Customs, Excise and Gold Tribunal - Delhi
Dharampal Satyapal And Ors. vs Cce on 1 October, 1999
Equivalent citations: 2000(90)ECR45(TRI.-DELHI)
ORDER Lajja Ram, Member (T)
1. M/s. Dharampal Satyapal, Shri J.D. Desai, Sr. Manager of M/s. Dharampal Satyapal and Shri Rajeev Kumar, Partner of Dharampal Satyapal had filed three separate appeals being aggrieved with the common Order-in-Original No. 18/98 dated 28.4.1998 passed by the Commissioner of Central Excise, Delhi-I. M/s. Satyapal Industries, M/s. Gopal Zarda Udyog and M/s. Harichand Shri Gopal have also filed three separate appeals being aggrieved with the common Order-in-Original No. 31/98 dated 20.5.1998 passed by the Commissioner of Central Excise, Delhi-I. All these six appeals were heard together and are being disposed of by this common order.
2. Under show cause notice dated 19.6.1997 issued by the Commissioner of Central Excise, Delhi, it was alleged that M/s. Dharampal Satyapal and others had manufactured excisable and dutiable 'kimam', which was classifiable under sub-heading No. 2404.49 of the Central Excise Tariff during the period 1.3.1994 to 22.7.1996, and under sub-heading No. 2404.40 from 23.7.1996 onwards. The said goods have been described by the appellants by different names and hereinafter are referred to as 'Chewing Tobacco Kimam'. The said goods were manufactured by the appellants by mixing raw kimam/sada kimam with various ingredients such as menthol, aromatic spices, perfumes, saffron, musk, distilled water, etc. The said goods were excisable. No duty had been paid thereon and the goods had been removed clandestinely from the place of manufacture. No prescribed procedure had been followed. No central excise registration was obtained in respect of the premises where the said goods were manufactured. Demand of central excise duty amounting to Rs. 16,91,79,394.29 was demanded and extended period of limitation was invoked.
Penal provisions were also invoked against the noticees for the reasons detailed in the show cause notice.
Under show cause notice dated 25.3.1997 similarly it was alleged that M/s. Gopal Industries & others had manufactured the chewing tobacco kimam and had not obtained the requisite Central Excise Registration during the relevant period and had removed the same from their premises where it had been manufactured clandestinely by suppressing the fact of manufacture and without payment of central excise duty with intent to evade the same. The Central Excise duty of Rs. 8,13,34,285 was demanded from Gopal Industries for the period 16.6.1995 to 26.9.1996; duty of Rs. 6,14,17,770 was demanded from Gopal Zarda Udyog for the period 18.3.1994 to 15.4.1995 and the duty of Rs. 7,93,38,660 was demanded from M/s. Harichand Shri Gopal for the period 14.6.1995 to 24.9.1996. Extended period of limitation was invoked for the reasons given in para 18.6 of the show cause notice. Penal provisions and other provisions regarding interest, confiscation of plant and machinery, etc. were also invoked.
The show cause notice dated 19.6.1997 issued to M/s. Dharampal Satyapal and others was adjudicated by the Commissioner of Central Excise, Delhi under order-in-Original dated 28.4.1998, who after taking note of the defence put-up by the appellants held that the product chewing tobacco kimam was a manufactured product, was marketable, the appellants had knowledge of its dutiability, they did not disclose to the Department the premises where the activity of manufacture of the product was being carried on and that the extended period of limitation was rightly invoked in the case. With regard to the modvat credit and exemption Notification No. 121/94-CE dated 11.8.1994, it was observed that these were not relevant, the assessee had not followed Chapter 10 Procedure and that the availability of legal alternatives could not be used to justify an illegal act. He confirmed the demand of Rs. 16,91,79,394.29 and imposed an equivalent penalty of Rs. 16,91,79,394.29 on M/s. Dharampal Satyapal. A penalty of Rs. 5 lakhs on Shri Rajiv Kumar, Partner and of Rs. 5 lakhs on Shri J.D. Desai, Senior Manager was also imposed. A fine of Rs. 2 lakh was imposed in lieu of confiscation of plant and machinery, etc. Interest under Section 11AB of the Central Excises Act, 1944 (hereinafter referred to as the 'Act') was also demanded.
Show cause notice dated 25.3.1997 issued to M/s. Gopal Industries & Others was similarly adjudicated by the Commissioner of Central Excise, Delhi under Order-in-Original dated 20.5.1998 and duties as proposed in the show cause notice were confirmed. Penalties of Rs. 16, Rs. 18 lakhs and Rs. 17 lakhs were imposed on M/s. Gopal Zarda Udyog, Gopal Industries and M/s. Harchand Shri Gopal. A redemption fine of Rs. 5 lakhs and Rs. 3 lakhs was imposed in respect of the goods seized from Gopal Industries and Harichand Shri Gopal.
