TMI Blog1997 (9) TMI 550X X X X Extracts X X X X X X X X Extracts X X X X ..... ctually below 640 denier and liable to a higher rate of duty, the difference being Rs. 46.50 per kg. He has consequently demanded duty of approximately Rs. 2.68 crores. He has found that appellants could not account for 124 M.Ts. of polyester chips, principal raw material for POY and concluded that 119.6 M.Ts. of yarn has been manufactured out of this quantity of raw material and cleared by the appellant without paying duty of approximately Rs. 1.00 crore. He has found that during stocktaking of the finished goods in the appellant s factory, there was an excess of 4.347 M.Ts. of POY of certain denier over the balance in the R.G.I Register and a shortage of 1.946 M.T. of certain other deniers. He has confiscated the goods in excess with an option to redeem on payment of fine of Rs. 1.00 lakh and demanded duty of approximately Rs. 1.63 lakhs. He has imposed the following penalties. Rs. 50 lakhs under sub-rule (1) of Rule 173Q; Rs. 1,000/- under Rule 226; Rs. 500/- each under Rule 52 and sub-rule (2) of Rule 9; He has confiscated the plant and machinery, with an option to redeem payment of Rs. 50 lakhs. 3. Notice and a Corrigendum was issued in August, 1984, and first adjudi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7. It has been the appellant's contention throughout the proceedings that allowance has to be given for shortages on account of pilferage (16.957 MTs), presence of dust removed by cleaning the chips before they are processed (23.698 MTs); moisture contained in the chips lost by driage (46.904 MTs), invisible losses in the form of spillage, etc. (9.475 MTs). 8. The appellant had claimed insurance in 98 claims from the insurers on the grounds of pilferage, i.e. on the grounds that chips were pilfered during transit from the ships from which the chips were unloaded on the Bombay Port Trust docks to its factory. The appellant had not taken this pilferage into account while entering the entries of raw material received in the form of register. An affidavit of G. H. Padlya, an employee, was filed before the Director in support of its contention. In this affidavit Padlya had said that claims were filed for 16,957.200 kgs of chips pilfered and that as a result, the insurance company passed our claim for Rs. 21,77,543.04 . He added "This amount includes not only payment of pilferage of 16,957.200 kgs. but also certain quantity of chips which were contaminated". He had attached a tabulate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dated 10th May, 1985 from M/s. Didier Engineering who had helped to set up its plant. In the letter, there is a statement that in the process of drying chips in cyclone apparatus, dust is extracted from the chips and into dust bins. The letter explains that the percentage of loss on this account will vary according to the quality and uniformity or lack of it of the shape and sizes of the chips, but suggested a possible maximum of 0.5%, with a range of 0.2% to 0.3% in case of reasonably good quality of chips. The appellant had relied on an affidavit dated 25th June, 1987, of J.H.W. Rink of Didier Engineering in support of the contention that there would be a loss due to moisture contents of approximately 0.5%; that polyester chips during production handling and transportation absorb moisture to the extent of approximately 0.5% and that during the process of drying the moisture is removed in order to ensure a maximum content of 0.005% (normally lower) before spring is commenced. The Director has not accepted this contention on the ground that no literature about the plant was produced; that the loss of weight during driage would be made good when the yarn produced cools and reabsorbs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... between manufacture of polyester chips and their drying in the spinners plant. This finding of the Director falls for want of substantiation. 11. It is interesting to note that the Director does not advance the same argument to the appellant s claim to the extent of 0.25% on account of loss of, dust from the polyester chips from the cyclone separator. This contention too was based only on the letters of Didier Engineering, written in May, 1985. The Didier accepts this claim straightaway. Hence we do not see why the other claim on account of moisture should be differently treated in the absence of any specific material to substantiate such rejection. 12. During the proceedings before the Director, the appellant had stated that it used 37.902 MTs. of spin finished oil which was coated on the yarn after it was spun. This quantity was added to the quantity of polyester chips in arriving at the total quantity of raw materials found unaccounted for. Therefore, when the Director says that the shortage on account of dust removal is of set by the addition of spin finished oil, and in real terms, there is no loss, he ignores the fact that spin finish oil has already been separately consi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s itself accepted that losses in raw material have taken place at other times in the appellant's factory on account of the reasons claimed by it. 16. The next ground for demand of duty is that the appellant cleared yarn of denier below 640 as yarn of 755 denier on which the duty was less by Rs. 46.25 per kg. Denierage is the standard of the fineness of synthetic or silk yarn and a denier is defined as its weight in grams of 9000 metres of yarn; hence the lower the denier, the finer the yarn. Polyester yarn was liable for duty at the relevant time at various rates as specified by notification. At the relevant time rates of duty notified were as follows : Below 350 deniers ... Rs. 90/- per kg. 350 - 750 deniers ... Rs. 65/- per kg. Above 750 deniers ... Rs. 18.75 per kg. The allegations is that the appellant misdeclared the yarn of lower denierage as that of 755 denier, of which the rate of duty was much lower. The allegation relates to the POY manufactured and cleared. Texturised yarn at the relevant time was exampted from duty. The notice alleges the misdeclaration on three counts each of which we will proceed t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... there is no much difference between a 160/2 two-ply textured yarn and a 320 denier single ply textured yarn, the market nevertheless was more at ease with the terminology 160/2. Accordingly, to overcome market resistence, Orkay started calling its singly ply 320 denier textured yarn made from 755 denier POY as textured yarn of denier 160/2. I say that when texturising units of Orkay Group of Industries started making single ply 320 denier textured yarn from POY of 755 denier they did not discontinue the manufacture of two ply yarn. However, most of the two ply yarn was consumed by Orkay Silk Mills Limited themselves in their weaving unit at Sakinaka and in Job workers' whereas single ply 320 denier textured yarn described as 160/2 was mostly sold in the market. Negligible quantity of two ply yarn was also sold in the market. This is because two ply yarn gage a slightly better feel and finish and Orkay was, manufacturer of high quality fabrics thereon market was having single singly ply 320 denier because of price differential. I say that there was a price differential of about Rs. 30/- per kg. between a two ply textured yarn of 160 denier each ply and a single ply 320 denier text ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to a weaver between double ply 160 denier yarn and single ply 320 denier yarn. The department had recorded the statements of various persons in their enquiries into this aspect, H.B. Vyas, the Managing Director of the Bombay Silk Mills; S.K. Mahajan, partner of M/s. Mahajan Silk Mills; B. Mehra, Partner Subodh Textiles; M.D. Mutreja, Trustee of Paramount Silk Mills; Z. Cherian, Weaving Master, Champak Textiles; V.C. Jain, Karta of Bharat Silk Mills; S.M. Kejariwal, Proprietor, S.K. Textile Mills; Ashok Arora, Proprietor of Gauri Silk Mills. The relevant portion of the statements are summarised below: Vyas - I received two lots of polyester yarn described as 160/2 deniers. I understand 160/2 denier - as being 160 denier of 2 ply or 320 resulting denier. S.K. Mahajan - We manufacture suiting and shirting of synthetic blended fabrics in our unit. Since 1982 we have received two consignment of 160/2 texturised/polyester yarn from Orkay, order was placed for 160/2 denier double ply yarn. Samples of the yarn showed 160/2 deniers. B.P. Mehra - In order to make suiting in our unit we buy yarn of denierage 150, 150/2 etc. We buy from Reliance Textiles and Orkay, etc., through our prog ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed in using two plies and it was higher in 1983-84 also on account of duty difference on POY. I am aware that both Orkay and Reliance Textiles have marketed single ply 320 yarn as 160/2 denierage. We have purchased from Orkays and from Reliance through their Agents 320 deniers single ply texturised yarn described as 160/2. S.K. Mahajan - It is correct that, texturised yarn described as 160/2 in Invoice 928 could not have been double yarn made by doubling two plys of 160 deniers each. Although I had said in my statement before the Central Excise Officers that yarn purchased by me is described as 160/2 does not appear to be two fold yarn. The statement was made on the basis of records available. Afterwards a sample was drawn and I saw that it was not two fold yarn. B.P. Mehra - Resultant denierage of 160/2 single ply is the same as 320 denier single ply texturised yarn and for all practical purpose there is hardly any difference between these two. I agree the yarn sold to me by Orkay though described as 160/2 deniers was not 160/2 deniers double ply yarn, but was in fact 320 deniers single ply texturised yarn. Orkay were fooling us by describing 320/1 as 160/2 deniers textursie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs single ply and 160 deniers two ply. Arora was a job worker for Orkay and so did not pay for the yarn that he received. Others have in effect said that there is no such difference; that yarn of 160 deniers could not have been sold for its price at which they bought the yarn described as 160/2 denier; that physical examination would be required before determining the denierage and number of plies and it made no difference to the users whether the yarn is 160/2 deniers or 320 deniers single ply. The Director has either not referred to the depositions in cross-examination of those witnesses which were in favour of the appellant or dismissed them by saying that no person in the market would accept the yarn described as 160/2 when it was actually 320 deniers and by saying that they have not given satisfactory answers. That the last statement is incorrect is evident on reading the record of cross-examination. It is also evident from the deposition of some of the witnesses that the same practice was being followed by M/s. Reliance Textiles Industries. All but two more witnesses on whose statement the Department relied have not stood the test of cross-examination. On the contrary they ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Y was a yarn at lower rate of duty compared to POY of 640 denier as it is only POY of 640 denier which could be drawn into texturised yarn of 160 denier. Therefore, I find that they have misdeclared the denierage of 640 denier yarn as 755 denier and have thus evaded duty. In view of findings herein above I do not rely on the test reports and the evidence in cross-examination of the Deputy Chief Chemist before me. Further, the search of assessees premises was conduced on 26-3-84, and in view of the fact that I am not relying on the results of any test report, it is not relevant from where and when the samples were drawn. The assessees conduct in not maintaining and keeping the sanctity of records leads me to believe that the officers have also not relied upon drawing the samples from the assessees captive texturising units in and near its premises. In any case, the non-drawal of sample from the assessees premises does not alter the situation as nothing important turns on it in view of the other material collected and relied upon in the show cause notice. 