Customs, Excise and Gold Tribunal - Delhi
Shree Gajanan Fabrics Distributors ... vs Collector Of Central Excise on 22 June, 1992
Equivalent citations: 1992(43)ECR172(TRI.-DELHI)
ORDER N.K. Bajpai, Member (T)
1. These seven appeals are directed against a common order of the Collector of Central Excise, Pune by which he has demanded central excise duty of Rs. 11,84,654.51 as shown in Annexure-I and Rs. 5,78,198.17 as shown in Annexure-II (Total Rs. 17,62,852.17) under Rule 9(2) of the Central Excise Rules read with Section 11A of the Central Excises & Salt Act, 1944 (the 'Act' for short). A penalty of Rs. one lakh has also been imposed on M/s Gajanan Weaving Mills (GWM)--Appellant No. 2 herein--under Rule 173Q ibid. The Collector has also held the assessee and all the proprietors and partners jointly and severally liable to pay the duty liability as well as penalty. All the appeals were heard together and are being disposed of by this common order. The facts giving rise to passing of the impugned order, are as follows:
2. Appellant No. 1 is a partnership firm which was set up in 1967 as a trading concern in cotton fabrics. The partners of the firm arc closely related persons born in the same family. The firm is having its business premises within the compound of Shree Gajanan Weaving Mills, 560, Shivaji Nagar, Sangli--
Appellant No. 2--which was established in the year 1908 by Shri V.R. Velankar who died in 1978. His son R.V. Velankar succeeded his father and in course of time, his six daughters started working in textile line. The claim is that these daughters who arc highly qualified are working on their own in the above mentioned different firms and companies which are registered under the Shops Act, Companies Act and Factory Act are regularly taxed under the Income Tax Act and Sales Tax Act from time to time. The status of each of the appellants and the nature of work in which they arc engaged is as under:
(A} Shree Gajanan Fabrics Distributors (GFD):
Partnership: Partners: (1) Chitra R. Velankar
(2) R.V. Vaidya
Purchase of grey powerloom cloth, which is manufactured in GWM compound and process it viz. bleaching, applying kanji, folding, packing, baling and selling. While beaching is got done by M/s. Sunshine Bleaching House (SBH), applying of kanji is got done from M/s. Tushar Kanji Kendra (TKK), calendering is done by M/s. Bright Yarn Doublers & Cloth Finishers (BYD).
(B) M/s. Gajanan Weaving Mills (GWM):
Partnership: Partners: (1) R.V. Velankar
(2) Velankar Weaving Mills
In the compound of M/s. Gajanan Weaving Mills, one spinning mill named M/s. Janata Spinning Mills Private Limited which is engaged in the spinning of cotton yarn is located. The premises of the spinning mills arc owned by Shri R.V. Velankars daughter Chitra R. Velankar. The Board of Directors of this Spinning Mills are (a) Shri R.V. Velankar (b) Shri D.S. Phadke, (c) Ms. Krishna R. Velankar. Apart from the 48 powerlooms of Gajanan Weaving Mills located in the compound, there arc 15 other powerlooms units having different number of looms installed by such units having independent tex marks.
(C) M/s. Sunshine Bleaching House (SBH):
Owned by Kumari Sheela R. Velankar (Minor)--(Guardian Sow. Vijayalaxmi R. Velankar) This Unit is engaged in hand-bleaching activity without the aid of power.
(D) M/s. Bright Yarn Doublers and Cloth Finishers (BYD):
Proprietor: Kumari Veena R. Velankar.
This Unit is functioning with the mill shed estate of M/s. Gajanan Weaving Mills and is engaged in calendering and doubling of yarn on the machine belonging to GWM on job charges. The machinery is leased to them. The maintenance of the machines is looked after by GWM. Cloth is received for calendering from M/s. Sakharam Kapad Vistar Kendra (SKV) and GFD. No written instructions accompany the consignments sent for calendering and doubling. Cloth is also received for calendaring from M/s. Tushar Kanji Kendra (TKK).
(E) M/s. Sakharam Kapad Vistar Kendra (SKV):
Partnership: One of the partners is Kumari Purva R. Velankar and three other partners are related to her. She looks after the business as the main partner.
The firm purchases grey cotton fabrics and gets it processed from M/s. Sunshine Bleaching House (SBH) and M/s Tushar Kanji Kendra (TKK) and others.
The daily office work is looked alter by staff. Accounts and banking work is got done through Onkar Service Centre, which looks after such common activity for all the units located in the compound.
(F) M/s. Tushar Kanji Kendra (TKK):
Proprietorship: The Proprietor is Shri Rajendra Vinayak Vaidya, nephew of Shri R.V. Velankar. He is also a partner in Shree Gajanan Fabrics Distributors, Shree Laxmi Trading Company (LTC), Onkar Service Centre (OSC) and Sangli Trading Company (STC). He is also owner of two powerlooms and they arc run under the name of Vijay Yanthrapat, all of which are located in the same compound.
(G) M/s. Velankar Weaving Mills. Sangli (VWM):
Directors: (1) Shri R.V. Velankar
(2) Sow Vijaya Laxmi R. Velankar.
This firm itself has no activity of its own but is a partner in the trading firm of M/s. Gajanan Weaving Mills in which Shri R.V. Velankar is a partner in his personal capacity.
