TMI Blog1992 (6) TMI 180X X X X Extracts X X X X X X X X Extracts X X X X ..... ons born in the same family. The firm is having its business premises within the compound of Shree Gajanan Weaving Mills, 560, Shivaji Nagar, Sangli-- Appellant No. 2--which was established in the year 1908 by Shri V.R. Velankar who died in 1978. His son R.V. Velankar succeeded his father and in course of time, his six daughters started working in textile line. The claim is that these daughters who arc highly qualified are working on their own in the above mentioned different firms and companies which are registered under the Shops Act, Companies Act and Factory Act are regularly taxed under the Income Tax Act and Sales Tax Act from time to time. The status of each of the appellants and the nature of work in which they arc engaged is as under: (A} Shree Gajanan Fabrics Distributors (GFD): Partnership: Partners: (1) Chitra R. Velankar (2) R.V. Vaidya Purchase of grey powerloom cloth, which is manufactured in GWM compound and process it viz. bleaching, applying kanji, folding, packing, baling and selling. While beaching is got done by M/s. Sunshine Bleaching House (SBH), applying of kanji is got done from M/s. Tushar Kanji Kendra (TKK), calendering is done by M/s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Service Centre (OSC) and Sangli Trading Company (STC). He is also owner of two powerlooms and they arc run under the name of Vijay Yanthrapat, all of which are located in the same compound. (G) M/s. Velankar Weaving Mills. Sangli (VWM): Directors: (1) Shri R.V. Velankar (2) Sow Vijaya Laxmi R. Velankar. This firm itself has no activity of its own but is a partner in the trading firm of M/s. Gajanan Weaving Mills in which Shri R.V. Velankar is a partner in his personal capacity. 3. As a result of investigations undertaken into the activities of these units, all of which are located within the same compound, and are managed by a family consisting of Shri R.V. Velankar and his wife, their six daughters and a couple of other relations, the Collector of Central Excise, Pune issued a show cause notice to all of them on 19th November, 1987, asking them to show cause why duty of ₹ 92,53,778.87 should not be demanded from them on cotton fabrics processed by M/s. Sunshine Bleaching House (SBH) and M/s. Tushar Kanji Kendra (TKK) during the period first November, 1982 to 30th March, 1987 on the ground that, by not intimating their intention of manufacturing excisable g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... partners jointly and severally liable to pay the duly liability as well as the penalty. After passing the order on 30lh May, 1989, the Collector issued a Corrigendum on 10th July, 1989 by which he again made certain alterations in the amount of duty demanded by him. 5. The question that have come up for consideration in the appeal before us are summarised as under: (a) The order holding all the seven concerns jointly and severally liable to discharge the duty liability as well as payment of penalty imposed on M/s. Gajanan Weaving Mills is without jurisdiction. (b) The Collector has failed to give an opportunity to the appellants to put-forth their say on the cost of processing charges at 0.26 paisa arbitrarily determined and allowed by him in respect of value of grey cotton fabrics. (c) The Collector has erred in confirming the demand of ₹ 6,65,082.79 against grey cotton fabrics produced on powerlooms and got subjected to merely plain calendering in the premises of independent processers on payment of job charges. (d) The Collector has erred in determining the principles of valuation under Section 4 of the Central Excises Salt Act before confirming ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 6. We have heard Shri B.B. Gujral, the learned Counsel for the appellants and Shri L.C. Chakrabarti, the learned Departmental Representative. The arguments were spread over a number of days and large number of authorities were cited for different contentions raised by both sides. 7. Shri Gujral first raised the question that copy of the adjudication order received by him did not bear the signatures of the adjudicating authority, nor did it bear any date below his name so as to indicate whether he had signed it at all. He further submitted there was no service of a valid order on the appellants as required under Section 37-C of the Act. The learned SDR produced the case file in which the order duly signed by Shri D.S. Solanki, Collector of Central Excise, bearing the date 30th May, 1989 is available; the copy received by the appellants bears the attestation of the order on the stencil by Superintendent (Adjudication) on 6th June, 1989 but docs not show the date on which the order was signed by the adjudicating authority. What was sent to the appellants was the cyclostyled copy of the order. Shri Chakrabarti, the learned DR explained that various methods of communication