V. Rajamanickam, Member (T)
1. In the E/Misc./402/89-B1 – Miscellaneous Application for producing additional evidence was filed.
The following were the list of documents which have been filed :-
RG I extracts Feb., 1982 to
To prove that the Central Excise Officers
periodically visited the factory and physically checked the stocks of the finished goods lying there.
Stock taking reports dated
1-2-1983 and 24-9-1983.
To prove surprise visits of
the Central Excise Officers to
check the factory and the stocks lying there and further that no discrep-ancy was ever found in the stocks.
Letter dated 6-8-1982 ofM/s. Laxmi Enterprises addressed to the
Super-intendent of Central Excise.
To prove the shifting of the fac-tory was duly intimated to the Department
Declarations filed with the Range Supdt.
of Central Excise.
To prove bona fides and the quan-tum of
the clearances made by ‘M/s. Laxmi
Despatch advice and three enclosures thereto. 13-17 To prove that the consignments seized at the premises M/s. Arya Central Transport of India Pvt. Ltd,, belonged to M/s. Laxmi En-terprises and was delivered by them to the transport company along with "KLN" slips. 6. Stock Account of M/s. Laxmi Enterprises duly verified by the Deptt. 18-21 To prove that the stock was veri-fied physically by the departmen-tal officers and found in order and these were not lying in the prem-ises of the Petitioners and this checking was done by surprise. 7. Monthly statements by M/s. Laxmi Enterprises submitted to the Deptt. from Feb., 1982 to July, 1982. 22-32 To prove that all the details of manufacture and clearances were being submitted to the Depart-ment regularly and nothing was concealed from the Department. 8. Monthly statements submitted by ESGI Mfg. Co. from May, 1982 to Dec., 1982 33-49 -do-
2. In his submissions for admitting the additional evidence in the Miscellaneous Application, Shri A.K. Jain ld. Advocate for the appellant, submitted the facts. M/s. K.L.N. Engineering Products (Pvt.) Ltd. are manufacturing “Industrial Filters” and claiming exemption under Notification No. 80/80, dated 19-6-1980. The Department has alleged that the appellants have manufactured and cleared “Oil Filter Cartridges” without payment of duty, without accounting them, but invoiced them in the names of M/s. Laxmi Enterprises and M/s. ESGI Manufacturing Co. in order to avail the exemption under Notification No. 80/80, dated 19-6-1980. The two firms M/s. Laxmi Enterprises and M/s. ESGI Manufacturing Co., are both partnership firms. The appellants are engaged in manufacture of “Automobile Filters” and also undertake certain process on the raw materials sent by these two firms in the manufacture of Automobile and Industrial Filters, not amounting to manufacturing. The further manufacture is undertaken by these firms and cleared for sale. The case booked by the Department is a sequel to the seizure of 717 Oil Filter Cartridges alleged to have been transported by M/s. K.L.N. Engineering Products Pvt. Ltd. without cover of valid documents and they bore the marking “KLN”. The Department’s contention is that the appellant has been manufacturing and clearing the goods in the guise of the same being manufactured by M/s. Laxmi Enterprises and M/s. ESGI Manufacturing Co., the additional evidences produced are in the documents listed (supra) to provide evidences as stated against each. The following case law was cited :
1989 (39) E.L.T. 551 (T) = 1989 (22) ECR 21 (Collector of Central Excise, Madras v. Chengalrayan Co-operative Mills Ltd.)
3. The ld. SDR Shri K.D. Tayal in reply has argued that except the documents at Sl. Nos. 7 and 8, which provide evidence in support of the appellant which relate to clearances of goods from the two firms – M/s. Laxmi Enterprises and ESGI Mfg. Co., the other documents may not sustain the appellants’ defence. The following case laws were cited for the purpose of admitting the additional evidences :-
(i) 1988 (37) E.L.T. 369 (T) = 1988 (19) ECR 161 (Unique Beauty Care Products v. Collector of Central Excise, Bombay-II) - "No additional evidence or new allegation may be submitted by a party at the Appellate Tribunal stage." (ii) Delhi High Court decision in 1987 (32) E.L.T. 53 (Gunvant and Ors. v. C.C.E. and Ors.).
“Additional evidence – It is well settled that additional evidence is not permissible even in an appeal to enable one of the parties to remove lacunae in presenting its case at the proper stage and to fill in gaps.”
