Customs, Excise and Gold Tribunal - Delhi
Modi Cloth Mills vs Collector Of Central Excise on 25 November, 1985
Equivalent citations: 1986(6)ECR735(TRI.-DELHI), 1986(24)ELT157(TRI-DEL)
ORDER K.L. Rekhi, Member (T)
1. As a common issue is involved in these two appeals and they relate to the same appellants, this common order is passed to dispose of both of them.
2. The appeals are directed against the finding of the Collector and the Board that the appellants misdeclared certain cut pieces of superfine cotton fabrics as "rags" and cleared them without payment of duty during the period from 1-3-1970 to 31-5-1971 and that these goods were not bona fide rags but were sound fabrics deliberately cut mostly into 70 cm. long pieces (or blouse pieces) so as to conform to the size criterion laid down in exemption Notification No. 70/69-Central Excises, dated 1-3-1969. The aforesaid lower authorities reached the same conclusion in respect of further 71 bales (out of 105 bales seized on 13-1-1972 in the appellants' factory) of superfine cut pieces. The Collector demanded duty in respect of the goods, imposed penalties totalling Rs. 1.11 lakhs and confiscated the seized 71 bales, giving an option for their release on payment of a fine of Rs. 15,000/-. The Board fully upheld the Collector's orders.
3. During the hearing before us, the appellants pressed for only the following three pleas :-
(1) According to their interpretation of the Notification entry for rags, length of the fabric pieces (above 23 cm. but below 92 cm.) was the only criterion to be fulfilled. They relied on Bombay High Court (Nagpur Bench) judgment in the case of Mis. Vidharba Mills (1978 E.L.T. J 45) and stated that in the absence of any contrary judgment it was binding on the Government.
(2) Alternatively, even if the department's view that in addition to the prescribed length the fabric pieces should be damaged or sub-standard were to the accepted, 85% of their goods should still get the benefit of exemption because the department's own piece by piece inspection of 4 bales selected at random from the available stocks had shown that about 85% of the pieces were damaged or sub-standard. They stated that they had taken this plea both before the Collector and the Board but neither of them had rebutted it.
(3) In any case, since the Notification entry was capable of two interpretations, as admitted by the Collector himself in his findings, there was no case for confiscation and penalties.
In response to a query from the Bench, the appellants stated that they did not wish to take the time bar plea.
4. The learned representative of the department endorsed the findings of the lower authorities and added that 4 bales were a very small quantity and the result of their inspection could not extend to the entire quantity cleared as rags, that the onus to show entitlement to the exemption was on the appellants which they had not discharged and that the Collector had already taken note of the appellants' plea of two possible interpretations and for that reason had not imposed the full penalty.
5. We have given our earnest consideration to the submissions made by both sides. To take up the question of interpretation first, let us notice the material portion of the entries in the Notification and the rule :-
"E-1. COTTON FABRICS 96A. Definitions.-In this section-
* * * * * * * * (ii) 'damaged or sub-standard cotton fabrics' include : (a) * * * * * * * *
(b) 'rags', that is to say, cut pieces of cotton fabrics which are more than 23 centimetres but less than 92 centimetres in length;
(c) * * * * * * * * Notification No. 70/69-Central Excises, dated 1-3-1969 * * * * * * * *
(viii) Damaged or sub-standard Cotton fabrics which are classified as "Rags", that is to say, cut pieces of cotton fabrics which are more than 23 centimetres but less than 92 centimetres in length;
* * * * * * * * "
By an explanation, it was further clarified that the expression "substandard cotton fabrics" included remnants or cut-pieces of cotton fabrics damaged or otherwise deficient in standard, discarded during the course of normal weaving, processing or packing operations or drawal of samples.
