ORDER
T.K. Jayaraman, Member (T)
1. The appeals E/1009 to 1012/2004 have been filed against the Order-in-Original No. 07/2004 dated 04.08.2004 passed by the Commissioner of Central Excise, Bangalore-I Commissionerate and the appeal E/523/2005 has been filed against the Order-in-Appeal No. 117/2005 dated 29.01.2005 passed by the Commissioner of Central Excise (Appeals), Bangalore-I Commissionerate. The OIA No. 117/2005 has upheld the Order-in-original No. 2/2005 dated 14.02.2005 passed by the Joint Commissioner of Central Excise, Bangalore. The OIO No. 2/2005 deals with the same issue as in the OIO No. 07/2004 dated 4.8.2004 and exactly the same decisions have been arrived at. The OIO No. 7/2004 is for the period from 0104.2001 to 31.03.2003 and the OIA No. 117/2005 is for the period from 01.04.2003 to 30.09.2003.
2. The brief facts of the case are as follows:
The appellant, M/s. Vishwam Industries (Viswam for short), manufacture ‘Canon’ branded Kinetisers, a kitchen appliance similar to Hot Plate, on job work basis for M/s. Canan Technologies, Bangalore. The Central Excise officers conducted certain investigations. Based on the investigations, Show Cause Notices were issued to the appellants for confiscation of the seized goods and also for imposition of penalties under Rule 25 and 26 of the Central Excise Rules, 2002. Shri V.P. Viswanathan Nair is the Proprietor of the appellant unit M/s. Vishwam Industries. Smt. Betty Sebastian is the Proprietrix of M/s. Canan Technologies (CT in short). Shri V.D. Sebastian is the Chief Executive of M/s. Canan Technologies Pvt. Ltd. (CTPL in short).
2.1 The main charges against the appellants are as follows:
(i) Viswam manufactured and cleared excisable goods without obtaining Central Excise registration and without following the Central Excise procedures. Further the Canan branded Kinetisers manufactured by them are classifiable under CSH 8516.00 of the CETA. They are specified in terms of Sub-section (1) of Section 4A of the Central Excise Act under relevant Notification and are assessable to duty under Section 4A of the Act based on Retail Sale Price of the said goods.
(ii) Viswam, CT and CTPL are mutually interested in the business of each other.
(iii) The brand name of the goods is ‘Canan’. It is owned by Shri Mulchand Gangji Chheda, Proprietor of M/s. Canan Domestic Appliances. Hence, Viswam are manufacturing goods affixed with the brand name belonging to other person.
(iv) The factory of Viswam is situated at Attibele, Anekal Taluk and there is no proof that it is in a ‘Rural Area’ as per Notification 8/2001. Hence, the appellants are not eligible for the benefit of the above said notification.
(v) The turnover of the unit Viswam for 2001-2002 was Rs. 1,38,43,344/- and for the year 2002-2003 was Rs. 2,78,51,013/-. The duty short paid amounts to Rs. 66,71,097/-. In view of the above, penal proceedings were initiated.
2.2 The Adjudicating Authority/Appellate Authority held the following:
(i) The “Canon branded Kinetiser (Hot plates)” are classifiable under CSH 8516 of CETA 1985 and are liable to be assessed based on the MRP Valuation under Section 4A.
(ii) “Circuit Assembly” are classifiable under CSH 8542.00 and “Wire Kit” under CSH 8544.00 of CETA 1985.
(iii) Benefit of exemption vide Notification 8/2001-CX dated 1.3.2001 and 872003-CE dated 01.03.2003 are not available for the impugned goods.
(iv) Duty demand of Rs. 66,71,097/- for the period from 1.4.2001 to 31.3.2003 and Rs. 17,24,530/- for the period from 01.04.2003 to 30.09.2003 was confirmed under proviso to Sub-section (1) of Section 11A of CEA.
(v) Equal Penalty of Rs, 66,71,097/- under Section 11AC was imposed on M/s. Viswam Industries.