4. The ld. Advocate in reply has cited the following case laws on admission of additional evidence :-
(i) Madras High Court - 1982 (51) STL 381. (ii) 1967 (63) ITR 32. (iii) 1988 (174) ITR 354 (M/s. Oswal Spinning & Weaving Mills Ltd.) "The Tribunal can entertain new additional points raised before it for the first time."
5. The additional documents that have been referred to in the Miscellaneous Application have been seen. Documents from Sl. Nos. 1 to 4 and 6 relate to verification of records and stock by the Department and also clearances by M/s. Laxmi Enterprises, these together with documents at Sl. Nos, 7 and 8 will be taken note of at the time of deciding the appeal. Having thus disposed of the Miscellaneous Application, we now proceed to hear the submissions on merits.
6. Shri A.K. Jain proceeded to make the following submissions :-
(a) The claim is time-barred. Show Cause Notice was issued on 19-2-1983 which is barred by the period of six months, there is allegation of suppression in the Show Cause Notice. He relied on the following decisions in support of his contention :-
(i) 1989 (39) E.L.T. 65 (Tribunal) (Collector of Central Excise v. Steel Corporation of Punjab) (Para 7) –
“Period of 5 years to apply only when Show Cause Notice contains allegation of fraud, collusion, wilful misstatement or suppression of facts.”
(ii) 1989 (40) E.L.T. 276 (S.C.) (Collector of Central Excise v. Chemphar Drugs & Liniments) (Para 8) –
“To invoke larger period conscious or deliberate withholding of an information by the manufacturer which he knew otherwise or something positive other than mere inaction or failure on the part of the manufacturer is a must.”
(b) To prove that there was no suppression, the ld. Advocate referred to clearances and monthly statements filed by M/s. Laxmi Enterprises and M/s. ESGI Mfg. Co. to denote that the products manufactured by them were well within the exemption limit set by Notification No. 80/80, dated 19-6-1980 and were outside the scope of licensing control. Thereby indicating that they had kept the Department informed about the productions and clearances. Their letter dated 6-8-1982 to the Range Superintendent about shifting of the premises was an intimation and no activity was suppressed. The Collector has not discussed the issues of time-bar in his order. Rule 9(b) was not applicable as no clandestine removal was there and all declarations and monthly statements were filed. He relies on the following case laws :-
“Non-objection on the clearances by the Central Excise Officers debars their invoking Rule 9(2) for raising the demand of duty.”
(ii) 1984 (15) E.L.T. 451 (T) = 1984 ECR 864 (CEGAT) (Leather Chemicals & Industries Ltd. v. Collector of Central Excise) –
“It is a must to prove beyond reasonable doubt that the alleged clandestine production did take place.”
(c) The Collector in his order in Para 21 states that he draws inference that sealing rubber rings fixed at the ends of the oil filter do not form part of the oil filter cartridges and fixing of rubber rings to the ends of the filter does not amount to manufacture. This is in the context that M/s. Laxmi Enterprises has no means of manufacturing oil filters. Therefore, the Collector has gone by assumptions whereas the statement of Mrs. Gita L.N. Shetty, partner of M/s. Laxmi Enterprises and Executive Director of M/s. K.L.N. Engineering Products Pvt. Ltd. has said that the assembly of the said filters was carried on in the premises of M/s. Laxmi Enterprises and M/s. ESGI Mfg. Co. were separate entities and M/s. K.L.N. Engg. Products Pvt. Ltd. have no interest in their business, that these were two separate legal entities were known to the Department, their production and clearances were furnished to the Department by way of monthly returns and the factory was visited by the Jurisdictional Officers. He relied on the following case laws in support of his argument :-
(i) 1978 (2) E.L.T. (J 172) (S.C.) (Oudh Sugar Mills Ltd. v. U.O.I.).
“Findings based on inferences involving unwarranted assumptions without any tangible evidences are vitiated by an error of law”.
(ii) 1986 (26) E.L.T. 333 – in the case of Premier Packaging (Private) Ltd. v. Collector of Central Excise –
“For invoking Rule 9(2), there has to be conclusive tangible evidence of surreptitious manufacture and removal of excisable goods”.
(iii) 1986 (26) E.L.T. 997 (T) = 1987 (9) ETR 124 (Trib.)- in the case of Ebensezer Rubbers Ltd. v. Collector of Central Excise –
“Rule 9(2) can’t be invoked on the basis of an idea in the realm of possibility”.