3. As a result of investigations undertaken into the activities of these units, all of which are located within the same compound, and are managed by a family consisting of Shri R.V. Velankar and his wife, their six daughters and a couple of other relations, the Collector of Central Excise, Pune issued a show cause notice to all of them on 19th November, 1987, asking them to show cause why duty of Rs. 92,53,778.87 should not be demanded from them on cotton fabrics processed by M/s. Sunshine Bleaching House (SBH) and M/s. Tushar Kanji Kendra (TKK) during the period first November, 1982 to 30th March, 1987 on the ground that, by not intimating their intention of manufacturing excisable goods, manufacturing the excisable goods without obtaining central excise licence, clearing the excisable goods without accounting them in the statutory records and without payment of central excise duty, they had suppressed the facts deliberately with intent to evade payment of duty and why such duty should not be recovered under Rule 9(2) read with Section 11A of the Act. They were also called upon to show cause why penalty should not be imposed on them under Rules 9(2), 52-A, 173Q etc. After the parties had submitted their replies, the two Annexures to the show cause notice in which calculation of duty was indicated, were replaced on 24.10.1988 by the Collector during the course of the hearing. This replacement of-Annexures had the effect of bringing down the demand of duty from Rs. 92,53,778.87 to Rs. 19,75,699.67.
4. In the adjudication proceedings, all the appellants denied the allegations. It was stated that the show cause notice did not indicate as to who should discharge the duty liability and hence it was bad in law. It was also contended that the normal period of limitation would be applicable as all the units were independent. Since the activity of bleaching was not covered by Notification 253/82 and since M/s. Sunshine Bleaching House (SBH) holds a Small Scale Industries Registration, it did not require any licence because the requisite declaration had been filed with the Central Excise Department. Intimation about closure of Shree Annapurna Dhulai Kendra had been given and their classification list was approved by the Assistant Collector in September, 1982. Hence the Department was aware of their existence. Independent units were started on the basis of increasing requirements of the family and it was not a case of fragmentation of a composite unit. Further, there was no financial link up between M/s. Sunshine Bleaching House, M/s. Bright Yarn Doublers & Cloth Finishers & M/s. Tushar Kanji Kendra. Hence no suppression, as alleged, was made. The Collector, after considering their representation and after hearing them and permitting cross-examination of certain witnesses, finally passed an order holding the units jointly and severally liable for payment of duty under Rule 9(2) read with Section 11 A. He also imposed a penalty of Rs. one lakh on M/s. Gajanan Weaving Mills under Rule 173Q. He held the assessee and all the proprietors and partners jointly and severally liable to pay the duly liability as well as the penalty. After passing the order on 30lh May, 1989, the Collector issued a Corrigendum on 10th July, 1989 by which he again made certain alterations in the amount of duty demanded by him.
5. The question that have come up for consideration in the appeal before us are summarised as under:
(a) The order holding all the seven concerns jointly and severally liable to discharge the duty liability as well as payment of penalty imposed on M/s. Gajanan Weaving Mills is without jurisdiction.
(b) The Collector has failed to give an opportunity to the appellants to put-forth their say on the cost of processing charges at 0.26 paisa arbitrarily determined and allowed by him in respect of value of grey cotton fabrics.
(c) The Collector has erred in confirming the demand of Rs. 6,65,082.79 against grey cotton fabrics produced on powerlooms and got subjected to merely plain calendering in the premises of independent processers on payment of job charges.
(d) The Collector has erred in determining the principles of valuation under Section 4 of the Central Excises & Salt Act before confirming the demand.
(e) The Collector has erred in applying the correct rates of duties as leviable under different Notifications issued under Rule 8 (1) during the relevant period covered by the show cause notice.
(f) The Collector has erred in applying the provisions of Section 11 A.
(g) The Collector has misinterpreted the judgment of the Bombay High Court in the case of Swadeshi Dyeing & Bleaching Mills (P) Lid. v. Union of India and has relied upon it without giving an opportunity to the appellants to offer their comments on the implications of this decision which was given subsequent to the proceedings of personal hearing before the Collector.
(h) The Collector has erred in taking a different view in the present case ignoring the common rational decisions given by his predecessor while deciding cases involving identical facts and circumstances against three of the parties of Sangli and Ichalkaranji in a common order-in-original No. SK-6/CEX/86, dated 10th June, 1986. He was prejudiced by the decision, dated 1.6.1987 of the Central Board of Excise and Customs to review the order, dated 10.6.1986 passed by Shri. S.D. Mohile, the then Collector of Central Excise, Pune.
(i) The Collector has unjustly transgressed the limits of the show cause notice.
(j) So far as Sunshine Bleaching House is concerned, the Unit undertook the job work of conducting bleaching operations without the aid of power and availed of exemption under Notification 130/82-CE, dated 20th April 1982 as was done in the past. Permission for installation of even a squeezing machine in the processing factory was granted by the Superintendent as early as on 18/12/1980. Thus, existence of this factory was well within the knowledge of the Departmental Authorities. The Collector has erred to appreciate the fact that after the visit of the Superintendent to the units on 20.12.1985, and recording of regular panchanama, the authorities had no grounds whatsoever to invoke larger period of 5 years for the subsequent period till the end of September, 1987.
(k) As regards M/s. Sakharam Kapad Vistar Kendra, the Collector has failed to determine the exact position of the appellants who are only engaged in trading activity.
(l) So far as M/s. Velankar Weaving Mills is concerned, the Collector has failed to record any specific finding against them to hold them guilty.
6. We have heard Shri B.B. Gujral, the learned Counsel for the appellants and Shri L.C. Chakrabarti, the learned Departmental Representative. The arguments were spread over a number of days and large number of authorities were cited for different contentions raised by both sides.
