Customs, Excise and Gold Tribunal - Delhi
Creative Cosmetics vs Collector Of Central Excise on 22 July, 1992
Equivalent citations: 1993(63)ELT348(TRI-DEL)
ORDER N.K. Bajpai, Member (T)
1. This is an appeal against the orders of the Additional Collector of Central Excise, Vadodara demanding duty of excise under Section 11A(1) of the Central Excises & Salt Act, 1944 on 564.5 dozen lipsticks valued at Rs. 54,192/- removed without payment of duty by the appellants during the period from 1-4-83 to 4-5-83 and imposing penalty of Rs. 50,000/- on them under Rule 173 Q(l) of the Central Excise Rules.
2. Briefly stated, the facts are that during a visit to the appellants' premises on 13-8-1983, the Preventive Officers of Vadodara Central Excise Collectorate Headquarters noticed that the appellants were engaged in the manufacture of Lipsticks falling under Item 14F of the erstwhile Central Excise Tariff. They were also manufacturing D-O-Dur Air Freshner falling under Item 68 on job work basis on behalf of M/s. Shingar Cosmetics Pvt. Ltd., Vapi. It came to light that M/s. Topiwala Trust were the proprietors of the appellants as well as of M/s. Ideal Cosmetics Corporation which was also situated in GIDC, Vapi near the Gunjan Cinema. The lipsticks as well as Air Freshners manufactured in the factory of the appellants were sold through a distributor -M/s. Sharp Distributors. It was also found that M/s. Topiwala Trust were getting nail polishes falling under Tariff Item 68 manufactured on loan licence basis in M/s. Shingar Cosmetics Pvt. Ltd. and selling them through the same distributors but the invoices were raised in the name of M/s. Ideal Cosmetics Corporation.
3. It is necessary to discuss the Notifications applicable in some detail. Notification 38/83-C.E., dated 1-3-1983 which came into force with effect from 1-4-1983 initially exempted first clearances of cosmetics and toilet preparations falling under Item 14F (hereinafter referred to as the said goods) for home consumption by or on behalf of a manufacturer from one or more factories upto an aggregate value not exceeding Rs. 2.5 lakhs cleared on or after the 1st day of April in any financial year from the whole of the duty of excise. This exemption was subject to the following conditions :-
(a) the aggregate value of the first clearances of the said goods from any factory by or on behalf of one or more manufacturers at nil rate under this notification shall not exceed Rs. 2.5/- lakhs in any financial year.
(b) the aggregate value of clearances of all excisable goods for home consumption .
(i) by or on behalf of a manufacturer, from one or more factories, or
(ii) from any factory, by or on behalf of one or more manufacturers shall not exceed Rs. 2.5/- lakhs during the preceding financial year.
(c) Where a manufacturer has not cleared the said goods in the preceding financial year, or has cleared the said goods for the first time on or after the 1st day of August in the preceding financial year, the exemption contained in this notification shall be applicable to such manufacturer,
(i) if he files a declaration with the Assistant Collector of Central Excise that the aggregate value of clearances of all excisable goods by him or on his behalf, for home consumption, from one or more factories, during the financial year is not likely to exceed rupees two and a half lakhs, and
(ii) if the aggregate value of clearances of all excisable goods by him or on his behalf, for home consumption, from one or more factories, during the financial year does not exceed rupees two and a half lakhs.
(d) Where the said goods have not been cleared from any factory in the preceding financial year, or have been cleared for the first time on or after the 1st day of August in the preceding financial year, the exemption contained in this notification shall not be applicable if the aggregate value of clearances of all excisable goods from such factory by or on behalf of one or more manufacturers, for home consumption, during the financial year exceeds rupees two and a half lakhs.
4. On 1st March 1983 itself Government issued another Notification No. 39/83-CE by which they exempted, subject to conditions similar to those contained in Notification 38/83, the first clearances of cosmetics and toilet preparations upto an aggregate value of rupees 15/- lakhs from 50% of the duty leviable thereon.
5. On 27th April 1983, the Central Government issued Notification No. 133/83-CE by which Notification 38/83-CE, dated 1-3-1983 was amended and the words "rupees two and a half lakhs", wherever they occurred in that Notification, were substituted by the words "rupees five lakhs". The result of the amendment was that the exemption limit of first clearances of cosmetics and toilet preparations during the financial year was enhanced to Rs. 5/- lakhs and the limit of Rs. 2.5 lakhs specified in other clauses of the notification was also simultaneously enhanced to Rs. 5/- lakhs. Thus, all the conditions stipulated in Notification 38/83 continued to be applicable with the only difference that all the limits were raised from Rs. 2.5/- lakhs to Rs. 5/- lakhs.
6. On 5th May 1983, the Central Government issued another Notification No. 140/83-CE, which superseded Notification 38/83-CE as well as 39/83-CE and provided for exemption for cosmetics and toilet preparations on a slab basis - exempting the first clearances upto the aggregate value of Rs. 5/- lakhs from the whole of the duty and subsequent clearances of an aggregate value of Rs. 10/- lakhs from 50% of the duty while retaining the other conditions of Notification 38/83 and 39/83 with suitable modification of the financial limits of clearances. The basic frame work of the exemption contained in the previous Notifications has been retained in Notification 140/83.
