TMI Blog1990 (2) TMI 211X X X X Extracts X X X X X X X X Extracts X X X X ..... sed of by a common order. Appeal No. E/1485/88-D Very briefly the facts in this appeal are that the appellants produced nylon yarn falling under the erstwhile Tariff Item 18-II (i) (a) of the Central Excise Tariff. According to the department, the team of Central Excise Officers visited the appellant s factory premises from 1-11-1985 to 26-12-1985 to investigate into certain information that the appellants were processing multi-filament yarn for splitting and producing mono-filament yarn without proper accountal in the Central Excise statutory records. The officers took into possession certain documents and also obtained the statements of several officers and employees of the appellant firm during the investigations that followed and ultimately a Show Cause Notice was issued to the appellants on 19-5-1986 asking them to show cause why duty to the extent of Rs. 3,28,18,890.75 should not be demanded from them and why penalty should not be imposed on them. The charges in the Show Cause Notice covered various offences which are listed out in Annexure IV to the Show Cause Notice, which is reproduced below :- S.No. Description of goods Qty. in Kg. Amount of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urged that out of the total duty demanded, the major portion is on account of the Collector s finding that mother yarn or multi-filament yarn produced by them and used in the manufacture of mono-filament yarn by subjecting the mother yarn to splitting process is itself dutiable and the demand of duty on this account amounts to Rs. 2,15,76,653/-. Shri Santhanam argued that the major plank of the Collector s order on this issue is based on the fact that mother yarn is mentioned in the exemption Notification 47/85 dated 17-3-85 and Shri Santhanam urged that mother yarn cannot be regarded as dutiable merely by virtue of this notification since an exemption notification or a proviso thereto does not have the force of the charging section namely Section 3 of the Central Excises Salt Act, 1944 merely because mother yarn is specified in the exemption notification, it does not follow, according to the appellants, that mother yarn is specified in the Tariff as excisable goods. The further submission was that even if mother yarn being mentioned in the notification is considered as adequate for subjecting it to duty under the tariff, it is further essential to establish that the mother yarn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted in 1988 (37) E.L.T. 471 (S.C) in the case of Aditya Mills v. Union of India, wherein the Supreme Court laid down that yarn is meant for weaving, knitting or rope making and applying this test, mother yarn is not fit for weaving, knitting or rope making. It is also not known as yarn in the trade. Hence, it is not dutiable, according to the appellants, as yarn under Item 18 of the Central Excise Tariff. Shri Santhanam also relied upon the Supreme Court decision in the case of Bhor Industries Ltd. v. Collector of Central Excise -1989 (40) E.L.T. 280, wherein the Supreme Court laid down that marketability of an article is essential for considering it as a dutiable commodity under Section 3 of the Central Excises and Salt Act, 1944. Shri Santhanam pointed out that by such decision, the Supreme Court had gone beyond the ratio of its own decision in the case of Collector of Customs and Central Excise v. Oriental Timber Industries -1985 (20) E.L.T. 202 and it is the law as laid down by the Supreme Court that mere tariff description of an item is not sufficient for attracting liabilityto duty, but that it must be shown to be goods which are marketed or marketable. Yet another argument p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aste, appearing under Serial No. 2 of Annexure IV to the Show Cause Notice on which an amount of Rs. 7,60,401.60 has been demanded, that the issue regarding dutiability of the waste has already been decided by this Tribunal in their favour in their own case reported in 1988 (38) E.L.T. 336 to the effect that nylon polymer waste occurring after emergence of filament but prior to winding of nylon yarn on cops would amount to waste arising during the course of manufacture of nylon yarn. In the same decision, Shri Santhanam pointed out the Tribunal also had given a finding that the manufacture of nylon yarn is complete only when it is wound on cops and, therefore, at the mother yarn stage, which is much prior to winding on cops, it cannot be said that fully finished excisable goods have emerged. He also pointed out that the demand of this amount was also time barred because it related to the period between 31-1-85 to 13-9-85 whereas the Show Cause Notice has been issued on 19-5-86 and being beyond six months, cannot be enforced. This is because the department cannot al lege suppression of facts since the unit was under physical control and there cannot be any allegation of clandestine ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ere cannot be a production of as much as 43,268 Kgs as wrongly stated in the original DGTD return. 8. In regard to the duty demanded in respect of textured yarn, it was pointed out that the difference arising from the change in the denierage during texturisation, is not relating to mother yarn as the yarn could not be split and, therefore, nothing to do with notification 47/85 relied upon by the Collector erroneously. Shri Santhanam pointed out that the Allahabad High Court in their own case reported in 1987 (28) E.L.T. 234, Para 38 had held that duty was payable only on non-texturised yarn before removal and that no duty on texturised yarn was payable by virtue of exemption under notification 178/83 dated 1-7-83. Similarly, there have been decisions in their favour by the CEGAT also (Order No. 185/89-D). 