Customs, Excise and Gold Tribunal - Tamil Nadu
Nu-Trend Business Machines P. Ltd., ... vs Commissioner Of Central Excise, ... on 23 November, 2001
Equivalent citations: 2002(80)ECC118, 2002(141)ELT119(TRI-CHENNAI)
JUDGMENT
S.L. Peeran
1. This appeal arises from the Order-in-Original No. 52/96 passed by the Commissioner of Central Excise, Chennai confirming the following:-
40. I demand Rs. 12,71,000 (Rupees twelve lakhs and seventy one thousand only) from M/s Nu-trend Business Machines (P) Ltd., Madras under Rule 9(2) read with proviso to Section 11 A(1.
41. I demand Rs. 8,00,700 (Rupees eight lakhs and seven hundred only) from M/s Xerograff, 811, Mount Road, Vummidiyar Shopping Centre, Madras under Rule 9(2) read with proviso to Section 11A(1).
42. I demand Rs. 4,67,460 (Rupees four lakhs sixty seven thousand for hundred and sixty only) from M/s Sectel India, 811, Mount Road, Vummidiyar Shopping Centre, Madras under Rule 9(2) read with proviso to Section 11A(1).
43. I demand Rs. 28,550 (Rupees twenty eight thousand five hundred and fifty only) from M/s Electro Copier, 198, Arcot road, Madras under Rule 9(2) read with proviso to Section 11a(1).
44. I impose a penalty of Rs. 12,71,000 (Rupees twelve lakhs and seventy one thousand only) on M/s Nu-trend Business Machines (P) Ltd., Madras under Rule 173 Q.
45. I impose a penalty of Rs. 8,00,700 (Rupees eight lakhs and seven hundred only) on M/s Xerograff, 811, Mount Road, Vummidiyar Shopping Centre, Madras under Rule 173 Q.
46. I impose a penalty of Rs. 4,67,460 (Rupees four lakhs sixty seven thousand four hundred and sixty only) on M/s Sectel India, 811, Mount Road, Vummidiyar Shopping Centre, Madras under Rule 173 Q.
47. I impose a penalty of Rs. 28,550 (Rupees twenty eight thousand five hundred and fifty only) on M/s Electro Copier, 198, Arcot Road, Madras under Rule 173 Q.
48. I impose a penalty of Rs. 5,00,000 (Rupees five lakhs only) on Shri K.A. Shabu, under Rule 209A.
2. The short facts of the case as narrated in the Order-in-Original are that appellants M/s. Nu-tread Business Machines (P) Ltd., (for short, NBMPL) are manufactures of photocopier machines with the brand name of "CANON" classifiable under heading 90.09 of the Central Excise Tariff Act. They are a private limited company with K.A. Shabu as the Managing Director and M.S. Abdu as the Director.
3. On receiving the information by the Officers of DRI on 26.5.1994 that M/s. NBMPL were manufacturing and clearing the photocopiers without following the Central Excise procedure and without payment of central excise duty, they searched/visited various factories and places as shown in the Order-in-original and their Service Engineers and dealers and seized incriminating documents. Investigations were carried out and statements were recorded from several persons and on the basis of these statements, show cause notice was issued calling upon the appellants to explain as to why the demands as raised in the show cause notice should not be confirmed. The main crux of the allegation is that they had imported photocopier components, including the components imported in CKD condition itself and assembled out of such components the photocopiers under the brand name of 'Canon'. These machines were supplied without payment of duty of various customers by four companies namely M/s. NBMPL. M/s. Xerograph, M/s. Sectel India and M/s. E Electro Copier which were all controlled by Shri K.A. Shabu. Shri Shabu was running other three firms as a Proprietor. The photocopiers were sold through Service Engineers/Agents in Kerala and Tamil Nadu who, in turn, supplied the machines to individual customers with the brand name "Canon" of foreign brand name. The SSI Exemption Notification No. 175/86-CE and 1/93 did not appear to be applicable to their manufacturer in India. Therefore, the show cause notice alleged in all 188 photocopies were manufactured and cleared by the four firms without payment of duty of Rs. 25,77,720/- and hence they were called upon the explain as to why the extended period should not be invoked and demands confirmed under various provisions of law.
4. Appellant's contention in brief were (a) that they had imported components of photocopiers and cleared which were of second hand. They had reconditioned the same and had been selling it without any brand name; (b) that the assembly of sophisticated components parts like that of photocopier would require full fledged assembly line, technical personnel and large investment (c); that they were incapable of doing such activity either in NBMPL or in individual capacity of Shabu; (d) that the department had not come across any evidence of these; (e) that it was on record that they had been purchasing the second hand machines importing and purchasing components and selling reconditioned second hand machines and components; (f) that the notice is based on evidence of 17 persons - out of these, five did not turn up for cross examination and out of these five, four did not state that they purchased any machines from them; (g) Viswanathan Nair who had allegedly purchase of 35 machines had not turned for cross-examination and not produced any documentary evidence in support of his allegation; (h) that his assistant Eldo Joseph stated that the firm had been closed.