7. With this background of the exemption Notifications, it would be easy to appreciate the course of the proceedings in this appeal. A show cause notice was issued to M/s. Topiwala Trust, Proprietor of M/s. Ideal Cosmetics Corporation and M/s. Creative Cosmetics Corporation, both located in GIDC, Vapi, on 18-4-1984 asking them to show cause why central excise duty at the appropriate rate should not be recovered from them on clearance of 564.5 dozen Lipsticks valued at Rs. 54,192/- cleared during the period 1-4-1983 to 4-5-1983 under Section 11A read with Rule 9(2) and why penalty should not be imposed on them under Rules 9,173Q(1) and 226 on the ground that aggregate value of clearances of all excisable goods for home consumption by them during the preceding year 1982-83, worked out as under :-
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(a) Lipsticks Tariff Item 14F Rs. 2,59,647.50 (b) D-O-DOR Tariff Item 68 Rs. 2,18,657.77 (c) Nail Polish Tariff Item 68 Rs. 1,48,505.40
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Total Rs. 6,26,180.67
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8. It was further stated in the show cause notice that Topiwala Trust had exceeded the clearance value of excisable goods of Rs. 2.5 lakhs during the financial year 1982-83. It was also stated that increase in the value of clearances in Notification 38/83 by its amendment vide Notification 133/83 became effective from 27-4-1983 and the aggregate value of clearances had also exceeded the limit of Rs. 5/- lakhs enhanced by the amending Notification. Notification 38/83 as amended by Notification 133/83 was in operation upto 4-5-1983 and, since the clearances of Lipsticks by Topiwala Trust during this period were made without payment of duty, they were not entitled to the exemption in view of having exceeded the limits of clearances prescribed for the preceding year. The allegation was that while Lipsticks were manufactured by M/s. Creative Cosmetics, D-O-Dur, air freshners was manufactured by them on job work basis on behalf of M/s. Shingar Cosemetics. Nail polishes falling under Item 68 were manufactured, according to the statement of Shri P.D. Topiwala, Trustee of M/s. Topiwala Trust, on loan licence basis on their behalf by M/s. Shingar Cosmetics Private Limited. There was a further allegation that the prices charged by M/s. Sharp Distributors, through whom all the goods were sold, should have-formed the basis of the assessable value because it is they who raised the invoices on the stationery, forms, bank invoice, etc. supplied to them by the respective units. So far as Creative Cosmetics and Ideal Cosmetics Corporation belonging to Topiwala Trust are concerned, all income tax liabilities as per Income Tax Act go to M/s. Topiwala Trust. Finally, the allegation of wilful suppression of facts and deliberately showing less price of lipsticks even though they are sold at a very high price through only one distributor, was made.
9. In their reply, dated 16th July 1984, the appellants submitted that they had started manufacturing lipsticks in the Unit, Creative Cosmetics for the first time in December 1982 and had filed a declaration in terms of Clause 3(i) of Notification 38/83 on 18-4-1983 (apparently the correct date is 8-4-1983) and the value of clearances of excisable goods during the preceding year 1982-83 was, therefore, not relevant for determining their eligibility to exemption. It was also stated that M/s. Ideal Cosmetics Corporation was not a manufacturing concern and lipsticks purchased by them were in the ordinary course of the trade and marketed by them through M/s. Sharp Distributors Private Limited. In these circumstances, the sale price charged by the manufacturers, M/s. Creative Cosmetics to M/s. Ideal Cosmetics Corportation was the assessable value of the goods. The other product, D-O-Dur was manufactured by M/s. Creative Cosmetics on behalf of M/s. Shingar Cosmetics Private Limited and out of their raw material supplied by the latter on job work basis and was marketed by the latter to their own customers. M/s. Shingar Cosmetics being a private limited concern was an independent entity in the eyes of law and the value of the goods manufactured on their behalf and sold by them cannot be taken into account for computing the exemption limits of M/s. Creative Cosmetics or their proprietors Topiwala Trust. As regards the third product, Nail Polish, it was manufactured by M/s. Shingar Cosmetics Private Limited on behalf of M/s. Ideal Cosmetics Corporation out of the raw materials supplied by the latter. This product was marketed through M/s. Sharp Distributors who were securing orders for supply to various customers. The product was being despatched by M/s. Ideal Cosmetics Corporation against the orders secured by M/s. Sharp Distributors. In view of the above, it was claimed that aggregate value of clearances of all these three products should not be taken into account for the purpose of determining the eligibility of exemption in terms of Notification 38/83 as amended by Notification 133/83.