9. In respect of the demand relating to goods alleged to be short accounted for in Excise records as compared to balance sheet at Serial No. 6 of Annexure IV to the Show Cause Notice, it was argued that this demand related to the period 31-1-85 to 30-4-85. The department has erroneously proceeded on the principle that the plant gets emptied on the last day of manufacture ignor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Edition), both mono-filament yarn and multi-filament yarn are mentioned. Therefore, according to the learned DR, it can be said that multi-filament yarn is also known in the trade. He relied upon the Delhi High Court decision in the case of Porrits and Spencer (Asia) Ltd. v. Union of India -1980 E.L.T. 679 and the Madras High Court decision in the case of M/s. Parry Confectionery Ltd. v. Govt. of India - 1980 E.L.T. 468 wherein the High Court following the Supreme Court decision have held that Glossary of terms published by the ISI can be a useful guide and is to be preferred in preference to expert opinion. In this context, he also relied upon the decision in the appellant s own case by the Allahabad High Court - 1987 (28) E.L.T. 234 wherein the Hon ble High Court held that partially oriented yarn is classifiable under Item 18-II (i) (a) of Central Excise Tariff as fully manufactured excisable goods and Shri Chakraborty pointed out, it is significant here that partially oriented yarn is not used of knitting, weaving or rope making but is used only for texturising and yet the All bd High Court had held it liable to duty under Tariff Item 18-II (i)(a). As for the argument that multi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... acture of mono-filament yarn. He also pointed out that as a matter of fact, the appellants had cleared some quantity of mother yarn and sold it. The learned DR further argued that the Collector s reliance on the proviso to Notification 47/85 in arriving at a finding that mother yarn is dutiable is well-founded because the notification is part of the Act as the notification fixes the effective rate. The statute provision has to be considered alongwith rules and notification because levy and exemption are two facets of policy. To find out the true nature of a tax, according to the learned DR, the levy as well as the exemption therefrom have to be considered. He cited the Supreme Court decision reported in AIR 1957 SC 790 to support his argument that exemption contained under the notification is a part of the Act. As regards the argument put-forth that manufacture of yarn is complete only at the stage when it is wound on cops, the learned DR contended that the CEGAT s decision relied upon in this context was based on certain admission of fact which is not altogether correct because at the time CEGAT was not made aware of the dispute regarding the dutiability of the yarn at the earlier ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment yarn and split yarn are different items and hence there is no demand of duty on the same goods twice. He relied upon the case of Premier Tyres Ltd. v. Collector of Central Excise, Cochin reported in 1987 (28) E.L.T. 58 (SC) and argued that there could be no general principle that there can be no double taxation in levy of Central Excise and submitted that double taxation is not inherently invalid if provided for by legislation. In this context, he referred to the Delhi High Court decision in Krislon Texturisers Pvt. Ltd. v. Union of India -1987 (27) E.L.T. 637, wherein the High Court held that dyed yarn is commercially different from grey yarn and taxing both is not double taxation. As regards the reliance placed by the appellants on the ratio of the Kiran Spinning Weaving Mills case, the learned DR submitted that the question now before the Tribunal is not whether the splitting of the yarn amounts to manufacture or not, whereas in that case, the Supreme Court was considering the question whether cutting of tow into short lengths of staple fibre would amount to manufacture. He further pointed out that even incidental and ancillary processes for completion of a finished produ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -88 issued by the Central Government to confer exemption from duty on mother yarn when used in the factory of production for manufacture of split yarn falling under Tariff Heading 5402 or 5404 and this exemption to mother yarn has been granted un-conditionally in pursuance of the appellants representation to the Govt. and para 2 of the notification states clearly that this exemption shall not apply to manufacturer who avails of the exemption in respect of split yarn under Notfn. 53/87 which was issued in substantiation in Notfn. 47/85 under which split yarn is exempt if duty of excise has been paid on the mother yarn. He further referred to the memorandum explaining the provisions of the Finance Bill, 1988 wherein at Page 31, Item 31, the Govt. has stated that by virtue of the exemption from duty being conferred on mother yarn when captively consumed the revenue effect is nil thereby, according to the appellants showing that the levy of duty on mother yarn does not in any case involve any loss of revenue. It was argued that the intention of the Govt., as is evident from all these notifications, is not to levy duty at two stages but only to tax the yarn at its final stage of product ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of enactment or issue and by those who have to construe, execute and apply the said enactment. The Supreme Court thereafter observed that the expressions in the Schedule and in the notification for exemption should