Customs, Excise and Gold Tribunal - Delhi
Reliance Industries Ltd. vs Cce on 9 September, 2005
Equivalent citations: 2006(199)ELT681(TRI-DEL)
ORDER C.N.B. Nair, Member (J)
1. The case is before us upon remand by the Hon'ble Supreme Court vide judgment dated 23.08.2004 in Civil Appeal No. 3226 of 1998. At issue is the duty demand of over Rs. One Crore raised on the appellant under show-cause notice dated 28/29.10.85 and confirmed in adjudication. We may reproduce the direction of the Hon'ble Supreme Court:-
We find that Tribunal has not approached the controversy in the proper perspective. Various aspects which have been highlighted above and specifically noted by the collector were really not considered by the CEGAT. Its conclusion that there was no allegation of fraud, mis-declaration or intention to evade duty, prima facie do not appear to be correct. The material being wound on tubes was yarn. It did not cease to be yarn because it broke off before the required weight was achieved. It only became waste if it got entangled or messed up or if the tubes of less weight were cut. It was for the assessee to show categorically that this had happened. The log sheets deal with tubes. But without question the weight shown in the log sheets is of yarn. This prima facie indicates that tubes having yarn of less than 1 kg. are also being logged. Thus the Collector was right that the log sheets show presence of yarn on tubes, even of 1 kg. or less. The Collector had specifically noted that, if the assessee had destroyed the tubes of 1 kg. or less of POY, the reason why production was shown in the daily log sheets was not explained. Thus fresh hearing of the appeal by the CEGAT would be the appropriate course. The relevant aspects like presence of the articles in the finishing room, effect of mention in the log sheets and effect of non-maintenance of required records and the allegations contained in the show-cause notice to apply extended period of limitation must be considered in proper perspective. At the same time, if the assessee wants to place reliance on any material on record the CEGAT should also consider it.".
2. In order to facilitate discussion of the issue in dispute, we may record briefly the facts leading to the present demand.
3. A show-cause notice dated 28/29.10.85 raised several charges against the appellant. The charge under consideration now is to be found in sub-para 4 of the show-cause notice. We may read that para:-
"they have not accounted in the RG-1 register for the production of POY on bobbins of one kg. and less to the tune of 126.65 MTs for the period October 1982 to April 1985 as explained in para 4 of Annexure 'A' and removed them without determining the Central Excise duty as required under Rule 173F and 173Q (1) read with Rule 9 (1) resulting in short payment of Central Excise duty to the tune of Rs. 1,06,07,775.00."
Thus, The charge in the notice was that the appellant "removed" "without determining the Central Excise Duty as required under Rule 173F and 173Q read with Rule 9(1)", 126.65 MTs. of POY which was produced on bobbins of one kg. or less.
4. When the case was adjudicated, the Commissioner upheld the above charge and demanded duty short-paid. However, when the matter came up before this Tribunal in appeal, the Tribunal set aside the duty demand and allowed the appeal vide Final Order No. 596/97-C in Appeal No.E/4504/93-C. It is in the Revenue's appeal to the Supreme Court against that order that the present order of remand has been passed by the Hon'ble Supreme Court.
5. We have perused the records and heard both sides at length.
6. The submission of the appellants is that waste arose at several stages in the manufacture of partially oriented yarn (POY) and all those wastes were being stored together, accounted and disposed of as waste after payment of Central Excise duty applicable to waste. The ld. Counsel appearing for the assessee has taken us through several correspondence between the party and the Revenue to show that the fact of storing and accounting of waste together and disposing them as waste was known to the jurisdictional Central Excise authorities contemporaneously. He has pointed out that the issue of classification of waste was the subject of order-in-original No. V(18)/17-171/82 dated 3.3.84 passed by the Assistant Collector of Central Excise, Division III, Kalyan (Jurisdictional Assistant Collector). The ld. Counsel has emphasized that yarn waste was one of the items of waste specifically dealt with in that order and Assistant collector had held that the classification of all varieties of waste would be the same. We may read para 14 & 15 of that order:-
In the light of the reasons stated above, I conclude that the wastes arising in the manufacture of man-made yarn in M/s Reliance Textile Industries Ltd. are classifiable under T.I.18(IV) and would be liable to be charged Central Excise duty as provided thereunder".
ORDER In order that wastes arising in or in relation to the manufacture of man-made filament yarn by M/s. Reliance Textile Industries Ltd., should be classified under T.I. 18(IV) and the classification list in question are approved accordingly."