10. It was also submitted that the Unit of Shingar Cosmetics was not a factory as defined in Section 2(m) of the Factories Act, 1948, as the number of workers employed therein has at no time exceeded nine. Hence the excisable goods falling under Tariff Item 68 manufactured and cleared from this Unit were exempt from duty under Notification 46/81, dated 1-3-1981. Under Explanation II of Notification 38/83, Nail Polish falling under Tariff Item 68 manufactured in this Unit and being exempt from duty could not be included in the value of clearances. Once the value of clearances of Nail Polish shown as Rs, 1,48,505.40 is excluded, the aggregate value of clearances of all excisable goods would come down to Rs. 4,77,675.27 during the preceding year 1982-83, falling below the value of Rs. 5/- lakhs, which is the limit specified in para-2 of Notification 38/83 as amended by 133/83.
11. The appellants also contested the price of lipsticks taken by the authorities at Rs. 92.50 per dozen as the basis for working out the value of clearances on the ground that this price was inclusive of sales tax paid by the appellants in Gujarat as against the price of Rs. 80/- per dozen charged to their customers in other territories because sales tax was payable at the destination in those cases. It was claimed that customers in Gujarat territory should be treated as a class of wholesale buyers as varying prices were charged and that is how the provisions of Section 4(l)(a)(i) should be interpreted. If this is done, the value of clearances during 1982-83 would go down further.
12. It was also claimed that since the value of clearances of lipsticks shown in the notice was Rs. 54,192/- which was well below the exemption limit of Rs. 5/- lakhs, it was not incumbent on them to obtain a central excise licence in terms of Notification 111/78-CE, dated 9-5-1978 or to comply with other central excise formalities and procedures. It was also stated that the appellants have acted on a bona fide belief that the price charged by Creative Cosmetics -who were the manufacturers of lipsticks - to M/s. Ideal Cosmetics Corporation is chargeable to duty. Thus, they have not suppressed any facts.
13. After taking into consideration the reply of the appellants and after hearing them, the Additional Collector rejected all their contentions and confirmed the demand besides imposing a penalty of Rs. 50,000/-.
14. The appellants have raised the following grounds in their appeal before the Tribunal :-
(a) After the amendment of Notification 38/83, dated 1-3-1983 by Notification 133/83, dated 27-4-1983, the enhanced limit of Rs. 5/- lakhs for exemption from duty as well as in the conditions of the Notification would become applicable to clearances from first April itself and not from 27th April 1983 as held by the Additional Collector. This contention is based on the argument that it was specifically provided in para-5 of Notification 38/83 that it would come into force on first April 1983 and this para was not deleted by the amending Notification and it was not specified that the enhanced value of clearances upto Rs. 5/- lakhs for all purposes will apply to the clearances in the year 1983-84 on and after 27-4-1983 being the date of the issue of the amending Notification. Such a view is also supported by Notification 140/83, dated 5-5-1983 which superseded the earlier Notification 38/83 and 39/83.
(b) This was not a case for imposition of penalty as it is a well settled law enunciated in the case of Hindustan Steel v. State of Orissa AIR 1970 SC 253.
15. During the hearing of the appeal, Shri J.F. Pochkanwala, the learned Counsel referred to a show cause notice, dated 30th September 1983 which was issued to them in the same matter, for the same demand of amount, and for the same period and there was no allegation of suppression of facts in that show cause notice; nor was the extended period of limitation invoked under the proviso to Section 11 A. Therefore, the second show cause notice - the one which forms the basis of the present proceedings - issued to the appellants making allegations for enlarging the period of limitation was bad in law. It was the appellants' contention that the original show cause notice had been completely glossed over in the second notice and in the impugned order. The request of the appellant for raising an additional ground of appeal under Rule 10 of the CEGAT (Procedure) Rules was heard and allowed by the Bench on 10th April 1992. Similarly, their application for bringing the show cause notice on record under Rule 23 of the CEGAT (Procedure) Rules was also allowed. But their prayer for bringing on record certain documents to establish that the number of workers working in the factory of Shingar Cosmetics was not allowed because this document was not placed before the adjudicating authority.
16. During the hearing, a question also arose whether the appellants had filed a declaration before the authorities in terms of Notification 111/78-CE, dt. 9-5-1978 and the learned SDR produced the original Declaration, dated 8th April 1983 addressed to Superintendent of Central Excise, Range-IV, Vapi filed by M/s. Creative Cosmetics claiming exemption from duty under Notification 38/83 on lipsticks manufactured by them.
17. We have heard Shri Pochkanwala, the learned Counsel for the appellants and Shri L.N. Murthy, the learned JDR as well as Smt. Ananya Ray, the learned SDR.