be understood by the language employed therein bearing in mind the context in which the expressions occur, and further observed that the notification in that case was issued under Rule 8 of the Central Excise Rules and should be read along with the Act and that the notification must be read as a whole in the context of the relevant provisions. When a notification is issued in accordance with powers conferred by the statute, it has statutory force and validity and therefore, the exemption under the notification is, as if it were contained in the Act itself. In this case, the exemption notification envisages mother yarn as a dutiable article under Item 18-II of the Central Excise Tariff and provides exemption for split yarn if it has been produced from duty-paid mother yarn for split yarn. There is a further explanation in the notification which says for the purposes of this notification, in the case of mother yarn for split yarn the denier shall be the denier of the si ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ied in the entry, it was essential that as a result of manufacture, goods must come into existence and for article to be goods, these must be known in the market as such and must be capable of being sold in the market as goods. Elaborating on this, the Supreme Court in the Ambalal Sarabhai case observed actual sale is not necessary. User in the captive consumption is not determinative but the article must be capable of being sold in the market or known in the market as goods and in the, Ambalal Sarabhai case, the Supreme Court observed that there was evidence in the shape of an affidavit indicating in that case that starch hydrolysate (goods considered in that case) had a propensity of not being marketed, and, on that basis held that the evidence in the form of an affidavit indicating such propensity of goods not being marketed is a good evidence to come to the conclusion, in the absence of evidence contra, that it would be unlikely to be marketable, as it was highly unstable. Therefore, it is evident that one has to look to the propensity of the goods to be marketable. In the present case even according to the appellants, they had, in fact, cleared certain quantities of mother y ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f creditability (see in this connection Union of India v. Delhi Cloth General Mills (supra) - AIR 1963 SC 791". The Madras High Court in the case of M/s. Parry Confectionery -1980 (6) E.L.T. 468 had also placed reliance on such Glossary of Terms following the same Supreme Court decision in the case of Delhi Cloth General Mills. The Madras High Court further observed that the sectional committees of Indian Standard Institution which decide these matters are composed of eminent persons in trade, industry and Government as also consumers and other experts. The Court held, their views therefore deserve acceptance by the court except where there are other strong considerations to the contrary. Similarly, the Hon ble Delhi High Court in the case of Porrits Spencer (Asia) Ltd. v. Union of India - 1980 (6) E.L.T. 679 following the same Supreme Court decision in DCM case held that the opinion of the Indian Standards Institute as expressed in the Glossary of Textile Terms must be preferred to the opinions of other technical experts. Therefore, multi-filament yarn or mother yarn and split yarn or mono-filament yarn figuring separately in the ISI Glossary of Terms must be taken to be two ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case of Kiran Spinning Mills Ltd. v. Collector of Central Excise - 1984 (17) E.L.T. 396 (Cegat) affirmed by the Supreme Court in Collector of Central Excise v. Kiran Spinning Mills Ltd. 1988 (34) E.L.T. 5 to say that the manufacture of split yarn out of mother yarn in their own factory cannot lead to levy separately on both the items as both are yarn. We have carefully perused the decision of the CEGAT and that of the Supreme Court thereon. It is seen that in that case the Tribunal s finding was that the Tariff Item 18-I recognised a single description man-made fibre with no further sub-divisions based on length of fibre without even a distinct enumeration of the various forms of the fibre, whereas in the present case, this Tariff Item 18-II has such a distinction in regard to man-made filament yarn and enumerates other than textured yarn and texturised yarn. We further find that even in the appellant s own case decided by the Hon ble Allahabad High Court -1987 (28) E.L.T. 234 (Allahabad) the High Court held that partially oriented yarn manufactured by the appellants would be classifiable as other than textured yarn and Item 18-II (i) (a)-CET and negatived their contention that i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gement can be worked out within the scheme of Central Excise Act and Rules. However, it is seen that man-made filament yarn under Item 18-II of Central Excise Tariff is not notified under Rule 56A of Central Excise Rules for the purposes of proforma credit. It may even be that subjecting the goods to duty at the stage of multi-filament yarn and again as mono-filament yarn might result in avoidable cascading effect of input taxation on the cost of final product. The appellants have also pointed out that in fact such duty relief was granted to captively consumed mother yarn by Notification 75/88 dated 1-3-1988. But till that time, no such explicit relief had been spe.l.t. out in law and hence, in the absence of such legal provision during the period relevant to this case, and since the Tribunal is a creature of statute and not a court of equity, it cannot, in our view, grant relief which will be beyond the scope of the Central Excises and Salt Act and the Rules made thereunder. 