Customs, Excise and Gold Tribunal - Tamil Nadu
Kathiravan Pipes Ltd. And Star ... vs Commissioner Of Central Excise on 26 May, 1998
Equivalent citations: 1998(61)ECC627, 1998ECR16(TRI.-CHENNAI)
ORDER S.L. Peeran, Member (J)
1. Both these appeals arise from the Order-in-Original dated 14.5.96 passed by the CCE, Coimbatore by which the Commissioner has confirmed the duty demand of Rs. 6,05,054 under Rule 9(2) of the CER 1944 read with proviso to Section 11A(1) of the CEA 1944 being duty payable on the pipes, waste and scrap cleared without payment of duty by the appellants. He also appropriated a sum of Rs. 50.400/- already debited by the appellants under RG 23A Part II SI. No. 506/30.09.95. He also imposed a penalty of Rs. 50,000/- on M/s. KPL and a further penalty of Rs. 5,000/- on M/s. Star Marketing under Rule 209A of the CER 1944.
2. The brief facts of the case as seen from the show cause notice is that M/s Karthivaran Pipes (P) Ltd. (KPL Ltd for short), had manufactured and cleared PVC pipes, waste and scrap classifiable under sub heading 3917.00 and 3915.90 respectively without payment of duty of Rs. 6.05,054 and without observing the Central Excise procedure laid down under the CER 1944 and M/s Star Marketing Salem have contravened the provisions of Rule 209A of the CER 1944 inasmuch as they have dealt with excisable goods which are non duty paid and are liable for confiscation. It is alleged that the officers attached to the Divisional Preventive Unit Salem visited the factory of KPL Ltd. on 18.10.94 and searched the unit. At the time of search, Shri V. Sivagnanam, Director of KPL was present and he extended full co-operation to the officers to carry out check and verification. On search it was found that (i) MPL Ltd. were engaged in the manufacture and clearance of PVC pipes falling under Sub-heading 3917 of the said schedule during the financial years 1993 to 94 and 1994-95 (ii) that KPL Ltd. were a SSI Unit availing the benefit of Notification No. 1/93-CE during the respective periods, (iii) that KPL Ltd. had registered themselves under Registration No. 2/94 with the department after crossing the exemption limit of Rs. 30 lacs available in terms of the above said Notification and started paying duty from July 1944, (iv) that KPL Ltd. had cleared PVC pipes under the following delivery challans : 4653/05.4.94, 654/17,4.94, 655/13.04.1944. 1655/ 19.4.94, 659, 660, 661, 662. 663. 666, 667, 670. 671 and 674 to M/s. Star Marketing, Salem, without payment of duty and without accounting them in the Central Excise records and that the assessee had not availed the provisions under Rule 57F(3), (v) KPL Ltd. had cleared the. said goods without payment of duty and had not accounted for in the statutory accounts and registers, and (iv) KPL had cleared the said dutiable goods without proper invoice prescribed under Central Excise Rules.
