Customs, Excise and Gold Tribunal - Mumbai
Kishor B. Purohit, Prakash Metal Works ... vs Collector Of Central Excise, ... on 29 October, 2001
JUDGMENT
G.N.Srinivasan, Member(J)
1. These are three appeals filed against the decision made in Order-in-Original No.10/Collr./1994 dated 2.8.1994 whereunder the confirmed the duty of Rs.40,236.76 on aluminium circles/calvert tops, Rs. 2,30,640.74 being amount of Modvat credit wrongly taken and Rs. 7,87,500/- being amount of duty demanded for wrongful availment of notification 175/86. He also imposed penalties of Rs. 10 lakhs on the appellant M/s. Prakash Metal Works, s.2 lakhs on the appellant Janak Kantilal Kansara and Rs. 1 lakh on the appellant Kishor B. Purohit.
2. The appellant is a registered partnership firm inter alia engaged in the business of manufacturing and selling of articles of aluminium. The appellant was a small scale factory at Odhav in Ahmedabad. It was registered as a SSI unit with the Government of Gujarat. They manufactured in their factory the following goods:-
(1) Aluminium plates (2) Sheets (3) Ingots and strips (4) Aluminium circles/calvert tops (5) Aluminium waste and scrap The present appeals relate to period 1989, 1991-92. The show cause notice was issued on the following among other grounds:-
As regards circles and tops and pat scrap classification list for the said products was not filed. No gate pass was issued. No duty was paid on the said goods cleared during the material time. Prescribed statutory records and accounts thereof were not maintain. These waste and scrap were declared exempted for captive use under notification 217/86 in the relevant classification list but the same was sold as pat scrap without payment of duty which amounts to mis-declaration in the classification list. Since the assessee was availing Modvat credit, therefore, they were reburied to pay duty on all the products including circles/tops and pat scrap manufactured and cleared during the material period under notification 101/88 and 69/89. The appellants filed detailed reply as per annexure G of the paper book at page 185. They also cited various case laws. The appellants put their arguments in a summarised way in their reply to show cause notice as follows:-
"Duty cannot be demanded on the goods aluminium circles and tops and pat scrap from non-modvat inputs which are fully exempted from payment of duty under notification 180/88 and 182/84.
The Modvat credit earned on the inputs received for doing job work was rightly admissible under the ratio of trade notice issued by Bombay III Collectorate and Ahmedabad Collectorate.
The value of exempted goods is not to be taken into account while computing the aggregate value of clearance in view of explanation No. II of the said notification. As such demand of duty alleged to have been short paid is not enforceable.
The allegation of contravention of the procedural provisions of the rules, are of only technical nature without intention of evasion, and therefore, penalty cannot be imposed.
3. The Commissioner of Central Excise and Customs, Ahmedabad by the impugned order after elaborately dealing with the contentions rejected the same. Hence the present appeals.
4. S/Shri V. Sridharan, S.J. Vyas and R. Nambirajan, Advocates appeared for the appellants. Shri Deepak Kumar, learned SDR appeared for the department.
5. It is the case of the appellants that they had received the aluminium scrap from one customer, namely, M/s. Adarsh Aluminium. The appellant had converted the scrap into ingots and delivered to Adarsh Aluminium on payment of duty. No dispute has been raised in the show cause notice or order that this quantity has actually been received by the appellant for the aforesaid conversion. The appellant had taken Modvat credit on the strength of endorsed gate passed received from Adarsh Aluminium. In certain other cases, the appellant from Adarsh Aluminium but has been received for job work only. It is, therefore, contended that the purchase of inputs was not necessary for availing of Modvat credit under Rule 57A. This is settled in favour of the assessee by the decision of the Tribunal in Imex Engg. v. CC 1990 (47) ELT 32 and also Trade Notice dated 20.4.1989 Bombay Collectorate II and Hyderabad Collectorate Trade Notice No. 83/89 dated 27.4.1989, Parellel Chandigarh No. 40-CE/89 dated 1.5.1989. As far as the demand of Rs. 2,871,500/- is concerned (Annexure F to show cause notice) it is contended by the appellants that being a small scale unit it operating under Modvat scheme. Therefore, it has been effecting clearances of dutiable final products like aluminium ingots, sheets, strips etc. on payment of applicable confessional rate of excise duty as provided under notification 175/86. The impugned order states that the aluminium circles cleared by the appellant as exempted goods but they are not so exempt. Consequently, their value of clearances have to be taken into account in computing the aggregate value of clearances for the year 1989-90. By this process the said value would come to amount exceeding Rs.2 crores for the financial year 1989-90. Therefore, for the subsequent year 1990-91 SSI exemption is being denied on ingots, sheets, strips etc. This is the reason sought for the denial indicated in the impugned order. The appellant submits that aluminium circles are indeed exempt from duty throughout the period involved. The appellant, therefore, states that in view of the fact that the denial is wrong. The basis on which the aggregate value has been computed for 1989-90 is wrong. Therefore they are entitled to the entitled to the SSI exemption for the subsequent period.
