Custom, Excise & Service Tax Tribunal
Webbing & Belting Factory Pvt Ltd vs Ce & Cgst Ghaziabad on 19 July, 2024
CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL
ALLAHABAD
REGIONAL BENCH - COURT NO.I
Excise Appeal No.70780 of 2016
(Arising out of Order-in-Original No.39/Comm/CEX/GZB/2015-16 dated
30/03/2016 passed by Commissioner of Customs, Central Excise & Service
Tax, Ghaziabad)
M/s Webbing & Belting Factory Pvt. Ltd., .....Appellant
(Opp. Powan Cinema, G.T. Road, Ghaziabad)
VERSUS
Commissioner of Central Excise, Ghaziabad ....Respondent
(CGO Complex-II, Kamla Nehru Nagar, Ghaziabad, U.P.) WITH Excise Appeal No.70781 of 2016 (Arising out of Order-in-Original No.39/Comm/CEX/GZB/2015-16 dated 30/03/2016 passed by Commissioner of Customs, Central Excise & Service Tax, Ghaziabad) Shri Shantanu Kaul, .....Appellant (M/s Webbing & Belting Factory Pvt. Ltd., Opp. Powan Cinema, G.T. Road, Ghaziabad) VERSUS Commissioner of Central Excise, Ghaziabad ....Respondent (CGO Complex-II, Kamla Nehru Nagar, Ghaziabad, U.P.) APPEARANCE:
Shri R. Sudhinder, Advocate & Shri Tanmay Sadh, Advocate for the Appellants Shri A.K. Choudhary, Authorised Representative for the Respondent CORAM: HON'BLE MR. P.K. CHOUDHARY, MEMBER (JUDICIAL) HON'BLE MR. SANJIV SRIVASTAVA, MEMBER (TECHNICAL) FINAL ORDER NOs.70758-70759/2024 DATE OF HEARING : 19 July, 2024 DATE OF DECISION : 19 July, 2024 Excise Appeal Nos.70780 & 70781 of 2016 2 SANJIV SRIVASTAVA:
These appeal is directed against Order-in-Original No.39/Comm/CEX/ GZB/ 2015-16 dated 30.03.2016 of the Commissioner Central Excise & Service Tax, Ghaziabad. By the impugned order following has been held:-
"ORDER i. I demand & confirm Central Excise duty amounting to Rs. 6,32,71,655/- from the party under Rule 9|(2) of the Central Excise Rules, 1944 read with proviso to sub-section (1) of Section 11 A of the Central Excise Act, 1944;
ii. I impose penalty of Rs. 6,32,71,655 /- upon the party under Rules 9 (2), 52 A, 173 Q and 226 of the Central Excise Rules, 1944 read with Section 11 AC of the Central Excise Act, 1944 for contravening various provisions of the Central Excise Rule, 1944; iii. I also charge and demand interest on the aforesaid confirmed demand of duty under Section 11AB of the Central Excise Act, 1944;
iv. I confiscate land, building, plant & machinery used in connection with the manufacture of the said goods; under then sub rule (2) of Rule 173 Q of the Central Excise Rules, 1944. I, however, give the party option to redeem the same on payment of redemption fine of Rs. 50,00,000/ -
v. I impose penalty of Rs.40,00,000/ - on Shri Shantanu Kaul, Director, WBF under Rule 209 A of the Central Excise Rules, 1944 vi. I drop the proceedings for imposing penalty on Sh.
Ratan Kaul, Managing Director of WBF in view of his death on 31.08.2009
2.1 Appellant 1 is having their factory and office at G.T. Road, Ghaziabad (Opposite Pawan Cinema) were engaged in dyeing, printing, bleaching, calendaring of cotton fabrics falling under Excise Appeal Nos.70780 & 70781 of 2016 3 Chapter 52 and man- made fabrics falling under Chapter 54 and 55 of the schedule to Central Excise Tariff Act, 1985. They were registered with Central Excise department vide Registration No. 01/2802303/W&B/52/92.
2.2 On the basis of an intelligence that Appellant 1 indulged in the evasion of Central Excise duty by adopting modus to declare operation of above processes without aid of power and clearing such processed fabrics without payment of duty, search was carried out in the premises of WBF on 14.01.99 by the officers of Directorate General of Anti Evasion Central Excise along with search in the following premises also:-
M/s Sandeep Trading Co. B-9/8, Pradeep House, Rajori Garden, . New Delhi.
M/s Richa & Co. 28/2, Warehousing Scheme, Kirti Nagar, New Delhi.
M/s Jyoti Apparels D-42, Okhla Industrial Area, Phase-I, New Delhi.
M/sUshaFab 45/52, Udyog Vihar, Phase-II), Gurgaon, (Haryana) Indira International 231, Okhla Industrial Estate, Phase- lI1, New Delhi.
2.3 During search in the factory premises of Appellant records of another unit named as M/s Everest Hand Wooven (EHW) were also found. Preliminary enquiries conducted on the spot revealed that EHW was claimed to be working within the factory premises of WBF but there was no demarcation of boundaries and also there was no separate infrastructure/machinery for EHW. The incriminating documents pertaining to WBF and EHW were resumed under Panchnama 14/01/99. The officers verified the stock of finished goods i.e. processed fabric, raw material, i.e. Grey fabric and fabric in process i.e. fabric duly printed and physically lying on the floor during the course of search at the factory premises of WBF and consequent to physical verification, the stock was found in excess of the stock reflected in statutory Excise Appeal Nos.70780 & 70781 of 2016 4 records of WBF i.e. RG-l register, lot register and Form IV register.
2.4 Certain unaccounted stock was also found which was sized by the officer and separate show cause notice dated 09.07.1999, was issued for seizure portion only to WBF. This stock was confiscated and finally tribunal has upheld the confiscation.
2.5 During the course of search conducted at the premises of WBF, it was noticed that the processed fabric was being dispatched from the said premises under the cover of two sets of invoices i.e. one prepared in the name of WBF and other under the name of EHW. The scrutiny of invoices of WBF and EHW revealed that goods were cleared on payment of duty under invoices issued by former whereas goods were cleared without payment of duty under the invoices issued by the latter.
Invoices issued by EHW were carrying description of goods as "Washing". During search, statements of all responsible persons of the factory were recorded under Section 14 of the Central Excise Act,1944 on 14.01.99. Statements of the customers of the appellant were also recorded.
2.6 On the basis of the scrutiny of the documents recovered and the statements recorded revenue was of the view that appellant 1 evaded payment of the Central Excise duty during the period with effect from 1.2.95, amounting to Rs. 6,32,71 ,655.00 (Six crore thirty two lacs seventy one thousand and six hundred fifty five). The same was recoverable from them under Rule 9(2) of Central Excise Rules read with the proviso to Section 11 A of Central Excise Act,1944 2.7 Appellants had contravened the following provisions of Central Excise Rules,1944 during the relevant period;
i. Rule 9 (1) in as much as they manufactured and removed processed fabric without payment of Central Excise duty amounting to Rs.6,32,71,655/-.
Excise Appeal Nos.70780 & 70781 of 2016 5 ii. Rule 52 A in as much as the said goods were removed from their factory without issue of invoice as prescribed under Rule 52 A. iii. Rule 53 in as much as they did not make entries of goods manufactured i.e. processed fabric in their statutory records iv. ule 173 F, 173 G in as much as they clandestinely manufactured and removed processed fabric without determining and paying the duty due thereon and without following the proper procedure v. Rule 226 in as much as no entry of these transactions were made by them in the statutory records 2.8 Appellant deliberately suppressed the fact of manufacture and clearance of processed fabric and also contravened various provisions of Central Excise Rules as enumerated above with intent to evade payment of Central Excise duty. The central excise duty amounting toRs.6,32,71,655.00 not paid, therefore appears recoverable from them under Rule 9 (2) read with proviso to sub Section (1) of Section 11A of Central Excise Act, by invoking extended period of limitation. It also appeared from the foregoing that WBF are liable to penalty under Rule 9(2), 52A, 173 Q and 226 of the Central Excise Rules for contravening various provisions of Central Excise Rules,1944.
2.9 Appellant 2 was overall in-charge and responsible to the company for conduct of its business and the excise duty so evaded not paid was under his direction during the material period, in as much as he appeared to have concerned himself in the manufacture and clearance of processed fabric clandestinely, which he knew and had reasons to believe were liable for confiscation. He, therefore, appeared liable to penalty under Rule 209 A of the Central Excise Rules.
2.10 A Show Cause Notice dated 17.02.2000 was issued to Appellant 1 asking him to show cause as to why:-
i. Central Excise duty amounting to Rs. 6,32,71,655.00 should not be demanded and recovered from them Excise Appeal Nos.70780 & 70781 of 2016 6 under Rule 9 (2) of the Central Excise Rules, 1944 read with proviso to sub-section (1) of Section 11 A; of the Central Excise Act, 1944.
ii. Penalty should not be imposed upon them under Rules 9 (2), 52 A, 173 Q and 226 of the Central Excise Rules, 1944 for contravening various provisions of the Central Excise Rule, 1944;
iii. Penalty equal to the amount of Central Excise duty so determined as evaded should not be imposed upon them under Section 11 AC of the Central Excise Act, 1944 and interest at the appropriate rate should not be recovered from them under Section 11 AB of the Central Excise Act, 1944;
iv. Land, building, plant &machinery used in connection with the manufacture of the said goods, should not be confiscated under sub rule (2) of Rule 173 Q of the Central Excise Rules, 1944 2.11 Appellant 2 and Shri Shantanu Kaul, Director, WBF were also asked to show cause as to why penalty under Rule 209 A of the Central Excise Rules, 1944 should not be imposed upon them.
2.12 The show cause notice was adjudicated vide OI0 No. 17/Comm/GZB/2004 dated 16.10.2004 by confirming the demand with interest and imposing penalties.
2.13 Aggrieved appellants filed appeal before CESTAT who vide its Final Order No. 56235-56237/2013 dated 11.04.2013 set aside the aforesaid 0-I-0 and remanded the case for re- adjudication observing as follows:
"After appreciating the submission made by both the sides, we are convinced that the impugned order stands passed in violation of principles of natural justice. The Commissioner is relying upon the statements of various persons recorded during the investigation. The appellant had made a request to Put the said deponents to cross examination so that to test the veracity of the correctness of the said statements.
Excise Appeal Nos.70780 & 70781 of 2016 7 However, the Commissioner has denied the cross examination on the ground. that it was made after a period of two years from the date of issuance of the show cause notice and such a belated request cannot be accepted. We note that the show cause notice was issued in the year Feb. 2000. After comply of supply of relied upon documents, the appellant vide interim letter dated 24.10.2002 made a request from different witnesses for examination which request stands denied.
2. We find no merits in the reasons adjudicated by the Commissioner for denying the cross examination's request which was made in the year 2002. He has passed the impugned order in 2004 i.e. after lapse of 2 years from the date of making the request. As such, the appellant cannot be attributed to any malafide intention to delay the adjudication proceedings on account of cross examination. Even otherwise, it is well settled that the witnesses whose statements are being strongly relied upon by the Revenue, in support of their allegations are required to be tested as to their correctness by the tool of cross examination. Revenue's reliance on the Supreme Court's decision in the case of Kanungo & Co.Vs. Collector of Customs, Calcutta & Others reported in 1983 (13) ELT 1486 (S.C.) laying down that principles of natural justice is not violated, ifthe person giving the information is not allowed cross examination is not relevant. The issue before the Hon'ble Supreme Court in that case was cross examined of the informer about the smuggling activities relating to watches. As such, we note that the said decision is not applicable
3. As against the above decision, ld. Sr. Advocate has been able to place before us number of decisions of the Hon'ble Supreme Court as also of various other cross examinations laying down that it is the duty of all the quasi judicial authorities adjudicating the matter that rules of natural justice are followed to secure justice or to prevent mis-
Excise Appeal Nos.70780 & 70781 of 2016 8 carriage of justice. While dealing with the evidence of a witness, their lordship observed that the opportunity to prove the correctness or completeness of the return would, therefore, necessarily carry with it the right to examine the witnesses and that would include equally the right to cross examine witnesses examined by Sales Tax Officer. This was so observed by Hon'ble Supreme Court in the case of State of Kerala Vs. K.T Shaduli Grocery Dealer reported in AIR 1977 Supreme Court 1627 Similarly in the case of Laxman Exports Ltd. Vs. CCE reported in 2002 (143) ELT 21 (SC), it has been observed that inasmuch as the assessee specifically asked to CPOSS examine the representatives to establish that the goods had been accounted for and appropriate duty had been paid, the impugned order had to be set aside and the matter is required to be remanded for de novo consideration.
4. In fact, we find that the above issue is no more res integra and stands decided by ample number of cases and no purpose is going to be served by referring to all such decisions. Inasmuch as the Revenue's case is mainly and strongly based on the statements of the dealers (customers of the appellant), we are of the view that such deponents be tendered for cross examination so as to test the veracity of their statements and to satisfy the principles of natural justice.
5. Ld. Joint CDR submitted that apart from the said statements, there are pther statements on record indicating the clandestine activities of the appellant. However, when questioned whether the said statements of the buyers can be laken out for consideration on account of non-tendering of the deponents for cross examination, she did not agree to the same. As such, it becomes clear that statements of the buyers are crucial piece of evidence and the evidentiary value of the same is required to be adjudged by allowing the cross examination the deponents Excise Appeal Nos.70780 & 70781 of 2016 9 for which a proper opportunity is required to be given to them of
6. Ld Advocate has also raised a plea that their total installed capacity if worked on the basis of 24 x 7 for 354 would not reach the production as alleged by the Revenue
7. We find that the said plea was not taken before the Commissioner and inasmuch as we have proceeded to remand the matter, the appellant is at liberty to raise the above issue before the adjudicating authority.
