Customs, Excise and Gold Tribunal - Mumbai
Manubhai U. Patel vs Commissioner Of C. Ex., Rajkot on 18 January, 2002
Equivalent citations: 2002(142)ELT53(TRI-MUMBAI)
ORDER G.N. Srinivasan, Member (J)
1. In these group of 9 appeals filed by 4 Assessees carrying on their business of manufacturing and selling varieties of clock namely, simple and musical clock. The 4 assessees and the respective Appeals are as follows :-
1. Ajanta Transistor Clock Mfg. Co. E-101/95
2. Tayshree Industries E-121/95
3. Ellora Electronics E-103/95
4. Ajanta Time Industries E-102/95 The other appellants namely, M.U. Patel and R.B. Patel have filed 5 appeals. Appeals (E-97/95, E-98/95, E-99/95 and E-100/95) have been filed by M.U. Patel wherein personal penalties totalling Rs. 2,25,000/- imposed on him under Rule 209A of the Central Excise Rules have been challenged. As far as the Personal Penalty imposed on R.B. Patel is concerned, he has filed an Appeal E-105/99 wherein he has challenged imposition of penalty of Rs. 10,000.00.
2. The assessee-appellants, were engaged in manufacturing of 2 varieties of clocks namely simple clock and musical clock. Four orders in original have been challenged. We are concerned with the orders of confirmation of demand passed by the adjudicating authority where under he has confirmed the duty demand and imposed penalties.
3. Following are the details of duty demanded and penalties imposed appellants wise in the four orders-in-original which are under challenge before us:
Description E/101/95 Ajanta-Transistor Clock Mfg. Co.
E/121/95 fayshree Industries E/103/95 Ellora Elec-tronics E/102/95 Ajanta Time Industries Total Demand of Excise Duty 16997077 8917470 7511742 10696772 44123061 Modvat Mis-used Demand 2184353 2887377 3583077 10286663 18941470 Penalty on company 1000000 500000 500000 1000000 3000000 Redemption fine in lieu of confiscation of goods and machinery 50000 50000 50000 50000 200000 56 EXCISE LAW TIMES [ Vol. 142 M.U. Patel Personal Pen-alty 75000 (E/98/95) 50000 (E/97/95) 50000 (E/100/95) 50000 (E/99/95) 225000 R.B. Patel Per-sonal Penalty 10000 E/105/95 00 00 00 10000 Total 20316430 12404847 11694819 22083435 66499531
4. The notices of demand, to put in a concise way, proceeded on the basis that the issue of the raw material do not reconcile with the production and sale of clocks whereby it is alleged there was suppression of production and clearance thereof.
5. The appellants firm used to maintain delivery challan for transfer of raw materials from one department to another department within the factory for further processing. But the Department has on the basis of these Delivery Challan worked out, the consumption of raw material by adding raw materials recorded in these delivery challans and then compared the same with the total production to alleged suppression of production and clandestine removal.
6. Further in the show cause notices Modvat credit was alleged to be wrongly utilised by the appellants on the ground that the appellants had removed the inputs on which Modvat credit was taken and that such removal were made without obtaining prior permission in terms of Rule 57F(2).
7. The appellants filed several replies to the show cause notices as the documents relied upon in the notices were not given by the department in one go. The matters were heard in person where the departmental officials were cross-examined by the assessee-appellants and on the basis of the evidence, it was argued by the assessee-appellants that in order to come to the conclusion that there has been clandestine removal, the only basis on which demand has been confirmed was the so called consumption of few of the raw materials by the assessee which is wrong. The adjudicating authority rejected the plea of the assessees as well as the other two appellants and confirmed the demand and hence the 9 appeals have been filed before us.
8. We heard S/Shri V. Sridharan, D.H. Shah and R. Nambirajan, Advocates for the appellants and Smt. Reena Arya SDK for the Respondent Department.
