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TMI Blog1992 (6) TMI 180X X X X Extracts X X X X X X X X Extracts X X X X ..... . The partners of the firm arc closely related persons 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 K ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nkar 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 goods, m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 the demand. (e) The Col ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 orders arc adopted by the Tribunal, the High Court and the Supr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t 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 case of Ujagar Prints v. Union of India 1989 (39) ELT 493 : 1989 (21) ECR 1 (SC) : ECR C 1347 SC and made the further point that the trading profit of the processor should be excluded from the price for the purpose of arriving at the assessable value of fabrics. Since this had not been done, the entire calculation had gone wrong. 13. On the question whether all the seven units were independent, the Collector had chosen to rely on the judgment of the Bombay High Court in Swadeshi Dyeing case (supra). Shri Gujral suggested that the order, dated 10.6.1986 passed by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat 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 same compound, the Collector had taken only seven of them into account and left out the remaining. There were numerous powerloom units with the total of 149 looms (M/s Gajanan Weaving Mills had 28 looms initially which were increased to 38 looms later). Thus, two thirds of the supply of grey fabrics was coming from other units and not from Gajanan. It was not clear how, when Notification 130/82 does not talk of "composite mill", the Collector had recorded a finding to that effect. Similarly, denial of exemption on bleaching which was an activity covered by N ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o 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 exempting unprocessed cotton fabrics from duty and additional duty was issued. He, therefore, submitted that there was no liability to duty on unprocessed fabrics right from 15.7.1977 to 28.2.1986 when the Central Excise Tariff Act 1985 came into force. Shri Gujral also referred to the existence of Notification 130/82, dated 20.4.1982 about exemption to cotton fabrics processed without the aid of power or steam. 19. Arguing for the respondent, Shri L.C. Chakrabarti, the learned SDR, contested the claim of Shri Gujral about the validity and legality of the show cause not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 and submitted that there could be no liability lo duly from 17.3.1985 till 1.3.1986 when the Central Excise Tariff Act, 1985 was introduced. Here again the basic duly was nil. 22. To support his argument that even though the point had not been taken in the proceedings before the adjudicating authority, the Tribunal was competent to lake note of it. Shri Chakrabarti cited the decision of the Supreme Court in the case of Collector of Customs v. Enfield India Ltd. 1991 (51) ELT 172. He also submitted that for determination of the correct rate of duly, it was necessary for t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at 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 conclusions of the High Court recorded in paragraph-8 of the Swadeshi Dyeing (supra) judgment and submitted that identical circumstances existed in the present case. In this view of the matter, the grey as well as the processed fabrics were liable to duty. 25. The learned SDR thereafter traced the history of various amendments made in Rule 9(2) by which the concept of limitation was built into it for the first time on 6th August 1977. A reference to the time limits specified in Section 11A of the Act was incorporated on 14th January 1981 in the provisions of Rule 9(2). It ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o 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 having been issued on 19/20 November 1987 in the present case, the amended provisions were clearly applicable. Moreover, the Collector has not made any distinction for this purpose in the impugned order, nor was there any allegation to that effect in the show cause notice. In fact, the whole purpose of the notice, according to Shri Gujral, was to allege camouflage of bogus units established to take advantage of the exemption Notification. So far as the provisions of Rule 9(2) are concerned, the charge of clandestine removal had to be established which the Collector had not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 before us which would justify our taking a different view. If we go by the judgment of the Supreme Court in Me Dowell's case (supra), we would have to find out the true nature of the transaction for determining whether a legal device to avoid tax was permissible. 31. We observe that the following notifications have been cited in the show cause notice: (a) Notification 80/76. dated 16.3.1976: (incorrectly typed as 8/76) This Notification was in force up to 7.11.1982 when it was replaced by Notification 253/82. It exempted cotton fabrics from duty when subjected to the finishing processes specifie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any process or processes specified in the said Table within the same factory in which they have been subjected to any process other than the processes specified in the said Table. TABLE 1. Calendering (other than calendering with grooved rollers). 2. Flanelette raising. 3. Stentering. 4. Damping on grey and bleached sorts. 5. Back-filling on grey and bleached sorts. 6. Singeing, that is to say, burning away of knots and loose ends in the fabrics. 7. Scouring, that is to say, removing yarn size and natural oil found in cotton 8. Cropping or butta cutting. 9. Curing or heat setting. 10. Padding, that is to say, applying natural starch on one or both sides of the fabric. 11. Expanding. 12. Hydro-extraction with the aid of power, that is to say, mechanically extracting or mechanically squeezing out water from fabric. 32. The allegation was that under Notification 80/76 and 120/76 cotton fabrics which were subjected to bleaching without the aid of power were not entitled to exemption from duly because they were stentered on a stentering machine. This was the position up to 7.11.1982. Thereafter, when Notification 253/82 superseded Notifications 80/76 and 122/7 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndent existence so as to lake advantage of the exemption Notification. This is what has been termed as camouflage of identity of units by the Bombay High Court in the case of Swadeshi Dyeing case (supra) judgment. 34. As for the plea that the Collector should have been guided by the decision of his predecessor in an identical case in which the demand for duty was restricted to prospective period, we arc unable to accept this contention because the matter would have to be decided on the facts of this case. There is an allegation in the show cause notice in the present case that the appellants had suppressed vital information from the authorities, and, taking into consideration their ineligibility for exemption under the two Notifications, it cannot be said that the facts arc otherwise. In the face of a specific allegation of suppression of facts in the show cause notice and a proper consideration by the adjudicating authority of all aspects, we are satisfied that this is not a case to which the decision of Shri S.D. Mohile in another case should be applied. In any case, we are not impressed by the argument that just because the predecessor-in-office had taken a certain view in one ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onsider that there has been any failure of justice on this account and therefore reject this plea. 37. Another pica taken in the appeal is that the Collector has unjustly transgressed the limits of the show cause notice. Although no specific instance has been cited in support of this plea, during the hearing Shri Gujral had submitted that the Collector's finding that even the accounting of financial transactions was handled by a unit created by the same family group, has been recorded in the absence of any allegations to that effect in the show cause notice. We observe from paragraphs-3,18, & 21 of Annexure-A to the show cause notice that specific references to the activities of Onkar Servicing Centre has been made. There is, therefore, no substance in this plea which is also rejected. 38. So far as the Sunshine Bleaching House is concerned, the pica taken is that the existence of this factory was well within the knowledge of the Departmental Authorities, and after the visit of the Central Excise Officers to the Units on 28.12.1985 and recording of regular panchnama, there was no justification for invoking the larger period. We observe that Notification 253/82 was issued on 8 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... It is an admitted fact that these units have been set up with the same family members as the proprietors, directors, partners etc. and, in addition to this, the processing units sell their goods to common trading firms which looks after all the distribution/sales etc. Hence these various units are only a corporate facade although registered with various authorities with a view to camouflage their actual identity, and thereby avail of the exemption which, otherwise, would be inadmissible to them. The overall control was in effect in the hands of this family group and hence no flow back need be proved as the profits are absorbed within the same family group." It is also on record that M/s Gajanan Weaving Mills has leased out land, building and even machinery to the processing units. 40. We now come to the final question about the calculation of demand of duty. The main plea is that the Collector has arbitrarily taken the cost of processing at 0.26 paise per sq.m in respect of value of grey cotton fabrics and has erred in determining the principles of valuation under Section 4 of the Act. The further plea*is that Collector has not correctly applied the rates of duties leviable ..... X X X X Extracts X X X X X X X X Extracts X X X X
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