ORDER
S. Kalyanam, Vice President
1. Since the above appeals involve a common issue and since the evidence is also more or less similar and since common argument is advanced by the learned counsel Shri S.P. Seth for the appellants and Shri Somesh Arora, the learned JDR for the respondent, the appeals are consolidated and disposed of by a single common order.
2. For the purpose of convenience we shall take up the Appeal No. E/5360/91-B1 relating to M/s. Dayalal Siddibhai, Jamnagar.
3. Appellants M/s. Dayalal Siddibhai, Jamnagar manufactured ‘Brass Cast Rods’ falling under the erstwhile Tariff Item 26A of the Central Excise Tariff or Chapter 74.01 of the Central Excise Tariff Act, 1985 out of the materials supplied by the appellants M/s. Dayalal Brothers and M/s. Milan Enterprises, Jamnagar on job work basis and removed the excisable goods from the place of manufacture to the premises of the concerned parties. Shri Dayalal Siddhibhai is also a partner in the firms of M/s. Dayalal Brothers and M/s. Milan Enterprises, Jamnagar and was actually managing and controlling the three firms namely (1) M/s. Dayalal Siddhibhai, (2) M/s. Milan Enterprises and (3) Dayalal Brothers.
4. On the basis of information the Central Excise authorities conducted enquiry and investigation in respect of the manufacture and clearance of the excisable products, namely, copper rods from the factory of the appellants M/s. Dayalal Siddhibhai. During the investigation it was found that in the factory of M/s. Dayalal Siddibhai excisable goods, namely, copper and products thereof falling under erstwhile Item 26A or Chapter 74 of the Central Excise Tariff Act, 1985 (5 of 1986) as the case may be, were manufactured out of the raw materials procured from outside particularly from the sister concerns, namely M/s. Dayalal Brothers and M/s. Milan Enterprises. Appellants M/s. Dayalal Siddibhai out of the procured raw materials manufactured copper rods and cleared the same without payment of duty, by erroneously and wrongly availing the benefits of Central Excise Notification No. 119/86, as amended, 174/84-C.E., dated 1-8-1984 as amended and Notification No. 149/86-C.E., dated 1-3-1986, as amended. It was found that appellants M/s. Dayalal Siddibhai cleared the goods by wrongly availing the benefits of the said exemption notification and without payment of duty knowing that they were not entitled to the benefits under the said notification. Investigation further revealed that appellants M/s. Dayalal Brothers and M/s. Milan Enterprises, Jamnagar, procured and purchased raw materials popularly known as brass rods, brass dross scrap from various parties and supplied the same to appellants M/s. Dayalal Siddibhai on job work basis for the manufacture of what is known as ‘brass cast rods’. During the course of investigation the Central Excise Officers recorded statements from Shri Dayalal Siddibhai Malvi, who was the managing partner of M/s. Dayalal Siddibhai, on 27-3-1988, 24-5-1989 and 13-6-1989 under Section 14 of the Central Excises and Salt Act, 1944 (the Act for short). Shri Dayalal Siddibhai Malvi in the said statements stated that materials known as ‘brass dross’ and ‘brass dross scrap’ were procured by the firm M/s. Dayalal Siddibhai through their sister concerns M/s. Dayalal Brothers and Milan Enterprises referred to above and out of the said ‘brass dross scrap’ they manufactured ‘brass castings’ and received finished goods upto 95%. Since the materials were procured from the open market and since there was no reason for them to believe that the raw materials had not suffered duty on a bona fide belief that raw materials had suffered duty, they manufactured out of the said raw materials ‘brass rods’ and cleared the same without payment of duty by properly availing the benefits under the various exemption notifications such as 119/66-C.E., as amended by Notification 174/84-C.E., and 149/86-C.E., stated supra. Statements were also recorded during investigation from Shri M.D. Boricha of M/s. Dayalal Siddibhai, Jamnagar and also from Shri B.T. Kandeka, partner of M/s. Milan Enterprises & M/s. Dayalal Brothers and they also in the statements before the authorities admitted the fact that they had procured and supplied the raw material as such ‘brass scrap’, ‘brass dross’ and ‘brass pattas’ (Lathia) and supplied the same to their sister concern M/s. Dayalal