Customs, Excise and Gold Tribunal - Delhi
L.M.L. Ltd. vs Collector Of Central Excise on 8 February, 1990
Equivalent citations: 1991(51)ELT434(TRI-DEL)
ORDER K.S. Venkataramani, Member (T)
1. Appeal No. E/1485/88-D arises out of order dated 8-3- 1983 passed by the Collector of Central Excise, Kanpur by which he had demanded a total of Rs. 3,08,97,829.15 as Central Excise duty under- Rule 9(2) of Central Excise Rules, 1944 read with Section 11A of the Central Excises & Salt Act, 1944 by which he also imposed a penalty of Rs. five lakhs under Rules 9 (2), 52-A, 196, 210, 226 and 173-Q of Central Excise Rules, 1944 on the appellants herein.
2. In the two other appeals also (Appeal No. E/3413/87-D and E/3419/87-D) of the same appellants, the central issue is again whether the Mother Yarn or Multi Filament Yarn is dutiable or not and in view of this commonality, these apeals are also considered and disposed of by a common order.
Appeal No. E/1485/88-D Very briefly the facts in this appeal are that the appellants produced nylon yarn falling under the erstwhile Tariff Item 18-II (i) (a) of the Central Excise Tariff. According to the department, the team of Central Excise Officers visited the appellant's factory premises from 1-11-1985 to 26-12-1985 to investigate into certain information that the appellants were processing multi-filament yarn for splitting and producing mono-filament yarn without proper accountal in the Central Excise statutory records. The officers took into possession certain documents and also obtained the statements of several officers and employees of the appellant firm during the investigations that followed and ultimately a Show Cause Notice was issued to the appellants on 19-5-1986 asking them to show cause why duty to the extent of Rs. 3,28,18,890.75 should not be demanded from them and why penalty should not be imposed on them. The charges in the Show Cause Notice covered various offences which are listed out in Annexure IV to the Show Cause Notice, which is reproduced below :-
__________________________________________________________________________________________ S.No. Description of goods Qty. in Kg. Amount of duty involved in Rs.
__________________________________________________________________________________________
1. 2. 3. 4.
__________________________________________________________________________________________
1. Quantity of samples sent for test without 13,743.950 9,62,076.50 observing provisions of CER, 1944 outside the factory premises as detailed in Annexure-II.
2. Mother Yarn accounted for as wastes during 10,862.880 7,60,401.60 the months from February 85 to 13-9-1985 as detailed in Annexure-I
3. Draw-winder production for the period from 3,08,237.900 2,15,76,653.00 14-9-85 to 28-2-86 as per register as detailed in Annexure-II cleared in violation of provisions of Rules 9 & 49 of C.E.R. 1944 for splitting.
4. Quantity of non-workable Mother Yarn 979.900 68,593.00 packed and not accounted for in Central Excise record.
5. Quantity of goods short accounted for in 17,258.680 12,08,107.60 Central Ex. records as per DGTD statement.
6. Quantity of goods short accounted for in 6,260.000 4,38,200.00 Central Excise records as detected from their balance-sheet.
7. Quantity not accounted for as loose stocks in 7,003.000 4,90,210.00 Central Excise records as detected from their balance-sheet.
8. Provisionally released seized goods not 13,473.937 9,43,175.60 accounted for in Central Excise records and returns.
9. Quantity of un-drawn yarn of 760/48 Denier 1,02,981.630 63,71,473.45 cleared under the garb of POY for draw-
texturisation during the months March, April & May, 85 without payment of appropriate amount of duty leviable thereon i.e. @ Rs. 70/-per Kg.
_____________ ______________
TOTAL: 4,80,800.977 3,28,18,890.75
__________________________________________________________________________________________ After considering the detailed reply given by the appellants to the Show Cause Notice and after affording them an opportunity of personal hearing, the Collector adjudicated the case demanding duty and imposing penalty on them as already noted above. The present appeal has been preferred against this order.
3. Shri R. Santhanam, General Manager (Legal) of the appellant firm represented them in the hearing. He submitted that the appellants began production operation w.e.f. 31-1-85 and till 31-7-85, they worked under the provisions of Chapter VII-A of Central Excise Rules, 1944 (Self Removal Procedure) and thereafter under Physical Control w.e.f. 1-8-85. He urged that out of the total duty demanded, the major portion is on account of the Collector's finding that mother yarn or multi-filament yarn produced by them and used in the manufacture of mono-filament yarn by subjecting the mother yarn to splitting process is itself dutiable and the demand of duty on this account amounts to Rs. 2,15,76,653/-. Shri Santhanam argued that the major plank of the Collector's order on this issue is based on the fact that mother yarn is mentioned in the exemption Notifica-, tion 47/85 dated 17-3-85 and Shri Santhanam urged that mother yarn cannot be regarded as dutiable merely by virtue of this notification since an exemption notification or a proviso thereto does not have the force of the charging section namely Section 3 of the Central Excises & Salt Act, 1944 merely because mother yarn is specified in the exemption notification, it does not follow, according to the appellants, that mother yarn is specified in the Tariff as excisable goods. The further submission was that even if mother yarn being mentioned in the notification is considered as adequate for subjecting it to duty under the tariff, it is further essential to establish that the mother yarn is in the nature of goods and excisable goods by virtue of being a marketable commodity known to the trade. It was their contention that mother yarn was used only captively for splitting and was not marketed by them. In this context, Shri Santhanam cited and relied upon the case decided by the Tribunal in Kiran Spinning Mills Ltd. v. Collector of Central Excise - 1984 (17) ELT 396 in which the Tribunal held that exemption notification cannot take the place of a charging section and in that case the Tribunal also held that cutting of tow into staple fibre would not amount to manufacture. This decision of the Tribunal was upheld by the Supreme Court in the case of Collector of Central Excise v. Kiran Spinning Mills Ltd. -1988 (34) ELT 5. The further argument of Shri Santhanam was that the R.G.I stage of accounting for the product in the statutory Central Excise register was only at the stage of split yarn. In this connection, he referred to the letter dated 16-9-85 of the jurisdictional Superintendent of Central Excise permitting accountal of mono-filament yarn in R.G. 1 records as per the practice in the past and for maintaining private record of mother yarn produced and also taken for testing. It was pointed out that this facility was sought to be withdrawn by another letter dated 9-4-86 and the department required the accountal of mother yarn and payment of duty thereon. Further, on a representation by the appellants to the Assistant Collector on 11-4-86, the Asstt. Collector ordered to continue the status quo in terms of the earlier letter of 16-9-85 and this situation continues till date, accordingly to the appellants. The appellants further pointed out that the RG-1 stage in respect of yarn manufactured by them has also been held by the Additional Collector of Central Excise in their case to be the split yarn or mono-filament yarn stage vide Additional Collector's adjudication order dated 23-8-87. It was further urged that the Government of India in their letter dated 19-8-88 had informed the appellants herein that the RG-1 stage shall be only on the completion of manufacture of mono-filament yarn and that there is no requirement of RG-1 record to be maintained for the mother yarn used for splitting within the factory. Shri Santhanam further contended that there is no definition of yarn in the tariff and relied upon the Supreme Court decision reported in 1988 (37) ELT 471 (S.C) in the case of Aditya Mills v. Union of India, wherein the Supreme Court laid down that yarn is meant for weaving, knitting or rope making and applying this test, mother yarn is not fit for weaving, knitting or rope making. It is also not known as yarn in the trade. Hence, it is not dutiable, according to the appellants, as yarn under Item 18 of the Central Excise Tariff. Shri Santhanam also relied upon the Supreme Court decision in the case of Bhor Industries Ltd. v. Collector of Central Excise -1989 (40) ELT 280, wherein the Supreme Court laid down that marketability of an article is essential for considering it as a dutiable commodity under Section 3 of the Central Excises and Salt Act, 1944. Shri Santhanam pointed out that by such decision, the Supreme Court had gone beyond the ratio of its own decision in the case of Collector of Customs and Central Excise v. Oriental Timber Industries - 1985 (20) ELT 202 and it is the law as laid down by the Supreme Court that mere tariff description of an item is not sufficient for attracting liability to duty, but that it must be shown to be goods which are marketed or marketable. Yet another argument put-forth related to the applicability of Rule 9 and Rule 49 of Central Excise Rules. Rule 9 lays down that no excisable goods can be removed from any place where they are produced until the duty leviable thereon has been paid. Rule 49 lays down that duty is chargeable on removal of the goods from the factory premises. It was argued that there is, in the present case, no removal of excisable goods when mother yarn is taken for splitting within the factory to the splitting section in terms of Rule 9 &. 49, because even assuming that mother yarn constitutes yarn for the purpose of being excisable goods, it remains yarn even alter splitting. The excisable stage is the stage at which the goods arc normally removed from the factory for sale or otherwise. But if at the intermediate stage the excisable goods come into existence, such goods after becoming excisable get transformed into another excisable commodity falling under a different item and sub-item of the Tariff, then only it would constitute a deemed removal under the provisions of Rules 9 and 49 as amended from 20-2-82. But if there is no change in the tariff item or sub-item and the product remains the same with only minor changes in its properties, it cannot be said, according to the appellants, that there is removal within the meaning of Rules 9 and 49. Shri Santhanam relied upon the Supreme Court decision in the case of J.K. Cotton Spinning and Weaving Mills Ltd. v. Union of India - 1987 (32) ELT 234 (S.C) Para 46 that the intermediate product for the purposes of Rules 9 and 49 should be commercially known as goods and also it should be classifiable under a different tariff or different sub-item of the same tariff item. Shri Santhanam also submitted that even if it is held that mother yarn is dutiable, credit must be given to the duty already paid on the split yarn because there cannot be a double levy of duty on the same product. He further argued that the demand was also hit by limitation since the longer period beyond six months under Section 11-A of the Central Excises & Salt Act, 1944 cannot be invoked as there is no ground to a lege suppression since the department was in the know of the production activities of the appellant unit, which had also been under Physical Control.