3. Thereafter, mahazar was drawn on 18.10.94 on the spot for the recovery of the incriminating documents for further action. Statement was recorded from V. Sivagnanam, Director on the same day wherein he stated that his unit was engaged in the manufacture of PVC pipes and that (i) as they had excess production capacity, they manufactured PVC pipes on behalf of M/s. Star Marketing, Sale, (ii) that the raw material and other addictives were supplied by M/s. Star Marketing. Salem, that the total quantity and value of the PVC pipes manufactured were 45,654.7 Kgs and Rs. 18.60.431 (market value) respectively (iii) that the condition of agreement between M/s. Star Marketing, Salem and the appellants was that KPL Ltd should manufacture and supply ready to use PVC pipes, including the socketing of one and of the PVC pipes to facilitate joining of pipes (iv) that they were aware of the fact that M/s. Star Marketing did not have any machinery for the manufacture of PVC pipes including the socketing machine and that all the pipe lengths were supplied only after the process of socketing was carried out at KPL Ltd., (v) that they collected an amount of Rs. 58,049.15 as job charges from M/s. Star Marketing for the pipes cleared to them from 1.4.94 to 19.4.94; that for the quantity of PVC pipes cleared after 19.4.94 to M/s. Star Marketing they did not raise any bill/invoice for collection of conversion charges as negotiations were going on for the settlement of a revised rate, (vi) that 3% defective pipes would arise at the time of manufacture of PVC pipes and such PVC pipes were fed into the grinding machine and were cleared outside the factory as PVC scrap powder under their delivery challans without payment of duty and without observing Central Excise formalities, (vii) that they did job work for M/s. Star Marketing, only and job charges were received through cheques and also by cash, (viii) that they cleared the PVC waste of 8500 Kgs. valued at Rs. 2,55,000/- through their delivery challans without observing Central Excise procedure and such waste could be reused for the manufacture of PVC pipes, (ix) that all the raw materials received from M/s. Star Marketing were utilised for the manufacture of ready to use PVC pipes and sent back to M/s. Star Marketing and, that there was no stock of any raw material sent by M/s. Star Marketing to their factory as on date, (x) that they knew the fact, that the value of the clearances including the raw material used for the manufacture of PVC pipes should be included in their turn over: that they did not file any classification list classifying the waste and scrap of PVC pipes with Department till date and (xi) that a quantity of 3.095 Kgs of waste and scrap valued at Rs. 92, 861.00 arising at the time of manufacture of said PVC pipes of M/s. Star Marketing was cleared through their delivery challans and not under any Central Excise documents or any 57F(3) chalans. He further stated that from 1.4.94 to 18.10.94 they cleared PVC pipes valued at Rs. 60,79,00/- on their own and that the value of PVC pipes manufactured and cleared to M/s. Star Marketing out of the raw materials supplied by them was Rs. 18,60,431/-; that the value of PVC scrap classifiable under Sub-heading No. 3915.00 cleared from their factory on their own amounted to Rs. 2,55,000/- and the value of waste and scrap cleared to M/s. Star Marketing amounted to Rs. 92,861/- which arose on processing the materials supplied by them. The party clarified that the total value of clearances effected from their unit from 1.4.94 to 18.10.94 was Rs. 82,87.294/- and the total duty paid was Rs. 3.61,869/-. Further on scrutiny of the records seized, it was noticed that (i) the party had manufactured and cleared PVC pipes falling under Sub-heading No. 3917.00 valued at Rs. 28,82,682.00 (the value as arrived at on the basis of the basic price list as on 3.9.94 given by the party) under delivery challans to M/s Star Marketing; (ii) that the appellants KPL Ltd. cleared the PVC waste and scrap arising at the time of manufacture of PVC pipes falling under Sub-heading No. 3915.90 valued at Rs. 32,861/- to M/s. Star Marketing; (iii) that they had cleared the PVC waste and scrap arising at the time of manufacture of PVC pipes falling under sub-heading No. 3915.90 valued at Rs. 7,40.000/-under delivery chalans: (iv) that they had not filed any classification list for the PVC waste and scrap; and (v) that they had not accounted for the PVC pipes manufactured on behalf M/s. Star Marketing and PVC scrap manufactured in the statutory records and cleared the same without valid documents.
4. After adding the value of such clearance of PVC waste and scrap cleared without payment of duty against appropriate dates the department alleged that it can be clearly seen that the appellants have crossed the 30 lacs exemption limit on 28.4.94 and crossed the slab of Rs. 50 lakhs on 11.6.94 and 75 lakhs limit on 17.8.94. Thereafter adding the value of Rs. 32,15,362.00 they should have paid duty of Rs. 9,66,923/- and as against this they have paid only Rs. 3.61,369.00 as on 18.10.94.
5. There was also allegation against M/s. Star marketing that they have contravened the provisions of Rule 209A of the CER 1944 inasmuch as they acquired and were in position of non-duty paid excisable goods which are liable for confiscation.
6. It was also alleged that KPL Ltd did not inform the department about job work undertaken by them for manufacture of PVC pipes for the other party i.e. M/s. Star Marketing and suppressed the above fact from the knowledge of the department with intent to evade payment of duty and hence extended period of time in terms of Section 11A(1) of the CEA was invoked and hence the show cause notice.