Shri A.K. Jain further submitted that even if the partners are common, their clearances cannot be clubbed. Dr. Shakuntala was a partner in M/s. ESGI Manufacturing Co. and for M/s. Laxmi Enterprises while Mrs. Gita L.N. Shetty the Executive Director of M/s. K.L.N. Engineering Products Pvt. Ltd. was a partner in M/s. Laxmi Enterprises. To this he relied on the following case laws : –
(i) 1978 (2) E.L.T. (J-317) (S.C.) in the case of Assistant Collector of Central Excise and Customs v. Shri J.C. Shah and Ors. - "A partner in two firms is not the same person as the firms". (ii) 1989 (40) E.L.T. 95 (Tribunal) in the case of Shakti Engineering Works v. Collector of Central Excise - "Two partnership firms having common partners cannot be clubbed".
The next plea advanced by the ld. Advocate was that the appellant was clearing semi-finished goods which were not excisable – citations in his favour are :-
(i) 1981 (8) E.L.T. 366 (G.O.I) in the case of Government of India -- Enfield India Ltd. - "Semi-finished goods are not a complete and finished article under CET unlike under CTA". (ii) 1986 (26) E.L.T. 227 (Tribunal) in the case of Collector of Central Excise v. Reliance Textiles (Pvt.) Ltd. - "Crude and semi-finished goods are not excisable goods". (iii) 1988 (33) E.L.T. 750 (T) = 1983 ECR 1900-D (Cegat-Bombay) in the case of M/s. Shaparia Dock & Steel Co. (Pvt.) Ltd. - "Semi-manufactured goods are not excisable in terms of Section 3 of CESA". (iv) 1988 (37) E.L.T. 179 (A.P.) (Tungabhadra Machinery & Tools Ltd. v. U.O.I.). - "Duty cannot be levied on semi-finished goods". (v) 1986 (24) E.L.T. 169 (S.C.) (Union Carbide Ltd. v. UOI and Ors.). "Unfinished goods or goods in crude form are not excisable goods".
The ld. Advocate advanced the plea that the appellant had furnished to the Additional Collector the trade opinion from consumers and dealers which were ignored and the Addl. Collector had himself obtained the trade opinions in Paras 15.4 and 16 of his order. The following are the case laws which support his case :-
(i) 1986 (25) E.L.T. 114 (T) = 1986 (7) ECR 428 (Cegat) (Ashish & Co. and Ors. v. The Collector of Customs).
“Words and expressions must be understood in the sense in which these are understood by the dealer and the consumer. That is the definitive index of legislative intention.”
(ii) 1988 (37) E.L.T. 474 (S.C.) = 1988 (18) ECC 352 (S.C.) [Collector of Customs v. Swastic Woollens (P) Ltd.]. "Understanding in the opinion of those who deal with the goods in question is the safest guide". (iii) 1988 (33) E.L.T. 292 (Bom.) (U.O.I. v. Babubhai Nylchand Mehta)
“An adjudication officer is not a trader and he cannot examine himself as a witness. He is not a person visiting the market every day to find out as to how the product is known in the market.”
(iv) 1988 (33) E.L.T. 373 (Tribunal) [Polestar Electronics Pvt. Ltd. v. Collector of Customs (Airport)].
“The adjudicating officer instead of making personal analysis should have got the goods examined by an expert”.
He referred to the order of the Additional Collector, Paras 15.4 and 16, and submitted that the goods ought to have been examined by an expert, but the Additional Collector has himself come to the conclusion that the oil filters were in fully identifiable condition and the fixing of the rings and end caps do not form an integral part of the oil filter cartridges.
7. In countering the submissions made by the ld. Advocate, Shri K.D. Tayal, ld. SDR, pointed out that if the goods belonged to M/s. Laxmi Enterprises, how did they come from M/s. K.L.N. Engg. Products (Pvt.) Ltd. when the Tempo was intercepted bearing the marking of M/s. K.L.N. and also the filters found in the shed of Shri E.D. Mark, Manager of M/s. K.L.N. Engineering Products (Pvt.) Ltd. which had the packing slips of M/s. K.L.N. but with rubber stamps of M/s. Laxmi Enterprises. He referred to the statement of Shri E.D. Mark, wherein he has stated that semi-finished filters are received from M/s. K.L.N. to M/s. Laxmi Enterprises for fixing the sealing rings and M/s. Laxmi Enterprises had no marking but were only fixing the rubber rings and packing by manual labour prior to disposal by sale. He referred to the reports received from outstation customers and recorded statements from them by the respective Central Excise Officers, recorded that the goods supplied by M/s. K.L.N. Engineering were invoiced by M/s. Laxmi Enterprises and M/s. ESGI Mfg. Co. The filters bore the monogram of “KLN”. Therefore, the evidence to prove that the real manufacturer and supplier was M/s. K.L.N. Engineering Products Pvt. Ltd. The statement of Shri B.V. Jaganath dated 1-2-1983 that M/s. Laxmi Enterprises had no oven for processing which was carried out by M/s. K.L.N. Engineering Products and M/s. Laxmi Enterprises only fixed the rubber sealing rings.
