Customs, Excise and Gold Tribunal - Mumbai
Maheswari Dye Chem. And Ors. vs Cce on 20 May, 2005
Equivalent citations: 2007(213)ELT89(TRI-MUMBAI)
ORDER Moheb Ali M., Member (T)
1. These three appeals are directed against the order of the Commissioner of Central Excise Ahmedabad. The period of dispute is 1993-1994 to 1997-1998.
2. The appellant M/s. Maheswari Dye Chem makes textile auxiliary chemicals. It was a proprietary firm owned by Smt. Sitadevi till December 1996. Thereafter it came to be owned by her husband and the firm came to be known as M/s. Durrent Chemicals. The department contends that M/s. Durrent Chemicals continued to engage itself in the same activity as that of its predecessor firm. Shri Rajesh Kedarmal Baheti the son of the Proprietor is a trader who purchased the products of the two above named firms. These are the appellants before us. In the impugned order the Commissioner demanded Rs. 22,16,106/- form M/s. Maheshwari under Section 11A(1), imposed and equal amount of penalty under Rule 173Q(1), read with Section 11AC, demanded interest under Section 11AB, demanded duty of Rs. 2,16,895/- from M/s. Durrent Chemicals (DCI) under the same section, imposed an equal amount of penalty, confiscated seized goods valued at Rs. 14,697/-, demanded interest under the aforesaid Section and imposed a penalty of Rs. 1 lakh on Rajesh K. Baheti under Rule 209A.
3. The facts briefly are the officers of Central Excise visited the factory premises of M/s. DCI on 5.9.1997 an carried out searches. The unit was engaged in mixing micro emulsion, emulsifier etc. and produce what are known as Micro Plus, Micro X, Micro Cone. etc. the raw material (Micro emulsions, emulsifier etc.) are procured from outside. The finished products are sent to M/s. Baheti a Sister Concern of M/s. DCI. The officers drew samples of the products namely Micro Plus, Micro X, Micr-Conc, EMD Cone and SWP and sent them for chemical examination.
4. The person in charge of the factory informed the officers that the products in question are used in the finishing of fabrics and are commercially known as textile auxiliary chemicals falling under Chapter 38 of the Schedule to CETA 1895. Some of the products lying in the units, which are not accounted for, were seized. The office premises of the unit were also searched and some incriminating documents were seized. Statements of concerned persons were recorded. On the basis of statements recorded and incriminating documents seized it was calculated that the units, formerly M/s. Maheshwari and presently Durrent Chemicals evaded a total duty of over Rs. 50 lahks in the years 1993-1994, 1997-1998.
5. The Commissioner who adjudicated the case held that M/s. Maheshwari evaded duty of Rs. 22,16,106/- from 1993-1994 to 1996 November. He rejected the plea of the appellant that in respect of two products namely Micro Fil and Micro X there was no process of manufacture and therefore the value of clearance of these products should be excluded from the value of clearances. He relied upon the notings in Note Book No. 2 seized from the office premises of M/s. DCI to hold that the something more than mere addition of water was done to produce the impugned goods. He held that the appellant used inputs such as AO S 1000, B.M. Water etc. which amounts to bringing a new product into being attracting Central Excise duty. He relied on the Chemical examiners' report to hold that the products manufactured by M/s. Maheshwari is an aqueous emulsion containing Orgeno Silicon Compound. He rejected the plea that the products are manufactured only by dilution. He referred to the statement of Kedarmal K. Behati who stated that the raw material such as amino silicon are mixed with emulsifier to produce the final product. He observed that this is done with the aid of power. He relied on the decision in the case of M/s. Shri Bhadrada Chemicals Pvt. Ltd. wherein e Tribunal held that the process employed for obtaining silicon emulsion considered of diluting the imported silicon oil with water in the presence of 2 to 2.5% emulsifier. The mixing of such products resulted in the production of a new and distinct product and therefore amnions to manufacture.
6. The Commissioner rejected the contention that the appellant M/s. Maheshwari was trading in products known as Wet agents, SWP PL SWP Compounds and the value of these traded items should be excluded from the total value of clearances. He relied on the notings in the Note Book No. A/71 wherein the manufacture of SWP is shown on page 12 onwards. He held that the appellant did not produce any evidence in support of his contention that he traded in these products.
