Customs, Excise and Gold Tribunal - Delhi
New Decent Footwear Industries vs Commissioner Of C. Ex. on 29 May, 2000
Equivalent citations: 2000(121)ELT141(TRI-DEL)
ORDER A.C.C. Unni, Member (J)
1. These interconnected Appeals have been filed against the Order-in-Original dated 30-3-1998 passed by the Commissioner of Central Excise, Kanpur. A duty demand of Rs. 34,24,393.00 was confirmed against the appellants, M/s. New Decent Footwear Industries, 4/33,1st Floor, Reshham Katra, Tajganj, Agra, apart from a penalty of Rs. 10 lakhs under Rule 173Q. Penalties of Rs. 1 lakh each on the three partners of the said firm namely, S/Shri Mohd. Suhail, Mohd. Zubair and Mohd. Tariq were also imposed. Another penalty of Rs. 5 lakhs was also imposed on M/s. Bata India Ltd. by the said Order under Rule 209A of the Central Excise Rules, 1944.
2. We have heard Shri L.P. Asthana for M/s. New Decent Footwear Industries and its partners and Shri S.K. Bagaria, ld. Advocate for M/s. Bata India Ltd. Shri R.S. Sangia, ld. JDR argued the case of the Respondent Commissioner. We deal with the Appeals as under:
Re: Appeal No. E/1821-24/98-D - New Decent Footwear Industries and its three partners v. C.C.E., Kanpur.
3. Narrating briefly the facts of the case, ld. Counsel submitted that the appellants, M/s. New Decent Footwear Industries were a partnership concern having two units. One was located at 4/33, First Floor, Reshham Katra, Tajganj, Agra. This Unit (Unit No. I) was a Central Excise licencee for the manufacture of footwear. The second Unit located at 4/37, First Floor, Reshham Katra, Tajganj, Agra was only a 'declarant' unit and was not holding any licence or registration. On the basis of information collected by the Officers of Central Excise and after a visit to the two units on 25-2-1994, the Department issued a Show Cause Notice dt. 18-7-96 alleging, inter alia, excesses and shortages. On the basis of the records resumed by the Officers, the SCN alleged that on examination of RG. 1 Register for the period 1991-94 in respect of the non-power operated unit (Unit No. II), it had been found that the said unit had been manufacturing three kinds of shoes and footwear and clearing the goods claiming the benefit of Notfn. No. 49/86, dated 10-2-1986. The SCN referred to the statements given by Officers, M/s. Bata India Ltd. to whom supplies were being made by the appellants. It was alleged that where any operations for pasting, cutting, printing or quality testing was carried on with the aid of electric power - even when it is at the premises of a person other than the manufacturer or in another unit of the manufacturer - it would mean that electric power has been used in the manufacture of such footwear which thus merited classification under Chapter sub-heading 6401.11 instead of 6401.19. The said goods will also not be entitled to the benefit of Notfn. No. 49/86. It was further alleged that the presence of some footwear found at the premises of Unit No. I with the words "handmade" engraved thereon indicated that the so called "handmade" brand of footwear supplied to M/s. Bata India Ltd. by the appellants were actually being manufactured at Unit No. I (which was a licenced and registered unit under the Excise Law and was working with the aid of power) and these were merely transferred to Unit No. II (the declarant unit claiming to be working without the aid of power) only for availing the benefit of Notfn. No. 49/86. It was further alleged that though charcoal can also be used for heating the machine for pasting of adhesives, since there was no evidence relating to purchase of charcoal, appellants must have used power for pasting. The testing conducted at the premises of M/s. Bata India Ltd. was also taken as one of the factors for alleging that power had been used in the manufacture of the footwear supplied by appellants. By a subsequent corrigendum dt. 30-1-97 penalty provisions under Section 11 AC were also invoked and added to the SCN.
4. After considering the replies to the SCN filed by the appellants and after affording personal hearing, the Commissioner passed the impugned order.
