Whether all the three units were in actual one unit and whether power was used by M/s MCSC in desizing and bleaching of cotton and man made fabrics?

PJ/Case Study/2012-13/30

CASE STUDY

Prepared By: CA Neetu Sukhwani &
Kavita Thanvi

Introduction:-

Show cause notices proposing the confiscation of goods and to impose the penalty was issued to the noticee relating to the period of seizure and also for the past liability covering the period before seizure on the grounds that the noticee along with the other two units was undertaking the manufacture of goods with the help of electricity on which excise duty exemption is not available under notification no. 48/90-CE. The noticee ascertained that this case is very old and the show cause notice was issued as a result of investigation carried out at the premises of noticee on 12.2.94. The Commissioner detained that as the issues relating to the SCN being issued for the past liability is concerned, case of the same unit for the seizure period has already been decided by the CESTAT and the same has been upheld by the Hon’ble Raj High Court, there is no fact relating to the present case which was pending to be considered. Hence the SCN proceedings in respect of past liability have also been dropped.

M/s Mool Chand Sujanmal & Co.
[Order-In-Original 60/2012/C.Ex./JPR-II dated: 25.09.2012]

Brief Facts:-

-       This OIO is being passed in pursuance of show cause notice C No. V (52 &54)15/Seiz.-Off/124/94/2139-40 dated 21.6.95 issued to the noticee M/s Mool Chand Sujanmal & Company, Jodhpur (MCSC). M/s Chhajer Textiles (CT), Jodhpur were also co-noticee in this show cause notice but their case was adjudicated in their favour by the Commissioner, Central Excise, Jaipur-II vide Order-in-Original No.12/CE/JP-II/97 dated17-11-97. M/s Mool Chand Sujanmal and Company (M/s MCSC) and M/s Chhajer Textiles (M/s CT) were engaged in processing of Cotton and Manmade fabrics falling under chapter 52 and 55 of the 1st Schedule to the Central Excise Tariff Act, 1985. On 12.02.1994, the officers of Central Excise Division, Jodhpur, along with two independent witnesses visited the factory premises of M/s MCSC, M/s CT and M/s Kamla Industries (M/s KI). Shri Ganpat Lal Sancheti and Shri Gautam Chand Sancheti, Partners of M/s MCSC were present there at the time of the visit. During the inspection of the units, Shri Gautam Chand Sancheti informed the officers that M/s MCSC were engaged in processing of Textiles since 1969 at Plot No. 27, Light Industrial Area, Jodhpur; that in the year 1977 its adjoining plot No. 27 A was allotted to M/s KI and a portion of that plot was allotted to M/s CT in the year 1981; that all the three units were located in the same compound without any demarcations or boundary walls to separate the units and that the entry of the units was also common. M/s MCSC were found engaged in the process of desizing, bleaching, application of sodium silicate, washing and table printing of cotton and man made fabrics. For carrying out these processes, M/s MCSC were having one desizing machine, one electric motor, two power generating sets, printing tables, silicating machine and other related equipments. They were not having stentering facility of their own but were using the stentering facility of Ms/ CT. Ms/ KI were engaged in the process of printing of cotton and man made fabrics and were not having facility for any other process. They were purchasing grey fabrics from various parties and were getting the processes of desizing and bleaching done from M/s MCSC and the process of stentering was got done from M/s CT. M/s CT were engaged in the process of stentering of cotton and man made fabrics for which they were having a stentering machine fitted with electric motor and diesel engine, a boiler and a felt machine. The cotton and man made fabrics processed i.e. bleached and desized with the aid of power and stentered with the aid of power were chargeable to Additional Excise Duty at effective rates prescribed under Notification No. 48/90-CE dated 20.03.1990 as amended.

-       During the visit, the officers found a bleaching machine and a desizing machine installed in the premises belonging to M/s MCSC. The desizing machine had two rubber fan belts fixed on its pulley. One broken belt and four nuts in loose condition were found scattered near the machine. One electric switch board was also found fitted on the wall near the desizing machine. Further, from a small room located near the desizing machine one 5 H.P. electric motor attached with forward and reverse control switch was also recovered and the stand of electric motor was found attached with the desizing machine. Three rubber belts were found attached with the pulley of the bleaching machine and three nuts were found scattered near the motor stand installed with the machine. A separate electric switch board was also fixed on the wall near this machine. The officers also found one stenter machine installed in the premises of M/s CT attached with an electric motor and fitted with a diesel generator engine. The electric motor attached to the stenter was connected with a permanent electric switch board.