The order of the Additional Collector in Para 7.1 discloses about the investigation which recorded that the raw materials required for manufacture of oil filter cartridges though invoiced in the name of M/s. Laxmi Enterprises and M/s. ESGI Mfg. Co. were received and stored in the factory premises of M/s. K.L.N. of the two firms M/s. Laxmi Enterprises and M/s. ESGI had no machinery to manufacture oil filter cartridges. Some of the stickers bearing K.L.N. marking were received by parties and the consignment of raw materials received in the name of M/s. Laxmi Enterprises were found to have been paid by cheque by M/s. K.L.N. Oil filter cartridges despatched to various customers were invoiced in the name of M/s. Laxmi Enterprises. Further, there has been a transfer of large amounts by M/s. Laxmi Enterprises to M/s. K.L.N. which is stated to be for labour charges paid towards the pleating and curing of oil filters undertaken by M/s. K.L.N.
The report of the Department of Mechanical Engineering, Indian Institute of Science, Bangalore, clearly established that the rubber sealing rings provided on either ends of the filter cartridges do not form part of the oil filter cartridges. The opinion is given by an unbiased body.
On the issue of limitation as contended by the ld. Advocate that there is no mention of suppression in the show cause notice, it was pointed out by the ld. SDR that no specific mention of suppression need be mentioned in the show cause notice, when the charge of suppression was narrated in detail in the show cause notice. He placed reliance in the case of H. Guru Instruments Pvt. Ltd. v. CCE, Calcutta, reported in 1987 (27) E.L.T. 269.
Referring to the conclusion of the ld. Advocate that the proceedings of M/s. K.L.N., M/s. Laxmi Enterprises and M/s. ESGI Mfg. Co. were within the knowledge of the Department, he drew attention to the letters written by M/s. Laxmi Enterprises dated 31-3-1982 enclosing the declaration intimating about manufacture of Automobile and Industrial Filters. These goods were declared as falling under T.I. 68 and for availing exemption under Notification No. 105/80, whereas the goods were to be classified under T.A. 34-A. He referred to the judgment of the Supreme Court in the case of Jaishri Engg. Co. (P) ltd. v. C.C.E., reported in 1989 (40) E.L.T. 214 (S.C.), wherein the view taken by the Tribunal that the fact that the Department visited the factory of the appellant and they should have been aware of the production of the goods in question, were no reason for the appellant not to truly and properly describe these goods, was upheld by the Supreme Court. Therefore, mere fact of officers visiting the factory will not by itself absolve the appellant from the charge of suppression.
That the case was based on assumption and presumption on the mere fact of the word inferred appearing in Para 21 of the Collector’s Order, was not acceptable as there was a definite conclusion drawn by the Collector on the basis of the facts discussed. It was a clear case of tax evasion with intent to evade payment of duty. He referred to the following case laws for dealing with such cases of evasion :-
(i) 1988 (33) E.L.T. 297 (Pat) High Court (Tata Iron and Steel Co. Ltd. v. U.O.I and Ors.). (ii) 1988 (36) E.L.T. 340 (Tribunal) (C.C.E. v. Paper Packing Industries).
on clearances by partnership firms – “Partnership firm manufacturing and selling paper packing materials – Another firm set up by partners for same business, inducting their wives playing no role, merely to avail separate exemption, not acceptable as distinct and different”. On this analogy the clearances from the partnership firms cannot be taken as separate clearances.
(iii) 1989 (41) E.L.T. 224 – in the High Court of Bombay (Swadeshi Dyeing & Bleaching Mills (P) Ltd. v. U.O.I.).
“Two units set up as a mere camouflage to avail exemptions” and the Collector’s conclusion that their units are one and the same has been upheld.
