Customs, Excise and Gold Tribunal - Delhi
A. Rathinam, Prop. Michael Match Works vs Collector Of C. Ex. on 9 March, 1992
Equivalent citations: 1992(60)ELT451(TRI-DEL)
ORDER S.L. Peeran, Member (J)
1. All these appeals raise a common question of law and facts and arise from a common order in Original No. 8/89 passed by the Collector of Central Excise, Madurai and hence they are taken up together for disposal as per law.
2. The facts of the case are that the above-noted eight match factories were situated in the same compound, held.L4 licences, were manufacturing matches. It is alleged that all the above match factories except M/s. Nirmala Match Works L4 No. 6/M/79 were enjoying the benefit of concessional rate of duty of Rs. 1.60 per gross under Notification No. 22/82 dated 23-2-1982 applicable to Cottage Sector Match factories in the tiny sector. The officers visited all these small units said to be in one compound and noted against each of them certain details and drew spot mahazars also. The statement of the licencees were also taken. As a result of these details gathered, the Department alleged that the production was going on only in M/s. Michael Match Works and that no indication whatsoever at all of any production was carried on in the remaining seven factories. It was alleged that ovens for melting wax and that dipping plates were found to be not only not in use but also in a totally dilapidated condition. Therefore it was inferred that these could not have been in use at any tune. It was alleged that there was no stock of the essential raw materials namely, Chlorate or Sulphur in these factories and there was no place even to store them. The essential equipments like frames for wax dipped matches, racks for keeping chemical dipped frames, frames for side painting were not found. It was further alleged that the dipping plates found in the respective premises were too rusted to suggest their having been used in the recent past. It was alleged that all the seven factories were using the common labels of 'Double Bull', Tractor Chep' and Tractor' which had been approved for M/s. Jeya Vilas Match Works, a factory licensed in 1970 and that all the matches produced were sold through only two organisations, namely, M/s. Nirmala Agencies and M/s. Nirmala Enterprises both owned by Shri A. Anthony and Shri A. Xavier Jayapaul respectively and none of the factories maintained any account either payment of wages or for raw materials or any other private account to show that the factories were independently run by the said licencees. It was further alleged that out of eight factories only M/s. Michael Match Works L4 No. 29 was equipped with the necessary equipment and implements dipping plates for match head composition, oven for dipping and sufficient racks for keeping dipping spill from the manufacture of matches can effectively. The other seven factories were only used as a facade to keep the clearances of each of the factories within the limits prescribed under Notification No. 22/82 dated 23-2-1982 as amended to avail the benefits by transferring the dipped splints in frames from M/s. Michael Match Works to the other seven units get them filled in boxes of fifties in the respective factories at the concessional rate of duty at Rs. 1.60 per gross. It was alleged that in all the seven units it was noticed that there was no evidence of production of matches in view of absence of dipping plate match head composition dermant oven for wax dipping and racks to keep sufficient number of dipped frames. It was alleged that as per their admission and their authorised agents, there is only one reasonable conclusion that the total production of matches carried out by Shri A. Rathinam, licencee for M/s. Michael Match Works L4 No. 29/M/79 was distributed to 7 other factories in the same complex licenced in the names of relatives of Shri Rathinam and cleared through them in order to avail the eligibility for concession of duty at Rs. 1.60 per gross in terms of Notification No. 22/82 dated 23-2-1982 with a clear intent to evade payment of appropriate duties on the matches produced by clearing the match heads dipping in the single factory in the manner otherwise than as prescribed in the relevant rules. The parties individually were served with the show cause notices along with their statements and mahazars. They individually replied to the show cause notices.
3. Shri A. Rathinam has contended that on the date of inspection, the account and the stock in his factory was in order. All the equipments necessary for manufacture of matches were there in his factory. All manufacturing process of matches were carried on in his factory and the same had been noticed by the inspecting officers and noted in the Mahazar. He denied any connection with other seven units. He contended that he had started his factory in the year 1979 at door No. 91/2, Ilayarasanendal Road, Kovil-patti till 1985 and on the date of inspection he had shifted it on 18-6-1985 to building No. 91, Gandhinagar Road, Kovilpatti and hence contended that the duty demanded for the clearances of seven units from him for the period 1-4-1985 to 31-3-1986 is unsustainable. He contended that during the period 1-4-1985 to 17-6-1985 his factory was not functioning. He contended that his factory had been inspected on 12-9-1985 by the officers and the show cause notice having been issued on 11-11-1986 was barred by time. He contended that all the matches cleared from his unit had been cleared on payment of duty and that he had not contravened any provisions of Central Excises & Salt Act and Central Excise Rules.