7. Shri Gujral first raised the question that copy of the adjudication order received by him did not bear the signatures of the adjudicating authority, nor did it bear any date below his name so as to indicate whether he had signed it at all. He further submitted there was no service of a valid order on the appellants as required under Section 37-C of the Act. The learned SDR produced the case file in which the order duly signed by Shri D.S. Solanki, Collector of Central Excise, bearing the date 30th May, 1989 is available; the copy received by the appellants bears the attestation of the order on the stencil by Superintendent (Adjudication) on 6th June, 1989 but docs not show the date on which the order was signed by the adjudicating authority. What was sent to the appellants was the cyclostyled copy of the order. Shri Chakrabarti, the learned DR explained that various methods of communication of orders arc adopted by the Tribunal, the High Court and the Supreme Court. The essence of the matter is that the order duly signed by the authority concerned should exist on the case file. It was the general practice of the adjudicating authorities to send an attested copy of the order to the parties concerned. Although Shri Gujral cited large number of authorities on the question as to what constitutes a valid order and whether a review of the order could be made, after looking into the case file produced before us, we are satisfied that an order was passed by the adjudicating authority on 30lh May, 1989 and is available on record. A cyclostyled copy bearing attestation of Superintendent (Adjudication) was communicated to the appellants. In view of this we do not consider it necessary to go into the case laws cited by Shri Gujral because the basic question whether an order was passed by the adjudicating authority has been answered in the affirmative on looking into the case file.
8. Shri Gujral then took us through Miscellaneous Application No. E/1017/90-D, dated 27th November, 1990 for raising certain additional grounds. This application was allowed vide the order No. M/63/91-D, dated 6th February, 1991. The first question that Shri Gujral raised was that the demand for duly as originally slated in Annexure I & II to the show cause notice was made for the following amounts:
Annexure-I Rs. 82,60,455.32
Annexure-II Rs. 9.93.323.35
________________
Total Rs. 92.53.778.67
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9. According to Shri Gujral, this amount was revised by the revised or amended Annexures I & II lo the show cause notice given to the appellants by the Collector at the lime of personal hearing on 24.10.1988. The revised figures were as under:
Annexure-I Rs. 10,93,258.80
Annexure-II Rs. 8.82.440.87
_________________
Total Rs. 19.75.699.67
_________________
10. When the order was passed, the demand for duty as confirmed in the Annexures enclosed to the order was us follows:
Annexure-I Rs. 11,84,708.51
Annexure-II Rs. 6.65.082.79
________________
Total Rs. 18.49.791.30
________________
11. By a Corrigendum dated 10th July, 1989 issued by the Collector attested by Supdt. Adjudication, the demand was further revised as under:
Annexure-I Rs. 11,84,654.51
Annexure-II Rs. 5.78.198.17
_______________
Total Rs. 17.62.852.68
________________
12. Shri Gujral submitted that the final amount of duly demand in Annexure-I by the Collector had been raised from Rs. 10,93,258.8010 Rs. 11,84,708.51. This meant that the amount finally demanded in the order was in excess of the amount shown in the show cause notice (after the issue of the Corrigendum) by Rs. 91,449.71. Shri Gujral's claim was that the order had been passed without issue of proper show cause notice is violative of the principles of natural justice, is void and of no legal effect in entirety. He also submitted that the basis of how the amounts had been arrived at and subsequently revised had neither been indicated in the show cause notice nor in the adjudication order. He also referred to the decision of the Supreme Court in its Clarificatory Order dated 27.1.1989 in the case of Ujagar Prints v. Union of India 1989 (39) ELT 493 : 1989 (21) ECR 1 (SC) : ECR C 1347 SC and made the further point that the trading profit of the processor should be excluded from the price for the purpose of arriving at the assessable value of fabrics. Since this had not been done, the entire calculation had gone wrong.
13. On the question whether all the seven units were independent, the Collector had chosen to rely on the judgment of the Bombay High Court in Swadeshi Dyeing case (supra). Shri Gujral suggested that the order, dated 10.6.1986 passed by Shri S.D. Mohile on a similar issue restricting the demand to the prospective period should have been followed. He submitted that the principles of proximity of location, admitted close relationship among the power operated and non-power operated units located within the same compound, and use of extra facilities like water, electricity and water treatment plant--none of which exist in the present appeal--should have been adopted by the Collector in deciding the present case. Further, there is no evidence of any financial flow back which is an essential ingredient for establishing the charge of fragmentation. He cited the decision of the Karnataka High Court in the case of Applied Industrial Products Private Limited and Ors. v. Collector of Central Excise, Bangalore 1991 (32) ECC 104 and three other decisions of the Tribunal in the following cases: (1) Shree Packaging Corporation, Hyderabad v. Collector of Central Excise 1988 (16) ECR 227, (2) International Dyestuff Manufacturing Company, Ahmedabad v. Collector of Central Excise, Baroda 1991 (17) ETR 369 : 1991 (33) ECR 31 (Cegat SB-C) and (3) Annapoorna Mills v. Collector of Central Excise . He questioned the finding of the Collector that the unit engaged in bleaching activity (M/s Sunshine Bleaching House) was part of the same group and that it was projected as an independent unit only for the purpose of taking advantage of Notification 130/82-CE, dated 20.4.1982. He also did not know how the Collector had recorded a finding by which all the independent units were treated as a composite mill. Such a conclusion, according to Shri Gujral, was a summary way of disposal of the matter. He submitted that Janata Spinning Mills was the first to be separated from Gajanan Weaving Mills and later, when it was found that it was not manageable, Annapoorna Dhulai Kendra was set up, which was subsequently re-named as Shree Annapurna Dhulai in 1982 and was finally reconstituted as M/s Sunshine Bleaching House and was recognised as a separate unit and given the benefit of Notification 130/82.
14. Shri Gujral also questioned the basis for taking 26 paise per sq. metre as a deduction on account of grey fabrics without first giving the appellants the opportunity to explain what should be the amount for the purpose. On the question of invoking the longer period of five years under the proviso to Section 11A(1), he submitted that in the absence of denial by the Collector of fact of knowledge of facts by the Department, this could not have been done.
