Case Law Details
Atco Industries Ltd Vs C.C.E. & S.T.-Daman (CESTAT Ahmedabad)
CESTAT Ahmedabad held that as there was no manufacture of fresh goods there cannot be a duty demand under rule 173H of the Central Excise Rules, 1944 merely for reason of clearance after 6 months.
Facts-
The main issue involved in these Appeals is whether “Polycarbonate Containers” were received back by Appellant – Atco Industries Ltd, in terms of Rule 173H of the Central Excise Rules, 1944 on account of rejection by buyers due to quality issues and which were repaired and cleared in terms of Rule 173H as contended by the Appellant or were in fact, fresh Containers manufactured and cleared in the guise of repaired containers as alleged by Revenue and therefore liable to duty.
Conclusion-
We find that the entire case built up by the department on the face of it is improbable. As is evident from the record, up to February 1999 AIL was clearing the Polycarbonate Bottles under the belief that the same were exempt from duty and duly reflecting such duty-free clearances in the RT-12 Returns. There could therefore be no motive or reason for AIL to wrongly declare freshly manufactured Bottles as repaired Bottles under Rule 173H.
We further observe that upon perusal of records, it is clear that on receipt back of the Bottles earlier cleared, AIL had duly filed with the Excise department, the intimation of receipt of the goods in Form Annexure A; the said Forms Annexure A were duly received by the department as is evident from Received Stamp/ signature of the Inspector. Also, the department has not produced any evidence to show procurement of excess quantity of raw materials required to manufacture the quantity of Bottles which the it alleges to be not return of repaired goods but freshly manufactured goods.
When no limitation period was stipulated in Rule 173H, no such limitation period can be introduced in the statutory Rule 173H by means of a Trade Notice which has no statutory force. Even otherwise since in view of above there was no manufacture of fresh goods there cannot be a duty demand merely for reason of clearance after 6 months.
Held that since no duty was payable on the said goods and since the said goods are not liable to confiscation, the imposition of fine and penalties on appellants are liable to be set aside.
FULL TEXT OF THE CESTAT AHMEDABAD ORDER
The present appeals are directed against the Order-In-Original No. DMN-EXCUS-000-COM-26-18-19 dated 18.12.2018 of Commissioner of Central Excise, Daman passed in De-Novo Proceedings in pursuance of this Tribunal’s Final Order No. A/1599-1605/WZB/AHD/11 dated 16.09.2011. The main issue involved in these Appeals is whether “Polycarbonate Containers” were received back by Appellant – Atco Industries Ltd, in terms of Rule 173H of the Central Excise Rules, 1944 on account of rejection by buyers due to quality issues and which were repaired and cleared in terms of Rule 173H as contended by the Appellant or were in fact, fresh Containers manufactured and cleared in the guise of repaired containers as alleged by Revenue and therefore liable to duty.
1.1 Facts relevant to the matter are that the appellant – Atco Industries Ltd (now known as Atcom Technologies Ltd) (hereinafter referred to as “AIL”)prior to March 1998 was engaged in the manufacture of electronic weighing scales and Time Recorders. In March 1998, AIL commenced manufacture of “Polycarbonate Containers/Bottles” of 20 litres capacity in addition to the manufacture of weighing scales and Time Recorders. Appellants, Sharad A. Doshi, Vineet A. Doshi and Vikram A. Doshi are Directors of AIL and T. N. Patel was an employee of AIL. Appellant, Atco Healthcare Ltd (“AHL”) was one of the purchasers of Polycarbonate Bottles from AIL.
1.2 The said Polycarbonate Bottles manufactured by the AIL were exempted from payment of duty under Sr. No.57 of Notification No.4/97-CE dated 1-3-1997. This Notification was rescinded by Notification no.14/98-CE dated 2-6-1998 and with effect from 2-6-1998 Polycarbonate Bottles were exempt from duty under Sr. no. 69 of Notification no. 5/98-CE dated 2-6- 1998, subject to condition No. 10 of the said Notification which stipulated that credit of duty paid on the products mentioned in column 2 of the Notification or on any other product manufactured in the same factory should not have been availed.
