and there was no discrepancy if only production and clearance of the appellant were to be taken into consideration. Regarding discrepancies covered by items 1 and 3 of the annexure 17 to the show cause notice are concerned, appellant contended that they relate to M/s. Mutual Industries in respect of job work done for M/s. Sargodha Enterprises. Appellant admitted having done job work covered by items 2 and 4 to 7 of the annexure to the show cause notice. According to the appellant, during the process of manufacture, goods covered by items (5) to (7) were damaged and they were reprocessed and accounted again in the note book with the result that goods manufactured from same inputs were wrongly accounted twice. Appellant's contention regarding items 2 and 4 was that the related raw materials were received from the customers for job work in "ordinary" challans and not 57F(2) challans because the customers had applied for permission of the department as required by the then existing law and permission was waited and after the permission was received subsequently, the same raw materials were entered again in 57F(2) challans entering the current dates (and not the actual dates of receipt of raw materials). Appellant contended that the finished products attracted T.I. 3926.90 and not T.I. 85.29. Regarding the production attributed by appellant to M/s. Mutual'Industries, it was further contended that the aspect was not considered during investigation, that the request of the appellant to call for certain records from M/s. Mutual Industries was not allowed and the request of the appellant for opportunity to cross-examine certain persons was not granted and thus there was violation of principles of natural justice.
4. The appellant produced additional documents before the Tribunal and the documents which had been produced before the lower authorities were received. The Judicial Member opined that the documents could not be correlated to the facts pertaining to the removal. The order passed by the Judicial Member indicates that M/s. Mutual Industries did not have any machinery of their own but were using appellant's machinery only for a period and thereafter appellant has obtained licence to resume production and the conclusion of the Additional Collector that the goods shown in the note book were produced by the appellant was correct. Regarding the documents relied on before the Tribunal, it was held that they were fabricated and produced at a belated stage. It was held that the finished goods attracted T.I. 85.29. The Judicial Member proposed dismissal of the appeal.
5. Shri S.K. Batnagar did not enter into the merits of the case but held that rejection of the request to call for records and to cross-examine the suppliers of raw materials amounted to violation of principles of natural justice. It was also indicated that M/s. Mutual Industries should have been impleaded before the adjudicating authority in view of the "admission" of the latter that they had manufactured the goods falling under items (1) and (3) of the annexure to the notice. The Vice-President also found fault with the investigating officer for not verifying the appellant's allegation regarding M/s. Mutual Industries and the appellant's explanation regarding the other items in the annexure to the show cause notice to see if there was substantial compliance with requirements of Rule 57F(2) of the Rules. It was also felt that there should be enquiry as to which of the items were fully made articles and which were semi-finished articles. He felt it necessary to set aside the order and remand the case for further enquiry and verification and de novo adjudication. It was also held that classification could be decided after the facts are ascertained and established.
6. It is not clear if the Vice-President directed further investigation to be conducted by the department (or) only a further scrutiny in adjudication proceedings.
7. Both sides have made submissions on the following aspects which led to the difference of opinion:
(i) Regarding items (1) and (3) of annexure 17 to the show cause notice. (ii) Regarding items (2) and (4) of annexure 17 to the show cause notice.
(iii) Regarding items (5) to (7) of annexure 17 to the show cause notice. (iv) Regarding classification.
Point No. (I) The Panchnama dated 18.3.1989 refers to the goods and records seized. The goods seized were 1010 pieces of TV Cabinet front found in the premises of the factory and 576 similar pieces found in the truck. Item (1) refers to 4958 TV Cabinet front cover in the name of M/s. Sargodha Enterprises produced and removed during the period 31.5.1988 to 21.6.1988. Item (3) refers to 4210 T.V. Cabinets back cover produced and removed during the period 21.6.1988 to 27.6.1988 in favour of M/s. Mutual Industries. These particulars were found in the production slips and note book found in the factory premises during the inspection and search on 18.9.1989. There were no excise register entries or 57F(2) challans or other documents evidencing clearance on payment of duty. The Department proceeded on the basis that these goods were produced by the appellant and supplied to the two parties referred to without 57F(2) challans and without payment of duty. The sum and substance of the appellant's reply is that these goods were not manufactured by the appellant but were manufactured by M/s. Mutual Industries, a proprietary concern, item (1) as job worker from raw materials supplied by M/s. Sargodha Enterprises and item (3) as regular manufacturer. It is said that during the relevant period the premises and machinery were under the use of M/s. Mutual Industries under a lease or licence arrangement and the manufacture was done on the basis of excise licence possessed by M/s. Mutual Industries.
