Customs, Excise and Gold Tribunal - Tamil Nadu
Universal Radiators Ltd. And Southern ... vs Cce on 23 August, 2002
Equivalent citations: 2002(84)ECC294, 2002(148)ELT1193(TRI-CHENNAI)
ORDER S.L. Peeran, Member (J)
1. Both these appeals arise from common Order-in-Original No. 40/97 dated 24.9.97 by which the Commissioner of Central Excise on the basis of the admissions made by the appellant's employees with regard to manufacture and clandestine removal of goods has confirmed duty demand of Rs. 52,69,414 under Rule 9(2) of CE Rules. He has appropriated an amount of Rs. 2.5 lakhs already paid by them towards the above liability. He has also ordered for confiscation of 398 numbers of M/s. URL brand radiators valued at Rs. 9,71,771 under seizure and granted redemption on fine of Rs.2.5 lakhs. Like sum of duty has been imposed as penalty under Rule 9(2) and 173Q, 226 of the CE Rules and under Section 11AC of the Central Excise Act. Further a penalty of Rs. 5 lakhs has been imposed on M/s. URL under Rule 209 A of the CE Rules.
2. The Commissioner has examined in great detail the evidence on record and in the seized records the admissions made by the appellant's employees and their witnesses to arrive at the conclusion that the appellant had manufactured components for T.72 cooling system at M/s. Universal Radiators Ltd. (URL) apart from regular type radiators. As per the statement of Shri M. Manickam, Purchase Assistant of M/s. SPT had instructed not to account for under Central Excise records about the manufacture of T 72 cooling system at the second premises of M/s. SPT that they were taking modvat credit on the materials received at the second premises of M/s. SPT that they were taking modvat credit on the materials received at the second premises of M/s. SPT of the manufacture of components for cooling system; that raw materials were never brought to M/s. URL -I; that the delivery challans were prepared at the second premises of M/s. SPT in the name of M/s. URL-I and the same were prepared to give an impression that the inputs were sent from URL-I to M/s. SPT, wherein the materials received directly on the second premises of M/s. SPT were from the suppliers.
3. The Commissioner also noted the corroborative evident in another statement given by Shri B. Venkatachalam and R. Ram Kumar, authorised signatory of M/s. SPT and M/s. URL wherein there is a clear admission that there was manufacture and production of the said goods and clearances without payment of duty. The statement dated 23.8.96 by Shri G.R. Sunderarajan by which he has admitted that he was working in the second premises of M/s. SPT and was looking after the accounting of recording of the receipt, manufacture and despatched of components for T 72 cooling system; that he would place indent for requirement for raw materials to which the URL-I would give lorry way bill, packing list and invoice for raw material; that on the strength of lorry receipt/invoice he would take delivery of raw materials from lorry office/suppliers and bring them directly to the second premises of M/s. SPT; that modvat invoice would be sent to M/s. URL-I; that the raw materials would be sent to other job workers for processing and on return the same would be processed at the second premises of M/s. SPT and thereafter the fully finished components would be sent to M/s. URL-I; that even though the processed goods were sent to M/s. SPT by the job workers, the delivery advices were created in such a way that the processed goods were sent directly to M/s. URL-I and thereafter returned to M/s. SPT by M/s. URL-I; that he would prepare delivery advice in the name of M/s. URL-I as if the processed goods were received from M/s. URL-I; that even though in the invoices of M/s. URL-I dated 31.7.1996, found at M/s. SPT, the address of the consignee had been mentioned as M/s. URL-IV, the goods alongwith invoices were received only at the second premises of M/s. SPT due to the fact that M/s. URL-IV was not started; that the project Engineer Shri. G. Thulasiram had given instructions in this regard; that for the job work carried out on the materials sent from M/s. SPT, job charges were paid only by M/s. URL-I: that they received semi-finished radiators from M/s. URL-II and after completion the same were tested and packed with URL brand; that for the manufacture of radiators and components for T 72 cooling system, no Central Excise records were maintained in any one of the premises of M/s.SPT.