1.3 AIL in view of the said notification continued to clear Polycarbonate Bottles without payment of duty until January 1999 and the same were also reflected in the RT-12 Returns filed by AIL. In February 1999, AIL may have entertained a doubt that the said exemption may not be available on account of the said Condition No.10 and accordingly by letter dated 16-2- 1999, AIL on its own paid the duty on clearances of Polycarbonate Bottle made during the period after 2-6-1998 to 15-2-1999 and subsequent clearances were made by AIL on payment of duty.
1.4 It appears that AIL received rejection in respect of Polycarbonate Containers from its buyers on account of quality issues and it is a matter of record that AIL has given Intimation to department in Form Annexure A of received back polycarbonate containers rejected by buyer and the received back goods were accounted in Form V Register and thereafter Intimation of the clearance of the goods post reprocessing was also given and Invoices of clearances effected after reprocessing indicated that clearance was made under Rule 173H and contained cross-reference to the earlier Invoice.
1.5 The Commissioner of Central Excise, Surat-II issued a Show Cause Notice dated 7-3-2000 principally on the following two counts:
a) demand for duty of Rs.1,00,00,000/- on 80,000 pieces of Bottles which were cleared in March 1998 with benefit of exemption under Notification No.4/97-CE dated 1-3-1998 and which according to the department were manufactured in May 1998 and cleared in June 1998 after Notification No.4/97 was withdrawn and;
b) demand for duty of Rs. 1,10,67,942/- on 90,613 pieces of Bottles which were received under Rule 173H of the Central Excise Rules 1944 for repairs and which after repairs were cleared without payment of duty; the department’s case is that no such Bottles were received for repairs and that the Bottles which were shown to be cleared under Rule 173H were fresh Bottles manufactured and cleared without payment of duty.
1.6 The demand of the aforesaid duties were confirmed vide Order-InOriginal dated 31-8-2004. However, this Tribunal by its Order Nos. A/1599- 1605/2011-WZB/AHD dated 16-9-2011, set aside the demand for duty on 80,000 Bottles and remanded the matter in respect of the demand for duty on 90,613 Bottles received under Rule 173H on the ground that the Commissioner had not considered and dealt with the AIL’s submissions in respect of the said demand for duty on 90,613 Bottles.
1.7 In the de-novo proceedings with regard to the demand for duty on 90,613 Bottles received under Rule 173H, the Commissioner has again by Order-In-Original dated 18-12-2018 confirmed the demand for duty of Rs. 1,10,67,942/- on the said 90,613 Bottles and demand for duty of Rs.49,039/- on 490 Bottles received under Rule 173H. Further, the Commissioner has imposed penalty of Rs.1,39,83,421/- on AIL under Section 11AC of the Central Excise Act 1944. The Commissioner has also ordered confiscation of 23,887 Bottles which were seized in the factory on 17/18-9-1999 and has imposed redemption fine of Rs.35,83,050/- in respect of the same. The Commissioner has also ordered confiscation of land, building, plant and machinery and imposed redemption fine of Rs.5,00,000/- in respect of the same. Further, the Commissioner has imposed a penalty of Rs.25,00,000/- each on Atco Healthcare Ltd and Vikram A. Doshi and penalty of Rs.12,00,000/- each on Sharad A. Doshi and Vineet A. Doshi, and penalty of Rs.2,00,000/- on T. N. Patel. The Commissioner by her said Order has held as above by arriving at the conclusion that intimations given by AIL were fictitious and for that has mainly relied upon statement and the inward‑outward register maintained by security supervisor, GopalsinghRamsingh Bhandari of AIL showing movements of goods, RTO verifications indicating vehicles mentioned in invoices incapable of carrying the goods, purchase ledger of buyer, AHL showing fresh purchase and not repaired/reprocessed bottles and that AIL’s Annual Report showing much higher production of 1,32,591 bottles as compared to statutory central excise records. She further held that AIL was not eligible to exemption under sr. n. 69 of notification no. 5/98-CE dated 2-6-1998 on the ground that AIL has not fulfilled the condition no. 10 of the said notification.