of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 11. By a Corrigendum dated 10th July, 1989 issued by the Collector attested by Supdt. Adjudication, the demand was further revised as under: Annexure-I ₹ 11,84,654.51 Annexure-II ₹ 5.78.198.17 Total Rs. 17.62.852.68 12. Shri Gujral submitted that the final amount of duly demand in Annexure-I by the Collector had been raised from ₹ 10,93,258.8010 ₹ 11,84,708.51. This meant that the amount finally demanded in the order was in excess of the amount shown in the show cause notice (after the issue of the Corrigendum) by ₹ 91,449.71. Shri Gujral's claim was that the order had been passed without issue of proper show cause notice is violative of the principles of natural justice, is void and of no legal effect in entirety. He also submitted that the basis of how the amounts had been arrived at and subsequently revised had neither been indicated in the show cause notice nor in the adjudication order. He also referred to the decision of the Supreme Court in its Clarificatory Order dated 27.1.1989 in the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lai Kendra was set up, which was subsequently re-named as Shree Annapurna Dhulai in 1982 and was finally reconstituted as M/s Sunshine Bleaching House and was recognised as a separate unit and given the benefit of Notification 130/82. 14. Shri Gujral also questioned the basis for taking 26 paise per sq. metre as a deduction on account of grey fabrics without first giving the appellants the opportunity to explain what should be the amount for the purpose. On the question of invoking the longer period of five years under the proviso to Section 11A(1), he submitted that in the absence of denial by the Collector of fact of knowledge of facts by the Department, this could not have been done. 15. Referring to the allegations against each of the units, one by one, Shri Gujral submitted that even if the control was in the family group, the units were separate income-tax/sales tax payees and tex marks holders. All the persons managing the units are highly qualified and were competent to run the units in the manner they have chosen to do. By not going into the question of financial flow-back among the units, the Collector had committed a grave error. Although there were 30 units in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) : ECR C 1507 SC, Raj Nigam v. Collector of Central Excise and Phoolson Foundry Works v. Collector of Central Excise . 18. Shri Gujral submitted that under the Central Excise Law, there was no concept of a main manufacturer the secondary manufacturer and cited the decision of the Tribunal in the case of Collr. of Central Excise, Madras v. Modoplast (P) Ltd., Coimbatore and Super Printers v. Collector of Central Excise, Hyderabad . He also staled that the impugned order was indeterminate and the basis of the duly demanded had not been clearly indicated in the two Annexures. He submitted that no duty was leviable on grey fabrics made on powerlooms up to 1985 and the grey fabrics in question were produced during this material period. He referred to Notification 230/77-CE, dated 15.7.1977 and Notification 231/77-CE, dated 15.7.1977 exempted unprocessed cotton fabrics manufactured on powerlooms (without spinning or processing plants) from the basic and additional duty and submitted that these two Notifications remained in force up to 17.3.1985 were rescinded by Notifications 53/85-CE and 86/85-CE, dated 17.3.1985. Simultaneously, Notification 53/85, dated 17.3.1985 completely exempt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at while Notifications 230/77-CE, dated 15.7.1977 exempted unprocessed cotton fabrics manufactured on powerlooms (without spinning of the processing plants) from duty, Notification 231/77-CE, dated 15.7.1977 exempted them from additional duty. These Notifications were rescinded by Notifications 83/85-CE, dated 17.3.1985 and 86/85-CE, dated 17.3.1985 respectively. This resulted in withdrawal of the exemption with effect from 17.3.1985. Thus, after that dale, unprocessed cotton fabrics manufactured in power-looms became liable to duty as well as additional duty. He submitted that since the appellants themselves had slated in their reply dated 22.4.1988 to the show cause notice that they also undertook processes like sizing, winding, warping, doubling etc., they were not entitled to the exemption in terms of the aforesaid Notifications till 17.3.1985. This reasoning was objected lo by Shri Gujral on the ground that there was no such allegation in the show cause notice and the Departmental could not traverse beyond the notice. Shri Gujral brought to our notice the existence of Notification No. 53/85-CE, dated 17.3.1985 which granted unconditional exemption to unprocessed cotton fabrics ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entitled to exemption. Further, since it has also been held that one of the units was engaged in bleaching of the fabrics, a process not figuring in the 12 processes specified in the Notification, this also disqualified the processed fabrics from exemption. 