4. Shri S. Kalasamy, Proprietor of M/s. Angel Match Works contended that he had been independently conducting the business and none had any right or interest over his factory. He denied having abetted with the proprietor of M/s. Michael Match Works to evade in the payment of duty. He contended that when the officers visited his factory on 12-9-1985 all the equipments necessary for manufacturing of matches was present. He contended that no manufacturing had taken place since then and hence the equipment was dusty and rusted. He contended that side muds damaged in the oven was on account of continuous use. He contended that there was a separate room for keeping UBM and hence trays were not required for it. He denied having only one rack for drying frames but said instead there were three racks and one had been sent for repair. The Central Excise officers had noticed it on their visit on 26-11-1985. He contended that as there was no manufacture from 10-9-1985, and as a result there was no stock of Chlorate and Sulphur in his factory. He contended that there was a pit for Chlorate and Sulphur and it had been mentioned in the approved ground plan of the factory. He contended that the dipping plate was rusted on account of it being made of country iron and it would get rusted if not used for two or three days. He contended that as he was manufacturing mostly cardboard matches, he did not require side painting frames. He denied all other allegations.
5. Other licencees also submitted their replies on the same lines and denied the allegations made in the show cause notice.
6. The licencees were given personal hearing and thereafter the Learned Collector rejected their contentions and upheld the allegations in the show cause notices and imposed a duty demand of Rs. 9,34,989.90 on M/s. Michael Match Works for all the clearances of matches cleared by all the seven units between April 1985 to March 1986 under Rule 9(2) read with proviso to Section 11A(1) of the Central Excises & Salt Act, 1944 and also demanded a duty of Rs. 28,110.50 from M/s. Michael Match Works under Rule 9(2) read with proviso to Section 11A(1) of the Act and a penalty of Rs. 2000 was also imposed on M/s. Michael Match Works and Rs. 500 on the other licencees under Rule 9(2) read with Rules 226 and 210 of Central Excise Rules, 1944.
7. We have heard Shri N. Venkataraman, Learned Advocate for the appellants and Smt. J.M.S. Sundaram, Learned SDR for the Revenue.
8. Shri N. Venkataraman, Learned Advocate submitted that the appellants have made out a miscellaneous application No. 73/92-D to permit additional ground to raise a plea of applicability of Notification No. 42/81, which again provided benefit to the licencees and have made alternate prayer for the grant of the same. The Learned SDR objected to allowing the miscellaneous application as the prayer required evidence and appreciation and in absence of it, the relief cannot be granted. Learned Advocate contended that on admitted facts the Notification 42/81 could be gone into, as the same applied to units which did not use power in manufacture of matches. As admittedly there was no use of power, the benefit was available to them. In support of his contention, he relied on the ruling rendered in the case of Jute Corpn. of India Ltd. v. Commissioner of Income-tax as reported in 1991 (51) E.L.T. 176 (SC) and Dy. Commissioner (CT), Coim-batore Division v. TVL Pankaja Mills as reported in 1989 (43) E.L.T. 259 (Mad.). He contended that in all the units the relevant statutory registers had been maintained and the units were under physical control. There was constant inspection and the records were checked regularly and till date no discrepancy had been noticed. He contended that on the date of inspection i.e. 12-9-1985, all the units were not working and it was only in Michael Match Works manufacturing operation was going on. He contended that the matches industry was one and that the Learned Collector had erred in coming to the conclusion that as all the units were not working, hence Michael alone could be the manufacturer. He contended that 3 other units were also working on 26-11-1985 and the mahazar drawn on this day had clearly noted about its functioning. He contended that there was no suppression or misdeclaration and hence larger period cannot be invoked.
9. He further contended that all the eight units had taken separate L4 licences, were separate manufacturers, paying duly independently and maintaining statutory records. Each one of them were also separately having sales tax registrations and assessments and were independent SSI Units. He contended that the Department had tried to find nexus between Michael Match Works and other units without any tangible and cogent evidence. The Learned Collector had proceeded on mere surmise, and presumptions and hence the order is not sustainable. He contended that in similar identical cases coming up for consideration before SRB, the Bench had set aside the findings of the lower authorities, i.e., in the following cases :
(i) Premier Matches v. Collector of Customs - 1991 (51) E.L.T. 377 (Tri.)