4. As regards the other grounds for demanding duty, Shri Santhanam argued in regard to the mother yarn accounted for as waste, appearing under Serial No. 2 of An-nexure IV to the Show Cause Notice on which an amount of Rs. 7,60,401.60 has been demanded, that the issue regarding dutiability of the waste has already been decided by this Tribunal in their favour in their own case reported in 1988 (38) ELT 336 to the effect that nylon polymer waste occurring after emergence of filament but prior to winding of nylon yarn on cops would amount to waste arising during the course of manufacture of nylon yarn. In the same decision, Shri Santhanam pointed out the Tribunal also had given a finding that the manufacture of nylon yarn is complete only when it is wound on cops and, therefore, at the mother yarn stage, which is much prior to winding on cops, it cannot be said that fully finished excisable goods have emerged. He also pointed out that the demand of this amount was also time barred because it related to the period between 31-1 -85 to 13-9-85 whereas the Show Cause Notice has been issued on 19-5-86 and being beyond six months, cannot be enforced. This is because the department cannot allege suppression of facts since the unit was under physical control and there cannot be any allegation of clandestine removal.
5. In respect of Serial No. 4 relating to the demand on quantity of non-workable mother yarn, the argument of Shri Santhanam was that this issue was already decided in their favour by the Additional Collector in his adjudication order dated 23-8-87 stating that mother yarn was not excisable and that the RG-1 stage for account-al for Central Excise purposes would arise only at the split yarn stage. Since there has been no removal from the place of manufacture of mother yarn, there cannot be any payment of duty.
6. In respect of the demand of duty at Serial No. 1 relating to quantity of samples sent for test, it was submitted that the period to which the demand relates is from 14-9-85 to end of February, 1986. Testing of the goods is a very essential production requirement and in respect of their product, manufacture is final and complete only after testing. In this context Shri Santhanam relied upon the decision reported in 1989 (39) ELT 689. He further pointed but that even according to the Govt. of India instructions in their case, they have been told that the RG-1 stage arises only at the split yarn stage and thereafter, there is no testing. Further, the waste is nylon polymer waste fully exempt from duty, as already held by the Tribunal in their case. In any event, Shri Santhanam submitted that exemption under Notification 26/76 dated 22-7-76 should have been considered to exempt a quantity of 25 Kgs. per month and the total quantity involved in this case being 174 Kgs. is well within the permissible limit prescribed in the notification above.
7. In regard to the demand for duty at Serial No. 5 of Annexure IV to the Show Cause Notice relating to difference between Central Excise records and DGTD statement, it was explained that the difference was essentially due to clerical mistake while filing the DGTD return and it has been rectified by the appellants immediately on being noticed and a revised return had been filed which has also been accepted by the DGTD. The revised return had been shown to the Collector who, however, had not given any consideration to it, according to the appellants. It was further pointed out that the plant worked in March 1985 only for 14 days from 18lh till 31st March and during that period, only 760/48 denier of non-textured yarn of 26009.320 Kgs. was produced and taken for texturisation and it was pleaded that there cannot be a production of as much as 43,268 Kgs as wrongly stated in the original DGTD return.
8. In regard to the duty demanded in respect of textured yarn, it was pointed out that the difference arising from the change in the denierage during texturisation, is not relating to mother yarn as the yarn could not be split and, therefore, nothing to do with notification 47/85 relied upon by the Collector erroneously. Shri Sanlhanam pointed out that the Allahabad High Court in their own case reported in 1987 (28) EI.T 234, Para 38 had held that duty was payable only on non-texturised yarn before removal and that no duty on lexlurised yarn was payable by virtue of exemption under notification 178/83 dated 1-7-83. Similarly, there have been decisions in their favour by the CEGAT also (Order No. 185/89-D).
9. In respect of the demand relating to goods alleged to be short accounted for in Excise records as compared to balance sheet at Serial No. 6 of Annexure IV to the Show Cause Notice, it was argued that this demand related to the period 31-1-85 to 30-4-85. The department has erroneously proceeded on the principle that the plant gets emptied on the last day of manufacture ignoring the quantity of material in process within the plant. It was also urged that a complete reconciliation was effected and furnished before the Collector which has not at all been considered by that authority. The appellants further pointed out that even the quantity can be verified with reference to their Part-IV register by the department. There has been also no clandestine removal of the goods. Further, this demand was also barred by limitation.
10. On the question of penalty, Shri Sanlhanam submitted that the appellant in the facts and circumstances of this case, cannot be said to have deliberately flouted the provisions of the Central Excise Act and Rules and, therefore, the penalty on them imposed by the Collector is not warranted and for this, he relied upon the Supreme Court decision in the case of Hindustan Steels Limited v. State of Orissa -1978 (2) ELT J159 (SC) which laid down that no penalty should be imposed for technical or venial breach of legal provision.
11. Shri L.C. Chakraborty, the learned Departmental Representative appeared for the department. He referred to the tariff description under Item 18-II which covers Man-made filament yarn (non-cellulosic), other than textured and textured. From this, it follows according to the learned Departmental Representative that it cannot be said that yarn becomes dutiable only of it is used for weaving, knitting or rope making, as contended by the appellants. This argument further is based on decisions under Sales Tax Law, which is not wholly relevant to an issue arising out of tariff description under the Central Excise Tariff. The learned DR pointed out that the question here is, at what stage in the appellant's factory, yarn, answering to the description under Tariff Item 18 II (i) (a), comes into existance. In the first stage, multi-filament yarn or mother yarn is produced on which the appellants are not paying any duty. They are splitting mother yarn into mono-filament yarn and are paying duty at the stage. Shri Chakraborty urged that multi-filament yarn or mother yarn answers the tariff description 18-II (i) (a) which is wide enough to cover both, multi-filament yarn and mono-filament yarn. The learned D.R. also drew attention to the fact that in the ISI Glossary of Terms ISI 1324 of 1966 -Indian Standards Glossary of Textiles Terms Relating to Man-made Fibres and Fabric Industry (First Edition), both mono-filament yarn and multi-filament yarn are mentioned. Therefore, according to the learned DR, it can be said that multi-filament yarn is also known in the trade. He relied upon the Delhi High Court decision in the case of Porrits and Spencer (Asia) Ltd. v. Union of India - 1980 ELT 679 and the Madras High Court decision in the case of Parry Confectionery Ltd. v. Govt. of India - 1980 ELT 468 wherein the High Court following the Supreme Court decision have held that Glossary of terms published by the ISI can be a useful guide and is to be preferred in preference to expert opinion. In this context, he also relied upon the decision in the appellant's own case by the Allahabad High Court - 1987 (28) ELT 234 wherein the Hon'ble High Court held that partially oriented yarn is classifiable under Item 18-II (i) (a) of Central Excise Tariff as fully manufactured excisable goods and Shri Chakraborty pointed out, it is significant here that partially oriented yarn is not used of knitting, weaving or rope making but is used only for texturising and yet the All'bd High Court had held it liable to duty under Tariff Item 18-II (i)(a). As for the argument that multi-filament yarn is not marketable, Shri Chakraborty relied upon the Supreme Court judgment in the case of Union of India v. HUF Business known as Ramlal Mansukhrai Rewari and Anr. -1978 (2) ELT 389 and Collector of Customs & Central Excise v. Oriental Timber Industries -1985 (20) ELT 202 wherein the Supreme Court held that the question essentially is whether the article answers the description of the Item in the Tariff. The learned Departmental Representative further submitted that charging Section 3 of the Central Excises & Salt Act, 1944 referred to excisable goods which term is defined in the Act as goods described in the tariff and submitted that Section 3 has to be read with the definition at Section 2 (d) therein. Therefore, it is not a question of merely whether the article is goods or not but whether it is excisable goods has to be considered, according to the learned D.R. Further, in regard to the concept of marketability, Shri Chakraborty pointed out that in the Bhor Industries case - 1989 (40) ELT 280, the criterion laid down is that actual sale in the market is not necessary and also the Supreme Court observed : use of the material for captive consumption is not determinative of marketability or the articles must be known in the market or should be capable of being sold in the market.