-       Photographs of desizing machine, bleaching machine, stentering machine, electric motors and other machines and of different portions of the premises visited were also taken and were shown to Shri Gautam Chand and to the witnesses who put their dated signatures on the reverse side of the photographs in token of having seen the same. The Central Excise officers, on a reasonable belief that M/s MCSC had carried out the processes of desizing and bleaching of cotton and man made fabrics with the aid of power and M/s CT had carried out the process of stentering on cotton and man made fabrics measuring 59,260 Sqm valued at Rs. 5,64,840/- from the premises of M/s MCSC, M/s CT and M/s KI under Section 110 of the Customs Act, 1962 as made applicable to Central Excise matters vide Notification No. 68/63-CE dated 04.05.1963 as amended issued under Section 12 of the Central Excise Act, 1944.

-       Shri Gautam Chand Sancheti in his statement dated 12.02.0994, tendered under Section 14 of the Central Excise Act, 1944 stated inter alia, that he and his brother Shri Ganpat Lal Sancheti were partners in M/s MCSC. M/s CT was stated to be a proprietorship concern and Smt. Kamla Devi wife of Sh. Kantilal Chhajer (brother of Sh. Ganpatlal Sancheti's wife) was the sole proprietor of M/s CT. He stated that M/s MCSC undertook the processes of bleaching, desizing, silicate padding and table printing ; that after carrying out these processes, the fabrics were sent to M/s CT for stentering where a stentering machine fitted with an electric motor was installed and that no challans/bills for inter unit movement of the fabrics were being issued. He further stated that the stentering machine installed in M/s CT was acquired about 8 to 10 years back and initially for a period of 6 to 7 years, it was operated with the help of diesel engine and subsequently, it was operated with the help of electric motor. He categorically stated that there was no provision to run the stentering machine manually. During the course of investigations, all the three units were represented by Shri Gautam Chand Sancheti only and this was confirmed in his statement dated 20.06.1994 tendered before Superintendent (AE), Central Excise, Jodhpur.

-       From the investigation of the case, it appeared that processes of desizing and bleaching of cotton and man made fabrics were being carried out with the aid of power by M/s MCSC for the last 5 years and the process of stentering was being done by M/s CT with aid of power since last 8 to 10 years. The fact of installation of the machine and its running with the aid of power for stentering of cotton and man made fabrics was confirmed by Shri Gautam Chand Sancheti. M/s MCSC had acquired 3 electric motors on 07.03.1988 from Ms/ Gautam Engineering Works, Jodhpur. Not only the sale of motors was confirmed by Shri Shiv Narain, Proprietor of Ms/ Gautam Engineering Works in his statement dated 17:02.1994 and on physical inspection one of the motors seized from M/s MCSC was also identified by him to be the same as sold on 07.03.88. Shri Gautam Chand Sancheti, in his statement dated 12.02.1994, stated that the motor was purchased from M/s Gautam Engineering Works on a trial basis about 15 to 20 days back. This part of his statement did not appear to be correct because Shri Shiv Narain in his statement 17.02.1994 had contradicted this version of Shri Gautam Chand wherein he stated that Shri Gautam Chand had telephoned him on 13.02.1994 for obtaining an old 10 H.P. electric motor and that he had declined the request of Shri Gautam Chand Sancheti.

-       Subsequently, after about six months of the date of seizure of the electric motor, Shri Ganpat Lal Sancheti, the other partner of M/s MCSC took a plea that the electric motor had been purchased by him from M/s Diamond Gums Pvt. Ltd., Jodhpur on 02.02.1994. Though M/s Diamond Gums Pvt. Ltd. had corroborated Shri Ganpatal's version but the same was not found tenable because it was put forth after about 6 months of the date of the seizure which appeared to be an after thought and also because the sale of electric motor to M/s MCSC under bill dated 07.03.88 by M/s Gautam Engineering Works was confirmed by Shri Shiv Narain.

-       A statement of Shri Saka Ram Meghwal, Electrician of M/s MCSC was recorded on 23.02.1994 wherein he confirmed that he was looking after the electric work including connecting, disconnecting, repairing and maintenance of electric motors of all the three units; that he was connecting the electric motors attached with bleaching and desizing machines installed in M/s MCSC generally in the nights on verbal directions of Shri Gautam Chand Sancheti; that machines used to run on power during the whole night and used to be disconnected by him in the morning and that he was carrying out this activity for the last five years. He also admitted to have connected the motor with the bleaching and desizing machines with two separate motors in the night of 11.02.1994 and disconnecting the same on 12.02.1994 in the morning. Shri Saka Ram also stated that he was also operating the stentering machine and blower installed in M/s CT on power for the last 3 years as per directions of Shri Gautam Chand Sancheti and that he had disconnected the power connections of the stentering machine and the blower on 23.02.1994 as soon as the officers entered in the unit.