5. All the persons cross examined had stated that the machines purchased from the notices were second-hand; that the goods purchased were components or no evidence had been submitted of goods being purchased by the notices; that their statements had been extorted by the officers or they had made the false statements to protect their own interest; that the bills/invoices under which the notices had sold the goods were for components of photocopiers. It is to be noted that they themselves were in the business of photocopiers as wholesalers or retailers; that they had chosen to make statements implicating the notices contrary to the evidence on record; that the notices should have been issued to these persons to explain how they had purchased components, assembled them and sold them. They too agreed in some cases. Complete P C machines were supplied as per the invoices and for these transactions sufficient documentary evidence they promised to produce for having purchased the same as P C machine.
6. They pleaded that the imported components were of sophisticated nature and it was not possible to assemble them with screw driver technology. Hence, they totally deny the statements given by their buyers. They submitted seven copies of invoices in different dates for the purchase of 27 photocopiers from M/s. Raj Graphics and Business machines, Madras in support of their claim that they had been purchasing second hand photocopiers from the market.
7. Their further contention was that statements made by Shabu as MD of NMBPL and recorded under the Customs Act have no relevance with the present notice under the Central Excise which relate to suppliers of components of photocopiers by Shabu in his capacity as proprietor of three firms i.e. Xerograff, Sictel and Electro Copier, that the department had coerced the notices to accept that they imported complete copying machines; that the Customs had sought to assemble all the component parts together to ascertain how many copying machines could be made out of the imported components but complete machine could not be fabricated and number of incomplete machines are lying in the godown; that they were initiated appeal proceedings against the order passed in the Custom case; that the assembly and sale of second hand machines under the name of NBMPL had stopped.
8. They denied that Xerograff, Sectel or Electro Copier were selling Canon photocopiers manufactured by NBMPL; that if it was true, the notice would have been issued to NBMPL and not to K.A. Shabu as proprietor of three firms; that since no notice had been issued to NBMPL, it would demonstrate that their three firms were not engaged in the manufacturing activity; that Shabu had noting to do with Electro copier and Xerograff were mainly doing servicing of photocopiers and that, in few cases, Xerograff did sell complete photocopiers, but as retailer and not as manufacturer.
9. M/s. Sictel were importing component parts of photocopier and sold them to owners of photocopiers of components parts and not as assembled unit. On few occasions, Sictel did sell copiers but as retailers and not as manufactures and fully assembled photocopiers had been purchased for the purpose, and not assembled out of imported components as alleged in the notice.
10. They contended finally that, even if it was possible to assemble the photocopiers using screw driver technology, it was a matter of law whether such activity would amount to manufacture of hence the proceedings deserved to be dropped.
11. Ld. Commissioner in the impugned order has not agreed with their contention and has held that they did not produce any evidence on record to show that these components were sold in retial. He has noted that there are invoices showing sale of photocopiers, spare parts, but these did not have names of specific parts and quantities which is contrary to the practice followed by the traders of spare parts and components. He has noted that none of the components sold are in small quantities and the total value of the spares shown is approximately in the range of price of a fully assembled photocopiers.
12. He has further held in paras 35 to 39 as follows:-
35. All these invoices were disputed by their buyers who invariably claimed that though the invoices showed the description to be spare parts or components, what were delivered by the notices were fully assembled photocopiers in ready to use condition. These statements have been denied at the time of cross examination but I find that no recreations were issued immediately after the statements were recorded. Retractions made after almost two years put a question mark on their integrity.
36. Further, almost all the buyers stated that they either used photocopiers themselves or sold them to other users. The defence claims that it is difficult to assemble these components with screw driver technology and they themselves did not have this facility with them. If this claim is taken at its face value, the possibility of their buyers buying components of photocopiers and assembling them at their premises is remote. The defence admits that their suppliers disassembled complete photocopiers at Singapore and then supplied those components. There is vast difference between assembling of photocopiers from components and assembling of photocopiers from disassembled components. There is no doubt that assembly of photocopiers from fresh components would require sophisticated technology but assembly of photocopiers from these disassembled components would be an easy task and screw driver technology would suffice. Thus, the evidence on record does not support the claim of defence that spare parts were sold by the notices as such to their buyers.