8. At this stage, ld. Advocate has also drawn our attention to the plea made by him as regards the supply of report by Delhi Commissioner as detailed in para-4 of his reply. He has further submitted that the Commissioner has also referred to the manufacturing process from some of the technical books and on going through the said books, we find that the same are not available on the relevant pages as mentioned by him. As the matter is being remanded, we direct the Commissioner to provide the copies of the relevant extracts from the technical books on which he intends to rely to the appellant so as to seek their comments on-the same.
9. For all the reasons, detailed above we deem it fit to set aside, the impugned order and remand the matter to the Commissioner for fresh adjudication after observing the principles of natural justice as indicated above We make it clear that we have not heard both the sides on merits and have not expressed any views on merits of the case. The Adjudicating Authority is free to deal with the same in the manner, he deems fit."
2.14 The matter has been adjudicated in de-novo proceedings by the impugned order. Aggrieved appellants have filed this appeal.
Excise Appeal Nos.70780 & 70781 of 2016 10 3.1 We have Shri R Sudhinder and Shri Tanmay Sadh, Advocate for the appellants and Shri A K Choudhary, Authorized Representative for the revenue.
3.2 Arguing for the appellant learned counsel submits that-
The demand has been made against the appellant on the basis of the o Statements of employees of the appellant 1 and their customers. These statement being made on the basis of assumptions or prejudices do not constitute reliable piece of evidence o Certain excerpts from the by Dr Shenai which is totally irrelevant as the same is in respect of the processes which the appellant do not undertake. Most of the person whose statement has been relied upon were the customers of Appellant 1, who supplied grey fabrics and exported the printed fabrics. These persons were not aware of the processes undertaken by the appellant and the manner in which they were undertaken. Other person whose statements have been relied were not even connected with the production process and were working in capacity of clerk, accountant etc, part-time or otherwise.
Reliance placed on these statements which are tutored and doctored is bad in law.
Shri Ratan Kaul and Shri Shatanu Kaul directors with the appellant 1 never admitted to the use of power in the process of manufacture.
People in their cross examination specifically admitted that they have not visited the premises of appellant and observed the processes undertaken The printing process by Sodium Silicate method is done by hand on tables. The disposition during cross examination are contradictory to the statements made in the statements relied for making this demand.
Excise Appeal Nos.70780 & 70781 of 2016 11 All the persons whose statement were recorded have not appeared for cross examination and hence their statements should not be relied upon.
Commissioner has relied upon his personal knowledge or certain evidences which were never made available to conclude that the process undertaken was with the aid of power.
Sodium Silicate process adopted by the appellant is distinct from the Silicone method which uses oil based softeners for softening the fabric and the process used by them is distinct from the process used by jaipur and Jodhpur units. The finding that appellant was taking steam from the boiler is without any evidence. They are producing detailed process flow chart and photigraohs of their process to show that the entire process carried out by them was without use of power.
Allegation that code washing was used to cover up the clandestine operations is without any basis. The word washing used on invoices was only for coding. Washing is not restricted exclusively to washing but inclusive of printing, dyeing and bleaching along with washing. The advers inference drawn on the basis of various invoices and statements of various customer are misplaced and not justified.
Impugned order do not record any reason for rejecting the the claim of appellant to effect that the production on which duty was demanded was much more than the installed capacity of the appellant.
The quantity of the fabrics processed with the Aid of power was duly recorded in the statutory records of the appellant.
Exemption under Notification No 41/95-CE and 4/97-CE was in respect of the goods produced without the aid of power. When the manufacturer in the same premises is having facility to manufacture the goods with aid of power and without aid of power, then benefit of exemption on the Excise Appeal Nos.70780 & 70781 of 2016 12 goods which are produced without aid of power cannot be denied just for reason that there was facility to produce goods with aid of power.
The cost of the grey which is most critical for determination of the value of goods is not known to the appellant. They are doing the job work on the fabric provided to them by their customers.
Extended period of limitation is not available in the present case as entire process were undertaken by the appellant in their factory premises which was visited by the revenue officers for various purpose including audit. Penalties imposed cannot be sustained. Reliance is placed on the following decisions in support of their submissions.
o Andaman Timber Industries [2016 (15) SCC 785] o Swadeshi Polytex Ltd. [2000 (122) ELT 641 (SC)] o Karan Traders [2016 SCC Online Mad 11036] o Balajee Perfumes [ Delhi High Court Order dated 11.04.2017 in CEAC 11/2016] o Agarwal Round Rolling Mills Ltd. [2014 SCC Online CESTAT 4928] 3.3 Learned Authorized representative reiterated the findings recorded in the impugned order.
4.1 We have considered the impugned order along with the submissions made in appeal and during the course of arguments.
4.2 As directed by this Tribunal, the impugned order has been passed after providing the appellant with the opportunity to cross examination of the witness whose submissions have been recorded, who have been relied upon to make the demand, extract of technical literature were also provided to the appellants.
4.3 The party had provided list of 50 persons for the cross examination including their director. Summons were issued to all 50 persons to appear for cross examination and only three persons turned up for the cross examination, two persons were Excise Appeal Nos.70780 & 70781 of 2016 13 reported to be expired and seven persons were reported that they were medically unfit for the cross examination, in all other cases the summons were returned undelivered. Subsequently, summons were issued to other witness. Other 36 witnesses on their alternative addresses available on the record, out of 36 witnesses only 3 turned up. Thereafter, it was decided with the consent of the appellant that matter can be taken up for adjudication without wait for cross examination of the other witnesses, thereafter personal hearing was held.
4.4 In para 24.2, Commissioner has in respect of witnesses who did not turn up for cross examination, whose statements are relied upon in the show cause notice, observed as follows:-
"24.2 The party have also contended that the statements of those witnesses who did not turn up for cross- .examination should not be made relied upon in the present case. I find that the relevancy of a statement recorded under Section 14 of the Central Excise Act, 1944 is dealt under Section 9D of the Central Excise Act,1944 which reads as under:-
"(1) A statement made and signed by a person before any Central Excise Officer of a Gazette rank during the course of any inquiry or proceeding under this Act shall be relevant, for the purpose of proving, in any prosecution for an offence under this Act, the truth of the facts which it contains, -
(a) when the person who made the statement is dead or cannot be found, or is incapable of giving evidence, or is kept out of the way by the adverse party, or whose presence cannot be obtained without an amount of delay or expense which, under the Circumstances of the case, the Court considers unreasonable; or
(b) when the person who made the statement is examined as a witness in the case before the Court and the Court is of opinion that, having regard to the circumstances of the Excise Appeal Nos.70780 & 70781 of 2016 14 case, the statement should be admitted in e·;idence in the interests of justice.
(2) The provisions of sub-section (1) shall, so far as may be, apply in relation to any proceeding under this Act, other than a proceeding before a Court, as they apply in relation to a proceeding before a Court."
The above provisions explain the circumstances under which a statement already recorded can be considered as valid evidence:-
i. When the person who tendered statement is dead, ii. When the person who had given statement is not found, iii. When the person whose statement was earlier taken is not able to give evidence, iv. When the presence of the person whose statement was earlier recorded is hindered, v. When the presence of the persons who tendered statement cannot be ensured without delay. Thus, it is visualized from the above that in case a witness does not turn up for cross examination, his statement which was earlier recorded cannot be ignored automatically.
In this context, I may also like to refer the decision of the Hon'ble Supreme Court in the case of Duncan Agro Industries [2000(120) EL T 280(SC)] wherein it was held that "we hold that a statement recorded by Customs Officer under Section 108 of the Customs Act,1962 is admissible in evidence. The Court has to test whether the inculpating portions were made voluntarily or whether it is vitiated on account of any of premises envisaged in Section 24 of the Evidence Act." It means a voluntarily tendered statement before the Customs Officer has evidentiary value. The provisions of Section 14 of the Central Excise Act,1944 being parimateria to Section Excise Appeal Nos.70780 & 70781 of 2016 15 108 of the Customs Act,1962, the ratio of the said decision would also be applicable to the Central Excise matters. In the case of J&K Cigarettes Ltd [2009 (242) E.L.T. 189 (Del.)], the Hon'ble Delhi High Court dealing with the issue relating to validity of Section 9 D of the Central Excise Act,1944 has observed thus:-
" ...... There are the circumstances which naturally would be beyond the control of the parties and it would not be possible to produce such a person for cross-examination who had made a statement on earlier occasion. The provisions under Section 9D of the Act are necessary to ensure that under certain Circumstances, as enumerated therein, viz. if the witness has been won over by the adverse party or is avoiding appearance despite several opportunities being given. The rationale is that decision making in a case cannot be allowed to continue in perpetuity. These provisions are based on the Doctrine of Necessity. It provides for relevancy of statements recorded under Section 14 of the Act dispensing with or without the opportunity for testing the truth of such evidence by cross- examination. For, when a person is dead or incapable of giving evidence or cannot be found, no better evidence can be had in the circumstances than the statement tendered by witnesses before a quasi-judicial authority."
In view of the above Judicial decisions, I turn down the submission of the party to exclude the statements of the witnesses who did not appear for cross-examination for being relied upon documents."
4.5 The above findings recorded in the impugned order go contrary to the decision of Hon'ble Punjab and Haryana High Court in the case of Ambika International [2018 () ELT (P & H)], wherein following has been held:-
15. A plain reading of sub-section (1) of Section 9D of the Act makes it clear that clauses (a) and (b) of the said sub-
section set out the circumstances in which a statement, Excise Appeal Nos.70780 & 70781 of 2016 16 made and signed by a person before the Central Excise Officer of a gazetted rank, during the course of inquiry or proceeding under the Act, shall be relevant, for the purpose of proving the truth of the facts contained therein.
16. Section 9D of the Act came in from detailed consideration and examination, by the Delhi High Court, in J.K. Cigarettes Ltd. v. CCE, 2009 (242) E.L.T. 189 (Del.). Para 12 of the said decision clearly holds that by virtue of sub-section (2) of Section 9D, the provisions of sub-section (1) thereof would extend to adjudication proceedings as well.
There can, therefore, be no doubt about the legal position that the procedure prescribed in sub-section (1) of Section 9D is required to be scrupulously followed, as much in adjudication proceedings as in criminal proceedings relating to prosecution.
17. As already noticed herein above, sub-section (1) of Section 9D sets out the circumstances in which a statement, made and signed before a gazetted Central Excise Officer, shall be relevant for the purpose of proving the truth of the facts contained therein. If these circumstances are absent, the statement, which has been made during inquiry/investigation, before a gazetted Central Excise Officer, cannot be treated as relevant for the purpose of proving the facts contained therein. In other words, in the absence of the circumstances specified in Section 9D(1), the truth of the facts contained in any statement, recorded before a gazetted Central Excise Officer, has to be proved by evidence other than the statement itself. The evidentiary value of the statement, insofar as proving the truth of the contents thereof is concerned, is, therefore, completely lost, unless and until the case falls within the parameters of Section 9D(1).
18. The consequence would be that, in the absence of the circumstances specified in Section 9D(1), if the adjudicating Excise Appeal Nos.70780 & 70781 of 2016 17 authority relies on the statement, recorded during investigation in Central Excise, as evidence of the truth of the facts contained in the said statement, it has to be held that the adjudicating authority has relied on irrelevant material. Such reliance would, therefore, be vitiated in law and on facts.
19. Once the ambit of Section 9D(1) is thus recognized and understood, one has to turn to the circumstances referred to in the said sub-section, which are contained in clauses (a) and (b) thereof.
20. Clause (a) of Section 9D(1) refers to the following circumstances :
(i) when the person who made the statement is dead,
(ii) when the person who made the statement cannot be found,
(iii) when the person who made the statement is incapable of giving evidence,
(iv) when the person who made the statement is kept out of the way by the adverse party, and
(v) when the presence of the person who made the statement cannot be obtained without unreasonable delay or expense.
21. Once discretion, to be judicially exercised is, thus conferred, by Section 9D, on the adjudicating authority, it is self-evident inference that the decision flowing from the exercise of such discretion, i.e. the order which would be passed, by the adjudicating authority under Section 9D, if he chooses to invoke clause (a) of sub-section (1) thereof, would be pregnable to challenge. While the judgment of the Delhi High Court in J&K Cigarettes Ltd. (supra) holds that the said challenge could be ventilated in appeal, the petitioners have also invited attention to an unreported short order of the Supreme Court in UOI and Another v. GTC India and Others in SLP (C) No. 2183 of 1994, dated 3- Excise Appeal Nos.70780 & 70781 of 2016 18 1-1995 wherein it was held that the order passed by the adjudicating authority under Section 9D of the Act could be challenged in writ proceedings as well. Therefore, it is clear that the adjudicating authority cannot invoke Section 9D(l)(a) of the Act without passing a reasoned and speaking order in that regard, which is amenable to challenge by the assessee, if aggrieved thereby.
22. If none of the circumstances contemplated by clause
(a) of Section 9D(1) exists, clause (b) of Section 9D(1) comes into operation. The said clause prescribes a specific procedure to be followed before the statement can be admitted in evidence. Under this procedure, two steps are required to be followed by the adjudicating authority, under clause (b) of Section 9D(1), viz.
(i) the person who made the statement has to first be examined as a witness in the case before the adjudicating authority, and
(ii) the adjudicating authority has, thereafter, to form the opinion that, having regard to the circumstances of the case, the statement should be admitted in evidence in the interests of justice.
23. There is no justification for jettisoning this procedure, statutorily prescribed by plenary parliamentary legislation for admitting, into evidence, a statement recorded before the gazetted Central Excise Officer, which does not suffer from the handicaps contemplated by clause (a) of Section 9D(1) of the Act. The use of the word "shall" in Section 9D(1), makes it clear that, the provisions contemplated in the sub-section are mandatory. Indeed, as they pertain to conferment of admissibility to oral evidence they would, even otherwise, have to be recorded as mandatory.
