Case Law Details
Paliwal Overseas Pvt. Limited Vs Commissioner of Central Excise & ST (CESTAT Chandigarh)
Paliwal Overseas Pvt. Ltd. prevails against Central Excise & ST in CESTAT Chandigarh. Detailed analysis of duty demand, penalties, and key legal arguments.
In a pivotal legal battle, Paliwal Overseas Pvt. Ltd. found themselves pitted against the Commissioner of Central Excise & ST. The case, decided by CESTAT Chandigarh, revolved around a significant demand for duty, substantial penalties, and complex issues concerning the Central Excise Act.
Introduction
The crux of the matter was rooted in the appellant’s purchase of grey yarn classified under Chapter sub-heading 5205.11. This yarn was subsequently sent to other manufacturers for dyeing, with the dyed yarn serving as a crucial component in the production of Handloom Durries and Rugs, falling under Chapter sub-heading 5702.90. These finished products enjoyed a nil rate of duty.
Revenue contended that the dyeing process amounted to ‘manufacture’ and, as such, the dyed yarn should attract Central Excise duty. Additionally, Revenue argued that since the final products benefited from a nil rate of duty, the appellants were ineligible for the concessions provided under Notification No. 67/95-CE dated 16.03.1995. Consequently, Central Excise duty on the intermediate goods, namely dyed yarn, was deemed payable by the appellants. The matter escalated with the issuance of a show-cause notice dated 10.01.2007, which covered the period from 01.03.2003 to 31.07.2003.
In this show-cause notice, it was alleged that during this period, the appellants had dyed a substantial quantity of yarn through job workers, resulting in a demand for Central Excise duty amounting to Rs. 1,59,75,117. Penalties were also proposed, including a penalty of Rs. 1,50,00,000 imposed on Sh. Avinash Paliwal, the Director of the company.
This case underwent prior litigation, where the Tribunal, in its order dated 31.05.2017, set aside the initial Order-in-Original, ruling that the show-cause notice was time-barred. In response, Revenue appealed to the Hon’ble High Court of Punjab and Haryana, leading to a significant turn of events. The Hon’ble High Court, on 23.03.2023, overturned the Tribunal’s order and remanded the matter for a fresh determination on both substantive and limitation-related aspects, affording due opportunity to all parties involved.
Detailed Analysis
The appellant’s counsel raised several critical points during the hearing:
- Limitation: The appellant argued that the entire demand was time-barred because no material information had been concealed from the department. They pointed out that they had consistently provided copies of job worker intimation under Notification 214/86–CE dated 25.03.1986 and intimation in Rule 12B regarding the dispatch of cotton yarn for manufacturing Durries. These declarations were made available to the department in 2004, during an investigation related to the grant of drawbacks for goods manufactured using grey yarn procured without duty payment from NHDC.
- Previous Show Cause Notice: The appellant’s counsel highlighted a prior show-cause notice issued on 05.08.2004 by the Commissioner of Customs (Preventive), New Customs House, New Delhi. Although this notice was later withdrawn based on CBEC’s circular No. 19/2005-cus dated 21.03.2005, it contained detailed inquiries and statements from the appellant and job workers. These job workers acknowledged that they engaged in manufacturing and dyeing on behalf of the appellant. The appellant argued that the department was already well-informed regarding their operations.
- Suppression of Facts: The appellant’s counsel contended that the department’s allegations of suppression of facts were unfounded. They referred to the Supreme Court’s consistent stance that to invoke the extended period of limitation under the proviso to Section 11A(1) of the Central Excise Act, there must be a positive act of misdeclaration or suppression of facts with intent to evade duty. They cited several relevant decisions to support this argument.
- Manufacture of Dyed Yarn: The appellant asserted that they merely had the yarn dyed by job workers. Therefore, the job workers should be considered the manufacturers of the dyed yarn, and if any duty was applicable to the dyeing process, it should be the responsibility of the job workers. The appellant maintained that they had not captively manufactured the dyed yarn, rendering Notification No. 67/95-CE irrelevant.
- Exemption Eligibility: The appellant emphasized that they were eligible for the benefits of Notification No. 67/95-CE. They argued that the dispute primarily revolved around the admissibility of the exemption granted by this notification concerning intermediate products, i.e., dyed yarn, used in the production of final products, handloom rugs, which were intended for export.