15. Referring to the allegations against each of the units, one by one, Shri Gujral submitted that even if the control was in the family group, the units were separate income-tax/sales tax payees and tex marks holders. All the persons managing the units are highly qualified and were competent to run the units in the manner they have chosen to do. By not going into the question of financial flow-back among the units, the Collector had committed a grave error. Although there were 30 units in the same compound, the Collector had taken only seven of them into account and left out the remaining. There were numerous powerloom units with the total of 149 looms (M/s Gajanan Weaving Mills had 28 looms initially which were increased to 38 looms later). Thus, two thirds of the supply of grey fabrics was coming from other units and not from Gajanan. It was not clear how, when Notification 130/82 does not talk of "composite mill", the Collector had recorded a finding to that effect. Similarly, denial of exemption on bleaching which was an activity covered by Notification 130/82 and not covered by Notification 253/82, was improper.
16. As regards loans from Velankar Investment Company Limited, Shri Gujral submitted that the ruling bank rate for lending purposes was only 10% and referred to the distinction between the bank rate and the lending rate. He also submitted that Gajanan Fabrics Distributors, Sakharam Kapad Vistar Kendra and Velankar Weaving Mills were not engaged in any manufacturing activity and could not, therefore, be held liable for payment of duty or penalty.
17. Shri Gujral's next argument was that calendering was a lion-excisable process. He supported his argument by citing the decisions of the Supreme Court in the case of Siddeshwari Cotton Mills (P) Ltd. v. Union of India and Anr. and Mafallal Fine Spinning & Mfg. Co. Ltd. v. Collector of Central Excise . He also referred to the decision of the Supreme Court in the case of Union of India v. Playworld Electronics (P) Ltd. in which it was held that merely because goods are produced with customs brand name and the entire production is sold to only one party, sales cannot be treated as to related persons for the purposes of Section 4 of the Act. He also cited the observation of the Supreme Court in paragraph-11 of the judgment, in which, while referring to the judgment of Justice Chinnappa Reddy in Me Dowell's case, the Court had held that for determining whether a legal device to avoid tax was permissible or not, one must find out the true nature of the transactions. Shri Gujral went on to say that the appellants had declared all that was required to be declared and it was not permissible for the authorities to invoke the larger period in view of the Supreme Court's judgment in the case of Padmini Products v. Collector of Central Excise 1989 (43) ELT 199 : 1989 (25) ECR 289 (SC) : ECR C 1507 SC, Raj Nigam v. Collector of Central Excise and Phoolson Foundry Works v. Collector of Central Excise .
18. Shri Gujral submitted that under the Central Excise Law, there was no concept of a main manufacturer the secondary manufacturer and cited the decision of the Tribunal in the case of Collr. of Central Excise, Madras v. Modoplast (P) Ltd., Coimbatore and Super Printers v. Collector of Central Excise, Hyderabad . He also staled that the impugned order was indeterminate and the basis of the duly demanded had not been clearly indicated in the two Annexures. He submitted that no duty was leviable on grey fabrics made on powerlooms up to 1985 and the grey fabrics in question were produced during this material period. He referred to Notification 230/77-CE, dated 15.7.1977 and Notification 231/77-CE, dated 15.7.1977 exempted unprocessed cotton fabrics manufactured on powerlooms (without spinning or processing plants) from the basic and additional duty and submitted that these two Notifications remained in force up to 17.3.1985 were rescinded by Notifications 53/85-CE and 86/85-CE, dated 17.3.1985. Simultaneously, Notification 53/85, dated 17.3.1985 completely exempting unprocessed cotton fabrics from duty and additional duty was issued. He, therefore, submitted that there was no liability to duty on unprocessed fabrics right from 15.7.1977 to 28.2.1986 when the Central Excise Tariff Act 1985 came into force. Shri Gujral also referred to the existence of Notification 130/82, dated 20.4.1982 about exemption to cotton fabrics processed without the aid of power or steam.
19. Arguing for the respondent, Shri L.C. Chakrabarti, the learned SDR, contested the claim of Shri Gujral about the validity and legality of the show cause notice by saying that the initial demand for Rs. 92,53,778.87 could still be held valid if no Annexures were given with the notice, and submitted that Annexures alone do not constitute the show cause notice. If the Tribunal did not hold the subsequent reduction in the amount of demand, by issue of a Corrigendum to be valid, the amount originally demanded would still remain valid. He then raised the question that the show cause notice was severable into valid and invalid parts; he referred to the Division Bench judgment of the Calcutta High Court in the case of Collector of Customs and Ors. v. Juggilal Kamlapat Udyog Limited in which it was held in paragraph-11 as under:
11. It was also sought to be contended that the show cause notice is one and it cannot be bifurcated. We have failed to understand the scope of this contention. If such contention is accepted then it would mean setting aside that portion of the show cause notice also regarding which the learned judge did not interfere. We are also unable to accept the contention that because the second part has not been set aside, the first part cannot also be set aside. As rightly pointed out by the learned single judge these are two different mailers and it does not prevent this court from selling aside the bad part without interfering with the other part.
20. He also referred to the decision of the Tribunal in the case of Minerals & Metal Trading Corporation of India Ltd. v. Collector of Customs, Bombay in which the Tribunal had held that correction of clerical and arithmetical errors could be made in exercise of the powers under Section 154 of the Customs Act, 1962 and submitted that the same principle could be applied to cases under the Central Excises & Sail Act.