(ii) Vasuki Match Works v. Collector of C. Ex. -1990 (49) E.L.T. 415 (Tri.) (iii.) Sekar Match Industries v. Collector of C. Ex. - 1990 (48) E.L.T. 599 (Tri.) He contended that the case in hand was no different from the rulings relied and the facts and issue being identical, the ratio should be accepted and appeals to be allowed.
10. He further contended that even use of common label and brand name by all the units would not be a hindrance for grant of benefit as the Notification 97/82 dated 28-2-1982 was applicable to such cases also. He pointed out that M/s. Nirmala Match Works were using different labels. He referred to various statements of the proprietors of each units and pointed out that none of the statements were incriminating. He contended that Learned Collector had not considered the second mahazar drawn on 26-11-1985. He contended that the power of attorney was executed by M/s. Jaya Vilas Match Works to Xavier Jayapaul only for the purpose of appearing and giving the statement to the authorities on their behalf. He also relied on the following rulings :
(i) Seshasayee Paper & Boards Ltd., Salem v. Asstt. Collector, Central Excise - 1979 (4) E.L.T. J 238 (Mad.);
(ii) L.M.L. Ltd. v. Collector of Central Excise, Kanpur - 1991 (51) E.L.T. 434 (Tri.);
(iii) Collector of Central Excise v. Chemphar Drugs & Liniments - 1989 (40) E.L.T. 276 (SC);
(iv) Ambica Spinning Mills v. Collector of C. Ex. -1991 (51) E.L.T. 357; and
(v) R. Suresh Jayaseelan v. Collector of Central Excise - 1990 (48) E.L.T. 37.
11. Smt. J.M.S. Sundaram, Learned SDR countering the arguments of the appellants' Counsel, contended that although all the seven units were not dummy but yet only A. Rathinam, proprietor of M/s. Michael Match Works is the manufacturer on behalf of the other units. She contended that only one process in match making is vital and that is dipping and this process was carried out only in Michael Match Works. All the eight units being situated in only one compound, therefore the Department's conclusion of manufacture taking place only in M/s. Michael Match Works is sustainable. As during the period of inspection, there was no evidence of manufacture in other seven units and the manufacture was taking place only in Michael Match Works, the findings of the Collector in this regard is also sustainable. She relied on the ruling of Swadeshi Dyeing & Bleaching Mills (P) Ltd. v. Union of India, 1989 (41) E.L.T. 224. She contended that the exemption in the notification was for 'a factory' and not to a group of units, who had neither manufactured the goods nor were having any facility for doing so. She contended that a few processes would not bring out the goods until all the processes were done in one unit. The dipping being a vital process, which was done only in.Michael Match Works, the other units' clearances were therefore required to be clubbed with it and in such an event the benefit of the notification is not available. As the units had suppressed these facts, larger period was invokable.
12. Shri N. Venkataraman, Learned Advocate countering the arguments contended that proviso to Section 11A cannot be invoked for subsequent and future clearances. He further contended that notification did not say that 'dipping process' was required to be done in only one place. He contended that the seven units had not worked for some time due to the nature of work being seasonal and that the departmental authorities had not made full enquiries on all these aspects and hence the order was not sustainable.
13. We have carefully considered the submissions made by both the sides and perused the records. The question that arises for our consideration is as to whether the appellants are independent units or that only Michael Match Works is the manufacturer and as to whether they are entitled to the benefit of the Notification No. 22/82 dated 23-2-1982. If not is the demand barred by time? Can the appellants' fresh claim for Notification No. 42/81 also be considered by allowing the miscellaneous application No. 73/92 heard along with these appeals?
