Customs, Excise and Gold Tribunal - Delhi
Vee Kay Industries vs Collector Of C. Ex. on 27 July, 1990
Equivalent citations: 1990(50)ELT520(TRI-DEL)
ORDER Harish Chander, Member (J)
1. M/s. Vee Kay Industries, B-22/1, Wazirpur Industrial Area, Delhi-110052 have filed an appeal being aggrieved from the order passed by the Collector of Central Excise, New Delhi. Briefly the facts of the case are that M/s. Vee Kay Industries are engaged in the manufacture and clearance of Elastic Rail Clips, Cotters and other fabricated items falling under Tariff Item 68 of the Central Excise Tariff.
On 16th January, 1986, the Central Excise Officers visited the factory premises of the appellant and resumed the relevant records for scrutiny and investigation. On enquiry the process of manufacture of elastic rail clips had been revealed as under :-
"An Iron rod is cut into a required size. Then the rod is put into an oil fired furnace. After it becomes red hot, it is put into a bending machine, which is a horizontal power press, give it a U-shape. The U-shape rod is again put on the horizontal power press to give another U-bend to the rod at a different angle; thereafter the piece is put into a vertical power press to convert it into a desired shape. After the oil dip, it is given heat treatment in an electric furnace at a required temperature to harden the same. After testing its strength it becomes final finished product i.e. Elastic Rail Clip."
The adjudicating authority in view of the manufacturing process had taken the view that elastic rail clip was a distinct and identifiable finished product falling under T.I. 68. From the scrutiny of the records it was observed that the party had cleared the said excisable goods valued at Rs. 2,96,45,435.00 involving central excise duty of Rs. 22,89,044.46 during the year 1981-82 to 1985-86 (upto 18th December, 1985). On the basis of the above, it appeared that the party had contravened the provisions of Rules 9(1), 52A, 53, 173B, 173C, 173G, 174 and 226 of the Central Excise Rules, 1944 and a show cause notice was issued vide letter dated 28th February, 1986 requiring the appellant that as to why the goods manufactured by them should not be classified under T.I. 68 and duty amounting to Rs. 22,89,044.46 should not be recovered from them under Rule 9(2) of the Central Excise Rules, 1944 read with Section 11A of the Central Excises and Salt Act, 1944 and why the penalty should not be imposed on them under Rules 173Q, 52A and 226 of the Central Excise Rules, 1944. In reply to the said show cause notice the party denied the allegations raised in the show cause notice and stated that their product was classifiable under T.I. 26AA(ia) prior to 1st August, 1983 and under T.I. 25(11) thereafter. It was also contended that no further duty was attracted in respect of their product when the same was made from duty-paid rod and that since there was no exclusion clause adopted by the legislature while incorporating the definition of angles, shapes and sections, so all shapes and sections irrespective of their use remained covered under T.I. No. 25(11). In support of their contention, the appellants quoted a series of trade notices, tariff advices and judicial pronouncements including the decision of the Collector (Appeals), Central Excise, Madras in the case of Guest Keen Williams Ltd. vide his order-in-appeal No. 284/83(B). It was also contended that elastic rail clips were being manufactured by various manufacturers in India and their classification throughout India was under T.I. 25(11). Their first main contention was that the rail clips were merely forged products falling under T.I. 25(11), shapes and sections, etc. and the process of tempering and heating treatment does not amount to manufacture. The appellants had contended before the Collector that the classification of the goods would fall under T.I. 25(11) which was as follows :-
"Angles, shapes and sections of iron or steel, not elsewhere specified, other than slotted angles and slotted channels, rolled, forged, extruded, formed, finished, sheet piling of iron or steel whether or not drilled, punched or made from assembled elements."
