Customs, Excise and Gold Tribunal - Delhi
Punjab Fibres Ltd. vs Commissioner Of Central Excise, Delhi on 12 February, 2002
Equivalent citations: 2002(141)ELT819(TRI-DEL)
ORDER P.S. Bajaj, Member (J)
1. This appeal has been preferred by the appellants against the order-in-original dated 30-3-2001 passed by the Commissioner (Adjudication) vide which he had confirmed the duty with equal amount of penalty as detailed therein on the appellants.
2. The appellants are engaged in the manufacture of cotton and polyester spun yarn classifiable under Chapters 52 and 54 of the CETA. The proceedings were taken against them on the strength of the show cause notice dated 31-3/1-4-99. The allegations imputed to them in the show cause notice were that during the period 1994-95 to 1996-97, they manufactured and removed excisable goods viz., polyester cotton blended yarn on short payment of duty. They showed higher use of polyester fibre than what they actually used and the saved polyester fibre was then mixed with the polyester cut fibre/waste received by them from different suppliers and thereafter utilised in the manufacture of polyester blended yarn. But they cleared that yarn by declaring as cotton yarn and thereby paid short duty than what was required to be actually paid by them. They also allegedly did not enter correctly the polyester cut fibre/waste received by them, from the suppliers in their statutory records and they used that cut fibre in the manufacture of the polyester blended yarn without making any declaration and paying appropriate duty at the time of clearance of the same from the factory premises. The search of the two units of the appellants was also carried out on 29-8-97 and their records including registers were seized. While issuing the show cause notice, Annexures D. 3, 4, 5, 7, 8 and 9 were also prepared wherein quantity of the cut waste received by them from the suppliers, was mentioned. The samples of the blended yarn were also taken and results of two sample Nos. 3 and 7 went against them as composition of the yarn was not found to be in line with the composition declared by them. On the basis of those test reports and quantity of the receipt of the cut waste, from the suppliers, it was "alleged in the show cause notice that the appellants had cleared polyester blended yarn by declaring as cotton yarn and thereby evaded payment of appropriate duty leviable/payable on polyester blended yarn.
3. The appellants contested the correctness of the show cause notice. They averred that in fact 8 samples were drawn and out of those the results of 6 went in their favour as the reports showed that blended yarn was in accordance with the declaration made by them. Regarding reports of samples Nos. 3 and 7, they alleged that original reports differed and retest showed that there was no polyester in the sample and it contained 100% cotton. They denied that they saved, in any manner, polyester fibre and thereafter mixed the same with the cut waste received from the suppliers and then used the same in the manufacture of polyester blended yarn. They also denied that they cleared polyester blended yarn in the guise of cotton yarn. Regarding receipt of cut waste weighing 408030 Kgs. from the suppliers, they averred that in fact that much quantity was never received and whatever quantity they received, was correctly entered by them in the record. They also averred that entries allegedly made in inward-outwards, Form-IV, Nisha, College and New Monica registers, had not been properly interpreted. They further averred that duty demand had been calculated on assumptions and presumptions as the test reports of the samples taken in August, 97 could not be used and made basis for holding that during the years 1994-95 and 1996-97, they had cleared blended yarn in the guise of cotton yarn and paid less duty. The test reports being contradictory were not reliable and the test reports of six samples which were in their favour had been wrongly ignored. They also alleged that the demand was time barred and that no penalty under Section 11AC of the Act could be imposed as most of the period in dispute was prior to the enforcement of that section.
4. The Commissioner, however, also did not accept the version of the appellants and through the impugned order, confirmed the duty and penalty detailed therein, on them.
5. The learned Counsel has contended that the impugned order has been passed simply on assumptions and presumptions and there is no concrete evidence on record to prove the clearance of the polyester blended yarn in the guise of cotton yarn by the appellants during the disputed period. The test reports of two samples had been wrongly relied upon as the same being contradictory were required to be ignored and test reports of other six samples which were in favour of the appellants have been illegally ignored and not referred by the learned Commissioner. He has also argued that the allegations that polyester fibre was saved by the appellants by showing higher use than it was actually used, are vague and general as no quantity of the saved polyester had been pointed out. There is also no evidence to show mixture of said saved polyester fibre with cut waste and clearance of blended yarn in the guise of cotton yarn. The duty demand had been also wrongly calculated as test reports of the samples taken in August, 1997 could not be stretched back for holding that in the years 1994, 1995, 1996 and upto August, 1997, such blended yarn was cleared in the guise of cotton yarn and short duty was paid by the appellants. Therefore, the impugned order of the Commissioner deserves to be set aside.