3. All the appeals were posted for hearing on 10.8.1999 when Shri V. Lakshmi Kumaran, Advocate appearing for Dharampal Satyapal and Ors. submitted that the appellants were purchasing "sada kimam", which was a tobacco extract, and were mixing with such sada kimam, various ingredients like perfumes, spices, saffron, etc. and as a result, a compound was formed which was sent to their other factories. It was his submission that there was no evidence that this compound was capable of being used as such. It was only after dilution that the compound was usable. He referred to the Tariff history and submitted that the compound was not a chewing tobacco. It could not also be called a preparation containing chewing tobacco. Their manufacturing formula was secret and the goods in dispute were not sold in the market. As regards the evidence about marketability as given in the show cause notice and relied upon by the adjudicating authority, he stated that the proportion with regard to those products of other manufacturers was not known. He admitted that Chapter 10 Procedure was not followed but argued that it will not make any difference to their claim that no duty was payable on the goods in dispute.
On limitation, he argued that the appellants were under an impression that no duty was leviable on the goods in dispute. In any case, he argued that pro-forma credit/modvat credit was available when the goods in dispute were used in their own factory for manufacturing branded chewing tobacco on which they had paid appropriate central excise duty. He submitted that the full quantity of the goods in dispute was used captively and that there was no intention to evade payment of duty. He also submitted that for most of the period, the provisions of Section 11AC of the Act were not available and these provisions were effective only from 28.9.1996.
In support of his various contentions, the ld. Advocate relied upon the following decisions:
(1) Mahindra and Mahindra Ltd. v. Collector of Central Excise, Aurangabad 1999 (31) RLT 257 (CEGAT). The Tribunal had held that the benefit of Notification No. 58/86-CE dated 10.2.1986 was available though condition of following Chapter X Procedure was not observed.
(2) Patson Transformers (Pvt.) Ltd. v. Collector of Central Excise, Baroda wherein it had been observed that the suppression of facts with intent to evade payment of duty was not established, the extended period of limitation was not applicable.
Shri Vivek Kohli, Advocate appearing for M/s. Gopal Industries and others, submitted that on all the four issues of classification, marketability, input duty relief and the limitation, the appellants had been able to put-up their defence. In particular, he submitted that mere was no suppression and the Department had the knowledge of the activities of the appellant. They had a bona fide belief that the manufactured kimam was not a manufactured commodity. He pleaded that non-following of Chapter X Procedure was not material. He relied upon the Tribunal's decision in the case of Hiranyakeshi Sahakari Sakkare Karkhane Niyamit v. CCE, Belgaum 1989 (21) ECR 280 (CEGAT-SB-D) in support of his contention that substantive benefits admissible under law cannot be denied for not following the procedure.
4. In reply, Shri A.K. Prasad, SDR submitted that the goods in dispute were known as kimam and were dutiable as per the definition of chewing tobacco in the Tariff. As per common understanding, the goods were known as chewing tobacco kimam and similar products were marketed by the manufacturers at Lucknow and other places and referred to the various statements annexed to the show cause notices. He submitted that there was no doubt that the goods in question were marketable product and that the coverage of the tariff was wide enough to cover the chewing tobacco kimam. The appellants on their own had not disclosed the fact of manufacture and had not disclosed their activities relating thereto. But for the searches and seizure, a huge evasion of central excise duty could have gone undetected. The appellants had manipulated their records to suppress the facts and the extended period of limitation has been rightly invoked. There was a clear intention to evade payment of central excise duty. During the relevant period, the Collector of Central Excise had no power to condone the lapse and that no modvat credit was available. Such powers were conferred on the Collector of Central Excise only under Notification No. 6/97-CE(NT) dated 1.3.1997 while the period involved in these proceedings is from 1.4.1994. to 31.10.1996.
In so far as the Gopal Industries and others are concerned, the ld. Departmental Representative submitted that the issue with regard to the limitation has been fully discussed by the adjudicating authority in the impugned order-in-original. The appellants did not disclose their activities and as the premises where the chewing tobacco kimam was manufactured were not disclosed, no checks could be exercised prior to the date of searches and seizures. It was a clear case of suppression and the basis as indicated in the show cause notice had been found substantiated by the adjudicating authority. He referred to para-29 of the adjudication order wherein it had been stated that during the relevant period, the factories of the appellants in respect of which the demands had been raised were not even registered with the Department.
In support of his contentions, the ld. DR relied upon the following Supreme Court's decisions:
(1) Lal Woollen and Silk Mills (Pvt) Ltd. Amritsar v. CCE, Chandigarh 1999 (32) RLT 227 (SC) : 1999 (82) ECR 213 (SC). In that case the assessee paid duty on grey woollen yarn as well as dyed woollen yarn and did not apply for/claim proforma credit of duty paid on grey yarn though he was entitled to the same. The Hon'ble Supreme Court held that the set off/proforma credit was not available to the assessee as the period involved was prior to the amendment of Rule 56A of the Central Excise Rules, 1944 (hereinafter referred to as the 'Rules') empowering the Collector to condone the defect of any procedure.