9. Mr. Sridharan who argued for the appellant, stated that the basis of the confirmation of demand by the adjudicating authority is wrong inasmuch as by taking note of only the consumption of few raw material which go into manufacturing clocks it cannot be concluded that the production was suppressed. He further argued that unless a physical verification of all the raw material available on the date of the visit of the officers was done there cannot be a proper confirmation of demand of duty. He states that for manufacturing clock, it is not only the Melody I.C., Jhoomar Movt., Timer I.C, Stepper motor are involved, but also other raw materials are involved as indicated in the flow chart which is mentioned below :-
He stated that the manufacture of the clocks involves production of various components used in production of the final product- One of the components made during the production of clocks is Clock Movements. The manufacture of Clock Movements involves costly imported items and therefore in order to account the movement of these items from one section of the factory to the other section, delivery challans were prepared. The movements of various items from one section of the factory to another section of the same factory as reflected in the delivery challan cannot be treated as clearance of the final product. He states further that as per the process of manufacture, the description of item issued and indicated in the delivery challan refers to the item issued, at each stage. Therefore it is argued by him, that the show cause notices should have taken either the first stage or the last stage of production. He attacked the method adopted in the show cause notice in arriving at the total production by taking the aggregate of the quantities mentioned in the delivery challan, which he says is incorrect. Also he argued that quantification of total consumption of raw materials as reflected on the top of each delivery challan was incorrect. Mr. Sridharan states that the top of the delivery challan book showed the higher quantity than the total number of items shown in the delivery challans. In the book the top of book indicated the total no. of the lot and the no. of items mentioned in the challans, showed the quantity issued out of the lot. The balance quantity would be lying as closing stock. It is further mentioned that since no physical verification of the entire stock (including all the law materials) was done, the entire basis of quantification of demand is wrong. It is further argued that taking into account the consumption only the few items of raw materials and leaving out correct consumption figures of balance 25 items which are essentially required for the manufacturing of clock, knocks out the basis of demand. He refers to various judgments in support of this submission.
10. As far as the denial of Modvat credit is concerned it is argued by him that Modvat has been denied on the ground that the appellant had not obtained permission under Rule 57F(2) of the Central Excise Rules. It was submitted by him that the appellant have cleared the inputs from the factory to the job workers for processing and obtained the processed inputs from the job workers and used the same in the manufacturing of the final product. The argument on behalf of the appellant was that even at the time of giving the spot statement it was submitted that all the 4 units were situated in the same industrial shed and inputs on which Modvat credit was availed and the final product was not cleared outside the factory.
11. Smt. Reena Arya, learned SDK who appeared for the Revenue reiterated what is contained in the Orders-in-Original, She specially invited our attention to Para 4 of the Order-in-Original No. 30/Collector/1994, dated 21-10-94 in the case of Ajanta Time Industries (Appeal No. E-102/95) and stated that the assessee, in this case have definitely removed the final product from the factory without properly reflecting in the production register.
12. We have considered rival submissions.
13. The process of manufacture of clocks involves manufacture of various components/parts and ultimate assembling of these into clock. One of the major items used in the manufacture of the aforesaid clock is the Clock Movements. In respect of musical clock, in addition to the Clock Movement, the other assembly used is chiming device or, musical device or musical circuit. One of the varieties of musical clock is jhoomar clock. In respect of the jhoomar clock, the jhoomar movement is the additional assembly used apart from the musical device and simple movement.
14. The appellants first manufacture these movements, chiming device and jhoomar movement in their factory by using various bought out inputs.
15. The appellants imported integrated circuit chips in the form of wafers, which are in the shape of disc. The wafer is cut in a wafer cutting machine to get integrated circuit chips. The IC chips is termed as timer IC by the appellants in order to distinguish from musical IC or melody IC used in the assembly of chiming device or musical device. The timer IC in the form of chip is encapsulated in Printed Circuit Board (PCB). At this stage, the item is called module. In the next stage, electronic components like capacitors, resistors, crystal are mounted on the module. At this stage the assembly is called Electronic Circuit Board, (ECB), Thereafter, the ECB is fitted with Stepper Motor (which is imported by the Appellants), gear frames and switches. At this stage the item is called the Complete Movement. The aforesaid Complete Movement, cabinet, dial hands glass/battery cell etc. are assembled to get the simple clock.
16. The IC chips for chiming device are imported in the form of wafers. These wafers are in the shape of disc. The wafer consists of number of Integrated Circuit (IC). This wafer is cut in the wafer cutting machine to get IC chips. The chips are encapsulated on PCB to get simple module. Thereafter, electronic components are soldered on this simple module to get assembled module. The assembled module is put in plastic boxes and wires soldered at the required places. This item is called Chiming Device or Musical Circuit.
17. In the case of musical clock, apart from the movement mentioned above the chiming device is also used along with cabinets, dials hand glass etc. to get musical clock.
18. In the case of jhoomar clock, the additional item of jhoomar movement is also used in the assembly of jhoomar clock.
19. We are taking for the purpose of disposal of these cases. Appeal filed by Ajanta Transistor Manufacturing Co. (Appeal E-101/95). The demand raised in the order against this assessee-appellant is as follows :-
I.