24. Referring to the decision of the Division Bench of the Bombay High Court in the case of Swadeshi Dyeing Bleaching Mills (P) Ltd. v. Union of India , Shri Chakrabarti submitted that separate units had been set up only with a view to availing of the exemption. He referred to paragraph-7 of the judgment and submitted that a family group had nominally set up two separate sets of units--one for the purpose of bleaching and the other for calendering and stentering and this was a camouflage to indicate that the units were independent entities so that exemption from duty could be availed of under Notification 130/82 as well as 253/82. He also submitted that under Section 2(e) of the Act, the definition of 'factory' did not stipulate the concept of ownership and therefore there was no substance in the plea that each of the units was owned and managed by separate individuals. Shri Chakrabarti also referred to conclusio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... limit specified in Section 11 A. 26. Shri Chakrabarti submitted that the expression used in Rule 9(2) was identical and has been interpreted by the Tribunal to be within six months at the material time and cited the decision of the Bombay High Court in Corn Products Co. (India) Ltd. v. Union of India , and the decision of the Delhi High Court in the case of Associated Cement Companies Ltd. v. Union of India 1981 ELT 42 : 1981 ECR 66D (Delhi). Shri Chakrabarti concluded by saying that such an interpretation should be given to the provisions of Rule 9(2) in relation to the time limits as will not render it nugatory. 27. Replying to the arguments of the learned SDR, Shri Gujral cited the decision of the Tribunal in the case of Alcobex Metals (P) Ltd, Jodhpur v. CCE 1992 (38) ECR 569 (Cegat NRB) and submitted that the Tribunal had, by a majority opinion, held that a show cause notice issued under Section 11A of the Act was not severable.... 28. Referring to the amendment of Rule 9(2) on 14th January 1981 by which the time limit specified in Section 11A had been incorporated into it, Shri Gujral contested the argument of the learned SDR and submitted that the show cause notice ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... them. (f) An investment company has been set up by the same family group (with the addition of one Shri H.D. Phadke and Sow A.V. Velankar)--named Velankar Investment Company. Appellant No. 1 have been advanced loans of ₹ 4 lakhs and ₹ 7 lakhs by the investment company at the rate of 12% per annum against the ruling rate of 18% in 1987. 30. It appears from the way things have happened that the bleaching activities which would disqualify them from the exemption was undertaken in a unit specially set up from 1.1.1983 soon after Notification 253/82, dated 8.11.1982 came into force. Besides, there is little doubt that the other units located within the compound namely Tushar Kanji Kendra and Bright Yarn Doublers were undertaking certain processes which were complementary to the processes of other units and cannot be said to have independent existence for any purpose other than the purpose of availing exemption from duty. The Collector has discussed these matters at length in his adjudication order and, except saying that they were independent units because they were assessed to income tax, sales tax and held their own tex mark, no other evidence has been placed b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ay, applying natural starch on one or both sides of the fabric. (b) Notification 122/76. dated 16.3.1976: This Notification was in force up to 7.11.1982 when it was replaced by Notification 253/82. It exempted cotton fabrics from additional duty under the Additional Duties of Excise (Goods of Special Importance) Act, 1957 on the same conditions, as Notification 80/76 does for basic duty. (c) Notification 253/82. dated 8.11.1982: This Notification was in force up to 28.2.1986. It was amended by Notification 54/85-CE, dated 17.3.1985. It exempted cotton fabrics from duty as well as additional duty when subjected to any process or processes specified in the Table annexed. Provided that the exemption did not apply: (i) If unprocessed cotton fabrics, falling under sub-item I(a) of the said Item No. 19, on which the duly of excise is leviable thereon under any of the aforesaid two Acts, either in whole or in part, arc subjected to any process or processes specified in the said Table, within (he factory in which the said unprocessed fabrics have been produced; or Clause (i) omitted by Notification 54/85 dated 17.3.1985. (ii) If c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essing plants) from basic duty. He also referred to Notification 231/77 dated 15.7.1977 which exempted unprocessed