ORDER
G.R. Sharma, Member (T)
1. By the captioned appeals, the appellants have assailed the order of the Collector confirming the demand of Rs. 22,80,579.69, confiscating the goods and imposing a penalty of Rs. 5 lakhs on the company and Rs. 2 lakhs on Shri M.L. Suri, Director of the company.
2. The facts of the case are that the appellants are engaged in the process of woollen clothes on job work basis. Adjacent to this unit, there is another unit in the name of M/s. Vipan & Co. M/s. Vipan & Co. is owned by Shri M.L. Suri. Shri M.L. Suri is the Director of M/s. Essma Woollen Mills. Central Excise Officers noticed that M/s. Essma Woollen Mills were claiming the benefit of exemption under Notification Nos. 295/79-CE., dated 24-11-1979 and 344/86-CE., dated 19-6-1986 on the ground that the woollen shawls and fabrics were being subjected to the process of calendering with plain rollers in the premises of M/s. Vipan & Co. where the goods are claimed to be hand washed, whereas M/s. Essma Woollen Mills were carrying out the process of machine washing, stentering and calendering in their premises. It was alleged by the Revenue that M/s. Vipan & Co. was dummy unit floated by M/s. Essma Woollen Mills. Central Excise Officers visited the factory premises of M/s. Essma Woollen Mills on 25-10-1990. On perusal of the CL effective from 6-3-1986, it was observed that the appellants claimed exemption on woollen fabrics and shawls under Heading 51.07 and 62.02 of the CETA, 1985. It was claimed by them that these goods were received by them for calendering with plain rollers and were not subjected to any other process in the same factory under Notification Nos. 295/79 and 344/86-C.E.
3. The visiting officers conducted physical verification of the stock available in the factory premises of appellants. It was found that the goods stated to have been received from M/s. Vipan & Co. bore uniform pin holes on the width margins indicating that the same had been stentered on a stentering machine.
4. On 26-10-1990, premises of M/s. Vipan & Co were searched, it was observed that there were 3 workers; that a steel frame fitted with brass plates bearing iron pins was hung in the premises; that there was growth of large grass in the premises of M/s. Vipan & Co. indicating that no work of washing and drying was going on in that premises. It was alleged that this was deliberately done to give an impression that washing and drying was done in the past in the premises of M/s. Vipan & Co. Samples of shawls which were dried on the frames were taken.
5. Shri M.L. Suri, owner of M/s. Vipan & Co. in his statement dated 26-10-1990 admitted that the steel frames were rusty; that the pins also had a lot of rust around them; that the pins got detached from the brass plates; that M/s. Vipan & Co. had no office, no sign board; that time taken for drying one piece of six shawls on wire or on frame hanger was from 70 to 75 minutes; that the shawls dried on steel frames were 40% of the total washed shawls; that maximum 12 shawls could be dried on the frame at a time; that the requirement of steel frames for drying was not necessary; that the lay out of brass plates on steel frame was similar to that on the stentering machine.
6. For comparison of the goods actually washed in the premises of M/s. Vipan & Co. on 26-10-1990 with those lying in the premises of the appellants claimed to have been received from M/s. Vipan & Co., the samples were drawn. A sample of jacquard hand washed woollen shawl (washed and with pin hole on sides) was taken. A sample of washed woollen shawl cloth with pin holes on sides was taken. These samples were sent to I.T.I., Amrit-sar. The experts opined that the samples were washed woollen cloth which had been stentered on stentering machine. Experts also noted that the fabrics bore uniform pin markings which were possible only if a piece of fabrics was put on stentering machine. They also took into account the feel of cloth and the uniform width of cloth and rough out its length while coming to the conclusion that the samples could not be only of hand washed woollen fabrics. About the sample of jacquard shawl, the experts opined that the same was hand washed, sun dried and not stentered, as the pin marks were uneven, irregular and missing in some places which was not possible if the piece of fabric had been put on a stentering machine. As the goods lying in the premises of M/s. Essma Woollen Mills appeared to have been processed on stentering machine and calendered but were shown to have undergone the process of “Calendering on plain rollers” were seized as they were considered liable to confiscation.
7. Shri M.L. Suri in his statement dated 29-10-1990 stated that M/s. Essma Woollen Mills was an independent processing house engaged in the processing of woollen shawls and fabrics, shoddy shawls, fabrics and blankets, man-made shawls, fabrics and blankets; that grey goods were being received from a number of merchants/manufacturers for processing, that no grey goods were owned by them; that two parties namely, M/s. Essma Woollen Textile (P) Limited and M/s. Ess Emm Family Trust were major suppliers of grey fabrics to them. Shri M.L. Suri stated that he was Karta of HUF who were owner of M/s. Vipan & Co.; that they were engaged in the washing of woollen fabrics and shawls; that 60% of their business was from M/s. Ess Emm Family Trust; that after hand washing, they were sending goods in toto to M/s. Essma Woollen Mills for calendering on plain rollers.