5. Ld. Counsel submitted that it has to be borne in mind that the appellants had two units both manufacturing footwear. One was situated at 4/33, First Floor, Reshham Katra, Tajganj, Agra, which was a fully licenced and registered unit for Central Excise purposes. The second unit was located at 4/37, First Floor, Reshham Katra, Tajganj, Agra which was a declarant unit. Notfn. No. 49/86 exempted shoes classifiable under tariff sub-heading 6401.19. This was on the basis of non-use of power. Footwear coming under Chapter sub-heading 6401.11 on the otherhand, related to footwear in the manufacture of which power is used. In the case of both the units it was the Head Office which procured the raw materials, mainly 'soles', for use by both the units. Both the units maintain RG 1 Register, though in the case of Unit No. II, being a unit not working with the aid of power, it did not maintain other registers. Registers relating to procurement of raw material and soles were common for both the units. However, outward registers were separate. Till January, 1992, the facilities available in the two units were somewhat different inasmuch as it was Unit No. I which functioned without the aid of power and Unit No. II which used power. This position got interchanged subsequently and proper intimation was sent to the Department. Appellant firm was supplying their goods, i.e., footwear, manufactured by both the units to M/s. Bata India Ltd. had facilities for testing both the raw materials as well as the finished goods with the aid of machines operated with power. On a visit of the Excise Officers to the appellants' premises on 3-9-93, the Officers did not find any electrical connection at Unit No. II. Ld. Counsel submitted in this connection that it has to be noted that the articles manufactured by the two units were not identical. The above facts, ld. Counsel submitted were not in dispute.
6. Referring to the impugned order, ld. Counsel submitted that the Commissioner had framed three issues for consideration viz., (a) whether any process was ordinarily carried on with the aid of power in the manufacture of footwear in respect of which appellants M/s. New Decent Footwear had claimed exemption under Notfn. No. 49/86-CE; (b) whether the proviso to Section 11A(1) of the Central Excise Act had been correctly invoked in their case; and (c) the correct determination of the amount of Central Excise duty by the appellants.
7. On the first question, the Commissioner had found that the appellants had used power installed at Unit No. I for completing processes which required use of power and for this purpose Leather Board, Taxon, and Cork sheet were being sent by Unit No. II through its workers. Reference to 'Neelko' made in the statements given by the workers in fact referred to Unit No. I. The appellant's contention was that the said allegation was based on the outward register maintained at the Head Office of the appellant firm which is located in the same premises as Unit No. II. The appellants had pointed out that the entire raw materials for both the units was being purchased by the Head Office and the Head Office thereafter despatched the goods to the concerned unit. The said register viz., outward register, maintained in the Head Office, therefore cannot be relied upon as the outward register of Unit No. II. The Head Office register relied upon in the SCN therefore, related to the movement of raw material sent from the Head Office Store depot to Unit No. I. This position had been clearly brought out by the appellants in their reply to the SCN. Further, there was absolutely no basis for coming to the conclusion that there was common use of machinery by both the units or that partially processed goods were being sent to Unit No. I for finishing. The Department as well as the impugned order had failed to take note of the fact that the premises at 4/37,1st floor, Reshham Katra, Tajganj housed both the Head Office of the appellants' firm as well as their Unit No. II where the goods were manufactured without the aid of power. The mere fact that the appellants had two units and a common Head Office (located at the same premises where one of the units also operated), does not make the movement of goods from the Head Office to Unit No. I, the movement of finished or semi-processed goods from Unit No. II to Unit No. I. Moreover, the appellants had requested for cross examination of labourers whose statements had been relied upon by the Department. This had been denied. Since such cross examination was very vital for establishing the appellants' defence, denial of opportunity of such cross examination was viola-tive of principles of natural justice. Ld. Counsel referred to the statement given by Shri Mohd. Suhail, partner stating categorically that all the processes such as cutting, stitching etc. carried on in Unit No. II were done without the aid of power. Further, pasting was done with the aid of coal and purchase slips evidencing purchase of coal had also been enclosed with the reply to the SCN. This would clearly show that no power had been used in Unit No. II. The main assumption of the Department that some finished or semi-processed goods were moved from Unit No. II to Unit No. I for further processing of the goods with the aid of power was not supported by any material. Even the statements given by the labourers did not categorically say that the semi-processed goods were transferred to or left Unit No. II for Unit No. I for completing the manufacturing process with the aid of power. As regards 156 pairs of footwear found at Unit No. II, the Asst. Commissioner had held that the same had been manufactured with the aid of power in Unit No. I and was subsequently brought to Unit No. II for clandestine removal. The said order had been set aside by the Commissioner (Appeals) and remanded for re-adjudication by the Asst. Commissioner. As regards the fact that the footwear found in both the units contained the engraving 'hand made', appellants had contended that the said engraving is found only in the soles of the footwear and not in any other part. The reason was that soles which were an essential part of all the footwear manufactured - whether in the unit operating with the aid of power or in the unit operating without the aid of power-were bought out items and used for manufacture of footwear in Unit No. I as well as Unit No. II. These soles were manufactured by other manufacturers without the aid of power. That is why all the soles carry the imprint 'hand made'. Soles were themselves exempted from duty when manufactured without the aid of power under Notfn. No. 46/96. In support of their claim that the soles were bought out items appellants had submitted material showing the purchase of soles from M/s. Noble Rubber Products, Agra. Ld. Counsel contends that the conclusions drawn by the Commissioner were therefore contrary to facts and, therefore, unsustainable. The allegation that since various varieties of leather and soles were tested at the Research Development Centre of M/s. Bata India Ltd. manufacture took place with the aid of power cannot also be sustained. Ld. Counsel relied on the Tribunal decision in Hindustan Development Corporation v. CCE [1996 (85) E.L.T. 58] to contend that such tests made by the customers would not amount to 'manufacture'.