cotton fabrics manufactured on powerlooms (without spinning or processing plants) from additional duly. Again, it was he who brought to our notice another Notification, namely, 53/85-CE, dated 17.3.1985 which exempted unprocessed cotton fabrics from basic as well as additional duty. Thus, the argument of Shri L.C. Chakrabarti that the exemption on unprocessed cotton fabrics manufactured on powerlooms was available only if such powerloom units were within spinning or processing plants cannot be contested on the ground that such an allegation was not made in the show cause notice and cannot be taken at this stage. If the appellants are claiming an exemption at this stage, they would be entitled only if they fall within the terms of the exemption. So far as the eligibility to exemption under Notifications 80/76-CE, 122/76 and 253/82 is concerned, we have seen that the conditions under which these exemptions were given not having been fulfilled in the present case, the exemption was not available. 33. If we examine the true nature of the transaction namely the segregati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with Section 11 A. As long as it is established that the ingredients of Section 11A were in existence, the requirement of the law is met and the extended time limit can be applied. The lime limits specified in Section 11A having been incorporated in Rule 9(2), any demand issued under that Rule which fulfils the other requirements of the proviso to Section 11A(1) would be a valid demand. Considering the facts of this case, we are satisfied that the demand was validly made. 36. The next plea taken in the appeal is that the Collector had misinterpreted the judgment of the Bombay High Court in the case of Swadeshi Dyeing (supra) and had relied upon it without giving an opportunity to the appellants to offer their comments on the implications of this decision which was given subsequent to the proceedings of personal hearing. We observe that the Collector has gone into all the facts in considerable detail while recording his findings and then arrived at the conclusion that the appellants were not entitled to exemption under Notification 253/82. We also observe that he has merely made a passing reference to the decision to strengthen his conclusions. We do not notice anything in the o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m Kapad Vistar Kendra and M/s Velankar Weaving Mills. To this is linked the other question that the order holding all the seven concerns jointly and severally liable to discharge the duly liability as well as payment of penalty is without jurisdiction. In a case of this nature in which the Collector has come to the conclusion that a composite mill was functioning, and a facade of existence of several independent units was created for the purpose of claiming exemption, the Collector had necessarily to fasten the liability jointly and severally on all the concerns because he did not recognize the separate existence of the individual units. In these circumstances, he cold not but have recorded the finding that all the seven units had to bear the liability of duty and penalty, and it would not have been possible for him to determine the exact position of some of the units individually. Certain paragraphs of the order explain the position fully and we can do no better than to cite them here: The proviso to this Notification (Notification 253/82) required that this exemption will not be available if the cotton fabrics arc subjected to any process or processes listed therein, within th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ich a large liability is proposed to be fastened, to clearly indicate all these details so that the assessee is in a position to meet the charge. We, therefore, consider that these grounds are sufficient for setting aside the order in so far as the calculation of the demand for duty is concerned. We have already rejected all the other contentions of the appellants after full consideration of the matter. We now set aside the impugned order and refer the case back to the Collector for fresh adjudication with the direction that he would have the demands for duty calculated and its basis indicated in proper detail and convey it to the appellants to enable them to meet the charge properly. It is natural that in calculating the demand for duly, the Collector would have to take into consideration the various Notifications which were applicable to the processed and unprocessed fabrics from time to time. We make it clear that the demand for duty will have to be limited to the amount which was communicated in the Corrigendum given to the appellants during the hearing on 24.10.1988. We also make it clear, in view of the submissions of Shri Gujral during the hearing, that it is not permissible ..... X X X X Extracts X X X X X X X X Extracts X X X X
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