Therefore, if the appellants had not chosen to sell mother yarn, it does not determine marketability of the article. The learned D.R. urged that the question has to be decided with reference to the product. It may so happen that the advanced process of technology in manufacture, as adopted by the appellants herein is such that is not available to others in the field and if in such circumstances, mother yarn produced by them is not marketed, it is only an extra-ordinary situation. The capability of being sold, according to the Departmental Representative, is a quality of product. He referred-to the Delhi High Court decision reported in 1978 (2) ELT 121 in the case of Delhi Cloth & General Mills Co. Ltd. v. Joint Secretary Government of India, highlighting three aspects namely, material, economic and legal, which should be considered, when examining this question and applying this criteria in the present case, there is no legal bar on the sale of the product and economic usefulness as material is attributable to mother yarn because it is used in the manufacture of mono-filament yarn. He also pointed out that as a matter of fact, the appellants had cleared some quantity of mother yarn and sold it. The learned DR further argued that the Collector's reliance on the proviso to Notification 47/85 in arriving at a finding that mother yarn is dutiable is well-founded because the notification is part of the Act as the notification fixes the effective rate. The statute provision has to be considered alongwith rules and notification because levy and exemption are two facets of policy. To find out the true nature of a tax, according to the learned DR, the levy as well as the exemption therefrom have to be considered. He cited the Supreme Court decision reported in AIR 1957 SC 790 to support his argument that exemption contained under the notification is a part of the Act. As regards the argument put-forth that manufacture of yarn is complete only at the stage when it is wound on cops, the learned DR contended that the CEGAT's decision relied upon in this context was based on certain admission of fact which is not altogether correct because at the time CEGAT was not made aware of the dispute regarding the dutiability of the yarn at the earlier stage of production namely, at the multi-filament or mother yarn stage. It was his submission that the previous CEGAT decision, if wrong on facts, need not have a binding effect. Referring to the arguments that RG-1 stage was already decided by the department as that of split yarn, Shri Chakraborty contended that RG-1 stage for yarn is at spinnerette stage which is a point not considered by the Additional Collector in his adjudication order. He also referred to the principle laid down in the decision reported in 1982 ELT 705 of the Govt. of India that excisability of cotton yarn is at spindle stage before sizing and accordingly, in the present case, multi-filament yarn fully drawn and wound on pools becomes at the stage a complete product as multi-filament yarn. The Govt. of India's instructions regarding RG-1 stage relied upon by the appellants is also of no avail because it does not have any retrospective effect and secondly, the present case arises under the old Central Excise Tariff whereas the Govt. of India's clarification is with reference to the Heading under the Central Excise Tariff Act, 1985.
Further if it was a regularisation of the past procedure, the Govt. of India would have said so. As regards the excisability of intermediate product and the applicability of Rule 9 and 49 of Central Excise Rules, Shri Chandrasekaran urged that to become dutiable, it is not essential that an article Should shift from one tariff to another or from one sub-heading to another under the same tariff item. This is evident even from the scheme of Central Excise contained, for example, in Rule 56-A relating to proforma credit on input duty wherein it is a condition that the input and the final product should fall under the same tariff item. Further, the Larger Bench decision in the case of Guardian Plasticote Ltd. v. Collector of Central Excise, Calcutta - 1986 (24) ELT 542 also confirms that no hopping from one tariff item to another is necessary for excisability and it is a well settled principle that the decision of the Larger Bench should be followed by all Benches. Shri Chakraborty submitted that even in the Supreme Court case in respect of J.K. Cotton Spinning & Weaving Mills, no such condition was envisaged. Dealing with the further argument that levy of duty on multi-filament yarn would amount to double taxation, Shri Chakraborty urged that multi-filament yarn and split yarn are different items and hence there is no demand of duty on the same goods twice. He relied upon the case of Premier Tyres Ltd. v. Collector of Central Excise, Cochin reported in 1987 (28) ELT 58 (SC) and argued that there could be no general principle that there can be no double taxation in levy of Central Excise and submitted that double taxation is not inherently invalid if provided for by legislation. In this context, he referred to the Delhi High Court decision in Krislon Texturisers Pvt. Ltd. v. Union of India 1987 (27) ELT 637, wherein the High Court held that dyed yarn is commercially different from grey yarn and taxing both is not double taxation. As regards the reliance placed by the appellants on the ratio of the Kiran Spinning & Weaving Mills case, the learned DR submitted that the question now before the Tribunal is not whether the splitting of the yarn amounts to manufacture or not, whereas in that case, the Supreme Court was considering the question whether cutting of tow into short lengths of staple fibre would amount to manufacture. He further pointed out that even incidental and ancillary processes for completion of a finished product will amount to manufacture and, therefore, splitting of mother yarn into mono-filament yarn is manufacture attracting dutiability. The Empire Industries Ltd. case decided by the Supreme Court -1985 (20) ELT 179 has further laid down that whatever be the operations undertaken, it is the effect of it on the material that would determine whether it is a process of manufacture. On the question of limitation, Shri Chakraborty pointed out that the period of the demand was between 14-9-85 and 28-2-86 and the Show Cause Notice has been issued on 19-5-86. Therefore, it cannot be said that the entire demand is beyond six month's period. Only the period prior to 19-11-85 is beyond six months. He referred to the Show Cause Notice and argued that it does contain allegation of suppression such as alleging that splitting machine was not included in the ground plan and classification list filed did not mention multi-filament yarn and also the period related to the time when the appellants had been (old to maintain private records relating to mother yarn and yet these were not produced on demand.
12. As regards the demand on various other grounds contained in the Collector's order, the learned Departmental Representative generally supported the reasoning therein in respect of those demands and argued that in respect of the duty demanded on samples, the appellants had not claimed the benefit of Notification 26/76 in their classification list and further, it is sufficient for RG-1 purposes if a new product emerges, as specified in the tariff, even if it may not be sold without testing.
13. In reply, Shri Santhanam submitted that there could be no grounds to allege suppression because the process of manufacture adopted by the appellants is known to the department and according to him, since both mother yarn and split yarn are nylon yarn only, classification of nylon filament yarn would cover both. Therefore, now the department cannot say that the mother yarn was not shown separately in the classification list. Even double levy has to have the sanction of substantial legislation and cannot be by way of subordinate legislation and notification. The proviso to Notfn. 47/85 only clarifies that the objective was to avoid multiple stages of levy. Mother yarn and split yarn arc two stages in the production of same goods. Shri Santhanam also relied upon Notfn. 75/88 dated 1-3-88 issued by the Central Government to confer exemption from duty on mother yarn when used in the factory of production for manufacture of split yarn falling under Tariff Heading 5402 or 5404 and this exemption to mother yarn has been granted un-conditionally in pursuance of the appellants representation to the Govt. and para 2 of the notification states clearly that this exemption shall not apply to manufacturer who avails of the exemption in respect of split yarn under North 53/87 which was issued in substantiation in North 47/85 under which split yarn is exempt if duty of excise has been paid on the mother yarn. He further referred to the memorandum explaining the provisions of the Finance Bill, 1988 wherein at Page 31, Item 31, the Govt. has stated that by virtue of (he exemption from duty being conferred on mother yarn when captively consumed the revenue effect is nil thereby, according to the appellants showing that the levy of duty on mother yarn does not in any case involve any loss of revenue. It was argued that the intention of the Govt., as is evident from all these notifications, is not to levy duty at two stages but only to tax the yarn at its final stage of production.