Siddibhai for the manufacture of brass rods on job work basis. After completion of investigation since the authorities found that the raw materials received by the manufacturer, namely, M/s. Dayalal Siddibhai had not suffered duty and therefore, they were not entitled to the benefits of the various notifications, as aforesaid, proceedings were instituted against the manufacturer of brass rods, namely M/s. Dayalal Siddibhai and also the suppliers of the raw materials, the other appellants and the proceedings ultimately culminated in the impugned order of the Collector of Central Excise, Rajkot dated 27-2-1991 resulting in duty of Rs. 14,52,102.96 on appellants M/s. Dayalal Siddibhai besides the penalty of Rs. 1,00,000/- under the Act in addition to further penalty of Rs. 60,000/- and Rs. 75,000/- respectively on appellants M/s. Dayalal Brothers and Milan Enterprises. The above duty was levied on the appellants by the department for the period 15-7-1984 to 24-2-1987 by invoking the longer period of limitation under Rule 9(2) read with proviso to Sub-section (1) of Section 11A of the Act. Penalty was levied on the suppliers of the raw materials in terms of clauses (a), (b), (c) and (d) of sub-rule (1) of Rule 173Q read with Rule 9(2) of the Central Excise Rules, 1944.
5. M/s. Changla Cast, the appellants in Excise Appeal No. 5361/91-B1 is similarly a manufacturer of brass rods out of the raw materials supplied and procured from various others including their sister concerns namely M/s. Changla Traders including their sister concerns namely M/s. Changla Traders (appellants in Appeal No. E/5367/91-B1), Changla Products (appellants in A. No. E/5365/91-B1) and Changla Industries (appellants in A. No. E/5364/91-B1). In similar circumstances stated above. Investigation into the affairs of these group of companies were also simultaneously taken up as in the batch of earlier cases by the Central Excise authorities and statements were also recorded from the concerns under the provisions of the Act and proceedings were instituted by the department against the manufacturer of brass rods, namely M/s. Changla Cast and Ors. alleging that for the period June 1985 to Sept. 1987 they had manufactured and cleared excisable products, namely Brass Cast Rods without payment of duty and by wrongly availing the benefit of the exemption notifications cited supra resulting in evasion of duty of Rs. 14,67,724.00 and the proceedings ultimately culminated in an order of adjudication of the Collector of Central Excise, Rajkot on 25-3-1991 resulting in levy of duty of Rs. 14,67,724.00 and penalty of Rs. 1,20,000.00 on M/s. Changla Cast, Jamnagar, besides the penalty of Rs. 30,000/- each on M/s. Changla Traders and M/s. Changla Products and Rs. 20,000/- on M/s. Changla Industries under the Act. In these cases also the department also invoked a longer period of limitation under proviso to Sub-section (1) of Section 11A of the Act and penalties were also imposed under Rule 173Q (1) under clauses (a), (b), (c) and (d) read with Rule 9(2) of the Central Excise Rules, 1944.
6. Similarly, proceedings were also instituted against appellants M/s. Mukesh Cast, Jamnagar (appellants in A. No. E/5368/91-B1) who are the manufacturer of brass rods in similar circumstances out of the raw materials procured and supplied by their sister concerns, namely (1) M/s. Jayant Industries (appellants in A. No. E/5366/91-B1), (2) M/s. Mukesh Enterprises (appellants in A. No. E/5370/91-B1), (3) M/s. Mukesh Industries (appellants in A. No. 5371/91-B1) and (4) M/s. J.K. Enterprises (appellants in A. No. E/5369/91-B1). The Central Excise Authorities conducted simultaneously investigation in the above batch of cases also alongwith the investigation in the other cases referred to above and recorded statements from the various parties and the proceedings ultimately culminated in the impugned order of Collector of Central Excise, Rajkot dated 23-5-1991 levying a duty of Rs. 18,38,248.99 and penalty of Rs 1,50,000/- on appellants M/s. Mukesh Cast, Jamnagar and penalty of Rs. 35000/- on M/s. Mukesh Enterprises and penalty of Rs. 35,000/- on M/s. Mukesh Industries and penalty of Rs. 25000/- on each of the other two appellants, namely M/s. Jayant Industries and M/s. J.K. Enterprises. The authorities demanded duty in respect of the clearance of the goods for the period 30-11-1985 to 31-7-1987.