21. As regards the merits of the demand Shri Chakrabarti submitted that while Notifications 230/77-CE, dated 15.7.1977 exempted unprocessed cotton fabrics manufactured on powerlooms (without spinning of the processing plants) from duty, Notification 231/77-CE, dated 15.7.1977 exempted them from additional duty. These Notifications were rescinded by Notifications 83/85-CE, dated 17.3.1985 and 86/85-CE, dated 17.3.1985 respectively. This resulted in withdrawal of the exemption with effect from 17.3.1985. Thus, after that dale, unprocessed cotton fabrics manufactured in power-looms became liable to duty as well as additional duty. He submitted that since the appellants themselves had slated in their reply dated 22.4.1988 to the show cause notice that they also undertook processes like sizing, winding, warping, doubling etc., they were not entitled to the exemption in terms of the aforesaid Notifications till 17.3.1985. This reasoning was objected lo by Shri Gujral on the ground that there was no such allegation in the show cause notice and the Departmental could not traverse beyond the notice. Shri Gujral brought to our notice the existence of Notification No. 53/85-CE, dated 17.3.1985 which granted unconditional exemption to unprocessed cotton fabrics and submitted that there could be no liability lo duly from 17.3.1985 till 1.3.1986 when the Central Excise Tariff Act, 1985 was introduced. Here again the basic duly was nil.
22. To support his argument that even though the point had not been taken in the proceedings before the adjudicating authority, the Tribunal was competent to lake note of it. Shri Chakrabarti cited the decision of the Supreme Court in the case of Collector of Customs v. Enfield India Ltd. 1991 (51) ELT 172. He also submitted that for determination of the correct rate of duly, it was necessary for the Tribunal to go into the matter and, if the Tribunal finds that sufficient facts are not available before them,, they could remand the matter to the Collector with a direction lo ascertain the facts and decide the matter afresh. He, however, fell that in the present case, the facts have been admitted by the appellants in their reply and the Tribunal itself should decide the mailer and not ignore the facts on record. He emphasised that the appellants were not eligible for exemption from duly under Notification 230/77 and 231/77 on the admitted position that they were undertaking sizing and winding etc. Shri Gujral contested this submission by merely saying that the appellants had not installed any spinning and processing plants in their compound.
23. Referring to the demand for duly on processed fabrics, Shri Chakrabarti submitted that the duly liability had to be determined, while keeping Notification 130/82-CE dated 20th April, 1982 in view. This Notification exempted cotton fabrics processed without the aid of power or steam, if the process of bleaching, dyeing or priming with the aid of machines are not undertaken. The second Notification applicable to processed fabrics was Notification 253/82-CE, dated 8lh November 1982 This Notification exempted cotton fabrics subject to any of the 12 processes specified in the Table annexed to the Notification. But the exemption was not available if the processing was done in the same factory in which unprocessed fabrics were produced or if the unprocessed fabrics were subjected to any process or processes other than those specified in the Table within the same factory. Since the Collector had recorded a finding that in the present case, processing was done in the same factory in which grey fabrics were produced, the processed fabrics were not entitled to exemption. Further, since it has also been held that one of the units was engaged in bleaching of the fabrics, a process not figuring in the 12 processes specified in the Notification, this also disqualified the processed fabrics from exemption.
24. Referring to the decision of the Division Bench of the Bombay High Court in the case of Swadeshi Dyeing & Bleaching Mills (P) Ltd. v. Union of India , Shri Chakrabarti submitted that separate units had been set up only with a view to availing of the exemption. He referred to paragraph-7 of the judgment and submitted that a "family group" had "nominally set up two separate sets of units--one for the purpose of bleaching and the other for calendering and stentering and this was a camouflage to indicate that the units were independent entities so that exemption from duty could be availed of under Notification 130/82 as well as 253/82. He also submitted that under Section 2(e) of the Act, the definition of 'factory' did not stipulate the concept of ownership and therefore there was no substance in the plea that each of the units was owned and managed by separate individuals. Shri Chakrabarti also referred to conclusions of the High Court recorded in paragraph-8 of the Swadeshi Dyeing (supra) judgment and submitted that identical circumstances existed in the present case. In this view of the matter, the grey as well as the processed fabrics were liable to duty.
25. The learned SDR thereafter traced the history of various amendments made in Rule 9(2) by which the concept of limitation was built into it for the first time on 6th August 1977. A reference to the time limits specified in Section 11A of the Act was incorporated on 14th January 1981 in the provisions of Rule 9(2). It was Shri Chakrabarti's contention that since what was incorporated was the concept of time limit, it was meant to indicate the outer limit for issue of demands and nothing more. He cited the unreported decision of the Tribunal in the case of Mis Lotus Chemical Industries & Aurobindo Chemical Industries v. Collector of Central Excise, Indore (Order No. 458-459/91-C, dated 21.5.1991) in support of his contention. Shri Chakrabarti also submitted that Rule 9(2) is applicable where goods arc removed clandestinely and without assessment of duty and cited the decision of the Supreme Court in the case of N.B. Sanjana v. The Elphinstone Spinning & Weaving Mills Co. Ltd. 1978 ELT J 399 : 1973 July Cen-Cus (vi) (SC) : 1990 (28) ECR 582 (SC) : ECR C 368 SC to support his argument. He also cited the decisions of the Tribunal in the case of Paints & Colour v. Collector of Central Excise, Calcutta 1985 (25) ELT 288, Jajmau Dyeing and Proofing Company v. Collector of Central Excise, Kanpur , Piya Pharmaceutical Links (sic) v. Collector of Central Excise, Meerut and Mahavir Products v. Collector of Central Excise . Shri Chakrabarti made the further submission that it was not necessary that in every case both the time limits laid down in Section 11A of the Act should be invoked. He also submitted that the third proviso to Section 36 of the Act was added by the Central Excises & Salt (Amendment) Act, 1978 which read as under:
Provided also that where the Central Government is of the opinion that any duty of excise has not been levied or has been short levied or erroneously refunded, no order levying or enhancing the duty, or no order requiring payment of duty so refunded, shall be made under this section unless the person affected by the proposed order is given notice to show cause against it within the time limit specified in Section 11 A.