(2) Mihir Textiles Ltd. v. Collector of Customs, Bombay . The apex court had held that the exemption/benefit which was dependent upon satisfaction of certain conditions, could not be granted unless such conditions were complete (sic) with, even if such conditions were only directory.
5. We have carefully considered the matter. The appellants were engaged in the manufacture of chewing tobacco kimam which had been variously described by them as compound, additive mixture, kimam/K, manufactured kimam, etc. The base for the manufacture of chewing tobacco kimam was the raw kimam also called sada kimam. The sada kimam was produced after the tobacco leaves were boiled in water and the tobacco leaves wash was obtained. According to the information on record, for producing sada kimam, tobacco leaves were procured, the tobacco leaves were washed and placed in the tanks which were filled with water. Below the tanks were furnaces, which were then fired and the tobacco leaves were boiled in water. After boiling the tobacco leaves in water for sometime, tobacco leaves wash was obtained. This tobacco leaves wash after discarding away the spent tobacco leaves were transferred through a pipe to an open pan. The wash was further boiled till it attained the requisite concentration/consistency. It was then filtered and packed for sale.
Shri Gopi Kishan Singh, Manager of M/s. Siraj & Co., Sitapur in his statement recorded under Section 14 of the Act before the Superintendent of Central Excise (Preventive), Lucknow on 16.12.1996 had stated as under:
(File of Dharmapal Satyapal page 124 and 125).
To manufacture extract of tobacco leaves we have big containers with bhatties beneath them. Further being enquired by the Central Excise official I state that our owners grow tobacco in their fields and to manufacture extract of tobacco leaves we take tobacco leaves from our fields and we also buy tobacco leaves from other growers without any bills or challans. To manufacture extract of tobacco we do not buy any other Raw ingredients and we do not mix such Raw ingredients. Further on being enquired by officials, I state that firstly we wash the tobacco leaves and after washing we put those tobacco leaves in containers and put them on the fire. We add water with tobacco leaves and then we boil it. After that with the help of a pipe we separate the tobacco water in another container leaving tobacco leaves in the previous container. Then tobacco water is further boiled to make it thick. In the process we do not mix any other Raw ingredients except water and tobacco leaves. We afterward filter the thick tobacco water by markien cloth. Afterwards, we store that thick tobacco water/extract/essence in plastic containers for sale. We take around 3 days to make this tobacco extract. The colour of tobacco extract is dark chocolate and it looks like syrupy fluid and sticky. Afterwards this extract of tobacco sold from our factory to M/s. Gopal Industries and M/s. Hari Chand Sri Gopal, 12, Gagan Vihar, Delhi.
Shri Fazal Ahmed, Proprietor, Ramabhari Kiwam Factory, Sitapur, has in his statement dated 16.12.1996 recorded under Section 14 of the Act before the Superintendent of Central Excise, Sitapur had stated as under:
In my factory water of tobacco or essence or extract (kiwam) is being manufactured. In my factory, tanks are fitted to make extract of tobacco and fire bhatties have been made below the tanks. On being further asked by the officers I state that we get tobacco leaves from our own fields or from brokers or from farmers. The tobacco leaves we purchase from the farmers is without any bill or challan. To make this extract/essence of tobacco we do not take any other tax or material nor do we add any other material in it. On being further asked by the officers I state that we first wash the leaves of tobacco and after washing them we put them in the tanks and the bhatties placed under the tanks are fired up. We add water to the tobacco leaves and boil them. After this the water of tobacco is taken out of the tank through a pipe in another container and only tobacco leaves are left in the tank. This water of tobacco is boiled again, by us, to thicken it. After this the thick tobacco water is sieved filtered through markien cloth and this extract/essence/water of tobacco is filled into plastic cans and kept for sale. This whole process of making extract of tobacco takes about three days. The colour of this extract is like dark chocolate and it is slightly sticky and syrupy. This extract of tobacco we sell to M/s. Gopal Industries, Gagan Vihar, Delhi, M/s. Harichand Shri Gopal and M/s. Gopal Zarda Udyog in these cans. Apart from these buyers we sell this tobacco extract to M/s. Dharampal Premchand Ltd., G.T. Karnal Road, Delhi.
The product - sada kimam is a marketable commodity and is actually marketed. M/s. Siraj Tobacco Company, Sitapur were classifying the raw kimam manufactured by them under sub-heading No. 2404.49 of the Central Excise Tariff as was evident from the bills issued by them. It has been recorded in the show cause notice dated 19.6.1997 at page 16 as under:
M/s. Siraj Tobacco Company is apparently classifying the raw kimam manufactured by them under Chapter sub-heading No. 2404.49 as is evident from the bill issued by them.