7. Shri S.P. Seth, the learned counsel appearing for all the appellants submitted inter alia, that –
(1) the manufacturers of brass rods on job work basis are clearly entitled to the benefits of the various exemption Notifications No. 119/66-C.E., dated 16-7-1966, as amended, 174/84-CE dated 1-8-1984, as amended by Notification No. 149/86-CE dated 1-3-1986, as amended inasmuch as they procured the raw materials, namely the brass scrap or scrap from outside for the purposes of job work and therefore, in the absence of any evidence on the side of the department to show that such goods are received from the open market are clearly recognisable as non-duty paid, the department cannot deny the job work manufacturers the benefit of the notifications, as aforesaid under law.
(2) The job workers received only brass and dross scrap from the various parties and suppliers, out of which they manufactured brass rods and it would be impossible to manufacture brass rods out of sheer dross and therefore, what has been received by the job workers is only brass scrap. The description as ‘brass dross’ (Lathia or ‘brass dross scrap’) would only relate to brass scrap without which it is not possible to manufacture brass rods.
(3) The concerned suppliers also charged for the raw materials only the rate payable and chargeable to brass scrap prevailing in the market at the relevant time ranging between Rs. 28/- to Rs. 30/- per kg. No one would purchase brass dross at this rate, the price of it in the open market was far below than the brass scrap. It was submitted that the price of brass dross at the relevant time was only Rs. 12/- to Rs. 15/- and this fact would not admit any controversy. Brass dross cannot be directly fed into the furnace for the manufacture of brass rods without being subjected to the processes of cleaning, washing, seiving, pulverising etc. and it is not the case of the department that the job work manufacturers resorted to any such processes in the manufacture of brass rods out of the raw materials procured. Therefore, from the admitted facts and circumstances, conclusion is irresistible that the job work manufacturers procured or supplied only brass scrap.
(4) All the lots received gave a recovery of 95% of the finished products which is consistent only in a situation where the furnace should have been fed with brass scrap alone.
(5) The onus is on the department to prove that the raw materials received by the job worker and purchased from open market are clearly recognisable as non-duty paid and in the absence of any evidence in this regard the job work manufacturers cannot be denied the benefit of the various exemption notifications referred to above. Reliance was placed in this context on the ratio of the ruling of the Supreme Court in the case of CCE v. Decent Dyeing Co. reported in 1990 (45) E.L.T. 201 and of the High Courts in the cases of Sulekh Ram & Sons v. UOI reported in 1978 (2) E.L.T. Q 525) (Del.), Calcutta Paper Mills Mfg. Co. v. CEGAT reported in 1986 (25) E.L.T. 939 (Cal.) and Vapson Products and Anr. v. UOI reported in 1987 (27) E.L.T. 608.
(6) In regard to levy of penalty the impugned order was assailed as unsustainable on the ground that the manufacturers in the case were actuated by bona fides and were under the impression that the raw materials supplied to them were duty paid and therefore, the exemption notifications would clearly cover their case and therefore in the absence of any evidence indicating any intent on the part of the manufacturers or suppliers of the raw materials to evade payment of duty, penalty cannot be levied under the Act by invoking the longer period of limitation. Reliance was also placed on the ratio of the rulings of the Supreme Court in support of their plea.
(7) Penalty under Rule 173Q read with Rule 9(2) of the Central Excise Rules, 1944 can be imposed only on the manufacturers and not on other persons. On the evidence on record and in the light of the allegations in the show cause notice if the job workers have been proceeded against as manufacturers for the purpose of levy of duty by invoking the aforesaid rules, penalty cannot be levied on the suppliers of the raw materials. Rule 209A is also not invokable since this came into the statute book only in 1986 and not at the relevant time; majority of the goods were cleared in the present case and it is well settled that the penal statute brought into the book at a later point of time cannot be made applicable restrospectively.
