Customs, Excise and Gold Tribunal - Delhi
Swastik Tin Works vs Collector Of Central Excise on 21 March, 1986
Equivalent citations: 1986(8)ECR122(TRI.-DELHI), 1986(25)ELT798(TRI-DEL)
ORDER K. Prakash Anand, Member (T)
1. The present matters arise out of revision petition filed by the appellants under Section 36 of the Central Excises & Salt Act, 1944 against Orders-in-Appeal No. 1057-58-CE/80 passed by the Appellate Collector of Central Excise, New Delhi. On the setting up of this Tribunal, this revision petition has been transferred to this Tribunal and is now being treated as appeal before us.
2. As both matters arise on a common issue relating to the same party, these are being disposed of by this common order.
3. Shri S.P. Bhatnagar, the learned advocate for the appellants states that appellants are undertaking manufacture of tin containers which are being cleared by them on due payment of duty, as well as tin sheets cut to size for purposes of bottoms and bodies of containers of various dimensions which are supplied to customers in accordance with the orders placed on them in that respect. It is stated that these tin sheets were in an unfinished form and supplied to the customers, who would undertake further processing, manufacture and clear them on payment of duty. Such sheets, it is stated, were being classified by the petitioners as non-excisable components of metal containers and this classification was duly approved by the Central Excise authorities. The production and clearance, without payment of duty on these goods, was done under cover of normal factory documentation and was within the knowledge of the Central Excise officers. The Department approved the classification of these items as non-excisable separately on 30th November, 1972, 21st March, 1974 and 30th August, 1974, on the first date by the Asstt. Collector of Central Excise, Aligarh and on the last two dates by the Superintendent of Central Excise, Aligarh.
The appellants were, therefore, surprised when a notice was issued to them on 23rd October, 1975, requiring them to show cause as to why duty should not be recovered from them under Rules 10/10A of the Central Excise Rules 1944 on account of clearance of unassembled metal containers without payment of duty leviable thereon during the period from November 1973 to November 1974. Similarly, notice was issued under Rule 10 of the Central Excise Rules on 8th January, 1976 for the period 1-4-75 to 6-6-75.
4. It is pointed out by the appellants that the notice to show cause does not furnish any basis for the Department's view that the factory removed tin cans in unassembled form, except that this was observed in the course of audit by the Audit party of Accountant General, U.P., Allahabad. The learned advocate has pointed out that when the local Central Excise officers, incharge of assessment and clearance of the factory had, after due inspection and verification, held that the impugned goods were unfinished cut-to-size sheets, which were not excisable, mere raising of an audit objection on grounds neither defined nor substantiated by A.G., U.P., cannot constitute a maintainable basis for demand of duty. The appellants have, in this connection, cited the decisions of Delhi High Court in the case of Poona Bottling Co. Ltd., and Another v. Union of India and Ors. , 1981 ELT 389, and in the case of Indian Aluminium Company Ltd. and Another v. Union of India and Others, 1983 ELT 349. In the first matter, the Delhi High Court had said that a show cause notice on advice made by the Central Government for all purposes amounted to directions from higher authorities and that show cause notice issued in pursuance thereto was illegal and without jurisdiction. In the second matter it was held that it was not open to the Central Board of Excise and Customs in its administrative capacity to issue directives to the subordinate authorities exercising quasi-judicial functions to interpret excise notifications in a particular manner. Therefore, any levy or collection or show cause notice giving effect to such direction was illegal and void. It is pointed out by the appellants that the principle laid down by both these decisions would be equally applicable to cases where show cause notices are said to be issued merely in pursuance of audit objections, uncorroborated by any other examination, investigation or evidence, or consideration showing due application of mind.
5. The appellants point out that the show cause notice is liable to be quashed not only on the ground that the basis for the demand is not substantiated but also because the Department was not at all clear in the case of the first show cause notice as to which Rule could be invoked for raising such a demand. The first show cause notice raised the demand under "Rules 10/10A of the Central Excise Rules 1944". When the appellants represented in the matter, it is claimed, a corrigendum was issued stating that the words "Rules 10/10A" should be read as "Rule 10A". The second show cause notice, however, was again issued under Rule 10. The appellants contend that in the light of the facts of their case, Rule 10A was not at all applicable. The only Rule that could be invoked, if demand of duty was otherwise maintainable was Rule 10. But this could not be done as demand for duty was time-barred. The appellants have, in support of their arguments on this point, cited the decision of the Supreme Court in the case of N.B. Sanjana, Assistant Collector of Central Excise, Bombay and Ors. v. The Elphinstone Spinning and Weaving Mills Co. Ltd., 1978 ELT (J 399) holding that Rule 10A cannot apply when a short levy is made through error or misconstruction on the part of an officer, as such a case is specifically covered by Rule 10. Furthermore, it was held that in order to attract Rule 10, it was not necessary that some amount should have been assessed and that such amount should have been actually paid. Rule 10 would apply also to cases where there have been 'nil' assessment in which case the entire duty later on assessed must be considered to be the duty originally short levied.