02. Shri J C Patel & Shri Rahul Gajera, Learned Counsels appearing for Appellants assailed the aforesaid order of the Commissioner and interalia submitted that complete procedure under Rule 173H had been followed by AIL and that the show cause notice has not disputed the genuineness of the said documents/ records; he submitted that no reliance can be placed on the Statement of Security Supervisor, Gopal Singh Ram Singh Bhandari, as this Tribunal in earlier round of litigation vide Order dated 16-9-2011 has clearly held that his statement and registers maintained by him are unreliable. He further went on to submit that Commissioner could not have relied upon the Inward-Outward register maintained by the Security Supervisor to discredit the statutory documents and records maintained by AIL; that if Outward Register maintained by Security Supervisor is to be relied upon as evidence of movement of goods, only 8440 Bottles were cleared during 1997-98 and 1998-99. He further submitted that in any event no reliance can be placed on the statement of the security supervisor as although specifically requested, opportunity to cross-examine him was not given to the Appellants. As regards, the Commissioner’s finding that intimations filed under Rule 173H were fictious, he submitted that the said intimations duly bear the stamp and signature of the Inspector of Central Excise and the genuineness thereof has not been disputed in the Show Cause notice and no statement was recorded of the Inspectors who have signed the same. He further submitted that Departments’ case that vehicles were incapable of carrying the rejected and repaired goods is completely baseless. In this behalf, it is the submission of learned Counsel that if the vehicles were incapable of carrying the rejected and repaired Bottles, they also could not have carried the allegedly fresh manufactured Bottles. As regards, applicability of exemption notification no. 5/98-CE dated 2-6-1998 it is his submission that condition no. 10 prohibits taking of credit of duty paid on any other product manufactured in the same factory and does not bar taking of credit of duty paid on the inputs used in the manufacture of any other product manufactured in the factory and that since appellant-AIL have not availed credit of the duty paid on the bottles or of the duty paid on any other product manufactured in their factory, that are eligible for the exemption.
03. Shri G. Kirupanandan, learned Superintendent (AR) appearing for Revenue reiterated the finding given in the Order of the Commissioner. He pointed out that the Commissioner has in the Order-in-Original has rightly held that the rejected Bottles were not physically carried and received in the factory because on verification with RTO, it was found that out of the vehicles mentioned in statement of T. N. Patel, except for two trucks, the rest of the vehicles were found to be either two wheelers or taxis or tempos and that therefore these vehicles could not have transported the rejected goods. He further pointed out that rejected bottles was not supported by any lorry receipt/other transportation document and that there was no proof of payment of freight.
04. We have heard both the sides and perused the records. At the outset, we find that the entire case built up by the department on the face of it is improbable. As is evident from the record, up to February 1999 AIL was clearing the Polycarbonate Bottles under the belief that the same were exempt from duty and duly reflecting such duty-free clearances in the RT-12 Returns. There could therefore be no motive or reason for AIL to wrongly declare freshly manufactured Bottles as repaired Bottles under Rule 173H.
4.1 We further observed that upon perusal of records, it is clear that on receipt back of the Bottles earlier cleared, the AIL had duly filed with the Excise department, intimation of receipt of the goods in Form Annexure A; the said Forms Annexure A were duly received by the department as is evident from Received Stamp! signature of the Inspector on the said Forms Annexure A and that the fact that such Forms in Annexure A were duly filed with the department; that after receipt of the duty paid goods in the factory for repairs and after giving intimation thereof to the department, particulars of the same were duly recorded in Form V Register. The intimation to the department in Forms Annexure C was duly given regarding the Bottles having been received back on account of scratches and the same were subjected to buffing for removal of scratches and thereafter removed from the factory without payment of duty. The said Forms Annexure C duly bear the stamp of Received and the signature of the Inspector of Central Excise; that the removal of the goods after repair and after giving intimation in Forms Annexure C was done under the cover of Invoices which gave cross reference of the Invoices under which the goods were originally cleared on payment of duty. The said statutory records! documents viz. Forms Annexure A bearing Received Stamp! signature of the Inspector, Form V Register, Forms Annexure C bearing receipt stamp! signature of the Inspector and Invoices clearly establish the receipt of the goods cleared earlier, for the purpose of repairs, and the removal after carrying out of repairs. That the show cause notice has not disputed the genuineness of the aforesaid documents! records; no statement has been recorded of the central excise officers who had acknowledged the said intimations and thus in the face of the said statutory documents! records, the case of the department that no goods were received under Rule 173H for repairs and that what was cleared as repaired goods were in fact freshly manufactured goods cannot be sustained.
