ORDER
Shri S.S. Sekhon, Member (T)
1. The appellants are engaged in manufacturing of Cotton Yarn and Non Cellulosic Spun Yarn liable for duty under the Central Excise Act, 1944. They cleared the yarn for captive consumption after payment of duty at the spindle stage. The officers on a visit to the assessee’s premised on 05/12/1994 observed that clearance of such goods were also made to places situated outside the factory gate without discharging proper Central Excise duty leviable thereon. It was also learnt that 100% Cotton Yarn and Non Cellulosic Spun Yarn was sold to various buyers, without following procedures for clearances of excisable goods and without filing any classification list or and accounting the same in the production clearance and other statutory records. After necessary enquiries show cause notice was issued asking the assessee to Show Cause why:
“i) Central Excise duty amounting to Rs. 36,87,634/- (Rupees Thirty Six Lakhs Eighty Seven Thousand Six Hundred Thirty Four only) should not be recovered from them under provisions of Section 11A(1) of the Central Excise Act read with Rule 9(2) of the Central Excise Rules, 1944.
ii) Penalty should not be imposed upon them under Rule 173Q (1) of the Central Excise Rule, 1944.
iii) The 500 kgs. of ‘100% Cotton Yarn’ valued at Rs. 50,230/- should not be confiscated under Rule 173 Q (1) of the Central Excise Rule, 1944.”
2. The Commissioner after considering the reply found as under:-
(a) As regards the clearances alleged to have been made without accounting or payment of duty during the period 01/03/1994 to 31/12/1994, after recording that the appellant’s case was that all yarn manufactured duty was paid as spindle stage & the department’s claim was that the yarn cleared by the noticee Company outside the factory is not duty paid as on 27.02.94, as they had filed pre-budget day declaration of Nil quantity of yarn, and in subsequent months they have cleared the yarn more than the productions shown in their records, he finds that the quantity of the yarn cleared was not out of the duty paid yarn, but was unaccounted for yarn which had been cleared by the notice Company without payment of duty outside the factory during the period 01.03.94 to 31.12.94. He also found that claim of the noticee that the yarn cleared outside the factory was out of the duty paid yarn cleared for use within the factory is not correct. From the RT.5 statement submitted by the notice Company under their letter dated 02.01.98, in their defence, he found that they had used following quantities of cotton fibre for manufacture of yarn in the respective quarters as mentioned below and the total quantity on cotton yarn manufactured out of these and accounted for in their records was also as mentioned below:-
Quarter
Total Material Used
Total Quantity of yarn
mfgd.
Jan’94 to Mar’94
684825 Kgs.
380847 Kgs.
April’94 to June’94
354965 Kgs.
242340 Kgs.
July’94 to Sept’94
51 1332 Kgs.
355786 Kgs.
Oct’94 to Dec’94
47 1695 Kgs.
363786 Kgs.
20228 17 Kgs.
1342759 Kgs.
and concluded:-
“Thus during the period from 01.01.94 to 31.12.94 the noticee Company used 2022817 Kgs. of Cotton Fibre for manufacture of yarn and they have accounted for 1342759 Kgs. of cotton yarn in their accounts. According to norms published in the book “Process Control in Spinning by A.R. Garde and T.A. Subramanian”, published by Ahmedabad Textile Industry’s Research Association the percentage of recovery of cotton yarn from the cotton fibre is from 76.4% in the court group of 110-140 counts and 86% in the count group of 30-39 counts. For other counts, the yarn realization percentage is in between these two figures. If we take the minimum yarn recovery percentage of 76.4% out of the cotton fibre, then during the period from 01.01.94 to 31.12.94, the notice Company had manufactured at least 1545732.19 Kgs, while the notice Company have shown the recovery of the yarn in their records as 1342759 Kgs. Thus there is a shortage of 202933.19 Kgs, which was not recorded in the statutory records. However, if the calculation is taken for the counts which the notice have manufactured, the yarn recovery percentage is more than 80% and they suppressed production more than what is shown above. Therefore the yarn which have been cleared from the factory to outside parties cannot be the yarn on which duty was paid at spindle stage. Due to this reason the notice company did not disclose the fact of sale of the yarn to outside parties from the factory and did not submit the classification lists/price lists or price declaration and also did not submit the invoices to the department. This is also the reason why the notice Company was clearing more yarn than yarn shown as manufactured in each month from March onwards. Thus the production shown in their prescribed records was not the correct production. Therefore the claim of the notice that they have cleared the duty paid yarn outside the factory fails and is rejected.