8. There is no dispute that the factory and plant and machinery used for the manufacture of these goods belong to the appellant. Lease agreement or licence agreement dated 11.2.1987 is before me. It was entered into between the appellant and M/s. Mutual Industries for a period of six months from 18.2.1987. The agreement enables M/s. Mutual Industries to use the machinery and infrastructure of the appellant in the premises for manufacture of plastic T.V. Cabinets with their own technical personnel and workers with liability to pay excise duty on the basis of gate passes and to pay taxes. The agreement stipulated that it was valid for six months and it could be extended for a further period of six months by mutual agreement. There is also no dispute that there was excise licence in the name of M/s. Mutual Industries at the relevant time and till 31.5.1988. Though the appellant has a contention that the licence in the name of M/s. Mutual Industries was extended from 31.5.1988, no supporting material was placed before the adjudicating authority or the Tribunal. There is also no documentary evidence to show that the period of the agreement was extended from 18.2.1988 or at any rate from 31.5.1988. The lease agreement stipulated for licence fee or rent of Rs. 1,30,000.00 per month. There is no documentary evidence to show payment of licence fee by M/s. Mutual Industries from 31.5.1988 onwards. The only material in support of the appellant's case consists of four certificates produced during the adjudicating proceedings. They are at pages 117,137,138 and 146 of paperbook No. I. At page 117 is certificate dated 5.4.1991 issued by M/s. Mutual Industries to the effect that they hold excise licence, that they manufactured 5244 pieces of TV Cabinets out of material received from M/s. Sargodha Enterprises under Rule 57F(2) from 31.5.1988 to 31.6.1988 at the premises of the appellant, that since the machinery was hired by them from the appellant and the bill of processing charges was raised as per bill No. 44 dated 16.6.1988 in respect of hire or rent charges. At page 138 is similar certificate of the same date to the effect that M/s. Mutual Industries manufactured 4210 pieces of T.V. Cabinet back covers out of their own material from 21.6.1988 to 7.9.1988 at the appellant's premises and the bill of processing charges was raised as per bill No. 42. These certificates covered disputed aspects and are not supported by the documents even at the factory premises and are contradicted to the circumstances I have indicated above. Hence, it was for the appellant to support the certificates by basic documents either in the appellant's possession or in the possession of M/s. Mutual Industries or M/s. Sargodha Enterprises. It is contended that the appellant requested the adjudicating authority to call upon these concerns to produce relevant documentary material and also to give an opportunity to cross-examine representatives of those concerns and the adjudicating authority did not allow the request. In fact, this is one of the grounds on which one of the differing Members held that the case should be remanded. I am unable to agree with this view. The statement of the Director of the appellant was recorded during investigation on three different occasions. The first statement dated 8.3.1989 did not refer to the involvement of M/s. Mutual Industries. The second statement dated 5.9.1989 did refer to the goods having been manufactured by M/s. Mutual Industries. But in these statements there was no request for any investigation of the records of any other concern. In the reply to the show cause notice there was no specific request to call for the records relating to items (1) and (3), though there was such a request made with reference to shortage of goods. The reply only states that it was incumbent on the Department to verify the facts from M/s. Mutual Industries by summoning the challans. Reply to the notice does not contain any request to the adjudicating authority to call for the records. There was only a request that the customers book of account may be summoned and customers listed at No. 5 to 7, M/s. Diamond Plastics Pvt. Ltd. and M/s. Evershine Electronics may be summoned at the hearing. There was also request in the reply to the notice that the appellant may be allowed to cross-examine the representatives of M/s. Sargodha Enterprises and M/s. Mutual Enterprises to show that the goods in question had been accounted for in their books and appropriate duty had been paid. Thus it is clear that there was no specific request in the adjudication proceedings to call for records from M/s. Mutual Industries. The question is whether these goods were manufactured by M/s. Mutual Industries or by the appellant. There could be no direct evidence with M/s. Sargodha Enterprises on this aspect. I fail to understand the logic behind the request for cross-examination of the representatives of M/s. Mutual Industries and M/s. Sargodha Enterprises. The Department did not rely on the statements of the representatives of these concerns or any records seized from these concerns. If such had been the case, perhaps appellant could have sought an opportunity to cross examine such persons. Appellant should have sought permission to examine the representatives of these two concerns. There is no case that the appellant did so and the request was rejected. In the circumstances, it would not be correct to hold that there was violation of principles of natural justice in regard to claim covered by items (1) and (3) referred to above.
