ORDER
U.L. Bhat, President
1. Against the impugned order dated 31-12-1987 the Collector of Central Excise, Ahmedabad confirmed demand of Rs. 34,18,289.90 out of the demand of Rs. 38,42,721.35 made on the appellant in the show cause notice and also levied penalty of Rs. 5,00,000.00 on the appellant under Rule 173Q of the Central Excise Rules, 1944 (for short, the Rules).
2. Appellant is engaged in the manufacture of cotton fabrics and manmade fabrics falling under Tariff Items 19 and 22 of First Schedule of the Central Excise Tariff Act, 1975 (for short, the Act). Appellant was filing classification lists and price lists under RT 12 returns from time to time. Appellant was following self-removal procedure. The Preventive Officers of Headquarters, Ahmedabad on 2-4-1985 visited the premises of the appellant and verified the records and found that appellant had issued debit notes for extra amounts and collected the same from certain customers for certain kinds of cotton fabrics over and above the invoice value in the guise of banking charges, extra stamping, folding and packing charges. Appellant was preparing computerised statements which showed, in addition to showing partywise details of sales also, recovery of extra amounts on per metre basis from certain customers for certain kinds of fabrics. The contracts (Kabalas) entered into with the buyers referred to extra amounts by figures such as +37 or A37 from 1-4- 1983 to August 1983 as + AB or AC after August, 1983. Investigation showed that these referred to extra amounts charged per metre from the customers. These extra figures shown in the contract tallied with the figures in the computerised statements referred to as bank charges, charges for stamping, folding and packing. It was seen that extra charges had been recovered by way of stamping, folding and packing during the period 1982-83 to 1983-84 and extra charges by way of bank charges (DA) during 1984-85. The collection of these amounts had not been shown in the price lists, classification lists, RT 12 returns or other statutory records. If these extra amounts are reckoned, the value of cotton fabrics per metre would move from the lower value slab to the higher value slab attracting higher rate of duty. The differential duty liability for the three years would be Rs. 38,42,721.35. Annexure to the show cause notice gave the details. Since there was suppression of vital facts having bearing on the assessment and duty which could not have come to the knowledge of the Department without detailed investigation and there was also fraud and also deliberate misdeclaration, the proviso to Section 11A of the Act was invoked and show cause notice was issued to the appellant and some of its officers.
3. By letter dated 9-6-1986, the appellant informed the Collector of readiness to pay duty involved over and above the initial payment and Rs. 21,00,000.00 was paid in June 1986 without prejudice to their contentions.
4. In defence to the show cause notice, appellant stated that in certain cases extra folding, wrapping and packing was being made at specific request of buyers and this extra cost was not required to be reflected and was not reflected in the statutory records and payments were received under cover of debit notes. This was done under the bona fide belief that no extra duty was leviable on such extra folding, stamping and packing charges. They were not part of the normal prices which were being declared and approved from time to time. The Department was aware about such practices as the amounts covered by the debit notes were duly reflected in the account books and balance-sheets of the appellants and these documents had been examined by the Departmental Officers and Audit Parties from the Department and Accountant General’s office from time to time. The folding, wrapping and packing charges are to be regarded as charges for special packing at the request of buyers for convenience of transport and cannot be part of the assessable value. Appellant was selling goods through indenting agents and sole selling agents on principal to principal basis and there was no extra commercial consideration. The prices shown in the invoices were the only consideration. Similarly, banking charges and interest charges also cannot be included in the assessable value. They also pointed out what, according to them, were calculation errors in the annexure to the show cause notice to the tune of Rs. 12,35,645.00.
5. While the Collector rejected the contention regarding limitation and merits, he accepted that the amount claimed in the show cause notice was not correct and, therefore, confirmed the demand only to the extent of Rs. 34,18,289.90. This order is now challenged.
6. The following points have been urged on behalf of the appellant :-
(1) On the merits, the Collector was in error in adding extra amounts collected on account of special folding, wrapping and packing charges and DA commission charges to arrive at the assessable value.
(2) The show cause notice was barred by time.
(3) Certain errors of calculation committed in the annexure to the show cause notice have not been rectified.
(4) Penalty levied is not justified or, in any event, is excessive.
