Custom, Excise & Service Tax Tribunal
M/S.Radha Textiles Pvt. Ltd vs Commissioner Of Central Excise, Trichy on 12 March, 2018
IN THE CUSTOMS, EXCISE & SERVICE TAX
APPELLATE TRIBUNAL
SOUTH ZONAL BENCH, CHENNAI
E/509 to 513 and 518/2007
(Arising out of Order-in-Original No. 5/2007 dated 12.4.2007 passed by the Commissioner of Central Excise, Trichy)
1. M/s.Radha Textiles Pvt. Ltd.
2. Super Textiles
3. SNB Textiles
4. Sri Kumar Textiles
5. Universal Yarn
6. M. Subbiah, MD of
M/s. Radha Textiles Pvt. Ltd. Appellants
Vs.
Commissioner of Central Excise, Trichy Respondent
E/572/2007 Commissioner of Central Excise, Trichy Appellant Vs. M/s. Radha Textiles Pvt. Ltd. Respondent Appearance Shri M. Karthikeyan, Advocate for the Appellants Shri S. Govindarajan, AC (AR) for the Respondent CORAM Honble Ms. Sulekha Beevi C.S., Member (Judicial) Honble Shri Madhu Mohan Damodhar, Member (Technical) Date of Hearing : 17.01.2018 Date of Pronouncement: 12.03.2018 Final Order Nos. 40590-40596 / 2018 Per Bench M/s.Radha Textiles Ltd. is a manufacturer of cotton yarn falling under Chapter 52 of CETA, 1985. Department officers intercepted a van carrying a consignment of cotton yarn of appellant. As the quantity and description of goods found in the van were different from that of indicated in the invoices, the goods were placed under seizure. Investigations were extended to the factory premises, documents and records recovered and statements of various persons recorded. From the investigations appeared to the department that:-
i. Appellants had indulged in accounted purchase of cotton ii. They had indulged in unaccounted manufacture of cotton yarn iii. Excess stock of cotton yarn was found in search of the premises on 5.3.2004 iv. The appellant cleared cotton to job work units without cover of invoices / job work challans without accounting.
v. Cotton yarn was sent for further processing without cover of central excise documents. The appellant received sale proceeds in cash in respect of unaccounted clearances for cotton yarn.
vi. Department took the view that appellants had contravened the following provisions of Central Excise Act, 1944 and the Rules made thereunder:-
i. Rule 4 and 8 of Central Excise Rules, 2001 &2002 inasmuch as they manufactured and removed excisable goods viz. Cotton yarn payment of duty;
ii. Rule 6 of Central Excise Rules, 2001 &2002 inasmuch as they manufactured and removed excisable goods viz. Cotton yarn without assessing the duty payable on such goods;
iii. Rule 10 of Central Excise Rules, 2001 & 2002 inasmuch as they did not properly account the actual quantity of goods manufactured and removed in the Daily stock account;
iv. Rule 11 of Central Excise Rules, 2001 & 2002 inasmuch as they removed the excisable goods without the cover of proper invoices;
v. Rule 12 of Central Excise Rules, 2001 & 2002 in as much as much as they did not file proper returns disclosing the actual production and clearances from the factory.
2. Accordingly, a show cause notice dated 12.8.2004 was issued inter alia proposing confiscation of the seized cotton yarn, demand of differential duty of Rs.1,35,119/- with interest and imposition of penalty under various provisions. A second show cause notice dated 14.2.2006 was also issued, inter alia, alleging clandestine removal of goods and proposing recovery of following duty demands:-
i. Duty liability on alleged unaccounted clearances during the year 2003-04 of value of Rs.3,27,06,953/- = Rs.30,09,040/-
ii. Duty liability on cotton yarn manufactured by appellant without accounting during the period 1.2.2002 to 31.3.2003 valued at Rs.1,91,45,597/- = Rs.17,61,395/-.
iii. Duty liability on quantity of cotton yarn found short valued at Rs.36,63,452 = Rs.3,37,038/-.
iv. Demand of an amount of Rs.51,07,472/- with interest thereon for the period 1.2.2002 to 31.3.2004 v. Imposition of penalties under Section 11AC of the Central Excise Act, 1944 read with Rule 25 of the Central Excise Rules.
