TMI Blog1988 (11) TMI 271X X X X Extracts X X X X X X X X Extracts X X X X ..... e Department found that the Strip Mill Division had been manufacturing bimetallic strips earlier as well without obtaining Central Excise Licence and clearing the goods without payment of duty over the years. A Show Cause Notice dated 31-3-1987 was, therefore, issued to the appellants asking them to show cause why (i) the Bimetallic strips manufactured in the Strip Mill should not be classified under Tariff Item 68 of the First Schedule to the Act during the period covered under the SCN i.e. from 1-3-1982 to 28-2-1986; (ii) duty amounting to Rs. 1,02,14,154.84 should not be demanded on them under Rule 9(2) read with Section 11-A of the Act under the extended time limit of 5 years since it was held that the manufacture of the bimetallic strips was surreptitious, and their removals clandestine, with intent to evade payment of duty, and (iii) penalty should not be imposed on them under Rule 173Q for the contravention of Section 6 of the Act read with Rule 174, Rules 9(1), 52A, 53,173B,173G, 173C and 173F read with 173G as aforesaid. In their reply thereto the appellants contested the proposed classification in the Show Cause Notice of the bimetallic strips under the erstwhile ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Bearing Plant at Madras was inspected by the Central Excise Officers and the factory was asked to take out a licence. Further, the learned Consultant submitted that in their application for Central Excise Licence on 13-6-1971, they had clearly indicated that bimetallic strips were one of the raw materials for their final product viz. bimetal bearings. Apart from that the learned Consultant urged that even if in 1971 the existence of Strip Mill had escaped departmental notice, then again in subsequent Budget of 1975, when for the first time Item 68 of CET was introduced, covering all other goods not elsewhere specified manufactured in a factory, then at least the Department should have been alert to the existence of the Strip Mill. This is also because the accompanying Budget instructions were very specific to say that only through extensive survey new units could be located. The learned Consultant further pointed out that even the Budget succeeding 1975, there were proposals for increasing the rate of duty on goods falling under Item 68 CET, which again should have led to the knowledge on the part of the Department about the Strip Mill. Further, immediately following the imposit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The installed capacity for producing them as well as their annual production have been given in the Annual Accounts. The Department itself had in 1972 by their letter dated 17-1-1972 called for their Balance Sheet. In view of the position as above, the learned Consultant urged that it can clearly be stated that the existence of the unit manufacturing bimetallic strips was within the knowledge of the Department and as such no suppression can be alleged. The fact that the bimetallic strips as raw material for their Coimbatore Unit was being produced at their Madras factory was clearly intimated to the Department in their reply dated 7-9-1981 to the Superintendent at Coimbatore which was clearly, therefore, bringing to the knowledge of the Department about the manufacturing activity at their Madras plant. The learned Consultant further submitted that the appellants had nothing to gain by evading duty. There was no motive for them to evade duty because they would have been eligible for the exemption under Notification No. 118/75 exempting the goods falling under Item 68 CET from duty when used captively by the same manufacturer in the manufacture of finished products. The learned Cons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l, and, following the ratio of these judgments the longer period under Rule 9(2) cannot be invoked. 7. As regards the penalty on the appellant, the learned Consultant relied upon the Supreme Court decision in Hindustan Steel v. State of Orissa [1978 (2) E.L.T. (J 159)] wherein the Hon ble Supreme Court observed that even if a minimum penalty is prescribed, the authority competent to impose the penalty will be justified in refusing to impose it when there is a technical or venial breach of the provisions of the Act or where the breach flows from the bona fide belief that the offender is not liable to action in the manner prescribed by the statute. In the case of the appellants their manufacturing activity was open and fully documented, and the unit itself is located in a complex where there are neighbouring units which are under the physical control of the Central Excise, and since there was no deliberate effort at clandestine production and removal as shown above, the penalty on them under Rule 173Q is also not tenable and should be set aside. This was because they had also nothing to gain by evading duty since they would have been eligible for the exemption under Notification No ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... imilarly, mere calling for the Balance Sheet by the Department by the Superintendent will not be of much relevance to determining excisability of a product because that particular calling for the Balance Sheet was a general one issued to all manufacturers for a wider study with a different objective and scope for revenue collection. 9. As regards the case law cited by the appellants in this case, the learned S.D.R. pointed out that those cases are distinguishable from that of the appellants because in all those cases, there was correspondence between the Department and the party, and several of these the units were already under Central Excise Control and had filed classification list also in respect of their products, whereas the appellants had not done any of those things with reference to their bimetallic strips unit at Madras. Even in the Sanjana case decided by the Supreme Court, there was an assessment although at Nil rate, according to the Court, which again distinguishes the present case. The learned S.D.R. placed reliance on the case of Ceekay Rubber Industries v. C.C.E; Madras, decided by the Special Bench of the CEGAT [1988 (34) E.L.T. 347], and M/s. Madras Petro-Chem. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... submissions by the learned Consultant and the learned S.D.R. The appellants have sought for a decision of the appeal based only on the question of limitation and are not pressing the other issues contained in the Collector s order regarding the excisability and the classification of the bimetallic strips manufactured by them. In this case duty has been demanded by issue of the Show Cause Notice dated 31-3-1987 demanding the duty for the period 1-3-1982 to 28-2-1986. The longer period under Rule 9(2) of Central Excise Rules, 1944 read with Section 11A of Central Excises Salt Act, 1944 has been invoked. While Section 11A refers to recovery of duties not levied or short-levied, Rule 9 deals with removal of excisable goods from any place where they are produced. It is stipulated therein that such removal shall not take place until the Excise duty therein is paid in the manner prescribed in the rules. The proviso to Section 11A provides that where a non-levy or short-levy arises, by reason of fraud or collusion or any wilful mis-statement or suppression of facts or contravention of any of the provisions of the Act or the rules with intent to evade payment of duty the demand for recov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Undoubtedly the question raised by the Superintendent of Central Excise at Coimbatore had a revenue implication, and the reply of the appellants thereto had also described how the sintered strips are made at Madras, and considering that at that time the Collector of Central Excise at Madras had jurisdiction over Coimbatore also it may not be valid to contend that the Superintendent at Coimbatore was not the proper officer or that the Department had to accept the appellants say in the letter that there was only processing and not manufacture taking place at the Madras factory. In fact on this aspect this Bench of the Tribunal in the Cheran Engineering Corporation v. Collector of Central Excise, Coimbatore [1986 (26) E.L.T. 611 (Tribunal) = 1986 (9) E.C.R. 465] had laid down that Proper Officer is defined under Rule 2(xi) as the officer in whose jurisdiction the premises of the producer of any excisable goods are situated would cover all Central Excise Officers including the Collector in whose jurisdiction the appellants premises are located. Yet another aspect which would strengthen the contention of the appellants that there has been no suppression is that in 1971 when Item 34 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ery Budget time. I distinctly remember such visits during which we have personally escorted the Officers round the Strip Mill Shop floor at the request of the officers who had wanted to acquaint themselves fully with the process of manufacture. During the discussion with the Officers on more than one occasion, we have personally informed them that the bimetallic strips produced in the Strip Mill were being sent to Coimbatore (from 1973 and also to Hosur from 1982) for further manufacture of bearings, bushing and thrust washers in the Bearing Plant there. Since there was no follow-up action on any of these visits by the Visiting Officers or the Department, no record has been maintained of either the names of the Visiting Officers or the dates of the visits. The Collector, however, had, in our view, unjustly brushed aside the evidence of these Officers without testing its veracity as the deponents are persons who had all along been employed in the Strip Mill and were, therefore, admittedly in a position to make a statement. It is also seen that the Strip Mill is reportedly located in an industrial complex at Sembium, in the neighbourhood of other units where a number of factories ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... removal, it is essential for such a charge that there should be some evidence thereof. In the normal course when it is a case of a clandestine manufacture and removal of excisable goods checks of the stocks, lorry receipts and the Check-post would yield some evidence. In this case ever since the Bearing Plant shifted out to Coimbatore, there have been regular despatch of bimetal strips from the appellants factory at Madras to their Bearing Plant at Coimbatore by road for all these years. There is no instance of any of the consignments being checked en route by any Central Excise patrol party for checking the excisability of the goods or of their movement without payment of any duty. Having regard to all the above circumstances it cannot be pretended that the Department was blissfully ignorant of the metallic strip manufacturing activity of the appellants. The plea that the goods in question were periodically regularly and systematically cleared and removed from their factory at Madras and taken to their other manufacturing units hundreds of miles away at Coimbatore, Hosur, etc. in a clandestine manner without any of the Central Excise Officer knowing anything about it is too pueril ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sales of the goods in the open market, the charge of clandestine removal of goods cannot be sustained. In the matter of clandestine removal of goods, the Collector had held that the verification of the figures would not serve any purpose since the goods have already gone into consumption. This, however, may not be a sound basis in view of the detailed manner of accountal as seen above of the material till its production into bearings and department s acceptance of the appellants figures of despatches. Further, the bimetallic strips are admittedly of special size and specification intended for particular use of various customers, and are not such consumer items as could easily pass into the main stream of trade surreptitiously. It is also submitted in this context that the utilisation of the bearing would have needed a heavy outlay by way of infrastructure as plant machinery etc. which clandestine removal would have necessitated. Then again there will be the question that if there was any diversion, how and wherefrom the appellants could have got identical bimetallic strips for conversion into bearings. Quite apart from that, the appellants are manufacturing the strips by a unique ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the statute. In this case even if the appellants could be faulted for not having taken out a licence, under Central Excise and followed the procedures on their own, yet it would appear that there was no surreptitious activity on their part to keep the fact of manufacture of strips away from the Department s eyes, as it would appear also that the Department also had occasion to know about the manufacturing activity. The breach of the provisions of the Act in such a view of the matter has to be held as but technical, and applying the ratio of the Supreme Court judgment in the Hindustan Steel case no penalty would be called for. The Department s view regarding penalty is based on the decision of the Nizam Sugar Factory case of the A.P. High Court [1987 (27) E.L.T. 40]. However, the Hon ble A.P. High Court was dealing in that case with the offence of non-accountal and unauthorised clearance of excisable goods etc. detected against Nizam Sugar Factory, a Central Excise licensee, following the seizure of sugar being transported from the factory without payment of duty and without any valid documents, whereas in the present case, the Department itself decided the excisability and c ..... X X X X Extracts X X X X X X X X Extracts X X X X
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