In his statement dated 23/24.8.1996, Shri B. Venkatachalam deposed, inter-alia, that they were manufacturing components for the T 72 cooling system from 1993 to March 1996 on Job work basis for M/s. URL-I for which they were charging labour charge; that Shri G.R. Sundararajan, Stores Clerk was incharge of receiving, issuing and despatching the raw materials and comments for T 72 cooling system; that he had read the statement of Shri G.R. Sundararajan and had seen the delivery advice being prepared at the second premises of M/s. SPT; that he agreed with the fact that even though the raw materials were despatched from the second premises of M/s. SPT, the delivery advices were prepared as if the materials were sent from M/s. URL-I; that the delivery advice used at the second premises of M/s. SPT did not mention the true movement of goods between the job worker, M/s. SPT and M/s. URL I. In his statement dated 23/24.8.96, Shri R. Ramkumar deposed, inter-alia, that apart from regular type radiators, they manufacture special type of radiators called T 72 cooling system at M/s. URL-I; that he had instructed Shri M. Manickam, the Purchase Asst, not to account for in the Central Excise records about the manufacture of components for T 72 cooling system at the second premises of M/s. SPT; that they were taking Modvat credit on the materials received at the second premises of M/s. SPT for the manufacture of components for cooling system; that the raw materials were never brought to M/s. URL-I; that the delivery advices prepared at the second premises of M/s. SPT in the name of M/s. URL-I were not genuine ones and the same were prepared to give an impression that the inputs were sent from M/s. URL-I to M/s. SPT, whereas the same were actually received directly at the second premises of M/s. SPT from the suppliers.
In his statement dated 9.9.1996, Shri G. Thulasiram deposed, inter-alia, that he was the project Engineer of M/s. URL-I; that he used to place indent for raw material for the manufacture of T 72 cooling system with purchase department, which in turn would place order for the same with suppliers; that M/s. URL-I would procure and send the raw materials to M/s. SPT; that on receipt of raw material, they would prepare advice maintained at the second premises of M/s. SPT in the name of M/s. URL-I; that the raw materials were sent to various job workers for carrying out different types of job work for which they prepared delivery invoices, some in the name of M/s. URL-I and some in the name of M/s. SPT; that after receipt of materials at the second premises of M/s. SPT from the job workers, they created invoices in such a way as to create an impression that goods were received by M/s. URL from job workers and then returned to M/s. SPT; that he was not aware of the reason for the maintenance of delivery advices at M/s. SPT; that inspection by the quality assurance wing of Avadi Tank factory was being done at the second remises of M/s. SPT in respect of fully finished components such as SS pipes, hose connection, fastners, and clamps.
Reply to show cause notice.
M/s. URL-I, vide their letter UR;CE;179 dated 5.9.1996 had stated that they used 17 raw materials in the manufacture of T 72 cooling system of which they availed credit only on 6 raw materials; that as the manufacturing processes were identical both for radiators and cooling system, they were unable to procure materials and process them separately; that they availed credit collectively on the common inputs; that they had expunged credit of duty on inputs when T 72 cooling systems were cleared to Heavy Vehicles factory by availing exemption; that T 72 cooling system comprises of 567 components grouped into 156 sub-assemblies and as it was not possible for them to manufacture under one roof all these components, they had resorted to sub contracting; that as the cooling system was exempted, they had sub contracted through small scale job workers who were in the exemption limit; that in order to monitor movement of taw materials and processed goods from the job worker, they had assigned M/s. SPT to be overall incharge of the operation for which M/s. SPT; were paid; that most of the manufacturing activities were conducted only in the second premises of M/s. SPT, that M/s. SPT were not engaged in the processing of the goods; that the component of T 72 cooling system could not be marketed or used for any other purpose other than in the manufacture of T 72 cooling system, supplied to the Defence against their orders.
In their letter SPT: CE: dated 2.9.1996, M/s. SPT intimated that they had made a payment of Rs. 2.5 lakhs under TR 6 challan No.1 dated 2.9.1996 towards duty without prejudice to their right for show cause notice and necessitating adjudication orders. They further stated that they were an SSI unit eligible for concessional rate of duty and that all the goods were not manufactured by them in their premises and the same were actually manufactured by independent job workers who were eligible for SSI exemption. In their letter UR/CEX/003/96-97 dated 17.12.1996 have given a list of job workers and the work undertaken by each of them.