6. Appellants have further urged before us that they had duly pointed out to the local Central Excise authorities that the cut-to-size tin sheets meant for bottoms and bodies of metal cans, were supplied to M/s Agra Tin Manufacturing Company, Agra who had utilised them for manufacture of metal containers on which duty of excise was duly paid by them. As per the order of adjudication of the Assistant Collector, it would appear that this claim of the appellants was investigated by the Department and it was held that it was not proved that Agra Tin Manufacturing Company had cleared the tin containers made from cut-to-size sheets obtained from the appellants on payment of duty. The appellants have said that the investigation seems to have been perfunctory and no opportunity was given to them to aid and assist the inquiry, or later on to see the report on such inquiry and to make their submissions thereon.
7. Appellants have specially emphasised that the onus of proving that what they had actually cleared from their factory were metal containers in unassembled form, was on the Department. This was not discharged despite the repeated assertions on the part of appellants that the components were unfinished, cut-to-size sheets, not complete in size, shape or form or numbered, to be ready for being joined together to form containers.
8. It is further submitted by the appellants that the show cause notices have been issued for the past period merely on certain assumptions and presumptions as regards the identity of the goods without any verification in this regard. This is, it is stated on behalf of the appellant, contrary to the law laid down in the- decision of the Supreme Court in the case of Oudh Sugar Mills Ltd. v. Union of India, 1978 ELT (J 172), in which it was held that show cause notices which are based on unsupported assumptions and unsupported by any tangible evidence are not maintainable.
9. As an alternative plea, it is stated on behalf of appellants, that their sheets were manufactured by machines manually operated and, therefore, even otherwise they would be liable to exemption under Notification No. 94/70 dated 1st May, 1970.
10. On behalf of the Department, Shri K.C. Sachar points out that as per classification list, the impugned goods were admittedly metal container components in the nature of bodies and bottoms. It is said that there is no evidence that these were unfinished or meant to be taken for calender. It is further stated that Notification No. 94/70 cannot be invoked by the appellants for claiming exemption as it has been held by the Assistant Collector in his adjudication order that power has been used while cutting the sheets to the size of metal containers.
11. Shri Sachar has further stated that the contention of the appellants that only bottoms and bodies have been cleared and tops are not there, is of no avail because tops can be made out of bottoms also. As regards the claim that these parts have paid duty as containers by Agra Tin Manufacturing Company, it is stated that appellants cannot transfer their duty liability to Agra Tin Manufacturing Company.
12. As regards the argument that the show cause notice has not cited the correct Rule for raising demand of duty, the learned SDR has cited decision of the Supreme Court in the case of J.K. Steel Ltd. v. Union of India and Ors., 1978 ELT (J 355), in which it was held that if the exercise of a power can be traced to a legitimate source, the fact that the same was purported to have been exercised under a different power does not vitiate the exercise of the power in question. In other words, the citation of an incorrect Rule by itself does not vitiate the demand for duty.
13. Finally, it is urged on behalf of the Department that the merit of the show cause notice is to be judged not in the light of audit objection referred to, but the facts of the case.
14. We have carefully considered the facts of the case and the submissions made by both sides. At the outset, it is quite clear that both the show cause notices seem to be based only on audit objections. There is no claim that there has been any further inquiry or investigation by the Department which has helped to establish that the actual identity of the impugned goods is other than that claimed by the assessee and earlier approved by the Department itself. After all, the classification lists themselves declared that the items were in the nature of cut-to-size sheets and for years together these were being cleared as such. It is shown also that during these years, they were held by different Excise officers as non-excisable sheets cut-to-size. In the absence of any subsequent evidence to the contrary, it is not at all clear as to how the Department could have raised demand merely in view of audit objections holding that the goods were metal containers in unassembled form. In reply to show cause notices, the appellants have unassailably urged this point of view and this is not answered at the level of either the Assistant Collector or the Collector (Appeals). In this connection, we have seen the two decisions of the Delhi High Court cited by the appellants in the cases of Poona Bottling Co. Ltd. and Another v. Union of India and Ors., 1981 ELT 389, and Indian Aluminium Company Ltd. and Anr. v. Union of India and Ors. -1983 ELT 349, in which it was held that show cause notices issued on the basis of advice or directive by the Central Government of the Central Board of Excise and Customs, were illegal and void, as directives could not be issued to subordinate authorities exercising quasi-judicial functions. In this particular case, there have been no such advice or directives by higher authorities. It would have been perfectly in order if the local Central Excise officers were to undertake further inquiries on the receipt of audit objection; and after further examination and necessary investigation, if they were to come to the conclusion on the basis of evidence collected that the goods in question were liable to duty or further duty, they would be well within their jurisdiction to issue a show cause notice to the assessee, explaining to him the grounds and the evidence on the basis of which the Excise has come to the tentative view that the assessee has not discharged his liability to duty. However, this, in the present matters, the Department has failed to do. The show cause notices are veritably based on audit objection only and no other reason is given for the Department changing its stand as regards the classification of goods. On this ground, the show cause notice is liable to be quashed.
