TMI Blog1987 (4) TMI 324X X X X Extracts X X X X X X X X Extracts X X X X ..... ate production records were being kept for the power and non-power sections in order to screen the production in the power unit from demand from payment of excise duty. Statements of various persons recorded during investigation were relied on in support of these allegations as also contents of several records and registers seized during investigation. It was alleged that the machinery owned by the appellants for production of steel furniture without the aid of power had been transferred to a new unit floated in 1978 by name M/s. Orient Metal Industries and, therefore, after 1978 the appellants owned no such machinery and hence did not produce any steel furniture thereafter without the aid of power. It was mentioned, on the basis of the said allegations, that the appellants were not entitled to benefit of exemption from payment of duty in respect of the articles manufactured by them, and which were liable for duty in the normal course, since the value of their clearances during the previous 5 years was in excess of the limit prescribed in the respective exemption notifications and thus huge revenue had been evaded. The quantum of revenue so evaded was computed at Rs. 40,08,647.03 P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed upon in issuing the show cause notice had not been fully communicated to them or made available in spite of requests. They claimed that their clearances had been proper and in any event no demand for duty could be sustained in excess of the normal period of limitation as there were no grounds to invoke the larger period. They reiterated their request for supply of charts as were required to be furnished even earlier. They disputed the computation of the clearances as mentioned in the show cause notices. They further stated that they would require cross-examination of the author of the trade opinion relied upon in the show cause notice. 2. When, following the said replies, personal hearings were fixed by the Collector the appellants reiterated the request for supply of charts as demanded earlier and further requested permission for full inspection of the various records in order to work out figures regarding the demand raised. They pointed out that demands appear to have been raised on various items on which no duty at all was payable, illustrating the same by giving details thereof (for part of period of demand) in their letter dated 18-2-1985. Similar requests were made ther ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bove. 4. Since the case rests on the allegations made in the show cause notice, and the evidence relied on for the Department in support of the said allegations in order to make out the charges against the appellants, we feel it will be better if the allegations in the show cause notice are first given out in detail so that with reference to each of the allegations the order of the Collector may be looked into and in that manner discussed, regarding the evidence referred to as establishing the said allegations and the reasons cited for holding the said charges established. 5. Paragraphs 1 to 3 of the show cause notice dated 23-9-1982 contained certain specific allegations supported by reference to specific figures. Paragraph 5 contains sub-paragraphs (a) to (1) which contained various allegations of infractions of the Central Excise provisions with intent to evade payment of excise duty and by wilfully keeping the Department in ignorance of such infractions. 6. The allegations seriatim are as follows: (i) A sum of Rs. 71,493/- had been wrongly shown as towards packing and forwarding charges while the same should also have been included in the value of clearances for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed the output of the non-power section with a particular number of workers to be higher than the corresponding output of the power section with the same number of workers, though such a possibility is not natural. (xii) A note book maintained by one Shri Upgade for the period 12-12-1980 to 31-1-1981 gives details of manufacturing work carried out. (xiii) No segregation had been maintained in the stock register between steel furniture manufactured without the aid of power and that manufactured with the aid of power. Therefore the explanation that such segregation was possible at the time of clearance is not acceptable. (xiv) Statements of Shri Haneef Bhai and Prahlad Thakre established that the manufacturing operations of the appellants were always with power only. (xv) The licence showed permission for use of power not exceeding 100 H.P. and use of such power in G5 was confirmed in the statement of the ex-supervisor Shri Khalaskar who stated that from March, 1978 onwards G5 had no non-power section. (xvi) Neither the ground plan nor the classification list dated 6-5-1980 disclosed manufacture without the aid of power. Two registers seized on 2-2-1982 disclosed that more t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g and forwarding charges, etc,. the Collector s findings are in para 23.4 of his order where he held that the defence that such expenses were towards post-manufacturing operations was not acceptable in view of the decision of the Supreme Court. The reference was to the decision in the Bombay Tyres International case. But this reason of the Collector does not appear to be correct in the absence of any discussion as to the nature of such expenses which alone would be relevant for arriving at a conclusion (on the basis of the judgment of the Supreme Court) as to whether these charges are by way of post-manufacturing expenses and hence not liable to be included in the assessable value. 