9. Admittedly these goods were manufactured in the appellant's factory by using the appellant's machinery at a time when the appellant had an excise licence for the manufacture of these goods at the premises. The production slips and the note book clearly showed the production of these goods on the respective dates. The note book did not demarcate or separate the goods produced by the appellant on the one hand and the goods allegedly produced by M/s. Mutual Industries on the other. The copies of the entries in the note book are before me. The entries show no such distinction. It is not the case of the appellant that the note book was prepared by somebody other than the appellant's persons. That being so the appellant owed an explanation as to why and under what circumstances these entries came to be made in a single note book. No such explanation is forthcoming. The burden in this regard was entirely on the appellant. The appellant has clearly failed to discharge the burden. I, therefore, hold that the goods covered by items (1) and (3) of annexure 17 of the show cause notice were goods manufactured by the appellant and supplied to the two suppliers but without 57F(2) challans and without making necessary entries in the excise records and without payment of duty. The liability for duty, in these circumstances, would rest entirely on the appellant.
Point No. (II) Item (2) of annexure 17 to the show cause notice refers to 6216 T.V. Cabinets front covers produced during the period 29.6.1988 to 14.7.1988 for M/s. Sargodha Enterprises. Item (4) refers to 7338 T.V. Cabinets front cover produced during the period 24.8.1988 to 7.9.1988 for M/s. Diamond Plastics. It is contended by the appellant that the raw materials for these goods were supplied by the respective suppliers as per ordinary challan and not under 57F(2) challan since at the relevant time of clearances of input required permission of the Assistant Collector and the suppliers were awaiting permission having applied for the same. The appellant availed Modvat credit of the duty paid on these inputs. After the Assistant Collector granted permission, the supplier issued fresh challans i.e. 57F(2) challans in regard to the goods supplied earlier as per ordinary Challans, but entering the current dates and not the actual dates of removal of inputs. In other words, according to the appellant, only one set of inputs were received and they were used in the production of goods, though there were two challans, namely, one set of ordinary challans and one set of Rule 57F(2) challans. This stand is based on the admission that there was duplication of challans by the subsequent 57F(2) challans replacing the earlier ordinary challan. This contention could perhaps have merited serious examination if the dates of two sets of challans were the same. There is no dispute that the dates were different. Therefore, prima facie the contention that the inputs were received only under one set of challans is not acceptable and hence it was for the appellant to establish the case propounded. The only documents relied on are those seen at pages 137 and 146 of the paperbook. At page 137 is a certificate dated 3.4.1991 issued by M/s. Sargodha Enterprises certifying that they had supplied raw material to the appellant under these different challans during the period 1.7.1988 to 10.7.1988, that the raw materials were weighed in all 8250 kgs, but 57F(2) challans were not issued originally as at the relevant time they had not obtained permission from the Assistant Collector and after the permission was obtained, they raised separate 57F(2) challans in favour of the appellant for the raw materials already despatched. It further sates that the T.V. Cabinets manufactured from the above quantity of raw materials for 6216 pieces (front cover) were received only under Rule 57F(2) challan dated 15.7.1988 on various dates during the period 17.7.1988 to 24.7.1988 and had been accounted for in RG-1. This document came into existence long after the show cause notice was issued. The document also admits the existence of two sets of challans for the raw materials, one set under 57F(2) and the other the ordinary kind. The mere assertion by M/s. Sargodha Enterprises that only one set of raw materials were sent, though two sets of challans were existing, cannot certainly be accepted, without adequate supporting materials. Same is the position with regard to the document at page 146 which is a similar certificate issued by M/s. Diamond Plastics Pvt. Ltd.
10. In this connection it is argued for the appellant that the contention could not be proved since the request for cross-examination of the representatives of the suppliers was not granted. I have already indicated that since the department did not seek to rely on any records of these two suppliers (other than the challans and the like referred to in the show cause notice) and did not rely on statements recorded from such representatives, the appellant cannot have any right of cross-examination. The appellant could possibly have requested for an opportunity to examine those representatives with reference to documents which the representatives may be prepared to produce. Such a request was not made. On the materials available, the conclusion recorded by the additional Collector and the Judicial Member is sustainable and the finding that there was violation of principles of natural justice is not sustainable. Point No. (III) Point No. (III) This relates to items (5) to (7) of annexure 17 to the show cause notice. Items (4) and (5) relate to T.V. Cabinet front covers made for M/s. Diamond Plastics. Items (6) and (7) relate to T.V. Cabinets front covers supplied to M/s. Evershine Electronics. The periods, of course, are varying, earliest date being 8.9.1988 and the latest being 12.3.1989. The note book refers to the aforesaid goods. For the production of the said goods there were no excisable registers or records and clearances were not being made on payment of duty.