7. Insofar as eligibility to concessional rate of duty under Notifications No. 1/93-CE meant for SSI units the Commissioner observed that M/s. Maheshwari is not entitled to the benefit of the said notification in 1993-1994 as the unit was not registered with the authorities for producing the goods on which duty is now demanded. He held unless the products manufactured by an assessee are mentioned in SSI Registration Certificate, the assessee is not entitled to claim benefit of Notification No. 1/93. He however held that for the period 1994-1995 and 1995-1996 the appellants is entitled to the benefit as he has satisfied all the condition of Notification No. 1/93.
8. In regard to clearances effected by M/s. DCI the Commissioner observed that the unit is not entitled to SSI Notification No. 16/97 dated 1.4.1997 as it failed to file a declaration required to be filed by it, declaring its intention to avail of the concessional rate of duty. He held that if this mandatory requirement is not fulfilled concession under Notification No. 16/97 cannot be extended.
9. In regard to goods valued at Rs. 14,697/- seized from the premises of DCI, the Commissioner held that these are liable to confiscation as they were not accounted for. He confiscated them. He then proceeded to impose penalties under Section 11AC to demand duty and interest under Section 11A and 11AB of the Act.
10. The order of the Commissioner is challenged on various grounds. At the outset it was argued that out of the 18 products that were cleared from both the units from time to time two products Micro Fil and Micro X were not excisable goods as no process of manufacture was undertaken except diluting the product known as MECT. Consequently the value of clearance of these products should be excluded from the total value of clearances.
11. Secondly it was submitted that the appellants only traded in (a) Wet Agent (b) SWP (c) SWP SPL and (d) SWP Cone and not manufactured them and therefore the value of clearances of these products should be excluded from the value of clearances in each of the years in disputes.
12. Thirdly it was argued that the Commissioner relied on the evidence contained in the note book A/72 seized in September 1979 to hold that the appellant M/s. Maheshwari was not merely diluting MECT by water. This conclusion of the Commissioner ignored the evidence contained in the slips recovered during the search which clearly indicated that prior to December 1996 the only process undertaken was to dilute MECT with water and no other chemicals were added. The Commissioner ignored the fact that mechanical stirrer was purchased by M/s. DCI after it took over the unit and the same was not in existence when the unit was run by M/s. Maheshwari. It would not be correct to adopt the records of subsequent period for the limited purpose of deciding the question of manufacture. It would be incorrect to derive any conclusion from the contents of the note book seized in September 1997 from M/s. DCI that even M/s. Maheshwari was also engaged in the same process of manufacture. It was also argued that the M/s. Maheshwari and M/s. DCI were involved in trading in certain chemicals but the Commissioner discarded this fact when he added the value of traded goods to the value of other goods alleged to have been manufactured.
13. It is also argued that the Commissioner while calculating the duty liability on M/s. Maheshwari did not accord SSI exemption for the year 1993-1994 on the ground that all the chemicals on which duty is demanded are not mentioned in the SSI Registration Certificate. Similarly he denied the benefit of exemption Notification No. 1697 to M/s. DCI for the year 1997-1998 on the ground that they did not opt to pay normal duty in the beginning of the year. Further it was submitted that penalties under Section 11AC and interest under Section 11AB should not have been imposed/demanded for the period prior to 26.9.1996.
14. We have carefully considered the submissions and perused the case law filed by both sides.
15. The first issue to be considered is whether or not a process of manufacture is involved. The Commissioner relies on two facts to come to the conclusion that the appellant is not merely diluting a product by adding water or mixing the product with water. The Chemical Examiner's report which says that the sample of Micro x consist of aqueous emulsion containing orgeno-silicon compound and emulsifier. So is the case of Micro plus and Micro-conc. Secondly he relies on the contends of Note Book No. 2 seized from the office premises of M/s. DCI which shows the input used in the manufacture of Micro X compound, are A.)., S1000, BM and water. He concludes that such mixing resulted in the production of distinctly new product known in the manufacture of textile processing chemicals falling under Chapter 38. The question is whether the evidence gathered in September 1997 can be used to arrive at a decision that even prior to this period when the unit was in the control of M/s. Maheshwari, the same process was carried out resulting in the emergence of new product. The fact is that before and after November 1996 the products in question were sold under the same brand name and were used for the same purpose in textile industry. There is no reason, therefore to say that prior to November 1996 only water was added to dilute the product and after that period some more inputs mentioned above were added to produce the same goods. The Tribunal in the case of Aparajita Traders holds that process of conversion of silicon oil into silicon emulsion amounts to manufacture. The appellants' plea is that the stirrer which mixed various inputs was bought only in 1996 December or early 1997 and that earlier to this only mixing of water was undertaken is merely an averment not supported by any evidence. We therefore hold that from the beginning, when the unit was under the control of M/s. Maheshwari the same process was undertaken which amounted to manufacture. We reject the appellants' contention that Micro X and Micro Fil were not excisable goods we hold them to have been manufactured and therefore excisable.