6. On the other hand, learned SDR has only reiterated the correctness of the impugned order of the Commissioner.
7. We have heard both the sides and gone through the record.
8. Admittedly, the appellants are engaged in the manufacture of various counts and blends of cotton and polyester spun yarn falling under Chapters 52 and 54 of CETA. The duty demand has been confirmed on them not because of having cleared excisable goods from the factory premises without payment of any duty altogether. It is only on account of alleged short payment of duty, the duty demand has been confirmed on them, They, as per version of the excise department, had cleared polyester cut blended yarn in the guise of cotton yarn and thereby paid short duty, as duty on the polyester yarn during the disputed period was much more than on the cotton yarn. Two fold allegations for proving that polyester blended yarn had been cleared in the guise of the cotton yarn had been levelled against the appellants. Firstly, they showed higher use of polyester fibre than what was actually used in the blended yarn and thereby saved polyester. Secondly, the said saved polyester fibre was thereafter mixed by them with polyester cut fibre/waste which they received in large quantity from other parties and thereafter manufactured polyester cut blended yarn and that yarn was cleared by them in the guise of cotton yarn and they instead of paying duty on polyester yarn, discharged duty liability only on the cotton yarn during the disputed period, running from the years 1994 to 1997.
9. To substantiate the first allegation of having used less polyester fibre than what was declared in the blended yarn, reliance has been soley placed by the Revenue on the test report of two samples which had been assigned Numbers 3 and 7 in the show cause notice as well as in the impugned order. These samples were drawn during the search operation and physical verification of the finished goods, carried out in the factory premises of the appellants on 29-8-97. The test report of sample No. 3 showed that as against declaration of 30s, 100% cotton yarn by the appellants, yarn was found to contain polyester viscose blended yarn P : V = 43.4% : 56.60%. Similarly, test of sample No. 7 revealed 36.20% polyester and 63.80% cotton blended yarn as against declaration of 65% polyester and 35% cotton. But the perusal of the record shows that in fact 8 samples were drawn out of blended yarn found lying in the factory premises of the appellants at the time of checking. The test reports of other samples, barring No. 3 and 7 referred to above, had not been even referred to or taken into account by the adjudicating authority without any sufficient cause. The plea of the appellants that the report of those samples were in their favour and tallied with their declaration, cannot be, therefore, ignored, rather deserves to be accepted. The record shows that on the request of the appellants, retest of both the above referred samples, was got conducted. On retest of sample No. 3, result was polyester 57.3% and cotton 42.7%. Similarly, on retest, sample No. 7 showed presence of polyester 65% and cotton 35%. The net result given was 100% cotton. The Director of Revenue Laboratory who submitted the report also opined in respect of sample No. 1, that sample was single ply grey yarn composed wholly of cotton. He also remarked in his report that quantity of sample required to be taken for analysis for determining percentage composition according to IS specification is one gram, but since quantity of sample sent by Central Excise department was very small, less than one gram sample was taken for conducting analysis. In the face of these remarks, it could safely be concluded that there was neither proper taking of sample nor was the conducting of analysis of the yarn, in order to ascertain the blend, as per IS specification. Therefore, no credence could be attached to the report of the Chemical Examiner in respect of sample No. 7. Similarly, even quantity of sample No. 3 sent for analysis was only 1.250 gram which too was less for carrying out proper and detailed test for ascertaining the blend of the polyester and cotton therein. Therefore, the report regarding sample No. 3 also could not be given much weight, especially when reports of other six samples which had been virtually withheld by the excise department, went in favour of the appellants and showed blend of polyester and cotton, in the yarn, as per their declarations.