14. The finding of the Learned Collector summarised in paras 19 to 21 of his order is reproduced below:
"19. This argument of the parties cannot be accepted. It is significant to note that all the eight match factories were having common trade labels, namely "Double Bull", 'Tractor Chep" and "Tractor". The matches produced in all the units were exclusively sold through the two agencies, namely, Nirmala Match Works and Nirmala Enterprises owned by Xavier Jeyapaul, brother of Antony. Once the matches leave the factory premises to the trading companies, to the man of the street, its identity is lost as to the factory from which it was produced. The submission of counterfoil of cheque books of Nirmala Agencies and Nirmala Enterprises will in no way substantiate the claim that the units were financially independent. Financial independence means each unit must have purchased the raw material, paid wages, etc. independently, must have sold the products and collected the sale proceeds and accounted for it separately. The submission of counterfoil points out nothing in this direction. It is also significant that out of the eight units, five are owned by close relatives of Shri Antony and the whole manufacturing operation in fact was managed by Shri Antony.
20. It was also argued that each unit has its own Arms Act Licence, separately purchased raw materials and account for it and therefore there can be no allegation of centralised production. In this connection, it is to be noted that licence under Arms Act is a must for any factory and this will in no way prove that each unit was independent and again except for stating that each unit purchased raw materials separately, no evidence was produced from where it was purchased, who made the payments, how it was paid, etc. Therefore, this defence also cannot be accepted.
21. In the present case one has to look into the facts and circumstances as a whole and not in isolation. Here is a situation where there are eight match units situated in one compound and the licensees of five of these are close relatives. The labels used by the match units are same and their sale is also through two agencies which are in turn owned by two of the licensees. During the visit of the officers, in none of the units dipping operation was taking place and there was no trace of any manufacturing activity having taken place. No raw material accounts were maintained and the factories themselves appeared as not in use for quite some time. Even though Shri Xavier Jeyapaul, power agent of Jeyavilas Match Works, on 17-10-1985 deposed that each unit was having a certain number of racks and frames, this was subsequently proved to be false when the officers visited five units out of the eight on 26-11-1985. Therefore the circumstances as a whole, when looked into point to the fact that Michael Match Works did the dipping operation for all and removed the dipped splints. The feeble attempts of the licensees in denying the allegation are only lacking in substance. I have therefore no hesitation in confirming the demand."
15. The Notification 22/82-C.E., dated 23-2-1982 is reproduced hereinbelow:
"In exercise of the powers conferred by sub-rule (1) of rule 8 of the Central Excise Rules, 1944, and in supersession of the notifications of the Government of India in the Ministry of Finance (Department of Revenue) No. 2/82-Central Excises and 3/82-Central Excises, dated the 1st January, 1982, the Central Government hereby exempts matches, falling under Item No. 38 of the First Schedule to the Central Excises and Salt Act, 1944 (1 of 1944), in or in relation to the manufacture of which no process is ordinarily carried on with the aid of power, in respect of the first clearances for home consumption from a factory not exceeding 120 million matches cleared during a financial year, from so much of the duty of excise leviable thereon as is in excess of Rs. 1.60 per gross boxes of 50 matches, subject to the condition that clearances from the said, factory during such financial year does not exceed 150 million matches and also subject to the following other conditions, namely :-
(i) the total production of matches in a calendar month during the aforesaid period by the said factory does not exceed 15 million matches;
(ii) the total clearances, if any, of matches for home consumption from the said factory during the preceding financial year, did not exceed 150 million matches:
Provided that -
(a) the amount of exemption shall be increased by 50 paise per gross boxes of 50 matches if bamboo is used for the splints or for both splints and veneers;
(b) if the splints of such matches are made of bamboo and the matches are packed in boxes of 40 matches, the rate of duty shall be four-fifths of the rate applicable to matches of identical description produced in the same factory but packed in boxes of 50 matches and if such packing in boxes of 50 matches is not done, it shall be four-fifths of the notionally determined rate for matches packed in boxes of 50 matches;
Provided further that the exemption contained in this notification shall not apply to matches packed in boxes in which the outer slide or the inner slide or both are made of card-board.
Explanation - For the purposes of this notification, no process other than the mechanical process employed for -
(a) filling of boxes with matches;
(b) dipping of splints in the composition for match heads;
(c) frame filling;
(d) affixing of Central Excise Stamps;
(e) packaging;
(f) the process of giving the veneer flats or strips the configuration of match box including the outer slide or the inner slide with the use of match paper;
(g) the process of affixing labels, by pasting or any other means, on match boxes or veneers, shall be deemed to be a process ordinarily carried on with the aid of power."