24. The rationale behind the above precaution contained in clause (b) of Section 9D(1) is obvious. The statement, recorded during inquiry/investigation, by the gazetted Central Excise Officer, has every chance of having been Excise Appeal Nos.70780 & 70781 of 2016 19 recorded under coercion or compulsion. It is a matter of common knowledge that, on many occasions, the DRI/DGCEI resorts to compulsion in order to extract confessional statements. It is obviously in order to neutralize this possibility that, before admitting such a statement in evidence, clause (b) of Section 9D(1) mandates that the evidence of the witness has to be recorded before the adjudication authority, as, in such an atmosphere, there would be no occasion for any trepidation on the part of the witness concerned.
25. Clearly, therefore, the stage of relevance, in adjudication proceedings, of the statement, recorded before a gazetted Central Excise Officer during inquiry or investigation, would arise only after the statement is admitted in evidence in accordance with the procedure prescribed in clause (b) of Section 9D(1). The rigour of this procedure is exempted only in a case in which one or more of the handicaps referred to in clause (a) of Section 9D(1) of the Act would apply. In view of this express stipulation in the Act, it is not open to any adjudicating authority to straightaway rely on the statement recorded during investigation/inquiry before the gazetted Central Excise Officer, unless and until he can legitimately invoke clause
(a) of Section 9D(1). In all other cases, if he wants to rely on the said statement as relevant, for proving the truth of the contents thereof, he has to first admit the statement in evidence in accordance with clause (b) of Section 9D(1). For this, he has to summon the person who had made the statement, examine him as witness before him in the adjudication proceeding, and arrive at an opinion that, having regard to the circumstances of the case, the statement should be admitted in the interests of justice.
26. In fact, Section 138 of the Indian Evidence Act, 1872, clearly sets out the sequence of evidence, in which Excise Appeal Nos.70780 & 70781 of 2016 20 evidence-in-chief has to precede cross-examination, and cross-examination has to precede re-examination.
27. It is only, therefore, -
(i) after the person whose statement has already been recorded before a gazetted Central Excise Officer is examined as a witness before the adjudicating authority, and
(ii) the adjudicating authority arrives at a conclusion, for reasons to be recorded in writing, that the statement deserves to be admitted in evidence, that the question of offering the witness to the assessee, for cross-examination, can arise.
28. Clearly, if this procedure, which is statutorily prescribed by plenary parliamentary legislation, is not followed, it has to be regarded, that the Revenue has given up the said witnesses, so that the reliance by the CCE, on the said statements, has to be regarded as misguided, and the said statements have to be eschewed from consideration, as they would not be relevant for proving the truth of the contents thereof.
29. Reliance may also usefully be placed on para 16 of the judgment of the Allahabad High Court in C.C.E. v. Parmarth Iron Pvt. Ltd., 2010 (260) E.L.T. 514 (All.), which, too, unequivocally expound the law thus :
"If the Revenue choose (sic chose?) not to examine any witnesses in adjudication, their statements cannot be considered as evidence."
30. That adjudicating authorities are bound by the general principles of evidence, stands affirmed in the judgment of the Supreme Court in C.C. v. Bussa Overseas Properties Ltd., 2007 (216) E.L.T. 659 (S.C.), which upheld the decision of the Tribunal in Bussa Overseas Properties Ltd. v. C.C., 2001 (137) E.L.T. 637 (T).
Excise Appeal Nos.70780 & 70781 of 2016 21
31. It is clear, from a reading of the Orders-in-original dated 19-5-2016 and 1-6-2016 supra, that respondent No. 2 has, in the said Orders-in-Original, placed extensive reliance on the statements, recorded during investigation under Section 14 of the Act. He has not invoked clause (a) of sub-section (1) of Section 9D of the Act, by holding that attendance of the makers of the said statements could not be obtained for any of the reasons contemplated by the said clause. That being so, it was not open to respondent No. 2 to rely on the said statements, without following the mandatory procedure contemplated by clause (b) of the said sub-section. The Orders-in-Original dated 19-5-2016 and 1-6-2016, having been passed in blatant violation of the mandatory procedure prescribed by Section 9D of the Act, it has to be held that said Orders-in-Original stand vitiated thereby.
Same view was expressed by Punjab & Haryana High Court in case of Jindal Drugs Pvt Ltd. [2016 (340) E.L.T. 67 (P & H)], G Tech Industries [2016 (339) E.L.T. 209 (P & H)] Punjab and haryan High Court has been relied by Hon'ble Delhi High Court in the case of Its My Name Pvt. Ltd. [2021 (375) E.L.T. 545 (Del.)] and Hon'ble Chhattisgarh High Court in case of Hi Tech Abrasives Ltd. [2018 (362) E.L.T. 961 (Chhattisgarh)] observed as follows:
"On scanning the anatomy of the said provision, we find that the statement made and signed by a person before any Central Excise Officer of a gazetted rank during the course of inquiry or proceeding under the Act shall be relevant for the purposes of proving truth of the facts which it contains only when it fulfills the conditions prescribed in clause (a) or as the case may be, under clause (b). While clause (a) deals with certain contingencies enumerated therein, clause (b) provides that statement made and signed would be relevant for the purposes of proving the truth of the facts contained in that statement only when the person whom made the Excise Appeal Nos.70780 & 70781 of 2016 22 statement is examined as witness before the Court. (her, the adjudicating authority).
9.2 At this juncture, we need to notice the provision contained in Section 9D which provides that sub-section (1) shall, as far as may be, applied in relation to the proceedings under the Act, other than the proceeding before the court, as they apply in relation to proceeding before the Court. This provision when read in juxtaposition, the small clauses (a) and (b) under sub-section (1), requirement of law of recording of examination as witness would be in relation to the proceedings before the adjudicating authority.
9.3 A conjoint reading of the provisions therefore reveals that a statement made and signed by a person before the Investigation Officer during the course of any inquiry or proceedings under the Act shall be relevant for the purposes of proving the truth of the facts which it contains in case other than those covered in clause (a), only when the person who made the statement is examined as witness in the case before the court (in the present case, Adjudicating Authority) and the court (Adjudicating Authority) forms an opinion that having regard to the circumstances of the case, the statement should be admitted in the evidence, in the interest of justice.
9.4 The legislative scheme, therefore, is to ensure that the statement of any person which has been recorded during search and seizure operations would become relevant only when such person is examined by the adjudicating authority followed by the opinion of the adjudicating authority then the statement should be admitted. The said provision in the statute book seems to have been made to serve the statutory purpose of ensuring that the assessee are not subjected to demand, penalty interest on the basis of certain admissions recorded during investigation which may Excise Appeal Nos.70780 & 70781 of 2016 23 have been obtained under the police power of the Investigating authorities by coercion or undue influence.
9.5 Undoubtedly, the proceedings are quasi criminal in nature because it results in imposition of not only of duty but also of penalty and in many cases, it may also lead to prosecution. The provisions contained in Section 9D, therefore, has to be construed strictly and held as mandatory and not mere directory. Therefore, unless the substantive provisions contained in Section 9D are complied with, the statement recorded during search and seizure operation by the Investigation Officers cannot be treated to be relevant piece of evidence on which a finding could be based by the adjudicating authority. A rational, logical and fair interpretation of procedure clearly spells out that before the statement is treated relevant and admissible under the law, the person is not only required to be present in the proceedings before the adjudicating authority but the adjudicating authority is obliged under the law to examine him and form an opinion that having regard to the circumstances of the case, the statement should be admitted in evidence in the interest of justice. Therefore, we would say that even mere recording of statement is not enough but it has to be fully conscious application of mind by the adjudicating authority that the statement is required to be admitted in the interest of justice. The rigor of this provision, therefore, could not be done away with by the adjudicating authority, if at all, it was inclined to take into consideration the statement recorded earlier during investigation by the Investigation officers. Indeed, without examination of the person as required under Section 9D and opinion formed as mandated under the law, the statement recorded by the Investigation Officer would not constitute the relevant and admissible evidence/material at all and has to be ignored. We have no hesitation to hold that the adjudicating officer as well as Customs, Excise and Service Tax Appellate Tribunal committed illegality in placing Excise Appeal Nos.70780 & 70781 of 2016 24 reliance upon the statement of Director Narayan Prasad Tekriwal which was recorded during investigation when his examination before the adjudicating authority in the proceedings instituted upon show cause notice was not recorded nor formation of an opinion that it requires to be admitted in the interest of justice. In taking this view, we find support from the decision in the case of Ambica International v. UOI rendered by the High Court of Punjab and Haryana.
Reliance has been placed by the Counsel for the Revenue on the decision in the matter of Commissioner of Central Excise v. Kalvert Foods India Private Limited (Laws (SC) 2011 838) = 2011 (270) E.L.T. 643 (S.C.). That decision turned on its own facts. In para 19 of the judgment, it was concluded as below :
"19. We are of the considered opinion that it is established from the record that the aforesaid statements were given by the concerned persons out of their own volition and there is no allegation of threat, force, coercion, duress or pressure being utilized by the officers to extract the statements which corroborated each other. Besides the Managing director of the Company of his own volition deposition the amount of Rs. 11 lakhs towards excise duty and therefore in the facts and circumstances of the present case, the aforesaid statement of the Counsel for the Respondents cannot be accepted. This fact clearly proves the conclusion that the statements of the concerned persons were of their volition and not outcome of any duress."
Accordingly, on the first and second question of law, we hold that the statement of the Director could not be treated as relevant piece of evidence nor could be relied upon without compliance of Section 9D of the Act. The two questions of law accordingly, stand answered in that manner."
Excise Appeal Nos.70780 & 70781 of 2016 25 4.6 Thus we do not find any merits in the observations of the adjudicating authority which run contrary to the above decisions of Hon'ble High Court. Statements which can be relied upon by the adjudicating authority should either fall under category of exceptions as per Section 9D of Central Excise Act, 1944 or should have been tested by way of cross examination before the adjudicating authority in the manner as provided by this section.
4.7 Be that as it is, on merits of the issue following findings has been recorded:-
"26. It has been alleged in the Show Cause Notice that there was only one factory at the given address at G.T.Road, Opposite Pawan Cinema, Ghaziabad in the name and style as M/s Webbing & Belting Factory Pvt. Limited which were engaged in the processing of grey fabrics with the aid of power and were dutiable goods. It has further been alleged that EHW was artificially created only on paper as subsidiary company. It has been wrongly claimed by the party that EHW was engaged in working of processing (printing of fabrics) within factory premises of WBF without aid of power thereby exempted from excise duty. With a view to examine the genuineness of existence of EHW, I consider the ground Lay-Out plan which was submitted by the party vide their letter dated 24.10.2002 as Annexure-IV. The display- photo of the Lay-Out Plan of WBF as submitted by the party is reproduced below:-
Excise Appeal Nos.70780 & 70781 of 2016 26 A careful scrutiny of the above Lay Out plan reveals that there was no proper demarcation between plant of WBF and so called EHW. The operation of both plants was intermixed and so closely connected that it could not be demarcated by any stretch of imagination inasmuch as on the side of EHW, there were Flatbeds printing machines of WBF. It was shown in the Lay Out plan that there was Excise Appeal Nos.70780 & 70781 of 2016 27 common grey fabrics godown and dyes store for both WBF & EHW. Water Tanks for washing for WBF & EHW were shown adjoining to each other and seems to have been artificially segregated. Boiler was shown to be connected to water- tanks shown for EHW for getting water. There was common entrance. It is significant to note that the party had themselves declared the whole Lay-Out plan for WBF. The Lay-Out plan is indicative enough that there was no separate existence of EHW factory.
26.1 The definition of 'factory' is provided under Section 2
(e) .of the Central Excise Act, 1944 as under:-
"2{e) ''factory" means any premises, including the precincts thereof, wherein or in any part of which excisable goods other than salt are manufactured, or wherein or in any part of which any manufacturing process connected with the production of these goods is being carried on or is ordinarily carried on;"
Before explaining the above definition, it is necessary to understand the meaning of word 'precincts'. I, therefore, propose to have dictionary meaning of the said word. As per Cambridge Dictionary, 'precincts' means the area that surrounds a building or place, specially a wall around it;
According to Oxford Dictionary, 'precincts' mem1s an area within the walls or perceived boundaries of a particular building or place;
In the Free Dictionary, 'precincts' means the neighbourhood or surrounding area.
The above definitions indicate that an area within walls will be treated as part of the factory. The Lay-Out plan, as discussed above, reveals that the whole area is surrounding of a premises of WBF, hence, the whole area as shown in the Lay-Out plan is factory of WBF. In support of my above findings, I place reliance on the decision of the CESTAT in the case of Dhampur Sugar Excise Appeal Nos.70780 & 70781 of 2016 28 Mills Ltd [2001(129) ELT 73 (T)] subsequently approved by the Supreme Court, as reported [2007(216)ELTA(23) ], where it has been held that:-
"We have considered the submissions of both the sides. As per Section 2(e) of the Central Excise Act ''factory" means any premises, including the precincts thereto, wherein or in any part of which excisable goods other than the salt are manufactured, or wherein or in part of which any manufacturing process connected with the production of these goods is being carried on or is ordinarily carried on. It has not been disputed by the Revenue that all the three plants manufacturing different excisable goods are situated in the same premises. The Revenue is treating them as different factory only on account of appellants taking three registrations under Rule 174 of the Central Excise Rules. The number of registrations, in our view, will not decide the number of factories unless and until they are situated in different premises. It is very clear from the definition of the term 'factories" that all the three units will be regarded as one factory as all the excisable goods are manufactured in the same premises."
In view of the above legally settled position, I am inclined to hold that the whole area depicted in the Lay-Out plan is one factory.
