ORDER
Gowri Shankar, Member (T)
1. The appeal is against the order of the collector demanding duty from, and imposing penalty on the appellant. The Collector has found in his order that the appellant short paid duty on fabrics processed by it on various counts.
2. We shall consider each of these counts one by one. The first count is that the cost of the grey fabrics which were sent by its owners to the appellant firm for processing was misdeclared, in the declarations which those owners were required to furnish the appellants, processors in terms of notification 305/77. The contention by the advocate for the appellant in this regard is that any such misdeclaration was made, not by the appellant, but by the person who sent the gray fabrics. This is what the Collector has recorded. The only allegation against the appellant in this regard is that the appellant failed to receive and/or ascertain the correct value. Therefore, he says, the extended period contained under the proviso to Sub-section (1) of Section 11A would not apply and the entire demand on this count therefore cannot be sustained. There is no allegation in the notice, or finding by the Collector, that the appellant knew or deliberately failed to declare the correct cost of the gray fabrics. There was no legal requirement for the processor to verify the correctness of the declaration made by the suppliers of the gray fabrics. It is therefore not possible to say that the appellant is guilty of any fraud, collusion, wilful mis-statement, suppression of facts or contravention of the provisions of the Act or the Rules. In that situation, the proviso will not be applicable.
3. The same consideration will hold true with regard to the element of brokerage charges incurred by the owners of the gray fabrics in connection with the procurement of that fabrics.
4. Considerable effort was made by the departmental representative in support of the claim made for inclusion in the value of the element of interest on the cost of the gray fabrics. According to the departmental representative, this implies the addition to the cost of the gray fabric, till it reaches the hands of the processor on account of the investment made in the purchase of the gray fabrics by its buyer. While various questions of inventory and costing were gone into by the departmental representative, they do not appear to us to be relevant. There is nothing to show that these costs were actually incurred. Whether they ought to have been incurred or not is not a matter with which we are concerned.
5. The other two elements on which duty had been claimed are those relating to shrinkage and charges actually incurred but not included. The first aspect, it is explained, arises because fabrics some times shrink in the course of processing. The duty is on ad valorem rate per square metres. The assessable value is determined by the total assessable value of the length or lot by the length of the finished fabrics. Where the fabric showing, the cost per square metre of the finished fabrics would therefore correspondingly be higher without including any of the other elements involved in the costing. This, it is alleged, has not been done. Advocate for the appellant has not denied the factual correctness of this inclusion. He however opposes the demand for duty on the ground that the extended period will not be available. The lot register showed in each case the extent of shrinkage. The lot register was subject to verification and often verified by the departmental officers. From this lot register and also from the general knowledge of the fact well known, that fabrics shrink in the course of processing, the officers would have known that the shrinkage takes place. There is therefore no suppression or misdeclaration.
6. We do not find it possible to accept that this shield of limitation is available to the appellant. It may no doubt be a matter of general knowledge that some kinds of fabrics shrink. It is also general knowledge that some fabrics some times lengthen during such processing. This general knowledge therefore does not override by being known the defence of limitation. It is not possible to conclude that any certainty that a particular lot shrinks lengthenwise or widthwise. Nor does the fact that the lot register maintained by the appellant showed these details, unless it can be shown that such lot register was actually verified by the officers in question. There is no evidence to support this position. In the facts of this case, we are not able to agree that limitation would be available. The advocate for the appellant did not press the claim with regard to the duty demanded on the quantum of processing charges.
7. One of the arguments of the departmental representative now needs to be dealt with. It is that since the extended period is available with regard to the shrinkage, the entire notice for the extended period would be valid. This is a misreading of the proviso under Section 11A(1). The proviso makes the extended period applicable in those cases where there has been a short levy or non-levy by reasons of any of the facts (suppression etc) specified in that proviso. The duty payable on element of the value comprising the cost of the gray fabrics (which was misdeclared by the senders) was not paid, not because of any misdeclaration by the appellant. This argument therefore would not apply and extended period would not be available for recovery of this duty now.
8. After coming to this conclusion, the matter has to be remanded to the Commissioner to determine the actual duty payable. According to the notification in force, the duty payable varied according to the assessable value of the fabrics. The value of gray fabrics now have to be determined after including the element which are now held includible. For this limited purpose, the matter is remanded to the Commissioner. He shall determine the duty payable after considering the materials that the advocate for the appellant promises to place before him within two months from the receipt of this order.
9. Confiscation ordered and penalty imposed on the appellant cannot be sustained in view of the judgment of the Delhi High Court in Pioneer Silk Mills Pvt. Ltd. v. Union of India -1995 (80) E.L.T. 507.
10. The appeal is accordingly disposed of.