(vi) The following penalties were also imposed as given below:
Name Amount Rs. Imposed under Rule
M/s. Viswam Industries 5.00.000/- & Rule 25 of CER 2002
10,00,000/-
Shri V.P. Viswanathan Nair 1,50,000/- & Rule 26 of Central
Proprietor M/s. Viswam 2,00,000/- Excise (No. 2) Rules,
Industries 2001/Rule 26 of
Central Excise Rules, 2002
M/s. Canan Technologies 50.000/- -do
M/s. Canan Technologies Pvt. Ltd. 50,000/- -do-
Smt. Betty Sebastian Proprietrix 25.000/- -do-
M/s. Canan Technologies
Shri V.D. Sebastian Chief 2,50,000/- -do-
Executive M/s. Canan Technologies
Pvt. Ltd.
(vii) Interest under Section 11AB was demanded.
(viii) 1032 numbers of Canan Kinetisers seized at M/s. Viswam Industries, Bangalore and 234 numbers of Canan Kinetisers and 130 numbers of non-stick ware seized at M/s. Canan Technologies, Kerala, were held liable for confiscation. The RF imposed was Rs. 5,00,000/- and Rs. 70,000/- respectively.
3. The appellants strongly challenge the findings of the Adjudicating Authority.
4. Shri B.N. Gururaj, the learned Advocate, appeared for the appellants and Shri K. Sambi Reddy, the learned JDR for the Revenue.
5. The learned Advocate urged the following points:
(i) Based on the investigations, the DGGI Authorities seized 1032 numbers of finished Kinetisers on the ground that the appellant manufactured the goods without registration and cleared them without payment of duty. A Show Cause Notice dated 22.08.2003 was first issued. This Notice, at para 8.2, conceded the admissibility of exemption under Notification No. 8/2001-CE dated 01.03.2001. However, another Notice was issued dated 18.12.2003. This Notice proposed denial of exemption under Notification No. 8/2001. The value of the goods was determined at a higher sum of Rs. 4,16,94,357/-. The Notice demanded duty of Rs. 66,71,097/- and proposed imposition of penalty under Section 11AC; demanded interest on duty under Section 11AB and further proposed penalty under Rule 25 of the CER 2001 & 2002. The Notice also proposed separate penalty on the Proprietor under Rule 26. The two Show Cause Notices take different stands. While the first one concedes eligibility to exemption, the second one denies it.
(ii) The period of dispute is covered by two exemption Notifications viz. 8/2001-CE and 8/2002-CE. However, both the Notices and the impugned order deny the benefit of exemption only under Notification No. 8/2001-CE. In other words, benefit of exemption under Notification 8/2002 has not been denied. Therefore, duty demand ought to have been re-computed to reduce the liability after taking into consideration the exemption available to the first clearance of Rs. 100 lakhs during the year 2002-03.
(iii) If the value specified in the first Notice dated 22.07.2003 at para 8.2 had been adopted, its duty liability would have been reduced to Rs. 19,29,928/- instead of Rs. 66,71,097/-. By ignoring and failing to enter any finding on this important defence, the appellant has been saddled with fictitious liability of over Rs. 66 lakhs;
(iv) Even though the Show Cause Notice dated 22.08.2004 had conceded entitlement to benefit of Notification 8/2001-CE, the benefit has been denied. The Certificate issued by the Deputy Tahsildar has been rejected specious grounds. The denial of exemption is bad in law.
(v) In respect of OIA, the period of dispute is covered by exemption Notification 8/2003. However, the benefit under the Notification has been denied. The duty demand should have been calculated after taking into consideration the exemption for first clearance of 100 lakhs during the 2003-3004. This has not been done.
(vi) ‘Rural area’, in Notification 8/2001-CE, covers Village as defined in Land Revenue records and excludes from the scope of ‘rural area’, areas which fall under municipal committee, municipal corporation, town area committee, cantonment board or notified area committee, or any area notified by the Central Government or the State Government as urban area. Before rejecting the certificate issued by the Deputy Tahsildar, the respondent ought to have examined whether Attibele fell within the scope of any of the excluded areas and not looked at how upto date the Census data is.
(vii) The rejection of certificate issued by the Deputy Tahsildar is for specious reasons. When the certificate was issued, 2001 Census data was not available to anyone, either public or government. This data was released only in September 2004. No one could have issued the certificate based on non-existent information. The respondent expects the appellant and the Revenue authority to do the impossible, ignoring the maxim that law does not contemplate doing of the impossible (Lex non cogit ad impossiblia). Hence, the Deputy Tahsildar was justified in issuing certificate based on 1991 Census. Rejection of the certificate on the ground that it was based on 1991 Census is without merit and bad in law.