Both the show cause notices were adjudicated by the single adjudication order dt. 12.4.2007 (impugned order), wherein the adjudicating authority inter alia, ordered as under :
(i) Confiscation of quantity of 12,512 kgs of cotton yank yarn valued at Rs.14,68,688/- seized from the premises of OPT yarn Stores with option to redeem the same on payment of fine of Rs.70,000/- under Section 34 ibid. Penalty of Rs.15,000/- was also imposed on OPT Yarn Stores under Rule 26 of the Rules.
(ii) 1060 kgs of cotton yarn valued at Rs.1,63,600/- seized from the premises of appellant were confiscated under Rule 25 of the Rules with option to redeem the same on payment of fine of Rs.15,000/-.
(iii) In respect of the demand of duty, the adjudicating authority observed that cotton hank yarn for which duty is demanded has been manufactured at job worker's end and received back by appellant who subsequently cleared it without accounting.
(iv) That the said job worker becomes the principal manufacturer of such excisable goods and accordingly the liability to discharge central excise duty of such excisable goods vests on the said job worker. However, the adjudicating authority held that as the appellant had supplied cotton cone yarn to manufacture a like quantity of cotton hank yarn at the premises of the job workers, without cover of central excise documents, appellant had effected payment of duty on the cotton cone yarn sent by them to their job workers. Accordingly, based on these grounds, the adjudicating authority confirmed duty liability on unaccounted clearance of cotton cone yarn by appellant for the year 2002 03 to Rs.9,79,987/- and Rs.11,62,543/- for the period 2003 04. The adjudicating authority also confirmed duty liability of Rs.3,37,037/-proposed in Annexure E2 of the show cause notice in respect of shortage of cotton yarn of various counts found by the officers. In fact, the adjudicating authority confirmed reduced duty liability of Rs.24,79,477/-. Penalty of Rs.19,79,477/- was imposed under section 11AC on M/s.Radha Textiles. Penalties under Rule 26 of Central Excise Rule were also imposed on the co-noticees as below:-
i. Super Textiles Rs.50,000/-, appellant in Appeal No.E/510/2007 ii. SNB Textiles Rs.25,000/-, appellant in Appeal No E/511/2007 iii. Sri Kumar Textiles Rs.10,000/-, appellant in Appeal No. E/512/2007 iv. Universal Yarn Rs.50,000/- appellant in Appeal No. E/513/2007 v. M. Subbiah, Managing Director of M/s. Radha Textiles Rs.2.50 lakhs, appellant in Appeal No. E/518/2007
3. On 17.1.2018, when the matter came up for hearing, ld. counsel Shri M. Karthikeyan appearing for the appellants made the following oral submissions:-
3.1 The appellants are manufacturers of cone yarn. They do not have any facility for manufacture of hank yarn, for which reason they send the cone yarn to their job workers for conversion into hank yarn. The hank yarn thus received back is then cleared by the appellants to the customers.
3.2 The entire portion of the demand of Rs.51,07,472/- proposed in the show cause notice has been made on alleged non-discharge of duty on hank yarn manufactured by them. However, the adjudicating has gone beyond the scope of the show cause notice. Whereas the show cause notice has demanded duty liability only in respect of hank yarn, the adjudicating authority has demanded duty on alleged removals of cone yarn by appellant.
3.3 To canvass his contention, ld. counsel took us to para 103 of the impugned order wherein the adjudicating authority has held that when the raw materials supplied by the appellants and the goods manufactured using such raw materials by the job workers are not covered by the provisions of the erstwhile Rule 12B, the process undertaken by the job workers amounts to manufacture and hence job worker becomes principal manufacture with liability to discharge excise duty will vest on them.
3.4 Ld. counsel further submitted that the adjudicating authority in para 104 of the impugned order held that demand of duty is to be restricted only to the cotton cone yarn actually manufactured by appellant in their factory, even when it is conclusive proof on they received back the cotton hank yarn from the job workers and cleared the same.
3.5 The ld. counsel takes us to the summary of the allegations made in the show cause notice in para 101 to contend that the proposed demand of duty liability was proposed only in respect of alleged clearance of hank yarn manufactured by the appellant and not cone yarn. Moreover, there has been reference to Rule 12B anywhere in the allegations or charges laid down in the show cause notice.
3.6 With regard to the reliance of computer print outs made in respect of alleged differential duty liability, for the period 2003 04, ld. counsel draws our attention to para 227 to 231 of the appeal filed, which is part of the reply to the show cause notice made by them, wherein the defense in respect of reliance on computer print outs has been brought out. As contended therein, the conditions prescribed in section 36B of the Central Excise Act, 1944 was not specified in respect of the duty retrieved from the floppies and relied upon in the show cause notice. Hence the demand for 2003 04, which relies on these data retrieved from the floppies cannot be admitted as evidence as per the said section 36B of the Act. (to explain in respect of duty confirmed by Order-in-Original for the year 2003 04 by adding reliance on computer print outs).