18. Arguing for the appellants, Shri Pochkanwala submitted that they had sent a reply to the first show cause notice on 26-10-1983 and no action has been taken in the matter till another show cause notice, dated 18-4-1984 was issued to them in the same matter, relating to the same goods and for the same period. The amount of demand in the second show cause notice is Rs. 54,192/- whereas in the first one it is Rs. 54,826/-. He submitted that when the first show cause notice was alive, another notice for the same period and the same cause of action by bringing in the aspect of suppression of facts and invoking the larger period for raising the demand, could not have been issued. He cited the decisions of the Tribunal in the case of Bramec Suri (P) Ltd, v. Collector of Central Excise, Kanpur - 1986 (25) E.L.T. 79 and National Organic Chemical Industries v. Collector of Central Excise -1987 (30) E.L.T. 463. He also submitted that the value of clearances of Nail Polishes manufactured by M/s. Shingar Cosmetics Private Limited could be added to the appellants' value of clearances only if the former was a dummy unit and relied upon the decision of the Tribunal in the case of Collector of Central Excise, Bombay v. Sringar Cosmetics Private Ltd. - 1988 (35) E.L.T. 581. As regards the amendment to Notification 38/83 by Notification 133/83 on 27th April 1983, the learned Counsel submitted in support of the ground of appeal, that the effect would be to incorporate the enhanced exemption limit in the original Notification with effect from 1st April 1983 itself. The view taken by the adjudicating authority that the enhancement came into effect from the date of amendment was erroneous. He also submitted that once the value of Nail Polish manufactured by M/s. Shingar Cosmetics is excluded, the value of clearances for the preceding year is well below Rs. 5/- lakhs and the appellants were eligible for exemption in the current year, namely, 1983-84. On the question of suppression of facts, he referred to the decisions of the Supreme Court in the case of Padmini Products v. Collector of Central Excise - 1989 (43) E.L.T. 195 and Collector of Central Excise v. Chemphar Drugs -1989 (40) E.L.T. 276.
19. Shri L.N. Murthy, the learned JDR submitted that only the period covered by the two show cause notices was the same and all other facts were different. The first show cause notice was issued by the Range Superintendent, Vapi, whereas the second was issued by Superintendent (Technical & Legal) Headquarters Office, Vadodara. The fact that both Creative Cosmetics and Ideal Cosmetics were owned by M/s. Topiwala Trust was not within the knowledge of the Department when the first notice was issued. Moreover, there is no reference to the first show cause notice in the second show cause notice; nor has it been issued in supersession of the first one. No conflict of jurisdiction has arisen because of the issue of the second show cause notice. Shri Murthy also produced the file relating to issue of the first show cause notice before the Bench when it came straight from the notings that it was decided to keep the matter relating to the first show cause notice in abeyance since a second notice had been issued and proceedings were in progress in pursuance thereof. In view of this, argued Shri Murthy, no illegality had been committed in continuing the proceedings on the second show cause notice. Shri Murthy submitted that the appellants had not taken this as a ground before the adjudicating authority; he had, in fact, raised this question before the Bench when the application of the appellant for raising additional ground and taking the first show cause notice on record was being heard. The learned JDR cited the decisions of the Tribunal in the case of Central India Machinery Co. v. Collector of Central Excise - 1989 (39) E.L.T. 306 and I.A.E.C. Bokers Pvt. Ltd. v. Collector of Central Excise - 1990 (48) E.L.T. 388. He also submitted that it was obligatory on the part of the Topiwala Trust to have disclosed to the authorities that they also owned/managed another Unit in the name of Ideal Cosmetics Corporation in the Declaration filed by them for exemption from licence under Rule 174A vide Notification 111/78-C.E., dated 9-5-1978.
20. Continuing his arguments, Shri Murthy submitted that the two cases cited by the learned Counsel, namely, Bmmec Suri's case (supra) and the Nocil case (supra) were not applicable to the present appeal because in both the cases the first show cause notice was superseded by the second one whereas the position in the present proceedings was very different. The proceedings initiated by the first show cause notice have been kept in abeyance in view of the second show cause notice which is the subject matter of the present proceedings. The appellant has not been prejudiced by continuing the proceedings in the second show cause notice when the proceedings in the first show cause notice have been kept in abeyance and the learned Counsel has not been able to show that any illegality has been committed in continuing the proceedings initiated by the second show cause notice.
21. On the question of amendment of Notification 38/83 by Notification 133/83, the learned Departmental Representative submitted that the substituted words "Rs. 5/- lakhs" for the words "Rs. 2]/2/- lakhs" take effect only from the date of the substitution which was 27th April 1983. If the clearances of all excisable goods by the Topiwala Trust during the preceding year 1982-83 had exceeded Rs. 2.5/- lakhs, exemption under Notification 38/83 which was in force in its unamendcd form till 26th April 1983 would not be available to the appellants and this is what has been alleged against the appellants. In any case, submitted Shri Murthy, the learned Counsel had not made any submissions so far as the value of clearances of Lipsticks and D-O-Dur Air Freshners were concerned. These were clearly in excess of Rs. 2.5/- lakhs and, therefore, the appellants were not eligible for availing of any exemption on the Lipsticks manufactured and cleared by them from 1st April 1.983 onwards.
22. In his rejoinder, Shri Pochkanwala referred to Letter No. V-142/3-170/MP/83, dated 27-2-1992 from the Assistant Collector, Central Excise, Division-I, Vapi to the Additional Collector, Central Excise, Surat and read out the following portion from it :-
"The latest position of the show cause notice No. SCN/3/147/83, dated 30-9-1983 issued by the Superintendent, Central Excise, Range-IV, Vapi is that it is an identical to show cause notice No. V(147) 15-26/OA/83, dated 18-4-1984 issued by the Additional Collector of Central Excise & Customs, Vadodara for the identical period and the same amount involved".