It was this sada kimam, which was the base for manufacturing the goods in question-chewing tobacco kimam. Depending upon the manufacturing formula various ingredients like menthol, aromatic chemicals, spices, Gulab Jal, attars, perfumes, saffron, sandal wood oil, various other type of oils etc. in various proportion were mixed in sada kimam to manufacture chewing tobacco kimam. The blending of the various ingredients was said to be according to the secret formula adopted by the individual manufacturers. Grinding and pasting machines and distillation plant were used for manufacturing the chewing tobacco kimam. Power was used in the process of manufacture.
6. Chewing tobacco kimam the product in question was a marketable commodity and was marketed by the manufacturers which were selling the product to the appellants. M/s. Dharampal Satyapal and others were purchasing chewing tobacco kimam from other manufacturers, who were paying appropriate central excise duty thereon. M/s. Globe Traders, Lucknow and Laxmi Fragrances Pvt. Ltd., Lucknow were manufacturing chewing tobacco kimam with sada kimam and other ingredients as per their own formula. They were registered units and were paying central excise duty on such chewing tobacco kimam produced by them. In the case of Gopal Industries and others, the chewing tobacco kimam was being purchased by one unit from the others under specific challans.
7. The appellants while admitting that besides manufacturing their own chewing tobacco kimam they were also receiving the chewing tobacco kimam from other manufacturers, had argued that their chewing tobacco kimam was a concentrated product. It is an admitted position that the appellants, M/s. Dharampal Satyapal and others were purchasing chewing tobacco kimam from the producers in Lucknow which they called Lucknow kimam. They were mixing their own chewing tobacco kimam with Lucknow kimam in the rough ratio of 1 : 1 to obtain their own branded kimam which they called as special kimam or 0 kimam. Shri Rajiv Kumar, Partner, M/s. Dharampal Satpal in his statement dated 13.1.1997 recorded under Section 14 of the Act before the Superintendent of Central Excise had stated as under:
For manufacturing of branded kimam the balti of special kimam and zero kimam are mixed with roughly in the ratio of 1 : 1 with Lucknow kimam to obtain the final excisable goods i.e. special kimam and zero kimam. Silver in the form of shredded leaves are also added before its final packing. The silver is added to give the product a cosmetic look.
The Lucknow kimam purchased from outside had been cleared on payment of central excise duty by the manufacturers at Lucknow under sub-heading No. 2404.49 till 22.7.1996 and under sub-heading No. 2404.40 on and after 23.7.1996. The appellants were well aware of such duty liability and the fact of payment of central excise duty by their suppliers of such chewing tobacco kimam. They however did not pay any central excise duty on the similar products manufactured by them and did not obtain any registration for the premises where the manufacturing activities were being undertaken and did not disclose the relevant facts to the central excise department.
8. It has been argued by M/s. Dharampal Satyapal that their kimam was used by them in the ratio of 1 : 5 with tobacco flakes to produce flake type branded chewing tobacco (zarda) while lucknow kimam was used by them with their own kimam in the ratio of 1 : 1 to make their own branded kimam. It is clear that the chewing tobacco kimam as such has a market. It was a chewing tobacco for the purposes of excise levy. The argument based on the proportion in which their kimam was used for producing their own branded kimam on the one hand and their branded chewing tobacco on the other, had no relevancy to the excisability and the duty liability in the absence of any stipulation in the tariff entry in this regard. The distinction sought to be made on the basis of the strength, grades, potency, etc. is of no avail for the purposes of classification in the absence of any such criteria in the relevant tariff entry. The captive use also will not affect the duty liability. The goods had been manufactured in un-registered factories and had been removed from the place of manufacture without following the prescribed procedure and without obtaining approval for the entitlement of any exemption and input duty relief.
9. We have given our careful consideration to the issue of excisability of the chewing tobacco kimam. On the basis of the facts on record and the above discussion, we have no hesitation to say that the chewing tobacco kimam was excisable and dutiable under sub-heading No. 2404.49 of the central excise tariff prior to 23.7.1996 and subheading No. 2404.40 w.e.f. 23.7.1996. We confirm the view taken by the Id. adjudicating authority in both the matters in this regard. Shri Shailender Kumar Aggarwal, Partner, Gopal Industries in his statement dated 28.9.1996 recorded under Section 14 of the Act had admitted that duty was payable on kimam and had agreed to pay the duty thereon. Para-8 of the show cause notice dated 25.3.1997 in respect of the Gopal Industries and others is extracted below:
In his statement dated 28.9.1996 recorded under Under Section 14 of Central Excises Act 1944, Shri Shailender Kumar Aggarwal S/o Shri Shanti Swaroop Aggarwal a partner of Gopal Industries (Annexure-B-I), on being asked about the manufacturing activities/process being carried out in the premises (s) situated at F-91 & F-91 A, Jagat Puri, Delhi inter alia stated that in the aforesaid premises (s) they have been manufacturing the Kimam/K, Additive Mixture since April/May, 1995; that the Kimam (Sada/or raw Kimam) is procured from its manufacturers and put into a mixture along with other ingredients viz.; Menthol, musk, xylol, aromatic spices, borneol, Gulab Jal, Oil germainium, Hina, etc. and mixed in the mixture with the aid of power; that as a result of mixing Kimam/K or Additive Mixture is produced; that this is their RESULTANT PRODUCT and known in the trade parlance as 'Kimam' and sold as such; that this is an independent product and a preparation of chewing tobacco; that the mixing is only stage for transforming the raw material into final product; that they were not aware that mixing amounts to manufacture and that is why they did not obtain the Central Excise Registration certificate; that he admitted the mistake and was prepared to pay the Central Excise Duty; that the MARKET VALUE/TRANSFER VALUE OF ADDITIVE MIXTURE was Rs. 900/-, 1000/- per kg. and that of KIMAM/K was Rs. 500/- a Kg. approx.; that the resultant product KIMAM/K or ADDITIVE MIXTURE manufactured by them is in the THICK VISCOUS SYRUPY FORM WHEREIN the SPICES, MENTHOL BORNEOL, SADA KIMAM, GULAB JAL, OIL GERANIUM, HINA AND SADA KIMAM/RAW KIMAM are mixed and their ratio are so adjusted that resultant product attains the desired consistency.