"In the said notification, after the second proviso and before the Explanation, the following proviso shall be inserted, namely :-
"Provided also that the exemption contained in this notification shall not apply to the said matches where a manufacturer uses any other manufacturer's label which is approved by the proper officer for matches packed in boxes attracting a higher rate of duty than the rate of duty specified in this notification."
The Learned Counsel had contended that the ruling of SRB in the case of Premier Matches (supra), S. Avudayammal (Vasuki Match Works) (supra) and that of Sekar Match Industries (supra) are fully applicable to the facts of this case. The findings given in para 9 of Premier Matches (supra) is reproduced hereinbelow.
"9. We have considered the submissions made before us and also gone through the records. The important question that arises for consideration in the present case is whether the gravamen of the charge that there was no manufacturing activity at all in the other match units except Premier Matches for the reasons stated in the show cause notice and in the impugned order, is sustainable on the evidence available on record. At the outset we would like to state that the entire case rests only on circumstantial evidence and there is no direct evidence by way of statement having been recorded from any person. The statement recorded from Shri Manoharan, the power of attorney of the other, units and proprietor of Premier Matches is exculpatory in nature. Even the Accountant Chinnaswamy who admittedly was present, was not even examined and no statement was-recorded from him. The Adjudicating authority has merely relied upon certain circumstances dealt in paras 16 to 23 of the order. During the course of hearing the learned counsel for the appellant produced extracts of the statutory registers duly signed by the Central Excise authorities in regard to the issue of gate passes and the register relating to the clearances of matches allowed under the Physical Control Scheme and also the R.G. 3 register evidencing clearances made before and after the date of inspection at periodical intervals, (underlined by us). This aspect was put to the learned D.R. who, after due verification, accepted that such clearances were allowed from the various match units by the authorities, as evidenced by the statutory registers. The extracts of these registers have also been filed by the appellants and form part of the records. To avoid duplication we are not verbatim reproducing the same, since the Department is not disputing the fact that the extracts represent the entries in the statutory registers duly signed by the departmental authorities periodically relating to the clearances from the appellant's factories. Therefore, when the statutory authorities themselves in the statutory registers have put their signature evidencing clearance of goods manufactured from each of the units, the case of the Department that no manufacturing activity at all could have taken place in the units other than Premier Matches, is not acceptable. Matches are under physical control and the appellants could not have cleared the matches on various dates purporting to be clearances from each of the units with the blessings of the authorities systematically covering almost the entire period, (underlined by us). There is also nothing on record to show that during the aforesaid period during the visit of any of the authorities the appellants were not manufacturing matches. This important circumstance would militate against the version of the Department set out in the show cause notice and also the discussions in the impugned order. We are also at a loss to understand as to why the various departmental authorities who have systematically inspected the various statutory registers and permitted clearance of matches from each of the unit, were not even contacted during investigation nor statements recorded from them with reference to the entries in the statutory registers, (underlined by us). If we are to uphold the charge in the show cause notice it would logically imply that the various purported visits of the authorities are all false or that there was an active collusion in the matter of clearances of matches between the authorities and the appellants. No such stand has been taken by the Department nor any plea advanced before us in that regard. We are also not able to appreciate as to why that during investigation no statement from any of the worker was recorded at all. As stated above the entire charge of the Department is sought to be proved merely on the basis of certain circumstantial evidence which also stand disproved by the very evidence in the form of statutory registers signed by the departmental authorities themselves. At any rate we would like to note that no statement was recorded from the suppliers of the raw materials or from the buyers of the matches from the units to ascertain as to whether the dealings or the supply of the raw materials of the parties was with one unit or they were in fact having trading in units in the other units also. The proceedings being penal in nature, the circumstantial evidence not being inconsistent or incompatible with the innocence of the persons charged with the contraventions of the Act, we are inclined to give the benefit of doubt, following the ratio of the Bench ruling in the case of Moorthy Match WorkslAshok Match Works cited supra. Therefore, we set aside the impugned order dated 12-3-1987 and allow the appeals (E/Appeal Nos. 285, 286, 287 and 288/87-MAS).
The findings given in para 4 of S. Avudayammal (Vasuki Match Works) (supra) is reproduced hereinbelow.