8. Ld. Counsel also referred to CBEC Circular issued in 1994 and reproduced in CEN-CUS Guide to All CEN.EX. Procedures at Page 9.6 - 9.7, wherein it has been stated that footwear is to be reckoned as manufactured for purposes of Column 4 of RG 1 only as soon as uppers and soles are assembled and joined. Any testing carried out by the customers thereafter, cannot be considered to be part of manufacture.
9. In support of this contention, he relied on the following decisions namely:
(a) 1997 (95) E.L.T. 513 (T) - Ajanta Biri Co. v. C.C.E, Calcutta II,
(b) 1996 (82) E.L.T. 447 (S.C) - C.C.E Baroda v. Ojas Corporation.
10. The appellants also contend that the entire SCN is barred by limitation for the reason that the appellants had filed declarations with the Department from time to time and the declarations showed the details of the location and address of the two units and therefore there cannot be any allegation of suppression of fact that about the location of the two units. All the facts relating to the location of the two units and the goods they manufacture were very much within the knowledge of the Department and nothing new was to be disclosed by the appellants.
11. Having regard to the above submissions, ld. Counsel pleaded for allowing the Appeals of M/s. New Decent Footwear and its three partners and for setting aside of the impugned order against them.
12. Opposing the contentions of the appellants, ld. JDR submitted that it was very clear from the modus operandi of the appellant that there was in fact only one unit and the claim of the appellants that there were two units, one operating with the aid of power and the other operating without the aid of power was purely artificial and the bifurcation was only with a view to claiming the benefit of Notfn. No. 49/86 which granted exemption for shoes manufactured without the aid of power. In this connection, he drew attention to the Tribunal decision in Northern India Rubber Mills v. CCE [2000 (115) E.L.T. 506 (T)] wherein it was held that where manufacturing operation of two units were not independent of each other, value of clearances had to be clubbed together. Though the said case related to clubbing of the value of clearances for purpose of SSI exemption, the ratio of the said decision would apply to the facts of the present case also. He also submitted that there was sufficient documentary evidence to support the Department's case inasmuch as it was an admitted fact that the appellants were keeping only the RG 1 Register separately and for all other matters there was no distinction between the two units. He referred to relied upon documents No. 26 (Outward Register) which showed that for the completion of processes which required use of power such as Leather Board, Taxon sheet/Board, Cork Sheet, etc. the goods were sent from Unit No. II to Unit No. I through workers who were engaged in both the units. The Wages Register (relied upon document No. 24) also showed that the same worker was carrying out similar operations both in the power operated unit as well as in the non-power operated unit. It was also evident from the Outward Register maintained at Unit No. II that though excise duty had been charged on 1,000 pairs of footwear despatched to M/s. Bata India Ltd, 11,900 pairs of footwear had been cleared without payment of Central Excise duty with only a rubber stamp marking of "manufactured by hand made process without the aid of power". It was also observed from the entries in the Outward Register that the date of despatch in the Outward Register did not tally with the dates mentioned in the challans. This clearly indicated that the appellants were showing clearance from either of their two units as per their convenience to avoid payment of duty and for irregularly availing the benefit of Notfn. No. 49/86. Ld. JDR also drew attention to the fact that though the appellants had claimed use of charcoal instead of power in their Unit No. II, there was no satisfactory evidence of their actual purchase or use as claimed by the appellants. He then referred to the findings in the impugned order and contended that the Commissioner had rightly concluded that the appellants were trying to make artificial distinction between the two units by claiming that they were maintaining two separate RG ls though for all other purposes like Sales Tax, Income Tax, Audit, Inward Register, Wages Register and Packing note book, they were jointly maintained. Further, since the manufacturing process includes other processes which are incidental or ancillary to the completion of the manufacturing of the product, testing conducted in the R & D Unit of M/s. Bata India Ltd. was very much part of the incidental or ancillary processes in the manufacture of foot-wear. As regards the invoking of the extended period under Section 11A(1) proviso, the evidence on record showed that the declaration filed by the appellants had not clearly disclosed that Unit No. II was availing the benefit of exemption under Notfn. No. 49/86. The facts clearly showed that manufacture of footwear attributed to Unit No. II had been completed with use of power in Unit No. I wherever required. As regards the determination of amount of duty, the Commissioner had rightly held that Central Excise duty to the tune of Rs. 34,24,393/- was liable to be paid by the appellants. In Chart 'D' in the finding portion of the impugned order the method of computing has been worked out year-wise. Having regard to the detailed analysis of the material relied upon by the Department, the allegations against the appellants have been clearly established and the same may be confirmed, submitted by the ld. JDR.