9. The second specific allegation (as mentioned supra) was about failure to issue a gate pass with reference to clearance under Bill No. 178, dated 31-3-1981 in a sum of Rs. 13,096/-. The allegation is that the clearances up to and inclusive of Bill No. 177 aggregated to just below the permissible limit and that inclusion of the clearances under Bill No. 178 would have taken the aggregate value of clearances beyond the permissible limit and hence the clearances under this bill was intentionally omitted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Deptt. (and in the custody of the Deptt. during adjudication proceedings) which by themselves establish that the appellants had been regularly purchasing such cash boxes and trailers from other manufacturers. He is therefore correct in contending that in the face of such material, which was in the possession of the Department itself, the Collector was not entitled to ignore this material and to find against the appellants merely on the ground that the bills issued by the appellants for sale of these goods did not themselves indicate that the appellants were not the manufacturers of the goods sold thereunder. 11. It is further alleged in the show cause notice in this connection that so far as coal tubs, distribution boxes and junction boxes are concerned these could not have been manufactured without the aid of power as claimed by the appellants. This was on the basis that trade opinion obtained in this regard was to the effect that these articles should have been manufactured with the aid of power only .The trade opinion relied on in this connection appears to have been that of the proprietor of another firm by name Metafold Ltd. The complaint for the appellants is that though c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st to cross-examine the witness present though the adjournment was being granted for other purposes. We say so since the adjournments were being asked for by the appellants on the ground that they had not been given sufficient time or opportunity to peruse the various records which had been seized by the Deptt. and they were therefore unable to meet the charges levelled in the show cause notice regarding the duty liability or the quantification thereof. Without going into the question at present whether such a complaint was justified or not, the fact remains that the Collector did think it proper to grant an adjournment on both occasions. It would have been open to him to insist that at least the cross-examination of the witness present (author of the trade opinion of Metafold) should be completed since that would not require the perusal of the other records as was said to be relevant by the appellants on the question of quantification. It does not appear that the Collector did so require the appellants to complete the cross-examination. We say that it appears to be so, since no record of the hearing fixed for either day had been made available to us, though we had asked the Depart ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appellants had been denied an opportunity to cross-examine the author of the trade opinion and such denial was without justifiable reasons. In that event, the Collector was not entitled to rely on that trade opinion to conclude that the coal tubs, distribution boxes and junction boxes could not have been manufactured without the aid of power. We may note this connection that in paragraph 23.8 of his order the Collector observes that in view of the other documentary evidence mentioned by him in the earlier parts of the said paragraph the opinion of the expert was of academic nature only. But the same had been relied upon by the Collector. 14. Para 2(e) of the show cause notice reads that the appellants had cleared parts of steel furniture in innumerable quantity, the value of which though not shown anywhere is estimated to be in lakhs of rupees. This allegation, apart from being entirely vague, is not supported by reference to any relevant information as disclosed either by any statement recorded or any particular document or documents seized and proposed to be relied on in the adjudication. In para 2(f) computation is given of the value of clearances during the financial year 19 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re, after fabrication and manufacture, entirely captively consumed within the factory of the appellants themselves in building up the bus bodies (on the chassis sent for fabrication of bus bodies) and in the circumstances the kits so manufactured (and falling under T.I. 68) were wholly exempt from duty in terms of Notification No. 118/75. Shri Vineet Kumar comments that it is only now that this aspect of exemption (under Notification No. 118/75) is spelt out for the appellants and hence the said defence cannot be looked into. But in this connection we have to note, as Shri Lakshmikumaran points out, that the value of clearances as computed by the Deptt. in the show cause notice (and with reference to which duty was also being demanded) included installation charges also, which itself would disclose that the bus body kits fabricated by the appellants were being consumed captively for building of bus bodies on the chassis received for such fabrication work and were not being