7. The appellants filed reply to the show cause dated 10.10.95. Appellants KPL Ltd. stated that it is not disputed that they did not manufacture PVC pipes from out of the raw materials supplied by M/s. Star Marketing and they are a SSI Unit and are eligible for the benefit of exemption Notification 1/93 dated 28.2.93 as amended, from the whole of payment of duty upto clearance of Rs. 30 lacs and since they were under this exemption limit from 1.4.94 to 13.7.94, they did not get registered and hence they did not follow the Central Excise Procedure. They stated that under Notification 93/94, dated 11.4.94, the specified goods manufactured in a factory of job worker are wholely exempted from the duty of excise leviable thereon. Therefore, the goods manufactured by them on job work basis out of the raw materials supplied by Star Marketing are wholely exempted from payment of duty. They stated that the goods manufactured by them on their own account are wholely exempted for the period from 1.4.94 to 13.7.94. Hence they did not have any Central Excise control during the relevant period under exemption. Therefore, they stated there was no suppression of fact. They also stated that, statement was recorded on 18.10.94 and the show cause notice was issued beyond six months on 27.7.95 and hence the demand is barred by time. It was stated by them that they were likely to cross the exemption limit and they got themselves registered and thereafter they observed all the Central Excise formalities and paid appropriate duty. Likewise the product manufactured out of the raw materials supplied by M/s Star Marketing, those products were wholely exempt from payment of duty under Notification 83/94 and when the goods were removed they were not under the Central Excise control. They therefore, returned such products to M/s. Star Marketing under their own delivery challan and hence the department cannot allege that they had contravened the Central Excise Rules and removed the goods otherwise than as provided under the law. They also challenged the calculation of the differential duty and submitted that value of the goods removed under job work basis were also clubbed with the removals made on their own account which is not tenable. They further stated that in the show cause the value taken as per the price list is effective from 3.9.94. They stated that this value cannot be taken for clearance prior to 3.9.94 as there might be escalation in price and thereby duty calculation might be erroneous. They stated that there was no undervaluation and therefore, the demand has to be re-worked out. They further stated that the removals made to Star Marketing were only semi-finished goods even though they were socketed and in a ready to use condition, yet further processing such as testing, cleaning and branding to make the goods marketable remained. They stated that since marketability is an important criteria in the process of manufacture, the goods could be treated only as semi-finished goods and therefore, the value of clearance of semi-finished goods cannot, be taken into account for computing aggregate value for purpose of applying the rate of duty. They stated that the goods cleared to Star Marketing should not have been included for calculating differential duty. They also stated that the value of the scrap had been taken as Rs. 30 lacs whereas the value was only Rs. 21 per kg. They stated that the scrap under delivery challans 990 & 991 dated 18.10.94 on which date there was checks of accounts by the officers they inadvertantly prepared the delivery chalans instead of invoices and forgot to pay duty on the same due to extreme mental tension. They stated that they are prepared to pay duty on the same and they have already debited their RG 23A Part II account. In respect of the goods cleared under their own account they have submitted a detailed account in the reply to show cause according to which the differential duty required to be paid by them was only Rs. 50.363.75 and they have debited their RG 23A Part II in respect of this amount. In regard to the balance amount they requested for dropping the amount.
8. The Collector in the impugned order rejected their plea that the products manufactured and cleared to Star Marketing on job work basis are eligible for exemption under Notification 83/94 dated 11.4.94 as the goods are fully manufactured by KPL Ltd. Therefore, he held that the Notification is not applicable to them as the goods were not in semi-finished condition and in this regard he has relied upon the admission made by the appellants in reply to the show cause notice wherein it has been stated that the pipes are socketed and are in ready to use condition and that the only process required to be carried out was testing, cleaning and branding. He held that these processes cannot by any stretch of imagination be treated as process covered by Notification 83/94. He noted that the conditions in the Notification are not complied with by the appellants and that the Notification applies only to the raw material supplier or the semi- finished goods by the job worker. The facts in the present case are totally different. He also rejected their plea in regard to time bar. He held that neither the job worker nor the supplier of the raw materials has complied with the procedural requirement under the said Notification, for removal of the goods under the aforesaid Notification. The details of procedure to be followed for removal of the goods under the aforesaid Notification and the procedures of its accountal were circulated to the trades vide Trade Notice No. 62/94 dated 25.4.94. He held that in the present case, the prescribed procedures were not followed either by KPL Ltd. or by Star Marketing. Therefore, he held that KPL are not eligible for exemption in terms of this Notification. He also upheld the allegation of suppression of fact and confirmed the duty demand. With regard to the dispute on the value to be adopted for the waste and scrap cleared by KPL Ltd, the appellants contended that the value of waste and scrap was Rs. 21 per kg. The Collector on verification of the delivery challan bearing No. 991 dated 18.10.94, observed that the appellants KPL Ltd. themselves have quoted 3000 kgs. of waste for Rs. 90,000/-. This clearly shows that the value of Rs. 30/- per kg adopted in the show cause notice was as per the records of the assessee and accordingly the claim of the assessee does not merit consideration.