6. The particular section of the Central Excise Rules, 1944 in which rule 96A occurs deals with the requirement of marking of cotton fabrics and bales thereof,, the procedure for removal of cotton fabrics from one factory to another without payment of duty for manufacture as contained in Rules 96B to D and marketing thereof. These are procedural requirements and they have nothing to do with the question of exemption from duty. For the purposes of exemption, the Notification itself contained a separate and detailed description in entry (viii) which was further amplified in the Explanation. We find that the definition of "rags" in Rule 96A was materially different from the description (read with the Explanation) in the Notification. In the rule, cut pieces of 23-92 cm. length were, by virtue of the inclusive definition, deemed to be damaged or sub-standard cotton fabrics. In other words, length criterion was the only condition. But not so in the Notification. The Notification required fulfilment of two conditions-the prescribed length and the fact of the cut pieces being damaged or sub-standard (as amplified in the Explanation). If this were not so, the opening words of entry (viii) "Damaged or sub-standard cotton fabrics which are classified as 'Rags', that is to say," and what follows in the Explanation would be rendered redundant and nugatory. It is well settled rule of interpretation that no part of a provision is superfluous and due meaning has to be given to every word used in it. Applying this rule, we hold that entry (viii) of the Notification exempted only damaged or sub-standard cotton fabrics which conformed to the size of rags (23-92 cm.) and which were discarded during the course of normal weaving, processing or packing operations or drawal of samples. If sound fabrics were deliberately cut into 23-92 cm. size, they were not entitled to the exemption.
7. The Bombay High Court (Nagpur Bench) judgment relied on by the appellants related to a case under Rule 96A and not under exemption Notification No. 70/69-C.E., dated 1-3-1969, particularly the Explanation. We have already held in the preceding paragraph that the wording and scope of these two provisions were materially different. This judgment cannot, therefore, advance the appellants' claim for exemption.
8. It does not require much imagination to say that the price (per sq. metre) of a damaged or sub-standard cut piece would be lower than the price of the same variety of sound fabric in running length ("fresh" fabric, to use the Collector's terminology). But the Collector has shown, with the help of solid facts and figures, that the appellants as well as their dealers in most cases got a higher net price realisation from "rags" as compared to fresh fabrics. The ultimate consumer of "rags" perhaps paid a lower price. All three-the appellants, their dealers and the final customers-benefited in the process but at the cost of the Exchequer which lost the duty of 90 paise per metre and which was split among the other three. The fact that there was deliberate cutting of fresh fabrics into rag sizes which were then cleared without payment of duty is proved further from the data marshalled by the Collector which shows that whereas during March-June 1969 (pre-self removal procedure period) the percentage of rags arising in the appellants' factory was 5-6%, it rose to as high as 80-85% during December 1970-March 1971. The appellants' explanation that higher percentage of defectives was due to their being new in the production of superfine fabrics is hardly convincing. The data shows that as they went on gaining more experience in the line (starting in 1969), the "rags" percentage went on rising steeply. Their further plea that the percentage was high in certain other textile mills also only shows that perhaps some others also had hit upon the same modus operandi.
9. It is not correct to say that the Collector has not rebutted the appellants' plea that even as per the department's own piece by piece inspection of 4 selected bales, 85% of the cut pieces were damaged or sub-standard. The Collector has dealt with this point in paragraph 24 of his order on the seized 71 bales (Order-in-Original No. 10/Collector/MP/1973). The Collector has held that the defects pointed out to the officers who inspected the 4 bales "could not have been of a material character to take them out of the category of fresh fabrics in length", the reason being that "the price realised for the so-called rags would also support the allegation that these were known to be good material or material comparable with fresh fabrics not only to the mills but also to the buyers." The Collector's finding is further supported by the appellants' own admission before him during the hearing held at Ghaziabad on 27-1-73 when they stated that "where the rags contained visible sign of damage they marked it as 'D' rags and others simply as rags" (concluding portion of paragraph 6 of the Order-in-original No. 7/MP/Cr/1973). The department has already given the benefit to 'D' rags. The dispute before us is in respect of the "other rags". We agree with the finding of the lower authorities and uphold the demand for duty as made by them.
10. At the same time, we find force in the appellants' plea so far as the fine and penalties are concerned. After concluding that the charge of clandestine removal on the part of the appellants was established, the Collector stated in the concluding paragraph of his two orders, almost in identical language :
"The contravention is, no doubt, very serious but I cannot rule out the possibility that the mills might have misconstrued the scope of the Notification resorting to a particular mode of classification and clearances guided by the objective of reducing their losses or of making profits. I do not, therefore, impose the maximum penalty liable in this case."
The appellants are right in saying that the aforesaid finding is not merely an extenuating circumstance, it also admits of the possibility of two constructions of the Notification and hence fine and penalty are not justified.
11. In the result, we set aside the confiscation and penalties. The two appeals are otherwise rejected.