removed as component kits only. This contention appears to us to be quite justified. That would only indicate that the Department, in issuing the show cause notice and disclosing therein the value of clearances a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the banks; (4) Huge and costly power operated machinery had been installed and it would have been impractical to produce steel furniture without the aid of power when they had such costly power operated machinery; (5) Such non-power operated machinery as could be seen were rusted and useless; (6) Comparison of the figures of production as claimed by the appellants as of furniture produced without the aid of power disclosed that the quantum alleged to have been produced without the aid of power could really not have been produced in that manner; (7) Register maintained by one Shri Upgade showed that the alleged non-power production could really not have been of that type; (8) The appellants themselves had not disclosed the existence of this non-power unit in the records to be submitted by them such as ground plan, classification list, etc.; (9) Such non-power unit as could be seen during the investigation was that of Orient Metal Industries only and not of the appellants. We have now therefore to see how far these allegations have been established with reference to the evidence considered by the Collector and with reference to such additional evidence, if any, which may be considere ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g carried on during the earlier two months. Therefore, the conclusion of the Collector as if this statement, to use the words of the Collector, clearly rendered the appellants stand hollow about its having a separate manual section for manufacture of steel furniture is not correct. 18. It is admitted for the appellants that while submitting statements to the bank (which was evidently providing financial support to them) no separate records were maintained in respect of the furniture manufactured with the aid of power and furniture manufactured without the aid of power. This, according to the Department, would be an indication that there could have been no such separate manufacture without the aid of power and that all manufacture should have been with the aid of power only. We are unable to accept any such inference or conclusion. The bank would really not be interested whether the furniture had been manufactured with the aid of power or without the aid of power, since its interest would be only to see that its advances are covered by sufficient quantity of manufactured stock. It is admitted by the appellants that in the stock register also no separate mention was made whether ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ound to be material to the point of issue. This observation makes it clear that the trade opinion referred to in para 5(d) of the show cause notice had not in fact been made available to the appellants. When such a trade opinion had been referred to in the show cause notice, and is the basis of part of the charges, the refusal to disclose the same to the appellants was certainly a violation of rules of natural justice. The Collector has in the same paragraph further observed it does not indeed require an expert opinion to reiterate that the products manufactured without the aid of power happen to be of inferior type and fetch less price as compared to the identical products manufactured with the aid of power. This observation of the Collector appears to us to be unfounded and, in any event, too sweeping. The generalised observation of the Collector, and the conclusions he draws therefrom, appear to us to be unjustified. 20. It is in discussing the allegations contained in para 5(j) of the show cause notice that in paragraph 24.8 of his order the Collector observes that the pachnama dated 2-2-1982 recorded in the G 19 plot showed that whatever non-power machinery may have been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot even disclosed in the show cause notice, or the list of documents disclosed therein, as relied upon and that the existence of this sketch came to the knowledge of the appellants only when they were, under specific directions issued by this Tribunal in connection with this appeal, given inspection of all the documents seized and not merely of the documents relied upon. This question, whether there was any bias and whether the appellants were not given due opportunity to inspect all the documents which were seized and which were in the possession of the Department, would be taken up for consideration a little later. For the present purpose this sketch, and the mention therein of a non-power section of EMW in the side hall, read with the observations as to where rusted machinery were located, would suffice to establish that the conclusion of the Collector, as if this rusted machinery was that of the appellants, was not correct or justified. 