23. The Departmental representative contended before us that even if the Director had relied upon the test report, the con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pted that there was no equipment in the laboratory where it was tested to count number of filaments in the yarn. He further said that the yarn was actually tested by Khandekar. He was given by the advocate for the assessee, two samples. The record shows that he separated one of the two samples into two plies easily and instantaneously. He was unable to separate a sample marked DV into two such separate plies. Khandekar too was unable to separate the two plies, in sample DV, was able to separate the plies in the other sample (D-l). Khandekar too performed in the same manner with regard to the two samples, placed before it. These two samples also corresponded to the samples DV Dl. Record indicates that the sample DV was from the sample of the yarn covered by 985 sold to Bombay Silk Mills. This is the sample that was in dispute. We have to recall at this stage that Hemanir Vyas in his cross-examination had specifically stated that the yarn covered by Invoice No. 985 was single ply yarn. 27. It would be seen that this is the reason for which the Director has chosen not to rely upon the test reports. Out of the three samples relied upon in the test-report, the Department was not abl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ellant relates to the excesses and deficiencies which are alleged to have been found in the stock of excisable goods during the stock taking which was conducted. The Director has found that the stock taking showed excess of 27 M.Ts of POY of same denierages and a shortage of 9.946 M.Ts of other denierage when complied with the production in the RG-1 register. It is the appellants contention that eleven different teams of officers were simultaneously taking stocks of the yarn lying in different places of the factory, that each team made summary of the quantity of stock verified by it, grouping it into denierage and that because of the fact that there were so many officers conducting stock taking at one time, and an absence of effective co-ordination of each team, the shortages and excesses state to have been noticed are in fact non-existent. The appellant cross-examined S.C. Bhide, Senior Intelligence Officer who was in charge of stock taking. It was put to him that the weight of yarn in each carton was shouted out by a labourer of the appellants and written down by an officer and that as a number of such teams were doing this at the same time, there were errors in recording the ent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng call for reverification on the grounds that were subsequently urged. On balance, therefore, we have to confirm the Directors finding we have to verify the correctness except for the errors pointed above. There is however no material to support the contention that the shortage and excess were deliberate in order to evade payment of duty. 33. The other appeals are by Orlando Synthetic Industries Ltd., K.D.B. Crimping Dyg. Bleaching, Paramount Synthetics P. Ltd., Orkay Polyester, Orkay Textile Corporation and Orkay International. These 6 Appellants were texturising units i.e. to say, they received POY and texturised yarn. At the relevant time texturised yarn was exempted from payment of duty, provided that it had been manufactured out of POY on which duty had been paid. The notification 178/83, which contained this exemption, also contained a presumption that all stocks of filament yarn, other than texture, except such stocks as are clearly recognisable as being non-duty paid, shall be deemed to be filament yarn, on which appropriate duty has been paid. The charges against these appellants are that they manufactured texturised yarn out of POY on which duty was not paid. The all ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stock of POY from Orkay Investment has not been dealt with by him. Therefore, independently of finding with regard to the first appellant, the benefit of doubt has to go to this appellant. Except for Orlando Synthetics Industries Ltd. and K.D.B. Crimping Dyeing and Bleaching, the findings against the other units are identical quantity of pressurised yarn manufactured by them is greater than the quantity that could have been made out of the POY established to have been received by them on payment of duty and the excess had been manufctured out of non-duty paid POY. In the case of Orlando Synthetics Industries Limited and K.D.B. Crimping Dyeing and Bleaching, the Director agrees that the production of texturised yarn is less than the total quantity of POY received and drop charges against it. It would, therefore, follow that no action can be taken against these two. However the Director has ordered confiscation of POY lying in the premises of both these units. No reason is forthcoming for such confiscation, and following on his finding with regard to these units, the confiscation has to be set aside. 37. As for the other three, the Director has nowhere considered the contention th ..... 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