-       The Central Excise Officers also obtained information regarding power consumption of M/s MCSC and M/s CT from RSEB. M/s MCSC were having an electric connection of 45 HP and their average monthly power consumption from July, 1990 to February, 1994 was 3433 units. M/s CT were having an electric connection of 60 HP and their average monthly power consumption from July, 90 to February, 1994 was 6570 units. Taking into account the other electric fitting in the premises of M/s MCSC and M/s CT as detailed in panchnama dated 23.02.1994, such high consumption of power by these units could be attributed only to the use of power for running the desizing and bleaching machine by M/s MCSC and the stentering machine by M/s CT. M/s MCSC and M/s CT had not intimated or brought to the notice of the Department the fact of their being engaged in the processing of cotton and man made fabrics with the aid of power. They carried out these processes without obtaining any CE licence/Registration and cleared the excisable goods, so processed without payment of CE duty by willfully suppressing the facts from the department with intention to evade duty. During the period from 01.07.1990 to 11.02.1994 Ms/ MCSC desized and bleached 14,37,362.65 Sqm of cotton fabrics and 34,50,513.68 sqm of man made fabrics with the aid of power and cleared the same without payment of duty amounting to Rs. 87,23,746/- M/s CT stentered 34,50,513.68 Sqm of man made fabrics with the aid of power during the period from 01.07.1990 to 11.02.1994 and cleared the same without payment of duty amounting to Rs. 67,21,362/-.

-       Consequently, a common Show Cause Notice C. No. V(54&55)15/Seiz-off/124/2139-40 dated 21.06.95 was issued to M/s MCSC and M/s CT demanding CE duty of Rs. 87,23,746 and 67,21,362/- respectively from them. Penalty under Rule 9(2), 52-A, 173 Q and 226 of Central Excise Rules, 1944 was also proposed to be imposed on them. The portion of Show Cause Notice pertaining to M/s CT was adjudicated by the Commissioner, CE Jaipur-II vide OIO No. 12/CE/JP-II. Commissioner dated 17.11.97. An Addendum and Correction to the show cause notice was also issued on 13-12-96 proposing recovery of interest under Section 11 AB and imposition of penalty under Section 11 AC of the Central Excise Act, 1944.

-       Reply of Addendum and Correction to the show cause notice was submitted by M/s MCSC vide letter dated 10-1-97 contending that the mandatory provisions relating to interest and penalty introduced under Section 11AB and Section 11AC in the Central Excise Act could not be applied to past cases and these could be applied only to the show cause notices issued after coming into effect of new provisions.

Assessee’s Contentions:-

Assessee made following submissions before the Commissioner:

Ø It was submitted that the firm M/s MCSC was engaged in the processing of cotton and manmade (art silk or viscose) fabrics. All the processes were being done manually. In the year 1988 they had installed equipment (Paddings) for desizing (scouring) and bleaching of cotton fabrics only. During that period, they used to process cotton fabrics only and it was not possible to carry out these processes on man-made fabrics on padding machines. They had never bleached or desized the viscose or art silk fabrics on padding machines. In these processes solution of caustic soda, acid and bleaching power along with other chemicals were required to be used. The art silk fabrics could not withstand the reactions of these materials and the fabrics would not remain worth marketing. The man-made fabrics were simply washed in open tanks with simple water and after drying, printing was done manually on tables. In support of their claim that Rayon fabric could not be subjected to padding process, a certificate dated 27.7.95 of Dr. H.T. Lokhande, a reputed Textile Engineer and Head of Division of Technology of Fabric & Textile Processing, University of Bombay was also submitted by them. They also submitted that they had never got stentered any fabric (cotton or man made) from M/s CT.

Ø They submit that the entire quantity of fabrics manufactured by them was being supplied to garment manufacturers-cum-exporters who did not require the stentered fabrics because they were applying specific treatment to the fabrics before and after cutting which imparted effects of process like stentering
.
Ø They contends that in the month of Jan. 94 when it came to their knowledge that the process of desizing (scouring), even if done with the aid of power, was not liable to excise duty, they thought that they should also start the process of desizing with the aid of power if permitted by CE Authorities. Therefore, they informed the Superintendent, Central Excise, Jodhpur vide letter dated 24.1.94 that they intended to purchase one electric motor for carrying out the process of desizing with the aid of power and it was also mentioned in the letter that it would not be implemented till receipt of reply of their letter.