6. As far as the demand of duty on 22773.1 kgs. of scrap cleared outside the factory is concerned, it is stated by the appellant that they have been cleared without payment of duty on the premise that they were completely exempt. This the appellant challenges namely exemption under notification is subject to the condition that Modvat credit has not been taken on the inputs and if the credit so taken the same should be reversed. According to the impugned order, the appellant had taken Modvat credit on the scrap, the input used in the manufacture of final product namely circles, during which the scrap in question arose. Modvat credit was not taken on the inputs i.e. scrap used in the manufacture of circles. If the appellants is right on this point, then scrap emerging during the process of manufacture of aluminium circles is exempt from excise duty under notification 182/84. Therefore, no demand can be raised on scrap as proposed in annexure E to the show cause notice.
7. It is contended further by the manufacturer that scrap to scrap no manufacture is involved. The scrap is the basic input. This is melted and cast into slabs. Then the slabs are rolled into circles. During the process scrap arises. The scrap is generally recycled in the factory. A small quantity of scrap has been sold on which duty in question has been demanded. It is therefore submitted that the scrap so arisen cannot be considered as a result of manufacture. The appellant relies on three decisions of the Tribunal and the Supreme Court for this proposition, Kolhapur Steels Ltd. v. CCE 1983 (14) ELT 1947; Salco Extrusions Pvt. Ltd. v. CCE 1984 (16) ELT 356 and Indian Organic Chemicals Ltd. v. CCE 1996 (88) ELT 644 (SC). There has been a demand of duty on aluminium circles (Annexure E to show cause notice). The demand has been confirmed on the assumption that the appellant had taken Modvat credit on the input, viz. scrap used in the said manufacture. The impugned order assumes, it is argued by the appellant, that if Modvat credit has been taken circles cannot avail exemption vide Sr.No. 10 of notification. The goods in question namely embargo in respect of the Modvat credit is provided under second proviso to the notification which provided that in respect of goods mentioned against Sr.No. 6 (not Sr.No. 10) the exemption contained in the notification shall not apply if the credit of duty paid on the goods used in the manufacture has been availed under rule 56A or rule 57A of the Central Excise Rules. Admittedly, it is argued, the goods fall under item No. 10 namely circles having thickness of 05.6 mm, but not above 2 mm. This falls under Sr.No. 10. Since the second proviso only deals with Sr.No. 6 namely aluminium powders, plates etc. the order levying the same is wrong.
8. In any case it is argued that the amendment of notification 63/91 was added to second proviso below notification 180/88. As per this amendment the exemption conferred on Sr.No.10 was applicable only if Modvat credit not taken. Therefore, it is argued that prior to 25.7.1991 exemption to circles was not contingent upon availing of Modvat credit. Therefore, even if Modvat has been taken on scrap used in the manufacture of circles exemption conferred by notification 180/88 cannot be denied. Perhaps the only course available to the department, it is argued, only to invoke Rule 57C but however no such proposal made in the show cause notice or the order. It is further argued that in the impugned order it has been held that Modvat credit was taken on inputs used in the manufacture of circles where no such allegation has been made in the show cause notice. Therefore on this score alone it is bad. As far as Adarsh Aluminium is concerned, in annexure D to show cause notice it has been accepted by the department that Adarsh Aluminium is one of the customers giving the aluminium scrap to the appellant for melting and manufacture of ingot and supply back to them. No dispute has been raised by the department that the scrap has been genuinely supplied. The show cause notice disputes the receipt of scrap on job work basis for conversion into aluminium circles only. It does not dispute scrap received from Adarsh Aluminium or manufacturer of other products. The challans under which scrap had been received from Adarsh Aluminium indicated in pages 229-230 indicate recovery of ingot which is around 45 to 50%. The inference drawn by the Collector upon the difference between issue of manufacture of aluminium ingots etc. is incorrect. In page 25 of the impugned order the difference between issue of scrap on which credit has been taken and production of aluminium ingots/plates as per RT12 return is Rs.8,30,439/-. This exceeds very far from the above figure of clearance of circles and amounting to Rs. 2,92,153/-. This itself negatives conclusion. It is further contended that the department has completely overlooked the input received as per job work challans and invoice for which no credit has been taken. This has been completely crossed over in the impugned order and show cause notice. The appellants rely on column 5 of the Exhibit 2 to the reply to the show cause notice at page 177 of the paper book. It shows that the appellants had not taken Modvat credit for the years 1988-89 to 1991-92. It has been strenuously argued by the appellants that they have duly maintained excise records for the dutiable products. They have not separate raw material registered. However, primary documents, purchase invoice for scrap, job work challans against which the same has been received as maintained in the regular course of business. This has been resumed by the department and this reflected quantity for which credit taken was not taken. The purpose sought by the department is therefore completely accomplished by the fundamental record. On this basis alone Exhibit 2 to reply has been prepared. No objection about this bifurcation has been raised in the impugned order because records are already with the department.