23. Shri Pochkanwala's contention was that the authorities had themselves admitted that the two show cause notices were identical, for the same period and the amount involved was also same and, therefore, two separate proceedings could not be instituted for the same matter. As for the plea of the learned JDR that the proceedings initiated by the second show cause notice arose out of a search, Shri Pochkanwala submitted that there was no evidence to support this statement.
24. At the resumed hearing of the appeal, the learned JDR produced the Declaration, dated 8-4-1983 filed by Creative Cosmetics with Superintendent, Central Excise, Range-IV, Vapi. Smt. Ananya Ray, who represented the respondents on that day, submitted that the main allegation that M/s. Ideal Cosmetics and M/s. Creative Cosmetics Corporation are related parties with Topiwala Trust as their sole proprietor was proved by the fact that in Column-3 of the Declaration, this fact has not been disclosed and came to light only subsequently when the second show cause notice was issued. Shri Pochkanwala strongly opposed this contention and stated that what was to be verified from the Declaration was whether the appellants were a Trust and this fact is clear from the signatory who has signed as Trustee/Proprietor.
25. We have carefully considered the appeal, the submissions made at the hearings and have perused the case records. The following questions fall for our consideration :-
(a) Whether the issue of the second show cause notice while the proceedings initiated by the first notice had not been concluded was not permissible and was bad in law because both the notices related to same goods, the same period and the same cause of action as contended by Shri Pochkhanwala.
(b) Whether the amendment to Notification 38/83-C.E., dated 1-3-1983 by Notification 133/83-C.E., dated 27-4-1983 would have the effect of raising the financial limits of the exemption and in the various clauses of the notification from the date of the amendment or, in view of the specific provision in Notification 38/83 that it would come into force from 1st April 1983, from 1st April itself.
(c) Whether the value of clearances during 1982-83 of Nail Polish manufactured on loan licence basis in M/s. Shingar Cosmetics (Pvt.) Ltd., Vapi and their sale through M/s. Sharp Distributors alone on the invoices raised in the name of M/s. Ideal Cosmetics Corporation, Vapi should be clubbed with the value of clearances of Topiwala Trust for determining their eligibility for exemption in terms of clause 2 of Notification 38/83 during the period 1-4-1983 to 4-5-1983.
(d) Whether, the price at which the Lipsticks, Air-Freshner and Nail Polish were invoiced to the first party (by the manufacturer) should be the basis for determining the value of clearances in terms of Explanation I of Notification 38/83 or, in view of the relationships existing among M/s. Creative Cosmetics and M/s. Ideal Cosmetic Corporation, among these two and their exclusive distributors M/s. Sharp Distributors, and with Shingar Cosmetics, the price should be the price invoiced at the final point.
26. On the question of legality of the present proceedings which were instituted with the second show cause notice, Shri Pochkhanwala's contention is that by making an allegation of suppression of facts, the authorities had invoked the larger period of demand which had not been invoked in the first show cause notice and this was done in order to overcome the difficulty of time bar. Apart from pointing out the distinction between the two notices on various points, Shri Narasimha Murthy had explained that it was not known to the authorities at the time of issue of the first notice that the Topiwala Trust had suppressed the fact that they were the sole proprietor of two firms -M/s. Creative Cosmetics and M/s. Ideal Cosmetics Corporation - and this was confirmed by the fact that in their declaration, dated 8-4-1983 Topiwala Trust had not made a truthful statement against Serial No. 3 which was as under :-
3. Names and addresses of other factories/manufacturers (producing such goods) in whom the manufacturer claiming the exemption has proprietary interest - N.A."
27. We observe that the first show cause notice is addressed to M/s. Creative Cosmetics and was issued by Range Superintendent, Vapi, asking the appellants to show cause to Assistant Collector, Bulsar. The ground of demand was that the clearance value of Lipsticks and D-O-Dur during 1982-83 worked out on the basis of invoice prices raised by M/s. Sharp Distributors, Vapi, who are a related person, was Rs. 5,27,946/- which was in excess of the limits fixed under Notification 38/83. M/s. Creative Cosmetics were, therefore, not eligible for exemption during 1983-84. On the other hand, the second show cause notice was issued to M/s. Topiwala Trust, Proprietors of M/s. Ideal Cosmetics Corporation, M/s. Creative Cosmetics Corporation, Near Gunjan Cinema, GIDC, Vapi, by Superintendent, Central Excise (Technical-Ill & Legal), Headquarters Office, Vadodara, demanding duty at the appropriate rate on clearance of 564.5 dozen Lipsticks valued at Rs. 54,192/- and asking them to show cause to the Additional Collector, Central Excise, Vadodara, why duty should not be recovered under Section 11A read with Rule 9(2) and penalty should not be imposed under Rules 9,173Q(1) and 226. The ground of demand was that the aggregate value of clearances of all excisable goods during 1982-83 by M/s. Creative Cosmetics and M/s. Ideal Cosmetics Corporation, the sole proprietor of which was the Topiwala Trust, had exceeded the permissible limit of Rs. 5/- lakhs under Notification 38/83, dated 1-3-1983. There was also an allegation in this show cause notice of wilful suppression of facts and deliberately showing less price of Lipsticks even though they are sold at a very high price through only one distributor. There was a further allegation that the noticees had manufactured and cleared Lipsticks without obtaining Central Excise licence and without following Central Excise procedures and without payment of Central Excise duty even though they were not entitled to exemption. Thus, it would be seen that although there were certain common features between the two show cause notices, their scope was different and the learned Counsel for the appellants has not been able to show to us any authority of law which prohibits the institution of proceedings for recovery of duty in this manner. If new facts come to light and the scope of the proceedings becomes wider, we do not think that there is anything in the law which prohibits the initiation of proceedings by making use of the available evidence as and when it comes to light subject to the time limits prescribed under the law. No conflict of jurisdiction has arisen because the authorities have taken the precaution of keeping the first show cause notice in abeyance till the proceedings in the second show cause notice are concluded. In fact, they have not proceeded with the matter even when an appeal has been filed to the Tribunal. We do not, therefore, think that there is any substance in the argument of the learned Counsel that a second show cause notice is bad and the proceedings initiated in pursuance thereof are vitiated in any manner. The two decisions cited by him relate to cases where the second show cause notice was issued in supersession of the first one; such is not the case in the present proceedings. We, therefore, reject his first contention.