(viii) The respondent erred in holding that merely because the signatory of the Certificate was a Deputy Tahsildar, Attibele ceases to be a rural area. There is no basis for concluding that Deputy Tahsildar is associated with Town Panchayat or Town Area Committee. This reasoning is devoid of logic.
(ix) The appellant, a job worker, removed assembled Kinetisers in bulk pack of 8 numbers per pack. Under the circumstance, there is no obligation under the Packaged Commodities Rules to mark the retail price. In the absence of retail price, there was no manner in which value could have been determined under Section 4A. The order suffers from non-application of mind.
(x) It is not disputed that packing in retail carton and marking of MRP was done by the customer at the customer’s premises. Such packing and declaration of price was not the work of the appellant. Since Section 4A does not enshrine the concept of ‘related buyer’, the Commissioner could not have adopted the retail sale price declared by the customer for demanding duty thereon. The order is bad in law for this reason.
(xi) During the period of dispute, prior to amendment of Section 2(f) w.e.f. 28.02.2003, the activities of packing, repacking, labelling declaration or alteration of price did not amount to manufacture in respect of the goods specified in the Third Schedule. Thus, no duty could have been demanded at all on the Kinetisers removed from the appellant’s factory on job work basis in bulk packing, be it from the appellant or any other person.
(xii) The Commissioner has not relied on any material at all to conclude that the impugned items are not classifiable under heading 85.43 of the CET. Further, no material has been relied on to support his finding that they are classifiable under heading 85.16 of the CET. The change of classification is entirely based on the personal opinion of the investigators and the respondent. It is well settled law that personal opinion of the Adjudicating Authority cannot be a substitute for legally admissible evidence.
(xiii) The OIO has classified the items “Circuit Assembly” under CSH 8542.00 and “Wire Kit” under CSH 8544.00 of CETA 1985 whereas the appellants classify the same under CSH 8543.00. The OIA has upheld the classification given in the OIO. The appellant challenges the classification made by the lower authorities and contends that these items are to be classified under CSH 8543.00.
(xiv) When the goods are removed in bulk, there is no need to declare the retail sale price on the package. When there is no declared price on the retail package, there can be no question of applying Section 4A.
(xv) The Commissioner is bound to consider the applicability of CBEC Circular No. 625/16/2002-CX dated 28.02.2002 which allowed valuation of telephones removed in bulk packing under Section 4 and not under Section 4A, even though telephones were notified under Section 4A. The findings of the respondent do not even refer to the circular. Therefore, the impugned order is liable to be set aside for failure to follow the binding Circular of the Board. In this regard, reliance was placed on the ratio of Dhiren Chemicals v. CCE 2000 (139) ELT 3(SC).
(xvi) The Commissioner has ignored the question of jurisdiction. The duty demand is of Rs. 66 lakhs. But, the Notice has been issued by the Joint Director of DGCEI, who is not competent to issue Show Cause Notice. There is no finding at al on this issue. The proceedings in pursuance of Notice issued by the authorities lacking jurisdiction is void ab initio.
(xvii) The appellant acted on the written legal advise obtained by the customer M/s. Canon Technologies. Therefore the appellant held bonafide belief that the transaction is valid in law. Therefore, imposition of penalty is not justificable.
(xviii) Separate penalty could not be imposed both on the Proprietor and on the Proprietary concern. No finding has been given on this point.
(xix) With regard to interest, the liability is limited only to pay interest on duty paid at the time of investigation, being a sum of Rs. 69,088/-. Since the duty demand based on MRP does not survive in law, demanding interest on Rs. 66,71,097/- does not survive.
(xx) In respect of the OIA, the Commissioner (Appeals) erroneously records the period for the first quarter as 01.03.2003 to 30.06.2003 instead of 01.04.2003 to 30.06.2003. In terms of Section 11A(3)(ii)(a)(B), the Notice for the quarter ending 30.06.2003 ought to have been issued on or before 20.07.2004. Whereas the notice has been issued on 13.09.2004 and served on the appellant on 21.09.2004. Therefore, the Notice is barred by limitation by clear two months and one day in so far as the first quarter was concerned. Hence, the demand for the first quarter is liable to be set aside.