10. Thus, the central excise duty at the applicable rate has been rightly confirmed on the chewing tobacco kimam and we uphold the view taken in this regard by the adjudicating authority in both the appeals.
11. As regards the limitation, we find that the appellants had not declared their premises wherein the goods in question were manufactured by them. They had not applied for proper central excise registration. With regard to such premises, no prescribed procedure had been followed and the said goods had been removed without proper accountal. The manufacturing activities in this regard had been suppressed from the Department. The appellants were aware that similar products were being manufactured by other manufacturers, who were paying appropriate central excise duty thereon. Whether or not there was suppression for justifying the application of extended period of limitation depends on the facts and circumstances of the particular case. The appellants were either purchasing the similar goods from outside or were selling the said goods to their sister concern. In both the cases they were aware that they were manufactured products and were covered by the description of chewing tobacco kimam, which was excisable and dutiable under the relevant tariff entry in the central excise tariff. It was as a result of search and seizures that the evasion of excise duty was detected. Para-29 of the order-in-original dated 209.1998 with regard to Gopal Industries and others is extracted below:
29. The further issue is whether the demand is barred by limitation. The defence has pleaded that the facts with regard to the additive mixture were within the knowledge of the department and the department had approved the classification list, as such it was not open to the department to invoke the extended period. The facts of the case are different from those projected by the defence. During the relevant period i.e. from 1994 the factories of the parties, on which the demands are raised, were not even registered with the department. As such it is inconceivable that the activities in which these factories were engaged were in the knowledge of the department. The evidence brought forth by defence is pertaining to the period 1992 and 1993. In this period the parties were registered but the additive mixture or kimam was not chargeable to duty. No guidance, therefore, in this regard could have been given to the parties by department. If the parties were getting their classification lists approved with regard to their final product i.e. branded chewing tobacco from their jurisdictional Central Excise Offices not falling within the jurisdiction of this Commissionerate and keeping the jurisdictional Central Excise Office in dark about the existence of the factories in respect of which the present demand was raised, it cannot be said that the parties were keeping the department informed about their affairs or that the department was having knowledge of the activities of the parties from which the present demand has arisen. Moreover in the case of Jaishri Engineering Company (P) Ltd. v. CCE, Bombay 1989 (21) ECR 177 (SC) the Hon'ble Supreme Court has held that "the fact that the department visited the factory of the appellant and they should have been aware of the production of goods in question, were no reason for the appellant not to truly and properly describe these goods...the Tribunal was right...in upholding the demand of the duty for a period beyond 6 months as contemplated by Section 11A of the Act." Accordingly the demand for extended period is sustainable even if the department was in the knowledge of the use of additive mixture in the manufacture of chewing tobacco as a result of the visit of the officers of the department or by way of certain enquiries provided the other condition regarding the intent to evade duty is present. Can it be argued since the parties could have availed the credit in respect of the duty paid on the additive mixture or could have availed the exemptions under the notification No. 121/94, they could not be having any intention to evade duty? The intention of a person is to be inferred only from the circumstances of the case. There cannot be any other barometer for determining the intent. The parties are in the business of manufacturing and marketing chewing tobacco. The fact that kimam was chargeable to duty must have been in their knowledge especially when there were persons in the trade who were paying duty in respect of the similar product. With this knowledge of dutiability of the product the party did not disclose to the department the premises where the activity of manufacture of the product was being carried. By bringing this material on record the department has discharged its initial burden to prove that the situations visualised by the proviso to Section 11 A(1) of the Central Excise Act, 1944 existed. The law in this regard has been laid down by the Supreme Court in the case of Tamil Nadu Housing Board v. CCE wherein it was held that "the proviso is in the nature of exception to the principal clause. Therefore, its exercise is hedged on one hand with existence of such situations as have been visualised by the proviso by using such strong expression as fraud, collusion etc. and on the other hand it should have been with the intention to evade payment of duty. Both must concur to enable the Excise officer to proceed under this proviso and invoke the exceptional power. Since the proviso extends the period of limitation from six months to five years it has to be construed strictly. The initial burden is on the department to prove that the situations visualised by the proviso existed. But once the department is able to bring on record the material to show that the appellant was guilty of any of those situations which are visualised by the section, the burden shifts and then the applicability of the proviso has to be construed liberally". As regards the availability of Modvat credit and exemption notification, the availability of legal alternatives cannot be used to justify an illegal act.