8. Shri Somesh Arora, the learned DR adopted the reasoning in the impugned order and mainly contended that in the present case the job work manufacturers received from the suppliers what is known as brass dross and by whatsoever name the goods may be called, for the purpose claiming exemption to the benefit of various Notifications cited supra, it is indisputable that the raw materials in question should have suffered duty. The learned DR urged that it is not the case of the suppliers of the raw materials that the goods supplied by them to the job workers had suffered duty. On the other hand, the evidence on record showed that the dross in question was imported and procured by the suppliers and the goods imported namely, dross were permitted clearance without payment of additional Customs duty and permitted clearance free of duty in terms of Customs exemption Notification No. 48/79. dated 1-3-1979. Therefore, when the job workers have admittedly used the non-duty paid raw materials in the manufacture of brass rods, the essential and vital condition of the notification, namely that the raw materials used should have suffered duty is not satisfied and in such a situation the job work manufacturers would not become eligible to the benefit of notification. The learned DR further submitted that the evidence would also bear out that the job workers are not strangers but only received the raw materials from their sister concerns and as such it cannot be pretended that they did not know that the goods they received were in fact non-duty paid. Therefore, the plea of the appellants that they bonafide believed that the goods had suffered duty cannot be accepted in the facts and circumstances of the case. The learned DR further submitted that the evidence is very clear that the raw materials in question are clearly recognisable as non-duty paid thereby disentitling the job workers to the benefits of the various notifications.
9. The learned DR further urged that it is a settled law that the Central Excise Exemption Notifications should be strictly construed and liberal interpretation should not be adopted and there is no scope or room for either itendment or importing flexibility in regard to interpretation of the same. Therefore, when non-duty paid raw materials have been used in the manufacture and clearance of excisable goods, namely brass rods without payment of duty, the entire goods cleared without payment of duty would become confiscable in law for wrong availment of the notification with a consequential levy of penalty and duty. The learned DR further urged that the suppliers of the raw materials being only sister concerns also supplied the goods to their other concern on job work basis knowing fully well that the goods or the raw materials they supplied had not suffered duty and therefore, were privy to the commission of offence by the job worker in regard to wrongly claiming the benefit of exemption and clearance of excisable goods without payment of duty, rendering themselves to penal consequences. The learned DR further submitted that the various formalities statutorily enjoined upon the parties concerned in terms of Notification 305/77, dated 5-11-1977 were not conformed. In other words since the appellants had not filed a necessary classification list or maintained statutory Central Excise records in Form RG1 for clearance of the goods under cover of gate passes in Form GP1 for payment of Excise duty at the appropriate rate leviable thereon and have not filed a periodical statutory returns etc., the penal provisions for contravention of Rule 174 read with Section 6 of the Act and Rule 173B and also the provisions of penal clauses (a), (b), (c) and (d) of sub-rule (1) of Rule 173Q of the Central Excise Rules, 1944 would automatically apply and justify the levy of penalty in terms of impugned order. The learned DR also adopted the reasoning in the impugned order and urged the aforesaid plea to contend that the longer period of limitation would be invokable against the parties on the evidence available on record.
10. We have considered the submissions made before us and indeed we heard extensive arguments from both the parties, the whole of yesterday went into all the records, the rulings and also other documents and since the arguments were incomplete yesterday the appeals remained continued for hearing to this date.