The appellants had further contended that all types of shapes and sections of iron and steel whether forged, extruded, formed or finished were covered by the said tariff item unless specifically excluded from the definition of angles, shapes and sections. The appellants had also referred to the definition of angles, shapes and sections given under T.I. 25. The appellants had contended that the goods were exempt from duty. The Collector had examined the contentions of the appellants and had held that the appellants were manufacturing rail clips classifiable under T.I. 68 and clearing them during the relevant period without obtaining a central excise licence, without payment of duty leviable thereon and without observing the other requirements under the Central Excises and Salt Act, 1944. He was of the view that duty was recoverable under Rule 9(2) of the Central Excise Rules, 1944 and Section 11A of the Central Excises and Salt Act, 1944 and also liable to penalty under Rule 173Q of the Central Excise Rules, 1944. He had ordered the appellants to pay central excise duty to the tune of Rs. 22,89,044.46 and had also levied a penalty of Rs. 20,00,000.00 under Rule 173Q of the Central Excise Rules, 1944.
2. Being aggrieved from the aforesaid order, the appellants have come in appeal before the Tribunal.
3. Shri K. Kumar, the learned advocate has appeared on behalf of the appellants. He has reiterated the facts. Shri Kumar has argued that the period in dispute is 1981-82 to 1985-86 and the duty involved is Rs. 22,89,044.46 and penalty of Rs. 20,00,000.00. He has argued that the show cause notice was issued on 28th February, 1986. Shri K. Kumar, the learned advocate fairly stated that the matter is covered by an earlier judgment of the Tribunal in the case of Paxma Axles & Springs (P) Ltd. v. Collector of Central Excise, New Delhi, vide order No. 2/90-B1 dated 29th July, 1989 in appeal No. E/1240/87-B1 reported in 1990 (47) ELT 639 (Tri.) . Shri Kumar argued that the Collector has invoked extended period of limitation. In this matter the extended period of limitation cannot be invoked. He has pleaded that in view of the decision of the Collector (Appeals) which was cited by the appellants, he was under the honest belief that the goods were not excisable and as such, the extended period of limitation cannot be invoked. He fairly stated that the appellants did not enter into correspondence with the revenue authorities. In support of his argument, he has referred to a judgment of the Supreme Court in the case of Padmini Products v. Collector of Central Excise reported in 1989 (43) ELT 195 (SC) and also another judgment of the Supreme Court in the case of Collector of Central Excise v. Chemphar Drugs & Liniments reported in 1989 (40) ELT 276 (SC) . Shri Kumar stated that the demand can be recovered for six months. He also argued that there is complete absence of mens rea and as such, no penalty can be imposed. He further argued that the appellant had entered into a contract with the Railways and if at all any central excise duty was to be payable, it was to be paid by the Railways and as such, there cannot be any intention for the evasion of excise duty. He pleaded that no penalty can be imposed. In support of his argument, he has referred to a judgment of the Supreme Court in the case of Hindustan Steel Ltd. v. State of Orissa reported in 1978 (2) ELT J-159. Alternatively, he pleaded that the penalty was excessive. In support of his argument, he has cited the following judgments :-
(i) 1989 (43) ELT 595 (Tri.) Poddar Projects Ltd., Hyderabad v. Collector of Central Excise, Hyderabad.
(ii) 1989 (39) ELT 498 (SC) Siddeshwari Cotton Mills (P) Ltd. v. Union of India and Anr.
(iii) 1985 (22) ELT 708 (Cal.) - Jayshree Textiles & Industries and Ors. v. Collector of Central Excise.
Shri Kumar further argued that no manufacturing activity is involved, if his arguments are the same which were adopted by Shri P.S. Bedi, the learned consultant in the case of Paxma Axles & Springs (P) Ltd. v. Collector of Central Excise, New Delhi vide order No. 2/90-B1 dated 29th July, 1989.