In the facts and circumstances of the case, we agree with the adjudicating authority that the extended period of limitation was rightly applicable in both these cases.
12. A plea has been taken that had the appellants paid central excise duty on the chewing tobacco kimam then they would have been eligible to avail of the benefit of proforma credit/modvat credit while paying duty on their final products - branded chewing tobacco. In these proceedings, we are not concerned with the duty demand on the final products of the appellants i.e. branded chewing tobacco or branded kimam. In any scheme of proforma scheme/modvat credit, proper central excise duty was required to be paid on the inputs and then alone the question of either allowing or not allowing the credit of such duty depending upon the terms relevant to the schemes becomes relevant. Without paying appropriate central excise duty on the inputs, the operation of the proforma credit/modvat credit scheme could not be thought of. As we have held above the appropriate central excise duty was payable on chewing tobacco kimam, the input. After such payment, the assessees were free to apply for such benefits to which they consider themselves eligible.
The fiscal benefits are subject to the conditions as Said down in the relevant provisions of the law. The assessee without making a case for such benefits could not agree that it was for the Department to extend them the benefits of the provisions which the assessee presumes to be applicable in their case. On their own without any approval, it could not be presumed by the assessee that they were eligible for any particular fiscal benefit and that they were not required to do anything on their part to seek such a benefit.
The relevant discussion by the adjudicating authority in the case of Dharampal Satyapal & Others is as under:
It has been argued by and on behalf of the defence that since the party could have availed the credit in respect of the duty paid on the compound or could have availed the exemption notification, it could not be having any intention to evade duty. As such the suppression or contravention of Rule if any is not with the intent to evade duty. The intention of a person is to be inferred only from the circumstances of the case. There cannot be any other barometer for determining the intent. The party is in the business of manufacturing and marketing preparations containing chewing tobacco. It has been purchasing duty paid good which are akin to the goods in question. As such it is inconceivable that the party did not have the knowledge of the dutiability of the compound they were manufacturing. With this knowledge of dutiability of the product the party did not disclose to the department the premises where the activity of manufacture of the product was being carried. By bringing this material on record the department has discharged its initial burden to prove that the situations visualised by the proviso existed. The law in this regard has been laid by the Supreme Court in the case of Tamil Nadu Housing Board v. CCE wherein it was held "the proviso is in the nature of exception to the principal clause. Therefore, its exercise is hedged on one hand with existence of such situations as have been visualised by the proviso by using such strong expression as fraud, collusion etc. and on the other hand it should have been with the intention to evade payment of duty. Both must concur to enable the Excise officer to proceed under this proviso and invoke the exceptional power. Since the proviso extends the period of limitation from six months to five years it has to be construed strictly. The initial burden is on the department to prove that the situations visualised by the proviso existed. But once the department is able to bring on record material to show that the appellant was guilty of any of those situations which are visualised by the section, the burden shifts and then the applicability of the proviso has to be construed liberally". As regards the availability of Modvat credit and exemption notification, the availability of legal alternatives cannot be used to justify an illegal act. Moreover, an attempt on the part of the party to tamper with the original records and prepare doctored documents to escape from the duty liability is also indicative of its wrongful intentions.
Similar observations have been made by the adjudicating authority in the case of Gopal Industries and Others in para-28 of the order, which is extracted below:
28. The next question to be answered is whether in the light of the facts that Modvat credit is available in respect of Kimam used in the manufacture of chewing tobacco and exemption is available to Kimam under Notification No. 121/94, the demand of duty from the parties is justified. The availability of the credit of duty on inputs does not tantamount to grant of exemption from duty to the final products. The decision in the case of Chamundi Steel Re-rolling Mills v. Collector of Central Excise, Bangalore cited by the defence is in respect of facts which are different from the case under adjudication. In the case of Chamundi Steel Re-rolling Mills the inputs were duty paid whereas in the instant case no duty has been paid on inputs. Notification No. 121/94 grants exemption to Kimam when used in the manufacture of chewing tobacco in a factory other than the factory in which it is manufactured subject to observance of Chapter X Procedure. As such observance of Chapter X procedure is a sine qua non for availing the exemption under notification. The decision cited by the defence in the case of Hirnyakeshi Sahakari Karkhane Niyamit v. Collector of Central Excise, Belgaum is not with regard to Notification No. 121/94 and therefore, does not constitute a binding precedent.