Ø It was submitted that in the meantime, Sh. Gautam Chand Sancheti enquired from M/s Gautam Engg. Works on phone whether a second hand 10 H.P. electric motor could be supplied by them on proper bill. Sh. Shiv Narain, Proprietor of the above firm informed that an old electric motor of 10 H.P. could be supplied by him at a price of Rs. 3000/- whenever order was placed. Since Sh. Gautam Chand Sancheti had phoned to the above supplier, he was under wrong impression that 10 H.P. motor in question was supplied by above firm against his order on phone about 10-15 days back as mentioned in his statement dated 12.2.94. Sh. Ganpatlal who was mainly looking after the manufacturing activities sought opinion from technicians who opined that there was no necessity of an electric motor of 10 H.P. and an electric motor of 5 H.P. was sufficient for carrying out the process of scouring and thus he purchased an electric motor of 5 H.P. along with switches from M/s Diamond Gums Pvt. Ltd under invoice no. 101 dated 2.2.94 at a price of Rs 2392/-.

Ø They submit that during further investigation of the case statement of Sh. Ganpatlal was recorded on 9.10.94 by the Supdt. (AE), CE, Jodhpur. In the statement Sh. Ganpatlal had stated that he was suffering from illness during the month of Feb, 94 and he was visiting the factory casually. Though he was present in his office in the factory premises on 12.2.94 and 23.2.94 when CE officers visited their factory, he could not join them during the inspection due to his illness and he had asked Sh. Gautam Chand to remain with the survey team. After completion of the inspection of the factory premises, as per instruction of the survey team he had put his signature on panchanamas dated 12.2.94 and 23.2.94 without reading the contents of the Panchanamas. Therefore, fact regarding purchase of motor from M/s Gautam Engg. Works, Jodhpur mentioned in the Panchanama was wrong and probably it might have been written by the officers on information of Sh. Gautam Chand because initially there was intention of purchasing a second hand electric motor from that firm. However, the deal could not be finalized and a motor of 5 H.P. was purchased from M/s Diamond Gums Pvt. Ltd under bill no. 101 dated 2.2.94 on cash payment of Rs. 2392. He did not inform regarding purchase of motor to Sh. Gautam Chand since it was not his working jurisdiction. He had instructed the workers not to operate the motor without his permission and it was never operated till that day and the cotton or rayon fabric was processed by hand operated machines.

Ø Further they submit that it was alleged in the show cause notice that at the time of visit of the CE officers no handle was found fixed with desizing and bleaching machines and these could not be operated manually. In fact handles were found fixed with both the machines at the time of visit of the officers which were got removed under the pretext that they could not move around easily for inspection and the photographs were taken after removal of the handles. However, some of the handles which could not be removed were clearly visible in the photographs.

Ø M/s MCSC had already disposed of two old motors of 5 H.P. on 12.10.91, which were purchased from M/s Gautam Engg. Works, Jodhpur on 7.3.88 but these were never used for processing of any fabric. These were abandoned and sold to M/s Pushpman Forging, Bombay on 12.10.91 against payment by demand draft and copy of the bill issued by them was also submitted with their reply along with photocopy of challan showing payment of sales tax in the SBBJ on 22.11.91. The necessity of purchase of 5 H.P. motor from M/s Diamond Gums Pvt Ltd arose only due to the fact that they had already disposed of two motors purchased from M/s Gautam Engg. Works. The statement dated 17.2.94 of Sh. Shiv Narain, Proprietor of M/s Gautam Engg. Works was incorrect, misleading and unbelievable. It was almost impossible that a second hand motor supplied in 1988 could be recognized after a period of 6 years and that too from the photographs.

Ø Further their production figures were considerably lower in comparison to units operating with the aid of power. They also submitted a chart showing comparative figures of fabric processed and electric units consumed for the period of six months from Feb, 94 to July, 94 with corresponding figures of Feb, 93 to July, 93 and also of preceding period of six months from Aug, 93 to Jan, 94. From these figures it was evident that practically there was no difference in the production and electric units consumed which also proved that no processing of fabric was done with the aid of power
.
Ø The statement dated 23.2.94 of Sh. Saka Ram Meghwal said to be an electrician was also recorded at the back of them which could not be relied upon and used against them unless Sh. Saka Ram was produced for cross examination. He was never employed by them and on enquiry it came to their knowledge that he was an employee of M/s Kamla Industries and was an illiterate person and could not write his statement. It appeared that the CE officers had written his statement according to their convenience and it was not read over and explained to him before obtaining his signature.