- Clearance for Export: The appellant contended that the clearance of goods for export should be governed by Rule 19 and the associated notifications, rather than being subject to the proviso to Notification 67/95-CE. They argued that since the entire quantity of goods they manufactured was exported, these clearances should not be considered for home consumption.
The Additional Registrar (AR) representing the Revenue reiterated the findings of the impugned order and cited a comparable case, Sheena Exports vs. Commissioner of Rohtak, which upheld the decisions of the adjudicating authority.
Conclusion
After meticulous consideration of the arguments presented by both parties and a thorough examination of the available evidence, the matter culminated in a judgment. The primary issue of limitation played a significant role in the final decision. Given the facts, it was established that the entire demand was time-barred.
Furthermore, on the merits of the case, it was evident that the appellant had exported all their finished products without any domestic sales. As the appellant had only engaged job workers to dye the yarn and no suppression of facts was proven, the imposition of penalties was deemed unjust.
In conclusion, the impugned order was set aside, resulting in a favorable outcome for the appellants in this long-standing legal battle.
FULL TEXT OF THE CESTAT CHANDIGARH ORDER
These two appeals are directed against the common impugned order passed by the Commissioner (Appeals) dated 18.01.2018 confirming the demand of duty amounting to Rs. 1,59,75,117/- and imposed penalty of equivalent amount under Section 11AC of Central Excise Act, read with Rule 25 of Central Excise Rules, 2002. Further, penalty of Rs. 1,50,00,000/- has been imposed on Sh. Avinash Paliwal, Director under Rule 26 of the Central Excise Rules, 2002. Both the appeals are arising out of the same impugned order passed by the Commissioner (Appeals), therefore, both the appeals are taken up together for discussion and decision.
2. Briefly the facts of the case are that the appellants were purchasing grey Yarn falling under Chapter sub-heading 5205.11. The part of the yarn used to be sent to other manufacturer for the purpose of dyeing. Dyed yarn was used in the manufacture of Handloom Durries and Rugs which were falling under Chapter subheading No. 5702.90 and the same were attracting nil rate of duty. It appeared to Revenue that since dyeing amounts to manufacture, the dyed yarn attracts Central Excise duty. It also appeared to Revenue that since the final product manufactured by the appellant was attracted nil rate of duty, appellants were not eligible to the benefit of Notification No. 67/95-CE dated 16.03.1995 and therefore, Central Excise duty on the intermediate goods, i.e. dyed yarn was required to be paid by the appellant. Therefore, the show cause notice dated 10.01.2007 was issued to the appellant covering the period from 01.03.2003 to 31.07.2003. It was alleged in the said show cause notice that during the said period, appellants got 16,64,532 Kgs of yarn dyed through job workers and therefore, Central Excise duty amounting to Rs. 1,59,75,117/- was payable by the appellant. Therefore, show cause notice proposed to demand Central Excise duty of the said amount. There was also proposal for imposing penalty on the appellant manufacturer and on Shri Avinash Paliwal, Director. The said show cause notice was issued by invoking proviso of sub-Section 1 to Section 11A of the Central Excise Act, 1944. For invocation of said provisions, it was stated in the said show cause notice that the appellant had not declared dyeing of grey yarn consumed captively for the manufacture of exempted goods i.e. Handloom Durries and Rugs, in their monthly ER-I returns and hence, suppressed the facts from the department.
3. This is a second round of litigation, in the first round of litigation the Tribunal vide its order dated 31.05.2017 set aside the impugned Order-in-Original and allowed the appeals of the appellant on time bar by holding that the show cause notice is hit by limitation. Against the said order, the Revenue filed the appeal before the Hon’ble High Court of Punjab and Haryana and the Hon’ble High Court vide its order dated 23.03.2023 set aside the order of the Tribunal dated 31.05.2017 and remanded the matter back to reconsider the issue and pass a fresh order on merits as well as on limitation by affording due opportunity to both the parties.
4. In this background, we have heard both the parties and perused of the materials on record.
5. Ld. Counsel appearing for the appellant submitted that the impugned order is not sustainable in law as the same has been passed without properly appreciating the facts, evidence on record and the law.
6. He further submitted that the entire demand is barred by limitation because they have not suppressed any information from the department. He further submits that they had furnished copies of job worker intimation under Notification 214/86–CE dated 25.03.1986 and intimation in Rule 12B regarding sending of cotton yarn for manufacturing Durries from various units to the department. He further submitted that the entire information was submitted by the appellant in the year 2004, during the course of investigation conducted by the department regarding grant of drawback in respect of goods manufactured by using grey yarn procured without payment of duty from NHDC.