27. I further find that Shri Rattan Kaul Managing Director WBF in his statement dated 04/08/99 stated that EHW was formed in 1995 as subsidiary company of WBF. However, nothing was produced to prove that EHV was registered as company under the Company Act, 1956. The term 'subsidiary company' is defined as under:-
"subsidiary company" or "subsidiary': in relation tc any other company (that is to say the holding company), means a company in which the holding company-
(i) controls the composition of the Board of Directors,· or Excise Appeal Nos.70780 & 70781 of 2016 29
(ii) exercises or controls more than one-half of the total share capital either at its own or together with one ot more of its subsidiary companies:
Provided that such class or classes of holding companies as may be prescribed shall not have layers of subsidiaries beyond such numbers ds may be prescribed. The above definition makes it clear that for being a company as subsidiary of any company, the first & foremost requirement is that there must be a company. A company is defined under the Company Act,,1956 as under:-
"company" means a company incorporated under this Act or under any previous company law;
There is no proof that EHW was incorporated as company under the Company Act. It shows that in fact there was no company like EHW. The employees were common as admitted by Shri Rattan Kaul in his above statement that same employees were working in EHW and WBF. Electricity connection was also common besides common premises and infrastructure.
The above facts are indicative that practically there was only one unit working as WBF. EHW was created only on paper with an intent to evade excise duty by declaring production of EHW without aid of power while there was no such unit like EHW. The contention of the party that unit of EHW was separated from WBF by a wall of 10 feet height does not find any strength in view of Lay-Out plan where no such demarcation seems. In the Lay Out plan intermixing of both units is clearly visible. The store-room for dyes, godown for grey fabrics and water tanks are visibly common. In view of the above, I am compelled to hold that no separate unit for EHW exists. Analysis of process of production:
28.It is observed that processing of bleaching, dyeing, printing, shrink proofing, tentering, heat-setting, crease-
Excise Appeal Nos.70780 & 70781 of 2016 30 resistant processing, any other like processing and any combination of such processes relating to textile material falling under Chapter 52, 54 & 55 of the Central Excise Tariff amount to 'manufacture' and fabrics appearing consequent to above processes have always been dutiable. However, in case, above processes are carried out without aid of power and steam, the processed fabrics emerging in this way have been exempted from excise duty under various Notifications issued from time to time. the party have contended that in their WBF (Printing unit) they used Discharge printing method for printing of textile fabrics with aid of power and in their EHW unit they were carrying out manual printing on fabrics by using Procion dyes by way of Sodium Silicate Padding Process. In support of their contention, they have submitted that they used to purchase Sodium Silicate which was an essential chemical for hand printing. In this context, I find from the examination of Lay-Out plan submitted by the party that there were Flatbeds textile printing machines installed in the factory. Flatbeds printing machines are used for printing by way of screen printing. The claim of the party that they were carrying out only discharge printing does not appear to be correct inasmuch as discharge printing is done only on dyed fabrics as is evident from the Encyclopedia Britannica available at www.britannica.com/technology/discharge-printing which reads as under:
"Discharge printing, also called Extract Printing, method of applying a design to dyed fabric by printing a colour- destroying agent, such as chlorine or hydrosulfite, to bleach out a white or light pattern on the darker coloured ground. In colour-discharge printing, a dye impervious to the bleaching agent is combined with it, producing a coloured design instead of white on the dyed ground."
Excise Appeal Nos.70780 & 70781 of 2016 31 However, on perusal of challans available on records, it has been noticed that WBF were receiving grey fabrics for printing. Some of such challans are shown below:-
Supplier name Challan No. & Date Ashion India 13 dated 23.07.92 Peach Incorporated 12 dated 28.07.2002
It shows that WBF were carrying out screen printing also in addition to discharge printing. Screen printing is a method whereby an open, but closely meshed screen, mounted in a wooden or metal frame, is placed in contact with the fabric to be printed and the print paste forced through the screen by a squeegee (implement edged with rubber for sweeping water from surfaces). The design is created by painting out or otherwise making opaque portions of the screen, thus preventing the print paste from passing through. Those areas where the print paste does pass through will register as the printed pattern. There are actually three methods of screen printing, each of which embodies the same principle. The first, hand screen printing, the second method is automatic screen printing or flat bed printing or automatic flat printing and the third method is the rotary screen printing or rotary printing. In the case of Automatic Screen Printing (Flat Bed Printing) which is like hand screen printing except that the process is automated and therefore, faster, instead of the long table on which the fabric to be printed is spread (as in hand screen printing), the fabric is moved to the screens on a wide rubberized belt. Like hand screen printing, it is an intermittent rather than a continuous process. In this instance, the fabric moves to the screen, then stops for the screen squeegee action (which is done automatically). After the squeegee action, the fabric moves again to the next screen frame. The rate of production is about 500 yards per hour. Automatic screen printing is utilized for whole rolls of fabric only.
Excise Appeal Nos.70780 & 70781 of 2016 32
29. It may be noticed that screen making is first requirement for screen printing. Screens are a wooden or metal frame with polyester fabric stretched onto them which has anywhere from 25 threads per inch, to 355 threads per inch (mesh count). The mesh count is used to determine by the type of design which is to be printed. The finer the detail in the design, the higher the screen mesh count will be Light sensitive emulsion is applied to the screen mesh. After the light sensitive emulsion has dried, the artwork is fixed to the back of the screen mesh by using tape. Then, the screen is placed on a device that emits light, called an exposure unit and expose the screen with light for a short period of time.
The dark areas (the image) on the film positive will prevent light from passing through and exposing the screen, The light will pass through clear areas of the film positive (where there is no design) and harden the emulsion. Next, the screen is taken from the exposure unit and is washed with water. The water will not wash out the hardened emulsion. The water will wash out the soft areas that the light did not expose. In this way, a screen that has an image in it is formed. The ink will pass through the open areas of the mesh.
It appears from the process of printing that it starts from the selection of design to be printed even in case Excise Appeal Nos.70780 & 70781 of 2016 33 of hand printing. Once design is decided, the process of making of screen starts. This indicates that use of power is essential even in printing by hand in the present case as making of screen is possible only when exposure unit is used, which is a power operated device. Thus, the use of power is established by WBF even in the case of hand printing operations. The degree of use of power may be on lower side but use of power is confirmed and it is enough to deny the benefit of the exemption notification, In the case of J.K.Cotton Mills [1997(91)ELT34(SC)], the Hon'ble Supreme Court has observed that:-
"The expression "in the manufacture of goods" should normally encompass the entire process carried on by the dealer of converting raw materials into finished goods. Where any particular process is so integrally connected with the ultimate production of goods that but for that process, manufacture or processing of goods would be commercially inexpedient, goods required in that process would, in our judgment, fall within the expression "in the manufacture of goods."
For instance, in the case of action textile manufacturing concern, raw cotton undergoes various processes before cloth is finally turned out. Cotton is cleaned, carded, spun into yarn, then cloth is woven, put on rolls, dyed, calendered and pressed. All these processes would be regarded as integrated processes and included "in the manufacture" of cloth. It would be difficult to regard goods used only in the process of weaving cloth and not goods used in the anterior processes as goods used in the manufacture of cloth. To read the expression "in the manufacture" of cloth in that restricted sense, Excise Appeal Nos.70780 & 70781 of 2016 34 would rise many anomalies. Raw cotton and machinery for weaving cotton and even vehicles for transporting raw and finished goods would qualify under Rule 13, but not spinning machinery, without which the business cannot be carried on. In our jud9ment, Rule 13 does not justify the importation of restrictions which are not clearly expressed, nor imperatively intended. Goods used as equipment, as tools, as stores, as spare parts, or as accessories in the manufacture or processing of 9oods, in minin9, and in the generation and distribution of power need not, to qualify for special treatment under Section 8(1), be ingredients or commodities used in the processes, nor must they be directly and actually needed for "turning out or the creation of goods."
In view of the above settled position regarding manufacturing of goods, it may be safely concluded that making of screen is also integral process of printing of fabrics and use of power for making such screen would amount manufacturing with aid of power.
I also find that in the case of Rajasthan State Chemical Works [2002-TIOL-66-SC[CX-LB], the Hon'ble Supreme Court has held that:-
"i3. The natural meaning of the word 'process' is a mode of treatment of certain materials in order to produce a good result, a species of activity performed on the subject-matter in order to transform or reduce it to a certain sta9e. According to Oxford Dictionary one of the meanings of the word 'process' is "a continuous and regular action or succession of actions taking place or carried on in a definite manner and Excise Appeal Nos.70780 & 70781 of 2016 35 leading to the accomplishment of some result." The activity contemplated by the definition is perfectly general requiring only the continuous or quick succession. It is not one of the requisites that the activity should involve some operation on some material in order to its conversion to some particular stage. There is nothing in the natural meaning of the word 'process' to exclude its application to handling. There may be a process which consists only in handling and there may be a process which involves no handling or not merely handling but use or also use. It may be a process involving the handling of the material and it need not be a process involving the use of material. The activity may be subordinate but one in relation to the further process of manufacture."
Applying the ratio of the above decision, it is held that the process of making screen for printing is subordinate but it is in relation to process of printing of textile. I, therefore, hold that even if it is presumed and not admitted that EHW was in existence, the process being undertaken for printing of fabrics was with the aid of power, not without aid of power, as claimed by the party. It has been submitted by the party that they were using Procion printing by sodium silicate padding process which is done only in the cases of hand printing. On this issue, I find that Procion is a brand of fibre reactive dyes. They are commonly used in the dyeing of fabrics and other textile crafts. They are dichlorotriazine dyes. Procion MX dyes are suitable for printing on cotton, linen and viscose rayon and have excellent colour fastness, provided they are set using alkaline. Procion Excise Appeal Nos.70780 & 70781 of 2016 36 MX dyes are very reactive and the print paste must be used quickly. The Procion dyes are not only used for hand printing but also when printing is done with the aid of Flatbed Textile printing machines. 30.1 It is further observed that Sodium silicate is a white powder that is readily soluble in water, producing an alkaline solution. Sodium silicate is stable in neutral and alkaline solutions. The sodium silicate is used for adhesive, drilling, water treatment and for dye printing fixation. Sodium silicate solution is used as a fixative for hand dyeing with reactive dyes that require a high pH to react with the textile fiber. After the dye is applied to a cellulose-based fabric, such as cotton or rayon, it is allowed to dry, after which the sodium silicate is .applied on the dyed fabric. It has been stated by the party that sodium silicate solution was heated for preparing it for curing of printed fabrics. The photographs bearing No. 48, 49 & 51 supplied by the party reveal that heating of sodium silicate solution was done by firing woods which is normally not done for commercial production. In reality, steam was taken from the boiler installed in the factory. In the photographs, the party had deliberately shown heating process with wood fire with an intent to deceive the Department that the process was done manually. Furthermore, there is no mention in the balance sheets regarding purchase of woods. So, it is further established that the party were using steam also for finishing of printing.
30.2 The party have claimed that they used padding wash mangle machine for coating of Sodiurn Silicate. A padding machine is used for application of chemicals to fabric in uniform manner. The machine consists of Excise Appeal Nos.70780 & 70781 of 2016 37 two cylindrical rubber bowls with a stainless steel mandrel. The bowls are prefect cylinders with smooth surface and size is generally 170-200 cm in length and 30 -40 cm in diameter. In general the lower bowl is fixed and driven by an electric motor. The top bowl is mounted on arms pivoted at the side in such a way there is a gap (-2Cm) between the two bowls when the machine is not in operation. The upper bowl moves by contact friction generated by the pneumatic pressure. For operation, pneumatic pressure is applied on the top bowl which may be as high as 50 Kg/ cm. The above facts explicitly show that power was used by the party during the course of printing of fabrics. 30.3 In their defence reply, the main emphasis of the party is in relation to use of Sodiurn Silicate which as per their contention is used only when hand printing is done. The fact is that the sole purpose of Sodium Silicate i~ dyeing is to increase the pH value. In using any sort of fibre reactive dyes to dye cotton or any other cellulose fibre, it is necessary to increase the pH (alkalinity) of the reaction. The high pH activates the cellulose fibre molecule so that it can attack the reactive dye molecule and form a permanent chemical bond to it. The ideal pH for the reactive of 'cotton with Procion MX dyes is around 10.5 to 11, the exact best pH depends on the dye and on the fibre being used. The pH of a 40% sodium silicate solution is between 11 and 12.5. The use of Sodium Silicate starts when screen printing with reactive dyes is completed and as already discussed there was facility in the factory of WBF to do screen-printing with flatbeds automatic printing machines.· It shows that only use of Sodium Silicate'' does not give foolproof Excise Appeal Nos.70780 & 70781 of 2016 38 guarantee that dyeing/printing was done manually. Further, it is a known fact that in dyeing industry water pollution is a big problem and polluted water is treated by way of using of sodium silicate. The higher purchase of sodium silicate does not ipso facto higher quantum of hand printing. I, therefore, do not find any force in the contention of the party that purchase of sodium silicate is enough to prove that printing was done by hand.
31. It is a settled principle that exemption Notification requires to be interpreted strictly. The scheme of exemption Notification in the present case shows that Notification No. 41/95-CE dated 16.03.95 provided that:-
....... Central Government hereby exempts ... 'cotton fabrics processed without did of power or steam'. Vide Notification No.4/97-CE dated 01.03.97, an Explanation to that exemption was added as- For the purpose of Cotton Fabrics subjected to the process of colour fixation by passing steam over such fabrics shall be deemed to have been processed without aid of power.