(a) Demand on 6,43,873 Nos. of musical clock Rs. 1,13,32,165
(b) Demand on 15609 Nos. of jhoomar clocks Rs. 4,72,172
(c) Demand on 187674 Nos. of chiming devices Rs. 20,65,440
(d) Demand on 2843000 Nos. of ECB Rs. 31,27,300 Total :
Rs. 1,69,97,077 II.
Demand by disallowing Modvat credit on inputs Rs. 21,84,353 Grand Total :
Rs. 1,91,81,430
20. The appellants were directed by the Superintendent of Central Excise to furnish the quantity of raw material purchased. The appellants vide their letter dt. 3-9-92 furnished all the documents for the purchase of material including the imported raw material.
21. Thereafter by their letter dt. 21-4-1994 the assessee informed the department as follows :-
"We wish to inform you that we have stored and preserved all the rejected I.C-S. in our factory. According to our estimation we are having as on today nearly 16 Lakhs of pieces of Timer I.C. as rejected I.C-S. We have also preserved nearly 6 Lakhs pieces of Melody I.C. as rejected pieces."
The grievance of the appellants is that these rejected ICS were not taken into account as well the physical verification of the closing stock was not done. In our view this is a correct way of approach to the problem.
22. Whenever the charge of clandestine removal is made, the department has to prove that assessee has procured all the raw materials required for the manufacture of final product; the assessee have utilised human resource in the form of labour and paid that much wages for the production of the quantity of units which have been confirmed in the Order-in-Original as produced; what is the optimum electricity consumed for producing the quantity that is sought to be added to the production on the ground that the same was not accounted, through evidence of tampering of the meter; the evidence of not reflecting the correct expenditure in the account books, in procuring the raw materials; the expenditure of actual amount on transportation of goods to the customers place, as per the requisition of the customer. Normally these are all the evidence required for confirmation of the charge of clandestine removal by the Department.
23. In this group of appeals the consumption of only few items namely Melody I.C, Jhoomar I.C., Timer I.C. Battery Stepper Motor have been mentioned. Further the consumption of these items was based on Delivery Challan maintained by the appellants. Even in respect of this it has to be mentioned that the assessee has explained that the Delivery Challan has been kept for movements of Raw materials from one section of the factory to another section in the same factory only because of the sensitive and the costly nature of these items. The delivery challan is not actually reflecting the production or clearance of the final product outside the factory.
24. In this connection it is useful to refer to the cross examination of the investigating officials conducted by the Counsel on behalf of the appellants before adjudicating authority. The relevant portion of Cross Examination of Shri J.J. Fernandes, Superintendent of Central Excise; conducted by the appellants on 8-2-94 before the adjudicating authority is as under :
"Q.8. Is it correct to say that same quantity of inputs is recorded at different stages in different delivery Challan Books ?
Arts: Yes.
Q.9. Manu Bhai Patel has stated in his statement that Delivery Challan book are maintained for the internal movement of inputs and keeping a moral control and check on the worker. Have you got any evidence to falsify the said explanation about Delivery Challan Books ?
Ans : I have never disputed.
Q.12. Is it correct that name of the consignee or receiver of the inputs has not been written on the delivery Challan Books ?
Ans: Yes.
Q.15. Can you point out a single piece of documentary evidence where the alleged suppressed production of Wall Clocks have been recorded by four manufacturing units.
Ans : The base of these case may be taken from the figures appearing in the delivery challans and taking into account the raw materials used into production of Wall Clocks"
As far as taking into consideration of Raw Materials used in the manufacture of Clocks are concerned, this is what Shri J.J. Fernandes, Superintendent of Central Excise had stated; when he was cross examined by the appellant on 5-2-94 before the adjudicating authority.
"Q. 38. Please point out from the SCNs. where the consumption of other raw material and components was taken into consideration:
Ans: I may not have been pointed out in the SCNs.
Q.39. A complete clock cannot be manufactured using 3 or 4 components. Indispensible components are required to be taken into consideration. Without Quartz Crystal no Quartz clock is manufactured. The waslage in quartz Crystal Clock is practically Nil. 30 Lacs Quartz Wall Clocks require 30 Lacs Quartz Crystal. Quartz Crystal are imported item. Have you taken into consideration Quartz Crystal ?
Ans: Yes.
Q.40. Can you point out from the S.C.N. the receipt of 30 Lacs of Quartz Crystal went into the production of 30 Lacs Quartz Wall Clock ?
Ans: It is not stated in the S.C.N."