7. He further submits that the earlier show cause notice dated 05.08.2004 issued by the Commissioner of Customs (Preventive) New Customs House, New Delhi which was later on withdrawn in the light of CBEC’s circular No. 19/2005-cus dated 21.03.2005. The copy of the said show cause notice dated 05.08.2004 was also forwarded to the Commissioner of Central Excise, Central Excise Commissionerate, Rohtak (Haryana) for information and necessary action by the Commissioner (Prev.) Customs, NCH, New Delhi.
8. He further submits that the in the said show cause notice detailed inquiry was conducted by the customs officers and statement of the appellant and all job workers of appellant were recorded by the customs officers and all the job workers admitted that they are doing manufacturing/dyeing on job work for the appellant and they further stated that grey yarn was sent to them by M/s Paliwal Overseas Pvt. Ltd. on challans and that the said yarn was got dyed by them from other firms and the final goods/dyed yarn were sent to the appellant.
9. The Ld. Counsel further submits that on 13.08.2004 the appellant intimated to the department that they had no facility of processing yarn for the purpose of dyeing and vide letter dated 13.08.2004 they had supplied the details of dyeing from job worker during the period from May 03 to July 03. He further submits that the Ld. Commissioner in his order at para 109 has recorded that the party has supplied information vide their letter dated 11.02.2005 whereas in fact all the information were already with the department and moreover the appellant also supplied the information vide their letter dated 13.08.2004.
10. He further submits that the adjudicating authority has simply rejected without any proper reasoning the investigation made by the Commissioner of Customs (Prev.), NCH, New Delhi and show cause notice dated 05.08.2004 where after the detailed enquiry it was clearly mentioned that the appellant has got their goods manufactured/yarn dyed from job worker. He further submits that the department in the facts of the present case cannot allege suppression of facts necessitating invocation of extended period.
11. He also submits that the Hon’ble Supreme Court has consistently held that there must be positive act of misdeclaration or suppression of fact with intent to evade payment of duty in order to invoke extended period of limitation under proviso to Section 11A(1) of Central Excise Act, 1944. For this submission, he relied upon the following decisions:
– Cosmic Dyes Chemical Vs. CCE Bombay [1995 (75) E.LT. 721 (S.C.)]
– Anand Nishikawa C. Ltd. Vs. CCE Meerut [2005 (188) E.LT. 149 (S.C.)]
– Gopal Zarda Udyog Vs. CCE, New Delhi (2005 (188) E.L.T. 251 (S.C.)]
– Pahwa Chemical Pvt. Ltd. Vs. CCE Delhi [2005 (189) E.L.T. 257 (S.C.)]
– Nizam Sugar Factory Vs. CCE A.P (2006 (197) E.L.T 465 (S. C.)]
– CC Mumbai Vs. C.M.S Computers P. Ltd. [2005 (182) E.L.T. 20 (S.C.)]
12. He further submits that in the present case, the appellant has got their goods manufactured/yarn dyed from job worker. The activity of yarn dyeing has been done by the job worker. In that circumstances, the job worker is the manufacturer of dyed yarn and if any duty payable on dyeing yarn then it is to be paid by the job worker. The dyed yarn by the job worker is not captively manufactured by the appellant. In that circumstance, notification 67/95-CE have no relevance to the facts of the present case.
13. Ld. Counsel further submits that the similar matter has already been settled in favour of other assessee by this court vide its Final order No. A/61084/2017 dated 31.05.2017 in the matter of M/s Abhitex International & M/s Pan Overseas. Ld. Counsel also submits that the appellants are entitled to the benefit of Notification No. 67/95-CE because the dispute in the present case mainly relates to admissibility of exemption granted by Notification No. 67/95-CE in respect of the intermediate products/dyed yarn used for the manufacture of final products (handloom rugs) which have been cleared for export.
14. He further submits that the restriction under notification No. 67/95-CE will apply if the excisable goods that are exempted or charged to nil rate of duty are cleared for home consumption without payment of duty. In such a situation the manufacturer will not be eligible for the benefit of this notification in respect of intermediate products coming into existence. In the present case since the entire quantity of goods manufactured was exported, these clearances cannot be considered as clearance for home consumption. He further submits that clearance for export will be governed by the provision of Rule 19 and the notification issued thereunder and will not be hit by the proviso to Notification 67/95- CE.
