Customs, Excise and Gold Tribunal - Mumbai
Prabhavati Sahakari Soot Girni Ltd. vs Collector Of Cus. And C. Ex. on 23 October, 1989
Equivalent citations: 1990(48)ELT522(TRI-MUMBAI)
ORDER R. Jayaraman, Member (T)
1. This is an appeal directed against the order of the Addl. Collector bearing F.No. V(52.03)15-72/Adj/87 7440, dated 20-2-1989. Under the aforesaid order of the Addl. Collector, he has imposed the duty amounting to Rs. 20,822.85 on a quantity of 1,42,325 kgs of cotton yarn on the ground of mis-declaration of counts of yarn produced and cleared and another demand of Rs. 1,02,922.60 on 88,661 kgs of cotton yarn alleged to have been suppressed and not accounted in the R.G.-I register. The Addl. Collector in the impugned order has also demanded central excise duty on a quantity of 110 kgs. of cotton yarn of 40 counts not accounted for by the appellants. The appellants were also imposed with a penalty of Rs. 25,000/- under Rule 9(2) read with Rule 173Q of the Central Excise Rules.
2. The brief facts for the purpose of disposal of this appeal can be stated as below:
The appellants' Spinning mills were visited by the Headquarters Preventive Officers of Aurangabad Collectorate on 27-6-1987. On scrutiny of the private records known as 'Ring Frame Wrapping Registers' maintained by the appellants in the production section of the factory, the Central Excise party noticed that the appellants had manufactured cotton yarn of higher counts viz. 35s, 36s and 37s as against declared count of 34s and also manufactured higher counts viz. 36s and 37s as declared as 35s during the period from 1-2-1987 to 30-5-1987. On scrutiny of daily spinning and winding production registers maintained by the appellants, the officers noticed that a quantity of 88,661 kgs of cotton yarn shown to have been produced and accounted for in the aforesaid daily spinning and winding registers was not accounted for in the Central Excise statutory records during the period from February, 1987 to September, 1987. On the basis of these discrepancies, show cause notices were issued by the Collector of Central Excise, Aurangabad alleging mis-declaration of counts and suppression of actual production. It was also alleged that a quantity of 110 kgs of 40s produced by the appellants were not accounted for, resulting in attempted evasion of duty amounting to Rs. 192.50. It was also alleged that cotton yarn of 20s was not produced in plain reel hank form, but was only in cross reel hank form, and this fact has been suppressed in the central excise record by not recording the actual form of cotton yarn produced by them. In the adjudication proceedings initiated by the Addl. Collector, while the appellants agreed for the non-accountal of 110 kgs of cotton yarn of 40s and paid duty thereon amounting to Rs. 192.50, they contested the other 3 allegations. The Addl. Collector finally confirmed the allegation with regard to the mis-declaration-of counts and also suppression of production but dropped the allegation with regard to the non-recording of the correct description of the cotton yarn of 20s. The present appeal is against the order of the Addl. Collector, demanding the duty and imposing the penalty.
3. Shri Shah, the learned advocate, on behalf of the appellants, contended that the demand is beyond the period of six months. Though the show cause notice has been issued by the Collector himself alleging suppression and clandestine removal, the Adjudication has been done only by the Addl. Collector, who is an officer subordinate to the Collector. In view of the fact that the show cause notice has been issued by the Collector after applying his mind, his subordinate like the Addl. Collr. cannot take a different view and this has caused considerable prejudice to the appellants. Arguing on merits, he contended that as regards the alleged mis-declaration of counts, there is no variation in counts noticed in respect of the samples tested by the department itself during the period. This aspect has also been conceded by the Addl. Collector himself in his finding. According to the Board's orders issued in May, 1987; 5% variation is permitted as a result of test and in all the cases where the duty has been demanded on the alleged mis-declaration, the range of variation is within 5%. It was also his submission that no evidence has been produced by the department to show that the appellants have sold the yarn of higher counts and received higher prices but declared that yarn as of lower counts. Merely on the basis of entries in the wrapping register, no firm conclusion can be arrived at. This register is only intended to ensure whether the production is in accordance with the plan of production of counts and if there is any variation, the corrective factors are applied to bring the same to the declared counts. Hence, merely on the basis of the entries in the wrapping register, one cannot come to the conclusion that the counts declared are not correct and there had been a deliberate mis-declaration.
