TMI Blog2010 (12) TMI 673X X X X Extracts X X X X X X X X Extracts X X X X ..... spondent. [Order per : P. Karthikeyan, Member (T)]. The captioned appeals are directed against the order of the Commissioner of Central Excise and Customs, Visakhapatnam. One of the appeals is filed by the Revenue. The period of dispute is from 1999 to 2002. Appellant assessee M/s. Sri Varalakshmi Jute Twine Mills (P) Ltd. (SVJT), is an EOU engaged in the manufacture and export of jute yarn. The impugned order decided the following proposals against SVJT (as appearing in the order). (I) Demand of duties on clandestine removal of 501.175 MT of jute yarn during 1999-2000. (II) Demand of duties on 209.095 MT jute yarn diverted from EOU to the DTA unit without payment of duty during the period June 2000 to September 2000. (IIIA) Demand of duties on 489 MT jute yarn diverted from EOU to the DTA unit without payment of duty during July-August, 2001 January 2002. (IIIB) Demand of duties on 160.612 MT of yarn manufactured in the EOU out of imported raw jute and cleared to two specified customers located in Alleppey market without payment of duty. 2. After due process, the Commissioner passed the following orders : (1) Demanded an amount of Rs. 28,95,628/- (Rupee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n in weight arising in packing. 28 tonnes were claimed to have been cleared in excess @ 1.5 kgs for accounted clearance of every 50 KGs of jute yarn. No reasons were attributed for shortage of 171 tonnes. 4.2 The Commissioner found that the daily production reports gave complete details of the jute converted into yarn and would not miss information relating to reprocessing and rewinding. There was no record of quantity re-wound. At the end of each month, a computerized summary of the production was prepared count-wise. The computerized summary recorded the efficiency against the target in production and also gave the total production during the month. There was no record of any rewound or reprocessed quantity in these statements. In fact, the production reports at the end of the month showed the average production per day arrived on the basis of the total production for the month. If the production reports included the reprocessed or rewound production too, the production reports would show such production. The manner in which the monthly abstract in the production reports was shown, did not admit of any chance for such inclusion. The production reports contained the details of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e period May 99 to Feb 00 and the same were found to tally with the corresponding figures in the Daily Production Reports. Thus, there was no doubt that the production reports contained the actual finished production. The only process left was of packing. There was use of unaccounted raw jute when the production reports recorded only the primary production without any rewinding or reprocessing quantity. 4.5 The unaccounted clearances were identified to be of yarn marked SL in the assessee s records. The monthly computerized statements showed the production of same count under two different categories e.g. 8 lb 8 lb SL. During the period April to August, 99 there was only export and no domestic clearances. The production trends showed that SL marked counts had been mostly manufactured in the period April to August (except for 21 lb) during which period there was no (recorded) DTA sale. Therefore, during the period April to August, the difference in these counts led to the logical conclusion that the excess unaccounted production indicated as SL had been removed in the domestic market without payment of duty by the EOU. 4.6 The DGM of the assessee, in his statements dated 7 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... documented evidence. He found that there was no rebuttal to the charge. The assessee had claimed that out of the 209.905 MTs, only 29.85 MTs had been manufactured using imported jute mix and that the remaining 180.01 MTs were manufactured out of indigenous raw material. In this regard the Commissioner entered the following finding. I find that it is evident from the records that the counts 20 lb/17.5 lb could not be and were not produced in the DTA unit. These are, however, recorded in the RG-1 of the DTA unit. There is affirmative evidence for the diversion of the production to the DTA unit by way of the group consumption reports for the months of June, 2000 to September, 2000. The production reports for the 100% EOU give the details of the Order No., as discussed in para 28 of the notice. The details reveal that the 100% EOU had manufactured 47.5 MT of 20 lbs/17.5 lbs during the period 1-6-2000 to 20-7-2000 for Alleppy Market/The Konchery Coir Factories and the same are indicated by marks like Alle , KON . The clearances made to the customers in the Alleppy market during this period by the DTA unit are also found to be 47 MT. Therefore, the production recorded in the RG-1 of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the