37. The brand name 'CANON' belongs to person who is not eligible to the SSI exemption and by using it, the notices have become ineligible to avail benefit of notfn No. 175/86 or 1/93, as the case may be.
38. The defence has claimed that they procured old/ used second hand components and machines and sold them after repair and reconditioning. This has not been supported by production of any documents except copies of seven invoices of M/s Raj Graphics & Business Machines, Madras for 27 photocopiers. An attempt was made to verify the authenticity of the documents produced by the defence form the records of Range where Raj Graphics were submitting their RT-12 returns. In the invoice No. 1623 dt 24.3.93, 1992 dt 2.8.93 and 2176 dt 25.11.93, reference has been made to GP Nos. 4 dt 24.3.93, 5 dt 2.8.93 and 7 dt 25.11.93. A check of these GPs in the Range records shows that none of them were issued to the notices. Further, these GPs refer to invoice Nos. 1342 dt 1.6.93, 1343 dt 1.6.93 and 1345 dt 2.6.93 respectively. Also, the quantities covered by these GPs are different from the quantities indicated in the invoices produced by the defence. Finally, these three GPs indicate that the clearance were made under exemption notfn No. 175/86 whereas the corresponding invoices show payment of duty by Raj Graphic. All this puts a serious question mark on the authenticity of the copies of three invoices produced by the defence. This evidence also makes it difficult to accept the contention of the defence in respect of the remaining invoices. I, therefore, reject the entire claim in respect of 27 photocopiers.
39. It is thus clear that they purchased disassembled components of photocopies and assembled them as fully functional machines. Parts and components of photocopiers are classifiable under heading 90.33 and the photocopiers under 90.09. Assembly of the parts brings into existence a new product which is different form the raw materials and has it own identity, marketability and usage. Hence, assembly of components into a photocopiers would amount to manufacture under Section 2(f) of the Act and the new product would be liable to duty under heading 90.09. They sold the machines to the buyers without the invoices and without mentioning them in the statutory records. In some cases, invoices were issued but indicating the machines as components. This was done deliberately and with a view to evading the payment of Central Excise duty. Inasmuch as the manufacture and clearances of the photocopiers was suppressed from the department, contravention alleged in the notice are established. Invocation of proviso to Section 11A (1) is justified all the notices would be liable to penal action. I find that K.A. Shabu being executive Director of NBMPL and owner of Xerograff, Sectal and Electro Copier, master minded the scheme to defraud the exchequer of the duty due and thus would be liable to penal action under Rule 209A. His argument that his statements were recorded under the Customs Act and hence not applicable to the present proceedings under the Central Excise Act, the irrelevant to the issue.
13. We have heard Ld. Advocate Shri S.Jaikumar and Shri G.Sreekumar Menon, Ld. SDR for the Revenue.
14. Ld. Counsel also filed written objections the main ground is that department had only placed 51 invoices and had not corroborated with regard to 137 machines said to have been manufactured and sold by them. The department had relied on 23 statements collected during investigation but all the persons in the cross examination clearly and categorically admitted and stated that they had purchased only the old machines. They had also pointed out that some of the witnesses did not turn up for cross examination and their veracity of initial statements is not accepted as they have not produced even invoices for having purchased the items from the appellants. He submitted that the entire order is not speaking order and does not deal with the entire defence taken by them. There is no corroboration with regard to allegation of manufacture, assembly and sale of photocopies with the brand name of 'Canon'. He submitted that they were all old machines and it cannot be new machines as they were of sophiscated nature and it was not possible to assemble them with screw driver technology assembly. He submitted that even for assembling the items and making it to be marketable, appellants did not have the facilities. He pointed out that the Commissioner was not justified in rejecting the invoices produced, in respect of procurement of 27 photocopiers from M/s. Raj Graphics & Business Machines, which clearly bore the G.P.1 numbers. It was pointed out that Commissioner has got these invoices verified behind their back form the range superintendent as noted in the above extracted paragraphs but without putting the evidence to them. Appellants, were, therefore denied for a reasonable opportunity to counter the evidence of the department and hence the order is not a correct order.
