V.T. Raghavachari, Member (J)
1. The appellant is Shri Annasaheb Bapu Bhagate. A show cause notice had been issued to him and three other persons with reference to the 4 powerlooms acquired by each of them and installed in Village Nandani. In a survey conducted by the officers of the Textile Commissioner, Bombay it had been discovered that the textile permits on the basis of which the licences had been initially issued to the owners of the powerlooms at Ichalkaranji (from whom the appellant and three others had acquired the powerlooms) was fake and forged.
2. Thereupon show cause notice had been issued to the said four persons and on receipt of their reply adjudication proceedings had followed. By his order dated 7-12-1980 the Asstt. Collector of Central Excise, Kolhapur rejected the contentions of the appellant and the other three. He confirmed the duty demanded under the show cause notices. The appeals preferred by the said four persons against the said order was dismissed by the Collector of Central Excise (Appeals), Bombay by his order dated 30-3-1982, Shri Annasaheb had preferred a revision petition to the Central Government against the said order which, on transfer, is now being dealt with and disposed of as an appeal before this Tribunal.
3. We have heard Shri D.M. Nargolkar, Advocate and Shri M.S. Nargolkar, Advocate for the appellant and Shri Vineet Ohri, SDR for the respondent Collector. We enquired whether the other three persons have also questioned the order in question by way of revision or otherwise. Shri Nargolkar stated that he has no information on the said matter. 4. At the inception, Shri Nargolkar stated that as the show cause notice had been issued under the provisions of Rule 10 which had been subsequently repealed on 17-11-1980 under notification 177/80, the further continuation of the proceedings was for that reason itself invalid. But when the attention of Shri Nargolkar was drawn to the decision of a 5 Member Bench of this Tribunal in the case of Atma Steels Pvt. Ltd. v. Collector of Central Excise-1984 (17) E.L.T. 331 where it had been held that proceedings initiated with reference to rule or provision validly subsisting at the time of initiation of the proceedings can continue inspite of repeal or substitution of the original provision. Shri Nargolkar said that he had no further submissions to make on that matter as this Bench would be bound to follow the said decision of a 5 Members Bench. 5. The next submission made by Shri Nargolkar related to the period for which the duty demand could have been raised and confirmed. He submitted that the demand could have been made for the normal period of six months only and not for the extended period. He pointed out that the appellant had acquired the 4 powerlooms under the bonafide belief that the person from whom he acquired the same, had a lawful Textile permit issued in his favour in that connection by the Textile Commissioner and therefore, on purchase of the powerlooms the appellant would be entitled to work on the same after due transfer of the textile permit to his own name and that the forged nature of the permit came to the knowledge of the appellant only on the survey conducted by the officers of the Textile Commissioner's office. It was, therefore, contended that there had been no fraud or suppression of facts on the part of the appellant with intent to evade payment of duty and in the circumstances the duty demand could not be extended beyond the normal period. Shri Nargolker conceded that, as observed by the Collector (Appeals), the appellant had not made an application to avail special provisions as stipulated in Rule 96-I of the Central Excise Rules. 6. The contention of Shri Ohri was that the Asstt. Collector had properly taken into consideration all the relevant materials and had come to the correct conclusion that the appellant (and the three others) had also participated, in the fraud with reference to the issue of the forged permit and the subsequent disposal of the powerlooms. He, therefore, contended that the lower authorities were fully justified in confirming the duty demand for the extended period of limitation.
7. There are circumstances which appear to us to militate against the conclusion of the lower authorities. Admittedly these 4 powerlooms were originally installed in Ichalkaranji with a textile permit in the name of the then owner of these powerlooms. After purchase of these powerlooms by the appellant they had been shifted to Nandani. It is seen from the order of the Asstt. Collector himself that at the time of such shifting the Central Excise Inspector at Ichalkaranji had issued the necessary shifting permit. This circumstance would suggest that the Central Excise authorities at Ichalkaranji were not merely aware of the functioning of these powerlooms but did not take objection to the textile permit with reference to which the said power-looms were functioning. They evidently did not suspect the genuineness of the said textile permit.
8. It is in view of the these circumstances that the appellant was evidently duped into believing that the textile permit under which the power-looms worked in Ichalkaranji was a properly issued permit and, under such an honest belief, he had purchased the powerlooms and had them installed in his premises and was working the same without any intent to evade payment of duty. No doubt, the lower authorities have referred to certain other circumstances from which they had concluded that there must have been, to use the words of Asstt. Collector, a conspiracy to defraud the Government of its revenue. The Asstt. Collector points out “It is not known, how, all of them had a desire to purchase the powerlooms only in June 1974, all of them met the same agent Shri Sadashiv Lole of Ichalkaranji who expired later, all of them, to their dismay, found the sellers of the powerlooms not traceable at Ichalkaranji and in respect of all of their powerlooms the duty was paid by some person who use to come from Ichalkaranji.” Shri Nargolkar submits that these transactions in respect of purchase and sale of powerlooms are usually conducted through agents only and similarly in the present instance also the appellant (and the 3 others) had entered into the transaction through the agent Shri Lole and that all of them honestly believed the genuineness of the textile permit. It has been already seen that even the Central Excise authorities either at Ichalkaranji or at Nandani had no reason to suspect the genuineness of the permit and that the fake nature thereof came to light several years later only on inspection by the authorities in the Textile Commissioner’s Office. In that view, the conclusion of the Asstt. Collector, accepted by the Appellate Collector, also in the manner mentioned earlier does not appear to be proper.
9. In view of the above conclusion, we are satisfied that this is not a proper case where the extended period of limitation under the proviso to Section 11A should be made applicable in making the demand for the payment of past duty. That would mean that the demand would be confirmed only to the extent of six months preceding the date of show cause notice.
10. In this case the show cause notice had been initially issued in 1979 demanding duty for the period of six months preceding thereto. But subsequently the said show cause notice had been replaced by a fresh show cause notice dated 9-5-1980 demanding duty for the entire period 4-11-1975 to 30-7-1979. To use the words of the Appellate Collector “however, subsequently these show cause notices were replaced by fresh 4 show cause notices issued in 1980.” It is, therefore, clear that the show cause notice issued in 1980 was not by way of mere amendment to the earlier show cause notice but in the place of and in substitution of the earlier notice. That would mean the effective show cause notice so far as the present adjudication is concerned was dated 9-5-1980. In view of our finding, earlier duty could have been demanded under this notice for the six months preceding that date only. But as earlier noted the period of demand was 4-11-1975 to 30-7-1979. Thus, the period of demand fell entirely beyond six months preceding the date of the show cause notice. That would mean that no duty would be recoverable.
11. In view of the above findings, this appeal is allowed and the orders of the lower authorities under which duty had been demanded, are set aside.