13. We have considered the submissions of both sides and perused the records.
14. The first allegation against the appellants is that they have wrongly availed of the exemption benefit permissible under Notfn. No. 49/86 which notification granted exemption from payment of duty for footwear manufactured without the use of power. The appellants claim that they had two units manufacturing footwear, one working with the aid of power (Unit No. I) and another (Unit No. II) operating without the aid of power. The Commissioner had found that the claim of the appellants that the goods manufactured and cleared without payment of duty from Unit No. II were manufactured without the aid of power was not true for the reason that the entries of the Outward Register maintained at Unit No. II of goods despatched to M/s. Bata India Ltd. contained also goods cleared from Unit No. I. Though duty had been paid in respect of a certain quantity of footwear for clearances recorded in the Outward Register, a substantial quantity had been cleared without payment of duty on the basis that they had been manufactured by hand made process without the aid of power. The Commissioner had found that a number of power operated machines like buffing machine, pasting machine etc. installed at Unit No. I were being used for completion of manufacture of foot-wear manufactured in Unit No. II. Reliance had been placed on the admission by the appellants that the goods were sent to 'Neelco'. The appellants have contended 'Neelco' refers to Unit No. I and the reference to movement of goods to 'Neelco' meant only the transfer of stores from the Head Office which was also located at the same premises as Unit No. II. Appellants have contended that there is no evidence to show that goods manufactured at Unit No. II were sent to Unit No. I for completion of certain processes with the aid of power. The contention of the appellants that the Outward Register maintained at their Head Office located at the same premises where Unit No. II was also located contained entries relating to movement of raw material from Head Office to Unit No. I does not explain the finding of the Commissioner that out of the total number of footwear despatched to M/s. Bata India Ltd. only 1000 pairs had been cleared after payment of duty and a balance of 11,900 pairs were cleared without payment of duty claiming that they were manufactured without the aid of power. Further, finding in the Commissioner's order that the date of despatch indicated in the Outward Register did not tally with the dates mentioned in the challans is not controverted by the appellants. The failure on the appellants' part to clearly distinguish between the movement of stores and raw material from their Head Office to Unit No. I from despatch of footwear manufactured without the aid of power in Unit No. II is a strong circumstantial evidence suggesting that part of the manufacturing activity requiring use of power was completed with the aid of power in Unit No. I. The onus was on the appellants to show that the movement of goods from the Head Office to Unit No. I did not include footwear manufactured in Unit No. II without the aid of power. The discrepancy pointed out in the Commissioner's order relating to date of despatch in the Outward Register not tallying with the dates mentioned in the challans also strengthens the inference that footwear manufactured in Unit No. II had been sent to Unit No. I for completion of the manufacturing process with the aid of power. We are, therefore, of the view that on the first issue namely, whether the process of manufacture of footwear for which the exemption benefit under Notfn. No. 49/86 had been availed of was wrongly claimed by the appellants is established to a sufficiently satisfactory extent and therefore the duty exemption has been wrongly claimed. As regards the question whether the extended period of limitation under Section 11A(1) had been rightly invoked, we find that the declaration filed by the appellants no doubt had disclosed that the appellants were claiming the benefit of Notfn. No. 49/86. The suppression that had been alleged and confirmed by the Commissioner is that both Unit No. I & Unit No. II were one and the same and for all practical purposes had formed a complete unit and appellants had completed the process of manufacture of footwear in non-power operated unit at their other unit with the aid of power. The appellants' contention that it was for the Department to verify the facts stated in the declaration and having failed to do so, the Department could not invoke the extended period of limitation is not in our opinion sustainable. We find that the proviso to Section 11A(1) is invokable in cases where there is any wilful mis-statement or suppression of fact with intent to evade payment of duty. In the instant case, to the extent that there was failure to disclose the fact that there were in fact two units and one of them was claiming exemption under Notfn. No. 49/86 justifies the charge of suppression. We therefore hold that raising of duty demand for the extended period is valid in the facts and circumstances of the case. As regards the actual computation of duty liability the appellants have not been able to specifically show that the Computation of duty liability as per Chart 'D' in the impugned order suffers from any factual error excepting to claim that the Commissioner has not read the Balance Sheet correctly and he has overlooked different schedules in the Balance Sheet which were meant for different purposes. In the absence of any specific material to show that the computation was made on any factually incorrect data, we confirm the said duty demand.