3.7 With respect of demand of duty liability on shortage of cotton yarn of various counts found in the premises on 7.1.2004, ld. counsel submitted that the said shortage is covered with job worker challans and invoices issued by them for conversion of cone yarn into hank yarn.
3.8 As regards 1060 kgs. of cotton yarn seized from appellant on 5.3.2004, ld. counsel submits that they have contended right from beginning that such quantity was not ripe for sale and that it was kept for quality inspection.
3.9 The ld. counsel submits that for these reasons, the demand of duty of Rs.24,79,477/- in the impugned order is not justified. In consequence, the penalties imposed on the appellant M/s. Radha Textiles are also not justified and prays that the same may be set aside.
3.10 With respect to the departmental appeal No.E/, the ld. counsel contends that the appeal filed by the department is only on the ground that concerns responsibility to discharge duty on doubled hank yarn lies with appellant relying on Rule 12B of Central Excise Rules. Since there is no reference to the said Rule 12B anywhere in the show cause notice, these arguments cannot be raised by the department at this point of time.
4.1 On the other hand, ld. AR Shri S.Govindarajan reiterated the findings in the impugned order.
4.2 In respect of appeals filed by M/s. Radha Textiles and Others, ld. AR submits that the demand of duty on cotton cone yarn cleared by appellant is based on the reasoning by the adjudicating authority that the goods cleared without accounting are not covered by the provisions of erstwhile Rule 12B and that appellant only are liable to only Central Excise duty. Ld. AR submits that this view has been contested by the department in the review order of the Committee of Commissioners. He contends that in terms of Rule 12B(4) of responsibility in respect of accountability of the goods sent by principal manufacturer to the job worker shall lie with the person who gets the work done. Hence duty on the cotton hank yarn received back by appellant from job workers is liable to be paid by appellant as quantified in the show cause notice. Ld. AR also submits that the method of quantification of duty demand adopted by the adjudicating authority is now contested by the department in the appeal filed by them. Ld. AR also reiterated the grounds of appeal filed in respect of the department appeal.
5. Heard both sides and have gone through the facts.
6. Discernably, we find that the show cause notice has been issued proposing differential duty liability only in respect of hank yarn allegedly cleared without accounting by the appellant to their job workers. On this ground, differential duty of Rs.17,61,395/- was proposed for the year 2002 03 and Rs.30,09,040/- was proposed for the year 2003 04 as evidenced from the Annexure E5 of the show cause notice.
6.1 However, we find that the adjudicating authority has chosen not to demand any duty liability on such clearances of hank yarn but instead has ordered demand of duty in respect of cone yarn clearances by the appellant. The reasoning of the adjudicating authority as brought out in paras 103 and 104 of the adjudication order are reproduced for ready reference:-
103. In this case, the duty is demanded on the basis of clearance of cotton hank yarn by RTPL, the year 2002-03 and 2003-04. During the above period, RTPL did not have any infrastructure in their factory for doubling and reeling of cotton cone yarn. From the documents, it is seen that the cotton hank yarn for which duty is demanded for the year 2002-03 was manufactured at Super Textiles, Pudukottai, Universal Yarn, Dindigul, SNB Textiles, Dindigul and Sri Kumar Textiles, Madurai on account of RTPL. It is also proved that RTPL have received the unaccounted quantity of 1,49,031/- kg or cotton hank yarn from their job workers and cleared it without accountal. In such cases, when the raw materials are received by job worker without cover of any Central Excise document and when such materials are not accounted by the supplier as well as the receiver in their statutory records, then such raw materials and the goods manufactured using such raw materials are not covered by the provisions of the erstwhile Rule 12B. In such circumstances, when the process undertaken by the job workers amounts to manufacture as defined under Section 2 of Central excise Act, 1944 and the said job worker becomes the principal manufacturer of such excisable goods and accordingly, the liability to discharge Central Excise duty on such excisable goods vests on the said job worker.