4. Shri M.S. Arora, the learned JDR who has appeared on behalf of the respondent, has pleaded that the matter is fully covered by an earlier judgment of the Tribunal in the case of Paxma Axle & Springs (P) Ltd. v. Collector of Central Excise, New Delhi vide order No. 2/90-B1 dated 29th July, 1989 arising out of appeal No. 1240/87-B1 and as such, the appeal should be dismissed. Shri Arora has argued that there was contravention of the provisions of the Central Excises and Salt Act, 1944 as well as Central Excise Rules and as such, extended period of limitation has to be invoked. He has argued that the judgments of the Supreme Court cited by the learned advocate in the case of Padmini Products and Chemphar Drugs reported in 1989 (43) ELT 195 (SC) respectively are not applicable. In support of his argument, he has referred to a judgment of the Supreme Court in the case of Jaishri Engineering Co. (P) Ltd. v. Collector of Central Excise, Bombay reported in 1989 (1) SCALE 602 where the Supreme Court had held that there was suppression on the part of the assessee and the extended period of limitation has to be invoked. On the question of quantum of penalty, he had referred to a judgment in the case of Mermaid Marine Products Pvt. Ltd. v. Collector of Central Excise, Cochin reported in 1985 (20) ELT 329 (Tribunal) . Shri Arora has also referred to another judgment in the case of V.S.T. Tillers Tractors Ltd., Bangalore v. Collector of Central Excise, Bangalore reported in 1987 (31) ELT 95 (Tribunal) . Shri Arora argued that penalty has to be imposed keeping in view the gravity of the offence and there is no justification for the reduction. He has pleaded for the dismissal of the appeal.
5. Shri K. Kumar, the learned advocate has again referred to the provisions of Section 11A of the Central Excises and Salt Act, 1944 and argued that extended period of limitation cannot be invoked. He has pleaded for the acceptance of the appeal.
6. We have heard both the sides and have gone through the facts and circumstances of the case. The appellants' main argument is that no manufacturing activity is involved and as such, the goods are not excisable. The Collector in the impugned order on internal page 1 had discussed the manufacturing process as under :-
"An iron rod is cut into a required size. Then the rod piece is put into an oil fired furnace. After it becomes red hot, it is put into a bending machine, which is a horizontal power press, give it a U-shape. The U-shape rod is again put on the horizontal power press to give another U-bend to the rod at a different angle; thereafter the piece is put into a vertical power press to convert it into a desired shape. After the oil dip, it is given heat treatment in an electric furnace at a required temperature to harden the same. After testing its strength it becomes final finished product i.e. elastic rail clip."
Incidentally the Tribunal had occasion to decide a similar issue in the case of Paxma Axle & Springs P. Ltd. v. Collector of Central Excise repored in 1990 (47) ELT 639. Paras No. 6 and 7 at page 644 of the said judgment are reproduced below :-
"6. The matter has been examined. A sample of the product was also produced before the bench. It is called an elastic rail clip. The process of manufacture has already been referred to Supra i.e. Steel rod is put to Horizontal Power Press to form a U-shape and another U-bend at a different angle is given. This is done as per the specification given by the railway. The Collector in his adjudication order laid stress on the requirements of the product to adhere to the specifications laid down by them. This is not a case of simple forging which can be used by any other purchaser, neither is it sold in the market as a distant article. It is meant for the railway track and has its own identity. The process involves a series of operations.
7. The bench had directed the appellants to submit the drawing of the product along with the contract, and the same was sent in their letter dated 11-9-1989. The drawing indicates the diameter measurement of the product as follows :-
4. The dia of finished clip measured in the curve shall be 20.20 mm minimum.
3. The dia of finished clip measured at Central leg small be within + 0.2 - 0.15.
2. Inspection Gauge at Drawing No. RDSO/T-1893 shall be used to check whether the tolerances actually achieved in the manufacture of clip are within the permissible limits.
1. All dimensions are in millimetres.
These drawings with Type RT 1892 named as Elastic Rail Clip is with detailed specifications as per scale. As per the contract these Rail Clips are subject to full payment only after inspection by the Inspection Unit of the Railway Department.
The above documents reveal that the rail clips should strictly adhere to the specifications given by the railways. There is no simple process of forging alone undertaken and as such the claim of the appellants for classification under Tariff Item 25(11) is untenable. The article is correctly classifiable under T.I. 68. The citations quoted by the learned advocates have been examined, the process of manufacture, the degree of manufacture resulting in the production of a new product have been highlighted. The appellant's product is very much in alignment with these decisions and no contrary view appears to be indicated.