4.2 That the Commissioner has wrongly disregarded the aforesaid statutory documents on the ground that the Bottles received under Rule 173H, were not entered in the Inward-Outward Register maintained by the Security Supervisor, Gopal Singh Ram Singh Bhandari; that reliance placed by the Commissioner on the Inward-Outward register maintained by said Security Supervisor-Gopal Singh and on his statement is entirely misplaced. This Tribunal has in Para 13 of its earlier Order dated 16-9-2011, clearly held the statement of Gopal Singh Ram Singh Bhandari and the registers maintained by him are unreliable. That otherwise also commissioner having declined to give opportunity to cross-examine Security Supervisor, Gopal Singh Ram Singh Bhandari would exclude the said statement from consideration being irrelevant and no reliance could have been placed by Commissioner on the said statement. Commissioner has in Para 31.15 of the Order wrongly proceeded on the basis that no request for cross-examination was placed before her; that Commissioner has herself in Para 31.15 referred to the AIL’s defence submission in which it is pleaded that no reliance can be placed on the said Statement unless the Appellants are given an opportunity for cross-examination. That in fact this Tribunal itself has in Para 16 of the Order 16-9-2011 held that no reliance can be placed on the Statements without granting cross-examination.
4.3 That if the Inward-Outward registers maintained by the said Security Supervisor were complete record of the movement of goods into the factory and from the factory, the demand ought to be restricted to only such number of Bottles as find mention in the Outward Register; that as per the entries of Bottles which find mention in the Outward Register only 8440 Bottles were cleared during the period 1997-98 and 1998-99; thus, if the registers maintained by the Security officer were complete record of the movement of goods into the factory and from the factory, there is no question of demanding duty on 90,613 pieces of Bottles because as per the said Registers the number of Bottles cleared was only 8440. That on the one hand, Commissioner is relying on the Inward-Outward register maintained by the Security Supervisor to discredit the statutory documents and records maintained by the AIL and on the other hand Commissioner is disregarding the fact that as per the said Registers the number of Bottles cleared was only 8440 during 1997-98 and 1998-99. In the circumstances, inward-outward register maintained by security supervisor is not reliable at all.
4.4 That Department’s case that Bottles received in December 1998 could not have been received since some of the vehicles in which the Bottles were received as per statement of T. N. Patel and RTO reports were found to be incapable of carrying the Bottles is also not tenable. That as per the statement of T.N. Patel, these very vehicles carried the goods after repair and therefore if these vehicles could not have transported the rejected and repaired Bottles, they could also not have transported freshly manufactured Bottles. Therefore, the case of the department that under the guise of repaired Bottles, fresh manufactured Bottles were transported cannot stand on this ground also.
4.5 That similarly department’s case that receipt of rejected Bottles was not supported by any lorry receipt/ other transportation document and that there was no proof of payment of freight is again not tenable in as much as what applied to receipt of rejected Bottles and their transport after repairs, equally applied to clearance of freshly manufactured bottles. The allegation of clearance of freshly manufactured Bottles is equally not supported by any document or proof of payment of freight.
4.6 That the Commissioner’s finding that rejection of Bottles was without any reasonable ground or that the nature of the defects were such as required remaking of the Bottles cannot be appreciated without there being any evidence in support thereof. That in this behalf AIL has taken stand that the rejection of the Bottles occurred during the initial period of manufacture on account of problems with the machinery for which the matter was also taken up with the suppliers of the machinery and as stated by T. N. Patel in his statement dated 22-11-1999 the bottles were rejected on account of scratches which could be rectified by process of buffing.