104. It is also pertinent to note that input required for manufacture of cotton hank yarn is cotton yarn in cones, which was manufactured and sent to the job workers by RTPL. On going through the processes involved in the work of doubling and reeling is studied, it is seen that doubling is a process by which two numbers of single yarn are twisted together to form a single double yarn. The doubled cotton yarn in the form of cops is then brought to the Reeling Machine to form a garland type format which is called as hank. Thus, from the manufacturing process involved in doubling and reeling, it is seen that the input-output ratio in the above processes is 100:100. As the job workers like Universal Yarn. SNB Textiles and Super Textiles did conversion on the cotton cone yarn supplied by RTPL, it is seen that RTPL have supplied 14896.50 kg of cotton cone yarn to manufacture a like quantity of cotton hank yarn at the premises of the job workers. It is conclusively proved that RTPL have supplied cotton cone yarn to their job workers for conversion and after completion of conversion work, RTPL received back the cotton hank yarn without cover of Central Excise Documents. Thus it is seen that RTPL have evaded payment of duty on the cotton cone yarn sent by them to their job workers. Even when it is conclusively proved in the Show-Cause-Notice that RTPL have received back the cotton hank yarn and cleared the same without accounting and without payment of Central Excise duty, I propose to restrict the demand of duty from RTPL to the quantity of cotton cone yarn manufactured and cleared by them to their job workers without payment of duty. Hence I find that RTPL are liable to pay duty on 148967.50 kg of cotton cone yarn that was supplied by them to their job workers for the purpose of doubling and reeling. The actual price of 100% cotton single yarn in cones prevailing during the year 2002-03 as recorded in the invoices of RTPL is taken as the Cum-duty price to arrive at the total value of clearance. The total duty payable on the above unaccounted clearances of cotton cone yarn by RTPL during the year 2002-03 works out to Rs. 9,79,987/- (BED : Rs. 8,52,163/- AED : Rs.1,27,824/-) 6.2 We are unable to fathom these findings of the adjudicating authority. The adjudicating authority cannot obviously go beyond the parameters of the demand proposals made in the show cause notice. This is the law that has been laid down in plethora of decisions.
6.3 Thus, on this very aspect, we are of the opinion that the impugned order cannot sustain.
6.4 Interestingly, as seen from para 104 reproduced above, the adjudicating authority is conscious that the show cause notice concerns only cotton hank yarn. Nonetheless, he ploughs ahead with his conclusions as below:-
Even when it is conclusively proved in the Show-Cause-Notice that RTPL have received back the cotton hank yarn and cleared the same without accounting and without payment of Central Excise duty, I propose to restrict the demand of duty from RTPL to the quantity of cotton cone yarn manufactured and cleared by them to their job workers without payment of duty. 6.5 We find that the appeal filed by the department is only on the following grounds which can be summarized as follows:-
a. As per Rule 12(B)(4)(d) of Central Excise Rules, responsibility in respect of accountability of goods shall lie on the person who gets the work done. In this case, appellant for send non-duty paid cotton yarn of cones to their job workers for double reeling etc. and received back doubled hank yarn from their job workers. Responsibility of discharging duty etc. lies with appellant and not on job worker, in view of the said Rule 12(B).
b. As appellant did not have facilities to manufacture doubled hank yarn, they had cleared cotton yarn on cones without payment of duty to their job workers and received back doubled hank yarn under Rule 12B. The responsibility to discharge duty on doubled hank yarn received from the job worker lies with the appellant. Since in their reply as OPT Yarn Stores had fully admitted unaccounted purchase of cotton yarn without invoice and without payment of duty from appellant, duty should have been confirmed and demanded from appellant only.
c. Commissioner has confirmed demand of duty of Rs.24,79,477/- under section 11A(2), however he imposed penalty of Rs.19,79,477/- under section 11AC which is short by Rs.5 lakhs. Payment made before issue of show cause notice cannot be treated as voluntary payment when duty is paid at the instance of the department.
6.6 It is thus seen that in the grounds of the appeal, the department has only contended that Rule 12B of the Central Excise Rules would be applicable in respect of the clearances of cone yarn made by the appellant and for which reason the liability to discharge central excise duty on the resultant hank yarn produced at the job workers end is on the appellant.