9. For non-filing of classification list this is referred to in para 15 of the show cause notice. Significantly from 1.4.1992 no demand has been raised in the present show cause notice. On the basis of decisions reported in 37 ELT 257, 47 ELT 687, 53 ELT 398, 53 ELT 105 etc. this claim by the department is impermissible. It is argued that the appellants bonafidely believed that the classification list need not be filed. Learned DR adopts the reasoning.
10. We have heard the rival submissions.
11. The main charge of the appellants is that for the period from 1.4.1988 to 28.2.1992 they have produced 2,69,380.3 kgs. of aluminium circles which is revealed in Annexure E to the show cause notice. In the said Annexure E there is also demand for clearance of scrap of 22777.13 kgs. for the same period. The total demand as per Annexure E comes to Rs.40,45,236/-. The main thrust of the argument of the learned counsel was as far as the insertion of the second proviso in the notification, the said proviso was added by notification 180/88. Therefore, as far as the finding is wrong. As far as the period prior to the same is concerned, the case has to be viewed from other angle. The item 10 reads as under:
"10 76.06 Circles having Nil If manufactured from thickness of an above goods, falling within 0.56 mm, but not Chapter 76 on which above 2 mm. the duty of excise leviable under the said Schedule or the additional duty leviable under the Custom Tariff Act, 1975 (51 of 1975), as the case may be, has already been paid."
The second proviso reads that in respect of the goods at Sr.No. 6, if there is a modification obtained, exemption was not applied. But the goods manufactured here comes well within the Item No. 10 instead. It is not the department's case that item under consideration comes under Item No. 04. Therefore for the period prior to the amendment referred to in that provisions, department's claim cannot be accepted.
12. During the course of the argument same points were raised by learned counsel for the appellant, Shri Sridharan mentioning about scrap to scrap, there is no manufacture and he cited the judgment of the Tribunal in the case of Kolhapur Steel Ltd. v. CCE 1983 ELT 1947 and Salco Extrusions P. Ltd. v. CCE 1984 (16) ELT 356. In our view this argument may not be relevant for consideration in these cases because those cases deal with Tariff Entries which were contained in First Schedule to the Central Excise Act, 1944 but not under CETA 1985. Further under the new Tariff, separate entries were provided for various metals. Example 76.02 etc. No doubt in the case of Indian Organic Chemicals Ltd. v. CCE 1986 (88) ELT 644 the court held in favour of the assessee. But in our view that case also cannot be applicable to the facts of this case because that was a case under item 18 when the First Schedule to the Central Excise Salt Act and not under the CETA. Further this argument was never reflected in the reply to the SCN nor in the grounds of appeal. Therefore, first time it is raised before us. It cannot be accepted without application for raising additional grounds, which was not done in this case.
13. The thrust of the argument of Shri Sridhan is as reflected in grounds No. 8 and 9. The said grounds on 8 and 9 have to be seen in the light of the statement given by Shri Janakbhai Kantilal Kansara. In the translation he says interalia as follows:-
"Further I depose on being asked that we have not obtained any written permission from the Central Excise Department for the items we get cleared under Exemption as we were not informed by the department in that regard to obtain necessary written permission. ..... We are having the following machineries in our factory: (1) Gulai Bhatthi (2) Rolling Mill Nos. (2), Sipting Machine (1), Circle Cutting (1), Unling (1), Slourring Machine (1).
..... For all the goods prepared in our factory we are using wastage and scrap of all types of Aluminium as raw material. And sometimes we bring Aluminium Ingots as raw material. The above mentioned raw material is bought by us from and from open market and sometimes we purchase the same directly from the manufacturer.