8. SCN was issued to M/s. Essma Woollen Mills and Shri M.L. Suri asking them to explain as to why duty amounting to Rs. 22,80,579.69 on 1,98,669 shawls and 24057.34 sq. meters of woollen fabrics valued at Rs. 4,35,36,411.35 during the period 1986-87 to 1990-91 should not be demanded and why the seized goods should not be confiscated and why a penalty should not be imposed.
9. In reply to the SCN, they submitted that the shawls received by them were manufactured by different parties on powerlooms and they were known and marketed as such; that neither calendering nor stentering bring about a transformation in the shawls or lead to the emergence of new product having a distinctive name and thus processing was not manufacture for levy of central excise duty; that the process of calendering and stentering has not been specified as the process of manufacture; that they have been filing CLs for shawls claiming rates of duty payable under Notification No. 344/86-C.E. and 108/86-C.E.; that the Notification No. 108/86 had no application to shawls; that these CLs have been approved; that M/s. Vipan & Co. was not a dummy unit; that all shawls being manufactured by the industries in Amritsar and Ludhiana were being hand washed by dhobis, sun dried and sent to processing houses for calendering on plain rollers without attracting duty of excise; that the grey fabrics came directly to the processing houses and were there; that M/s. Vipan & Co. was a separate legal entity assessed under the Income Tax Act maintaining current account in the Oriental Bank of Commerce, purchased the items required for washing of fabrics, receiving payment employed the staff including one regular worker, some casual workers on requirement; that M/s. Vipan & Co. incurred expenses on chemicals themselves; that the operation carried out by M/s. Vipan & Co. were only washing drying by dipping the fabrics in vessels containing water and detergent; that the grass prevented the fabrics from getting dirty or soiled; that there was nothing extraordinary about the steel frame locking rusty. It was submitted by them that in view of the above submissions, SCN may be dropped. After careful consideration of the submissions made, the Commissioner confirmed the demand and imposed a penalty and appropriated Rs. 2,50,000/- form security in lieu of confiscation.
10. Shri K.L. Rekhi, ld. Consultant submits that the shawls were specific items under chapter 62 relating to cloth accessories with nil rate of duty; that the Commissioner misapplied chapter 51 relating to woollen fabrics and its Notification Nos. 295/79-C.E. and 344/86-C.E.; that the correct Notifications are 108/86-C.E. and 65/87-C.E.; that the chapter 62 unlike chapters 51, 52, 54 and 55 relating to fabrics, did not have any deemed manufacture Note relating to processing; that there was only one stage duty on shawls; that this duty is chargeable as soon as a marketable shawl emerged; that this stage is off-the-loom stage; that in the vast rural market as well as poor urban consumers, shawls, lohis, blankets etc. are purchased and used without processing. Ld. Consultant submits that the processing like dyeing, printing, embroidery etc. are undertaken on some shawls to cater the tastes of a different strata of well-to-do consumers. Ld. Consultant submits that the very fact that it is the department’s own case that M/s. Essma Woollen Mills received the shawls from merchants like Dev Textiles proves that the shawls were sold by weavers to merchants; that it clearly indicates that the shawls as produced by weavers were marketable products. Ld. Consultant submits that the one stage duty on shawls under chapter 62 could only apply to manufacturers of shawls; that once a marketable and usable shawl had been produced by the weavers, it remained a shawl; that the processing activity like that of M/s. Essma Woollen Mills did not give rise to any new product with a different name, character and use; that independent processors like M/s. Essma were out, so far as Chapter 62 is concerned. In support, he cites and relies upon the decision of the Apex Court in the case of J.G. Glass Industries Limited [1998 (97) E.L.T. 5].
11. Ld. Consultant submits that the entire demand relates to both shawls and woollen fabrics and is time barred; that on the day of surprise visit by the Central Excise Officers, the stenter was found in operation in M/s. Essma but not on shawls and disputed fabrics and that in Vipan & Co. three workers were found engaged in hand washing the shawls. It was contended by him that during the material period 315 visits and surprise checks were undertaken in M/s; Essma by the officers of various rank; that in none of these visits and checks the stenter was found being used for undeclared shawls and fabrics; that M/s. Essma had been filing CLs and RT 12 returns for dutiable goods and non-dutiable goods regularly. He submits that the chemical examiner had given his opinion about stentering of the fabrics in some cases and that in some other cases chemical examiner was not sure. He submits that the opinion was subjective and contentions cannot form the sole basis for levy of duty. He submits that the pin marks were produced by the brass plates pins on the drying frame on which the shawls were hung in Vipan & Co. after hand washing. He submits that Shri M.L. Suri, Director of M/s. Essma and Karta of M/s. Vipan & Co. had stated so in his first statement recorded on 29-10-1990. He submits that release of 119 shawls having irregular pin marks proves that the appellants’ point that what was used was the drying frame and not the power operated stenter. He submits that the appellants had led the evidence of an independent expert who had opined that a stenter frame will produce pin hole marks similar to those produced by the power operated stenter; that this view was partly confirmed by the chemical examiner. He submits that the use of power operated stenter is only Department’s assumption seen by no one and based on no evidence. He submits that it is well settled law that test reports on samples drawn from current lots cannot apply retrospectively to 4% years back period. He submits that the customer merchants have given affidavits and certificates that they had sent their goods for calendering only and that on verification their current lots were found to be without pin holes and released, yet the adjudicating authority has included their past liability (for 1986-87 and 1987-88 etc.) in the quantification for demand on mere assumption.