26. Shri Chakrabarti submitted that the expression used in Rule 9(2) was identical and has been interpreted by the Tribunal to be within six months at the material time and cited the decision of the Bombay High Court in Corn Products Co. (India) Ltd. v. Union of India , and the decision of the Delhi High Court in the case of Associated Cement Companies Ltd. v. Union of India 1981 ELT 42 : 1981 ECR 66D (Delhi). Shri Chakrabarti concluded by saying that such an interpretation should be given to the provisions of Rule 9(2) in relation to the time limits as will not render it nugatory.
27. Replying to the arguments of the learned SDR, Shri Gujral cited the decision of the Tribunal in the case of Alcobex Metals (P) Ltd, Jodhpur v. CCE 1992 (38) ECR 569 (Cegat NRB) and submitted that the Tribunal had, by a majority opinion, held that a show cause notice issued under Section 11A of the Act was not severable....
28. Referring to the amendment of Rule 9(2) on 14th January 1981 by which the time limit specified in Section 11A had been incorporated into it, Shri Gujral contested the argument of the learned SDR and submitted that the show cause notice having been issued on 19/20 November 1987 in the present case, the amended provisions were clearly applicable. Moreover, the Collector has not made any distinction for this purpose in the impugned order, nor was there any allegation to that effect in the show cause notice. In fact, the whole purpose of the notice, according to Shri Gujral, was to allege camouflage of bogus units established to take advantage of the exemption Notification. So far as the provisions of Rule 9(2) are concerned, the charge of clandestine removal had to be established which the Collector had not been able to do. Shri Gujral submitted that all the factories had been given L4 licence. He strongly opposed the request for remanding the matter to the Collector for fresh consideration as suggested by the learned SDR.
29. We have carefully considered all the seven appeals, the submissions made by both sides and have perused the case records. The most important question that we have to decide is whether the units located in the Gajanan Weaving Mills compound constituted one single factory for purposes of the Act and they were fragmented for the specific purpose of availing of exemption from duty. For this purpose, we would have to take into account the following factors:
(a) The partners and proprietors of the firms involved are managed by a family consisting of Shri R.V. Velankar, his wife Sow Vijayalaxmi R. Velankar, their six unmarried daughters and Shri Rajendra Vinayak Vaidya, who is Shri R.V. Velankar's sister's son. This means that the entire show is managed by a family of nine persons.
(b) All the seven units (and in fact many others) are located within one compound--that of M/s Gajanan Weaving Mills--Appellant No. 2. The location of individual units has been so arranged that all the processes can be undertaken in the same sequence in which they are required to be done in a continuous process.
(c) Water, electricity and steam are provided by M/s Gajanan Weaving Mills to all the units located in the compound.
(d) They have some common telephone arrangements and security arrangements too arc common. Common services are provided by Onkar Servicing Centre.
(e) The units do not have independent demarcated compound in some cases, while in respect of the others, a portion of the Gajanan Weaving Mills compound with a separate wall is leased out to them.
(f) An investment company has been set up by the same family group (with the addition of one Shri H.D. Phadke and Sow A.V. Velankar)--named Velankar Investment Company. Appellant No. 1 & have been advanced loans of Rs. 4 lakhs and Rs. 7 lakhs by the investment company at the rate of 12% per annum against the ruling rate of 18% in 1987.
30. It appears from the way things have happened that the bleaching activities which would disqualify them from the exemption was undertaken in a unit specially set up from 1.1.1983 soon after Notification 253/82, dated 8.11.1982 came into force. Besides, there is little doubt that the other units located within the compound namely Tushar Kanji Kendra and Bright Yarn Doublers were undertaking certain processes which were complementary to the processes of other units and cannot be said to have independent existence for any purpose other than the purpose of availing exemption from duty. The Collector has discussed these matters at length in his adjudication order and, except saying that they were independent units because they were assessed to income tax, sales tax and held their own tex mark, no other evidence has been placed before us which would justify our taking a different view. If we go by the judgment of the Supreme Court in Me Dowell's case (supra), we would have to find out the true nature of the transaction for determining whether a legal device to avoid tax was permissible.
31. We observe that the following notifications have been cited in the show cause notice:
(a) Notification 80/76. dated 16.3.1976: (incorrectly typed as 8/76) This Notification was in force up to 7.11.1982 when it was replaced by Notification 253/82. It exempted cotton fabrics from duty when subjected to the finishing processes specified in Column (2) of the Table subject to the conditions laid down in the corresponding entry in Column (3).
THE TABLE _____________________________________________________________________________________ S.No. Description Conditions ______________________________________________________________________________________ 1 2 3 ______________________________________________________________________________________
1. (a) bleaching without the aid of power or steam Provided that the fabrics so including manual bleaching in open vats bleached dyed or printed--(i) wherein steam may be used for heating the water has not been stentered on a or the solution, slentering machine
(ii) is not subjected to any further process when conducted with the aid of power or steam Explanation:
Process of calendering (other than calendering with grooved rollers) in a factory engaged solely in such process shall not be considered to be a further process for the purposes of Clause (ii) of the proviso.
2. Calendering (other than calendering with grooved rollers),
3. Flanellete raising,
4. Stentering,
5. Damping on grey and bleached sorts,
6. Back-filling on grey and bleached,
7. Singeing, that is to say, burning away of knot and loose ends in the fabrics,
8. Scouring, that is to say, removing yarn size and natural oil found in cotton,
9. Cropping or buttacutting,
10. Curing or heat setting,
11. Padding, that is to say, applying natural starch on one or both sides of the fabric.
______________________________________________________________________________________
(b) Notification 122/76. dated 16.3.1976:
This Notification was in force up to 7.11.1982 when it was replaced by Notification 253/82. It exempted cotton fabrics from additional duty under the Additional Duties of Excise (Goods of Special Importance) Act, 1957 on the same conditions, as Notification 80/76 does for basic duty.
