TMI Blog1992 (7) TMI 203X X X X Extracts X X X X X X X X Extracts X X X X ..... ner 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 A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 On 5th May 1983, the Central Government issued another Notification No. 140/83-CE, which superseded Notification 38/83-CE as well as 39/83-CE and provided for exemption for cosmetics and toilet preparations on a slab basis - exempting the first clearances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 e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ellants 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. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lowed 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, dated 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 notic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Mac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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, R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... p 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aw 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uced 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 for the purpose of admissi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ited 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 Notificat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ll 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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