The case law cited by the learned SDR on the other hand cover the case under reference."
We have also considered the arguments advanced on behalf of the assessee in the case of Paxma Axle & Springs Pvt. Ltd. and in view of the above discussion and following the earlier decision of the Tribunal in the case of Paxma Axle & Springs Pvt. Ltd. v. Collector of Central Excise reported in 1990 (47) ELT 639, we hold that the goods manufactured by the appellants are correctly classifiable under T.I. 68.
7. Now coming to the limitation aspect, we would like to observe that the period involved is 1981-82 to 1985-86 and the show cause notice was issued on 28th February, 1986. The learned advocate had pleaded that the appellants had the honest belief in view of the decision of the Collector in the case of Guest Keen Williams Ltd. vide his Order-in-Appeal No. 284/83(B), that the goods are not excisable. The appellants have attached a copy of the said judgment with the paper book which appears on pages 33 to 40 of the paper book. The learned advocate had cited the judgments of Supreme Court in the case of Padmini Products v. Collector of Central Excise reported in 1989 (43) ELT 195 (SC) and also Collector of Central Excise v. Chemphar Drugs & Liniments reported in 1989 (40) ELT 276 (SC) . We do not find any merit in the appellants' contention. The appellants had been making clearances of the goods without making any payment of the Central Excise Duty. The Hon'ble Supreme Court in the case of Jaishri Engineering Co. (P) Ltd. v. Collector of Central Excise, Bombay reported in 1989 (1) SCALE 602 had held that extended period of limitation was applicable. The judgments cited by the learned advocate do not help him. Accordingly, we are of the view of that there was concealment and suppression and extended period of limitation is invokable in the instant matter and as such the appellants' plea of time bar fails.
8. Now coming to the question of levy of penalty, we would like to observe that there had been clearances without payment of duty and the appellants did not obtain a central excise licence and have not observed other requirements under the Central Excises and Salt Act, 1944. The appellants had never applied for the central excise licence and had never brought to the notice of the department that they were manufacturing these goods. The appellants' argument is that they had bona fide belief that these goods are not excisable in view of the Guest Keen Williams' order-in-appeal No. 284/83(B) dated 17th November, 1983 passed by the Collector of Central Excise (Appeals), Madras. The order is of 1983, whereas the period in the instant matter pertains from 1981-82 to 1985-86. Thus it was prior to the issue of the order by the Collector of Central Excise (Appeals), Madras. The learned advocate had placed heavy reliance on the judgment of the Supreme Court in the case of Hindustan Steel Ltd. v. State of Orissa reported in 1978 (2) ELT J-159. This judgment and the other judgments cited by the learned advocate do not help him. In the matter before us there was concealment and suppression and it cannot be said that there was absence of the element of mens rea. In any case, we are of the view that there was justification in the levy of the penalty.
9. Now coming to the quantum of penalty, we would like to observe that the penalty should be commensurate with the offence. While imposing the penalty, the gravity of the offence has to be looked into. It is not disputed that the appellants had entered into a contract with the Railways and, in any case, if central excise duty was payable, the same was to be paid by the Railways. Hon'ble Supreme Court in the case of Arvind Mohan Sinha v. Amulya Kumar Biswas and Ors. reported in AIR 1974 SC 1818 had held that the penalty should be commensurate with the gravity of the offence. Para No. 10 from the said judgment is reproduced below :-
"10. ...The broad principle that punishment must be proportioned to the offence is or ought to be of universal application save where the statute bars the exercise of judicial discretion either in awarding punishment or in releasing an offender on probation in lieu of sentencing him forthwith. The words of Section 4(1) of the Probation of Offenders Act are wide and would evidently include offences under the Customs Act and the Gold Control Rules."
In the matter before us, the duty involved was Rs. 22,89,044.46. The Collector had imposed a penalty of Rs. 20,00,000.00. We are of the view that the penalty is highly excessive. Keeping in view the gravity of the offence, we reduce the same to Rs. 10,00,000.00 (Rs. ten lacs only). Except for this modification in the order, the appeal is otherwise rejected.