15. As regards the penalty of Rs. 10 lakhs imposed on the appellant, we are of the view that having regard to the quantum of duty evasion, the amount of Rs. 10 lakhs is not disproportionate. However, we do not find any justification for imposing further penalties on Rs. 1 lakh each on the three partners. Accordingly, the penalties of Rs. 1 lakh each on S/Shri Mohd. Suhail, Mohd. Zubair and Mohd. Tariq are set aside and their Appeals to the said extent, allowed.
Re : Appeal No. E/2491/98-D - Bata India v. C.C.E., Kanpur:
16. By the impugned order dated 23-8-98, Commissioner of Central Excise, Kanpur had levied a penalty of Rs. 5 lakhs on the appellants, M/s. Bata India Ltd. under 209A of the Central Excise Rules. The facts of the case have been dealt with in the earlier portion of this order while discussing the appeal filed by M/s. New Decent Footwear Industries (M/s. NDF) and its partners.
17. The allegation in the SCN dated 18-7-96 issued to M/s. Bata India Ltd. proposed imposition of penalty under Rule 209A. By the impugned order, the Commissioner held that there was no reason to believe that M/s. Bata India Ltd. who were purchasers of footwear from M/s. New Decent Footwear Industries (NDF) were not knowing that the footwear manufactured out of power by M/s. New Decent Footwear was liable to confiscation and therefore penalty was imposable also on them.
18. Arguing the case of the appellants, Shri S.K. Bagaria, ld. Advocate contended that the penalty imposed on the appellants under Rule 209A was totally unwarranted, as the appellants were not connected with any of the activities of M/s. NDF. The appellants were merely purchasers of footwear from the said firm and the appellants had entered into the transaction on principal to principal basis. Appellants had no other relationship either direct or indirect with that firm. M/s. NDF had sold their goods to the appellants which consisted of both dutiable items as well as exempted items. In respect of dutiable goods appropriate duty was being charged by the seller in the invoice raised on the appellants and were duly paid by the appellants. In respect of the exempted varieties, the seller had not charged any duty in the invoice and therefore there was no question of appellants paying any duty chargeable thereon. The filing of Classification List, Declaration, Price List, RT-12 Returns, maintenance of the required Central Excise Records and compliance of the procedure relating to the goods manufactured and cleared by M/s. NDF was entirely the responsibility of the manufacturer/seller and the appellant was not in any way concerned with any of those matters. The appellant being simply a buyer of footwear manufactured by M/s. NDF on principal to principal basis, the appellants had no reason to doubt the correctness of the invoices or Gate Passes supplied by M/s. NDF in respect of footwear sold to the appellants or in any of the statements made by M/s. NDF in the aforesaid documents. The appellants had. clarified their stand in their reply to the SCN as well as at the time of adjudication proceedings. The adjudicating authority did not however accept their pleas.
19. Ld. Counsel further contended that the imposition of penalty on a person under Rule 209A pre-supposes existence of knowledge on the part of such person or reason on his part to believe that the goods acquired by him or dealt with by him are liable to confiscation under the Central Excise Act or the Rules made thereunder. To come to a conclusion that the person concerned had done any of the acts or things mentioned in Rule 209A, the adjudicating authority has to first satisfy himself that there was evidence to connect him with the said act or things and mens rea on his part. Penalty cannot be imposed merely on the basis of surmises or conjectures. In this connection, Counsel referred to the finding of the Commissioner to the effect that "there was no reason to believe that they were not knowing...". The above finding itself showed that the Commissioner had no material before him to connect the appellants about the alleged mis-statement or suppression of facts by M/s. NDF or any knowledge thereof on their part. Ld. Counsel therefore pleaded for setting aside the penalty imposed on the appellants by the impugned order.
20. Ld. JDR referred to the findings in the impugned order and reiterated the same.
21. On perusal of the records and on consideration of the submissions made before us we are of the view that the penalty imposed on the present appellants under Rule 209A cannot be sustained in law for the reason that the impugned order has not disclosed any basis for holding that the appellants had any prior knowledge or much less, reason to believe that the goods received by them were liable to confiscation.
22. In the above view of the matter, we allow the appeal and set aside the penalty imposed on M/s. Bata India under the impugned order.
23. All the Appeals are disposed of in the above terms.