The above exemption was available in subsequent years also. The purpose of notification is to provide exemption to hand printed textile items but if power is used in any way in relation to such process the benefit of Notification would not be available. It is seen that in catena of judicial pronouncements it has been consistently held that an Exemption Notification needs strict interpretation. It means in case, slightest amount of power is used in carrying out processing of fabrics, the benefit granted under the said notification would not be available. In this context I plate reliance on the decision of the Hon'ble Supreme Court in the case of Uttam Excise Appeal Nos.70780 & 70781 of 2016 39 Industries (2011(265) ELT 14(SC)] wherein it has been ruled that 'it is by now a settled law that the exemption notification has to be construed strictly and there has to be strict interpretation of the same by reading the same literally. In this connection reference can be made to the decision of this Court in Collector of Customs (Preventive), Amritsar v. Malwa Industries Limited reported at (2009) 12 SCC 735 =2009 [235) E.L. T. 214 (S.C.) as also to the decision in Kartar Rolling Mills v Commissioner of Central Excise, New Delhi reported at (2006) 4 SCC 772 = 2006 [197) E.L. T. 151 (S.C.) = 2008 (9) S. T.R. 307 (S.C.) wherein also it was held by this Court that finding recorded by the Tribunal and the two authorities below are findings of fact and such findings in absence of evidence on record to the contrary is not subject to interference. In order to get benefit of such notification granting exemption the claimant has to show that he satisfies the eligibility criteria. Since the Tribunal and the authorities below have categorically held that the appellant does not satisfy the eligibility criteria on the basis of the evidence on record, therefore, we hold that the said exemption Notification is not applicable to the case of the appellants.' In view of the above, I am inclined to hold that power was used for printing of fabrics in contrast to claim by the party as that of being printed by hand and as such they are not entitled for exemption.
Analysis of Statements:
32. I further observed that statements of more than fifty persons who were either employees of W.BF or their customers were obtained during course of the Excise Appeal Nos.70780 & 70781 of 2016 40 investigation but no one ever stated that printing was carried out manually by so called EHW. Neither any of customers deposed in their statements that the fabrics received by them after printing under cover of invoices issued by EHW were manually printed fabrics. As regards describing the printing process as 'washing', the party have admitted that 'washing' was only code word but actually they cleared printed fabrics. They have contended that in common trade parlance hand printing process was known as 'washing' but in the statements obtained from a number of customers, no one stated that 'washing' was a term used in place of printed fabrics. Every customer stated in his statement recorded under Section 14 of the Central Excise Act,1944 that he had placed order on the party for processing of printing but the reason for describing the said process as 'washing' was not known to him.
32.1 Shri-S.S.Shankar, an employee of WBF, who was engaged in preparing invoices for EHW stated in his statement dated 14.01.99 recorded under Section 14 of the Central Excise Act, 1944 that description of printed fabric was shown as 'washing' on the direction of Sh. Shantanu Kaul, Director, WBF. He did not depose that printing process was also known as 'washing' in trade parlance.
32.2 Sh. Inderjeet Singh, partner, M/s. Sandeep Trading Co., who was doing business with WBF in relation to printing of fabrics, stated in his statement dated 14.01.99 recorded under Section 14 of the Central Excise Act, 1944 that primarily printing was being the process done on grey fabrics supplied to WBF /EHW. In his statement, he admitted that on Excise Appeal Nos.70780 & 70781 of 2016 41 invoices issued by EHW, the description of goods was shown as 'washing' but it was not stated that 'washing' term was used for printed fabrics also. 32.3 Sh. N.K.Magu, Partner, M/s. Jyoti apparels in his statement dated 14.01.99 recorded under Section 14 of the Central Excise Act, 1944 stated that his firm was sending grey fabric for dyeing to EHW and was paying charges for dyeing. However, the mentioning of 'washing' in invoice for such job was not explained by him.
32.4 Sh. Rakesh Vaid, Prop. M/s. Shweta Apparels & Authorized person of M/s.Usha Fab stated in his statement dated 14.01.99 and 20.02.1999 recorded under Section 14 of the Central Excise Act, 1944 that his both firms were engaged in business of readymade garments and were sending grey fabrics to EHW for dyeing, printing and washing to EHW who were sending back the processed fabrics under the cover of challans carrying misleading description of job as 'washing' instead of dyeing or printing. Similarly, other customers also admitted in their statements recorded under Section 14 of the Central Excise Act, 1944 that they were receiving processed fabrics i.e. dyed and printed fabrics from WBF /EHW under the cover of challans indicating description of job as 'washing'.
In view of the above statements and admission of the party, I am inclined to hold that the party were deliberately declaring the job of dyeing and printing as 'washing' in their invoices and subsequently were trying to cover up by contending that the term 'washing' was used for dyeing and printing process carried out without aid of power in trade parlance.
Excise Appeal Nos.70780 & 70781 of 2016 42
33. The scrutiny of the statements recorded during the investigation of the case further indicates that dyeing and printing process was done with the aid "of machi11es/power in all cases of processing of fabrics in the factory of WBF /EHW. Sh. B.D.Sharma, dyeing master of WBF who was also looking after the work of so called EHW alongwith the work of WBF, stated in his statement dated 14.01.1999 recorded under Section 14 of the Central Excise Act, 1944 that in both plants i.e. WBF & EHW, they received grey fabrics from exporters for processing and such grey fabrics were washed, bleached and dyed with the aid of machines which were operated by power. He further stated that in addition to Stentor, 'Power Dryer' was also used in processing of fabrics by WBF and EHW. 'fhe statement of Sh. B.D.Sharma has direct bearing with the case and also throws light on the real activities of WBF /EHW as Sh.Sharma was Dyeing master. It is also significant to note that no retraction of any kind was received from Sh. Sharma in regard to aforesaid statement. As already discussed that statement recorded under Section 14 of the Central Excise Act, 1944 is a valid evidence and as already settled by the Apex Court in series of judgments while explaining Section 9D of the Central Excise Act, 1944 that a voluntarily statement is a valid evidence for proving a case. In such a situation, the statement of Sh. Sharma is a valid evidence to prove that the activity of printing & dyeing was done with the aid of power.
33.1 I may also like to elaborate some more statements as under:
Excise Appeal Nos.70780 & 70781 of 2016 43 i. Sh. SK. Taneja, General Manager, M/s Mona Design, 238, Okhla Industrial Estate, Phase-III, New Delhi in his statement dated 16.04.99 stated that the grey fabric supplied by them to EHW for dyeing & printing only and further confirmed that the processing of fabric was done by EHW with the aid of machines.
ii. Sh. Anil Palta Partner, M/s Peach Incorporated, C- 47, Okhla Industrial Area. Phase-I, New Delhi-20, and proprietor of M/s Leo Gold Corporation, C-47 Okhla Industrial Area, Phase-I, New Delhi-20, in his statement dated 19.04.99 confirmed that the grey fabric supplied to EHW for processing was either for dyeing or printing.He also stated that the processing of fabric supplied by them to EHW and WBF was done with the aid of power.! iii. Sh. Prakash Mani Partner, M/s Prakash Textiles, F-
28/3 &4, Okhla Industrial Area, Phase-II, New' Delhi- in his statement dated 29.04.99 confirmed that the process of dyeing and printing was done by EHW with the aid of machines.
iv. Sh. OnilSadh, Proprietor. M/s Universal Traders, 0- 82, Lajpat Nagar-I, New Delhi in his statement dated 03.05.99stated that they had sent grey fabric to EHW, Ghaziabad, for dyeing, printing and bleaching and no grey fabric was sent to EHW for washing. ShOnilSadh further stated that he had once visited the factory of EHW though a board of WBF was placed at the gate and printing and dyeing was carried out with the aid of machine.
v. Sh. Anoop Kumar Gajwani, Executive Director of M/s Rahul Merchandising. 8-88/1, Mayapuri Industrial Area. Phase-I, Nev, Delhi in his statement dated Excise Appeal Nos.70780 & 70781 of 2016 44 05/07 /99 stated that they used to send grey fabric to EHW for the purpose of printing only and on no occasion such fabric was dispatched for washing. The particulars of payment of Excise duty were not shown on any of the invoices issued by EHW and printing was done with the aid of machine.
vi. Sh. Vinod Chopra, Managing Partner of M/s India Crafts, A-18, Mohan Cooperative Industrial Estate, New Delhi in the statement dated 15/04/99 stated that in the case of EHW they had settled net rate for processing of grey fabric given to them though their invoice cum challans did not reflect payment of excise duty. However, for similar type of processing done by other processors central excise duty payment particular were mentioned on their invoices confirmed that the grey fabric supplied by them was printed by EHW with aid of machines.
vii. Sh. Joginder Kumar Seth, Owner of M/s EmmEss Enterprises and Proprietor of M/s Seth, 84 I, PremGali No.3C, Gandhi Nagar Delhi in his statement dated 16.0·499 stated that they had been sending grey fabrie to EHW for Printing and Dyeing which was done by them with the aid of power.
viii. Sh Pradeep K Sahani, Proprietor of M/s Time Apparels and Authorised Signatory 6f M/s Triple Connection, X-27, Okhla Industrial Area. Phase-I, New Delhi in his statement dated 20/04/99 confirmed that they had got grey fabric printed and dyed from EHW. He further stated that processing of fabric was done by EHW with the aid of machines.
ix. Sh V.K. Mehta. Executive Director, M/s AY.N. Exports, 1352 G, Street No. 13, Main Road, Excise Appeal Nos.70780 & 70781 of 2016 45 GovindPuri, New, Delhi, in his statement dated 29.01.99 stated that they had sent fabric for processing i.e. dyeing and printing and not for washing. He further confirmed that they had done the processing work with the use of machine and power. x. Sh.Shyarn Sunder. Director of M/s Misuki Exports Pvt. Ltd , 0-815, New Friends Colony Delhi in his statement dated 29.04.99 stated that they had sent fabric to EHW for dyeing and printing and the processing was done by EHW with the aid of machines.
xi. Sh. P Manaktala, Director, Mis Cosmique Exports Ltd (Now CosmiqueLtd }, A- 70, Nariana. Phase-II, New Delhi, in his statement dated 07.05.99 stated that they had sent grey fabrics to EHW for dyeing/bleaching only. He further confirmed that the processing of fabric was done with the aid of machines by EHW.
xii. Sh B. Wadhawan. Proprietor, M/s Bharat Craft International, 52, Sunlight Estate, Bhikaji Kama Place, New Delhi, in his statement dated 10.05.99 stated that they had sent grey fabrics to EHW for printing and the grey fabric provided to EHW was not washed but printed by them with the aid of machines. xiii. Sh. Harmeet Singh, Proprietor, M/s Avison Enterprises, C -16. Defence Colony, New Delhi, in his statement dated 12.05.99 stated that they had sent grey fabrics to EHW for printing only and that the bills issued by EHW did not carry any mention of excise duty payment even though processing i.e. printing on the fabric supplied by them was done with the aid of machines.
Excise Appeal Nos.70780 & 70781 of 2016 46 xiv. Sh Shrawan Kumar Sahani, Director M/s Sahani Silk Mills (P) Ltd. E-45 3. Okhla Industrial Area. Phase-II, New Delhi in his statement dated 12.05.99 stated that EHW had pril1ted the grey fabric supplied to them with the aid of machine.
xv. Sh Rakesh Sadh. Authorised Representative M/s Attica, M-22 A. Lajpat agar, New Dalhi in his statement dated 13.05.99 stated that dyeing and printing was done with the aid of machines by EHW.
xvi. Sh. Rahul Goyal. Proprietor, M/s Fashion Maker, C- 254, Defence Colony, New Delhi in his statement dated 10.06.99 stated that the printing was done by EHW with the aid of machines such as Stenter, Jiggers, and Dyeing Plant.
xvii. Sh. Naresh Goyanka. Partner, M/s Texport Fashion, A 7711, Okhla Industrial Area, Phase-I, New Delhi in his statement dated 08.04.99 stated that they had got grey fabric printed from EHW, with the aid of machines. xviii. Sh. Sanjeev Malhotra. Partner. M/s Cuckoo's Creation, B-3/34. Safdarjung Enclave, New Delhi in his statement dated 09.04.99 s:ated that they had sent the grey fabrics for printing and not for washing He also stated that the processing done by EHW on the grey fabrics supplied by them was with the aid of machines. xix. Sh. K.K. Kohli, Director, M/s Orient Craft Ltd, F-8, Okhla Industrial Area, Phase-I, New Delhi in his statement dated 22.04.99 stated that they had sent grey fabrics to EHW for dyeing only and not for washing. He further stated that dyeing was done by EHW with the aid of machines though.
xx. Sh. AK Jain, Partner, M/s Jay Dee Exports, A-61, Industrial Area, G.T Kamal, Road Oelhi in his statement dated 29.04.99 stated that they had issued grey fabrics to EHW for Dyeing &Printing and the Excise Appeal Nos.70780 & 70781 of 2016 47 processing of grey fabric i.e dyeing & printing was done by EHW with the aid of machines.
xxi. Sh.Pramod Kumar Arora. Proprietor. M/s Flying Fashion. 3SOL Street,,10, Vishwas Nagar, Shahdra, Delhi in his statement dated 19.01.99 stated that they had got their fabric printed from EHW and that the printing on grey fabrics was done by EHW with the aid of machines.
xxii. Sh. Ashok Ram Rakhani, Manager, M/s Alpha Overseas, F-78, Ease of Kailah, New Oelhi in his statement dated 12.05.99 stated that they had issued grey fabrics to EHW for printing and dying. He further confirmed that processing of fabric was done by EHW with the aid of machines.
xxiii. Sh. T.D. Khattar, Director, M/s De Roses Fashion, 170, Sector 29. NOIDA in his statement dated 11.05.99 stated that they had issued grey fabrics to EHW for printing only and the process of printing on their grey fabrics was done by EHW with the aid of machines.
xxiv. Sh. RK Talwar, Proprietor, M/s Fabrics and Fabrics, 8-151, DD.A Shades Okhla Industrial Area, Phase-II, New Delhi in his statement dated 04.06.99 stated that they had issued grey fabrics to EHW for printing. He further stated that on his visit to their factory he had seen that printing was being done with the aid of machines.