11. The contention advanced on behalf of the appellant is that when Cabinets were manufactured, a part becomes damaged and the damaged part was reprocessed and the reprocessed material was used for manufacture of Cabinets. The goods originally manufactured including the damaged goods and the goods manufactured from the reprocessed damaged goods were all entered in the account slips and the account book and, therefore, this was only an instance of double entry. Except the mere assertion of the appellant in this behalf, there was no material placed before the adjudicating authority in support of this contention. It appears wholly improbable that damaged Cabinets would have been entered in the note book as part of the production. In regard to these items also there was no question of violation of principles of natural justice. If the appellant desired to rely on the evidence of representatives of the suppliers, they could very well have been examined by the permission of the adjudicating authority and no attempt was made to do so. The rejection of this contention by the Judicial Member appears to be correct.
Point No. (IV) Tariff Item No. 39.26 at the relevant time was as follows:
OTHER ARTICLES OF PLASTICS AND ARTICLES OF OTHER MATERIALS OF HEADING Nos. 39. 01 TO 39.14 3926.10 - of Polyurethene foam 60% plus Rs. 40 per kg.
3926.90 - Other 30% The then prevailing Tariff Item 8529.00 was as follows:
8529.00 PARTS SUITABLE FOR USE SOLELY OR PRINCIPALLY WITH THE APPARATUS OF HEADING Nos. 85.25 TO 85.28 15%
12 According to Chapter Note 2(n) of Chapter 39, articles of Section XVI (machines and mechanical or electrical appliances) were not covered by the Chapter. Chapter 85 was one of the Chapters since Section XVI.
13. It is contended for the appellant that the goods seized were only front and back covers of T.V. Cabinets which were not in a usable condition and required further processing such as buffing, painting, fitting before use and were, therefore, not suitable for use solely or principally in T.V. apparatus as required by Tariff Item 85.29 and, therefore, the goods attracted only Tariff Item 39.26. Reliance is placed on the decision of Madras High Court in Motor Industries Co. Ltd. v. Assistant Collector of Customs . The writ petitioner therein who was carrying on manufacture and sale of diesel fuel injection equipment and parts thereof imported two consignments of crude steel forgings paying duty under Heading 84.10(3) and subsequently made a refund claim on the ground that the imported goods were other "articles of iron and steel not elsewhere specified" in terms of Notfn. No. 254/76. It was found that the imported goods were crude items which could not be directly used in an assembly and required processes like turning, grinding, broaching, groove cutting, heat treatment, surface treatment, lapping, drilling of holes to specifications and polishing to suit the precise intended specifications and the processes involved delicate handling through sophisticated precision tools and machine to achieve the finished and complete state and the goods imported did not have any characteristics of the finished article. The learned single Judge of the High Court upheld the contention.
14. The note book seized from the factory refers to the goods as "T.V. Cabinet front cover" or "T.V. Cabinets back cover". The statement of the appellant's Director recorded on 8.3.1989 refers to the goods seized from the truck as 576 pieces of front cover. The two subsequent statements do not contain any assertion that any of the seized goods were unfinished goods. The certificates relied on by the appellant also do not refer to the goods as unfinished products. The Panchnama also refers to the goods as T.V. Cabinets front covers or back covers. There is absolutely no material to show that the seized goods were really not of the description referred to above but were unfinished goods which required painting, buffing and fitting before they are fit to be used in T.V. Cabinets. Rule 2(a) for the interpretation of the schedule, at the commencement of the schedule to the Tariff Act states that any reference in a heading to goods shall be taken to include a reference to those incomplete or unfinished goods. provided that, the incomplete or unfinished goods have the essential character of the complete or finished goods. The processes as explained by the earned Counsel consisted of buffing (cutting of uneven edges), drilling (appertures) and fittings. Even assuming that this work remained to be done, it is difficult to see how these processes would change the essential character of the unfinished goods in becoming finished goods. I am of opinion that whatever was the essential character of the complete or finished goods, the character was the same before the alleged processes referred to by the appellant. There is nothing in the processes which would affect the character of the goods. In these circumstances, I agree that the goods referred to were parts suitable for use solely and principally in the T.V. sets, attracting Tariff Item 8529.00
15. In the light of what I have indicated above, I agree with the view of the Judicial Member that the appeal deserves to be rejected and disagree with the view of the Vice-President that the impugned order requires to be set aside and the matter requires to be remanded for de novo consideration.
Sd/-
(Justice U.L. Bhat)
Dt. 11.6.1996 President
FINAL ORDER
In view of the majority opinion, the penalty is reduced to Rs. 1,00,000/-(Rupees One Lakh only). The appeal of the assessee is otherwise rejected.
Sd/- Sd/- (S.L. Peeran) (S.K.Bhatnagar) Member (J) Dt. 1.7.1996 Vice-President