28. Coming to the second contention that the amendment to Notification 38/83 by Notification 133/83, dated 27-4-1983 would take effect from 1st April 1983. It is well settled that exemption notifications normally have prospective effect unless anything to the contrary is stated in the Notification itself. The best example is Notification 38/83, dated 1-3-1983 itself. Clause 5 of this Notification is as under :-.
Notification by which as many as 8 different notifications were amended used the following expression :-
"... that each of the Notifications of the Government of India in the Ministry of Finance (Department of Revenue) specified in Column (2) of the Table hereto annexed shall be amended or further amended, as the case may be, in the manner specified in the corresponding entry in Column (3) of the said Table :-
"3. 38/83-Central Excises, dated the 1st March 1983 - In the said notification, for the words "rupees two and a half lakhs", wherever they occur, the words "rupees live lakhs" shall be substituted".
30. The fact that the initial provision in Notification 38/83 that it would come into force from 1st April 1983 had not been touched by the amending Notification, cannot mean that the amendment itself would take effect from 1st April 1983. The argument on behalf of the appellants that because it was not specified in the amending Notification that the enhanced value of clearances upto Rs. 5/- lakhs for all purposes will apply to the clearances in the year 1983-84 on and after 27-4-1983 means that the amended provisions were applicable from 1st April 1983 has no merit and is rejected. This being the position, the exemption under Notification 38/83 was Rs. 2.5/- lakhs from 1st April to 26th April 1983 and was increased to Rs. 5/- lakhs from 27th April 1983 onwards. It is in the light of this conclusion that we would have to see whether the appellants were eligible for exemption from duty during the period in question referred to in the show cause notice.
31. We now take up the third question whether the value of clearances of Nail Polish during 1982-83 manufactured on loan licence basis in M/s. Shingar Cosmetics should be clubbed with the value of clearances of Topiwala Trust for determining their eligibility for exemption in terms of Clause (2) of Notification 38/83. The allegation in the show cause notice was that Topiwala Trust were also getting Nail Polishes manufactured on loan licence basis in M / s, Shingar Cosmetics and the only available evidence on this point is the statement of Shri B.D. Topiwala, Trustee of Topiwala Trust recorded on 15-12-1983 referred to paragraph-12 of the show cause notice which is reproduced below for the sake of convenience :-
"In his statement he has stated that Topiwala Trust is the proprietor of M/s. Ideal Cosmetics Corporation and M/s. Creative Cosmetics. Lipsticks and D-O-DORS are manufactured in M/s. Creative Cosmetics. Nail Polish Hoy Girl is manufactured on loan licence basis on their behalf by M/s. Shingar Cosmetics Pvt. Ltd".
32. The defence of the appellants in their reply, dated 16th July 1984 on this point was as under :-
"As regards the third product Nail Polish, it was manufactured by Shingar Cosmetics Private Limited on behalf of Ideal Cosmetics Corporation out of the raw materials supplied by the latter. This product was marketed through M/s. Sharp Distributors Pvt. Limited who are securing orders for supply of this product to various customers. The product was being despatched by M/s. Ideal Cosmetics Corporation direct to the customers against the orders secured by M/s. Sharp Distributors Private Limited".
"Particularly, the value of the product - Nail Polish manufactured by Shingar Cosmetics Private Limited being an independent entity cannot be taken into account for computing the aggregate value of clearances tor the purpose of admissibility of the exemption under the said Notification as availed by Topiwala Trust".