14. We have given careful consideration to the submissions made by Shri Santhanam, General Manager and by Shri Chakraborty, the learned Departmental Representative. We find that the major portion of the demand relates to the determination of the issue whether mother yarn or multi-filament yarn is a dutiable Central Excise product. The appellants have contended that mother yarn cannot be held to be dutiable merely by virtue of the Notification 47/85 dated 17-3-85, since the exemption notification cannot override the provisions of charging Section 3 of the Central Excises & Salt Act, 1944 because it is the appellant's contention that the Collector has relied on this notification for the purpose of imposing levy of duty on mother yarn and particularly to the proviso to the notification which reads as under :-
"Provided that split yarn shall be exempt from the whole of the duty of excise leviable thereon, if such split yarn has been produced from mother yarn for split yarn on which the appropriate duty of excise under the Central Excises & Salt Act, 1944 (1 of 1944) or as the case may be, the additional duty leviable under Section 3 of the Customs Tariff Act, 1975 (51 of 1975) has already been paid".
As against this, the learned Department Representative has argued that the notificaton and the provisions of the Act have to be read together and the notification is a part of this statute. Examining these contentions, we find that in the judgment of the Honourable Supreme Court in the case of Collector of Central Excise v. Park Exports -1988 (38) ELT 741 (S.C.), for the Supreme Court has laid down the law in respect of the interpretation of a notification. The Supreme Court in that case was considering the question whether non-alcoholic beverages are food product or food preparation covered by exemption notification 60/75-CE of 1-3-75. The Supreme Court noted the submissions made before it to the effect that how the Government understood the matter at the time of issue of the notification is a relevant factor and is one which should be borne in mind in view of the principles enunciated by the Supreme Court in K.P. Verghese v. Income Tax Officer -1982 (1) SCR 629 and observed that it is a well settled principle of interpretation that the Court in construing a statute or notification will give much weight to the interpretation put on in it at the time of enactment or issue and by those who have to construe, execute and apply the said enactment. The Supreme Court thereafter observed that the expressions in the Schedule and in the notification for exemption should be understood by the language employed therein bearing in mind the context in which the expressions occur, and further observed that the notification in that case was issued under Rule 8 of the Central Excise Rules and should be read along with the Act and that the notification must be read as a whole in the context of the relevant provisions. "When a notification is issued in accordance with powers conferred by the statute, it has statutory force and validity and therefore, the exemption under the notification is, as if it were contained in the Act itself". In this case, the exemption notification envisages mother yarn as a dutiable article under Item 18-II of the Central Excise Tariff and provides exemption for split yarn if it has been produced from duty-paid mother yarn for split yarn. There is a further explanation in the notification which says "for the purposes of this notification, in the case of mother yarn for split yarn the denier shall be the denier of the single mono-filament yarn (of the lowest denierage) comprising the mother yarn". Therefore, it also lays down how denierage of mother yarn is to be determined for levy of duty. This is because the duty is dependent on denierage. Subsequently, the authorities had also issued another Notification No. 75/88 dated 1-3-88 which exempted mother yarn captively used in the manufacture of split yarn in the same factory of production. It is also noted that the Budget proposals of 1988 giving the rationale for the duty exemption to mother yarn under Notification No. 75/88 had observed that exemption from excise duty on mother yarn was being granted when captively consumed in the manufacture of split yarn. Therefore, the authorities issuing the notification had consistently interpreted the tariff" description 18-II to include mother yarn for split yarn as excisable goods under Tariff Item 18-II of Central Excise Tariff. The specific tariff item in this case is 18-II (i) (a) which is worded as follows :-
"Man Made Filament Yarn
(i) Non-cellulosic
(a) Other than textured".
Therefore, we are of the view that there is no infirmity in the Collector referring to the provisions of Notification 47/85 as one of the grounds for subjecting mother yarn to duty. Yet, another point urged before us, for the first time by the appellants, was that mother yarn is not goods as it is not marketed and that, therefore, it will not become excisable goods. We observe that in their reply to Show Cause Notice this issue in the manner in which it is now put forth before us, has not been urged before the Collector. On a consideration of the submissions made by both sides on this aspect, we find that the law in this regard has been laid down by the recent judgment of the Supreme Court in the case of Bhor Industries Ltd. v. Collector of Central Excise - 1989 (40) ELT 280 (S.C) and this decision was further referred to by the Hon'ble Supreme Court in its subsequent decision in Collector of Central Excise v. Ambalal Sarabhai Enterprises -1989 (43) ELT 214. The Supreme Court laid down in the Bhor Industries Ltd. case that liability to duty on intermediate product arises only when there is manufacture of goods which is marketable or capable of being marketed because it was held that excise is a duty on goods as specified in the tariff schedule. Under the Act, in order to be goods as specified in the entry, it was essential that as a result of manufacture, goods must come into existence and for article to be goods, these must be known in the market as such and must be capable of being sold in the market as goods. Elaborating on this, the Supreme Court in the Ambalal Sarabhai case observed "actual sale is not necessary. User in the captive consumption is not determinative but the article must be capable of being sold in the market or known in the market as goods" and in the Ambalal Sarabhai case, the Supreme Court observed that there was evidence in the shape of an affidavit indicating in that case that starch hydrolysate (goods considered in that case) had a propensity of not being marketed, and, on that basis held that the evidence in the form of an affidavit indicating such propensity of goods not being marketed is a good evidence to come to the conclusion, in the absence of evidence contra, that it would be unlikely to be marketable, as it was highly unstable. Therefore, it is evident that one has to look to the propensity of the goods to be marketable. In the present case even according to the appellants, they had, in fact, cleared certain quantities of mother yarn on payment of duty which indicates not merely a propensity or the likelihood of the goods being marketed, but actual instance of clearance of the goods on payment of duty. In fact, the letter dated 16-9-85 of the jurisdictional Central Excise Superintendent referred to by the appellants clearly refers to the prevalence of such clearances by saying therein "The present practice of accountal of multi-filament yarn cleared from the unit on payment of duty as such or accountal of split yarn in the RG-1 register will continue...". It has been stated that these clearances were on experimental basis; but we are of the view that that could not make any difference because as observed by the Supreme Court in the case of Union of India v. Bombay Tyre International Ltd. -1983 ELT 1896 (S.C) "there is nothing to prevent the central legislature for imposing a duty of excise on a commodity since it comes into existence - no matter whether it is sold, consumed, destroyed or given away". We further find that multi-filament yarn and mono-filament yarn are mentioned in ISI 1324 of 1966 - Indian Standards Glossary of Textile Terms relating to Man-made Fibres and Fabrics Industry (First Edition) as follows :
Multi-filament Yarn : Yarn with many continuous filaments or strands.
Mono-filament Yarn : A single filament of sufficient size to function as a yarn in normal textile operations.
In this context, we bear in mind that ISI Glossary of Terms is different from ISI specification in respect of quality control. The Supreme Court in the case of Empire Industries Ltd. v. Union of India and Ors. -1985 (20) ELT 179, in para 38 thereof had observed "in support of the question whether actually there is manufacture or not, various documents were attempted to be utilised at the hearing of the application before us. Most of these pieces of evidence cannot be admitted at this stage but indisputably in the Indian Standard Glossary of terms which deals with various expressions, 'bleached fabric' has been defined as a fabric which has undergone bleaching treatment and is treated by the Indian Standard Institution as something different from fabric which has not undergone the bleaching operations. Different standards are set out by the same and the views of the Indian Standard Institution can be looked into by the Court with certain amount of creditability (see in this connection Union of India v. Delhi Cloth & General Mills (supra) ". The Madras High Court in the case of M/s. Parry Confectionery -1980 (6) ELT 468 had also placed reliance on such Glossary of Terms following the same Supreme Court decision in the case of Delhi Cloth & General Mills. The Madras High Court further observed that the sectional committees of Indian Standard Institution which decide these matters are composed of eminent persons in trade, industry and Government as also consumers and other experts. The Court held, their views therefore deserve acceptance by the court except where there are other strong considerations to the contrary. Similarly, the Hon'ble Delhi High Court in the case of Porrits & Spencer (Asia) Ltd. v. Union of India - 1980 (6) ELT 679 following the same Supreme Court decision in DCM case held that the opinion of the Indian Standards Institute as expressed in the Glossary of Textile Terms must be preferred to the opinions of other technical experts. Therefore, multi-filament yarn or mother yarn and split yarn or mono-filament yarn figuring separately in the 1SI Glossary of Terms must be taken to be two separate manufactured goods in the light of the mention of these two in the Glossary of Textile Terms relating to man-made fibres and fabrics as distinct items. We have already seen that there are also instances of clearances of mother yarn by the appellants on payment of duty. The fact that they consume mother yarn captively for manufacture of split yarn, therefore, would not make any difference. We are also unable to accept that only if the yarn is used for knitting, weaving or rope making, it should be considered as yarn because of the scope and ambit of tariff entry regarding the Item in 18-II (i) (a). In fact, we find, the appellants themselves had said in their reply to the Collector's Show Cause Notice in para 56 thereof that the "goods is admittedly a yarn" and the only dispute is that what rate is to be applied. Another contention put-forth has been that emergence of mother yarn is a stage in the manufacture of split yarn and that subjecting both to duty would amount to double taxation. This argument is not acceptable because 18-II is a group entry wide enough to cover mother yarn and split yarn which, as has been shown above, are considered different products. The Supreme Court has observed in the case of Avinder Singh -1979 (1) SCR 845 that if on the same subject matter the legislature chooses to levy tax twice over, there is no inherent invalidity in the fiscal adventure save where other prohibitions exist.