(c) Notification 253/82. dated 8.11.1982:
This Notification was in force up to 28.2.1986. It was amended by Notification 54/85-CE, dated 17.3.1985. It exempted cotton fabrics from duty as well as additional duty when subjected to any process or processes specified in the Table annexed.
Provided that the exemption did not apply:
(i) If unprocessed cotton fabrics, falling under sub-item I(a) of the said Item No. 19, on which the duly of excise is leviable thereon under any of the aforesaid two Acts, either in whole or in part, arc subjected to any process or processes specified in the said Table, within (he factory in which the said unprocessed fabrics have been produced; or Clause (i) omitted by Notification 54/85 dated 17.3.1985.
(ii) If cotton fabrics, falling under sub-item I of the said Item No. 19 are subjected to any process or processes specified in the said Table within the same factory in which they have been subjected to any process other than the processes specified in the said Table.
TABLE
1. Calendering (other than calendering with grooved rollers).
2. Flanelette raising.
3. Stentering.
4. Damping on grey and bleached sorts.
5. Back-filling on grey and bleached sorts.
6. Singeing, that is to say, burning away of knots and loose ends in the fabrics.
7. Scouring, that is to say, removing yarn size and natural oil found in cotton
8. Cropping or butta cutting.
9. Curing or heat setting.
10. Padding, that is to say, applying natural starch on one or both sides of the fabric.
11. Expanding.
12. Hydro-extraction with the aid of power, that is to say, mechanically extracting or mechanically squeezing out water from fabric.
32. The allegation was that under Notification 80/76 and 120/76 cotton fabrics which were subjected to bleaching without the aid of power were not entitled to exemption from duly because they were stentered on a stentering machine. This was the position up to 7.11.1982. Thereafter, when Notification 253/82 superseded Notifications 80/76 and 122/76 with effect from 8.11.1982, cotton fabrics, which were subjected to calendering, stentering, padding and other processes mentioned in the Table appended to that Notification, within the same factory within which unprocessed fabrics were produced could not claim exemption from duty on that ground. The further question was that by creating the seven independent entities, the appellants wrongly availed exemption under Notification 253/82 from 8.11.1982 onwards. It was Shri Gujral, who, for the first time, brought to our notice Notification 230/77-CE, dated 15.7.1977 which exempted unprocessed cotton fabrics manufactured on powerlooms (without spinning or processing plants) from basic duty. He also referred to Notification 231/77 dated 15.7.1977 which exempted unprocessed cotton fabrics manufactured on powerlooms (without spinning or processing plants) from additional duly. Again, it was he who brought to our notice another Notification, namely, 53/85-CE, dated 17.3.1985 which exempted unprocessed cotton fabrics from basic as well as additional duty. Thus, the argument of Shri L.C. Chakrabarti that the exemption on unprocessed cotton fabrics manufactured on powerlooms was available only if such powerloom units were within spinning or processing plants cannot be contested on the ground that such an allegation was not made in the show cause notice and cannot be taken at this stage. If the appellants are claiming an exemption at this stage, they would be entitled only if they fall within the terms of the exemption. So far as the eligibility to exemption under Notifications 80/76-CE, 122/76 and 253/82 is concerned, we have seen that the conditions under which these exemptions were given not having been fulfilled in the present case, the exemption was not available.
33. If we examine the true nature of the transaction namely the segregation of the units soon after 8.11.1982, which is the dale of coming into force of Notification 253/82, we notice a purpose in segregating the units. The close family relationship among proprietors, partners, etc. of the units, their location in the same premises, the use of common facilities like water, steam and security arrangements besides the servicing facilities of Onkar Service Centre are factors which taken cumulatively leave no doubt in our mind that these units were separated for the specific purpose of showing their independent existence so as to lake advantage of the exemption Notification. This is what has been termed as camouflage of identity of units by the Bombay High Court in the case of Swadeshi Dyeing case (supra) judgment.
34. As for the plea that the Collector should have been guided by the decision of his predecessor in an identical case in which the demand for duty was restricted to prospective period, we arc unable to accept this contention because the matter would have to be decided on the facts of this case. There is an allegation in the show cause notice in the present case that the appellants had suppressed vital information from the authorities, and, taking into consideration their ineligibility for exemption under the two Notifications, it cannot be said that the facts arc otherwise. In the face of a specific allegation of suppression of facts in the show cause notice and a proper consideration by the adjudicating authority of all aspects, we are satisfied that this is not a case to which the decision of Shri S.D. Mohile in another case should be applied. In any case, we are not impressed by the argument that just because the predecessor-in-office had taken a certain view in one case, the successor-in-office was bound by his decision even when the facts have not been shown to be the same. Such an argument does not carry any conviction and needs to be staled only to be rejected.
35. Shri Chakrabarti made a protracted argument on the scope of a show cause notice under Rule 9(2) as distinct from one under Section 11A of the Act. We observe that for deciding the present appeals, it is not necessary to go into this question. In the case before us, the show cause notice makes an allegation of suppression of facts which is an essential ingredient of the proviso to Section 11 A(1) and the demand for duty was made under Rule 9(2) read with Section 11 A. As long as it is established that the ingredients of Section 11A were in existence, the requirement of the law is met and the extended time limit can be applied. The lime limits specified in Section 11A having been incorporated in Rule 9(2), any demand issued under that Rule which fulfils the other requirements of the proviso to Section 11A(1) would be a valid demand. Considering the facts of this case, we are satisfied that the demand was validly made.