7. The contention of the ld. Counsel is that it is clear from this order that both sides were fully aware as to how waste is to be dealt with by the appellant. Reference is also made to several other correspondences to show that the appellant's practice was to treat yarn waste also as waste and to account them together with other waste. During the hearing, the RG-IV for the month of April 1983 was produced before us. That RG-1 has the heading waste yarn (Polyester filament yarn waste). It is also seen from the RG-1 register that on 31.12.83 the stock was 2334017.426. This quantity is also found certified to on stock taking, by the Central Excise officer. That certificate reads "quantity ascertained as on 3.1.84 i.e. stock taking is 2334017.426 kg." In continuation of this stock taking conducted on 3.1.84, the Inspector, Central Excise (who carried out the verification) wrote his letter dated 11.9.87 to the Additional collector, Central Excise, Bombay explaining the nature of waste. This letter specifically says, "some quantity of waste yarn was kept in the temporary tarpaulin sheds". It was also noticed that the samples of waste yarn were tested from time to time by the officer in charge of the factory. Similarly, on 22nd Nov. 1983, the jurisdictional Supdt. wrote a letter to the assessee requiring category wise accounting of waste that arose in the course of manufacture of POY. One variety of waste mentioned therein is "Waste on tubes" (occurred due to fumbling), then removal of tubes from machines and/or cuttings of such yarn. It has further been pointed out that since clearance of waste in question was mostly from 1984 only, and since the correspondence on the subject is prior to it, Ld. counsel submits that if revenue had any objection, about classification, rate of duty or value of waste yarn, it could have contemporaneously raised demands.
8. In the adjudication proceedings, the defence of the assessee (noted in the order of the Commissioner) was the following:-
"It may be explained that while tubes containing 6-8 kg. or 3-6 kg. when taken out are immediately subjected to stripping out of a few layers of disentangled stuff on the tubes a few layers of disentangled stuff on the tubes and thereafter since the quantities are considerable, they take the tubes for packing as yarn. These tubes are also sold out but the prices for yarns on these tubes is lower than the price of yarn in the standard tubes. In so far as the wastes that are created on tubes ranging 0.5-1 kg., the entanglement is of such a high degree it is not feasible to disentangle any portion out of these tubes to retrieve a quantity to be sold as 'yarn'. The tubes of this description are clearly 'wastes' and the goods at the point itself are classifiable as wastes of all sorts now held to be falling under Central Excise Tariff Item 18 (iv)"
9. The submission of the ld. Sr. counsel for the assessee is that, in the factual context of storing, accounting and removal of the goods, it is not reasonable for the Revenue to hold that 1 Kg. or less yarn wound on bobbins had been removed in any manner other than as waste. The counsel has emphasized that the accounting of such bobbins separately in the log sheets is no reason to hold that such yarn was cleared as yarn and not as waste, when subsequent accounting (RG-1 etc.) and disposal is seen to be as waste only. The ld. Counsel has also submitted that accounting at the machine stage in the log sheet as yarn, is no reason to hold that whatever is accounted in the log sheet got subsequently disposed of as yarn itself and no part was treated as waste. It is his explanation that after the winding of the yarn on bobbins on the machines, the bobbins are transferred to finishing room yarn which is capable of being disposed of as yarn would be packed so and less than 1 Kg. Bobbins taken out, the yarn cut and released from the paper tubes and added to waste and disposed of as such, The contention of the ld. Counsel is that all goods produced on machines necessarily do not get accepted, on quality control, as marketable products and for some reason or other part of the production goes as waste.
10. The ld. Counsel has also pointed out that all through, the appellant's commercial practice was not to market less than 1 Kg. bobbins as yarn, but dispose of such yarn only as waste. He has emphasized that there is no contrary evidence on record. He has also pointed out that, even subsequent on record. He has also pointed out that, even subsequent to the dispute, the appellant's practice is to treat such yarn as waste yarn, cut such yarn and add it to waste arising at other stages of production. The ld. Counsel submits that going by the appellant's commercial practice, it is reasonable to hold that, during the disputed period also, less than 1 kg. bobbin yarn was disposed as waste and not otherwise, despite the absence of specific accounts showing such yarn was cut and added to the waste.
11. The ld. Counsel's has a further submission that the demand is to be treated as time-barred inasmuch as the same has been raised by invoking the proviso to Section 11A of Central Excise Act. He has pointed out that the contemporaneous correspondence, adjudication order and other record kept by the appellant clearly brings out that both sides were aware of the appellant's waste yarn accounting practice and it was not open to the Revenue to allege that there is any suppression or mis-statement of facts with intend to evade duty attracting the extended period mentioned in the proviso. The ld. SDR's contention is that there is no dispute in the present case that the appellant has failed to keep account of 1 kg. or less yarn which was's wound on bobbins. He has emphasized that the account of such yarn is kept only up to the machine log sheet, when the yarn is produced. Thereafter there is no account kept by the appellant contemporaneously which would enable the correlation of such yarns as added to the waste arising at other stages and disposed of as waste. The ld. SDR has emphasized that despite the fact that in November 1983, the jurisdictional Supdt. had directed the appellant to keep the waste account category wise. The appellant has not done the same. It is the ld. SDR's contention that in the absence of any proof of proper accounting of yarn the Commissioner was right in holding that evasion of duty had taken place. He has also contended that proviso to Section 11A has been brightly invoked as this is a case of suppression of facts about clearance of yarn.