EOU and the DTA. The Commissioner rejected this argument of the assessee as untenable. Relying on the spinning working reports, he found the spinning frame allocation to the DTA unit and EOU to be fixed. The spinning frames installed in the DTA could not be used for manufacturing higher counts. This was further corroborated by the statements of the production staff. Though the show-cause notice relied on the spinning working reports for the period 25-5-2002 to 31-7-2002, yet the spinning frame allocation for the specified counts being fixed and in the absence of any evidence of any change in the allocation, the Commissioner relied on the spinning working reports for finding use of specific spinning frames in the EOU. He noted that the spinning working reports for the various dates for the period 25-5-2002 to 31-7-2002 contained details of counts produced on each of the 18 frames maintained on hourly basis. The Commissioner found that these reports indicated that SVJT consistently utilized frames 9 to 18 in the EOU. Rebutting the argument with reference to the ground plan etc., the Commissioner found as follows : Their contention that the statements given by their product ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee has sold 122.479 MT to two 100% EOUs at Alleppy/Cherthala in Kerala. The final status of the goods supplied to the two 100% EOUs has been verified from the jurisdictional Assistant Commissioner; Ernakulam-II Dvision, Kochi, who vide his letter C.No. VIII/48/1/2005 dated 18-3-2005, has confirmed that a quantity of 103.341 MT of jute yarn has been received by M/s. N.C. John Sons (100% EOU) under the said invoices and a quantity of 19.138 MT has been received by Extra Weave (100% EOU) and finally used in the manufacture of the goods exported by them. As per para 6.9 of the EXIM Policy 2002-07, supply of goods from one EOU to another EOU is accorded deemed export status. Therefore, in the present case, since the supply is by the 100% SYJT to another 100% EOU, but under the invoices of the DTA unit of SYJT, I hold that the clearances to that extent i.e. 122.479 MT shall not be liable to duty. However, for removal of the goods to the DTA unit in gross violation of the procedure for the 100% EOU, they shall be liable for penal action. 7.1 The Commissioner found that a quantity of 38.133 MTs was manufactured also using imported raw jute rejecting their claim that their liability wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f duty on 448.248 MTs of Jute yarn held to have been cleared clandestinely by the adjudicating authority based on comparison of monthly abstracts compiled from DPRs and the RG-1, the assessee has raised the plea that DPR figures were an approximation whereas RG-1 reflected the production particulars ascertained on actual weighment. Moreover, there used to be rejection of spools of yarn that emerged from the precision winding machines, which got reprocessed or rewound. The DPRs showed these quantities also as fresh production which did not get reflected in the RG-1. It was claimed that shortage of a total 343.23 MTs was on account of quantity of yarn rewound and reprocessed without there being fresh production of the said quantity. About 0.5% of the production reflected in DPRs was attributed to variation in weighment. Another 0.5% loss was associated with packing. This accounted for 59 tonnes each during the material period. 28 MTs. were claimed to be cleared in excess when duty paid clearances were made. This was at the rate of 1.5 kg. for every 50 kgs. Assessee s quality policy and instances of rejection of consignments for poor quality by its customers are cited to claim that RG ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... same was in the Domestic unit or in the EOU. The demand was, therefore, confirmed on an unreliable premise. The Commissioner had wrongly ignored the quality control reports maintained by the assessee. The quality control reports showed the dates on which the imported jute mix was used. The impugned clearances had to be quantified with reference to these reports. The officials of the company had given incorrect information regarding spinning frame allocations. The Commissioner had found that 11.74 MTs of imported raw jute was diverted to the DTA and directed the Assistant Commissioner to demand appropriate duty on this quantity. This direction is challenged as being in violation of natural justice. (IIIB) Demand pertains to clearances of the EOU to customers based in Alleppey. The Commissioner wrongly relied on the statement made by Shri L. Seetharamaiah in arriving at the finding of diversion. They had maintained a register titled RPM Report for recording spinning frame-wise production for each day. As per these reports, only 19.047 MTs had been manufactured in the DTA unit. The Commissioner had ignored the RPM reports and quality control reports submitted by the assessee. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce the Supreme Court in Himalaya International case has clearly held that in the de novo proceedings, the Commissioner should decide not only the rate but also the availability of exemption. In other words, the issue whether the rate of duty applicable to the EOU when the goods were removed without obtaining any permission will be under Section 3(1) or under the proviso to the Section 3(1) has been remanded. By this decision, the Supreme Court has set aside the decision of the Larger Bench in Himalaya International. Hence, the reliance on the Larger Bench decision in Himalaya International was clearly misplaced. For the same reasoning, the reliance on Circular dated 13-2-2002 issued by the Board is also not applicable since the said Circular is based on the decision of the Larger Bench in Himalaya International. 11. The learned SDR had cited the judgment of the Tribunal in Himalaya International Ltd. v. CCE, Chandigarh [2003 (154) E.L.T. 580(Tri.-LB)] and Jaipur Golden Transport Co. Pvt. Ltd. v. CCE, Surat [2007 (215) E.L.T. 503 (Tri.-LB)] in support of the plea that the impugned clandestine clearances attracted duty liability as per proviso to Section 3(1) of the Central Excise ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt raised by the assessee does not advance its case. The Commissioner has only compared the daily production figures in the DPRs and RG-1 for the period of dispute. As regards the demand of duty on 16.644 MTs of jute yarn, the Commissioner confirmed the same in terms of proviso to Section 3(1) of the Central Excise Act after extending the benefit of Notification No. 2/95-C.E. The aspect of rate of duty applicable is covered in a later part of the order. We find that SVJT claims to have installed the system of recording performance of the mill in DPRs to monitor its efficiency. Assessee had submitted that the rejections entailing reprocessing and rewinding reduced after it had taken over the mill and managed it for some time. However, we find from records that during the period 1999, the mill had output of 91 to 95% whereas in the subsequent years, the output has fallen to around 71-75%. This exposes the weakness of the argument that DPRs were instituted to monitor efficiency of the mill and over a period, efficiency had improved. In the circumstances, we uphold the finding of the Commissioner as regards the unaccounted production and clandestine clearance of the 444.248 MTs of jute ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... istant Commissioner that his proceedings cannot be governed by the directions of the Commissioner contained in the impugned order issued without putting the assessee on notice. The Commissioner found that yarn cleared to Alleppey market was made out of imported jute mix. In reaching this finding, the Commissioner relied on the statement of Shri L. Seetharamaiah, DGM(Oper-ations), regarding the use of imported raw jute. It was argued before the Commissioner that only 35.813 MTs of jute yarn were manufactured using imported jute. We note that the Commissioner relied on the assessee s correspondence with its buyers in Alleppey, statements of its own personnel and the customers to find that clearances to Alleppey market were of imported jute mix. We are not able to accept the appellant s claim before us that such yarn manufactured in the EOU did not exceed 6.3 MTs. We uphold the finding as regards clearances impugned under this head and sustain the demand. 12. As per the alternative argument advanced, the appellants submitted that the jute yarn allowed to be sold in India were covered by exemption Notification No. 6/97-C.E. from 22-9-2000 and by exemption Notification No. 8/97-C. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pts the finished products, rejects and waste or scrap specified in the Schedule to the Central Excise Tariff Act, 1985 (5 of 1986) and produced or manufactured, in a hundred per cent export- oriented undertaking or a free trade zone wholly from the raw materials produced or manufactured in India, and allowed to be sold in India under and in accordance with the provisions of sub-paragraphs (a), (b), (c), (d) and (f) of paragraph 9.9 or of paragraph 9.20 of the Export and Import Policy, 1st April 1997 - 31 March 2002, from so much of the duty of excise leviable thereon under section 3 of the Central Excise Act, 1944 (1 of 1944), as is in excess of an amount equal to the duty of excise leviable under the said section 3 of the Central Excise Act or under any other law for the time being in force on like goods, produced or manufactured in India other than in a hundred per cent export-oriented undertaking or a free trade zone, if sold in India. Provided that nothing contained in this notification shall apply where such finished products, if manufactured and cleared by a unit other than a hundred per cent export-oriented undertaking or a unit in a free trade zone, are wholly exempt from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on No. 13/98-C.E. or No. 2/95-C.E. as the case may be. 13.5 We now take up the liability of the impugned clearances not allowed to be sold in India prior to 11-5-01. 