Ø Further they submit that after completion of inspection on 12.2.94 Sh. Gautam Chand was surrounded by a number of officers in uniform. He was made to write statement in his own hand writing. Sh. Gautam Chand had requested the officers that he was frightened and perplexed and was not in a fit state of mind to write his statement. But on receiving threat of arrest from the officers, he started writing his statement as dictated by the officers and he was not allowed to write true facts. Sh. Gautam Chand retracted his statement on 14.2.94 vide letter dated 14.2.94 addressed to the Supdt, CE Anti Evasion, Jodhpur with a copy to the Collector CE & Customs, Jaipur. A copy of the retraction was handed over personally in the office of the Collector after obtaining initial. Due to threatening attitude of the officers faced by Sh. Gautam Chand on 12.2.94, he could not muster courage to deliver the letter personally to the Supdt, CE Division, Jodhpur and therefore, letter of retraction dated 14.2.94 was dispatched under postal certificate dated 15.2.94. The retraction was prompt as held by the Appellate Tribunal in the case of Premier Soaps and Detergents [1989(40)ELT197] that retraction communicated after five days was not very late. The retracted statement had no evidentiary value because it could not be relied upon without independent corroborative evidences as held by Bombay High Court in the case of Akhater Hussain Moson [1991(55)ELT. 327].

Ø They submit that there was no evidence that electric motor purchased on 2.2.94 from M/s Diamond Gums Pvt Ltd was ever used for processing of fabric because it was found in a separate room away from desizing and bleaching equipments and it was not installed. Figures of production and clearances of 1437362.65 Sq. Mtrs. of processed cotton fabrics and 30,50,513.68 Sq. Mtrs. of man-made fabrics mentioned in the Show Cause Notice were also not correct. Bill wise work sheet prepared by the Dept. revealed that 5, 29,765.77 Sq. Mtrs. of cotton fabrics and 18,58,629.58 Sq. Mtrs. of man made fabrics processed by M/s Kamla Industries, an independent unit, had been included in the above figures. They had processed and sold only 9, 07,596.88 Sq. Mtrs. of cotton fabrics and 15, 91,883.28 Sq, Mtrs. of man made fabrics manually without aid of power during the relevant period on which no duty was leviable. There were other discrepancies in the sale figures and amount of duty. There was a difference of 20,049.10 Sq. Mtrs. in the quantity sold involving duty of Rs. 10,024.55 on particular dates i.e. 6.10.92, 4.11.92 and 17.11.92 in respect of man made fabrics. There was an excess calculation of duty of Rs. 1,66,027/- due to wrong application of rate of duty in respect of clearances of cotton fabrics during the year 1990-91 and 1991-92. The average electric consumption of electric bulbs, tube lights, fans, pumps and air conditioner etc., which were found installed in their unit at the time of survey on 23.2.94 and mentioned in the Panchanama also, was about 3460 units as per certificate dated 26.8.92 issued by Sh. Jawahar Lal Moondra, Chartered Engg., Which was approximately equal to the actual average monthly consumption of 3433 units.

Ø Further in the Show Cause Notice it was alleged that M/s Kamla Industries were engaged in printing of cotton and man made fabrics and had no facility for any other process. It was also alleged that they purchased grey fabrics from various parties and got the process of desizing and bleaching done from M/s MCSC and the process of stentering was got done from M/s CT. As already explained all the three units were separate legal entities and no transaction could be conducted without the support of documents which were bound to be received in books of accounts of the concerned units connected with the transaction. The Department had not produced any evidence in support of these allegations. The allegations were based on suspicion and surmises which could not take the place of proof.

Ø They submit that in the show cause notice confiscation of goods and imposition of penalty was proposed on the grounds that the they along with two other units were undertaking manufacturing of goods with the help of electricity on which excise duty exemption was not available under notification No.48/1990-CE dated 20.03.1990. The confiscation of goods was ordered by the adjudicating authority but the Order in Original was set aside by the Commissioner (Appeals) vide Order in Appeal No. 15/CE/JPR/96 dated 13.02.1996. The Order in Appeal was upheld by the Appellate Tribunal vide Order No. A1874/97-NB (SM) dated 03.11.97. Further, Civil Reference Petition filed by the department against the above order was rejected by the Hon'ble Rajasthan High Court, Jodhpur. Thus the order of the Tribunal which was rendered exactly on the same facts and circumstances had become final and it was binding on the departmental authorities as per judgments/ decisions given underneath:-