11. Shri Seth, the learned counsel for the appellants in reply to the submissions of the learned DR submitted that on grounds of sheer expediency and in the interests of justice he would not for the purpose of above appeals press seriously his various pleas and urged that even assuming that the entire case of the department is true, even then, the levy of duty is absolutely incorrect and highly inflated out of all proportions having regard to the evidence in this regard particularly with reference to use of the raw materials allegedly non-duty paid raw materials vis-a-vis the quantum of finished products capable of emerging out of the same. On this argument Shri Seth submitted that even if the entire quantity of raw materials received by the job workers alleged to be brass dross and non-duty paid for the purpose of exemption Notification is taken into account it would work out to 24.075 M.T. in the case of Dayalal Siddibhai, Jamnagar (A. No. 5360/91-B1), 66,954 M.T. in the case of appellants M/s. Changla Cast, Jamnagar (A. No. 5361/91-B1) and 25.341 M.T. in the case of appellants M/s. Mukesh Cast, Jamnagar (A. No. 5368/91-B1) Taking the aforesaid entire quantity for the purposes of argument into consideration the maximum output namely, of brass rods that are capable of manufacture by any conceivable optimum standard would only be 24.075 M.T. for appellants M/s. Dayalal Siddibhai, 66.954 M.T. for appellants M/s. Changla Cast and 24.074 M.T. for appellants M/s. Mukesh Cast. This quantity is arrived only after making a provision of 5% towards burning loss which is loss generally accepted by the department in general cases. The learned counsel clarified that even though the raw materials were described as brass dross, it is taken as brass scrap out of which the brass dross for this quantity could have been manufactured. Shri Seth, the learned counsel, therefore, submitted that accepting the entire case of the department to be true on the basis of the entire quantity of raw materials received by the job workers, as alleged by the department in the show cause notice and also in the impugned order, the maximum quantity of brass rods that could have been manufactured would only be what is stated above and urged that the job work manufacturers, the various appellants herein, have no objection to pay the duty leviable thereon as per law in regard to the same.
12. In respect of appellants M/s. Dayalal Siddibhai, Shri Seth further submitted that out of 24.075 M.T., 8.747 M.T. brass scrap were purchased prior to 15-7-1984 and the period of demand in the case of Dayalal Siddibhai was 15-7-1984 to 22-10-1987. For the raw materials purchased and utilised prior to the date of show cause notice, duty demand prior to 1984 cannot be taken into consideration and used against the appellants. The learned counsel submitted that in similar circumstances in regard to the other appellants, namely, M/s. Changla Cast and M/s. Mukesh Cast, the learned adjudicating authority in the respective impugned orders had only taken note of that quantity of raw materials received by them from the date of demand and not taken into consideration the raw materials received prior to the date of demand. It was, therefore, submitted that the appellants, M/s. Dayalal Siddibhai also would be entitled to similar relief which has been given in favour of the other two job workers under identical circumstances and prayed for relief.
13. Since after elaborate submissions, Shri Seth, the learned counsel confined himself only to limited issues namely the quantum of duty payable on the basis of the quantum of raw materials received by the job workers and also the further plea that irrespect of the addition of some other materials to the raw materials they would be eligible to the benefits of the various notifications, we do not feel to address ourselves to those issues and pronounce upon the same. Therefore, we confine ourselves to the ultimate submission to which the learned counsel for the appellants restricted his pleas and consider the same in the light of the submission of the learned DR in counter-affidavit and also in the light of the various authoritative pronouncements of the Supreme Court, High Court and Tribunal on the same.
14. The case of the department is that the job workers received 24.075 M.T. of raw materials in the case of appellants M/s. Dayalal Siddibhai and likewise 25.341 M.T. in the case of appellants M/s. Mukesh Cast and 70.478 M.T. in the case of the appellants M/s. Changla Cast. We hold that the above raw materials are not proved to have suffered duty and therefore the job workers referred to above would not be eligible to the various exemption notifications in regard to finished products namely, brass rods manufactured out of the same. The learned DR in this regard contended that the notifications in question do not envisage addition or admixture of any other item in addition to the raw material in the manufacture of the finished products and therefore, since admittedly the appellants job workers along with the raw materials in question procured or supplied from outside added some other material mainly zinc, brass burning scrap etc. on which duty was deemed to have been paid, we shall address ourselves to the question as to whether they become disentitled to the various notifications, as contended by the learned DR. In this context we would like to refer to the various rulings on this point. It is clearly well settled. The Supreme Court in the case of UOI v. TISCO, reported in 1979 (4) E.L.T. (J 61) in dealing with the similar situation has observed as under :-
“22. Counsel for the respondent is right in the contention that the only question here is whether duty-paid pig iron is used along with non-duty paid materials. There is no dispute that there are materials and data to find out the quantity of duty-paid pig iron used. Pig iron is made out of iron ore plus limestone plus coke. Pig iron is melted and processed into ingot moulds and bottom stools. Nothing is added to pig iron. When ingot moulds and bottom stools become unserviceable they are broken. This becomes scrap and is melted and used in the manufacture of steel ingots. The respondent rightly contended that all the time it is duty-paid pig iron which is processed into ingot moulds and bottom stools and again broken into scrap and melted in the making of steel ingots.”
