TMI Blog2006 (7) TMI 404X X X X Extracts X X X X X X X X Extracts X X X X ..... 944, determining that the unit should also pay under the said provision, a further, central excise duty amount of Rs. 1,21,76,522/- on 49275.32 kgs. of hosiery knitted fabrics, which were found short in comparison to the balance recorded in the bond register, determining that the appellant unit should pay central excise duty of Rs. 23,49,22,178/- on the fabrics manufactured by the unit on job work, imposing penalty of Rs. 28,92,32,753/- being the total amount equivalent to the total aforesaid duty amounts, and confirming the interest at the applicable rate was chargeable on the amounts of duty determined to be paid by the appellant M/s. Asian Alloys Limited (Excise Appeal No. 3742 of 2003). The other appeal (Excise Appeal No. 3741 of 2003) has been preferred by the Chairman Managing Director of the appellant-company against the impugned order imposing penalty of Rs. Seven Crores on him under Rule 209A of the Central Excise Rules, 1944 read with Section 38A of the said Act. 3. The case of the Revenue was that the appellant-company M/s. Asian Alloys Limited was a 100% EOU engaged in the manufacture of Hosiery Knitted Fabrics and knitted garments as per the permission granted by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on No. 53/97-Cus. dated 3-6-97 (as amended). The appellant-company also procured indigenous capital goods in the said EOU unit valued at Rs. 40,84,681/- without payment of central excise duty under the provision of Form CT-3 . and availed exemption of the duty of Rs. 4,83,115/- under Notification No. 1/95-C.E., dated 4-1-95 as amended. It had also imported raw materials valued at Rs. 24,87,673/- on which duty of Rs. 15,81,096/- was saved in terms of notification No. 53/97-Cus. dated 3-6-97. It had procured indigenous raw materials/consumables like yarn, dyes, chemicals and furnace oil etc. valued at Rs. 2,56,30,952/- without payment of duty of Rs. 44,15,003/- under the provision of Form CT-3 under Notification No. 1/95-C.E., dated 4-1-1995. 4.1 When the excise officers of Anti-Evasion Branch visited the premises of the said 100% EOU unit of the appellant-company on 16-17-6-2000 and the physical stock of the finished goods as well as raw material etc. were verified, it was noticed that there was a shortage of 49275.32 kgs. of hosiery knitted fabrics in comparison with the recorded in balance shown in the bond register, and that there was no stock of raw material and consumables in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Chapter 60 of the Central Excise Tariff Act, 1985 in relation to products referred to in Chapter 60, bleaching, mercerizing, dyeing, printing, water-proofing, shrink-proofing, tentering, heat setting, crease-resistant, organdie processing, or any other process, or any one or more of these processes shall amount to manufacture. 4.4 On being enquired about the total quantity, value and composition of the hosiery knitted fabrics, which were processed/manufactured on job work basis, the plant and machinery, the appellant-company could not submit any particulars, and the Chairman Managing Director stated that the fabrics received by the said unit for job work were of mixed type and he was not aware of the quantity and value thereof and it could not be ascertained, because no such record was ever maintained by the unit. 4.5 The Revenue, therefore, made enquiries from seventeen domestic parties who had purchased the fabrics from the said 100% EOU unit of the appellant-company or got their goods processed/manufactured on job work basis. The exact quantity/value and composition of the fabrics processed on job work basis was not disclosed either by the Chairman Managing Director of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... had also violated the provisions of Rules 100A to 100F as well as the provisions of sub-paragraphs (a) (b) (c) (d) of paragraph 9.9 of the EXIM Policy 1997-2002, and also violated the conditions of the permission as well as the legal undertaking and the bond executed by the appellant-company in favour of the department. 5. Initially, the matter came to be decided ex parte, because the appellants did not respond to the show cause notice. However, on remand from this Tribunal, the matter was re-heard and the appellants filed their reply. It was pleaded by the appellants that right from the beginning they faced serious financial problem and could not stabilize the quality in the beginning. They could start the fabric division only in the year 1997-98 and in the first year they were only manufacturing the un-processed fabric. The facility of dyeing, bleaching etc. could be started only from the financial year 1998-99. The garment unit, however, was not started at all. According to them, due to paucity of funds, they could not import the machinery/capital goods for the manufacture of garment unit. Thus, due to acute financial problems they could not commission the garment unit, and th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in utter disregard of the applicable laws. It was held that applicability of the proviso to Section 3(1), was fully justified and the unit, in view of the unlawful acts of commission and omission, deserved to be penalized in accordance with the provisions of the applicable laws. As regards the manufacturing processes on job work basis done by the company s EOU, the Commissioner held that the basic facts were not disputed that the fabrics were processed on job work basis and cleared in the manner alleged by the Revenue. It was held that since the unit was established under 100% EOU scheme on obtaining LOP, on execution of requisite undertaking/bond and on procuring the capital goods by claiming the exemption under the notification applicable to 100% EOUs, the premises of the unit was a bonded warehouse and the process undertaken in those premises amounted to manufacture in