8. The submissions made by both the parties have been considered. The issue before us is whether M/s. K.L.N. Engineering Products (Pvt.) Ltd. have been clearing the oil filters manufactured by them through the two partnership firms to be within the exemption limit under Notification No. 80/80. The appellants contention is that semi-finished oil filters are sent to the two firms for fixing rings and disposing them. The Additional Collector in his findings has come to the conclusion that the oil filter cartridges were in fully manufactured condition when received from M/s. K L.N. and the process done at M/s. Laxmi Enterprises does not amount to manufacture. The process carried out by M/s. Laxmi Enterprises is to fix the rubber rings on either side of the end caps. The technical opinion from the Department of Mechanical Engineering, Indian Institute of Science, Bangalore, which states that the rubber sealing rings provided at either ends of the filter cartridges do not form part of the oil filter cartridges. As against this opinion the appellants have produced a certificate from a Consultancy and Tribology and from the All India Filter Manufacturer Association which opines that sealing rings is a must for oil filter cartridges for Tata 1210 SE Engines. The Additional Collector has, however, taking into consideration both the reports, come to the conclusion that the sealing rings is at most a special or additional requirement. He has, therefore, decided that the oil filter cartridges are fully manufactured by M/s. K.L.N. Engg. Products (Pvt.) Ltd. and the process done by M/s. Laxmi Enterprises does not amount to manufacture. The process of manufacture is that the raw materials are supplied by M/s. Laxmi Enterprises and M/s. ESGI Mfg. Co. The filter paper is pleated by joining the two ends. After curing they are sent back to the respective units. The rubber rings on either ends are fixed by M/s. Laxmi Enterprises, which after packing are despatched under their invoices evidencing the fact that manufacture is done by M/s. K.L.N. and the other units undertake a process which need not be taken to be a manufacture and for all purposes, the appellants have manufactured the oil filter cartridges with their monogram and sent for despatch through the other two units in order to exclude those clearances from the total value of clearances from the factory of M/s. K.L.N. to be within the exemption limit. This together with the statements of S/Shri B.V. Jaganath, Supervisor, Shri E.D. Mark, Manager, the payments made by M/s. K.L.N. by cheque for freight charges for raw materials received by M/s. Laxmi Enterprises, the investigations concluded with the parties at various places who have received the oil filter cartridges made by M/s. K.L.N. Engineering Products (Pvt.) Ltd. that these are supplied by M/s. ESGI Mfg. Co. will be without excise duty as their units are availing the exemption. Therefore, the Department’s case is that the appellant has been manufacturing and clearing the oil filter cartridges without payment of duty. The appellants plea is that the oil filter cartridges are semi-finished goods which are sent to M/s. Laxmi Enterprises and M/s. ESGI Mfg. Co. for further process and cleared by them. They have, however, not been able to clarify the points arising from the investigations, wherein it has been elicited that the goods are received under the invoice of the two firms M/s. Laxmi Enterprises and M/s. ESGI Mfg. Co. which, however, are manufactured by M/s. K.L.N. Engineering Products (Pvt.) Ltd. The contention of the Addl. Collector that these are finished goods, which are identifiable appears to be plausible, and even if the appellants plead that these are semi-finished goods, it appears they have not followed the procedure set out in Rule 56B. Hence the clearances to these two firms have to be taken into account for the purpose of determining the value of clearances by M/s. K.L.N. Engineering Products (Pvt.) Ltd.
9. The ld. Advocate during the course of his arguments put forth the plea that clubbing of the clearances of partners was not correct and cited the decisions of the Tribunal, but, however, it is found that the two firms M/s. Laxmi Enterprises and M/s ESGI Mfg. Co. have been clearing the goods of M/s. K.L.N. Engg. Products (Pvt.) Ltd. under their invoices and several evidences wherein M/s. K.L.N. Engg. Products were found to finance the firms in the matter of paying freight charges, transfer of funds to their labour charges and products bearing the monogram of M/s. K.L.N. make it clear that these are not independent units but have been clearing the goods on behalf of M/s. K.L.N. Products.
10. As for the aspect of limitation, the Show Cause Notice does not mention the word suppression, but the details of removal of the oil filter cartridges clandestinely has been given in the Annexure to the Show Cause Notice which is sufficient to invoke the extended limit under Section 11A of the Central Excises and Salt Act. The ld. SDR has quoted the citation in M/s. H. Guru Instruments v. CCE, Calcutta reported in 1987 (27) E.L.T. 269 = 1986 (8) E.T.R. 665 which is applicable. The confiscation of the oil filters for payment of duty and penalties imposed are found to be reasonable and in order. In consequence, the appeal is dismissed. The appeal filed by M/s. Laxmi Enterprises has also been taken as the issues are common, and for the reasons stated above, the Appeal No. E/2548/1984-B2 is also dismissed.