The above statements abundantly make it clear that processing of printing and dyeing was carried out in the factory of WBF /EHW with the aid of machines/power. Many of customers, as stated above, gave the above statements on the basis of their observations when they visited the factory of Excise Appeal Nos.70780 & 70781 of 2016 48 WBF/EHW. It is also important to note that no one has ever retracted their statements. As per Section 14 read with Section 19D of the Central Excise Act, 1944, the voluntary statement recorded by the gazetted officer of the Central Excise is an admissible evidence in a case. In view of the above, I am inclined to hold that the processes of printing & dyeing were carried out with the aid of power in all cases including where invoices were issued by EHW.
33.2 In this regard, I place reliance on the following judicial judgments in this regard:
i. S.N.Ojha Vs Commissioner of Customs [2016{331)ELT 33 Del.]- In this, case, Hon'ble Delhi High Court has held that while the strict requirements of the Evidence Act, 1872 would not apply to enquiries and investigation undertaken by the DRI or the Customs department, the broad principal that statements made have to be voluntarily and not under threat, coercion would nevertheless apply.
ii. Fathima Panel [2014{313)ELT 641{t)]- The CESTAT in this case has given observance that if statement of a person is obtained without any coercion and which is free from any retraction, it is valid evidence to prove the case. In view of the above, it is observed that there is no reason to ignore the aforesaid statements particularly when said statements have been tendered voluntarily without any coercion and also there is no retraction from the persons from whom statements were drawn.
34. Shri Rattan Kaul, Managing Director, WBF in his statement 04.08.99 recorded u/s 14 of Central Excise Excise Appeal Nos.70780 & 70781 of 2016 49 Act, 1944 deposed that no dyeing activity was undertaken in EHW but when he was shown bill issued for dyeing by EHW he admitted that dyeing must have been done in WBF and then the same was printed in EHW. However, he could not give details of payment of duty on dyeing which was done in WBF with aid of power. Sh. Kaul was also shown purchase order No. 319 dt.23.09.97 pertaining to M/s Ishman International, wherein rates were mentioned as inclusive of excise duty. He was asked to explain why excise duty was not paid by EHW specially when the same had been realised from the customers. Sh. RatanKaul could not explain the said issue. All the above facts show that there was only one unit functioning in the said premises and it was WBF. EHW was working only on paper.
34.1 Shri Shantanu Kaul, Director, WBF in his statement dated 11.10.99 admitted the fact regarding inclusion of excise duty in case of Ishman International. It was also admitted, that there was . no. employee on the roll of EHW but all were employees of WBF. The admission of clearance of dyed fabrics from WBF to EHW and realization of excise duty from customers but not depositing the same in Government account by above two key persons of the company proved beyond that they were indulged in evasion activities. EHW was only a dummy and non-existing unit. All works were carried out in WBF.
Analysis qua capacity:
35. In their defence reply and also during the personal hearing, the party have emphatically argued that the quantum of production which was taken by the Excise Appeal Nos.70780 & 70781 of 2016 50 department as being produced by the use of power is far beyond the capacity of machines installed in the factory. The production capacity. of the machine has been taken by the party on the basis of statements given by Sh. Vinod Kumar Rai, Printing Master and Sh. Sheobir Singh, Excise Clerk, both in WBF, on 14.09.1999. It may be seen that those persons made their statements on approximation basis and without any documentary support. It is a fact that capacity of a plant is determined by Cost Engineer or/ Cost Accountant. The party have not produced any such document to authenticate their claim in relation to production capacity of the plant. Variation in the statement Of Sh. Sheobir Singh and Sh. Vinod Kumar Rai in connection with production capacity may be seen as per the following analysis-
As per Sh. Sheobir Singh, printing capacity of the unit is about 2 lacs mtr. per month and factory operated in two shifts of 12 hours- The annual capacity thus comes to- 2 x 12 = 24 Lacs mtr ..
As per Sh. Vinod Kumar Rai, daily production capacity is 8-10 thousand mtr. per day. Annual capacity thus comes to- 10,000x365= 36,50,000 mtr.
The difference thus comes to 36,50,000-24,00,000= 12,50,000mtr. which is 52.08% and such a huge variation in production capacity, in case the statements of above two persons are considered, is not acceptable. The analysis of production capacity by the party is faulty and not tenable.
36. ,It has already been discussed that the party had Flatbeds Automatic Textile Printing Machine in their factory. As per the information available on www.mytextilenotes.blogspot.in , the rate of Excise Appeal Nos.70780 & 70781 of 2016 51 production of Flatbeds Automatic Printing Machine is 500 yards per hour, i.e., 457.20 meter per hour.
Annual production would be 457.20x24x365=40,05,072 meter /year /per machine. As per the Lay Out plan submitted by the party along with their letter dated 20.05.2002, there were two Flatbeds Automatic Printing Machines in their factory. Thus total manufacturing capacity of their factory with aid of machine/power would be 80,10,144 meter/year. The actual production as submitted by the party in their defence reply is as under:
Year Production 1995-96 5606729 meters 1996-97 402 7734 meters 1997-98 4475000 meters
A simple comparison of actual production and annual capacity as has been determined above, reveals that actual production is far below from the annual production capacity of printing machines.
Analysis of reference of technical book:-
37. The party during the investigation claimed that they were doing dyeing and printing processes in EHW with Procion dyes by way of Silicate Method. In the Show Cause Notice, referring certain paras of a technical book named as "Technology of Printing"
authored by Dr. V.A.Shinoy, it was alleged that Procion dyes printing can be done with the aid of power only. As already discussed, the copy of the relevant page of the said book has already been provided in compliance to the CESTAT's Order. A perusal of said page reveals that it provides details of Excise Appeal Nos.70780 & 70781 of 2016 52 textile printing by using Procion Dyes. As per the book, Procion dyes are of two types, one as dichlorotrizine (cold brand) and second as monochlorotrizine (hot brand). Procion dyes are reacted dyes. Again in the said book, three processes for carrying out Procion dyeing and printing are described-
i. Steaming process ii. Dry heat process iii. Alcali Pad Process
Under the steaming process, the fabrics are subjected to steaming at 100 degree cen. to 102 degree cen. for 5-10 minutes. This process is indicative that the Procion dyeing and printing process is carried out with the help of steam and as such would be dutiable. The party have submitted that in the above referred book, printing by way of Sodium Silicate Method has not been described, hence, the procedure prescribed in the said book is not applicable which is for Sodium Alginate Chemical. The submission of the party is not correct inasmuch as Sodium Silicate does not help anything in printing but it is only a colour fixing material and Sodium Silicate is applied on dyed or printed fabric just to enhance colour bonding with the fibers of fabric by increasing pH value. It is also mentioned that Sodium Silicate can be substituted by Sodium-bi- Carbonate also and in the book, it is mentioned to use Sodium-bi-carbonate for Procion Dyes. Use of Sodium Alginate or any other chemical does not alter the position as Sodium-bi-carbonate or Sodium Silicate is used in both situations. The contention of the party that they were not provided complete book is an Excise Appeal Nos.70780 & 70781 of 2016 53 evasive reply per se the copy of relevant pages of the book has already been provided to them. I, therefore, hold that the party are deliberately referring irrelevant submissions in regard to supply of relevant copy of the cited technical book and as such their submission is not tenable.
Analysis Of Cross-Examination :
38. As already discussed in foregoing paras, the cross-examinati6n of fifty witnesses was demanded by the party and the same was allowed. Out of fifty witnesses, the following turned up for cross-examination:-
i. Shri Anil Palta, Partner, M/s. Peach Incorporation, New Delhi.
ii. Shri Ashok Ram Rakhani, Accountant M/s. Alpha Overseas iii. Shri Dinesh Dhawan,Prop. M/s Neha Tex Prints iv. Shri OnilSadh, Prop. M/s. Universal Traders v. Shri K.K.Kohli, Director, M/ s Orient Craft Ltd vi. Shri Harmeet Singh, Prop. M/s. Avision Enterprises, Gurgaon vii Shri Shantanu Kaul The party withdrew the request of cross-examination of Shri Shantanu Kaul. Rests of the above, were cross- examined. The excerpt of cross-examination is as under:
i. Re.-Shri Anil Palta:
In his statement dated 19.04.1999 recoded under Section 14 of the Central Excise Act, 1944, Sh.Anil Palta, Partner, M/s. Peach Incorporation stated inter alia that orders were placed on EHW for dyeing & printing which was done with the aid of machines.
Excise Appeal Nos.70780 & 70781 of 2016 54 During cross-examination, he explained following points:
Q. Period of experience of business of textile. A. 35 years.
Q. Are you aware of sodium silicate method of printing of the fabrics?
A.Yes.
Q.Hadyou visited ever the office of M/s Webing& Belting?
A. Yes, I had been.
Q. Had you ever gone inside the factory of M/s Webing& Belting? .
A. No. just their office.
Q. Does Sodium Silicate printing method need any machine, power or steam?
A. No, it is done on table. Printing was done on tables not with the aid of machines.
It is noticed that Sh. Anil Palta had experience of 35 years in the business of textile so what he stated earlier in his statement can not be considered as statement due to ignorance. It is also noticed that there was no retraction to the statement recorded on 19.04.1999. The statement was voluntary and without any pressure or coercion.
The deposition made during cross examination gave the indication only in regard to his visit to the office of Webbing & Belting and also in regard to method of printing under Sodium Silicate Process. In his statement dated 19.04.1999, he had categorically admitted that he got grey fabrics dyed and printed from EHW and such dyeing and printing was done with the aid of machine. In the deposition made during cross examination, nothing has been deposed contrary to the statement given on 19.04.1999.
Excise Appeal Nos.70780 & 70781 of 2016 55 ii. Re.- Shri Ashok Ram Rakhani:
Shri Ashok Ram Rakhani, Accountant M/s. Alpha Overseas tendered his statement on 12.05.1999 under Section 14 of the Central Excise Act, 1944 and stated therein that he was the Manager of M/ s. Alpha Overseas since 1994 and his company was engaged in manufacture of export garments. He confirmed that his company got grey fabrics processed from EHW during 1994-95. He further confirmed that no Central Excise duty was paid by EHW on invoices against which printed fabrics were sent to M/s. Alpha Overseas and dyeing was done with the aid of machine.
During cross-examination, he did not depose anything contrary to the statement except that he was part time accountant in that company and he had never visited the factory of WBF /EHW. It is not important whether Shri Ashok Ram Rakhani visited the factory of WBF or not, what is important is to find out whether printing was done with the aid of machine or not and a person who is dealing in the business of dyeing & printing can very well identify whether printing on a fabric has been done with the aid of machine or by hand only.
iii. Re.- Shri Dinesh Dhawan:
Shri Dinesh Dhawan,Prop. M/s Neha Tex Prints has experience in the business of dyeing & printing of fabrics and looks after the work of M/s Neha Tex Prints who is engaged in business of garments. He stated in his statement dated 27.05.1999 that he had visited the factory of EHW for 5-6 times and had seen there printing machine, dryer machine and jigger which were used for processing of grey fabric. He in Excise Appeal Nos.70780 & 70781 of 2016 56 his statement categorically mentioned that he used to send grey fabric for printing only to EHW and never sent any fabric for washing to EHW During cross- examination, he deposed as under:
Q.-Are you aware of Procion printing? A. Yes, I am aware of Procion printing. Q.- Other manufacturer from whom you are getting printing are also doing Procion printing?
A.Yes, I am getting Procion printing done from manufacturers located in ]odhpur in addition to the Webbing & Belting. Procion printing is done on cold tables only.
Q.-Is Procion also known as 'washing' in trade parlance? A. It can be termed as 'washing'.
Q. Have you ever visited factory of Webbing & Belting at Sahibabad?
A. Yes, I have been to that factory for three to four times.
Q. Have you seen any machine installed in that factory?
A. Yes, I have seen machines installed there but I do not know for what purposes those machines installed. As far as I know, my printing work was done on tables only.
In his above deposition during cross-examination, he reconfirmed his statement regarding presence of various machines in WBF /EHW for printing. As regard use of term 'washing' in invoices by EHW, he deposed that Procion printing could be termed as 'washing' while in his statement dated 27.05.1999, he himself confirmed that he was sending fabrics t,o EHW for printing not for washing. He had not stated in his statement that term 'washing' included dyeing and printing also. During cross-examination, he deposed Excise Appeal Nos.70780 & 70781 of 2016 57 he was not aware of purpose of machines installed in the factory while in his statement dated 27.05.1999, he had stated in clear terms that the machines installed in EHW were printing machines for textile; The subsequent deposition that he was not aware of the use of the machines installed in the factory and in trade parlance, term 'washing' was used for dyeing and printing seems only after thought and devoid of truth. How a person who was having a long experience in dealing of garments can say he is not aware of use of machines and how he could not mention in his statement dated 27.05.99 that 'washing' was used for dyeing and printing also. He also did not say anything that his statement dated 27.05.99 was under duress or coercion. I, therefore, hold that deposition of Shri Dinesh Dhawan is not true and only after thought. iv. Re-Shri OnilSadh:
In his statement tendered on 03.05.199 under Section 14 of the Central Excise Act,1944, Shri-OnilSadh declared himself to be Proprietor of M/ s Universal Traders International established in 1990 and was dealing in the business of export garments. His firm used to send grey fabrics to EHW for dyeing, printing & bleaching but on the instruction of Shri Shantanu Kaul of EHW he was forced to write job description as 'washing' on challans but in ledgers job description was shown as 'dyeing, printing etc. He further confirmed that he once visited EHW factory and there he found board of Webbing & Belting Pvt Ltd at the gate of the factory and inside the factory printing & dyeing machines were found which must have been Excise Appeal Nos.70780 & 70781 of 2016 58 used for printing of grey fabrics supplied by him. He also confirmed that the rate quoted by EHW was, as per Shri ShantanuKaul, inclusive of excise duty.