(a) Union of India Vs. Kamalakshi Finance Corporation Ltd. [1991(55)ELT 433 SC]

(b) Government of Andhra Pradesh and Others Vs. A.P Jaiswal and Others.[2001 IAR SCW 101]

(c) Commissioner of C.Ex., Vadodara Vs. Adarsh Re-Rolling Mills [2002(143)ELT-533(Tri.LB)]

Reasoning of the Commissioner:-

v The Commissioner held that the officers of C.E. Division, Jodhpur had visited the factory premises of M/s MCSC and also premises of two other adjacent units namely M/s KI and M/s CT on 12-2-94 and 23-2-94. During the visit it was found that all the three units were situated in the same compound and there were no demarcations or boundary walls to separate these units and entry of the units was also common. The partners of M/s MCSC and M/s CT and proprietor of M/s CT were all relatives and two units namely M/s KI and M/s CT were having a common electricity connection. Recovery of an electric motor from a small room situated in the premises of M/s MCSC and the fact that pulley and fan belts were found attached with bleaching/desizing machines and absence of handles for operating desizing and bleaching machines manually and presence of electric switch board fitted on the wall near these machines led to the conclusion that electricity was being by M/s MCSC in desizing and bleaching of cotton and man made fabrics. The officers also found evidences regarding use of electricity by M/s CT in stentering of cotton and man made fabrics. Therefore, some processed fabrics and some equipments used in the manufacture of above processed fabrics were seized, by the officers. For the seizure portion a common show cause notice C. No. P/13/AE/17/94/5051-56 dated 9-8-94 was issued to all three units and for the past liability a show cause notice C. No. V(52&55)15/Seiz-Off/124/94/2139-40 dated 21-6-95 was issued to M/s MCSC and M/s CT.

v They observe that issues pertaining to seizure portion of this case were considered by the Assistant Commissioner, C.E. Division, Jodhpur in her Order in Original No. 78/1994-CE dated 28-10-94 and it was held that all the three units were one and electric power was used by MCSC in desizing and bleaching of cotton and man made fabrics and by M/s CT in stentering of cotton and man made fabrics. While passing the above Order, the adjudicating authority had placed reliance on panchanamas dated 12-2-94 and 23-2-94, photographs of the premises taken on 12-2-94 and 23-2-94 which also indicated absence of any mechanism to run the machines manually, recovery of one 5 H.P. electric motor from a small room inside the premises of M/s MCSC and recovery of fan belts from the pulley attached with bleaching machine. The confessional statement dated 12-2-94 of Sh. Gautam Chand Sancheti was not relied upon, in the absence of any corroborative evidence because it was retracted subsequently on 14-2-94. M/s MCSC filed appeal against the above Order in Original and Commissioner (Appeals) vide Order in Appeal No.15/CE/JPR/96 dated 13-2-96 decided the case in favour of M/s MCSC. The Department filed appeal against the above Order in Appeal and the Appellate Tribunal decided the case vide Final Order No. A/874/97-NB(S/M), dated 3-11-97 after detailed examination of evidences in the case. Findings of the Tribunal were as follows:-

"The show cause notice refers to denial of benefit of two notifications. As far as respondents are concerned, notification no. 253/82 CE would not apply in as much as it is not their case that the processes undertaken by them were limited to those shown in the table to the notification. The benefit of other notification, namely 48/90 (Sl. No.3) would not be available where the fabrics were processed with the aid of power or steam. The question to be decided in this appeal is whether the respondents' unit did process the fabrics with the aid of power or not and whether such use of power by the other units would deny the benefit of this notification to unit No. 1 i.e. the present respondents, in view of the allegation that the three units should be considered as one unit.

As regards, the allegation of unity of three units, the show cause notice makes three allegations. The first one is that the owners of the three units were inter-related. It has come in the show cause notice that unit No. 1 was a partnership concern consisting of two brothers, namely; Ganpat Lal & Gautam Chand. Unit No. 2 was managed by the partnership concern consisting of the wives of two brothers. The third unit was a proprietary concern owned by Smt. Kamla Devi, who was the wife of the brother in law of one of the partners in unit No. 1. I find that by itself this allegation has no meaning. The law is well set and that is where the units are owned by the partnership firm, the mere fact that some partners were common, would not go to establish the unity or commonality. In this case I find that one unit is proprietary and that no partners are common in the other two units. In the proceedings, it has not been brought out that the units were financially inter-dependent or that there was a common administration of all the three units.