15. On the other hand, Ld. AR reiterated the findings of the impugned order. Ld. AR submits that in an identical case of Sheena Exports Vs. Commissioner of Rohtak reported 2013 (288) E.L.T. 560 (Tri.-Del.) wherein the Tribunal has dismissed the appeal of the appellant by upholding the decisions of the adjudicating authority.
16. We have considered the submissions of both the parties and perused the material on record. First of all we will deal with the issue of limitation because as per the appellant, the entire demand is barred by limitation. The appellant has been regularly filing the intimation/declaration/undertakings in terms of Notification No. 214/86-CE for removal of inputs i.e. grey yarn to independent processor for job work after filing requisite declaration and the copies of declaration have also been produced on record.
17. Further, we find that the entire information was available with the department firstly as early as when the show cause notice dated 05.08.2004 was issued to the appellant by the Commissioner of Customs (Preventive) NCH, New Delhi copy of which was also forwarded to the Commissioner of Central Excise, Rohtak who has passed the impugned order.
18. Further, the appellant itself supplied the information on 13.08.2004 and 11.02.2005 on the basis of which impugned show cause notice has been issued, therefore, the department cannot plead that there is suppression of fact, etc., necessitating invocation of extended period of limitation under proviso to Section 11A(1) of Central Excise Act and all the decisions cited (Supra) have held that suppression or misdeclaration with intent to evade duty has to be proved. Further, we find that the entire information regarding the appellant activity was in the knowledge of the department since 2003 & 2004 and the show cause notice was issued on 10.01.2007 which is beyond the normal period of limitation and therefore we hold that the entire demand is barred by limitation. In view of the following decisions :
– 1999 (109) E.L.T. 316 (Tribunal) J.S.L Industries Vs. CCE, Ahmedabad.
– 2007 (82) RLT 837 (CESTAT, Bang.) Bhuwalka Steel Industries Vs. CCE, Mumbai.
– CCE Vs. Prashant Electrode [2006 (196) E.L.T. 297 (Tri. – Del.)
19. Now, coming to the merits of the case, we find that there is no dispute with regard to the fact that entire finished products were exported under bond/LUT and there was no domestic sale by the appellant. The appellant has exported their final product without payment of duty under letter of undertaking and bond executed by them and accepted by the jurisdictional Assistant Commissioner of Customs, New Delhi and the show cause notice dated 05.08.2004 issued by Commissioner of Customs (Preventive) New Delhi was withdrawn in the light of CBEC’s circular No. 19/05-Cus dated 2 1.03.2005.
20. Further, we find that during investigation statement of job workers were recorded which is also mentioned in the show cause notice and all of them have admitted that they are doing manufacturing/dyeing on job work for the appellant and they have also admitted that appellants have been sending the grey yarn on challan and the said yarn was got dyed by them from other firms and the finish goods were sent to the appellant.
21. We may further note that the appellant informed vide letter dated 13.08.2004 that they had no facility for dyeing yarn in their factory and also supplied the details of the job workers from whom they got the yarn dyed. Since the appellant has got their goods manufactured/yarn dyed from job worker; in these circumstances, the job worker is the manufacturer of dyed yarn and if any duty is to be paid it is to be paid by the job worker. The dyed yarn by the job worker is not captively manufactured by the appellant and in that circumstance, the Notification No. 67/95-CE have no relevance to the facts of the present case.
22. Further, we find that the original authority has held that since the finish goods manufactured by the appellant are chargeable to nil rate of duty under heading 5702.09 the benefit of Notification No. 67/95-CE is not available in view of the proviso to the said notification. Further, we find that restriction under Notification No. 67/95-CE will apply if the excisable goods that are exempted or charged to nil rate of duty are cleared for home consumption without payment of duty. In such a situation the manufacturer will not be eligible for the benefit of this notification in respect of intermediate products coming into existence, but in the present case entire quantity of goods manufactured was exported and these clearances cannot be considered as clearance for home consumption.
23. In view of the above facts and circumstances, we hold that on merit the appellants are entitled to the benefit of exemption Notification No. 67/95-CE. Further, when the appellants are entitled to exemption, the imposition of penalty on the director is bad in law.
24. In the result, the impugned order is set aside by allowing both the appeals of the appellants.
(Order pronounced in the open court on 27.10.2023)