15. We cannot help observing that this is a matter in which the Department has failed to undertake any investigation, not only in the wake of audit objection and before issue of the show cause notices but also later on, when the appellants issued replies to the show cause notices placing before the Department certain facts which should have received their careful consideration before proceeding further in the matter. For instance, appellants had stated that their goods were supplied to M/s Agra Tin Manufacturing Company, who had utilised them for manufacture of metal containers on which duty of excise was duly paid by them. This point has not been satisfactorily dealt with by the lower authorities. The learned JDR has sought to dispose of this point merely by saying that the appellants could not transfer their duty liability to M/s Agra Tin Manufacturing Company. There is a fallacy in this argument because the issue of liability of the appellants itself is in question, and for a decision on this point it is pertinent to go into the question whether the impugned goods were, on receipt by the customers, subjected to further manufacture and then cleared after due payment of duty.
16. It does appear that some inquiries were conducted by the Department but the appellants have legitimately made a grievance of the fact that they were not associated with this investigation, nor given an opportunity to make their submissions on the outcome of these investigations. Failure to do so amounts to violation of principles of natural justice.
17. In sum - we find that there is no evidence whatsoever that the goods that were actually cleared by the appellants were metal containers in unassembled form and not, as claimed by the appellants and already approved by the Department, in the shape of cut-to-size sheets meant for bottoms and bodies of metal cans.
18. In the light of our foregoing findings alone, we are inclined to set aside the order of the lower authorities. We are, therefore, not going into the other arguments pertaining to technicalities as regards the invoking of the correct Rules of Central Excise Rules for raising demand of duty or the alternative plea of liability to exemption under Notification No. 94/70 dated 1st May, 1970.
19. The Orders-in-Appeal are set aside and appeals allowed.
V.T. Raghavachari, Member (J)
20. While I agree with the conclusion in the order signed by my learned brothers, I wish to record a small note with reference to certain matters. In paragraph 14 of the order it has been mentioned that classification lists themselves declared that the items were in the nature of cut-to-size sheets and for years together these were being cleared as such. But I would like to point out that (as seen from the copies of the classification lists filed by the appellants) the description in column 5 of these lists reads as "metal container's components - bodies and bottom cut-to-size sheets". Therefore, the description had not been merely "cut-to-size sheets" but "bodies and bottoms or cut-to-size sheets". But even so, the argument for the appellants had been that the so-called bodies and bottoms were also merely in the nature of sheets cut-to-different sizes, but without the further processes to be applied thereto as would have made them ready to use components of metal containers. Shri Bhatnagar mentioned that on such cut-to-size sheets the processes of beaming, stamping, flanging and folding will have to be carried out before they become ready for use as components of containers. He also mentioned that such processes could be carried out with the aid of power only, while the factory of the appellants was working without power. Therefore, though taking note of the two different descriptions in the classification lists, I agree with the further conclusion in the order that the goods cleared were not components ready for assembly.
21. In paragraph 15 it has been observed, in connection with the question whether M/s Agra Tin Manufacturing Company (to whom the goods have been supplied by the appellants) had paid duty on the finished metal containers manufactured by them, that the argument of J.D.R. that the appellants,, could not transfer their duty liability was not acceptable.... This is noted to be on the basis that on the issue of liability of the appellants, it was necessary to go into the question whether the goods were, on receipt by the customers, subjected to further manufacture and then cleared after payment of duty. But it appears to me that if the goods cleared by the appellants were themselves prima to be chargeable to duty as ready to use component (as would fall under Tariff Item 46) the fact that they were again dutiable on completion of the full product (utilising the components cleared by the appellants) would not affect the dutiability of the appellants, whatever may be the relief available to the final manufacturer of the complete metal containers, with the reference to the earlier payment of duty by the appellants. It may also be noted that the Department claimed to have varified the question of payment of duty by M/s Agra Tin Manufacturing Company, but was unable to correlate the manufacture by the said Company to the goods cleared by the appellants. But, notwithstanding this, the claim against the appellants cannot be substantiated in the absence of proof that the goods cleared by them were, by themselves, dutiable.
22. As earlier stated, I am in agreement with the final conclusion as to the nature of the disposal of the appeals and I therefore concur with the order allowing the appeals.