10. Besides this, it is also not clear from the record that to what extent and of what quantity, the polyester fibre was saved by the appellants, by making alleged incorrect declaration regarding percentage of blend of polyester and cotton in the yarn manufactured by them. These details had neither been disclosed in the show cause notice nor in the impugned order. The adjudicating authority appears to had only assumed from the above referred test reports of two samples that polyester fibre was saved by the appellants than what was actually used by them in the manufacture of blended yarn. But such an assumption could not be legally raised. Another unfounded presumption drawn by the adjudicating authority on the basis of these reports, of the samples taken in August, 1997 is that prior to the date of taking of the samples, i.e. during the years 1994 to 1997 (August), the appellants must have similarly saved polyester fibre by making wrong declaration of its user and utilised the same in the manufacture of polyester cut blended yarn after mixing with polyester cut fibre/waste which they allegedly received from other parties. Under no law, such an assumption could be drawn for confirming the demand against the appellants on the ground of having short paid the duty. It is well settled that the test report could only be considered for lot of the yarn from which it was taken and remained in force till the next sample was drawn. Reference may be made to Bojaraj Textiles Mills Ltd. v. Assistant Collector of Central Excise [1990 (45) E.L.T. 559], Kiran Spinning Mills v. CCE [1988 (33) E.L.T. 137], Coimbatore Pioneer Mills ltd. v. Asstt. Collector of Central Excise, Coimbatore [2000 (126) E.L.T. 185 (Mad.)] and CCE v. Fibrotex [2000 (124) E.L.T. 702], wherein it has been so laid down. Therefore, the results of the above referred two samples No. 3 and 7 taken on 29-8-97 could not be stretched back and made applicable to the clearance of the yarn effected by the appellants during the earlier period, referred to above, legally. The adjudicating authority having acted contrary to the ratio of law laid down in the above referred cases, his impugned order, therefore, cannot be legally sustained.
11. The alleged saved polyester fibre by making wrong declaration about its blend with cotton is said to had been further utilised as per allegations in the show cause notice, by the appellants in the manufacture of polyester cut blended yarn after blending with cut fibre/waste bought by them from other parties during the disputed years. But, in our view, there is no cogent and reliable evidence to substantiate these allegations and to prove the clandestine removal of so mixed yarn in the guise of cotton yarn. The total quantity of cut fibre allegedly received by the appellants is said to be 408030 Kgs. This figure had been collected from the internal registers allegedly maintained by the appellants i.e., Inward-outwards register (Annexure-D3), Form IV register (Annexure D4), Nisha register (Annexure D5), College register (Annexure D7), New Monika registers (2) (Annexures D8 and D9). But we find that the explanation and clarification submitted by the appellants had not been taken note of by the adjudicating authority. In Annexure D3, entries had been taken from inward-outwards register showing total receipt of 75430 Kgs. of cut fibre waste by the appellants from A.K. Sales Corporation. This register was maintained at the factory gate. The excise department merely took out the entries, showing the receipt of the goods but had not verified the other aspects regarding the amount of payment made and goods rejected and returned to the supplier. In that register, the alleged cut fibre waste had been recorded as cut/cotton waste. The appellants had reflected the quantity of 25625 Kgs. of goods received from A.K. Sales Corporation in their statutory record. Even payment for that quantity made by them through cheque dated 15-10-96 of Rs. 2,17,400/- also finds mention in the record. The perusal of the entries in that register also shows that quantity of the goods recorded at serial Nos. 13 to 17 was rejected and returned to the supplier. Whatever quantity the appellants received after excluding the rejected goods had been duly accounted for by them in their record but the adjudicating authority had lost sight of these facts which had been even detailed in their reply to the show cause notice.
12. Similarly, Annexure D4 had been prepared on the basis of entries in form IV register and inward-outwards register. The quantity of 43590.65 Kgs, of cut fibre, is alleged to had been received from the appellants from M/s. Gaurav Synthetic. The appellants are alleged to had been described these goods as cotton waste and used the same in the manufacture of polyester blended yarn. But this quantity of cut waste had been duly accounted for in form IV register, by the appellants. The payment made by them had been also recorded by them. The assumption drawn by the adjudicating authority that the goods were, infact, cut fibre/waste and not cotton waste, as recorded by the appellants in their record, is ill founded of want of corroboration from any other source. In the relevant invoice, the description of the goods given by the supplier is cotton waste and that very description had been carried forward and mentioned in their record by the appellants.
13. Annexure D5 had been prepared on the basis of the Nisha register's entries to show that 18107 Kgs. of cut fibre polyester waste was received by the appellants from M/s. Gaurav Synthetic. But these goods were returned from the factory gate itself. While the balance quantity of 52745.6 Kgs. already stands entered in Annexures D3 and D4, referred to above. But the adjudicating authority had not bothered to go into overlapping entries in the record. Annexures D7 and D8 had been prepared as per College and New Monica registers entries. The quantity referred in both these annexures is in fact the quantity which the appellants received after getting sub-standard fibre cut to sizes. The sub-standard fibre was recorded by them in form IV register and that fibre being of uneven length, was cut to size as per requirement and then recorded in College and New Monica registers. In College and New Monica registers, all the entries stand duly reflected and on the basis of those entries, these two annexures have been prepared. Therefore, the view of the adjudicating authority that the quantity of goods mentioned in these annexures, was not accounted for, cannot be said to be based on any tangible material.