"4. We observe that the authorities in the present case on a surprise check had a genuine reason for suspicion on finding that the boxes of other unit were being used for filling the matches in the appellant's unit. The question that falls for our consideration is whether this factor is alone enough to fasten the liability of duty on the appellants at a higher rate holding that all the matches manufactured in Surendran Match Works were in fact manufactured in the appellant's unit in the past. We observe that mere suspicion cannot take the place of proof and prob-abilisation of evasion has to be done by bringing on record either documentary evidence or evidence of the persons who may be concerned with the operations of the manufacture of matches or other corroborative evidence. In the present case we observe that the Central Excise authorities have tried to build up the case on assumptions and presumptions and have been remiss in not carrying out any further investigation after the detection of the use of the outer covers of the other unit in the appellant's factory, (underlined by us). The Collector has brushed aside the appellant's plea that no statements from the workers were recorded merely by stating that since the appellant was present there was no need for recording of such statements. The mahazar, it is seen, only reflects the position as existed on the day when the seizure took place but no further conclusion can be drawn from this unless any further evidence can be adduced in regard to the operations carried out during the period preceding the day of the visit of the officers. The Collector has cast the burden on the appellant to prove that the matches were in fact produced in the two units. He has not stated what sort of proof was re-quired in this regard. The proof in such cases has to be found by investigation and by recording the statements from the workers and also from finding out as to who Had been controlling the two units and who had been handling the procurement of raw materials, issue thereon, and also the sale of the matches. (underlined by us). It is pointed out that the match units are under physical control of the Department and no doubt, as mentioned by the Collector, the officers are not physically posted in each unit but the fact remains that the release of the goods are allowed with the knowledge of the authorities and by virtue of the physical control there is a sufficient degree of supervision by the officers who would have been visiting the units regularly. If no manufacture of matches was taking place in M/s. Surendran Match Works, this fact could have come to light during the course of some of the visits of these officers. (underlined by us). Since no instance of this nature has been cited, the appellant's version will have to be believed that they were carrying on the manufacture of matches on their own account only. The Collector has observed that complete manufacture of matches could not be carried out at Surendran Match Works but he has brought no evidence on record to show that the appellant during the relevant period did not have all necessary equipment for the manufacture of matches more so when the officers had visited the units often as required under the physical control system. There is nothing on record to show that the other licensee i.e. Surendran Match Works was not capable of manufacturing the matches as alleged. It is further observed that at the time of licensing of the units the authorities are required to satisfy that the applicant is capable of manufacturing products for which they have sought the licence and also had the necessary verification done about the machinery etc. installed. In the above background, therefore, it cannot be held that all the matches as alleged were manufactured at the appellant's unit. This is again one of the type of cases which we have come across earlier where the authorities have been content in making seizure on a particular day and have not followed up with further investigation to establish the evasion. We find no reason why no statements were recorded from the employees and no further efforts were taken to ascertain the facts regarding the operations of the two units and to establish that the unit of M/s. Surendran Match Works was only a front dummy unit set up to evade payment of duty. In this view of the matter we hold that there is no warrant for demand of differential duty as alleged and also duty on the sticks as demanded. So far as the confiscation of 60 gross of matches under seizure under Rule 210 of the Central Excise Rules is concerned, the same is upheld and so also the levy of the redemption fine in regard to the same. In the facts and circumstances of the case the penalty on the appellant under Rule 210 is reduced to Rs. 50/- (Rupees Fifty only). The appeal is, therefore, partially allowed in the above terms."
The findings given in para (5) of Sekar Match Industries (supra) is also reproduced hereinbelow:
"5. We observe this is a case where large tax evasion was indicated and the authorities felt that the matches were not in fact manufactured by the appellants but these were manufactured outside and clubbed the clearances of all the three units. We observe that no statement has been recorded from the workers to ascertain the nature of the operations carried out in each of the units on a regular basis nor the facts have been elicited as to wherefrom the match sticks actually emanated. The authorities could have ascertained from the workers as to whether they were getting the matches which had already been dipped and ready for putting in the box and whether any operation in regard to the dipping of the sticks with match head composition and also the waxing was being done in the respeclive units. The authorities have chosen not to even record a statement from the proprietor of M/s. Manohara Match Works in whose premises the raw materials and Central Excise records were found. The appellants have explained that for the sake of safety they were keeping the raw materials and the records in the premises where they were found. The owners of the units were found to be related persons and it is not unusual for one relation to help out the other. No doubt the circumstance of absence of evidence of dipping etc. in the units and also stock-Ing of the raw materials and the records in the unit M/s. Manohara Match Work's is a suspicious circumstance. This circumstance certainly warranted indepth" probing by the authorities to unravel the nature of operations that were being carried out, (underlined by us).