a bonded warehouse. It was not open to the unit to clear any goods manufactured in those premises under the said scheme. The unit had also procured dyes chemicals and furnace oils etc. valued at Rs. 2,81,18,625/- which were used in the processing work. As regards the contention, that the exact quantum of fabrics s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and without ascertaining those particulars, the duty was worked out on an inflated basis. It was argued that if the proviso is held to be applicable to the goods manufactured/produced and removed by the said EOU then the benefit of the Notification Nos. 8/97-C.E. and 2/95-C.E., ought to have been extended for the purpose of effective rate of duty. He then argued that the department had relied upon some bills of entries of hosiery knitted fabrics, though the appellant had done the manufacturing process within the meaning of Note 4 of Chapter 60, which may have included only dying and processing the yarn without any further manufacturing process of making fabrics. The learned Counsel further argued that, in any event, the price of goods received by the appellant should be treated as cum-duty price which aspect was not considered by the learned Commissioner. On the aspect of penalty, it was contended that Rule 173Q, which was in Chapter VIIA of the Rules could not be invoked in cases which were covered under Chapter VA of the Rules and therefore, the penalty imposed under Rule 173Q cannot be upheld. 7.1 The learned Counse1 for the appellants relied upon the following decisions in su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the order of the Commissioner specified which particular clause of Rule 173Q had been allegedly contravened. (iv) The decision of the Tribunal in T. Gayathri Reddy v. Commissioner of Customs, Guntur reported in 2003 (159) E.L.T. 1034 (Tri.-Chennai) was cited for the proposition that penalty under Rule 173Q was set aside on the ground that Rule 173A excluded applicability of the provisions of Rule 173Q to 100% EOU. (v) The decision of the Tribunal in Alsa Marine Harvests Ltd. v CC, Visakhapatnam reported in 2003 (158) E.L.T. 741, was cited for the same proposition that penalty and confiscation under the provisions of Rule 173Q cannot be upheld since chapter VA of the Central Excise Rules, 1944 was applicable to removal from EOU unit. The decision of the Tribunal in La Mansion Granites Ltd. v. Commissioner of C. Ex., Hyderabad reported in 2003 (157) E.L.T. 115 (Tri.-Bang.), was also cited for the same proposition. (vi) The decision of the Tribunal in Modern Denim Ltd. v. Commissioner of Central Excise, Ahmedabad reported in 2005 (191) E.L.T. 1174 (Tri.- Mumbai) was cited for pointing out from sub-paragraphs (f) to (h) of paragraph 2.1 of the order that the Larger B ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts EOU. The learned Counsel submitted that the Division Bench in Himalaya International Ltd. v. CCE, Chandigarh, reported in 2003 (156) E.L.T. 773 (Tribunal) = 2003 (58) RLT 613 (CESTAT-Del.), after the decision of the Larger Bench on the issue referred to it as to the applicability of the proviso to Section 3(1) to 100% EOUs, had proceeded to decide the matter on the aspect of effective rate of duty under the proviso to Section 3(1) which, according to the assessee in that case, was required to be decided on the basis of Notification No. 13/98-C.E., dated 2-6-98. The Division Bench upholding this contention held that it did not find any scope for dispute on that point and that duty was leviable at the effective rates of duty and not the tariff rates. It was held that relief was warranted on this score, and therefore ordered that the jurisdictional authority shall work out the duty demand on the goods cleared to the DTA at the effective rates provided under the Notification No. 13/98-C.E.. The Commissioner had appealed against that decision and the Hon ble Supreme Court, on 11-10-2004 disposed of the appeal by setting aside the impugned judgment, which obviously means that the deci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cum-duty price will not apply in this case because the assessable value was required to be determined on the basis of import price of similar finished goods under the proviso. It was also submitted that for working out the assessable value, CIF value, less import duty was taken into account and therefore, the concept of cum-duty price cannot apply in the instant case. The learned Counsel further contended that since the goods were not allowed to be sold in India as contemplated by the provision of the policy as well as the notification and the rules, there was no question of giving benefit of the notification of effective rate of duty for those EOUs, which are allowed to sell the goods in India. It was submitted that the very fact that the appellant has claimed the benefit of the notification postulates applicability of the proviso to Section 3(1) because, the notification has been issued describing effective rate of duty only in the context of the proviso. It was further contended that though Rule 173Q was mentioned in the show cause notice, it should be read as Rule 209 which was in similar terms and the ingredients of which were set out in the show cause notice and that there ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 399), was cited for the proposition that if the authorities have the power to issue notice either under Rule 10A or Rule 9(2) of the Central Excise Rules, 1944, the fact that the notice refers specifically to a particular rule, which may not be applicable, will not make the notice invalid. (See para 14). (v) The decision of the Hon ble Supreme Court in P. Balakotaiah v. Union of India and others, reported in AIR 1985 (Vol. 45) 232 (S.C.), was cited to point out from para 10 of the judgment that, when an authority passes an order which is within its competence, it cannot fail merely because it purports to be made under a wrong provision if it can be shown to be within its powers under any other rule, and that the validity of an order should be judged on a consideration of its substance and not its form. (vi) The decision of the Larger Bench of the Tribunal reported in Himalaya International Ltd., v. CCE, Chandigarh, reported in 2003 (154) E.L.T. 580 (Tri.