9. Shri V.P. Namasivayam, learned Consultant for the appellants reiterated the grounds taken by the appellants in reply to the show cause notice and the grounds made in the appeal. He submitted that clearance made to Star Marketing was not in fully manufactured condition and hence they were rightly not included by them and Notification No. 83/94 was rightly claimed by them. In support of his plea he relied upon the judgment of the Hon'ble Supreme Court rendered in the case of Bhor Industries v. CCE, and in the case of Amhal Sarabhaia Enterprises . He also submitted that they are entitled for the first exemption of Rs. 30 lacs under the Notification and calculation of duty has not been properly worked out. He further submitted that the demand was barred by time as the department took all the information on 18.10.94 and show cause notice was issued beyond the period of six months, i.e. on 27.7.95. Therefore, the demand is clearly barred by time. In regard to the initial exemption upto Rs. 30 lakhs, he relied upon the judgment rendered in the case of Kemexc Industries v. CCE, Calcutta. He pointed out that the Collector's observation that the Unit had not followed the prescribed procedure and therefore, the benefit under Notification 83/94 was not granted is not correct as Rule 57F(2) does not apply as Star Marketing were only raw material suppliers. He submitted that the judgment in the case of Cosmic Dye Chemicals v. CCE is distinguishable.
10. The learned DR referred to the charges made out in the show cause notice and the reply given by the appellants KPL Ltd. He pointed out that the goods cleared to Star Marketing was in fully manufactured condition and therefore their value is required to be added. Star Marketing were only traders and they were not carrying out any manufacturing activity. He also submitted that the longer period of limitation is invocable as the appellants KPL Ltd did not disclose to the department the various activities of manufacture and clearances to Star Marketing on job work basis. Countering the above submission, the learned Consultant submitted that Star marketing were having manufacturing-facility in their unit.
11. On careful consideration of the submissions made by both the sides, we notice that the allegations made in the show cause notice are that the appellants did not add the value of their clearances made to Star Marketing. In this regard statement recorded from V. Sivagnaham, Director of KPL Ltd. is relied upon. He has admitted that the Unit had taken up manufacturing activity on behalf of M/s. Star Marketing for manufacture of PVC pipes and they were supplied with raw materials and other addictives by the said Star Marketing. He also gave the value of the PVC pipes manufactured by them to the extent of Rs. 18,60,431/- out of the raw materials supplied by Star Marketing in respect of 45,654.70 kgs of goods. He also referred to the agreement between KPL Ltd. and Star Marketing according to which Star Marketing supplied raw materials for manufacture of PVC pipes including socketing of one end of the PVC pipes to facilitate joining of pipes. He also held that Star Marketing were not having any machinery for manufacture of PVC pipes including socketing machinery and that the pipe lengths were supplied only after the process of socketing was carried out at KPL Ltd. Appellants KPL Ltd. also collected an amount of Rs. 53,049.15 as job charges from Star Marketing for the period from 1.4.94 to 19.4.94. They did not raise any invoice for collection of conversion charges. The Collector relied upon the admission made by the party as noted supra. From these admissions it is clear that KPL Ltd. were supplying fully manufactured goods and not semi-finished goods to Star Marketing. The appellants have not produced any evidence to show that there was no manufacturing activity at Star Marketing. Therefore, in the .light of these evidence discovered by the department, the Collector has come to the conclusion that the allegations against the appellants that they cleared goods manufactured on job work basis, to Star Marketing is proved. Likewise the charge of clearance of waste and scrap arising out of the manufacture of PVC pipes is also proved. In this regard, the appellants themselves have calculated the admitted duty liability and have debited the duty amount due in their RG 23A Part II. The only other question that arises for consideration is whether the show cause notice issued on 27.7.95 is barred by time after a lapse of 6 months from the date of 18.10.94. It is the contention of