14. A major ground taken is that the impugned clearances did not attract duty in terms of Notification No. 125/84-C.E., dated 26-5-1984. We find that the argument of the assessee in this regard is that clandestine clearances made by the EOU in the DTA were without permission of the concerned authority and that such clearances are subject to excise duty under Section 3(1) of the Central Excise Act and not its proviso. As the jute yarn was chargeable to nil rate of duty under the main Section 3(1) of the Central Excise Act, the impugned clearances did not attract any duty of excise. The impugned demand and penalty are therefore not sustainable. The Notification No. 125/84 reads as follows :- Exemption to goods produced in a hundred per cent export-oriented undertaking : In exercise of the powers conferred by sub-rule (1) of rule 8 of the Central Excise Rules, 1944, the Central Government hereby exempts all excisable goods produced or manufactured in a hundred per cent export-oriented undertaking from the whole ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le to pay duty under Section 3(1) of the Act together with customs duty on the imported raw material used in the manufacture of said finished goods, lying in the stock whereas the stand of the revenue was that Excise Duty under the proviso to Section 3(1) of the Act was payable on the finished goods with no customs duty being leviable on the raw materials used in the manufacture of finished goods. Thus, the bone of contention in that case was also with regard to the interpretation of the expression allowed to be sold in India appearing in the said proviso. Interpreting the said expression, this Court held that the expression allowed to be sold in India used in the proviso to Section 3(1) of the Act is applicable only to sale made in DTA up to 25% of the production by 100% EOU, which are allowed to be sold into India as per the provisions of the Exim Policy. No permission was required to sell the goods manufactured by 100% EOU lying with it at the time the approval is accorded to debond. The court opined that the goods having been sold without permission of the Central Government to debond the unit, the duty on the goods sold by the assessee was leviable under main Section 3(1) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not take it outside the proviso to Section 3(1) of the Central Excise Act and Notification 125/84-C.E. Any other interpretation will mean that while the law abiding assessee will be liable to pay duty on domestic clearances, others violating the law can conveniently escape duty liability and this would be against the principle of suppressing mischief and advancing remedy. We find that the decisions cited had held to the effect that in case of goods cleared by 100% EOU and sold in India with or without permission of the Development Commissioner, the assessment shall be made under proviso to Section 3(1) of the Central Excise Act and the exemption under Notification 125/84 shall not be applicable. As regards the claim of the assessee that the Tribunal s decision in the Himalaya International Ltd. case was overruled by the Apex Court, we note that the judgment referred to was made in an appeal filed by the Commissioner against the decision of the Division Bench of the Tribunal in the Himalaya International case. The appeal had challenged grant of lower effective rate under Notification No. 13/98-C.E. to DTA clearances. The Court had remanded the dispute to decide the applicable ra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... had allowed this relief by ignoring shortages found in the closing balance of low count yarn, they being negligible. The decision is challenged on the basis that the demand was raised by comparing DPR figures with RG-1 figures and accepting DPR figures as representing the correct quantity of production. The Commissioner had wrongly accepted a lower figure of 5666.685 MTs of raw jute consumed whereas the annual report for 1999-2000 showed 13557.3 MTs as the raw jute consumption for 1999-2000. The output for 2000-2001 and 2001-2002 was respectively 71% and 75% of the raw jute. The assessee could not explain with material how 13557.3 MTs was not the actual raw material consumed. We find that the Commissioner relied on the DPR figures for finding short accountal with reference to RG-1 figures. He had taken the actual production for the material period and the corresponding data in the RG1. He accepted the explanation of the staff of the assessee that DPR figures represented the actual figures of production. As against the claim of the said personnel that the yarn produced suffered 3% weight loss, the Commissioner allowed an abatement of 1% from the DPR figure of production. The balance ..... X X X X Extracts X X X X X X X X Extracts X X X X
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