ORDER
J.H. Joglekar, Member (T)
1. These eight applications are for waiver of pre-deposit and stay of recovery of the duties confirmed and penalties imposed. These arise out of the same set of facts and are therefore being disposed of by the single order.
2. M/s. Special Prints Ltd. are engaged in processing of Man Made Grey Fabrics. The other three applicants namely M/s. Garden Silk Mills Inds., M/s. Vareli Textiles Inds. Ltd. and M/s. Surat Textiles Mills Ltd. were traders who entrusted the grey fabrics to M/s. Special Prints Ltd. for processing. The processed goods were generally supplied to the traders in Lump Form. The traders would cut and pack the process textile on their own, before marketing. In certain cases, M/s. Special Prints Ltd. himself undertake these processes for which an additional conisderation was paid by the traders. The traders had filed requisite declaration in terms of Notification No. 305/77 for availing exemption from licensing control. Such activity of processing of grey fabrics by M/s. Special Prints Ltd. for these three traders was in vogue from 1985.
3. Two show cause notices were issued to the traders as well as the processors. In the show cause notices, it was alleged that the information relating to post manufacturing processes, and the ultimate sale price charged by the traders was not furnished in the declaration. The data pertaining to the cost incurred by the traders where the activity of folding and cutting was undertaken by them, was collected. It was alleged that the price shown for the Lump Form was substantially lower than the price of cut form in which the fabrics were actually sold by the trader. It was alleged that the processes undertaken by the traders were identical to those undertaken by the processors. It was alleged that the manufacturing activity was split between the traders and the processors. This resulted in the suppression of value of the fabrics. Based on these allegations the two show cause notices were issued.
4. The show cause notices dated 29-4-1991 demanded additional duty amounting to Rs. 1,40,34,955.20, the Commissioner in his order dated 13-9-1997 confirmed this amount. He imposed a penalty of Rs. 1,50,000/- on M/s. Special Prints Ltd. as also penalties of Rs. 30,00,000/- each on the three traders. The show cause notice dated 9-9-1992 demanded additional duty amounting to Rs. 86,10,393/- The Commissioner in his Order-in-Original No. 39/MP/97, dated 28-8-1997 confirmed this demand. He also imposed a penalty of Rs. 87,00,000/- on M/s. Special Prints Ltd. and penalties of Rs. 15,00,000/- each on the three traders. He also ordered confiscation of the land, building etc. but allowed the redemption on payment of fine of Rs. 25,00,000/-. He directed that interest 20% be paid in the case of delay in payment of the sums confirmed and imposed in these orders. These 8 appeals and applications arise out of these two orders.
5. We have heard Shri J.F. Pochkhanwala the ld. Sr. Counsel with Shri B. Somandy Advocate for the applicants and Shri K.C. Agrawal for the Revenue.
6. We have carefully considered the issues involved in the proceedings and have also seen the notification and the case law relied upon.
7. The thrust of the show cause notices is that where the traders had undertaken certain process which processes when undertaken by the job worker/processor would make for addition to the assessable value, must be added to the assessable value at the hands of the processor, even if they are undertaken by the traders after the clearance of the processed goods. In establishing this charge reliance has been placed on Notification No. 305/77 and the conditions imposed on the traders thereunder. The subject notification was issued under the then presumption and belief that a trader, who entrusted gray fabric for processing, was the manufacturer in terms of Section 2(f) of the Central Excises and Salt Act, 1944. This belief came under scrutiny and was finally settled by the Supreme Court in their Judgment in the case of Ujagar Prints. The ratio of the judgment was that the job worker/processor was the manufacturer and that the basis of valuation was the value of the grey fabrics and the manufacturing charges. After the law was declared by the Supreme Court, the various stipulations and the conditions imposed under that Notification would cease to have any binding effort.
8. Even otherwise what is material is to see whether the processes undertaken such as cutting, packing and baling amounted to processes of manufacture. Reliance has been placed on the judgment of the Tribunal in the case of Garden Silk Mills Ltd. v. C.C.E., Baroda -1991 (51) E.L.T. 373 which holds that processed fabrics in lump form was fully manufactured excisable commodity. Even in the absence of this pronouncement it could not be held that merely cutting and folding processed fabrics would amount to process of manufacture. Therefore the allegation that this process was deliberately entrusted to the traders for artificially depressing the assessable value of the fabrics does not hold force.
9. It is correct that such manufacturing activities when undertaken in the factory of original manufacturer would make for value addition and that such processes undertaken outside the factory gate would not be addable the assessable value of goods in the hands of the manufacturer. But this anomaly is only apparent and not real.
10. We also find that although the same situation pervailed from 1981 onward, the department selected only this period for covering this issue. We are informed that subsequent to this a number of show cause notices have been issued but in subsequent proceedings, the Assistant Collectors in similar circumstances have dropped the demands. Ld. DR informs us that the department is scrutinizing to review these orders. However, as the issue stands out in the adjudication, we find that the assessees have made a strong prima facie case on merits.
11. As regards the penalty, apart from our discussion above, we find that the judgment of the Delhi High Court in the case of Pioneer Silk Mills v. Union of India 1995 (80) E.L.T. 507 covers the situation. We have seen the order in which this was brought to the notice of the ld. Commissioner. He overlooked this submission on the ground that the Government had filed an SLP in the Supreme Court, which was still pending. He has further observed that subsequently the concerned Act was amended in 1994 so as to make a provision for imposition of penalty in such cases. We find that this amendment does not make for imposition of penalty since at the time of the commission of the offence the law did not provide for any penalty. On this ground we hold that the levy of penalty does not sustain.
12. On these grounds we grant these applications and grant unconditional stay and waiver of the duties confirmed and the penalties imposed in the two orders.
13. Ld. Sr. Counsel submits that we should make an order as regards the orders of confiscation of the land, building etc. to ensure uninterrupted working of the assessees factory. We direct that this portion of the order be enforced subject to the assessees namely M/s. Special Prints Ltd. filing an undertaking with the Jurisdictional Commissioner to the effect that they will not sell, lease, rent or otherwise dispose of this property or any part thereof till the finalisation of the present proceedings.
14. The case is posted for hearing on 14-5-1999.