4.7 The Commissioner has relied on Purchase ledger of Atco Healthcare Ltd for the year 1998-99 and held that since in the said Purchase Ledger, the transactions are shown as Purchase, it follows that what was cleared by the AIL to Atco Healthcare were not return of repaired goods but were clearances of freshly manufactured goods. The said finding of the Commissioner cannot be agreed with for the reason that perusal of the said Purchase Ledger shows reference of the Invoice numbers and the Invoices in turn mention that the clearances are under Rule 173H and the said Invoices give the cross reference of the Invoices under which the goods were earlier cleared on payment of duty. Further, the said Ledger does not show a single payment made by Atco Healthcare towards the said transactions; shows that these were not purchases of freshly manufactured goods. On the other hand, department has not produced any evidence of payment by Atco Healthcare in respect of the said clearances. Also, upon perusal of sales return ledger and the chartered accountant’s certificate it is clear that the effect of the returned goods was given in the accounts in the next financial year 1999- 2000.
4.8 The Commissioner has held that since as per the AIL’s Annual Report for 1998-99 there was production of 1,32,591 bottles in 1998-99, the clearances have to be of fresh manufactured bottles and not return of bottles after repair. The appellant’s submission in this behalf is that the said production figure of 1,32,591 Bottles is an obvious error; as per pages 27 and 28 of the said Report by consuming 73918 kgs of Polycarbonate granules in 1997-98 there was production of 82,855 Bottles in 1997-98 and therefore it is inconceivable that by consumption of 78514 Kgs of Polycarbonate granules in 1998-99, as shown on page 28 of the said Report, there could be production of 1,32,591 Bottles in 1998-99; obviously therefore the said figure of 1,32,591 includes clearances of repaired bottles which were mistakenly taken as purchases and which mistake was rectified in the next financial year. That upon perusal of records, it appears that the actual consumption of Polycarbonate granules in 1998-99 was even less than 73918 Kgs. The said figure included 64,000 kgs of imported granules which though purchased and imported in 1998-99 were lying in Customs Bonded warehouse and were cleared from customs only in September 1999 as would be evident from the two Ex-Bond Bills of Entry for home consumption.
4.9 That it is settled legal position as laid down in the following judgments that a case for clandestine removal of goods cannot be said to have been made out merely by relying on the figures in the Annual Report:
- CCE V UNIVERSAL POLYTHELENE INDUSTRIES-2001 (130) ELT 228.
- UTKAL GALVANIZERS LTD V CCE – 2003 (158) ELT 42
- CCE V VANIFAB ENGINEERS P. LTD – 2006 (205) ELT 893.
4.10 That the department has not produced any evidence to show procurement of excess quantity of raw materials required to manufacture the quantity of Bottles which the department alleges was not return of repaired goods but freshly manufactured goods. It is settled law that in the absence of evidence of purchase of raw materials to manufacture the quantity of finished goods alleged to be clandestinely cleared, no case for clandestine removal can be said to have been made out. Reliance is placed in this behalf on the following judgments:
- VISHWA TRADERS P.LTD V CCE – 2012 (278) ELT 362
- CCE V VISHWA TRADERS P. LTD – 2013 (287) ELT 243 (GUJ)
- COMMISSIONER V VISHWA TRADERS P.LTD–2014 (303) ELT A24 (SC)
- FACT PAPER MILLS LTD V CCE – 2014 (314) ELT 449
- ARYA FIBRES P. LTD V CCE – 2014 (311) ELT 529.
The finding of the Commissioner that absence of evidence of purchase of excess raw materials does not negate allegation of illicit clearance is contrary to the law laid down in the aforesaid decisions.
4.11 That the details of the quantity of raw materials procured by the Appellant-AIL are reflected in their Stock Register, and as explained in the Appellant’s submissions contained in their letter dated 25-9-2008 submitted on 26-9-2008, it is impossible to manufacture the quantity of Bottles which the department alleges was freshly manufactured. The Commissioner’s finding of clandestine removal of goods cannot be agreed with without their being evidence of procurement of such quantity of raw materials as is required for production of the goods alleged to be clandestinely manufactured and cleared.