(b) As regards the suppression of fats he observed, that the Central Excise officers during PBC Checks and Audit parties could not detect these removals as the assessee had deliberately recorded less production in the statutory account book which were checked and audited. The RT 12 returns submitted during the relevant period, clearances of yarn was shown only within the factory and no removal outside the factory gate were disclosed. Therefore, he held that provision of clause for extended period under Section 11A(i) of the Central Excise Act applicable in this case.
(c) He also found that since wholesale price of the yarn for sale to outside party was available that should be the base for assessment of Central Excise duty on the yarn cleared for use within the factory of production for captive consumption and the cost construction method of profit was not required to be applied. The differential duty as worked out in the notice was confirmed.
(d) He also held that claim of notices that yarn cleared outside the factory on payment of duty was not correct. Since it was neither shown by any documents that duty was paid nor the invoices issued for sale of yarn show the fact of duty payment which was required under Section 12A of the Central Excise Act. Whereas the invoices had shown Sales Tax and discounts, he found that had they paid excise duty, the same would have been shown on such invoices and therefore he ruled out abatement of excise duty price shown in the invoice for calculation on differential duty as claimed by the appellants.
(e) He also found that liability for penalty under Rule 173Q of the Central Excise Rules and that 500 Kg on 100% Cotton yarn seized in the premises which was not accounted was also liable for confiscation under Rule 173Q of Cental Excise Rules and ordered as follows:-
“i) I demand duty of Rs. 35,44,804/- from M/s. Ahmedabad Advance Mills Ltd., Ahmedabad under Rule 9(2) of Central Excise Rule read with proviso to Section 11A(1) of Central Excise Act, 1944.
ii) I order for confiscation of 500 Kgs. of cotton yarn valued at Rs. 50,230/- under Rule 173 Q of Central Excise Rule. However, M/s. Ahmedabad Advance Mills Ltd. are allowed to redeem this yarn on payment of redemption fine of Rs. 10,000/-, in lieu of confiscation. After redemption, this should be accounted for in the statutory Central Excise records and should be cleared on payment of duty.
iii) I impose a penalty of Rs. 20,00,000/- (Rupees Twenty Lakhs only) on M/s. Ahmedabad Advance Mills Ltd., Ahmedabad under Rule 173Q of Central Excise Rule, 1944.”
3. The appellant has pleaded –
(a) The mandate of Rule 9 and 49 of the Central Excise, Rules, 1944 has been ignored and the fact that duty paid yarn was removed for sale outside, duty having been discharged at spindle stage, has not been considered by the Commissioner.
(b) The fact of production of blended yarn being more than the consumption of Polyester fibre was due to the use of Cotton fibre is a fact available on record and has not been considered while analysing the RT 5 & RT 12 returns and if considered would lead to no concealment of production.
(c) Since at the stage of discharge of spindle stage duty the quantum available/required for sale to outsiders is not known and a small percentage was actually sold, the assessable values for captive consumption as arrived at by treating the sales and captive consumption at par was not called for valuation was to be under Rule 6(b)(ii) of the Valuation Rules.
(d) Daily production on reports & duty discharge at spindle stage are available. The invoices prepared for outside sales mention ‘yarn duty paid at spindle stage consolidated GP-1, prepared for duty production’ and copies of which were tendered have been ignored by the Adjudicator to arrive at of perverse conclusions of concealment.
(e) There is no ground to invoke the larger period.
(f) The norms applied by the Commissioners to arrive at to determine the concealed production viz. PROCESS CONTROL IN SPINNING’ by A.R. Garde & T.A. Subramanian published by Ahmedabad Textile Industry’s Research Association cannot be applied–as
– Recovery percentage of yarn based on the book is where usage is of Hi-Tech latest machine
– Quality of fibre & Type not considered.
– Variation on accord of labour, humidity & other factors required.
nor was the Book a relied upon document.
(g) No determination of norms under Rule 173E were arrived at
(h) No enquiry for purchase of yarn made nor any statement of concealment is on record.
(i) There was no requirement to show excise duty on invoices of yarn sold which had discharged duty at spindle stage.
(j) Corporation order is passed within considering the reason issue.
(k) Rectify as informed most called for.
4. After hearing both sides & considering the submissions it is found –
(a) Reliance of Material on which the appellants was not put to notice & re-consideration of the submissions on variation, in this case, calls for remanding the matter back for denovo consideration. The Commissioner should hear the appellants on the issues raised by them and thereafter arrive at his findings.
(b) Contested facts, as regards the endorsements on the invoices, are to be redetermined and a clear finding arrived at.
5. In view of the findings, the appeal is allowed as remand to the original authority to redetermine all issues afresh and thereafter arrive at findings on all the submissions being made by the appellants.
6. Appeal disposed as Remand.