The authorities, however, it appears, remained content with having brought on record the fact of the absence of dipping of the matches etc. and did not pursue the matter further to get the facts, as to the nature of the operations which were being carried on a regular basis in the 3 units. They have been even remiss in not recording a statement from the proprietor of M/s. Manohara Match Works, who was in the facts and circumstances of this case an important link. No reason has been given as to why this could not be done. A suspicion cannot take place of proof. Since the appellants were being visited with large duty liability, it is for the authorities to prove the case beyond any reasonable doubt, (underlined by us). In the present case the authorities should have ascertained as to who were actually doing the operations of manufacture of matches. No effort appears to have been made in this direction. It is observed the units have been licensed by the authorities and it is only after they were satisfied that the appellants had the necessary infrastructure for the manufacture of matches that the licenses had been issued. Further, the Central Excise control over the match units is fairly rigid, being physical control, and it is not on record and nor it has been pleaded that on earlier visits by the officers the appellants were doing the same limited operations as were found to be done on the visit of the officers on 3-9-1985. In fact under the physical control system the day-to-day operations of the appellant's manufacture and clearances are under close supervision of the Central Excise authorities and unless it can be shown that the officers were in collusion with the appellants it will have to be presumed that the operations of the appellants were found to be in conformity with the law, (underlined by us).
The demand has been raised for a period of 3 years and there is no finding from the learned lower authority as to how the appellants in spite of close excise supervision got away with the removal of matches by paying lower rate of duty. The learned lower authority has not even adverted to the records of purchase and utilisation of raw materials and also whether on check of the same by the Central Excise authorities at any time during the past 3 years any discrepancy in regard to the same had been found and also whether there was any instance reported when the appellants were not found to have been manufacturing the matches as required under the law in their units for the purpose of clearance of matches at lower rate of duty. We further observe that no records or any account book showing that the appellants had been paying for the finished match sticks to any body have also been seized nor any evidence in this regard has been brought on record. (underlined by us).
The only finding given by the learned lower authority for raising the demands is as under:
"Hence when the main process of dipping of match head composition is not found and when it was found that there was no evidence to show these three premises are used in these processes and when only the out workers job of frame filling is done in the premises, there is reason to conclude that the main two processes referred to above are being done only outside to these three premises and the further processes like box filling etc. are being done in the respective factories and cleared so as to claim concessional rate of duty prescribed under Notification No. 22/82. This fact is also substantiated by the facts that all the raw materials including chemicals found in the common godown of M/s. Manohara Match Works and all the accounts both Central Excise and other records are found in the office room of M/s. Manohara Match Works and the licensee of M/s. Manohara Match Works is nothing but her own son of the licensee of one of the factories. There is every reason to conclude that all these three factories jointly produced matches outside their licensed premises and doing the further processes of box filling and clearing the matches at the concessional rate."
It is clear that the learned lower authority has gone by the only single instance of the visits by the officers to the appellants units and who found the absence of the dipping of the chemical mixture etc, and the signs thereof, (underlined by us) The appellants before the lower authority had pleaded that the dippings were done in the units and dipping plates were clean because they had cleaned them after the day's work. The learned lower authority, however, has taken the nature of the manufacturing operations being carried out on the day of the visit by the officers along with the circumstance that the appellants were related to the proprietor of M/s. Manohara Match Works in whose premises the raw materials and records had been kept and, therefore, concluded that for the past 3 years the appellants had not been manufacturing any matches and had been doing the work of only box filling and not actually manufacturing match sticks. It is seen that the findings of the lower authority are based neither on any records seized nor any investigation done nor based on statement recorded from any body as to the nature of the operations carried out by the appellants. The lower authority's order obviously is based on assumptions and presumptions based on a suspicious circumstance of the nature of the manufacturing operations being carried out on a particular day cannot be taken to form the basis for demanding a heavy duty for the period of 3 years in the absence of any acceptable evidence. This is one case where we feel the concerned investigating officers should be called to question as to why they did not pursue the investigation further to bring out the facts as to the nature of the operations actually carried out particularly with the proprietor of M/s. Manohara Match Works and the various workers who were employed for doing the work in the three units. It is incumbent on the authorities to elicit all the facts through the investigation with a view to ensure that no evader of duty escapes for want of proper follow-up investigation to get at the depth of the matter as also that no innocent person is subjected to unnecessary avoidable proceedings. In the present case we hold there has been a total failure on the part of the authorities in the matter of investigation and charges have been framed based on assumptions and presumptions. We, therefore, hold that the lower authority's order is bad in law and we set aside the same. The appeals of the appellants are, therefore, allowed.