21. The Collector has further relied on several entries in registers and/records seized which, according to him, bear out that the version of the appellants, as if they had been manufacturing steel furniture without the aid of power also, cann ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the RG-1 register of the power section as many as 121 office tables had been sold during the said period on bills purporting to relate to non-power section. In the order of the Collector there is no specific reference to this allegation or his conclusion on the basis thereof. It appears to us that even this allegation in the show cause notice was not a proper one for arriving at a conclusion against the case of the appellants about manufacture of steel furniture by them without the aid of power. It may be seen that the allegation is about production with the aid of power during a period and sale, during the same period, of tables produced without the aid of power. There is nothing improbable in sales taking place during any period of articles manufactured not during that period but in an earlier period. Therefore the allegation as if the sale of a larger number during a period (as manufactured without the aid of power) though manufacture with the aid of power during that period was of a smaller quantity, would not make out a case against the appellants of disposing of furniture manufactured with the aid of power as having been manufactured without the aid of power. The comment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he officers had not chosen to enter that portion and find out what machineries were installed therein. In the circumstances reliance on these statements for concluding against the appellants on the case of manufacture of steel furniture without the aid of power cannot be taken to be correct. 25. So far as the other complaint of the appellants about the denial of opportunity for cross-examination of these two witnesses it may be seen that in their reply dated 18-3-1983 the appellants had specifically mentioned in para 12 that they would like to cross-examine the various persons whose statements had been recorded. In their subsequent reply dated 4-5-1983 they had again specifically indicated in para 29 that they would like to cross-examine the author of the trade opinion of Metafold. In his letter dated 10-5-1985 the Collector had observed that as the appellants had not furnished the list of the names of persons to be cross-examined as mentioned in the letter dated 18-3-1983 and since the appellants did not avail of the opportunity to cross-examine the author of trade opinion on 19-1-1985 and 18-2-1985, it was clear to the Collector that the appellants were not interested in cross- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... em. But we may note that in his statement Shri Khalaskar stated that ever since he joined the appellants no non-power work was being done in G 5 and that no non-power machinery was installed in G 5. Thus the statement of this person is not with reference to what machinery were installed G 19 and what work was being carried on in G 19. Since the case for the appellants is, and had always been, that their non-power operated machinery was installed in G 19, and manufacture with the aid of such machinery was in G 19 only, no conclusion can be drawn against them on the basis of this statement of Shri Khalaskar which specifically referred to the work in, and the machinery in, G 5 only. 27. Shri Lakshmikumaran further comments that this statement would in fact lend support to the case of the appellants. As earlier mentioned, Shri Khalaskar has been examined with reference to a list of machinery furnished by the appellants to the District Industry Center in Nagpur. This list of machinery had been submitted by them on 14-11-1980. Shri Khalaskar has specifically identified some of those machineries as can be used for non-power work while the others could be used with power only. Shri Laksh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y facts. Paragraph 2(f) of the show cause notice quantified the value of various clearances as in 1980-81. Such quantification was under seven heads, the 7th head reading value of T.I. 68 cleared as per Bill , the amount being mentioned as Rs. 14,39,173/-. The worksheet attached to the show cause notice disclosed clearances to the total value of Rs. 1,52,71,378/- during the years 1978 to January, 1982. The quantum of such clearances are said to have been computed in the said worksheet (as seen from the remarks column) on the basis of sales registers (1978, 1980, 1981-82) and on the basis of balance sheet in 1979. The contention for the appellants throughout has been that the basis of such computation was wholly erroneous since the figures in the sales registers and balance sheet comprised not merely the value of excisable items manufactured and cleared but also the value of not merly non-excisable articles manufactured by the appellants but also the value of the goods bought by the appellants and resold by them and further included various other incidental charges such as packing, forwarding, sales tax paid, job charges, etc., It is for that reason that they had been asking the De ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iture; coal tubs, etc.; raw materials purchased; realisation on sale of empty drums, etc., job work, labour charges; trading activities, etc.) on which no duty would at all be payable. Since this chart had been prepared on the basis of the very documents which alone are said to have been relied on by the Deptt. for preparing their work sheet attached to the show cause notice for quantifying the clearance on which duty was to be demanded, the conclusion that such duty demand was to a large extent not supportable is inevitable. This aspect is highlighted by the appellants to establish their contention that the Deptt. was not acting fairly in the issue of the show cause notice but appears to have been biased against the appellants. While it may not be necessary to conclude