ORDER
A.C.C. Unni, Member (J)
1. In this appeal the Order- in -Original passed by the Collector of Central Excise, Chandigarh dated 8-12-1994 confirming duty demand of Rs. 30,21,150.09 from the appellants and imposing a penalty of Rs. 10 lakhs on them is under challenge. Brief facts are : – the appellants are engaged in the manufacture of yarn. They are also, according to the appellants, engaged in the trading of yarn as well as woollen jerseys. They supply goods to the Director General of Supplies and Disposals (DGS&D), Government of India, against orders of various indentors. By show cause nonce dated 28-10-1988, the Department alleged that the appellants had mis-declared the composition of the yarn with intent to evade the Central Excise duty. It was alleged that during the period September, 1983 to July, 1988 the appellants had supplied 1,42,846.902 Kgs. of woollen worsted yarn to Ordnance Clothing Factory, Shahjhanpur as detailed in Annexure B and B1 to the notice. It was alleged that the appellants had mis-declared the composition of the yarn in the Central Excise gate passes for availing of exemption under Notification No. 224/79. The allegation was made on the basis that whereas the supply orders was for yarn for jerseys with 70% wool and 30% nylon, the declaration made in the Gate Passes was that the nylon content was less than l/6th of the total fibre content of the yarn which was much below the contract specification. It was also alleged that instead of declaring the goods under Tariff Item 18-B(ii) (erstwhile), appellants had declared the goods as falling under Tariff Heading No. 18-B(i) (erstwhile). The extended period of limitation was also invoked while issuing the show cause notice.
2. The matter was adjudicated after considering the appellants’ reply and after considering the submissions made during the personal hearing before the adjudicating authority.
3. Appearing for the appellants Ld. advocate Shri L.P. Asthana submitted that even during the hearing before the Collector it had been pointed out by the assessee that the yarn supplied contained less than l/6th part of nylon falling under erstwhile Tariff Item No. 18-B(i) and therefore they were eligible for the benefit of the Notification No. 224/79. This could be verified from the concerned authorities or the DGS&D. Bills of various parties from whom the said yarn was purchased by appellants during the period had also been produced in support. Furthermore, there was no requirement under the terms of the contract with the DGS&D that the yarn must be manufactured by the appellants in their own factory. Therefore, the appellants had been supplying the yarn to the DGS&D after purchasing them from the market since it was not possible for the appellants to supply the entire goods manufactured in their own factory. For such supplies, it was not required to maintain any records under the Central Excise Rules. The charge of evasion of duty on yarn weighing 1,42,846.902 Kgs supplied to the DGS&D during the material period was therefore denied. It had also been submitted before the Collector that their spinning unit was working under the close control and watch of the Central Excise Department and since appellants were a L-4 licencee they were maintaining registers in the prescribed form showing receipt and consumption of various fibres and consumption of yarn manufactured therefrom. Statutory classification lists were also filed from time to time which were approved. Central Excise officers had also been visiting the factory premises and frequently conducting checks of production and verification of stocks. Revised samples of yarn had also been drawn and subjected to laboratory tests. At no point of time the declaration made in the gate passes had been found to be incorrect. Appellants had therefore submitted that the burden of proving the allegation about mis-declaration was on the Department. The appellants had also contended that they did not have sufficient number of spindles to operate sufficient number of shifts for manufacturing the quantity of yarn which was allegedly manufactured by them in a clandestine manner. Appellants had produced expert opinion to show that they could not have manufactured the alleged quantity using the existing machinery. The appellants had also argued before the lower authority that it was incorrect to place reliance on the letter dated 9-8-1989 issued by the Director (Coordination), DGS&D to come to any conclusion about the total quantity of goods supplied to the DGS&D was being produced entirely in the appellants’ own factory since the said Director had no knowledge whether any part of the goods supplied were procured by the appellants from outside sources. There was no warrant to assume that the declaration in the acceptance of tenders by DGS&D meant actual manufacture by the appellants. It could also very well include supplies made by the appellants to the DGS&D after procuring the yarn from outside sources. Reliance placed by the Department in the inspection reports of various inspecting authorities relating to the goods to be supplied was also contested by the appellants on the ground that those was not sufficient material to infer that the goods were manufactured by the appellants. The goods that were inspected were no doubt at the appellants’ premises, but it did not necessarily imply that it consisted of only the factory premises and not the precincts of the factory. Ld. Counsel submitted that it was important to note that when the appellants’ premises were searched, no excess of goods or any discrepancy in the appellants’ statutory records were noticed. No evidence of any suppression of production or clandestine removal had also been noticed during the search and verification. It was therefore wrong on the part of the Collector to come to the conclusion about clandestine production and removal only on the basis of certain inferences drawn from the letters issued by the Director (Co-ordination) of DGS&D and the terms of the acceptance of tenders in contracts, concluded with the DGS&D.