-LB), was cited for the proposition that the rate as per the proviso to Section 3(1) would be applicable for assessing all the excisable goods which were cleared by 100% EOU to DTA whether in terms of permission granted or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ule to the Central Excise Tariff Act, 1985 to be levied (i) There shall be levied and collected in such manner as may be prescribed duties of excise on all excisable goods other than salt which are produced or manufactured in (India) and a duty on salt manufactured in, or imported by and into, any part of (India) as, and at the rates, set forth in the (Schedule to the Central Excise Tariff Act, 1985) : Provided that the duties of excise which shall be levied and collected on any excisable goods which are produced or manufactured, - (i) in a free trade zone and brought to any other place in India; or (ii) by a hundred per cent export-oriented undertaking and allowed to be sold in India, shall be an amount Equal to the aggregate of the duties of customs which would be leviable under section 12 of the Customs Act, 1962 (52 of 1962), on like goods produced or manufactured outside India if imported into India, and where the said duties of customs are chargeable by reference to their value; that value of such excisable goods shall, notwithstanding anything contained in any other provision of this Act, be determined in accordance with the provisions of the Customs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... On the aspect of removal of goods on payment of duty, Rule 100D provided that when a manufacturer desires to remove excisable goods from a 100% EOU to any place in India, he was required to make removal of such goods under an invoice signed by the owner of the factory or his authorized agent and it was required that such invoice shall indicate the value of goods and duty involved separately, and also give particulars as may be specified by the CBEC or Commissioner and the triplicate copy of the invoice shall be forwarded to the proper officer within twenty-four hours of the removal of the goods. Rule 100E in terms provided that no excisable goods shall be removed inter alia from a 100% EOU to any other place in India except on payment of duty of excise leviable on such goods and under an invoice, signed by the manufacturer or his authorized agent. Sub-rule (2)(a) of Rule 100E provided the manner in which such invoices were prepared and its particulars provided for. These rules and other provisions of Chapter VA have to be read for giving full meaning to the expression allowed to be sold in India, occurring in the proviso to Section 3(1) of the Act. Admittedly, none of the provisi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al Excise Rules, 1944 which was specifically enacted to deal with such removal for home consumption from 100% EOU. It would appear from the provisions of the EXIM Policy relating to the EOU scheme and the contents of the proviso to Section 3(1) read with Chapter VA of the Rules that, even to the limited extent to which the goods were allowed to be sold in the DTA under the policy itself, the requisite permission from the concerned officer was required in accordance with Chapter VA for their being treated as goods allowed to be sold in India under the proviso to Section 3(1). These concessions of sale of such goods, were subject to the condition that, the excise duty payable thereon would be the amount of Customs duties that would be attracted to such like goods when imported. The rationale behind this provision is obviously to prevent the abuse of the concessions given to those who set-up such EOU units. The scheme was intended to boost up exports and the very purpose underlying the scheme would be frustrated if a unit purported to have been set-up for genuine exports is allowed to divert its production to the DTA by simply paying duty under Section 3(1) read with the Schedule to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aid proviso, much less setting aside the finding given by the Larger Bench on the issue of law, which was decided in favour of the Revenue and could not have been challenged by the revenue it its appeal. 13. In our opinion, the Tribunal has correctly held in Sterlite Optical Technologies Ltd., v. CC CE, Aurangabad (supra) that the contention that Larger Bench decision in Himalaya International Ltd., on the issue of law was set aside by the Hon ble the Supreme Court was factually not correct. The Bench observed that the policy governing the EOU scheme stipulated the extent to which goods could be removed from EOU either under the specific permission or general permission provided under the policy, and rejected the plea that the goods removed without being allowed to be sold were exempt from payment of duty under Notification No. 125/84-C.E. 14. According to the learned Counsel for the appellants, if the proviso to Section 3(1) of the said Act is attracted, then the appellant-company should be given the benefit of the aforesaid notifications which will have the effect of attracting the normal excise duty as per the provision of Section 3(1) read with the Schedule to the Central E ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion of the correct provision will not vitiate the proceedings. There is no dispute about the fact that the ingredients of Rule 173Q(1)(a) and Rule 209(1)(a) are similar and that the provision regarding confiscation and penalty for the breaches dealt with in these two rules are almost identical. Rule 209(1), inter alia, provides that