15. It is contended that had the invoice details been furnished to them, they would have explained and shown and could have corroborated through proper verification of the documents of M/s. Raj Graphics & Business Machines with their invoice which bore the G.P.1 numbers and it was clearly correlatable. The fact that the Commissioner has rejected and given a finding on the evidence produced behind their back in para-38 vitiates the order and the order is required to be set aside on this ground alone. He submits that if the answers given in the cross examination by the witnesses are taken then the entire charge fails. There is no independent corroborative evidence to support the charge. He also submitted hate the parties had clearly indicated and stated that they purchased the items at the value of Rs. 24,000/- while the department has taken an average value at Rs. 50,000/- which is against the valuation rules and the duty liability has been unnecessarily increased on assumption & presumption which is against the law. He contended that the assembly of photocopiers in CKD condition has been held to be as not a process of manufacture. He submitted that the Tribunal in the case of WALCHAND NAGAR INDUSTRIES V. CCE Pune reported in 1995 (79) ELT 485 (T) and in the case of 1995 (80) ELT 337 which has been confirmed by the Apex Court as reported in Vol-93 A.98. He submits that there was an independent order of the Dy. Commissioner of Customs on the imported items and it has been held as photocopying machines in CKD condition. These were the goods which were removed and therefore this order which is file has not been into consideration. It was also contended that duty was cum duty and the price has not been properly assessed in terms of Section 4(4) (d) (ii) in terms of the Larger Bench judgement rendered in SRICHAKRA TYRES LTD., 1999 (108) 361. He also submitted that the charge of clandestine manufacture and removal has not been produced with any corroborative evidence. Relying on mere statements recorded from some strangers who have also not corroborated their earlier statements given but have stated that they purchase only old machines is itself sufficient ground to set aside the order in terms of the judgement rendered by this Bench rendered in KRISHNA BOTTLING CO. reported in 1999 (32) RLT 845.
16. In reply, Ld. SDR read the entire order and took us through the evidence on record besides the statement of various persons to show that they had cleared the photocopying machines and therefore average valuation adopted is the correct method and it can be accepted in law. Ld. DR could not produce any citation in support of the Commissioner's order more particularly with regard to plea of violation of principles of natural justice in relying upon the evidence collected at the back of appellants as noted in para-38 of the order.
17. On careful consideration of the submissions, we find lot of force in the appellants' plea. The entire case is based on statements recorded from various persons. Out of 17 persons from whom the statements were recorded, the OIO in para -26 clearly records that 5 did not turn up for cross examination and out of these five, four persons did not state that they purchased any machinery from the appellants. This itself negatives the departments' case. When a person does not turn up for cross examination, his statement cannot be accepted and on the basis of that statement demands cannot be confirmed. Likewise when the revenue have not corroborated their statement or have explained or given a different version, then the statement looses its evidentiary value. Likewise, Mr. Viswanathan Nair who allegedly purchased 35 machines did not turn up for cross examination nor has produced evidence in respect of his allegation. If this be the position, then the demands for 35 machines cannot be confirmed. Likewise, we notice that there are several lacunas in the order. Appellants had produced copies of different dates to show that the have purchased 27 photocopies from M/s. Raj Graphics and in support of their claim that they had not been purchasing copiers from the market. The Commissioner has got these invoices verified behind their back and has recorded a finding on this evidence in para-38 and relying on that evidence rejected their pleas. This itself violaties of principles of natural justice. No evidence can be collected after the hearing is completed and relying the same in the order which itself vitiates the proceedings. Therefore, on this ground, the order is required to be set aside the remanded for de novo consideration. Appellants have taken various pleas to show that the demand is based on average valuation which is against the rules. There is great force in the submission of Ld. Advocate that if there is any evidence which is clinching in nature and if the Commissioner comes to the conclusion that the department has proved the manufacture and clearance, then valuation has to be in terms of Section 4(4)(d)(ii). Appellants should be given the benefit of duty claim as cum duty in terms of Larger judgement rendered in SRICHAKRA TYRES (supra). Further, appellants have also raised the plea in the grounds of appeal that they had not used any brand name but had only sold the second hand machines. This plea, according to them, is corroborated by the order passed by the Dy. Collector of Customs in F.No. S8/235/94-ACC dated 13.7.94 in respect of the imported item and appellants have produced lot of documents including copy of above order dated 13.7.94. If this be the position, then the same is required to be taken into consideration in the de novo proceedings. Further we notice that appellants have claimed benefit of SSI notification which is also required to be examined. We find lot of force in the appellants' contention that assembly of second-hand machinery in CKD condition does not amount to a process of manufacture in terms of the judgment cited by them. Ld. Commissioner has to examine the issue and see as to whether their contention is acceptable based on the evidence on record and it this be so, then the benefit of this judgment is required to be extended.
18. Likewise, the law on clandestine removal has been laid down in KRISHNA BOTTLING CO. (supra) and the department has to produce clinching, clear evidence of manufacture and to prove purchase and sale of inputs and that they had all facilities for manufacture. This judgment should be taken into consideration, while arriving at the conclusion in the re-adjudication order by the Commissioner. Appellants are at liberty to produce any additional evidence and establish that they had not manufactured and cleared printed photocopies from their factories and from various places. Thus the impugned order is set aside and the matter remanded for de novo consideration.
19. (pronounced in open Court on 23.11.01