Hence the following prayer was made:
(i) Hold that Canan Kinetisers are classifiable under heading No. 85.43
(ii) Hold that Canan Kinetiser manufactured on job work basis and removed in bulk packing cannot be subjected to valuation under Section 4A of the CE Act.
(iii) Set aside the demand of duty of Rs. 66,71,097/- and Rs. 17,24,530/- on M/s. Vishwam Industries.
(iv) Set aside the penalty of Rs. 71,71,097/- & Rs. 10,00,000/-on M/s. Vishwam Industries.
(v) Set aside the separate penalty of Rs. 1.5 lakhs & Rs. 2 lakhs imposed on the Proprietor of M/s. Visheam Industries Shri V.P. Vishwanathan Nair.
(vi) Set aside the order of confiscation of Canan Kinetiser seized from M/s. Vishwam Industries and from M/s. Canan Technologies, Kerala and the redemption fine imposed.
(vii) Hold that the appellant is entitled to the benefit of exemption under Notification No. 8/2001-CE, 8/2003-CE, as an industry situated in ‘rural area’.
4. The learned JDR reiterated the findings of the Adjudicating Authority.
5. We have gone through the records of the case carefully. The main charge against the appellants is manufacture and clearance of goods without following the Central Excise procedures.
(i) Classification of the impugned items is relevant to the present case. The appellants claim classification of their products under CH 85.43 of CET whereas the original authorities have held the same to be under CH 85.16. In the OIO/OIA, there is no detailed discussion regarding the classification. In the present case, valuation under Section 4A of the Central Excise Act depends upon the classification of the impugned item. The determination of classification in the impugned orders is not satisfactory. Moreover, in deciding that impugned goods are to be valued on the basis of MRP, the original authorities have not considered the applicability of CBEC Circular 625/16/2002-CX dated 28.02.2002 which provides for valuation of goods removed in bulk packing under Section 4 and not under Section 4A.
(ii) The appellants had produced a Certificate from the Deputy Tahsildar to the effect that the factory is situated in a rural area. The lower authorities have rejected the Certificate on the ground that the Certificate refers to 1991 Census. It is the contention of the appellant that on that date, that was the only Census available. Further, the original authorities state that the Deputy Tahsildar is normally associated with Town Panchayat/Town Area Committee and, therefore, rejected the Certificate. In our view, proper grounds have not been spelt out for rejecting the Certificate issued by the Deputy Tahsildar. If Revenue has no trust in the Certificate issued by the State Government Officer, they could have approached the higher authorities in the hierarchy and verified the correctness of the Certificate. This has not been done. We hold that the lower authorities are duty bound to accept this Certificate and extend the benefit available to the appellant under Notification 8/2001 as well as 8/2002 & 8/2003.
In these circumstances, the entire duty liability has to be re-calculated. Therefore, we have no other option but to remand the cases to the original authority (Commissioner only) for deciding the issues de novo keeping in mind the Board’s Circular dated 28.02.2002 with regard to valuation and also for accepting the Certificate of the Deputy Tahsildar. Keeping the above points in mind, the matter should be re-adjudicated.
5.1 Needless to mention, the lower authorities should examine the jurisdiction of the Joint Director of DGCEI to issue Show Cause Notice demanding Rs. 66 lakhs in the light of the instructions applicable for the disputed period.
5.2 As regards the period from 01.04.2003 to 30.06.2003, it has been contended that the demand is hit by time bar. This should also be examined by the original authority. Therefore we remand the OIO as well as the OIA to the Adjudicating Authority (Commissioner).
5.3 As regards the two items viz. “Circuit Assembly” and “Wire Kit”, the appellants have not elaborated their contentions in the Grounds of Appeal. Since we are remanding the matter regarding classification of Canon Kinetisers, the classification of these two items may also be examined. The appellants shall furnish all the grounds for challenging the classification before the Adjudicating Authority.
5.4 Since the issue in both the Order-in-Original and the Order-in-Appeal is one and the same, we are remanding the matter to the Commissioner of Central Excise for de novo decision within a period of four months from the date of receipt of this order. In view of the above findings, we set aside the order of confiscation, demand of duty, imposition of penalties/fine, demand of interest, etc. and remand the cases for de novo decision, keeping in mind our observations in para 5(i) and (ii). The appeals are disposed of in the above manner.
(Pronounced in open Court on 20.07.2006)