36. The next plea taken in the appeal is that the Collector had misinterpreted the judgment of the Bombay High Court in the case of Swadeshi Dyeing (supra) and had relied upon it without giving an opportunity to the appellants to offer their comments on the implications of this decision which was given subsequent to the proceedings of personal hearing. We observe that the Collector has gone into all the facts in considerable detail while recording his findings and then arrived at the conclusion that the appellants were not entitled to exemption under Notification 253/82. We also observe that he has merely made a passing reference to the decision to strengthen his conclusions. We do not notice anything in the order to justify the remark that the Collector has misinterpreted the judgment of the High Court. There is also no merit in the argument that if the adjudicating authority was relying upon a reported decision of the High Court which was given after the hearing had concluded, he had an obligation to re-hear the appellants before passing the order. Since the decision was a reported one, it was open to the appellants to have asked for a fresh hearing when they could have made their submissions on the implication of the decision. We do not consider that there has been any failure of justice on this account and therefore reject this plea.
37. Another pica taken in the appeal is that the Collector has unjustly transgressed the limits of the show cause notice. Although no specific instance has been cited in support of this plea, during the hearing Shri Gujral had submitted that the Collector's finding that even the accounting of financial transactions was handled by a unit created by the same family group, has been recorded in the absence of any allegations to that effect in the show cause notice. We observe from paragraphs-3,18, & 21 of Annexure-A to the show cause notice that specific references to the activities of Onkar Servicing Centre has been made. There is, therefore, no substance in this plea which is also rejected.
38. So far as the Sunshine Bleaching House is concerned, the pica taken is that the existence of this factory was well within the knowledge of the Departmental Authorities, and after the visit of the Central Excise Officers to the Units on 28.12.1985 and recording of regular panchnama, there was no justification for invoking the larger period. We observe that Notification 253/82 was issued on 8th November 1982. Sunshine Bleaching House was started on 1.1.1983 and undertook the process of bleaching without the aid of power. It was, therefore the obligation of the appellants to inform the authorities of the state of affairs after the setting up of this unit. There is no justification for the plea that once the authorities had visited the unit, they were*not competent to invoke the larger period for raising a demand even though suppression of facts was alleged in the show cause notice. We accordingly reject this contention too.
39. We now come to the question that the Collector has failed to record specific findings against M/s Sakharam Kapad Vistar Kendra and M/s Velankar Weaving Mills. To this is linked the other question that the order holding all the seven concerns jointly and severally liable to discharge the duly liability as well as payment of penalty is without jurisdiction. In a case of this nature in which the Collector has come to the conclusion that a composite mill was functioning, and a facade of existence of several independent units was created for the purpose of claiming exemption, the Collector had necessarily to fasten the liability jointly and severally on all the concerns because he did not recognize the separate existence of the individual units. In these circumstances, he cold not but have recorded the finding that all the seven units had to bear the liability of duty and penalty, and it would not have been possible for him to determine the exact position of some of the units individually. Certain paragraphs of the order explain the position fully and we can do no better than to cite them here:
The proviso to this Notification (Notification 253/82) required that this exemption will not be available if the cotton fabrics arc subjected to any process or processes listed therein, within the same factory in which they have been subjected to any process or processes not listed in the said Notification."
Hence the intent for segregating the processes by setting up separate units is clear. The separate units have been set up only with a view to avail of the said exemption. The various other factors like blood relationship, common premises, common water and electricity connections and security staff etc, although by themselves are not sufficient to prove deliberate fragmentation, they support my view as discussed above."
It is an admitted fact that these units have been set up with the same family members as the proprietors, directors, partners etc. and, in addition to this, the processing units sell their goods to common trading firms which looks after all the distribution/sales etc. Hence these various units are only a corporate facade although registered with various authorities with a view to camouflage their actual identity, and thereby avail of the exemption which, otherwise, would be inadmissible to them. The overall control was in effect in the hands of this family group and hence no flow back need be proved as the profits are absorbed within the same family group."
It is also on record that M/s Gajanan Weaving Mills has leased out land, building and even machinery to the processing units.
40. We now come to the final question about the calculation of demand of duty. The main plea is that the Collector has arbitrarily taken the cost of processing at 0.26 paise per sq.m in respect of value of grey cotton fabrics and has erred in determining the principles of valuation under Section 4 of the Act. The further plea*is that Collector has not correctly applied the rates of duties leviable under different Notifications. During the hearing, Shri Gujral had taken us to Annexures to the show cause notice as well as the Annexures to the order issued by the Corrigendum. He submitted that the basis of calculation of duty had also not been indicated in the two Annexures in which the amounts have been quantified. We notice that these contentions are correct. The Annexures to the show cause notice and their replacements as well as the Annexures to the order do not clearly indicate how the demands have been worked out; nor is there any indication of the source from where the figures have been compiled. It is necessary in a case like this, in which a large liability is proposed to be fastened, to clearly indicate all these details so that the assessee is in a position to meet the charge. We, therefore, consider that these grounds are sufficient for setting aside the order in so far as the calculation of the demand for duty is concerned. We have already rejected all the other contentions of the appellants after full consideration of the matter. We now set aside the impugned order and refer the case back to the Collector for fresh adjudication with the direction that he would have the demands for duty calculated and its basis indicated in proper detail and convey it to the appellants to enable them to meet the charge properly. It is natural that in calculating the demand for duly, the Collector would have to take into consideration the various Notifications which were applicable to the processed and unprocessed fabrics from time to time. We make it clear that the demand for duty will have to be limited to the amount which was communicated in the Corrigendum given to the appellants during the hearing on 24.10.1988. We also make it clear, in view of the submissions of Shri Gujral during the hearing, that it is not permissible to confirm a demand for an amount higher than the one indicated in the show cause notice. In this case, the amount will have to be limited to what was communicated on 24.10.1988.
41. In deciding these appeals, we have seen all the case law that was cited before us and do not consider necessary to refer to each case separately in view of our findings on each of the issues which we have considered and decided. Thus, the appeal is allowed by remand. Considering that this is an old case and the demands for duly have been raised with effect from 1st November 1982, we hope that the Collector will expeditiously decide the matter and also hope that while doing so, it will not be necessary for him to issue corrigenda on amounts demanded.