notwithstanding anything contained in any other provision of these rules save and except Rule 173Q, if any manufacturer, producer, registered person of a warehouse or a registered dealer, removes any excisable goods in contravention of any of the provisions of these rules, then all such goods shall be liable to confiscation, and the manufacturer, producer, registered person of the warehouse or a registered dealer as the case may be, shall be liable to a penalty not exceeding three times the value of the excisable goods in respect of which any contravention of the nature referred to in clause (a) or clause (b) or clause (bb) or clause (c) or clause (d) has been committed, or five thousand rupees, whichever was greater. Even in Rule 173Q(1)(a), it was provided, in the same vein, that subject to the provisions contained in Section 11AC of the Act and sub- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he reasoning adopted by the learned Commissioner for confiscating the goods and imposing the penalties on the appellants under the impugned order. 16. The Commissioner took into account the relevant material including the statements of as many as seventeen customers of the 100% EOU to whom the appellant had sold the goods in the DTA through its dummy unit, and also relied upon the other relevant material for working out the value of the goods diverted by the said 100% EOU to the DTA. The contention raised on behalf of the appellant that the Revenue should have enquired about the material which was supplied for job work to the said 100% EOU unit, for working out the correct value of the hosiery knitted fabric goods sold by the said EOU in the DTA has no substance, because as per the proviso to Section 3(1), it is the value of the imported like goods, namely, hosiery knitted fabric imported which was required to be taken into account. As noted above, the proviso to Section 3(1) is only a measure of excise duty attracted in cases when the excisable goods, which are produced or manufactured by 100% EOU are allowed to be sold in India. The amount of excise duty in such cases is to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e and the duty liability should be worked out on that basis. In this context, it appears from the decision of the Mumbai Bench of the Tribunal in Nagreeka Exports Ltd. v. Commissioner of Central Excise, Pune, reported in 2003 (159) E.L.T. 891 (Tri. Mumbai), that in Paragraph 11 of the judgment it has been held that if duties and taxes have not been realized separately, the sale price has to be treated as cum-duty price and duties and taxes have to be deducted to arrive at the assessable value in such case. The Tribunal was dealing with the contention that the price which was realized by the appellants on DTA sales be taken as cum-duty price and the assessable value and the duty amount have to be worked out from the same. It however, appears that the issue of clandestine removal and its impact on the claim for treating price as cum-duty was neither raised nor considered by the Tribunal in that order. In the present case, there is absolutely no material on record to indicate that the price charged by the 100% EOU unit of the appellant was a cum-duty price. Even in the decision of the Hon ble Supreme Court in Commissioner of Central Excise, Delhi v. Maruti Udyog Ltd., reported in 2002 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any duty amount, because when the appellant-company had itself proceeded on the footing that no duty was payable, there was no question of its having recovered any cum-duty price from these customers in the DTA. Therefore, the facts of the present case fall on totally a different footing than the cases on which reliance was sought to be placed on behalf of the appellant. There is no scope in the present case to treat the sale price worked out for assessment as cum-duty price. 19. We do not find any reason to interfere with the quantum of penalties imposed on the respective appellants as, in our opinion, having regard to the magnitude of the violations committed, they are in no way excessive and we find absolutely no warrant for reducing the penalty amounts in any of these appeals. 20. For the foregoing reasons, we do not find any substance in the above contentions raised on behalf of the appellant. Both these appeals are, therefore, required to be dismissed. Excise Appeal Nos. 3743-3744 of 2003 21. Excise Appeal Nos. 3743 and 3744 of 2003 have been preferred against the impugned order dated 9-9-2003 by which the Commissioner made an order determining and demanding Customs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d that the conditions of Notification Nos. 53/97-Cus. and 1/95-C.E., were infringed by the appellant companies 100% EOU. The impugned capital goods were rightly held to be liable to confiscation under Section 111(o) of the Customs Act, and indigenously procured goods liable to confiscation under Rule 173Q which should be read with Rule 209 in view of our reasons given above. It has been rightly held that the appellant s Chairman Managing Director of the unit could not have been ignorant of all the transactions and he knew that the unit had an obligation to export the whole of the goods produced by it and that the impugned capital goods not used for the specified purpose were liable to be confiscated. We do not find any valid reason to interfere with the impugned decision on any of the arguments put forth by the learned Counsel on behalf of the appellant. We are in full agreement with the reasoning and findings given by the Commissioner in both these appeals. Both these appeals are, therefore, liable to be dismissed. 24. We, therefore, pass the following order :- All the four appeals (Excise Appeal Nos. 3741 to 3744 of 2003) are hereby dismissed. (Dictated and pronounced in t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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