The Tribunal had also followed the same Supreme Court decision in the case of Srinivasa Metal Industries v. Collector of Central Excise, Guntur - 1987 (30) ELT 578 wherein the CEGAT went on to observe that a new and distinct commercial product, as a result of a manufactured process, would invite imposition of duty though there may not be any move away from the tariff item or even from one sub-heading of another. That there need be any such move from one tariff item to another for dutiability is further confirmed by the Larger Bench of the Tribunal in the case of Guardian Plasticote Ltd. v. Collector of Central Excise, Calcutta - 1986 (24) ELT 542. That such a dutiability of item falling under the same tariff item might arise, was envisaged in the scheme of Central Excise, as is seen from the provisions of Rule 56A relating to proforma credit on inputs. The appellants have further relied heavily on the decision of the Tribunal in the case of Kiran Spinning Mills Ltd. v. Collector of Central Excise - 1984 (17) ELT 396 (Cegat) affirmed by the Supreme Court in Collector of Central Excise v. Kiran Spinning Mills Ltd.- 1988 (34) ELT 5 to say that the manufacture of split yarn out of mother yarn in their own factory cannot lead to levy separately on both the items as both are yarn. We have carefully perused the decision of the CEGAT and that of the Supreme Court thereon. It is seen that in that case the Tribunal's finding was that the Tariff Item 18-I recognised a single description 'man-made fibre' with no further sub-divisions based on length of fibre without even a distinct enumeration of the various forms of the fibre, whereas in the present case, this Tariff Item 18-II has such a distinction in regard to man-made filament yarn and enumerates other than textured yarn and texturised yarn. We further find that even in the appellant's own case decided by the Hon'ble Allahabad High Court -1987 (28) ELT 234 (Allahabad) the High Court held that partiality oriented yarn manufactured by the appellants would be classifiable as other than textured yarn and Item 18-11 (i) (a)-CET and negatived their contention that it was semi-finished goods. The Delhi High Court in the case of Krislon Texturisers Pvt. Ltd. v. Union of India - 1987 (27) ELT 637 had also held after going into the Tariff Item 18-II of Central Excise Tariff that duty levied on other than texturised yarn and again on textured yarn is legally valid. Further, we observe that in the Kiran Spinning Mills Ltd. case, the CEGAT had noted that the appellants therein had purchased tow from outside and that manufacture of polyester fibre requires a huge plant costing crores of rupees and that the appellants in that case had nothing of the sort. In the case of present appellants, however, the appellants themselves manufacture multi-filament yarn and do have a plant for splitting it into mono-filament yarn of considerable value. Apart from this, it is on record that in the adjudication proceedings before the Collector in their reply to the Show Cause Notice dated 11-9-87 wherein the appellants had admitted that multi-filament yarn satisfied by the tariff description of 18-II (i) (a) and they have also gone on record to say with reference to the Notification 47/85 that it will apply to independent manufacturers engaged in splitting of duty-paid mother yarn. The appellant's own understanding of the fact that mother yarn is also dutiable is reflected in the following submissions made by them:
"The proviso to Notification No. 47/85 itself makes it clear that availing of the exemption on the split yarn is not compulsory and, in fact, it is depending upon the fact whether appropriate excise duty has been paid on the mother yarn. The correct interpretation of the said proviso is that wherever mother yarn has already suffered appropriate duty, no further duty is leviable on the split yarn and wherever the mother yarn has not suffered appropriate excise duty, the split yarn has to pay appropriate excise duty. No other interpretation is possible as regards the proviso to the said Notification No. 47/85.".
Therefore, the reliance on the Kiran Spinning Mills Ltd. case does not advance the case of the appellants. It has also been argued that if mother yarn is held to be dutiable, then the duty already paid by them on split yarn manufactured from mother yarn should be adjusted against such liability by giving suitable credit of duty paid. We find that this may perhaps fall for consideration by the Tribunal if such an arrangement can be worked out within the scheme of Central Excise Act and Rules. However, it is seen that man-made filament yarn under Item 18-II of Central Excise Tariff is not notified under Rule 56A of Central Excise Rules for the purposes of proforma credit. It may even be that subjecting the goods to duty at the stage of multi-filament yarn and again as mono-filament yarn might result in avoidable cascading effect of input taxation on the cost of final product. The appellants have also pointed out that in fact such duty relief was granted to captively consumed mother yarn by Notification 75/88 dated 1-3-88. But till that time, no such explicit relief had been spelt out in law and hence, in the absence of such legal provision during the period relevant to this case, and since the Tribunal is a creature of statute and not a court of equity, it cannot, in our view, grant relief which will be beyond the scope of the Central Excises and Salt Act and the Rules made thereunder.
15. As regards the RG-1 stage for accountal of the yarn, the appellants have stated that the Superintendent of Central Excise in his letter dated 16-9-85 fixed RG-1 at multi-filament yarn stage and that this permission was sought to be revoked by letter of 9-4-86, but that on a representation from them, the Asstt. Collector on 11-4-86 stayed it and directed that the status quo as per earlier permission of 16-9-85 may continue. The appellants further state that the Addl. Collector in his adjudication order dated 23-8-87 has held the RG-1 stage to be at the split yarn stage and they further pointed out that the Govt. of lndia had in their letter to the appellants dated 19-8-88 had also confirmed this, therefore, they say, the Collector cannot now alter the situation. We have perused the above communications. The letter of 16-9-85 clearly requires maintenance of record, though private, showing production of multi-filament yarn "as soon as it is taken off the spinning frame" with, suitable entry therein of the quantity taken for splitting. The letter further states that the practice may be continued till final instructions arc issued "for RG-1 stage and the durability stage of multi-filament yarn and or the split yarn". Hence, this letter clearly required accountal of multi-filament yarn at the spinning frame stage though in private records, evidently as an ad hoe measure, pending decision on the issue. There was no determination in that communication of the point that accounting shall be only at the split yarn stage. The permission to continue status quo given by the Assistant Collector on 11-4-1984 was by way of an endorsement on their representation of that date which again was not a final decision on the issue as it was given pending decision on their representation before the Collector. Hence, if the Collector in the adjudication order, determines the issue of durability, it cannot be argued that he had unlawfully ignored the permission regarding accounting as given in the letter of 16-9-85 and continued on 11-4-86. As for the Govt. of India's letter of 19-8-1988, it is seen that this letter is issued after coming into force of the Central Excise Tariff Act, 1985 and of Notification 75/88 dated 1-3-88 exempting mother yarn if captively consumed for manufacture of split yarn. This letter docs not indicate that it was to have any application retrospectively or whether it would cover past cases. The appellants' representation dated 24-5-1988 in response to which the Government of India's letter was sent, also is at a point of time subsequent to Notification 75/88. But the Collector here, in the impugned order was not deciding the case relating to that period. Regarding the adjudication order of the Additional Collector on the RG-1 stage, we observe that he had proceeded on the basis that the letter of 16-9-1985 of the department was a "clarification" that the accounting was to be at split yarn stage. We have, however, found that the letter cannot be taken to have finally determined the issue. Therefore, the argument put-forth in this respect by the appellants are untenable. Yet another contention of the appellants was that manufacture of yarn is complete only when it is wound on cops. Reliance is placed on the Cegat decision in their own case in Order No. 160-161/88-D dated 17-2-88. However, we find that the Tribunal had passed this order per incuriam on the information made available before it that levy and collection of duty was only at cop stage and the fact of dispute regarding durability of multi-filament yarn, with which we are presently concerned, was not before the Tribunal. Therefore, we have to consider the present appeal on the basis of the facts before us when determining the issue of durability of mother yarn. Elaborate arguments had also been addressed regarding the fact that the mother yarn being an intermediate product and since there is no removal of the goods when it is taken for splitting within the factory, there can be no duty charged thereon in terms of Rule 9 and 49 of Central Excise Rules. Reliance has also been placed in this respect in the Supreme Court decision in the J.K. Colton & Spinning Mills - 1987 (32) ELT 234. However, in that case, the Supreme Court has laid down that in view of the deeming provisions under explanation to Rule 9 and 49, although the goods which are produced or manufactured at an intermediate stage and thereafter consumed or utilised or processed for the manufacture of other commodity are not actually removed, shall be considered and regarded as removed. We have already found that in the present case of the appellants, mother yarn or multi-filament yarn is different commodity from split yarn or mono-filament yarn and they had themselves cleared mother yarn on payment of duty. And in this context the submissions made by the appellants in Para 50 of their reply to the Collector's Show Cause Notice are relevant which reads :
"At this stage, it is submitted that the unworkable yarn is a mother yarn and the company clears the workable mother yarn within the factory for splitting and only in those cases where the mother yarn is unworkable i.e. not fit for splitting, after repeated trial, declares the same as unworkable and clear them as mother yarn itself. Such quantities of mother yarn, cleared from the factory, are entered in the RG-1 register and duty is paid at the time of clearance of such yarn. The RG-1 register for the month of September 1985 clearly shows that on 12-9-1985, 100.570 Kg. of yarn of 300/15 deniers and on 9-9-1985, 589.330 Kgs of yarn of 225/15 denier was accounted for in the RG-1 register as packed production and the same has ultimately been removed on payment of duty. Thus, it can be seen that only those unworkable yarns were disposed of as mother yarn by the Company and all such yarns are duly accounted for in RG-1 register and appropriate duty at the highest rate has already been paid on such mother yarn".