M/s. URL-I were manufacturing T 72 cooling system which are intended to be used as original equipment parts in the manufacture of main battle tanks. They supply this item to Heavy Vehicles Factory, Avadi, in CKD/SKD condition for the manufacture of T 72 battle tanks under Chapter X procedure by availing the exemption under Notfn. No. 164/87 dated 10.6.1987.
As M/s. URL-I were not in a position to manufacture all the large number of components required for manufacture of the T 72 cooling system, they were getting components manufactured on job work basis. However, for sending goods to the job workers for the manufacture of components, the facility available under Notfn. No. 214/86 dated 25.3.1996 for movement of goods, is not available to M/s. URL-I inasmuch as the final product viz. cooling system is exempted under Notfn. No. 164/87 dated 10.6.1987. In the absence of applicability of Notfn. No. 214/86, the goods manufactured by job workers out of materials supplied by M/s. URL-I become dutiable.
In terms of Notfn. No. 83/92 dated 16.9.1992, exemption is available to the components used in the manufacture of goods for which the above-mentioned Notfn. No. 164/87 is applicable provided the components are manufactured and used within the factory of production of final product which are ultimately cleared under Notfn. No. 164/87 dated 10.6.1987. In the instant case, components have been manufactured by job workers, out of materials supplied by M/s. URL-I. Therefore, M/s. URL-I is not entitled to the said exemption in respect of components manufactured by job workers.
In order to overcome the difficulty, M/s. URL-I, appeared to have entrusted the job of manufacture of certain components as also to monitor the movement of raw material/semi-finished goods to M/s. SPT, a SSI unit. M/s. SPT had received certain materials from M/s. URL-I under 57F(3) and 56B challans. On most of the occasions, M/s. SPT had received raw materials directly from the suppliers and sent to various job workers for carrying out certain operation. On receipt of semi finished goods from the job workers, they undertake further processing and complete manufacture of the goods. After the inspection by inspection wing of tank factory, they cleared the goods to M/s. URL-I. However, M/s. SPT had created records by preparing delivery invoices of M/s. URL maintained at the second premises of M/s. SPT, to show that the materials were sent to job workers from M/s.URL I and the processed goods were returned to M/s. URL-I, to create an impression that independent job workers are eligible for SSI exemption. The fact of maintenance of records of M/s. URL-I at the second premises of M/s. SPT, receipt of raw materials at M/s. SPT directly from the suppliers and receipt of processed goods directly from the job workers without bringing the same into M/s. URL-I and manufacture of components, had been admitted in the statement recorded from the Stores Clerk and Project Engineer of M/s. URL-I deployed at M/s. SPT and by the authorised signatories of M/s. URL-I and M/s. SPT. Hence, it appears that M/s. SPT are the real manufacturers of components used in the manufacture of cooling system.
From the letter dated 17.12.1996 of M/s. URL, and the letter dated 29.10.1996 of M/s. SPT giving the cost construction of the components manufactured, it could be seen that M/s. SPT had received many unfinished/semi-finished parts. From the sub contractors, after the completion of processes mentioned in M/s. URL's letter dated 17.12.1996. After receipt, M/s. SPT had assembled the components, painted them tested them and completed them into a fully manufactured product i.e. a sub-assembly/component of the T 72 cooling system. At the hands of M/s. SPT the components/sub-assemblies had emerged as a distinct part/sub-assembly of the T 72 cooling system. In their cost construction statement in respect of each of the assemblies/components given vide their letter dated 29.10.1996, M/s. SPT had mentioned apart from the processes which are done at the sub-contractors end, the further processes like welding, assembly welding, assembly dressing, painting, and testing. As such, the products which came from the sub contractors premises to M/s. SPT and the products that left the premises of M/s. SPT are clearly recognisable as different products namely - The ones coming from the job workers are semi-finished parts of subassemblies/components and the ones which left M/s. SPT's premises were the finished components/sub-assemblies of T 72 cooling system. The part numbers of the parts received at M/s. SPT and the part numbers of the sub-assemblies/components which left the factory of M/s. SPT (2nd premises) were found to be different.