Shri-DnilSadh during cross examination deposed as under:
Q.l.Have you ever visited factory of M/sEverestHandwoven?
A. I have been there for once or two times only. Q.2 Was printing on grey fabrics supplied by you done by M/s Everest Handwoven by Procion printing method? A. Yes, printing was done by Procion method only.
Q.3 Is it correct that Procion printing done only on tables by hand?
A. Yes, Procion printing is done on table by hand only.
A perusal of his voluntary statement dated 03.05.99 reveals that Shri Sadh in his statement stated that during his visit of the factory, he had seen machines installed there in· and those machines were used for printing of fabrics. Without assigning any reason, Shri Sadh deposed during cross-examination, in contrast to the above statement, that in the case of his factory, printing was done with Procion dyes on tables with hand. Earlier, he had stated that printing was done with aid of machines on the basis that there were printing machines installed in the factory but reply given during cross-examination that fabrics were printed by hand was without any basis. Hence, not tenable and seems to be incorrect.
v. Re-Shri-K.K.Kohli:
Excise Appeal Nos.70780 & 70781 of 2016 59 Shri-K.K.Kohli was director of M/s Orient Craft having turn-over more than Rs. 150 crores and was doing business of export of garment. In his statement dated 22/04/99 recorded undet Section 14 of the Central Excise Act,1944, he was sending grey fabrics to EHW for dyeing and as per his opinion process of dyeing was done by EHW with aid of power.
During cross-examination, he deposed that dyeing by EHW was done with the aid machine. Thus, Shri K.K.Kohli reconfirmed his statement during the cross examination also.
vi. Re-Harmeet Singh:
Shri Harmeet Singh Prop. M/s Avision Enterprises stated in his statement dated 12.05.99 that his firm used to send grey fabrics for dyeing and printing to WBF but was receiving such dyed and printed fabrics under cover of challans of Everest Handwoven. He confirmed that machines were installed in the factory of WBF for printing and dyeing.
During cross-examination, Shri-Harmeet Singh did not give any deposition contrary to his statement dated 12.05.99.
It may be seen that no witness during the cross- examination had submitted that his statement was initially recorded per force or on dictation basis. During crossexamination, some of witnesses expressed their opinion about Procion printing but nothing was submitted in regard to statement recorded during the investigation. I therefore find that statements recorded during investigation of above persons are still admissible evidence. The deposition made during cross --examination does not dilute the Excise Appeal Nos.70780 & 70781 of 2016 60 case of the Department and evidence obtained in the form of statements.
37.1 I refer the decision of the Hon'ble Supreme Court in the case of Surjeet Singh Chhabra [2002-TIOL-158-SC-CUS] wherein it has been held that-
"3. ...... ... ..... The Customs officials are not police officers. The confession, though retracted, is an admission and binds the petitioner."
37.2 I examine the decision of the Hon'ble Supreme Court in the case of State of Kerala Vs K.T. Shaduli , supra, cited by the party. In that case under the circumstances of the case, it was observed by the Court that the cross-examination was required to be permitted. In the present case, cross-examination of witnesses has been allowed. Hence, the said decision is not against Department in the present case. 37.3 In the case of Oudh Sugar Mills, supra, clandestine removal of the case was alleged only on the basis of calculation of raw materials fed for production. There was no evidence regarding removal of goods in clandestine way. In lack of such evidence, the Court rejected the allegation of clandestine removal. In the present case, there are enough evidence in the form of statements of customers and production incharge and documents to prove that the unit was engaged in printing & dyeing activities with aid of machines & power but were showing such processes were done without aid of power just to evade duty· The above decision can not be made applicable to the present case.
Excise Appeal Nos.70780 & 70781 of 2016 61 37.4 The CESTAT in the case of Kamal Biri Factory, supra, held that clandestine removal based on entries .made· in some private records maintained by some labourers without verification from transport documents etc., is not sustainable as onus to prove clandestine removal lies on the department. In the present case, allegations are for misuse of Notifications providing exemption in relation to printed or dyed fabrics· subject to condition such processes were carried out without aid of machine/ power or steam. The ratio of said decision is not applicable in the present case.
38. I find that for availing the exemption granted under Notification No.45 /95-CE or 4/97-CE for printed or dyed fabrics, the prime condition was that such grey fabrics were printed or dyed without aid of power or. steam. It is settled position that in case any exemption has been allowed subject to certain conditions, onus lies on the assessees or the persons availing such benefit to prove that they fulfill the specified conditions. It is also settled position that in case of doubt, the benefit should be given to the Department. On this issue, I may like to refer the following decisions:-
i. B.P.L. Ltd Vs Commissioner Central Excise Cochin-II [2015(319)ELT 556(SC)] - In this case the Hon'ble Supreme Court has held that it is trite that strict interpretation is to be given to the exemption notifications and it is upon the assessee to approve that he fulfils all the conditions of eligibility under such Notifications.
Excise Appeal Nos.70780 & 70781 of 2016 62 ii. Rajasthan Spinning and Weaving Mills [1995(77)ELT474(SC)]- In this case the principle stated by the Apex Court is that it is for the assessee to establish that the goods manufactured by him come within the ambit of the exemption notification. Since, it is a case of exemption from duty, there is no question of any liberal construction to extent the term and the scope of the exemption notification. Such exemption notification must be strictly construed and the assessee should bring himself squarely within the ambit of the notification. No extended meaning can be given to the exempted item to enlarge the scope of exemption granted by the notification.
It is a settled legal position that any one cannot avail the benefit for which he is not entitled by resorting to colourful exercise. It has been settled in various judicial decisions that in case a company is doing something wrong under corporate veil, the Court is entitled to uplift such veil to ascertain real picture. In this context, reliance is placed on the decision of the Supreme Court in the case oft AT A Engineering & Locomotive [AIR 1965 SC 40] where it has been held that corporate veil is required to be uplifted for knowing the real and actual activities of the company. Further, reliance is placed on the judgments of the Supreme Court in the case Mc Dowell & Co. [59 STC- 277] & Juggilal Kamlapat [1969 SCR-988] where it has been held that department is justified to uplift corporate veil or to unmask the artificial device adopted by a company to avoid tax. In view of the Excise Appeal Nos.70780 & 70781 of 2016 63 above decisions, it is necessary to understand the real action and work of WBF.
In the present case, as already di_scussed, the factory where printing and dyeing were carried out was equipped with machines for printing and dyeing and such machines were operative from power. There was no explicit demarcation for unit claimed to be engaged in printing & dyeing without aid of power. The customers whom invoices were issued showing processed fabrics as "washing" had not ordered for processing of their fabrics by hand. In the case of the seizure against the party, as discussed supra, it has already been held by the CESTA t that the unit was engaged in processing of fabrics with the aid of power. Shri Rattan Kaul in his statement recorded under Section 14 of the Central Excise Act, 1944 clearly admitted that dyeing activities were not undertaken in EHW but invoices were issued by EHW for dyed fabrics also, which establishes beyond any doubt that dyeing was done with aid of power and for evading duty, invoices were issued from EHW showing them as being done without aid of power. The party badly failed to prove that they were entitled for benefit granted under Notification no.45/95-CE or 4/97-CE. So, they were not entitled to avail the benefit granted under aforesaid Notifications regarding exemption from duty on printing & dyeing carried out without aid of power."
4.8 The process of renting has been explained by the appellant. There is nothing available on record to show anything contrary. Further, they have enclosed photographs of the process being undertaken by hand without use of any power, the said process with some photographs is detailed below:-
Excise Appeal Nos.70780 & 70781 of 2016 64 Excise Appeal Nos.70780 & 70781 of 2016 65 Excise Appeal Nos.70780 & 70781 of 2016 66 From the process submitted by the appellant, we do not find there was any use of power in the process of printing.
4.9 The entire issue is only for determination of the fact of use of power in the process undertaken by the appellant, this fact could have been easily verified by the revenue by conducting the joint inspection of the process undertaken by the appellant and proper panchnama being drawn for the same, no such activity of joint inspection has been taken to establish the use of power. We also find that appellant has referred to certain inspection undertaken by the Deputy Commissioner on the direction of the Excise Appeal Nos.70780 & 70781 of 2016 67 Commissioner, in these proceedings, in the year 2002. The report of said inspection undertaken would go to the root of the matter. However, the same have not been supplied to the appellant nor any finding recorded in the order in respect of the same, rejecting the request for supply of the said report, Commissioner has observed as follows:-
"24.4 The party have contended that during the initial adjudication proceedings before the Commissioner Central Excise Meerut, the Adjudicating Authority had deputed a team to verify the manufacturing process being undertaken in their factory but the verification report was not provided to them. I find that no such document is available on the records and further it is not part of the Show Cause Notice. Hence, I do not find any force in the contention of the party to provide them the said report and I find the said contention has no relevancy to the case."
4.10 Even if the adjudicating authority was not in position to provide that report, they could have at least got the process verified at the time of adjudication in denovo proceedings, no such effort has been made.
4.11 Further we observe that the demand has been made for the period from 1995 onwardsa nd the appellant was registered with the Central Excise Authorities, from 1992. Till 1994 the appellant would be filing the Classification Lists and Price Lists as per Rule 173 B and 173 C of the erstwhile Central Excise Rules, 1944. From 1994 onwards classification lists and price lists were replaced by the Classification and Price Declarations to be filed by the appellant. The Classification Lists/ Declaration and Price List/ Declarations were duly verified by the range officer and submitted to the jurisdictional Assistant/ Deputy Commissioner for approval till 1994 and for record thereafter. Entire proceedings have been initiated against the appellant without any reference to any Classification List/ Declaration or Price List/ Excise Appeal Nos.70780 & 70781 of 2016 68 Declaration. If these statutory document filed in terms of Rule 173B and 173C of the Central Excise Rules, 1944 were referred in the proceedings the facts about actual manufacturing processes would have come into light. In fact for claiming the exemption relating to not use of power in the process of manufacture also appellant would have filed such Classification List and Declaration. No reference to any such documents has been made in the entire proceedings.
4.12 On the issue of valuation we observe that Hon'ble Supreme Court has in the case of Ujjagar Prints [1988 (38) ELT 535 (SC)] observed as follows:
"30. In the case of processing-houses, they become liable to pay excise duty not because they are the owners of the goods but because they cause the „manufacture‟ of the goods. The dimensions of the Section 4(1) (a) and (b) are fully explored in a number of decisions of this Court.
Reference may be made to the case of Bombay Tyres International.
Consistent with the provisions of Section 4 and the Central Excise (Valuation) Rules, 1975, framed under Section 37 of the Act, it cannot be said that the assessable-value of the processed fabric should comprise only of the processing- charges. This extreme contention if accepted, would lead to and create more problems than it is supposed to solve; and produce situations which could only be characterised as anomolous. The incedence of the levy should be uniform, uniformed by fortuitous considerations. The method of determination of the assessable value suggested by the processors would lead as to the untenable position that while in one class of Grey-fabric processed by the same processor on bailment, the assessable-value would have to be determined differently dependent upon the consideration that the processing-house had carried out the processing operations on job-work basis, in the other class of cases, as it not unoften happens, the goods would have to be valued Excise Appeal Nos.70780 & 70781 of 2016 69 differently only for the reason the same processing-house has itself purchased the Grey-fabric and carried out the processing operations on its own.
It is to solve the problem arising out of the circumstance that goods owned by one person are "manufactured" by another that at a certain stage under Rule 174A, a notification was issued by the Central Government exempting from the operation of the Rule 174A "...... every manufacturer who gets his goods manufactured on his account from any other person, subject to the conditions that the said manufacturer authorises the person, who actually manufactures or fabricates the said goods to comply with all procedural formalities under the Central Excises and Salt Act, 1944 (1 of 1944) and the rules made thereunder, in respect of the goods manufactured on behalf of the said manufacturer and, in order to enable the determination of value of the said goods under Section 4 of the said Act, to furnish information relating to the price at which the said manufacturer is selling the said goods and the person so authorised agrees to discharge all liabilities under the said Act and the rules made thereunder."
31. On a consideration of the matter, the view taken in the matter in the Empire Industries case does not call for reconsideration. Contention (e) is also held and answered against the petitioner.
32. In the result the appeals preferred by the Union of India are allowed and the judgment of the Gujarat High Court under appeal is set aside. The appeals preferred by the processors against the judgment of the Bombay High Court and the writ petitions filed by the processors directly in this court are dismissed. There will, however, be no orders as to costs in the appeals and the writ petitions.
The Union of India and its authorities shall be entitled to recover the amounts due by way of arrears of excise duty and shall be entitled to take necessary steps to seek the Excise Appeal Nos.70780 & 70781 of 2016 70 enforcement of the bank guarantees, if any, for the recovery of the arrears.
33. [Judgment per : Sabyasachi Mukharji, J. agreeing with CJI, M.N. Venkatachaliah and S. Natarajan, JJ.]. - I have had the advantage of reading in draft the judgment proposed to be delivered by my learned brother Venkatachaliah, J. I respectfully agree with him. There is, however, one aspect of the matter in respect of which I would like to say a few words. Contention (e) as noted by my learned brother in his judgment deals with the determination of the assessable-value. The processors in the cases before us say that they have filed classification lists under Rule 173B of the Central Excises and Salt Rules, 1944, as they had no other choice and that if the proper principles of determination of the assessable-value do not legally justify the consequences flowing from the classification it is open to them to contend against the validity of the determination and they are not estopped from doing so. The processors are right in contending that the true principle should be followed in determining the assessable value. Then what is the true principle ? Section 4 of the Act deals with the valuation of excisable goods for purposes of charging of duty of excise. Section 4(1) (a) of the Act stipulates that the value should be subject to other provisions of the Section the normal price thereof, that is to say, the price at which such goods are ordinarily sold by the assessee to a buyer in the course of wholesale trade for delivery at the time and place of removal, where the buyer is not a related person and the price is the sole consideration for the sale. For the present purpose, we are not concerned with the provisos nor the situation where the normal price of goods is not ascertainable for any reason.