14. Similarly, Annexure D9 entries had been taken from New Monica register to prove the receipt of 42084.25 Kgs. of cut fibre, by the appellants from M/s. Gaurav Synthetics, but these goods as averred by the appellants, were rejected and returned to the supplier. The receipt of the rejected goods from the appellants had been not even disputed by Vijay Kathu-ria, Manager of M/s. Gaurav Synthetics. Annexure D10 had been prepared by collecting entries from all the annexures, referred to above and from the cross-checking of the entries in these annexures with other annexures, it is evident that many entries had been recorded twice. The adjudicating authority had not gone into this fact at all.
15. Moreover, there is no cogent, convincing and tangible evidence to prove the actual manufacture of the blended yarn with the help of cut fibre/waste after mixing with the alleged saved polyester fibre and thereafter removal of the same from the factory premises in the guise of cotton yarn. It is well settled that initial burden always rests on the Revenue to prove the clandestine manufacture and thereafter removal of the goods by the assessee. This burden cannot be discharged only by raising assumptions and presumptions from the stray pieces of evidence collected by the excise department. This burden has to be discharged by adducing some cogent and tangible evidence. The co-relation of the alleged raw material received with the actual manufacture and removal of the goods in a clandestine manner, has to be established by the Revenue. But, in our view, in the present case the Revenue has failed to do so. There is no reliable evidence on the record to prove that polyester blended yarn had been cleared by the appellants in the guise of cotton yarn during the years 1994 to 1997. From the mere receipt of the alleged cut polyester fibre/waste, no presumption could be drawn that during those years, the appellants must have mixed that waste with polyester fibre and manufactured polyester blended yarn. Similarly, no presumption that the appellants cleared that yarn in the guise of cotton yarn and thereby paid less duty during all those years, could be drawn by the adjudicating authority.
16. In Oudh Sugar Mills Ltd. v. Union of India [1978 (2) E.L.T. (J 172)], the Apex Court has ruled that show cause notice and confirmation of duty in pursuance thereof for clandestine manufacture and removal of the goods, could not be based on assumptions and presumptions. The allegations of clandestine production and removal of the goods have to be proved by positive evidence. This very principle of law had been reiterated in Pepsico India Holdings Ltd. v. CCE, Mumbai-II [2000 (117) E.L.T. 659 (T) = 1999 (35) RLT 654]; Krishna Bottles, (Vijayawada) Pvt. Ltd. v. CCE, Guntur [1999 (84) ECR 245] and Phosphate Company Ltd. v. CCE [1995 (80) E.L.T. 579].
17. Another piece of evidence, referred by the adjudicating authority and relied upon against the appellants, is invoice No. 482, dated 25-1-97 addressed to M/s. Vijay Anand Traders, Ludhiana to show that in fact polyester blended yarn attracting higher rate of duty was cleared in the garb of cotton yarn. But there is nothing on record to suggest if any statement of the partner or representative of M/s. Vijay Anand Traders, was recorded for seeking corroboration of that fact. This invoice was neither recovered from the possession of the appellants nor receipant of the goods M/s. Vijay Anand Traders. It is said to had been given to the excise department by the infor-ment. Therefore, before relying on it, it was essential to seek its corroboration from other source. M/s. Vijay Anand Traders had nowhere admitted that they received not cotton yarn but polyester blended yarn from the appellants through that invoice. Therefore, on the basis of the said invoice, no presumption could be drawn against the appellants. The entries in the mixing summary register, referred by the adjudicating authority, also did not in any manner prove clandestine manufacture and clearance of the polyester blended yarn by the appellants, especially when no statement of any buyer to whom yarn was sold, had been recorded in that regard. The test report of two samples, referred to above, could not be made basis for confirming the alleged short paid duty on the appellants, as observed above. In Coimbntore Pioneer Mills Ltd. case (supra), the Apex Court had also observed that the department could not proceed only on the basis of result of testing of the remnant and the duplicate sample and ignore the other factors. In that case, the testing of remnant of that sample and of the duplicate and triplicate of the sample by the Chief Chemist, produced different results and the Revenue proceeded against the assessee on the basis of those testing results and recovered differential duty. But the Apex Court ordered refund of the differen-tial duty.
18. The plea of the appellants that demand was time barred and that the provisions of Section 11AC of the Act are not attracted to the case, is not required to be gone into as the impugned order on merits in the light of the discussions made above, is liable to be set aside.
19. In view of the discussions made above, the impugned order of the Commissioner cannot be legally sustained and is set aside. The appeal of the appellants stands accepted with consequential relief, if any permissible under the law.