15. As regards the RG-1 stage for accountal of the yarn, the appellants have stated that the Superintendent of Central Excise in his letter dated 16-9-1985 fixed RG-1 at multi-filament yarn stage and that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent to Notification 75/1988. But the Collector here, in the impugned order was not deciding the case relating to that period. Regarding the adjudication order of the Additional Collector on the RG-1 stage, we observe that he had proceeded on the basis that the letter of 16-9-191985 of the department was a clarification that the accounting was to be at split yarn stage. We have, however, found that the letter cannot be taken to have finally determined the issue. Therefore, the argument put-forth in this respect by the appellants are untenable. Yet another contention of the appellants was that manufacture of yarn is complete only when it is wound on cops. Reliance is placed on the Cegat decision in their own case in Order No. 160-161/1988-D dated 17-2-1988. However, we find that the Tribunal had passed this order per incuriam on the information made available before it that levy and collection of duty was only at cop stage and the fact of dispute regarding dutiability of multi-filament yarn, with which we are presently concerned, was not before the Tribunal. Therefore, we have to consider the present appeal on the basis of the facts before us when determining the issue of duliabili ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se Rules, as held by the Supreme Court in the J.K. Spinning Weaving Mills case. In fact, in the letter of the department to the appellants dated 16-9-1985, on which they had so much relied, itself also provides for the procedure to be followed when mother yarn is cleared as such, which is another indication that there were such clearances. 16. Regarding the demand of duty on mother yarn accounted as waste figuring at Serial No. 2 of Annexure 4 to Show Cause Notice, though the appellants placed strong reliance on the Cegat decision in its order No. 160-161/88-D dated 17-2-1988, mentioned above to the effect that waste was only accumulated and not removed and has been recycle for recovery of caprolactum and is fully exempt from duty, we find on the other hand, that their other arguments against this demand on grounds of limitation has a lot of force because when the unit was also under Physical Control during the part of the period, the Show Cause Notice issued on 19-5-1986 for the period 31-1-1985 to 30-9-1985 being beyond six months period under Section 11-A is clearly time barred because the charge of clandestine removal is incongruous in a unit under Physical Control. 17. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... such clearances would be covered by Notification 178/83 because the notification considered by the Collector is one relating to mother yarn used for split yarn and not for any other purpose. In this context, we find that the Allahabad High Court in the appellant s own case reported in 1987 (28) E.L.T. 234 has held that duty is payable only on non-textured yarn before removal and that no duty on textured yarn is payable by virtue of exemption Notification 178/83 dated 1-7-83. The Tribunal also in the case of the appellants in its order No. 185/89-D dated 10-7-89 had held that the department was not entitled to recover differential duty on the basis of the reduced denierage of yarn subjected to draw texturising on the footing that such reduced denierage of yarn was base yarn for purposes of Notification 55/78. Since the ratio of these decisions are directly applicable to the facts and circumstances of the case and this particular demand, the same is not maintainable and is set aside. 20. In respect of the demand for duty at Item No. 6 in Annexure 4 to the Show Cause Notice, goods short accounted for in excise records as compared to the balance-sheet, we find that the demand evident ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on in this records that the filing of classification list in this case followed a visit to the plant by the jurisdictional Assistant Collector, who had seen the process of manufacture. In the circumstances, the demand for duty beyond six months under Section 11-A cannot be made as it cannot be said that the department was totally in the dark about the process of manufacture. Therefore, the demand for duty beyond six moths period is hit by limitation and we hold accordingly. 23. As regards the personal penalty on the appellant, the facts of the case and evidence on record show that the question of liability to duty on mother yarn was a subject of correspondence and the department had before it, several representations in this regard also. There is also no evidence of any clandestine removal of excisable goods. In these circumstances, we are of the view that the imposition, of penalty is unjustified. Accordingly the penalty of Rs. 5 lakhs is set aside. Appeal No. E/3413/87-D 24. The facts giving rise to this appeal are that the officers of the preventive squad of Central Excise Division I, Kanpur visited the appellant s factory on 20-3-1985 and found that the appellant had man ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... departmental specification and therefore, there was no question of any clandestine removal and the department cannot invoke Rule 9(2) for the purpose. He further pointed out that there was a permission granted by the department on 26-2-1985 for such removals. Their submission was that the entry was duly made in t the RG-1 register, which had also been verified by the departmental officers and Shri Santhanam urged that these aspects had not been brought out in the Show Cause Notice. He further