16. These findings are applicable to the facts of these appeals. In the above-cited rulings, the Bench had disagreed with the Department's contention that there was no manufacturing activity in all the units as each unit had maintained separate records. This finding of the SRB will be binding in these appeals also. In these appeals, the Department has not disputed about each unit having a separate unit with LA licence, and maintaining separate RG-3 register and other statutory registers. Therefore, to again allege that they were not manufacturing goods would not be sustainable. Moresoever the units are being under physical control, inasmuch as there were regular visits and checking of records by the departmental officials. The fact of the units being located in one compound is no reason to deny the benefit, so long as each was a different unit and having separate licence and separate business. The trading agents buying manufactured goods from all the units also cannot be a criteria nor their being related to each other could be one to deny the exemption. In fact, it is contended by the appellants that the seven licen-cees belong to Thevar Community and whereas A. Rathinam of Michael Match Works, on whom the liability is saddled, belongs to Nadar Community and thus they are not related. There is no examination on this plea at all by the Learned Collector. The detection of the offence by the officers is on 12-9-1985 while the demand said to be raised is for the period 1-4-1985 to 31-3-1986 as contended by the appellants. There is no finding on this plea. Therefore, the demands if they had been confirmed, for a period after the date of first mahazar i.e. 12-9-1985 would not be sustainable under the proviso to Section 11A of the Act. The Department could raise demands only for the period prior to 12-9-1985. The licencees had contended that there was no work in Nirmala Match Works and some others from 11-5-1985 till the date of inspection i.e., 12-9-1985. The Learned Collector has not considered this plea and no finding has been given on this plea also. It has also been contended that on the date of subsequent visit i.e., 26-11-1985 the match head chemicals were ready for dipping and the oven was lit for waxing process in Annai Match Works, Kovilpatti and it had also been recorded in the mahazar dated 26-11-1985. It has also been contended that the licencee of Annai Match Works is not related to A. Rathinam. It is also contended that on 26-11-1985 at the time of inspection of M/s. Bosco Match Works by Central Excise officers, they had found necessary equipments for manufacturing matches and the symptoms of usage of ovens. The mahazar does reveal about this fact. This aspect of the matter has also not been examined by the Learned Collector. Therefore even by the record itself it can be gathered that there was some activity going on in other units and the finding that no manufacturing activity went on in other seven units is not corroborated and therefore not sustainable.
17. The main allegation against the appellants are with regard to their close relationship and that all the vital processes connected with the production of matches were centralised at Michael Match Works and the production from this unit was evenly distributed in the name of the other units in order to avail the benefit of concessional tariff available under Notification No. 22/82. This is being supported by the observation of Central Excise officers on 12-9-1985 when it was found that all the vital equipments essential for the manufacture of matches were in tact and in working condition only in Michael Match Works and in other units these equipments were not present or even if some of the equipments were present, they were not in working condition. The appellants have given a detailed explanation regarding these charges and more particularly of their having separate RG-3 register, physical control of the units, and of the seasonal nature, and other explanation. These pleas have not been accepted by the Learned Collector. The basis for allegation may at best lead to a reasonable suspicion but there is no valid proof of the allegation placed by the Department in view of the details available in second mahazar, which records about work in progress in some units. The rulings given in the cited cases on these similar allegations are fully applicable to the facts of this case also. As noted above, the demands would also be time barred. As the facts of all the units being in existence and their activity being under physical control with regular checks, cannot be said to be not within knowledge of the Department. The type of activity is fully within the knowledge of the Department and hence charge of suppression is not sustainable. Therefore, applying the ratio of these rulings, the impugned order has to be set aside by allowing the appeals. As the appellants have succeeded on merit, there is no need to examine the applicability of Notification No. 42/81.
18. Appeals allowed.