that there was any such bias it may not be inappropriate to conclude that the show cause notice appears to have been issued without proper care being taken to verify all facts necessary to be considered as to liability for payment of duty. It is specially significant that the figures furnished as of clearances on which duty was payable included the value of articles purchased by the appellants and resold by them, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d want to cross-examine all the persons from whom statement have been recorded during investigation. The fact that subsequently they gave a list containing specific names of the individuals would not mean that it was only then that the desire for cross-examination of these persons was expressed. So far as these deponents are concerned it does not even appear that they had ever been either summoned or made available for cross-examination. So far as the author of the trade opinion is concerned it has already been seen that adjournments had been granted without calling upon the appellants to cross-examine the said witness if he had been present. In the circumstances reasons mentioned in para 21 to justify the denial of the request for cross-examination is not proper or acceptable. 34. It is therefore seen that apart from denying the appellants their request for clarification as to how the quantification of clearances (on which duty was being demanded) has been arrived at, the appellants were not allowed to exercise their right of cross-examination of the persons on whose statements the Deptt. relied in holding that the charges made in the show cause notice were established. Thus on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... khs of rupees to its sister concerns either without accounting for or without mentioning its value. As earlier noted the total value of clearances covered by wapsi gate passes was about Rs. 26,000/- only. In the circumstances the observation [relating to paragraph 5(1) of the show cause notice] as if the wapsi gate passes could have covered removal of parts of steel furniture worth lakhs of rupees is apparently incorrect. 36. The discussion earlier establishes that the material considered acceptable by the Collector, in arriving at his conclusion as to the charges levelled in the show cause notice being established, was hardly sufficient to support such conclusions. It would therefore be clear that the order of the Collector should be set aside for the said reason itself even without making reference to the additional evidence that the appellants have produced. But we feel that it would be proper to make reference to at least one part thereof to show that the conclusions of the Collector, on the improbability of the appellants having manufactured steel furniture without the aid of power during the relevant period, cannot be correct and that the defence of the appellants would be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section of the appellants was closed down in 1978 cannot be accepted. 37. Another document to which also we may make reference in this connection (by way of additional evidence) would be the agreement entered into between the appellants and OMI on 10-7-1976, whereunder the appellants had retained their right to continue their non-power manufacturing activity in G 19. It was evidently to this agreement that reference has been made by OMI in their letter dated 9-9-1978 to the Joint Director of Industries (as mentioned in the previous paragraph). 38. To summarise it is clear that the show cause notice had been issued without proper investigation and without properly appreciating the facts available, demand for duty being made thereunder on (i) articles manufactured without the aid of power (and therefore non-dutiable) as also (ii) on various other articles such as Bus body kits which were exempt from payment of duty in terms of the notification relied on by the appellants and (iii) on various other items such as articles bought by the appellants and resold by them and (iv) even on amounts spent towards payment of packing and forwarding charges, sales tax, etc. (without going into ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... chart as asked for by the appellants were a necessity. On the other hand, the Collector has not chosen to even look at the chart prepared by the appellants but had rejected the defence of the appellants on the premise that as the demand was based on the records of the appellants there was no question of the demand being incorrect. For the reasons mentioned earlier such a conclusion was obviously incorrect and improper. 39. In the above view the order of the Collector, both regarding the demand for duty and the imposition of penalty, has to be necessarily set aside. We find that two separate appeals have been preferred by the appellants, though both appeals are with reference to the same order (i.e.) No. Order-in-Original 16/85 (Steel furniture) dated 25-9-1985 passed by the Collector of Central Excise Customs, Nagpur and the relief prayed for in both appeals is the same (i.e.) to set aside the said order and the demand for payment of duty as well as imposition of penalty thereunder. We are unable to understand why two separate appeals for the same relief and against the same order should have been preferred by the appellants. Our order above would dispose of Appeal No. E-246/8 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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