6.7 These propositions of the department does not appeal to our legal sensibilities. Rule 12B was inserted by the Central Excise Amendment Rules, 2003 by notification No. 24/2003-CE (NT) dated 25.3.2003. Sub-rule (1) of the Rule 12B when inserted read as follows:-
Notwithstanding anything contained in these rules, every person (not being an export-oriented unit or a unit located in special economic zone) who gets yarns or fabrics falling under Chapter 50, 51, 52, 53, 54, 55, 58 or 60 or readymade garments falling under Chapter 61 or 62 of First Schedule to the Tariff Act, produced or manufactured on his account, on job work (herein after referred to as '"the said person") shall obtain registration, maintain accounts, pay duty leviable on such goods and comply with all the relevant provisions of these rules, as if he is an assessee:
Provided that the job worker may, at his option, agree to obtain registration, maintain accounts, pay the duty leviable on such goods, prepare the invoice and comply with the other provisions of these rules. In such a case the provisions of these rules shall not apply to the said person. The job worker, may, at his option, authorize the said person to, on his behalf as his agent, maintain accounts, pay duty, prepare invoice and comply with any of the provisions of these rule except that of rule 9:
Provided further that the job worker may make an option to undertake the activities mentioned in this sub-rule as an agent or person authorized by the said person and in such a case, the said job worker shall be deemed to be the said person. The very phraseology of the said sub-rule is to cover a person who is not a manufacturer and more importantly does not have registration but who intends to get yarns or fabrics or readymade garments produced or manufactured on job work basis, to obtain registration, maintain accounts, pay duty leviable on such goods and comply with all the relevant provisions of this rules, as if he is an assessee.
6.8 Evidently, these provisions are for a person who is not a manufacturer but is merely a trader and who intends to get yarn, fabrics or garments manufactured on his behalf. In any case, there were already different rules and procedures laid down in respect of manufacturers, who are already registered with central excise authorities, to get goods manufactured on job work, and in such cases, the manufacturer had the option of either getting goods cleared from the job worker itself on payment of applicable duty liability or bring it back to his factory and then clear the same to customers on discharge of duty liability. The provisions of Rule 12B much relied by the department in their appeal cannot therefore be made applicable to a manufacturer, who is already registered, to send the goods for job work, as in the case of the present appellant. Hence this argument of the department does not find merit. In any case, it is not the case of the department that the show cause notice per se had also been issued with the proposal to demand duty liability from the appellant under the provisions of the said Rule 12B. On the other hand, it is evident that the notice treated the appellant as a manufacturer who is liable to discharge the duty liability in respect of hank yarn converted from the cone yarn sent by them to job workers received back in their factory and cleared to their customer allegedly without accounting or documentation. This being so, the department cannot now bring out an entirely new allegation which was not there or seek demand of the duty liability on an entirely new premise which was not featured in the show cause notice issued.
7. In the circumstances, we order as follows:-
(i) In respect of the demands of Rs.9,79,987/- for the year 2002 03 and Rs.11,62,435/- for the year 2003 04 with interest by the adjudicating authority in the impugned order cannot sustain and is therefore set aside. The appeal filed by M/s. Radha Textiles Pvt. Ltd. therefore succeeds in respect of these demands.
(ii) In Appeal No. E/509/2007 filed in respect of duty of Rs.3,37,037/- on the goods found short on 7.1.2004, we find from Annexure E2 of the show cause notice that the shortage was spread out in respect of not only hank yarn but also cone yarn and that too of different types and counts. The contention of the appellant that these goods were covered by invoices / job worker challans does not cut any ice. This being so, we uphold the confirmation of duty liability on the shortage of 24,121 kg. yarn amounting to Rs.3,37,037/-. The appeal filed by M/s. Radha Textiles is rejected to this extent
(iii) Coming to the penalties imposed, we find that the penalty of Rs.19,79,477/- has been imposed under section 11AC of the Act on M/s.Radha Textiles against the total demand of duty of Rs.24,79,477/-. As we have already held that the amounts of Rs.9,79,987/- and Rs.11,62,453/- are not sustainable and only a demand of Rs.3,37,037/- is upheld, the penalty imposed under section 11 AC is modified to Rs.3,37,037/-. So ordered.
(iv) With respect of penalties imposed on others, since the acts and omissions alleged against those persons primarily relate to the demands made in respect of alleged clearances of cone yarn but set aside supra these penalties will necessarily get extinguished and therefore set aside. So ordered.
8. We do not interfere with any other portion of the impugned order.
9. In the result, the appeals filed by the assessees are disposed of in the above terms. The appeal filed by the Department is dismissed.
(Pronounced in open court on 12.03.2018)
(Madhu Mohan Damodhar) (Sulekha Beevi C.S.)
Member (Technical) Member (Judicial)
Rex
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