4. Ld. Counsel also submitted that appellants’ submissions relating to time bar had not received any consideration from the lower authority and the Collector had given no finding on the question. The allegation of mis-declaration and suppression of facts had been made in respect of only two gate passes and not in relation to the huge quantity of goods supplied to the Ordnance Clothing Factory. Moreover, having regard to the fact that the Central Excise Officers were visiting/inspecting the appellants’ factory on various accounts during the very same period the charge of suppression of facts was untenable. Ld. Counsel submitted that inasmuch as the Collector in the impugned order had given a specific finding that the appellants had not traded in the goods whereas the show cause notice itself contain no allegation on this aspect barring the allegation that except for the goods of the two consignments mentioned in the show cause notice which were manufactured in the appellants factory, the other goods were also manufactured in their factory.
5. Ld. Counsel relied on the following case law in support of his submissions:
(1) Rishab Refractories Pvt. Ltd. v. CCE Chandigarh - 1996 (87) E.L.T. 93 (Tribunal) (2) Eros Metal Works (P) Ltd. v. CCE -1989 (43) E.L.T. 361 (Tribunal)
6. Defending the impugned order, Ld. SDR submitted that even as per the appellants’ own admission, they had capacity to manufacture on an average 80 Kgs. of yarn per day. The allegation of clandestine production and removal of the quantities mentioned in the show cause notice was very much within the said capacity. He referred to the certificate given by the Technical Expert stating that he could not say anything about the previous period. Further, in the declaration given to the DGS&D for the supply of yarn, the appellants had declared that they would be supplying the yarn from their “own production”. The letter from the Director (Co-Ord) of DGS&D had confirmed the position that the contractor has to supply goods from “his own” production facility. This clearly ruled out the possibility of any contractor under a DGS&D contract supplying the goods procured by him from outside sources. As regards mis-declaration, the Collector had observed that as per the DGS&D rate contract the composition of the yarn was to be 70% wool and 30% nylon.
7. After considering the submissions of both sides and on perusal of the record, we find that the Collector has identified the basic issue before him as the determination whether the noticee had manufactured the yarn themselves or they had supplied it to the DGS&D after procuring it from the market. He had dismissed the assessee’s claim that it was not possible for them to manufacture the contracted quantity of yarn within the capacity available in their factory and had sought to rely on the evidence given by Shri Y.P.S. Bedi, an expert on the subject. The Collector had however, noted that statement given by the expert did not say anything about the capacity of the factory during the period 1983-1988 which was the relevant period for consideration and in relation to which clandestine production and removal had been alleged. As regards the claim of the appellants that there was no bar under the contract with the DGS&D for supplying the yarn after obtaining the fibre from the outside sources, reliance has been placed on the letter dated 9-8-1989 from the Director (Co-Ord) DGS&D stating that since the contractor had declared that he would supply the goods of “his own” make, the appellants could not claim that they could procure fibre or yarn from outside and supply it to the DGS&D in terms of the contract. He had also found that in the pre-inspection report conducted by officers of the DGS&D, stores offered for inspection had dearly mentioned the stores as manufactured by the appellants themselves. It was therefore held that worsted woollen yarn supplied by the appellants for inspection were actually manufactured by them and that the test reports confirmed that the yarn manufactured was of the composition 70% of wool and 30% of nylon.
8. On the question whether the appellants had sufficient capacity to manufacture the alleged quantity of yarn during the relevant period, we agree with the conclusion of the Collector that the expert opinion of Shri Bedi relied upon by the appellants do not go to the extent of saying that during the period 1983-88 they did not have sufficient capacity to manufacture the said quantity as the expert opinion related to the machinery etc. available to the appellants during the subsequent period. As regards the contention of the appellant that the declaration given by the appellant to the DGS&D that the stores to be supplied are “by their own make”, we find it difficult to accept the contention of the Ld. Counsel that this declaration did not bar the supply of the said yarn by the appellants after procuring the material from outside sources. We therefore, agree with the conclusion of the Collector (which in turn is based on the letters received from the DGS&D) that the appellants were to supply the stores of “their own make”. We also observe that the tariff item at the relevant time namely, TI 18 B relate to two types of woollen and acrylic spun yarn, one containing not more than l/6th by weight of non-cellulosic fibre (other than acrylic fibre) and another type of yarn containing more than 1 /6th by weight of non-cellulosic fibre. The exemption that was available was only to the first type of yarn which was covered by TI 18B(i) and not to the second type of yarn. As regards the question of time bar also, we find that inasmuch the terms of the contract with DGS&D, the nylon content of the yarn to be supplied thereunder was not of the specifications covered under the exemption Notification No. 224/79, there was evidence of mis-statement and suppression of facts as alleged in the show cause notice. We are therefore of the view that the impugned order does not suffer from any infirmity by which would warrant interference.
9. Accordingly, we sustain the impugned order and dismiss the appeal.