34. In Empire Industries Limited and Others, etc. v. Union of India and Others etc. [1985 (20) ELT 179 (S.C.)] (1985 Suppl. S.C.R. 292), it was held that where for the purpose Excise Appeal Nos.70780 & 70781 of 2016 71 of calculating assessable value, a notional sum is laid down by the legislature to be arrived at on a certain basis, it is not permissible for the courts to engraft into it any other deduction or allowance or addition or read it down on the score that unless the said deduction or allowance or addition is authorised elsewhere in the Act or in the Rules. A statutory charge should be measured by the method of its own computation as laid down in the statute and not by any other method of computation. The circumstances that thereby the benefit of any exemption granted by the legislation may be lost and that in some cases hardship might result are not matters which would influence courts on the construction of the statute. A tax payer is entitled only to such benefit as is granted by the legislature. It was emphasised that the taxation under the Act is the rule and the benefit and exemption, the exception. And it was held that there was no hardship in these cases. It was further reiterated that when the textile fabrics are subjected to the processes like bleaching, dyeing and printing etc. by independent processes, whether on their own account or on job charges basis, the value for the purposes of assessment under Section 4 of the Central Excise Act will not be the processing charge alone but the intrinsic value of the processed fabrics which is the price at which such fabrics are sold for the first time in the wholesale market. That is the effect of Section 4 of the Act. The value would naturally include the value of grey fabrics supplied to the independent processors for the processing. However, excise duty, if any, paid on the grey fabrics will be given proforma credit to the independent processors to be utilised for the payment on the processed fabrics in accordance with the relevant rules.
35. In M/s. Ujagar Prints v. Union of India [1987 (27) ELT 567 (S.C.) = 1986 Suppl. S.C.C. 652], Bhagwati C.J. held that the processes of bleaching, dyeing, printing, mercerising etc. carried on by a processor on job-work basis in respect of grey cotton fabrics and man-made fabrics Excise Appeal Nos.70780 & 70781 of 2016 72 belonging to the customer and entrusted by him for processing amount to „manufacture‟ within the meaning of the Act prior to its amendment so as to attract levy of excise duty on the processed fabrics and in any event, after the Amendment Act, these processes amount to manufacture and excise duty is leviable on the processed fabrics. The learned Chief Justice also dealt with the other question, namely, what is the value of the processed fabrics liable to be assessed. Referring to the aforesaid decision of the Empire Industries (supra), he illustrated the problem by reference to the example set out in the judgment (Page 654 of the report at para 2). In that example illustrated by him the value of the grey cloth in the hands of the processor was Rs. 20/-. The value of the job-work was Rs. 5/-. Trader‟s selling price inclusive of his selling profits etc. was put at Rs. 30/-. Bhagwati C.J. at page 655 of the report observed that the assessable value of the processed fabric must obviously be taken to be the wholesale cash price of the processed fabric at the factory gate that is when the processed fabric leaves the factory of the processor and it cannot possibly include the selling profit of the trader who subsequently sells the processed fabrics. The learned Chief Justice reiterated that it is at the point when the processed fabric leaves the factory of the processor that its assessable value has to be determined and that assessable value cannot include the selling profit of the trader. Empire Industries (supra) did not say that the post-manufacturing profits or post-manufacturing costs could be included in the assessable-value of the processed fabric. If the trader, who entrusted cotton or man-made fabrics to the processor for processing on job-work basis, would give a declaration to the processor as to what would be the price at which he would be selling the processed goods in the market and that would be taken by the Excise authorities as the assessable- value of the processed fabrics and excise duty would be charged to the processor on that basis. Where a Excise Appeal Nos.70780 & 70781 of 2016 73 manufacturer sells the goods manufactured by him in wholesale to a wholesale dealer at the arms length and in the usual course of business, the wholesale cash price charged by him to the wholesale dealer less trade discount would represent the value of the goods for the purpose of assessment of excise. But the price received by the wholesale dealer who purchases the goods from the manufacturer and in his turn sells the same in wholesale to other dealer, would be irrelevant for determination of the value of the goods and the goods would be charged on that basis. This has been explained in Atic Industries Ltd. v. H.H. Dave, Assistant Collector of Central Excise and Others (1975 3 S.C.R. 563). This has also been explained in Union of India and Others, etc. etc. v. Bombay Tyre International Ltd., etc. etc. (1984 1 S.C.R. 347 at 375). It has to be reiterated that the valuation must be on the basis of wholesale cash price at the time when the manufactured goods enter into the open market. See in this connection the ratio of this Court in Union of India and Others v. CibatuI Ltd. (1985 Suppl. 3 SCR 95) and the Joint Secy. to the Govt. of India and Others v. Food Specialities Ltd. (1985 Suppl. 3 SCR 165). It was emphasised in Union of India and Others v. Cibatul (supra) that the value of the trade-marks was not to be taken into account in computing the assessable value as the affixation of the trade-marks of a particular brand was extraneous to manufacture. The values of such extraneous or additional factors do not enter into the computation of assessable value and as such the wholesale cash price at which the goods enter into the wholesale market would be independent of the value of the trade-marks. So that cannot be taken into the computation of the assessable value. Similarly, in the case of Joint Secretary to the Govt. of India and Others v. Food Specialities Ltd. (supra), it was held that the value of Nestle‟s trade marks could not be to the wholesale price charged by the dealer to Nestle‟s for the purpose of Excise Appeal Nos.70780 & 70781 of 2016 74 computing the value of the goods manufactured. The goods in both these cases were manufactured independently of the addition of the trade-marks. The price thereof at the factory gate was after taking into account the value of the trade- marks. If that was the position the value of the trade-marks cannot be added to the wholesale cash price charged by the dealer. Affixation of trade-marks for enhancement of the value thereof is extraneous to and independent of the process of manufacture. The charges for the same are not part of the assessable value and cannot enter into computation of the wholesale cash price on the basis of which excise duties are to be levied.
36. In the aforesaid view of the law and for the reasons mentioned by my learned brother, I agree with his answer to this contention. The assessable value would, therefore, include the value of the grey cloth in the hands of the processors plus the value of the job-work done plus manufacturing profits and manufacturing expenses whatever would be included in the price at the factory gate. The correct assessable value must be the value of the fabric at the factory gate, that is to say, the value at which the manufactured goods leave the factory and enter the main stream.
37. One more aspect will have to be reiterated. Computation of the assessable-value is one question and as to who should be liable for the same is another. Duties of excise are imposed on production or on manufacture of goods and are levied upon the manufacturer or the producer in accordance with the relevant rules. This is quite independent of the ownership of goods. It is, therefore, necessary to reiterate that the value for the assessment under Section 4 of the Act will not be the processing charge alone but the intrinsic value of the processed fabrics which is the price at which the fabrics are sold for the first time in the wholesale market. The rules are clear on the Excise Appeal Nos.70780 & 70781 of 2016 75 computation of that value. If the valuation is made according to the rules as adumbrated in Empire Industries (supra) and as clarified by my learned brother in this judgment no difficulty should arise."
4.13 Further clarifying the observations made in the above order, Hon'ble Supreme Court has again vide the order reported at [1989 (39) ELT 393 (SC)] clarified as follow:
"In respect of the civil miscellaneous petition for clarification of this Court‟s judgment dated 4th November, 1988, it is made clear that the assessable value of the processed fabric would be the value of the grey-cloth in the hands of the processor plus the value of the job work done plus manufacturing profit and manufacturing expenses whatever these may be, which will either be included in the price at the factory gate or deemed to be the price at the factory gate for the processed fabric. The factory gate here means the „deemed‟ factory gate as if the processed fabric was sold by the processor. In order to explain the position it is made clear by the following illustration: if the value of the grey- cloth in the hands of the processor is Rs. 20/- and the value of the job work done is Rs. 5/- and the manufacturing profit and expenses for the processing be Rs. 75/-, then in such a case the value would be Rs. 30, being the value of the grey- cloth plus the value of the job work done plus manufacturing profit and expenses. That would be the correct assessable-value.
2. If the trader, who entrusts cotton or man-made fabric to the processor for processing on job work basis, would give a declaration to the processor as to what would be the price at which he would be selling the processed goods in the market, that would be taken by the Excise authorities as the assessable-value of the processed fabric and excise duty would be charged to the processor on that basis provided that the declaration as to the price at which he would be selling the processed goods in the market, would include Excise Appeal Nos.70780 & 70781 of 2016 76 only the price or deemed price at which the processed fabric would leave the processor‟s factory plus his profit. Rule 174 of the Central Excise Rules, 1944 enjoins that when goods owned by one person are manufactured by another the information is required relating to the price at which the said manufacturer is selling the said goods and the person so authorised agrees to discharge all the liabilities under the said Act and the rules made thereunder. The price at which he is selling the goods must be the value of the grey-cloth or fabric plus the value of the job work done plus the manufacturing profit and the manufacturing expenses but not any other subsequent profit or expenses. It is necessary to include the processor‟s expenses, costs and charges plus profit, but it is not necessary to include the trader‟s profits who gets the fabrics processed, because those would be post-manufacturing profits."
4.14 Thus in view of the above decision of Hon'ble Supreme Court if the processed fabrics were to be subjected to levy of excise duty, then the value of the fabric at the hand of processor would be inclusive of the value of the grey fabric provided by the trader. However this decision also makes it obligatory on the trader to declare the value of the grey fabric or the value at which the processed fabric would be finally sold by the trader in the course of wholesale trade. In the entire proceeding statements of large number of customers have been relied upon and on the basis of their statements it has been alleged that appellant was using power in process of manufacture and hence was not liable to exemption claimed. If these customers were aware that the benefit of this exemption was not admissible as the appellant was making use of power, then they would have given the declaration to appellant in the manner as provided by the decision of Hon'ble Supreme Court. Those declaration should have formed the basis of determination of quantum of assessable. Board has vide Circular No 67/42/88-CX.2 dated 17.05.1989 clarified as follows:
Excise Appeal Nos.70780 & 70781 of 2016 77 "Subject : Supreme Court's order, dated 27-1-1989 in the case of M/s. Ujagar Prints etc. etc. v. UOI & Others - Reg.
I am directed to refer to the Supreme Court‟s order, [1989 (39) E.L.T., 493 (S.C.)], dated 27-1-1989 in the case of M/s. Ujaqar Prints etc. etc. v. UOI & Others and to say that references have been made by some of the Collectors to the Board seeking clarification as to the practical application of the order to the facts of a given case. In particular, clarification has been sought for as to whether mere aggregate of the cost of grey-fabric and the job charges declared by the trader/processor would constitute the assessable value. It has also been suggested that the Board may consider whether the Hon‟ble Supreme Court may be moved by the Department for further clarification as the order seems to be contrary to the existing practice of treating the trader‟s price as the assessable value.
2. The matter has been carefully examined by the Board in the context of the doubts raised in this regard. The Board is of the view that the application for further clarification of the Hon‟ble Court‟s order is not called for. The order, dated 27- 1-1989 clarifies as to what principles are to be applied for determination of assessable value of fabrics processed on job basis. This order was passed by a Constitution Bench of the Supreme Court in the context of the doubts which were raised for clarifying as to the "place and time" of removal for the purpose of computing the assessable value. Doubts were expressed as to whether excise duty is leviable on the basis of the value at the factory gate or on the basis of the value at which a trader sells the fabrics in the wholesale market outside the factory gate after the goods have left the factory gate.
3. It would be seen that the Hon‟ble Court has clarified, inter alia, that the price at which the processed fabrics would have been sold at the factory gate or the "deemed"
Excise Appeal Nos.70780 & 70781 of 2016 78 factory gate is relevant for determination of the assessable value. It follows from the order that the mere aggregate of the value of grey cloth in the hands of the processor and the value of job work done would not constitute the assessable value. Two more ingredients, namely, the manufacturing profit and the manufacturing expenses, whatever these may be, are to be come and determined for assessment of the processed fabrics u/s the Central Excises & Salt Act.
4. The trader‟s profit, as such, is not to be included as assessable value. However, the assessable value is to be determined in each case applying the principles laid down in order, dated 27-1-1989 and keeping in view the provisions of Section 4 of the Central Excises Act and the rules made there under information furnished by the trader/processor, including trader‟s wholesale price, would be quite relevant for this purpose. Necessary action may, therefore, be taken accordingly."
4.15 We do not find any such declaration available on record whereby price of grey or the whole sale price of processed fabric has made available to the appellant. In view of the absence of the such declaration the submission of the appellant to the effect that the statements of the customers were tutored or doctored by the investigating authorities, without being corroborated. For this reason also we do not find any merits in the reliance placed by the adjudicating authority on these statements of customers.
4.16 Even the observations made in para 26 of the impugned order in respect of the lay out plan of the appellant, is without consideration of the fact that the layout plan of the appellant was part of the registration certificate and was approved after due verification by the range officer. If that was so while approving the layout plan range officer would have raised objection in respect of EHW operating from the same premises.
4.17 If the statements of customer cannot be relied upon in absence of they not being tested as per the provisions of Section 9D or for the reasons of the decision in case of Ujagar Prints and Excise Appeal Nos.70780 & 70781 of 2016 79 Board Circular, we do not find any evidence to have been adduced by the revenue to show that the appellant was using power in the processing of fabrics by sodium silicate process. As not even the statutory declarations that were made by the appellant are not even considered or made part of the entire proceedings we do not find any merits in the impugned order 4.18 In view of the above discussions, we find not merits in the impugned order and the same is set aside.
5.1 Appeals are allowed.
(Operative part of the order pronounced in open court) (P.K. CHOUDHARY) MEMBER (JUDICIAL) (SANJIV SRIVASTAVA) MEMBER (TECHNICAL) akp