The second allegation is that the power connection was common to unit nos. 2 and 3. Ld. Consultant submits that the respondents are no. 1 and that it has been their case at all times that no power was used in their unit and, therefore, on this allegation, the commonality cannot be established. The 3rd allegation in the show cause notice is that the fabric received for processing was shifted in between the units for completing various processes. The Id. Consultant had earlier mentioned that this was not so. No cohesive evidence has been disclosed in the show cause notice to sustain that all the three units were one. In the Assistant Collector's order there is no discussion at all on the aspect whether the three units were in fact one or not. In her order, she has found some fabrics seized from unit no. 2 belonging to unit No. 1. However, in the same order, as regards 3rd unit, she had accepted that the fabrics seized there from had come from an entirely different unit. On perusal of the show cause notice and also of the adjudication order, it cannot be held that the allegation in the show cause notice that three units were, in fact one, has been established.

Therefore, the question whether the benefit of notification 48/90 was available to the present respondents will have to be considered limiting the examination to that unit alone. It is the case of the department that in the premises, one electric motor was found. The Panchanama shows that fan belts were found attached to the two machines. The Panchanama also shows that some nuts were found near the two machines. In his statement, Sh. Gautam Chand Sancheti had claimed that he had purchased a motor about 10 to 15 days earlier. He had also claimed that preparations had been made to run the machines by securing belts, etc. and by fitting switch on the wall. In the statement, no admission was made to the effect that the machine was ever run by power. The statement was, subsequently, retracted by Shri Gautam Chand Sancheti. I find that the Assistant Collector in her order had not placed reliance on the statement, which was subsequently retracted in the absence of other corroborative evidence. Shri Rekhi submitted that the prayer in the present appeal was for restoration of the Assistant Collector's order and even if it was done, the statement could not be used against the assessees. On the limited point whether machine was physically used, I find that there was no admission in the statement at all. On the other hand, I find that the claim was made before both the authorities that the respondents had written a letter to the jurisdictional officer on 24.01.1994. In the letter, the advice of the department was sought as to the dutiability of the product if a motor was fitted with the machines. In this letter it was clearly mentioned that the motor would not be fitted until the department's clarification was received. The photocopy tendered by the Ld. Consultant shows that it was received by the department on 24.01.1994. This letter was shown to the Assistant Collector as well as to the Commissioner (Appeals,) in the submissions made by the assessees. I find no discussion on the contents of this letter in her order. In the appeal memo, the claim has been made that the motor was actually installed, but on seeing the officers, it was hastily disconnected. There is, no substantiation of this ground in the proceedings anywhere. Sh. Rekhi claimed that handles (hathis) were there on the machines showing that the machines were manually operated. The Panchnama has shown that there was no handle. The negative was scored out by Sh. Gautam Chand before signing the Panchnama. This has also been made a ground in the appeal memo. Shri Rekhi has shown a number of photographs indicating the existence of the handle. The photographs do not on their body, show that they relate to this case. I, therefore, do not place any reliance on those photographs. I, however, observe that if the negative was scored out by the respondents, if the department had furnished the same Panchnama as document relied upon, without taking corrective action, then the Panchnama has to be taken as it was furnished to the respondents. At this stage the department cannot make a grievance on this count.
Thus, on the basis of the evidence, including the Panchnama and the statements and the fact of the Panchnama does not show that the motor was proximate to the machines, it cannot be held that power was used for processing of the fabrics by the present respondents.
Even when the impugned order has to be up-held on these grounds, I take note of the submissions of Sh. Rekhi that at the material time, the provisions of the Central Excise law stood attracted in the case of Additional Duties of Excise only to the extent of collection of duty and did not authorise the officers to resort to imposition of penalty and confiscation of the goods. In this connection, he cited the Tribunal's judgment reported in 1997 (90) E.L.T. 343.
After carefully examined the various pleas made in the appeal memo and on examination of the documents, relied upon, I find no reason to interfere with the impugned order. This appeal from the Revenue, therefore, is rejected.”
The Civil Reference Petition filed by the department against the order of the Appellate Tribunal was dismissed by the Hon'ble Rajasthan High Court, Jodhpur vide order dated 02.03.2001.