Thus, the components had attained completion at the hands of M/s. SPT. The components cleared to M/s. URL-I by M/s. SPT were clearly recognisable part which were directly used in the manufacture of cooling system. It appeared that M/s. URL-I had assigned part numbers to the components supplied by M/s. SPT. It appeared from the records maintained at M/s. URL-I that on many occasions the components cleared by M/s. SPT had been removed by M/s. URL-I in the same packing in CKD condition, during the clearance of cooling system to tank factory, without subjecting the same to any other process. The voluntary payment of Rs. 2.5 lakhs on 2.9.1996 by M/s. SPT appeared to strengthen the fact of dutiability of the components.
From the above, it appeared that components manufactured and supplied to M/s. URL-I, by M/s. SPT were recognisable parts of cooling system attracting Central Excise duty. During the period from 1.9.1992 to 13.8.1996, M/s. SPT had manufactured and cleared the same without payment of duty. The duty for the said period works out to Rs. 52,69,414.00 (DED: Rs. 49,07,165.00 & Rs. 3,62,249.00) and the same is demandable under Rule 9(2) of Central Excise Rules, 1944.
M/s. SPT had also suppressed the fact of existence of their second premises and the manufacturing activity therein, wilfully from the knowledge of the department with an intention to evade payment of duty. Therefore, proviso to Section 11A(1) of Central Excise Act, 1944, appeared invocable for demanding duty over the extended period.
4. In view of the above allegations, the Commissioner came to a conclusion that there was suppression of facts of manufacture in the second premises and it was done willfully with an intention to evade payment of duty. He rejected the plea that the statements were recorded in duress and they were not voluntary and they were after the issuance of show cause notice. He also rejected plea that penalty cannot be imposed under Section 11AC as the said Section was promulgated subsequent to the period in question.
5. We have heard Shri M. Venkataraman, Adv. for the appellant and Shri C. Mani, DR for the respondent.
6. Ld. Counsel reiterated the pleas raised by the appellant that M/s. SPT did not manufacture the goods. The goods were manufactured by M/s. URL to Army Supply Depots and parts of cooling system for defence purposes. It was contended that M/s. URL did not have any facility and the work was distributed to 32 job workers and each job worker carried out one processes. M/s. SPT were asked only to coordinate the activity and were paid a small sum for the service rendered. He pointed out that no seizure of components or parts of cooling tank have been done even as per the mahazar. There was no manufacturer carried out in the premises of M/s. SPT. During the cross-examination, it was admitted by the Range Superintendent that he was not sure whether there was any machine during his visit. He contended that M/s. SPT manufactured only radiators and during the period there was no duty on this item and the said item is not a subject matter, he contended that the statement has no effect as there was no prior admission with regard to manufacture of parts of cooling tank, he also contended that the major portion is time barred as M/s. URL were permitted under Rule 57B to remove the goods. They had maintained proper challans. Although this permission was withdrawn by the Commissioner and that by itself will not give room to come to a conclusion that department had no knowledge of the activity carried out by the appellant and hence the demands are barred by time. He contended that some of the processes mentioned in para 30 of the impugned order is vague and no details have been furnished. He contended that the appellant were entitled for deductions as the duty was cum-duty in terms of Section 4 of the CE Rules and also for claiming modvat credit and they are also eligible for deductions which has not been looked into. Ld. Counsel would argue that even if the Tribunal comes to a conclusion that there was manufacture of parts of cooling tank, however the said item was supplied to defence in terms of Notification No. 64/87 dated 10.6.87 the parts of cooling tanks which are supplied to battle tanker are eligible for the claim. Although the appellant had overlooked to make the claim on this aspect but the Tribunal is entitled to examine this issue and direct the authorities to re-consider their plea for grant of exemption of notification as has been held in the case of Kirloskar Brothers v. CCE and that of Simla Agencies v. CC and in the case of Then max Private Ltd. v. CC . He also pleaded that penalty under Section 11AC is not imposable as the Section was not in force and the issue is covered by the judgment of the Apex Court rendered in the case of CCE v. Elgi Equipment 2001 (128) ELT 52.