4.12 That as regards the issue of eligibility to exemption, serial No.69 of Notification No.5/98-CE dated 2-6-1998 grants exemption to All goods of headings 39.23, 39.24 and 39.26 except goods of Polyurathanes, insulated ware and certain bags and sacks and fabrics. The goods in the present case are Polycarbonate Bottles of heading 39.23 and they are not hit by the said three exceptions. The said exemption is subject to condition No.10 which is duly fulfilled in the present case. The said condition 10 requires that credit of duty paid on the products mentioned in column 2 of the Notification or on any other product manufactured in the same factory should not have been availed. That there is no dispute to the fact that Appellant-AIL have not availed credit of the duty paid on the Bottles or of the duty paid on any other product manufactured in their factory. The Commissioner erred in proceeding on the basis that since AIL had availed Modvat Credit of the duty paid on the inputs used in the manufacture of another product viz. Weighing Scale manufactured in the same factory, Condition No.10 was not satisfied. The Commissioner erred in not appreciating that Condition No.10 prohibits taking of credit of duty paid on any other product manufactured in the same factory and does not bar taking of credit of duty paid on the inputs used in the manufacture of any other product manufactured in the factory. Reliance, in this behalf is placed on the decision of the Tribunal in the case of CCE v Burman Laboratories (P) Ltd.- 2004 (176) ELT 375 in which it has been held that “what condition no. 10 provides is that the manufacturer does not avail of credit of duty paid on any product manufactured in the same factory. This condition does not convey the meaning that the manufacturer should not avail of credit of duty paid on inputs which are used in respect of other products manufactured in the same factory. The condition clearly provides that the manufacturer should not avail credit of the duty paid on any products manufactured in the same factory”. Considering the above judgment, we are of the clear view the goods were otherwise also entitled to exemption from duty under serial no. 69 of the said notification no. 5/98-CE dated 2-6-1998.
4.13 That demand for duty of Rs.49,039/- is confirmed on 490 Bottles received under Rule 173H on the ground that the same were cleared after a period of six months from the date of receipt of the rejected goods under Rule 173H is also untenable. That there is no such stipulation of 6 months in Rule 173H. It is not open to the department to read into the statutory provision of Rule 173H, a limitation period which is not prescribed in the Rule. The Commissioner erred in relying on a trade notice which stipulated the said limitation period of 6 months. When no limitation period was stipulated in Rule 173H, no such limitation period can be introduced in the statutory Rule 173H by means of a Trade Notice which has no statutory force. Even otherwise since in view of above there was no manufacture of fresh goods there cannot be a duty demand merely for reason of clearance after 6 months.
4.14. We also find that Commissioner erred in ordering confiscation of 23,887 bottles. Out of a quantity of 1,15,440 bottles which were received back in the factory under Rule 173H, a quantity of 91,553 bottles were removed after repairs and the balance quantity of 23,887 bottles was physically found within the factory at the time of Panchnama made by the department. The Commissioner erred in ordering confiscation of these 23,887 Bottles on a mere presumption, without any evidence, that the same were freshly manufactured Bottles. In the absence of any evidence cited in the Notice that these Bottles were freshly manufactured, there is no warrant for confiscation of these Bottles. Further, in any event since these Bottles were within the factory and were not cleared or attempted to be cleared, there is no question of these bottles being liable to confiscation. The Commissioner erred in ordering confiscation of the said 23,887 Bottles under Rule 173Q (1) of the Central Excise Rules 1944 without specifying the particular clause of Rule 173Q (1) which according to the Commissioner is attracted in the present case. That in the absence of the particular clause of Rule 173Q(1) being specified in the Notice, the goods cannot be held to be liable to confiscation.
4.15 That in view of the above, since no duty was payable on the said goods and since the said goods are not liable to confiscation, the imposition of fine and penalties on appellants are liable to be set aside.
4.16 That as regards confiscation of land, building, plant and machinery and in imposition of redemption fine, since in view of above, the duty demand itself is unsustainable in law, the said order of confiscation and fine is liable to be set aside.
05. As per our above discussion and finding, we are of the considered view that the impugned order is not sustainable, hence the same is set aside. The appeals are accordingly allowed with consequential relief, if any, in accordance with law.
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