4. On the question of suppression of production, Shri Shah contended that the allegation of suppression of production to the extent of 88,661 kgs of yarn, is totally without any basis. For producing this large quantity of yarn, at least a quantity of one lakh kgs of cotton is needed as raw material and for procuring this cotton, minimum outlay of Rs. 20 lakhs is needed at the relevant date. The raw material account does not show any variation with regard to receipt of excess raw cotton for producing the alleged suppressed quantity. The department have also not brought any private record to show that this large quantity of cotton has been purchased and utilised without accounting for in the raw material register. No evidence of removal of any quantity of finished yarn clandestinely, has been produced. The daily production register has been taken as the basis for comparison with the RG-I entries. This register indicates production at spindle stage and subsequently lot of process takes place. The age old practice, which even now continues, is to account for cotton yarn only after it is made in the form of cones or hanks. The stage of accounting in the RG-I is only at the packing stage and hence no worthwhile comparison between the production figures of Ring Frame Register and the RG-I register can be made. Variation between the daily production register and the RG-I record is not more than 5%. He also contended that in any case, the department seeks to rely only on Ring Frame Register for alleging mis-declaration of counts and daily spinning and winding production register for alleging suppression of production. No other corroborative evidence has been given for sustaining the allegation. In this context, he cited the decision reported in 1989 (39) ELT 655 (Tri.) in the case of Kasmir Vanaspati Pvt. Ltd.
5. Heard Shri Mondal. He contended that in this case time bar question does not arise, since the show cause notice has been issued by the Collector himself. The Collector includes the Addl. Collector as per the definition contained in the Rules, Hence, the adjudication of the case was taken by the Addl. Collector, after informing the appellants and after hearing them by the Addl. Collector. Hence, at this stage, it is riot for them to question the jurisdiction of the adjudicating authority, after participating in the adjudication proceedings. He also pointed out that for purpose of alleging suppression of production, it is not as though the quantity recorded in the daily production register is taken for comparison. The figure as shown in the Annexure to the show cause notice is the production figure as per the private record minus the quantity of waste yarn, which has been taken as the basis for comparison of the figure recorded in the RT-12 returns. He, therefore, justified that the difference is only on account of non-accountal of the production. As regards the mis-declaration of the counts, he contended that ring frame register was the record maintained by the factory themselves, which shows variation in the counts in their internal testing of the samples. On enquiry by the Bench, he however, conceded that as per the findings of the Addl. Collector; there is no variation of the counts noticed by the department, when the samples were tested by the department during the relevant period. He is not aware of any instruction regarding the grant of tolerance upto 5%. He supported the order of the Addl. Collector.
6. After hearing both the sides and perusing the available records, we find that for sustaining the allegation of mis-declaration of counts, the only evidence relied upon by the department is the ring frame register. The Variation of the counts, as noticed in this register vis-a-vis, those recorded in statutory records, is to the extent of 5% and this is not challenged by the department. The appellants contend that as per the Board's revised instruction, the tolerance limit is 5%, whereas, the Addl. Collector has applied the limit of only 3%. Be that as it may, it is an admitted fact that the Addl. Collr. himself conceded that when the department sent the yarn for testing during the relevant period, the test report did not show any variation. In his findings he has recorded as below:
"It is not disputed that whenever the samples are drawft by the department, the result obtained is as per the declaration of the factory."
7. In view of this accepted position by the Addl. Collector, which relates to testing of sample drawn from the goods packed, we are unable to appreciate the view taken by the Addl. Collr. that based on the counts noticed in the ring frame register, the allegation of mis-declaration of counts, could be sustained. In this context, it has been pleaded that the appellants had applied corrective factors to bring the production to the declared counts. In view of this plea, the benefit of doubt is to be extended and one cannot jump to the conclusion that the variation in counts noticed in the wrapping register would amount to mis-declaration, especially, when, at the finished stage, the department has not found anything wrong with the declared counts on testing the sample of finished product. We, therefore, discharge the appellants from the allegation of mis-declaration of counts and also consequently discharge the demand of Rs. 20,822.85.
8. Now coming to the allegation of suppression of production, again this allegation is based only on one document viz. the daily spinning and winding register. It is not the case of the department that the production figures are to be recorded in the RG-1 at the spindle stage itself. It is the appellants' contention that nowhere the production of yarn is recorded at the spindle stage and even now they are recording the production in the RG-I, only at the packing stage. This contention is not challenged by the department. Variation between the daily production register and RG-I, even after allowing for waste yarn, is therefore, bound to exist. It is reported that the variation is only to the extent of 5%. In any case, if this extent of variation is found to be abnormal, that can only give room for causing further investigation to identify clandestine removal and pinpoint the same. In this case, admittedly, no corroborative evidence is available either in the form of seizures of unaccounted yarn, seizures of packed yarn unaccounted lying in the factory or seizure of any yarn having been removed without gate pass. There are no evidences in the form of sale records to show that the quantities other than those removed have been sold by the appellants. There is no allegation of receipt and consumption of excess raw cotton. In short, there are no other evidences to support the allegation of excess production and their clandestine removal. Merely, because of the entries in the daily production register, especially when that is not the basis for recording production in the RG-I register, no firm conclusion can be arrived at without any, if not all, of the abovesaid type of corroborative evidences. In view of this, we hold that the charge of suppression of production and clandestine removal has not been established beyond reasonable doubt. We, therefore, discharge the appellants from this charge as well and drop the demand for Rs. 1,02,922.60/- confirmed on this ground by the Addl. Collector.
9. In the result, the case does not justify imposition of penalty and the order imposing the penalty is also required to be set aside.
10. The appeal is allowed on all counts.