v It is observed that in the present Show Cause Notice there were two Noticees i.e. M/s MCSC and M/s CT and it was issued for past liability under a single Show Cause Notice C. No. V(52&54)15/Seiz.-Off/124/94/2139-40 dated 21-6-95. The portion of the Show Cause Notice pertaining to M/s CT was adjudicated by the Commissioner vide Order-In-Original No. 12/CE/JP-II/1997 dated 12.11.1997 confirming the demand of duty mentioned in the Show Cause Notice. M/s CT filed appeal against the above order and the Appellant Tribunal vide Final Order No. A/429/99-NB dated 08.06.99 decided the case in favour of M/s CT. The findings of the Appellate Tribunal on the facts were as under:-
"We have carefully considered the pleas advanced from both sides. We observe from the impugned order that main evidence relied upon by the Commissioner of Central Excise is the evidence of G.C. Sancheti, who is only a partner of M/s. Mool Chand Sujanmal and has nothing to do with the appellant's unit. Commissioner's reliance on this statement is totally unwarranted. Although he has tried to justify it on the ground that nobody came forward from the appellant No.1, except G.C. Sancheti, on service of summon under Section 14 of the Act to the appellant. Nothing has been averred in the impugned order as to on which person the said summons were served on behalf of the appellant. If the summons have been served on G.C. Sancheti himself as appears to be the case, how could the proprietor of the appellant firm could know it?
Apart from that it is also pertinent to note that credentials of G.C. Sancheti should have been recorded in his statement as to how he could be aware of the functioning of the appellant's unit or in what capacity he was representing the interest of the appellant firm. If such simple common sense was not applied in recording the statement of G.C. Sancheti vis-a-vis the appellant herein, it becomes an unreliable statement so far as the appellant is concerned.
It is also relevant to note at this stage that G.C. Sancheti has retracted his statement only two days after i.e. on 14-2-1994. Adjudicating authority has termed this retraction as unreliable particularly when the said person did not confirm about the said retraction in his subsequent statement dated 23-2-1994. This finding of the adjudicating authority is also untenable. On looking into that statement, it is found that this statement is in the form of question and answers. No question has been put to G.C. Sancheti about his retraction statement dated 14-2-1994. Similarly, no such question was put to him in his statement dated 20- 6-1994.
Further, on perusal of the said statement, it is apparent that the summon under Section 14 for the appellant were never served on the proprietor of the appellant firm but on Shri Narendra Mahajan (employee). G.C. Sancheti is stated to have appeared on behalf of all three. Elementary care was not taken on serving summon on the proprietor and getting the proper authority from G.C. Sancheti for stating on behalf of the appellant.
Another feature of G.C. Sancheti's statement is that he exculpates his own firm M/s. Mool Chand Sujanmal regarding the use of power but inculpates the appellant. Such a statement, on basic principles, cannot be admitted against the appellant.
On the above grounds, Sancheti's statement cannot be relied upon to indict the appellant. Once this statement goes away, there is no evidence worth the name against the appellant. There is no eye-witness account on the days of raids for processing with the aid of power by the appellant. Thus the impugned order is not sustainable for lack of evidence. Hence, it is set aside and the appeal is allowed with consequential relief to the appellant."

v The Civil Reference Petition filed by the department against the order of the Appellate Tribunal was dismissed by the Hon'ble Raj High Court, Jodhpur vide order dated 10.10.06. Thus it is evident that both the issues to be decided in the present case have already been decided by the Appellate Tribunal and decisions of the Tribunal have been upheld by the Hon'ble Raj High Court, Jodhpur by dismissing the Civil Reference Petitions filed by the department against the decisions of the Tribunal. From the perusal of the case records they also find that there is no evidence or fact relating to the present case, which was not considered or discussed in the earlier orders passed by CESTAT, on the same facts.

v Accordingly, as the facts of these proceedings have been finally interpreted in favour of M/s MCSC & M/s CT. Therefore, the proceedings against M/s MCSC have also to be discharged because the final orders of the Hon'ble Rajasthan High Court have been accepted by the department.

Decision:-

Show cause notice discharged.

Conclusion:- On analyzing the above case, it is found that demand liability along with interest and penalty cannot be imposed merely on the assumptions and suspicion of the department and strong documentary evidences are required to be produced for confirming evasion of duty. The main issue involved in the present case was whether the three units situated in the same premises and having common related persons as the administrators of the three units could lead to the conclusion that they were infact one unit. Accordingly, it was held that the three units were separate legal entities.

************

Comments

PJ/CASE STUDY/ 2012-13/30
03 November 2012

Post a Comment

Query

Comments

PJ/CASE STUDY/ 2012-13/30 03 November 2012

Post a Comment

Query

PJ/CASE STUDY/ 2012-13/30
03 November 2012