Therefore, the removal of mother yarn to the splitting machines for the purpose of production of mono-filament yarn would attract durability under Rule 9 and 49 of Central Excise Rules, as held by the Supreme Court in the J.K. Spinning & Weaving Mills case. In fact, in the letter of the department to the appellants dated 16-9-85, on which they had so much relied, itself also provides for the procedure to be followed when mother yarn is cleared as such, which is another indication that there were such clearances.
16. Regarding the demand of duty on mother yarn accounted as waste figuring at Serial No. 2 of Annexure 4 to Show Cause Notice, though the appellants placed strong reliance on the Cegat decision in its order No. 160-161/88-D dated 17-2-1988, mentioned above to the effect that waste was only accumulated and not removed and has been recycle for recovery of caprolactum and is fully exempt from duty, we find on the other hand, that their other arguments against this demand on grounds of limitation has a lot of force because when the unit was also under Physical Control during the part of the period, the Show Cause Notice issued on 19-5-1986 for the period 31-1-1985 to 30-9-1985 being beyond six months' period under Section 11-A is clearly time barred because the charge of clandestine removal is incongruous in a unit under Physical Control.
17. As regards the duty demanded on the quantity of non-workable mother yarn at Serial No. 4 of Annexure 4 to Show Cause Notice, we have already found that mother yarn and multi-filament yarn are excisable separately and this finding should apply to the duty demanded on this quantity. We have also found that the Additional Collector's adjudication and finding based on the letter of the department relating to RG-1 stage dated 16-9-85 was not well-founded. However, we find that whereas the Collector in his order has held that there is no indication of payment of duty on this quantity of 979.900 Kgs., the appellants have explained in their appeal that the quantity of 979.900 Kgs. had already been accounted for and included in the quantity of mother yarn of 300/15 and 225/15 deniers weighing 100.570 Kgs. and 589.330 Kgs. respectively. They have further said that these have been duly entered in their RG-1 record on 12-9-85 and 9-9-85 respectively. They have also mentioned that duty was paid on the consignment and have referred to the relevant gate-passes. In the order of the Collector, there is no indication as to whether this aspect has been considered or not, and, in these circumstances, we direct that the demand on this quantity should be re-determined after verifying the claim of the appellants with reference to the statutory records referred to by them, after giving the appellants an opportunity to adduce evidence and hearing them in the matter in accordance with law.
18. Regarding the duty demanded on the samples sent for test, appellants have claimed that even assuming that they have to pay duty thereon, they are eligible for the exemption under Notification 26/76 dated 21-2-76 which would give exemption upto 25 Kgs. per month and that the quantity on which duty is demanded is well within that. Having regard to the facts and circumstances of the case, we feel that this claim of the exemption of the appellants should be duly considered because this Tribunal has already held that even in respect of unauthorised removals, benefit of exemption notification will be available provided the conditions for exemption are fulfilled -1989 (39) ELT 123.
19. As regards the duty demanded on textured yarn - Item No. 9 in the Annexure 4 to the Show Cause Notice, we find that the Collector in his order has considered the issue with reference to Notification 47/85 whereas such clearances would be covered by Notification 178/83 because the notification considered by the Collector is one relating to mother yarn used for split yarn and not for any other purpose. In this context, we find that the Allahabad High Court in the appellant's own case reported in 1987 (28) ELT 234 has held that duty is payable only on non-textured yarn before removal and that no duty on textured yarn is payable by virtue of exemption Notification 178/83 dated 1-7-83. The Tribunal also in the case of the appellants in its order No. 185/89-D dated 10-7-89 had held that the department was not entitled to recover differential duty on the basis of the reduced denierage of yarn subjected to draw texturising on the footing that such reduced denierage of yarn was base yarn for purposes of Notification 55/78. Since the ratio of these decisions are directly applicable to the facts arid circumstances of the case and this particular demand, the same is not maintainable and is set aside.
20. In respect of the demand for duty at Item No. 6 in Annexure 4 to the Show Cause Notice, goods-short accounted for in excise records as compared to the balance-sheet, we find that the demand evidently proceeds on an erroneous principle that input should be equal to output without giving any allowance for wastage or for the material in pipe-line i.e. quantity of in process material. There is also no discussion in the impugned order regarding the reconciliation statement in this regard furnished by the appellants, nor is there any evidence to support the department's case with reference to entries in the raw material register. Therefore, this demand has to be set aside for lack of adequate evidence and it is so set aside.
21. In respect of the duty demanded at Serial No. 5 of the Annexure 4 to the Show Cause Notice, relating to short accountal in Central Excise records as compared to DGTD statement, we, on a consideration of the evidence and the facts of the case are of the view that this demand is also not well-founded for the reason that the basis of the demand is the appellant's report of the production figures to DGTD, and when it is shown that DGTD himself had not controverted or questioned the appellants subsequent reconciliation of the figures explaining the discrepancy, demanding duty based on such discrepancy becomes questionable, especially in the absence of any evidence by way of reference to statutory records like raw material register that there had, in fact, been excess production, especially in the face of the appellant's claim that the factory worked only for 14 days in March 1985 and that there was no possibility of a production of 43,268 Kgs., as wrongly reported by them to the DGTD.
22. Arguments were also put-forth forcefully before us that the demand for duty on mother yarn was hit by limitation. We find that the period for which duty is demanded is between 14-9-85 to 28-2-86 and the Show Cause Notice was issued on 19-5-86, Therefore, the period prior to 19-11-85 is beyond six months under Section 11-A of Central Excises and Salt Act, 1944. It has been argued before us that there has been deliberate suppression of facts, as for example, the number of splitting machines was not mentioned in the ground plan by the appellants and that they had not mentioned multi-filament yarn in their classification list. On a consideration of this question, we find that it cannot be said that the department was unaware of the process of manufacture as the unit was, for the period after August 1985, under Physical Control. There is also an indication in the records that the filing of classification list in this case followed a visit to the plant by the jurisdictional Assistant Collector, who had seen the process of manufacture. In the circumstances, the demand for duty beyond six months under Section 11 -A cannot be made as it cannot be said that the department was totally in the dark about the process of manufacture. Therefore, the demand for duty beyond six moths' period is hit by limitation and we hold accordingly.