pointed out that during the relevant period, there was accounting of both, the mother yarn and the split yarn by the appellants. It was submitted that difference between the quantity accounted as split yarn and the quantity removed on payment of duty was negligible. The period involved was 3-2-85 to 25-2-85 for which the Show Cause Notice was issued only on 24-9-1985. There was no production of mother yarn after 25-2-1985 and on split yarn, duty has been duly paid. It was only on 9-4-86 that the department had given direction that mother yarn was dutiable and was to be accounted for as such. But this position was rescinded and status quo allowed by the Assistant Collector on 11-4-1986 as alre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d stores were checked as a part of Budget day stock taking. We also find that in the RG-1, there is a remark RAR which has been understood by the department as received after reprocessing and this re-processing operation was the splitting of mother yarn. We further find that from 22-3-85 onwards, the Sector Officer had signed after issue of the mother yarn and at the time of its receipt back. Therefore, to say, in the notice issued in Sept. 85 that there has been suppression, does not carry conviction. Further, the removal of multi-filament yarn for splitting has been carried out under physical control under nil AR-1, which would also go against the department invoking the longer period for demanding the duly and for the same reason, no allegation of clandestine removal can also be substantiated. The observation made by the Collector in the impugned order to the effect that the party had also not produced any evidence establishing that the multi-filament yarn manufactured by them had been duly accounted for in their records specially after splitting will also not be sustainable in view of the fact that issue for splitting was under nil AR-1 and its receipt back after splittin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m the cops room. The second charge related to 5625 Kgs. of polyarmide chips not accounted for under Chapter X procedure of Central Excise relating to duty free receipt of inputs for special industrial purposes under exemption notification which was received on 31-1-85 and utilized during the period upto 2-2-85. The duty demanded in this regard amounted to Rs. 15,001.88. The third demand for duty was Rs. 9,96,142/-under Rule 9 and 196 for a quantity of 14,230.600 Kgs. of nylon filament yarn, as being unaccounted quantity, our of a total of36.930.600 Kgs. of multi-filament yarn of 300/15 denier shown in RG-1 issued for splitting during to Feb. to April, 1985 and also 621.370 Kgs. of nylon filament yarn both multi as well as mono, removed without payment of duty and unaccounted in statutory as well as in private records. The Collector adjudicated the case confirming the demand and in respect of the seized 634 cartons of multi-filament yarn, he appropriated Rs. 5 lakhs out of the bond amount executed by the appellants while obtaining provisional release of the goods on their failure to produce it before the Collector. The Collector further imposed a personal penalty of Rs. 10 lakhs on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... separate appeal has been filed by the appellants before the Tribunal in Appeal No. E/1485/88-D. As regards the appropriation of Rs. 5 lakhs against the non-production of seized quantity of 634 cartons of multi-filament yarn, which was seized and provisionally released, Shri Santhanam submitted the mother yarn had been put in cartons in order to protect it from gathering dust and becoming un-workable for split yarn. It was also contended that the goods were found within the factory and seizure thereof was un-warranted. Relying upon the decision reported in 1989 (14) ETR 35 in the case of Hindustan Levers v. Collector of Central Excise, Shri Santhanam therefore, pleaded that the demand for duty on all these counts should be set aside so also the penalty which is very harsh and un-warranted in the facts and circumstances of the case. 30. Shri L.C. Chakraborty, appearing for the department submitted that according to the department, mother yarn is an excisable commodity and its removal from the place of manufacture to the cops room without payment of duty renders the goods liable for confiscation. The cops room was not approved in the ground-plan as a place of production. Rule 9(2) i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... down in this regard by the Tribunal in 1989 (40) E.L.T. 180 (Tri.) = 1988 ECR 357 cited by the appellants that where the revenue proposes to invoke the extended period for demand of duty from a manufacturer alleging suppression, wilful mis-statement of fact etc. on the part of the manufacturer, the notice to show cause should be issued by the Collector and the Show Cause Notice issued in such cricumstances by an officer other than the Collector would not be legal and proceedings in pursuance of such a notice would also be not legally tenable. The Tribunal in that case followed the Gujarat High Court judgment in Gujarat State Fertilizers v. Union of India -1988 (34) E.L.T. 442. Therefore, the demand for duty for the period beyond six months in the Show Cause Notice by the Superintendent is without jurisdiction and must be set aside as invalid. 32. As regards the demand of duty on polymer chips received under Chapter X procedure, it is found that the appellant s case is that the RG-16 entries of receipt and issue of the material has been checked by the Central Excise Officers and that the difference between the quantity of chips and the waste which resulted, is made up of the pipe- ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