33. Although the judgment of the Gujarat High Court in the case of Indica Laboratories Private Limited v. Union of India -1990 (50) E.L.T. 210, which is the authority on the question of how a loan licensee getting his medicines and cosmetics manufactured at a small scale industrial unit should be treated, was not cited by either side, we notice that the High Court examined the matter in great detail and came to the conclusion that the Drugs and Cosmetics Act, 1940 and the Drugs and Cosmetics Rules, 1945 provide for the concept of a loan licensee not having his own arrangements for manufacture. The High Court held that under Drugs and Cosmetics Act, the scheme of loan licensee was permissible and the concept of manufacturer as stipulated under the Central Excise Act also covers such licensees being treated as manufacturers and eligible for availing of exemption under Notification 175/86-C.E., dated 1-3-1986 - a Notification similar to the Notifications under consideration by us in this appeal. We also find that Rule 138-A of the Drugs and Cosmetics Rules, 1945, which is relevant is as under :-
" 138-A. Application for loan licence to manufacture cosmetics -
(1) Application for grant or renewal of loan licence for the manufacture for sale of cosmetics shall be made in Form 31-A to the Licensing Authority and shall be accompanied by a fee of rupees one hundred.
Explanation : For the purpose of this rule a loan licence' means a licence which a Licensing Authority may issue loan applicant who does not have his own arrangements for manufacture but who intends to avail himself of the manufacturing facilities owned by a licensee in Form 32."
34. The allegation against the appellants in this case is that they had got Nail Polish manufactured from M/s. Shingar Cosmetics on a loan licence basis. No evidence has been brought on record to substantiate this allegation and the High Court in paragraph-16 of its judgment in Indica Laboratories case (supra) held as under :~ "16. Final Result. - In the light of the aforesaid discussion, the following picture emerges. If the loan licensees who get their PP medicine manufactured at SSI factories belonging to somebody else but under their own supervision or control and from their own raw material and if they affix their trade name or brand name on these manufactured goods, they will be entitled to the benefit of exemption Notification No. 175/86 but they must be genuine loan licensees but not bogus parties who may be merely limbs of the factory owners. That question will have to be examined by appropriate authorities before making available the benefit of this Notification to the concerned loan licensees".
35. Beyond alleging that the appellants were getting the Nail Polishes manufactured on loan licence basis in Shingar Cosmetics Private Limited, there is no evidence. In the reply to the show cause notice, the appellants have accepted that Nail Polish was manufactured by Shingar Cosmetics on behalf of Ideal Cosmetics Corporation out of the raw materials supplied by the latter. It is well settled in several judgments of the Allahabad High Court that the raw material supplier and the brand name owner are not manufacturers of the goods. Reference may be made to the judgment of Allahabad High Court and the Supreme Court. In Gangadhar Ramchandra v. Collector - 1979 (4) E.L.T. 597, Hind Lamps v. UOI -1978 (2) E.L.T. (J 78) (All.) and Philips India v. Union of India - 1980 (6) E.L.T. 263 (All.). The position has been finally confirmed by the Supreme Court in the case of UOI v. Cibatul - 1985 (22) E.L.T. 302 (SC) . The appellants had also claimed in their reply to the show cause notice that Shingar Cosmetics was an independent entity and the clearance value of Nail Polish manufactured by them could not be taken into account for computing the aggregate value of clearance for determining the eligibility of the appellants to exemption. We accept this contention. Once the value of clearances of Nail Polishes is excluded, the aggregate value of clearances of all excisable goods for home consumption by Topiwala Trust during the preceding year 1982-83 would work out as under :
(a) Lipsticks Tariff Item 14F Rs. 2,59,647.50
(b) D-O-DOR Tariff Item 68 Rs. 2,18,657.77
Total Rs. 4,78,305.27
36. Thus, the aggregate value of clearances of all excisable goods during 1982-83 being in excess of Rs. 2.50/- lakhs, the appellants were not eligible for exemption under Notification 38/83-CE, dated 1-3-1983 as it came into force on First April 1983. The limit of exemption was raised to Rs. 5/- lakhs with the amendment made by Notification 133/83 with effect from 27-4-1983 since we have already rejected the contention that the amendment would have the effect of raising the exemption limit from 1st April 1983.
37. We now proceed to deal with the fourth contention about the price at which Lipsticks and Air-Freshners were sold and the basis that should be adopted for determining the value of clearances in terms of Explanation I of Notification 38/83. Since Topiwala Trust were the sole proprietors of M/s. Creative Cosmetics and M/s. Ideal Cosmetics Corporation, both have to be treated as one and the same and the appellants' plea that the first price charged by the manufacturing unit to the buyers should be taken into consideration, cannot be accepted. The price at which the Lipsticks were sold by M/s. Ideal Cosmetics Corporation would have to be the basis for purposes of Explanation-I of Notification 38/83. There was an allegation in the show cause notice that the stationery, forms, bank invoice forms, etc. are supplied to M/s. Sharp Distributors Private Limited by the respective units and the invoices are raised on the respective names of the units where goods are sold. This points to setting up of M/s. Sharp Distributors Private Limited as a camouflage for showing enhanced price and their existence has been called into question. The appellants have not placed any evidence to controvert the allegation on this point. The valuation adopted in the impugned order being in conformity with the provisions of Section 4 has, therefore, to be accepted. The only other point that remains for determination is with regard to the price of Lipsticks sold outside the territory of Gujarat as not being inclusive of sales tax. This is a matter which will have to be gone into by the adjudicating authority for the purpose of determining the eligibility to duty. We cannot go into this question because the amount of duty has also not been quantified in the impugned order and it would be for the appellants to place all the calculations before the appropriate authority for determining the duty liability in accordance with law.