7. Point No. (1) – The period involved in this case is 1982-83, 1983-84 and 1984-85 and the dispute relates to certain extra payments collected from the wholesale buyers by the appellant for certain varieties of cotton fabrics without showing the charges in the invoices and raising separate debit notes. The show cause notice and the impugned order show that debit notes were being raised for charges described as :
(a) interest on payments charged beyond the prescribed period, OR
(b) for cash amount allowed on condition of payment within the prescribed period and failure to pay during the period, OR
(c) Extra charges for extra folding, extra stamping and extra packing on buyers’ demand, OR
(d) for DA commission charges.
The impugned order makes it further clear that the amount of duty demanded in the show cause notice was only on account of (c) and (d), that is, extra payment for extra folding, extra stamping and extra packing on buyers’ demand and also on account of DA commission charges and not on account of (a) and (b), that is, interest on delayed payments and cash discount allowed when the buyer failed to make payments in time.
8. There are certain admitted or proved facts :-
(a) The extra amounts referred to in the debit notes as extra payment for extra folding, stamping and packing and for DA commission charges were not shown in the excise records such as classification list, price list, RT 12 return etc.
(b) The extra amounts so collected were shown in IBM statements as “rate difference” per metre.
(c) These extra amounts so collected were shown in the accounts and balance sheets not as price of fabrics sold, but either as “interest/bank charges” or as “miscellaneous and other income.”
(d) Appellant was effecting sales through sole-selling agent to wholesale buyers on the basis of contracts or Kabalas. All the Kabalas showed the prices which were subsequently declared in the respective price lists but Kabalas relating to certain varieties of printed cotton fabric such as “Payal, Sajni, Nooni, Shalimar, Amardeep” indicated extra payments required to be made by secret code or notation, such as “+37”, “A37”, “+AB”, “+AC”, “+CJ” or “+GH”. This was admitted by the appellant’s Managing Director and sole-selling agent. The Managing Director also explained that A, B, C and so on represents 1 paisa, 2 paisa, 3 paisa and so on and J represents zero.
(e) The amounts so referred to in the Kabalas tallied with the amounts shown as “interest/bank charges” or “miscellaneous and other income” in the accounts and the amounts shown in debit notes as “extra charges for extra stamping, folding and packing” and as “DN commission charges”.
(f) There was no evidence to show that such extra work was done. The Kabalas do not refer to such extra work or requirement of extra payment over and above the prices shown therein.
(g) The extra amounts were collected only in relation to certain specified varieties of printed cotton fabrics.
9. The above circumstances lead to the definite conclusion that extra amounts were received only in regard to certain varieties of fabrics and not from certain buyers and the reasons for collecting such extra amounts as indicated in the debit notes and accounts were contradictory. The term regarding requirement of payment of such extra amount was conceived in secrecy and was indicated in secret code in the Kabalas. Secrecy, invariably is the badge of fraud. The Kabalas do not show that any extra work was done or extra facilility was offered by the appellant justifying such extra payments. The irresistible inference, in these circumstances, is that these extra amounts were collected not on account of extra folding, stamping or packing or on account of DN commission charges, but as additional amounts for the sale of fabrics. Hence, such amounts must be included in the assessable value under Section 4 of the Act. Point answered accordingly.