15. The Supreme Court in the case of Aluminium Corporation v. UOI reported in 1978 (2) E.L.T. 0 452) dealing with interpretation of notifications and their wordings in similar context and circumstances has observed [Paras 11 to 16] as under :-
* * * * * * * 16. The subject Bench of the Tribunal in the case of Eagle Flask v. CC reported in 1994 (1) R.L.T. 699 has taken a similar view.
17. The ratio of the above Supreme Court’s ruling would make abundantly clear that in the absence of restrictive expressions in an Exemption Notification restricting the scope and applicability of the same by words like ‘alone’, ‘exclusively’, ‘wholly’ etc. the benefit of the exemption cannot be denied merely on the ground that some non-duty paid raw materials were used. Therefore, on the basis of the rulings of the Supreme Court stated supra and in the facts and circumstances and on the consideration of the entire plea in this regard by the parties, we hold that the duty liability of the job worker should be restricted only in respect of that quantity of finished product capable of manufacture out of raw material received without payment of duty set out above and we order accordingly. We note that even in the show cause notice the appellants have been called upon to pay duty in respect of raw materials emerging from the imported dross which were received by the job worker without payment of duty and utilised in the manufacture of excisable goods namely brass rods.
18. Likewise we hold that the duty liability of the job worker in the case of appellants M/s. Dayalal Siddibhai would not include the finished product manufactured out of raw material of 8.747 M.T. provided it is established to the satisfaction of the Collector that this material was not incorporated in the finished product cleared from 15-7-1984. Therefore, in respect of the aforesaid issues, we set aside the impugned order and remit the matter to the original authority for working out the quantum of duty in the light of our findings and observations above after affording the appellants reasonable opportunity of the appeal being heard.
19. We shall now take the issue in regard to penalty. So far as the appellants M/s. Dayalal Siddibhai, Jamnagar and M/s. Changla Cast, Jamnagar, and M/s. Mukesh Cast are concerned, they are the job worker manufacturers who have manufactured and cleared the excisable products out of non-duty paid raw materials, therefore, they would be technically liable to penal consequences under the provisions of the Act. In this view of the matter, taking into consideration the fact and circumstances of this case the duty liability on the said appellants has been reduced substantially for the reasons indicated above and keeping in mind that the quantum of penalty should be commensurate with the gravity of offence of evasion of duty and following the ratio of the Supreme Court’s rulings, we reduce the penalty on M/s. Dayalal Siddibhai to Rs. 10,000/- (Rupees ten thousand only) and penalty on M/s. Changla Cast to Rs. 25000/- (Rupees twenty five thousand only) and penalty on M/s. Mukesh Cast to Rs. 15000/- (Rupees fifteen thousand only) and we order accordingly. So far as the penalty on the suppliers of raw materials is concerned, we are inclined to think that in the facts and circumstances they should be given the benefit of doubt in the matter of levy of penalty. We take into account the finding in the impugned order that those suppliers are also manufacturers with which we are not able to agree since particularly when the duty liability has been restricted only on the job worker and not on the suppliers of raw materials. It is nobody’s case that the suppliers of raw materials had any control over the manufacturing activity of the job workers and therefore, in the absence of levy of any duty on the suppliers of raw material in the impugned order, we are inclined to think that they would be entitled to the benefit of doubt arising in the facts and circumstances in regard to levy of penalty. We also take note of the fact that the adjudicating authority has chosen to levy penalty of Rs. 30000/- each on M/s. Changla Traders and M/s. Changla Products, penalty of Rs. 25000/- each on appellants M/s. Jayant Industries and M/s. J.K. Enterprises and penalty of Rs. 35000/- each on M/s. Mukesh Enterprises and Mukesh Industries and by giving the benefit of doubt to those appellants who are only suppliers of raw materials against whom no duty liability has been imposed under the impugned order, we are giving them the benefit of doubt, and in this view we set aside the penalties levied on them and allow their appeals.
20. In the result, appeals stand as disposed of.