23. As regards the personal penalty on the appellant, the facts of the case and evidence on record show that the question of liability to duty on mother yarn was a subject of correspondence and the department had before it, several representations in this regard also. There is also no evidence of any clandestine removal of excisable goods. In these circumstances, we are of the view that the imposition, of penalty is unjustified. Accordingly the penalty of Rs. 5 lakhs is set aside.
Appeal No. E/3413/87-D
24. The facts giving rise to this appeal arc that the officers of the preventive squad of Central Excise Division I, Kanpur visited the appellant's factory on 20-3-1985 and found that the appellant had manufactured 38,598.870 Kgs. of nylon filament yarn of 300/15 denier and 2925.140 Kgs. of 225/15 denier during the period 3-2-1985 to 25-2-1985. The department's case is that out of the above said quantity of nylon filament yarn, only 13,588.230 Kgs. of 300/15 denier had been entered in the Central Excise records as finished and in packed condition, which was subsequently removed from the store-room without payment of duty by making an entry in the RG-1 register with the words "to have been issued for reprocessing" within the factory without maintaining any subsequent account of its receipt back after completion of the said process so as to enable the visiting Central Excise Officers to make proper verification and examination of the goods claimed to have been issued for re-processing and received back after such reprocessing. The department further alleged that the factory continued removing nylon filament yarn from their bonded store-room till 24-4-1985 up to which total quantity of 38,528.590 Kgs. of yarn of 300/15 and 225/15 denier involving Central Excise duty amounting to Rs. 26,97,000/- was removed in contravention of the provisions of Central Excise Rules, 1944. Proceedings were instituted in this regard by issue of Show Cause Notice, which culmainated in the Collector's adjudication order dated 17-12-1987 in which he demanded duty of Rs. 26,97,000/- under Rule 9 (2) of the Central Excise Rules, 1944 and imposed also a penalty of Rs. 5 lakhs on the appellants for their deliberate action in not maintaining the record and removing the excisable goods without payment of duty.
25. Shri Santhanam, General Manager (Legal) of the appellant firm submitted that the central issue in this appeal also is relating to the durability of mother yarn or multi-filament yarn and also urged that the mother yarn was in the nature of an intermediate product which was used in the continuous process of production in the manufacture of split yarn or mono-filament yarn and since there was no removal of the item from the factory, no duty can be demanded thereon. He repeated the submission that mother yarn is neither marketed nor marketable. He further assailed the Show Cause Notice issued under Rule 9(2) of the Central Excise Rules saying that the department had full knowledge of the removal from the bonded store-room to the splitting section under AR-1 at nil duty under departmental specification and therefore, there was no question of any clandestine removal and the department cannot invoke Rule 9(2) for the purpose. He further pointed out that there was a permission granted by the department on 26-2-1985 for such removals. Their submission was that the entry was duly made in the RG-1 register, which had also been verified by the departmental officers and Shri Santhanam urged that these aspects had not been brought out in the Show Cause Notice. He further pointed out that during the relevant period, there was accounting of both, the mother yarn and the split yarn by the appellants. It was submitted that difference between the quantity accounted as split yarn and the quantity removed on payment of duty was negligible. The period involved was 3-2-85 to 25-2-85 for which the Show Cause Notice was issued only on 24-9-1985. There was no production of mother yarn after 25-2-1985 and on split yarn, duty has been duly paid. It was only on 9-4-86 that the department had given direction that mother yarn was dutiable and was to be accounted for as such. But this position was rescinded and status quo allowed by the Assistant Collector on 11-4-1986 as already submitted in the other appeal No. E/1485/88-D above. He further submitted that the Show Cause Notice was hit by limitation as already pointed out above and it has been issued by the Superintendent of Central Excise, who had no jurisdiction to do so invoking a longer period after Section 11 -A was amended in 1985. Therefore, the Show Cause Notice itself was without jurisdiction. Shri Santhanam urged that the imposition of personal penalty on the appellants was also not justified as they had acted in a bona fide manner and in this context, he relied upon the Supreme Court case in Hindustan Steels Ltd. cited supra in other appeal. On the excisability of mother yarn, Shri Santhanam repeated his submissions already made.
26. Shri L.C. Chakraborty, the learned Departmental Representative appearing for the department also repeated his contentions in regard to the dutiability of mother yarn as a separate excisable product under Item 18-11 (i) (a) of Central Excise Tariff. The premission of 26-2-85 referred to by the appellants is also not very clear and is not relatable to splitting of mother yarn. He further submitted that on limitation, the appellants had not placed all facts before the department as already pointed out by him with reference to the other appeal and in view of such non-disclosure, the longer period can be invoked.
27. We have carefully considered the submissions made by Shri Santhanam and the learned Departmental Representative. On the main question in this appeal about the dutiability of mother yarn or multi-filament yarn produced by the appellants herein, we have already concluded in the appeal No. E/1485/88-D above that mother yarn or multi-filament yarn has been correctly classified as excisable goods falling under Item 18-II (i) (a) of Central Excise Tariff. Coming to the facts relating to the demand of duty concerned in this particular appeal, it is relating to the production of mother yarn during the period 3-2-85 to 25-2-85. The Show Cause Notice has been issued on 24-9-85 invoking the longer period by the Superintendent of Central Excise. However, the record shows that on 25-2-85, the appellants had sought permission from the department for the purpose of taking mother yarn from bonded store room for splitting. Subsequently, on 22-3-85, the appellant's accounts have been checked by the department and also on 16-3-85, the accounts and stores were checked as a part of Budget day stock taking. We also find that in the RG-1, there is a remark "RAR" which has been understood by the department as 'received after reprocessing' and this re-processing operation was the splitting of mother yarn. We further find that from 22-3-85 onwards, the Sector Officer had signed after issue of the mother yarn and at the time of its receipt back. Therefore, to say, in the notice issued in Sept. 85 that there has been suppression, does not carry conviction. Further, the removal of multi-filament yarn for splitting has been carried out under physical control under 'nil' AR-1, which would also go against the department invoking the longer period for demanding the duty and for the same reason, no allegation of clandestine removal can also be substantiated. The observation made by the Collector in the impugned order to the effect that the parly had also not produced any evidence establishing that the multi-filament yarn manufactured by them had been duly accounted for in their records specially after splitting will also not be sustainable in view of the fact that issue for splitting was under nil AR-1 and its receipt back after splitting was also verified. In the result, so far as this case is concerned, the demand is hit by limitation, and, as for the penalty on the appellants, in the facts and circumstances as discussed above, it cannot be established with any satisfactory evidence that there has been deliberate violation of the law by the appellants with intent to evade payment of duty, and in this view of the matter, the penalty on them is also not sustainable and is set aside.