25. From the Flowchart for manufacturing the clock and the process of manufacture described above, it requires more than 30 raw materials. The department have wrongly relied upon the Delivery Challan. Regarding the figures of usage of other materials it was never reflected in Delivery Challans relied upon in the SCNs. The adjudicating authority had alleged that in respect of 5 inputs, the issued for production inter alia based on the delivery challans, was higher than what is required for the manufacture of the quantity shown in RG 1 register. The adjudicating authority thereafter presumed that the final products were manufactures out of the alleged excess quantities of only 5 inputs. The adjudicating authority had not shown any excess consumption of other 25 items required for the manufacture of clocks and other products which were alleged to be produced and removed clandestinely. When this is the case, the very basis of SCN and the Order-in-Original is knocked out.
26. We, therefore, find on the basis of oral evidence of J.J. Fernandes the foundation of the demand is wrong. Moreover if the determination of production is taking note of only the consumption of few raw materials used for the manufacture of the final product, the claim of the Revenue is clearly wrong.
27. The next issue is regarding denial of Modvat credit on inputs on the ground that the inputs on which Modvat credit was taken were removed to the job workers by the appellants without prior permission under Rule 57F(2). A perusal of Para 14 of the show cause notice shows that, the use of all the processed material received from the job workers in the manufacture of the final product is not in dispute. When that is the case, we fail to understand as to how just because permission of the competent authority is not obtained, the assessee can be denied the Modvat credit ? It is true that there should be compliance of statutory requirement by the assessee. However it is not the case here that the manufacturer viz. Ajanta Transistor Manufacturing Co. did not file any declaration under Rule 57G, the nature of the transaction, namely existence of job workers being with the same premises. In this case we see that there are certain minor violation. However such violation may not follow complete denial Modvat credit. As stated above it is not the department's case that the job workers, had not return the processed material and the same was not shown to be used in the manufacture of final product. Therefore, we are of the view that under these circumstances, Modvat credit cannot be denied in this case.
28. In view of the fact that the department has not proved the clandestine removal and in view of the fact that Modvat credit has been wrongly denied, we decide the case in the favour of assessees.
29. That leaves us only with one question namely there were no. of judgments cited at the time of argument by the assessee, in support of the submission that mere non-accountal of few inputs cannot be the basis of allegation of suppression of production of final products when the manufacture of final product requires number of inputs. The following are some of the decisions referred to by the assessees on the aforesaid proposition :
(A) Oudh Sugar Mills Ltd. v. U.O.I -1978 (2) E.L.T. (J.172)
(B) Jay Enterprises & Ors. v. CCE - 2001 (136) E.L.T. 541 (T) - 2000 (41) RLT 107 (CEGAT)
(C) Pepsico India Holding Ltd. v. CCE - 2000 (122) E.L.T. 490 (T) = 2000 (41) RLT 113 (CEGAT)
(D) Punjab Beverages Ltd. v. CCE - 1996 (81) E.L.T. 673 (Tribunal)
(E) Rishi Packers Ltd. & Ors. v. CCE, Swat - 1999 (33) RLT 445
(CEGAT) (F) CCE, Chandigarh v. Ludhiana Bottling Co. - 1997 (93) E.L.T. 177 (Tribunal)
(G) Premier Packaging Pvt. Ltd. v. CCE, New Delhi - 1986 (26) E.L.T. 333 (Tribunal)
(H) Saraya Steel Ltd. v. CCE, Allahabad -1998 (98) E.L.T. 787 (Tribunal) (I) V.K. Thampy v. CCE, Kochi 1994 (69) E.L.T. 300 (Tribunal)
(J) Padmanabh Dyeing & Finishing Works v. CCE, Vadodara -1997 (90) E.L.T. 343 (Tribunal).
30. We need not dwell upon each of the cases referred to above because we have held in the favour of the assessees on the basis of evidence disclosed in the present case.
31. The facts in the appeals filed by the other assessees are identical to the facts in the appeal filed by M/s. Ajanta Transistor Clock Mfg. Co. which was discussed above. Therefore those appeals are also decided in favour of the assessees.
32. The appeals filed by M.U. Patel and R.B. Patel are taken up. In view of the fact that there is no clandestine removal of the final products, hence there cannot be applicability of change of violation of Rule 173Q of the Central Excise Rules. Rule 209A will be applicable only any person deals with such confiscable goods with knowledge thereof. In view of failure to prove the case of clandestine removal and non-application of Rule 173Q, application of Rule 209A in these cases is ruled out and hence all the appeals of M.U. Patel and R.B. Patel are allowed.
33. In view of the above, impugned orders are set aside. Appeals are allowed with consequential relief if any in accordance with law.