the appellants that all the information had already been taken by the department on 18.10.94 and there was nothing remained to be furnished to the department and therefore the demand raised is barred by time as the show cause notice has not been issued within a period of six months. On a consideration of this plea we have to determine whether the demand raised beyond the period of six months after 18.10.94 is barred by limitation. The Tribunal in a number of cases have already taken the view that show cause notice should be issued within a period of six months after completing investigation. In this case the investigation was completed on 18.10.94 and therefore, the show cause notice issued on 27.7.95 is beyond the period of six months and hence the demand is clearly hit by time bar. This view has been expressed in the case of of SD Kemexc Industries Ltd. v. CCE. Calcutta . This judgment was relied upon in the judgment rendered in the case of Neyveli Lignite Corporation v. CCE . In the case of Kamal Plywood & Allied Industries v. CCE it was noted that officers visited the factory of the assessee on 1.2.88 and investigation was carried out by them and show cause notice was issued on 11.7.98. By this show cause notice no demand of duty was raised. However, after a lapse of four years another show cause notice was issued on 19.5.92 by the Additional Collector by invoking the proviso to Section 11A of the CEA 1944 as it was alleged that actual production was suppressed with intent to evade payment of duty. The Tribunal noted the judgment rendered in the case of Upper' Doah Sugar Mills wherein the Tribunal held that duty payable after the date of knowledge of the department about the short levy or non-levey has to be restricted to only six months. The Tribunal then observed that the officers visited the appellants' unit on 1.2.88 and were carrying out checks and scrutiny of the records and after detailed verification show cause notice was issued on 11.7.88 under which no demand of duty was raised and there was no charge of any suppression or misstatement of facts. Therefore in these circumstances the allegation of charge of suppression and issue of a show cause notice on 19.1.92 after a lapse of four years from the date of knowledge to the department about the activity carried out by the assessee, was not sustainable. We notice that in the present case, although four years have not elapsed, yet the show cause notice was issued beyond the period of six months. Therefore, the judgment rendered in the case of Upper Doab Sugar Mills (supra) would apply to the facts of the present case. In the case of Walia Engineering Associates (P) Ltd. v. CCE, Ahmedabad, , it was noted that the appellant had pleaded they were under the bona fide belief that separate exemption available in respect of arrangements made by them and intention of evasion of duty was not proved and it was held that extended period of limitation was not applicable. In the case of JSL Industries v. CCE, Ahmedabad. reported in 1998 (25) RLT 779 (CEGAT) it was held that extended time limit was not invocable when show cause notice not issued within 6 months from the date of knowledge of the department about the requisite information. The Tribunal in this judgment has relied upon a number of judgments to come to that conclusion. Apart from the judgments cited therein, they have relied upon the judgment in the case of MP Vegetable Fruits Products v. CCE. Raipur, reported in 1995 (76) 393, wherein it was noted that the appellants had given all the details about the nature of tomato puree packed in jerry cans in the statements recorded by officers during the investigation in January 1989. Therefore, it was held that extended period of limitation was not applicable in respect of demand notice issued on 27.1.92 for the period from 5.1.89 to 18.1.89. The Bench also referred to the judgment in the case of Mopeds India Ltd. v. CCE, wherein the Tribunal held that non-disclosure of material information amounted to suppression. However, the department became aware of the malpractices even on 23.10.75 but since show cause notice was issued only on 5.1.77 the department was entitled to recover the duty from 1.4.74 to 23.10.75. The appeal against this order was dismissed by the Appex Court as .
12. In view of these judgments, we have to hold that the demand raised in this case after a period of six months is barred by time. On this ground alone the appeals succeeds and we allow the appeals accordingly with consequential relief if any.
Order pronounced in open court.