7. Ld. DR read out the order and contended that the Commissioner has given his detailed finding and has clearly noted that the admissions were given voluntarily. There is a clear and cogent evidence which has been culled out by the department. He submitted that the Range Superintendent in his cross-examination clarified that manufacturing activity had taken place during their visit. However, he did not remember as to whether machines were there or not. This answer does not support the appellant in any way. He also submitted that the appellant had not filed declaration, classification list and hence larger period was invocable and penalty imposable. He further submitted that the benefit of notification was never claimed and as such it was not examined.
8. On a careful consideration of the submission made and after perusal of the entire order, we notice that the case has been built up on the basis of investigation. The department has relied on the statements of M/s. M. Manickam, Purchase Assistant of M/s. SPT, G.R. Sunderarajan, working in M/s. SPT representing M/s. URL-I, B. Venkatachalam, Authorised Signatory of M/s. SPT, R. Ramkumar, Authorised Signatory of M/s. URL and G. Thulasiram, Project Engineer of M/s. URL. All their submissions have been extracted above. These admissions were never resisted at any time. The appellant have not produced any cogent evidence in support of their plea. The Commissioner has examined all the arguments in the matter and after due consideration has come to a conclusion that there was clandestine manufacture and removal of goods in the premises of URL-I with the facilities of M/s. SPT. On a careful consideration of the entire evidence on record which is unchallenged, we are satisfied that there was manufacture and clandestine removal of goods and the findings arrived at is quite reasonable. The only plea is that appellant were supplying the goods on cum duty price and they are entitled for deductions under Section 4(4)(d)(ii) of the CE Act. This issue has since been confirmed by large number of judgments including the judgment of the Larger Bench rendered in the case of Sri Chakra Tyres v. CCE and that of Maruti Udyog Ltd. v. CCE, (sic, CCE v. Maruti Udyog Ltd.) . Therefore, their plea for grant of deduction is required to be reconsidered by the Commissioner.
9. The plea that they are eligible for modvat credit in terms of several Tribunal judgments which has since been confirmed by the Apex Court in the case of Formica India Division v. CCE is required to be reconsidered by the Commissioner to arrive at the exact duty amount. We are agreeable with the Commissioner's finding that larger period is invocable in the case as there was suppression of facts in the matter and clearance have not been done with the knowledge of the department. The plea that department was aware that M/s. URL had been permitted to remove the goods under Section 57B is not correct as the said permission was withdrawn and thereafter the appellant had not informed the department about the manufacture and clearance. Therefore the finding arrived at by the Commissioner on extension of larger period is upheld. We notice that the Commissioner has imposed consolidated penalty under Rules 9(2), 173Q, 226 and Section 11AC of the Act. The penalty under Section 11 AC of the Act is not imposable in terms of the Apex Court Judgment rendered in the case of CCE v. Elgi Equipment 2001 (128) ELT 52 as during the period of violation the said proviso was not in force. Therefore the Commissioner has to re-adjudicate on the aspect of imposing penalty under Rules 9(2), 173Q and 226 after arriving at correct duty which is liable to be paid by the appellant. Insofar as the penalty of Rs. 5 lakhs on M/s. URL-I under Rule 209 A is concerned this matter is required to be re-examined and the amount to be refixed after the quantum of duty is arrived at on the M/s. SPT. Insofar as the claim of benefit of Notification under No. 174/87 dated 10.6.87 is concerned, it is clear that the notification is subject to following procedure sought out in the Chapter 10 of the CE Act. It was argued by the counsel that non-following the procedure under Chapter X of the CE Rules is only a procedural lapse. Ld. DR is justified in raising the plea that the appellant had not filed their claim seeking benefit of notification. However we notice that the Tribunal has allowed the assessees to raise the claim for the benefit of notification. In terms of judgment already noted above we direct the Commissioner to examine this aspect of the matter on de novo consideration. The appellant shall be given an opportunity of hearing and to satisfy the Commissioner on all aspects of the matter. The Commissioner shall re-examine the issues and pass a detailed order in terms of the directions recorded in this order with regard to quantification after granting deductions as claimed and refix duty and penalty. The benefit of notification if at all is applicable is also to be extended. Thus the appeal is allowed by remand on the above terms.