13. The dispute is about how the appellant disposed of the POY in less than 1 kg. bobbins. The production of such yarn on bobbins of less that 1 Kg. remains accounted in log sheets. During inspection, the Central Excise officers also found such bobbins in the finishing area. Therefore, the production of yarn on bobbins is not in dispute. The only dispute is how the appellant disposed of such yarn and whether such disposal was on payment of appropriate Central Excise duty. The first question that would arise is how such yarn was accounted by the appellant after the log sheet (machine) stage. The other question is whether such yarn was released from the tubes by cutting it and it was added to the waste arising at other stages. There is no account kept or produced before any authority about such cutting or adding to the waste arising at other stages. Therefore, the findings on these have to be based on the collateral evidence available. As already noted, there has been considerable contemporaneous correspondence between the appellant and the jurisdictional excise authorities about waste arising at the yarn stage. The aforesaid adjudication order of the Commissioner dated 3.3.84 specifically took note of the waste arising at on the "tubes" and held that such waste is also classifiable along with other waste under Item 18(IV). Similarly, we have already noted from the RG-1 of the appellant that the appellant was recording waste yarn in its RG-1 (production register) and the stock of waste yarn was verified on 3.11.84 by the Central Excise officers and certified total quantity of waste held in stock to be about 23 lakhs Kg. With regard to this same waste, the officer who carried out the stock taking, explained to the Additional Commissioner that the waste included waste at the yarn stage. He also has stated that the waste stored outside the factory included yarn waste. Even the letter of the Supdt. under which the assessee was directed to account waste, category wise, notes that waste arises at the yarn stage. These observations of facts from time to time by the field officers having charge of the appellant's factory confirm that the part of yarn was treated as waste. Waste yarn arises only after production of yarn on machines. This makes it clear that part of the yarn entered in the log sheet account was subsequently treated as waste. Therefore, there is merit in the contention of the appellant that even though the yarn of less than 1 Kg. is emerging at the spinning stage, such yarn does not get sold by the appellant as yarn. That part gets classified as waste and is disposed of accordingly. The description of the waste as made in the various contemporaneous correspondence and the description of the waste checked and certified by the officer at the time of stock taking confirm that part of the waste is of yarn. In these facts and circumstances, it would not be reasonable to take the view that all the yarn accounted in the log sheets at the machine stage, could have been cleared by the appellant as yarn only and, therefore, there is evasion of duty. The allegation in the notice that the yarn in question was not properly accounted and cleared does not seem to be factually correct inasmuch as all clearances of waste was after due accounting and payment of Central Excise duty. We have already noted the Assistant Commissioner passed an order stating that all varieties of waste including waste from the tubes would be classifiable under the same heading. The appellant's records confirm payment of duty accordingly. Therefore, the finding that the appellant had made clearances in violation of approved classification and accounting prescribed in the Central Excise Rules invoked in the show cause notice also does not appear to be a reasonable finding.
14. While the appellant's explanation is that yarn on less than 1 Kg. bobbins formed part of the overall clearance of waste from the appellant's factory, it is also to be noted that there is no evidence on record pointing in the direction of clearances of less than 1 Kg. Yarn in any other manner, whether as yarn itself or as some other goods. There is no evidence about removal of these items as yarn or the appellant having ever sold such yarn or any other party selling the appellant's yarn of less than 1 Kg. Bobbins as yarn. Thus, the materials on record support only the appellant's explanation. In these circumstances, we are of the opinion that the highest probability is that the appellant disposed of the yarn on 1 Kg. or less bobbins as waste only.
15. Revenue's case is dependent entirely on the gap in the counting followed by the appellant, inasmuch as various varieties of waste arising in the appellant's unit at various stages of manufacture are not accounted category wise separately and stored separately. Needless to say, commercial accounting would depend upon the commercial significance of the products accounted. There is no evidence that waste emerging at different stages of manufacture of yarn have different commercial values or that they are or could be disposed of at different prices. Admittedly, in the appellant's factory, waste emerges during spinning (undrawn waste), hard waste yarn, polyester waste and yarn waste (subject matter of the present dispute). Revenue makes no grievance of the other varieties of waste being not accounted separately. A selective approach is being taken about yarn waste alone because rates of duty of yarn and waste are different. This is not justified. Since as a matter of fact, it is seen, and contemporaneously certified to by jurisdictional officer that a portion of the waste was yarn also, there is no justification in reaching a finding that tarn waste alone was required to be separately accounted and the failure to do so leads to the conclusion that it was cleared clandestinely as yarn. In the facts of the case, the accounting gap was not to facilitate clandestine clearance. In all likelihood, separate accounting of yarn waste was not warranted since it had only the same commercial value as other types of waste.
15. In the light of what is stated above, we are of the view that in the facts of the present case, the finding of the Commissioner that the appellant disposed of, without proper accounting and payment of duty, POY in less than 1 kg. bobbins is not warranted or justified. Accordingly, duty demand made and penalty imposed in the impugned order in regard to POY are set aside and the appeal is allowed.