10. Point No. (2) – Show cause notice in this case was issued on 21-11- 1986 raising demand of duty for the period 1982-85. The period was beyond six months but within five years prior to the date of service of the notice. The notice can be held to be within time only if the proviso to Section 11A of the Act could be legitimately invoked. The Collector invoked the same on the ground that appellant has indulged in fraud, deliberate suppression of facts, false declaration and misdeclaration of prices of the fabrics in the price lists, RT returns and other statutory records. The appellant did not dispute that the contract for extra payments was not disclosed in the price list and collection of extra payment was not disclosed in RT 12 returns and other statutory records. Even in the IBM statement and the accounts and balance-sheets, the payments were not described as they were described in the debit notes. We have upheld the finding of the Collector that the extra payments were really part of the sale price of certain varieties of printed cotton fabrics. The Kabalas showed only the lower prices and the differential prices were referred to in secret code. Strenuous attempt to evade duty by fraudulent ways and deliberate suppression of truth and misdeclaration of value is patent and proved. Learned counsel for the appellant, on the basis of the decisions in Tamil Nadu Housing Board v. Collector of Central Excise, Madras – 1994 (74) E.L.T. 9 (SC), Cosmic Dye Chemical v. Collector of Central Excise, Bombay – 1995 (75) E.L.T. 721 (SC) and Pushpam Pharmaceuticals Company v. Collector of Central Excise, Bombay – 1995 (78) E.L.T. 401 (SC) contended that there was only mere omission to disclose full facts and at any rate, full facts have been disclosed in the accounts and balance-sheets and the accounts were being periodically audited by the officers of excise department and also by audit party of Accountant General’s office and excise officers were also visiting the factory. We have referred to the nature of the records and the factual information disclosed in the records and it is quite unnecessary to repeat the same. The state of the records referred to above clearly point to the guilty mind of the appellant. The important documents which lay bare the attempt of the appellant to evade payment of duty are the Kalabas and IBM statements. These are not documents mandatorily required to be furnished to the excise department. There is nothing to indicate that these documents were available to excise officers or the audit parties on the occasion of their visits to the appellant’s premises. If appellant bona fide believed that extra payments were not dutiable, the same would not have been indicated in the Kabalas in secret code and contradictory indications would not have been given in the debit notes on the one hand and the accounts and balance-sheets on the other. All these circumstances clearly establish the ingredients necessary for the applicability of the proviso to Section 11A of the Act. Therefore, the show cause notice was within time. Point answered accordingly.
11. Point No. (3) – The annexure to the show cause notice indicates the particulars of the relevant invoice values, extra amounts collected, the differential duty for each of the three years. The extra amounts collected were shown as Rs. 16,53,325.53, Rs. 18,09,415.50 and Rs. 18,92,408.00 respectively. In the reply to the show cause notice, factually, the appellant objected to Rs. 9,11,248.00 for 1982-83 and Rs. 1,47,204.00 for 1983-84, besides referring to an alleged calculation mistake regarding Rs. 18,585.00 for 1983- 84. Rs. 4,27,060.00 shown for 1984-85 was also objected to. The Collector deleted Rs.5,97,434.49 for 1982-83, Rs. 18,585.00 and Rs. 1,47,204.00 for 1983-84. We have gone through the discussion on these aspects in the impugned order. Learned counsel has not been able to point out any factual error committed by the Collector. Hence, we do not accept the contention that there were any actual errors committed by the Collector in quantification of extra amounts collected by the appellant towards sale price in the guise of DA commission charges and extra charges for extra folding, stamping and packing. If the extra amounts are taken into account, the higher slab rate will be attracted. No error of calculation also has been shown. The contention raised in point No. (3) is rejected.
12. Point No. (4) – It is contended by the appellant that there was no justification to impose penalty under Rule 173Q of the Rules and, in any event, the quantum of penalty imposed is excessive. The findings of the Collector which have been confirmed by us clearly show violation of Sub-rules (1) and (2) of Rule 9 of the Rules. The addition of extra amounts received by the appellant to the assessable value has led to liability of differential basic excise duty, additional duty, special excise duty and additional TCTA. It is contended that at the relevant time, the Additional Duties of Excise (Goods of Special Importation) Act 58 of 1957 rendered applicable for the levy and collection of additional duty only those provisions of the Act and the Rules relating to levy and collection of excise duty and the provision of the Act and the Rules relating to levy of penalty had not been made applicable. The provisions regarding offences and penalties in the Act and Rules have been made applicable only by the proviso in Section 3(3) of the Act 58 of 1957 as incorporated by Act 7 of 1986 with effect from 28-2-1986. Thus, it is argued that the element of differential additional duty should not be taken into consideration in quantifying amount of penalty. The confirmed demand of basic excise duty is around 63% of the total amount of confirmed duty. Having regard to all the circumstances of the case, we reduce the penalty amount from Rs. 5 lakhs to Rs. 3 lakhs.
13. In the result, we confirm the impugned order in all respects except regarding the quantum of penalty, which is reduced from Rs. 5 lakhs to Rs. 3 lakhs. The appeal is disposed of accordingly.