After taking all the relevant facts into account, we are of the view that the duty liability with regard to the chewing tobacco kimam had to be discharged by the appellants and thereafter it is for them to establish the case that they were eligible for the benefit of proforma credit/modvat credit. We are not concerned with the duty liability on the final product branded kimam/brand chewing tobacco.
13. The appellants had pleaded that under Notification No. 121/94-CE dated 11.8.1994, unbranded chewing tobacco manufactured in a factory and used within the factory of production in or in relation to the manufacture of corresponding branded chewing tobacco enjoyed exemption from the payment of central excise duty. It was provided in that Notification dated 11.8.1994 that where such use of the un-branded chewing tobacco was in a factory of manufacturer different from his factory where the said unbranded chewing tobacco had been produced, then the exemption was allowable subject to the observance of procedure set out in Chapter X of the rules. The appellants had not followed the Chapter X procedure. The appellants had pleaded that the benefit was available to them even when they had not followed the Chapter X procedure. Reliance has been placed on the Tribunal's decisions in the case of (1) Mahindra and Mahindra Ltd. v. Collector of Central Excise, Aurangabad 1999 (31) RLT 257 (Calcutta) and (2) Hiranya Keshi Sahakari Sakkare Karkhane Ltd. v. Collector of Central Excise, Belgaum 1989 (21) ECR 280 (Tribunal). On the other hand, the SDR had referred to the Supreme Court's decision in the case of (1) Lal Woollen and Silk Mills Pvt. Ltd., Amritsar v. Collector of Central Excise, Chandigarh 1999 (32) RLT 227 (SC) : 1999 (82) ECR 213 (SC) and (2) Mihir Textile Ltd. v. Collector of Customs .
In the case of Dharampal Satyapal & Others, the adjudicating authority with regard to this plea of the appellants had referred to as under:
The fact that party could have availed modvat credit in respect of the duty paid on the compound or could have availed exemption under Notification No. 121/94-CE dated 11.8.1994 is not relevant at this stage. Moreover the party is contesting case on merits. Therefore, whether the modvat credit should be made available in respect of the duty on the compound or whether the party has complied substantially with the requirement of Notification No. 121/94-CE are the issues which per se are not the subject matter of this order. En passant I would however, like to mention that the requirement of Chapter X procedure for use of the un-branded chewing tobacco in a factory other than the factory where it is manufactured, for manufacturing branded chewing tobacco is a sine qua non for availing the exemption under Notification No. 121/94.
Similar observations had also been made by the adjudicating authority in the case of Gopal Industries and Others in para-20 of the order, which had already been extracted above in para-12.
14. Admittedly, the appellants had not followed the procedure of Chapter X of the Rules subject to which the benefit of exemption under Notification No. 121/99-CE was available.
We however find that this Tribunal has been taking a view that if substantial compliance is shown regarding the receipt and utilisation of the input material then the rigours of Chapter X Procedure could be diluted in the interest of natural justice. In the case of Gujarat Paints and Allied Products Co. v. Collector of Central Excise 1993 (68) ELT 644 (Tribunal) : 1993 (49) ECR 108 (T), the Tribunal had taken a view that the exemption was not to be denied merely for non-compliance of Chapter X Procedure so long as substantial compliance thereof is established by evidence. Para-3 from that decision is extracted below:
3. The submissions made have been carefully considered. As the learned Counsel has submitted there are precedent decisions of the Tribunal to say that in the case of such exemption notification prescribing the following of Chapter X procedure, the exemption may be extended if substantial compliance is shown regarding the receipt and utilisation of the exempted material by the user manufacturer. See in this context the decision of the Tribunal in the case of Steel Authority of India v. Collector of Central Excise, Indore wherein the Tribunal had referred to and followed another decision in the case to say that unless it is deliberate and mala fide, failure on the part of the assessee to follow certain procedures cannot come in the way of his availing the substantive benefit under statutory provisions as long as he can satisfy the Department even at a later date, that he fulfilled the essential requirements to establish his entitlement to such benefit. In the same Steel Authority of India Limited decision, the Tribunal also observed that AR6 3A Form not being statutorily prescribed removal on Gate Passes instead of AR 3A is not an irregularity of a serious nature for which another precedent decision in the case of Indian Oil Corporation v. Collector of Central Excise, Madras was relied upon. In the present case no mala fides are attributed to the appellants by the Department. Secondly, in the earlier order in appeal dated 28.8.1980 by the Collector (Appeals) while holding that Zinc Oxide was covered by Notification 21/55, the Collector (Appeals) had also observed. "It was wrong on the part of the Assistant Collector to have questioned the correctness of the issue of CT 2 certificate issued by the Collector of Central Excise, Cochin. In case he had any doubts about the correctness and genuineness of the certificate, he could have taken up the matter separately with the concerned authorities in the Cochin Collectorate". Thirdly, it would also appear that when for certain consignments AR 3A Forms were received from Cochin Collectorate on rewarehousing of Zinc Oxide, the Superintendent of Central Excise, Valsad by his letter No. GL 2/Misc./79/1395 dated 28.6.1979, had informed the appellants that since the appellants were exempted from Central Excise licensing requirement, they need not observe Central Excise formalities. Fourthly, the appellants have produced in their present appeal confirmation No. PTF : 3809 dated 4/1984 from Premier Tyres giving particulars of receipt and utilisation of Zinc Oxide from the appellants which the lower authorities had no occasion to go into. In the result, following the ratio of the precedent decisions cited supra, it is held that the exemption under Notification No. 21/55 cannot be denied to the appellants merely for not following the details of Chapter X procedure so long as they are able to establish by evidence substantial compliance therewith and in this light the jurisdictional Assistant Collector may consider the refund claim subject to being satisfied regarding the evidence produced of the receipt and utilisation of the exempted material by the user manufacturer M/s. Premier Tyres in the Cochin Central Excise Collectorate. The appeals are disposed of in the above terms.