..... On further being asked I deposed that all that raw material which we bring under exemption is either bought under Gate Pass or from the open market under Table. Under exemption the Circle and Tip prepared by us for that we don't have any separate machine ..... We are preparing the circles under the Exemption. We have not kept any type of register or records from the raw material, production or delivery. ..... We do not keep records for the manufacture of the job work for the items under exemption. But we give tables for the labour work to the party."
14. From this it is clear that the raw materials were purchasing under the table also. They have not kept records for the raw materials brought or delivered. This means that they did not have any statutory records which they are expected to maintain. It is admitted fact in this case, after the period of 3 months they have filed a classification list for all the materials. In that even what prevented them from filing classification lists for exempted material. Claiming exemption either under the classification lists or under the price lists is a must. And without that department may not know as to how the factory is functioning and how the manufacturer is arranging his affairs. No doubt RT 12 returns are there, but in this case, there was no records of the production which is the ocre of the matter in our view. We are, therefore, of the view that tainted circumstances show viz. not only the statement dated 30.1.1993 but also some of the so called purchasers who have denied having received the same when confronted by the department' officials. That matter is reflected in the SCN. The SCN also reveals that some of the units were not in existence. These circumstances in totality would go to show that the claim made by the assessee may not be accepted. After all in these types of cases one has to take a practical view and nothing can be proved "beyond reasonable doubt with mathematical precision" to borrow the phrases from the judgment of the Supreme Court in Bhurmal's case.
15. Shri Sridharan in his argument emphasizes the fact that the records were with the department. The so called purchase invoices were with the department only. The reconciliation statement has revealed in page 177 of the paper book gives the material for the department to claim the duty from the assessees. Shri Sridharan questions it. In our view it is very strange to make that type of argument. If the department is in possession of document what prevented the assessee from seeking a permission from the department to take photocopies of the same in this case? We have not been shown any evidence as to insistence of production of those records by the assessee. Even if it is there how the assessee is going to get out of the statement given by Shri Kansara on 31.8.1993 when he says there is no record. The existence of certain statements reflected in page 177 shows certain private records were kept not according to statutory records. As stated above, the tainted circumstances, the conduct of the assessee, the whole affairs thrust only possible conclusion that there has been clandestine removal. The charge made under the show cause notice dated 24.3.1993 reflected in paragraph 17(1) thereof is proved.
16. The next charge is regarding deemed credit. One more circumstance which forces us to come to the conclusion that the assessee's case is not probable but department's case is more probable. From the statement reflected above the number of machines int eh factory practically was nil on the basis of only one how could they differ exempted material and material on which tax is levied. Unless the records show the correct consumption exemption and non exempted material nothing can be said on the quantity. That is why the whole affairs of the assessee is shrouded in mystery with wholehearted motives to suppress the liability to pay the correct duty. The confirmation of what is contained in paragraph 52(1) of the SCN is subject to what we have said in our earlier paragraph regarding the entitlement of the assessee under notification 182/84 as amended in July 1991. The removal of goods and the consumption receipt and use of input reflected in ground 4 of the grounds of appeal clearly is wrong inasmuch as the statement that no records have been proved. Therefore even if RT12 have been field because of that statement the RT12 returns may not be correct. Moreover even if RT12 returns might have been filed that may not reflect the exempted material. The entire case of deemed credit as reflected in paragraph 17(2) of the show cause notice. The entire case is of deemed credit. The paragraph 17(2) of the show cause notice is found correct because again the statement of kansara is that no records have been kept, how the assessee can prove the purchase of the duty paid nature of the goods. Moreover, in the said statement, Kansara has stated that some goods have been purchased under the Table. Naturally duty paid nature of the inputs cannot be proved if it is under the Table. Therefore, the entire claim under the modvat is not at all appealing to us. We are inclined to agree more with the case of the department.
17. Again regarding the exemption claim under notification 175/86 is concerned, if the eligibility of the duty on the quantity produced is the fact as mentioned in paragraph 17(1) is concerned when naturally it goes beyond the exemption limits. What provided under notification 175/86. The entire case is routed in favour of the department in this case. We are, therefore of the view that assessee has miserably failed to make out their case and we dismiss the appeal except indicated direction of exemption claimed under notification 182/84 as amended from time to time. Subject to the above appeal of the assessees is dismissed.
18. Now comes to the levy of penalty under Rule 173Q and Sub-rule BB of 173Q(1) the levy of penalty on the other appellants are squarely proved because the statements of S/Shri Janakbhai Kantilal Kansara and Kishor B. Purohit because once the records are not kept the mystery is created regarding true state of affairs of the operations of the factory from the Central Excise point of view. We are, therefore, of the view that the appeals deserve to be dismissed except to the extent indicated in the preceding paragraphs.
19. Appeals are disposed of accordingly.