Appeal No. E/3419/87-D
28. In this appeal also, which is directed against the order of the Collector of Central Excise, Kanpur dated 31-12-87, the central issue is relating to the dutiability of mother yarn or multi-filament yarn on which a finding has already been given by us in the appeal No. E/1485/88-D supra. The brief facts relating to this demand are that acting on an intelligence that some cartons of nylon filament yarn of 225/15 denier falling under Tariff Item 18-I had been secreted by the party in one of the rooms in their factory, the Assistant Collector of Central Excise, Kanpur Division-I visited the factory on 14-9-85. On getting the locked cops room situated adjacent to the production hall and after physical verification, unlocked, and opened, 634 cartons containing 13,473.937 Kgs. of fully finished nylon filament yarn of 225/15 denier were found stored therein. The cartons found were affixed with final packing slips. On examination of the records and physical verification of the stock in the bonded store room, it was found that a stock of 634 cartons of nylon filament yarn recovered from the cops room were not included in the stock balance of RG-1 maintained by the appellants. It was explained by one of the employees that the premises from which the goods were recovered being air-conditioned, the premises were being utilized as part of the manufacturing room and that the 634 cartons containing multi-filament yarn were stored therein for maintaining moisture contents prior to splitting. On further investigation, the departmental officers observed certain other discrepancies and a Show Cause Notice was issued to the appellants on various grounds which related to seized quantity of 634 cartons containing 13,473.937 Kgs. of multi-filament yarn of 225/15 denier manufactured and packed in cartons in April-May 1985 where the cartons were found bearing SI. Nos. ranging from 1424 to 3915 recovered from the cops room. The second charge related to 5625 Kgs. of polyamide chips not accounted for under Chapter X procedure of Central Excise relating to duty free receipt of inputs for special industrial purposes under exemption notification which was received on 31-1-85 and utilized during the period upto 2-2-85. The duty demanded in this regard amounted to Rs. 15,001.88. The third demand for duty was Rs. 9,96,142/-under Rule 9 and 196 for a quantity of 14,230.600 Kgs. of nylon filament yarn, as being unaccounted quantity, our of a total of 36,930.600 Kgs. of multi-filament yarn of 300/15 denier shown in RG-1 issued for splitting during to Feb. to April, 1985 and also 621.370 Kgs. of nylon filament yarn both multi as well as mono, removed without payment of duty and unaccounted in statutory as well as in private records. The Collector adjudicated the case confirming the demand and in respect of the seized 634 cartons of multi-filament yarn, he appropriated Rs. 5 lakhs out of the bond amount executed by the appellants while obtaining provisional release of the goods on their failure to produce it before the Collector. The Collector further imposed a personal penalty of Rs. 10 lakhs on the appellants, as according to him, but for the detection of the case, the appellants would have cleared the goods clandestinely by affixing serial numbers of the cartons which had been cleared earlier and in this context, the other lapses were also to be viewed serious-
29. Shri Santhanam, the General Manager (Legal) of the appellant firm submitted that the fact that they are producing mother yarn is very well known to the department. He referred to the entry in their RG-16 register maintained for the receipt and utilization of input material under Chapter X procedure and pointed out that there was no production of filament yarn but there was only waste and the difference between the resultant waste material and the polymer chips received was the material in process. The whole quantity of the chips has been duty accounted for and utilized for the purpose of nylon filament yarn which has been accounted for fully. It was submitted that the demand is on the erroneous assumption that the entire quantity of chips would be taken out of the plant and the plant would be made empty in the process which never happens in a plant having continuous production. There is also no evidence of any clandestine removal according to the appellants. As regards the demand for Rs. 9,96,142/- under Rule 9 and 49 of the Central Excise Rules, it was pointed out that the Show Cause Notice dated 11-3-86 issued by the Superintendent is without jurisdiction as the Show Cause Notice invoking the longer period can be issued only by the Collector after amendment to Section 11-A of the Central Excises & Salt Act, 1944 in December, 1985. He relied upon the case reported in 1989 (40) ELT 180 (Tri.) in the case of H. Guru Instruments v. Collector of Central Excise, Meerut where the Tribunal held that Show Cause Notice must be issued only by the Collector for invoking the longer period of limitation for demand of duty under Section 11-A. The mother yarn involved in this demand was only taken for splitting and hence, there was no removal thereof. It was further pointed out that there was an over-lapping of the demand for duty on the quantity of 13609.230 Kgs. of nylon filament yarn, since the duty on this quantity of yarn has also been demanded in terms of adjudication order of the Collector issued as a consequence of the Show Cause Notice dated 19-5-86 against which a separate appeal has been filed by the appellants before the Tribunal in Appeal No. E/1485/88-D. As regards the appropriation of Rs. 5 lakhs against the non-production of seized quantity of 634 cartons of multi-filament yarn, which was seized and provisionally released, Shri Santhanam submitted the mother yarn had been put in cartons in order to protect it from gathering dust and becoming un-workable for split yarn. It was also contended that the goods were found within the factory and seizure thereof was un-warranted. Relying upon the decision reported in 1989 (14) ETR 35 in the case of Hindustan Levers v. Collector of Central Excise, Shri Santhanam therefore, pleaded that the demand for duty on all these counts should be set aside so also the penalty which is very harsh and un-warranted in the facts and circumstances of the case.
30. Shri L.C. Chakraborty, appearing for the department submitted that according to the department, mother yarn is an excisable commodity and its removal from the place of manufacture to the cops room without payment of duty renders the goods liable for confiscation. The cops room was not approved in the ground-plan as a place of production. Rule 9(2) is, therefore, attracted. According to the department, it was significant that the appellants were regularly accounting for multi-filament yarn removed to the store room, but only this quantity of 634 cartons was un-accounted. Hence, an adverse inference is justified. The packing slips found on the cartons were also final packing slips. Further, incriminating evidence was the duplication of carton numbers. 17 cartons bearing the same number were found in the bonded store room and in the cops room. As regards the demand of duty on polymer chips, Shri Chakraborty contended that it is not hit by limitation as the demand was not under Section 11-A but under Rule 196 to which, according to the department, Section 11-A does not apply. He relied upon the case decided by the Tribunal in Indian Farmers Fertilizers Co-op Ltd. v. Collector of Central Excise -1989 (41) ELT 474. As regards the question of jurisdiction of the Superintendent to issue the Show Cause Notice, he reiterated the Collector's finding and pointed out that the notice was only asking the appellants to show cause to the Collector and not to the Superintendent. Shri Santhanam, in reply, on the issue relating to the seized cartons, submitted that there was no duplication of the same item in the sense that there was no duplication of the same denierage of mother yarn and split yarn. The situation had arisen because of the practice that yarn was cleared on cops in cartons and these cops and cartons are received back from customers and re-used. He referred to Page 117 of the paper-book prepared by the appellants in this respect showing that there was complete accountal of the goods. There was also no evidence of any clandestine removal of the yarn. Shri Santhanam also relied upon the recent Supreme Court decision in Padmini Products v. Collector of Central Excise - 1989 (43) ELT 195 (S.C) that' Rule 9 (2) cannot be invoked independent of Section 11-A.
31. We have carefully considered the submissions made by Shri Santhanam and the learned Departmental Representative. On the question of jurisdiction of the Supdt. in demanding duty for a period beyond six months, we are in agreement with the submission made by Shri Santhanam because we see that the Show Cause Notice was issued on 11-3-86 by the Superintendent invoking the longer period for demanding duty of Rs. 9,96,142/-. The law has been clearly laid down in this regard by the Tribunal in 1989 (40) ELT 180 (Tri.) cited by the appellants that where the revenue proposes to invoke the extended period for demand of duty from a manufacturer alleging suppression, wilful mis-statement of fact etc. on the part of the manufacturer, the notice to show cause should be issued by the Collector and the Show Cause Notice issued in such cricumstances by an officer other than the Collector would not be legal and proceedings in pursuance of such a notice would also be not legally tenable. The Tribunal in that case followed the Gujarat High Court judgment in Gujarat Stale Fertilizers v. Union of India - 1988 (34) ELT 442. Therefore, the demand for duty for the period beyond six months in the Show Cause Notice by the Superintendent is without jurisdiction and must be set aside as invalid.
32. As regards the demand of duty on polymer chips received under Chapter X procedure, it is found that the appellant's case is that the RG-16 entries of receipt and issue of the material has been checked by the Central Excise Officers and that the difference between the quantity of chips and the waste which resulted, is made up of the pipe-line quantity. There is no discussion in the Collector's order as to how this explanation was found to be un-tenable. Since this is a factual issue which has to be verified with reference to the RG-16 entries and the pipe-line quantity as on the date relevant to the demand, is would be appropriate for the department to re-determine whether this duty is at all demandable after giving a finding on the appellant's claim in this regard with reference to the RG-16 entries and the pipe-line quantity as checked and ascertained by the department. We order accordingly.
33. In respect of the seized quantity of 634 cartons, the Collector has ordered appropriation of Rs. 5 lakhs because of the fact that the goods were liable to confiscation according to the findings of the Colleclor in the adjudication order and these were not made available for such confiscation by the appellants to whom the goods were released provisionally. We find no infirmity as such in the method adopted by the Collector. As for the merits of order of confiscation, admittedly, the goods have been removed from the place of manufacture to the cops room which was not an approved place of manufacture or storage. The goods were also found unaccounted. We also find a lot of force in the argument that significantly, while all other quantities of removals to bonded store room was accounted for, only a quantity of 634 cartons to the cops room was not accounted. In view of the finding already given by us that mother yarn itself is dutiable under Item 18-II (i) (a) of Central Excise Tariff, its removal to an un-authorised and un-approved place from the place of manufacture without assessment of duty thereon would constitute an offence under Rule 9 (2) and to that extent, the Collector's finding that the goods were liable to confiscation is well founded. However, in regard to the quantum of penalty, we find that admittedly, there was some correspondence and representations about the dutiability of the mother yarn itself and the appellants are also placing reliance upon an order of the Additional Collector in their favour in another seizure case relating to mother yarn in his order dated 23-8-87 and in these circumstances, on penalty is to be imposed. Accordingly we set aside the penalty of Rs. 10 lakhs imposed upon the appellants.
34. The appeals are accordingly disposed of in the above terms.