15. In the case of Thermax Private Ltd. v. Collector of Customs , the Supreme Court had agreed that the benefit of Chapter X procedure is available to the manufacturers once the stipulated nature and use of goods was satisfied. The Apex Court had added that the entitlement will depend on whether the purchaser was the holder of L-6 licence (or CT 2 Certificate) or not. Paras-12 and 13 from that Judgment are extracted below:
12. Learned Counsel for the assessee however contended that, even if the conclusion of the Tribunal that the procedure of Chapter X of the Rules cannot be complied with in such cases is correct, the exemption under the notification cannot be denied. He relied, in support of this submission on a letter of the Central Board of Excise & Customs (F. No. 332/65/86 TRU, dated 27.7.1987) the relevant portion of which runs as under:
The Board is of the view that it would legally not be correct to levy additional (countervailing) duty is actually payable in respect of such goods when manufactured in India (sic). It follows therefore, that when there is no excise duty, there can be no additional (countervailing) duty. The condition in the relevant Central Excise Notifications that in respect of use of the material elsewhere than in the factory of manufacture, the procedure set out in Chapter X of the Central Excise Rules should be followed is condition relating to procedural requirement which obviously cannot be satisfied by the imported goods.
In view of the above, it would not be correct to deny the benefit of exemption notification to imported goods only because the procedural condition in the notification is not satisfied by the imported goods. It has therefore, been decided that wherever the intended use of the material can be established by the importer who may be the manufacturer of chemicals or from other evidence, the benefit of exemption under the exemption notification should not be denied to imported goods only because the procedural condition of following Chapter X procedure is not complied with.
It will be seen that this letter also proceeds on the same view as that of the Tribunal that Chapter X procedure cannot be satisfied in the case of imported goods. This is at variance with the interpretation which we have placed on Rule 192. We, however, agree with the observation of the Board that the benefit of exemption or concession should be granted wherever the intended use of the material can be established by the importer or by other, evidence.
13. This conclusion however does not entitle the assessee to the concession claimed in both these appeals. Its entitlement will depend on whether the purchaser is the holder of an L-6 licence (or C.T. 2 certificate) or not. The Tribunal has pointed out that the goods were supplied by the assessee to Indian Rayon Corporation and M/s. Nirlon Synthetics Fibre and Chemicals Ltd., of which the latter was the holder of an L-6 licence. The position in regard to the former is not known. The grant of concession in respect of the former by the Collector (Appeals) in the first appeal is, therefore, correct and is upheld. So far as the other appeal is concerned, the assessee produced no material to show that the "beneficiary" factory was eligible for the concession under Rule 192. The benefit of such concession to the assessee must therefore be held to have been rightly denied in that appeal.
16. We find that there is no finding by the adjudicating authority that the terms and conditions under which the benefit of exemption under Notification No. 121/94-CE was available had been met and whether there was a substantial compliance with regard to the procedure regarding receipt and utilisation of the chewing tobacco kimam by the factories of the same manufacturer in the manufacture of branded kimam/branded chewing tobacco.
17. Thus, while agreeing with the adjudicating authority in both the cases with regard to the duty liability on the goods in question as also on the issue of limitation as well as the claim for proforma credit/modvat credit, we consider that on the limited question of applicability of Notification No. 121/94-CE dated 11.8.1994, these matters are required to be re-examined by the jurisdictional adjudicating authorities, and in the light of such examination he may also re-consider the quantum of penalties, fines, etc. The duty liability has also to be reworked out, if necessary in the light of the findings of the adjudicating authority on re-adjudication with regard to the limited issue above. The appellants be given opportunity to present their case before passing the orders in terms of our above directions.
18. All these appeals are disposed of in the above terms, Ordered accordingly.