16. The second argument that the appellants were only trading in certain products and were not manufacturing them, we hold, is again a mere averment. The appellants did not produce any evidence in support of their contention. Department's contention that the appellants manufactured even those products has to be held established. The value of clearances of those products have to be added to the total value of clearances during the period 1993-1998 to determine the eligibility to SSI exemption.
17. In regard to denial of SSI exemption for the year 1993-94 we observe that such denial was done on the mere fact that the small scale registration certificate does not make a mention of the products on which duty is now demanded. The Board in its Circular No. 18/93-CX6 dated 24.12.1993 clarified that once a factory is registered with the Director of Industries/Development Commissioner (SSI) as a small scale industry it is not necessary for such SSI unit to get each and every product manufactured by it endorsed in its registration certificate in order to get the SSI exemption. In view of this position, we hold that SSI exemption cannot be denied to the appellants (M/s. Maheshwari) for the year 1993-94.
18. We observe that the Commissioner determined the duty liability on M/s. Maheshwari applicable to SSI units for the years 1994-1995 onwards in accordance with the slab-wise duty. He has thus reduced the duty liability from Rs. 48,29,075/- to Rs. 22,14,106/-. The appellants' contention that duty has not been determined in accordance with slab-wise rate is not borne out by facts.
19. We also observe that while calculating the duty the ex-factory price of the goods is taken into consideration and therefore does not call for any further deduction in sofaras duty demanded on M/s. Maheshwari and M/s. DCI.
20. In regard to the demand on M/s. DCI we observe that the Commissioner denied benefit of Notification No. 16/97 on the ground that the unit has not exercised the option to avail the benefit of the said Notification. The Notification says that in case the unit wishes to pay excise duty at normal rate then the unit has to exercise such option right from the first day of clearances in the financial year 1997-1998; But in para 6, Board's clarification contained in CBEC letter F.No. B-41/1/97 TRO dated 7.4.1997 clarified that if a unit does not want to pay excise duty at the normal rate then no option of any kind is required to be exercised by the unit because the benefit of Notification No. 16/97-CE is applicable. The Commissioner failed to take cognizance of this clarification. We hold that M/s. DCI is entitled to the benefit of Notification No. 16/97 applicable to SSI Units.
21. In regard to penalties imposed on both the firms under Rule 173Q read with Section 11AC, we hold that Section 11AC is not applicable when the duty sought to be evaded pertained to period prior to 26.9.1996. The bulk of the period is prior to September 1996. However, penalty under Rule 173Q is applicable to the entire period. The units in question were engaged in the manufacture of excisable goods without registration and without following Central Excise procedures as brought out in the impugned order even after crossing the exemption limit stated in 1/93 and 16/97. However, under the circumstances, a nominal penalty will serve the ends of justice.
22. In regard to penalty under 209A on the third appellate we observe that sufficient cause to impose a penalty under Rule 209A does not exit.
23. We pass the following order:
(a) M/s. Maheshwari is entitled to the benefit of Notification 1/93 through out the period i.e. 1993-1994, 1995-1996 and 1996-1997 (upto November 1997). Duty needs to be recalculated after according the benefit of Notification No. 1/93 for the year 1993-1994 as well. While doing so the fact that Rs. 10 lakhs is deposited shall be taken into consideration.
(b) Penalty under 11AC is set aside. Penalty under Rule 173Q is reduced to Rs. 10,000/-.
(c) Demand for interest under Section 11AB shall be calculated only for clearances and duty liability that arose after September 1996.
(d) Duty demand on M/s. DCI be recalculated after according the benefit of Notification No. 16/97 to them.
(e) Penalty under Rule 173Q is reduced to Rs. 2,000/-.
(f) Penalty on Mr. Rajesh K. Baheti is set aside.
We may make it clear that while retaining a part of the penalty on the two firms we have taken into consideration that the appellant firms are not required to pay the duty to the extent indicated in the impugned order. The two units however contravened various provisions of the Central Excise Act and Rules and that is why penalty is imposable.
(g) Confiscation is the unaccounted goods is upheld.
24. The appeal thus, is partly allowed insofar as penalties are concerned. The appeals are remanded for the purpose of determining the duty liability after according the benefit of Notification No. 1/93 and 16/97-CE to the appellant units, M/s. Maheshwari and M/s. Durrent Chemicals Industries.