12. Ld. Consultant submits that the small quantity of woollen fabrics were grey, unprocessed i.e. calendered and therefore chargeable to nil rate of duty under chapter 51 or under Heading 51.07 read with Notification No. 295/79-C.E. and 344/86-C.E. He submits that there was no evidence placed on record about financial involvement between M/s. Essma and M/s. Vipan & Co. nor there was any flow back of profit from M/s. Vipan & Co. to M/s. Essma. He, therefore submits that the allegation that M/s. Vipan was a dummy unit of M/s. Essma remains unsubstantiated and unproved. He submits that in view of the above position, the appeals may be allowed.
13. Shri A.K. Prasad, ld. SDR submits that every point of allegation has been dealt at length by the Commissioner and rendered findings. He reiterates the findings of the Commissioner and submits since every point was considered at length, the appeals may be rejected.
14. Heard the rival submissions. Perused the case law and the evidence on records. The first allegation is that M/s. Vipan & Co. was creation for availing the benefit of exemption notification. For becoming dummy unit, the first pre-requisite is the source of funding and the second is financial flow back from one unit to other. In the instant case, Shri M.L. Suri was the Director of M/s. Essma Woollen Mills and Karta of M/s. Vipan & Co. We have examined detailed allegations but we find that no evidence has been placed by the Department to prove that there was common funding of both units and that there was flow back of profit from one to the other. We find that M/s. Essma was limited concern also and limited concern is a separate and distinct identity from the Director or the Managing Director of the company. Thus M/s. Vipan & Co. cannot be termed as dummy unit of M/s. Essma Woollen Mills.
15. Regarding the goods hand washed and dried up the stenter frames, we find that stenter frames were installed in the premises of M/s. Vipan & Co. On the date of visit of the officers, there was long grass and stenter frames appeared to be rusty indicating thereby that there was not recent use of the frames and grass also indicated the same thing. However according to the appellants, this was a lean season during the summer when very little work was done and there was peak season during winter then much work was done. When the visit was undertaken it was the opening of winter, the work in the premises of M/s. Vipan & Co. may be less. Thus it will be only presumption to hold that hand washing and sun drying was not being done in the premises of M/s. Vipan & Co. Some samples were tested. Expert opinion was collected by both sides where the same samples on testing did not give same result but different results. Experts produced by the Department opined that the machine stentering was done whereas the expert produced by the appellants indicated that drying was done on stenter frames. Moreover, we find that the samples were taken on the date of visit of the officers and the demand has been raised subsequently for the last 4% years. Results and the samples taken on particular date or time cannot legitimately be applied to all cases of clearances during the last 41/2 years. In that some more evidence was needed which was not collected and placed on record. As against this the appellants got evidence from the field that the shawls were being sent for hand washing and sun drying. Stenter frames were being used only to ensure that the shawls did not shrink in the course of drying. Having regard to the above discussion, we hold that the sufficient material has not been collected to apply the contentious test result of samples drawn in the month of October, 1990 to clearance starting from 1986 onwards.
16. In regard to classification of the product, we find that the appellants have been claiming that they had been declaring the goods as shawls and had filed CLs classifying them under Chapter 62. Shawls were not manufactured by the appellants. There is ample evidence to show that the merchants and other customers were sending the shawls to the appellants under Chapter 62. There is no deeming provision for treating certain processing as manufacture. Shawls were fully manufactured before they were sent to the premises of the appellants. They were sent to the appellants by the customers/merchants. Since the admitted position is that they were fully manufactured, duty would have been paid on them at the time of clearance from the factory of manufacture. No further duty was payable in view of the fact that classification of shawls under Chapter 62 has not been contested, therefore, shawls cannot be subjected to further duty. Insofar as woollen fabrics are concerned, it has been contested by the appellants that they were classifiable under chapter Heading 51.06 and 51.07 and were exempted from payment of duty under Notification No. 295/79-C.E. and Notification No. 344/86-C.E. Therefore no duty was chargeable. We hold accordingly.
17. On limitation, it was argued that no one has seen that the shawls and woollen fabrics were being subjected to process of stentering in stentering machine run with the aid of power. A number of officers had visited their factory and none had seen the shawls and woollen fabrics in dispute subjected to the process of stentering. On the contrary stenter frames were found installed in the premises of M/s. Vipan & Co. who subjected the woollen fabrics to the process of hand washing and sun drying on the stenter to avoid shrinking. Thus, we find that even on limitation aspect, the appellants have a strong case.
18. In view of the above findings, we set aside the impugned order and allow the appeal. Consequential relief, if any, shall be admissible to the appellants in accordance with law.