1995 (11) TMI 220 - AT - Central Excise

Summary

Issues Involved:

(a) Whether cutting, slitting, and perforation amounted to manufacture or not;
(b) Whether there was suppression or wilful misstatement so as to invoke the extended period of demand beyond six months under proviso to Section 11A(1);
(c) Whether penalty was imposable under Rule 173Q on the company and under Rule 209A on Shri R.K. Sharma, Commercial Manager.

Issue-wise Detailed Analysis:

(a) Whether cutting, slitting, and perforation amounted to manufacture or not:

The appellants relied on the Board's Circular letter F. No. 119/1/88-CX. 3, dated 5-9-1988, which clarified that the process of slitting, cutting, and perforation of duty-paid imported jumbo rolls of films did not amount to manufacture. The Department, however, referred to Trade Notice No. 18/89 dated 16-3-1989, which reversed the earlier position, stating that these processes would amount to manufacture. The Tribunal observed that the Trade Notice issued on 16-3-1989 would be effective only from that date, and before this date, the Board's Circular dated 5-9-1988 would remain in force. Therefore, the processes of cutting, slitting, and perforation would amount to manufacture only from 16-3-1989 onwards.

(b) Whether there was suppression or wilful misstatement so as to invoke the extended period of demand beyond six months under proviso to Section 11A(1):

The Tribunal found that there was extensive correspondence between the Department and the appellants, indicating that the appellants had sought clarifications due to the change in the Department's position. The appellants had applied for and surrendered their Central Excise license, which was accepted by the Department. The Tribunal held that there was no suppression or wilful misstatement by the appellants, and all relevant facts were within the Department's knowledge. Consequently, the demand was hit by limitation, as the show cause notice was issued on 29-9-1993 for the period 28-10-1988 to 13-6-1989, which was beyond the permissible period.

(c) Whether penalty was imposable under Rule 173Q on the company and under Rule 209A on Shri R.K. Sharma, Commercial Manager:

The Tribunal noted that the Department had changed its position on whether cutting, slitting, and perforation amounted to manufacture. The appellants had surrendered their license based on the Board's Circular and thus discontinued maintaining prescribed records. The Tribunal found that the quantum of penalty imposed on the appellants was disproportionate and reduced it to Rs. 2.00 lacs. Regarding Shri R.K. Sharma, the Tribunal observed that the allegation was about withholding information, which is not one of the ingredients in Rule 209A of the Central Excise Rules, 1944. Therefore, the imposition of penalty on Shri R.K. Sharma was not sustainable.

Conclusion:

The Tribunal modified the impugned order, holding that the processes of cutting, slitting, and perforation amounted to manufacture only from 16-3-1989 onwards. It found no suppression or wilful misstatement by the appellants, rendering the demand time-barred. The penalty on the appellants was reduced to Rs. 2.00 lacs, and the penalty on Shri R.K. Sharma was set aside. The appeals were disposed of accordingly.