38. We observe that there is a mention in the impugned order that there were no clearances from 27-4-1983 to 4-5-1983. This has not been contested in the appeal nor during the argument of the learned Counsel before us. If all the clearances of Lipsticks had taken place before the issue of the amending Notification of 27th April 1983, the eligibility of the appellants to exemption would have to be determined with reference to the limit of Rs. 2.5 lakhs for the preceding year 1982-83 in terms of the unamended provisions of Notification 38/83. Since we have found that the aggregate value of clearances during 1982-83 was more than Rs. 2.5 lakhs, the appellants were not eligible for exemption from 1-4-1983 to 26-4-1983. This being so, the clearances of 564.5 dozen Lipsticks were not eligible for exemption. While arriving at the value of these goods, the appellants have claimed that there were two classes of buyers - one located in the territory of Gujarat and the other outside Gujarat because sales tax was included in the first category and excluded in the second category. The inclusion or non-inclusion of sales tax cannot constitute an acceptable criterion for distinguishing between two types of transactions so as to categorise them as two classes of buyers as stipulated in Section 4(l)(a)(i). Section 4(4)(d)(ii) clearly indicates the value, in relation to excisable goods :-
"does not include the duty of excise, sales tax and other taxes, if any, payable on such goods...."
39. Thus, while arriving at the value, the amount of sales tax, if any, which is included in it, would be excluded on production of satisfactory evidence. It is for the appellants to produce such evidence before the appropriate authorities who would no doubt have to allow deduction on that account in accordance with the provision of the law quoted above.
40. We now come to the question of penalty. The appellants have taken the ground that this was not a case for imposition of penalty and have relied on the decision of the Supreme Court in the case of Hindustan Steel Ltd. v. State of Orissa - AIR 1970 SC 253, in which the Apex Court observed as under :-
"An order imposing penalty for failure to carry out a statutory obligation is the result of a quasi-criminal proceeding, and penalty will not ordinarily be imposed unless the party obliged either acted deliberately in defiance of law or was guilty of conduct contumacious or dishonest, or acted in conscious disregard of its obligation. Penalty will not also be imposed for failure to perform a statutory obligation is a matter of discretion of the authority to be exercised judicially and on a consideration of all the relevant circumstances. Even if a minimum penalty is prescribed, the authority competent to impose the penalty will be justified in refusing to impose penalty, when there is a technical or venial breach of the provisions of the Act or where the breach flows from a bona fide belief that the offender is not liable to act in the manner prescribed by the statute".
41. Applying this principle to the facts of the present case, we observe that the appellants were under a statutory obligation to make a declaration in terms of Notification 111/78, dated 9-5-1978 for claiming exemption from taking out a licence under Rule 174-A of the Central Excise Rules, 1944. In the Declaration, which they had filed and which was placed before us by the learned Departmental Representative, it was noticed that the information given against Column (3) was not correct. Further, while the value of clearances of Lipsticks during 1982-83 has been shown by the appellants to be Rs. 1,01,231.88, according to the allegation against them in the show cause notice, the value of such clearances was Rs. 2,59,647.50 which itself rendered the appellants ineligible for exemption from duty under Notification 38/83 having exceeded the prescribed limit of Rs. 2.50 lakhs. To this was added the value of clearance of D-O-Dur of Rs. 2,18,657.77 which meant that the value of clearances of all excisable goods had reached the figure of Rs. 4,78,305.27. This itself amounted to suppression of facts. The allegation in the show cause notice also was that the appellants had "wilfully suppressed the facts and deliberately shown less prices of Lipsticks even though the product is sold at a very high price through only one distributor". The appellants have taken the plea in the reply to the show cause notice that they had acted on the bona fide belief that the first price charged by the manufacturing unit to the buyers is chargeable to duty. The manufacturing unit in this case was Creative Cosmetics and the purchaser was M/s. Ideal Cosmetics Corporation, both of which are owned by Topiwala Trust. In these circumstances, the plea of the appellants that the price charged by the manufacturers should form the basis of assessment, has rightly been rejected by the adjudicating authority and we uphold that order. In these circumstances, the plea that the appellants acted on bona fide belief is also not acceptable. Since the goods were removed without payment of duty and the appellants had suppressed material facts from the authorities, it is a clear case of contravention of Rule 173Q(1). We do not think that this case would be covered by the ratio of the Supreme Court judgment in Hindustan Steel's case (supra). However, taking all facts into consideration, we are of the view that the penalty of Rs. 10,000/- would meet the ends of justice. We accordingly reduce the penalty from Rs. 50,000/- to Rs. 10,000/-. Subject to this modification, the appeal is, otherwise, rejected.