ORDER
V.K. Ashtana, Member (T)
1. These are 5 appeals arising out of Order-in-Original No. 37/88, dated 24-8-1988 of Collector of Central Excise, wherein the following was ordered :
(i) Confirming demand for period 1-4-1982 to 27-10-1986 amounting to Rs. 5,49,969.80.
(ii) Revised demand for the period 28-10-1986 to 27-11-1986 amounting to Rs. 17,862.86.
(iii) Penalties
(a) On the Mills Rs. 1 lakh
(b) On G.M. Rs. 10,000.00
(c) Office Manager and the
two Factory Managers each Rs. 5,000.00
2. The Show Cause Notice dated 7-5-1986 in question divides the issue into two parts as follows :-
Part I: Relating to the period April, 1982 to November, 1986 based only on the private register of the Mills for production and quality control (Annexure - A to SCN).
Part II: Relating to the period from 28-10-1996 (sic) to 26-11-1986 when unlike Part I the yarn produced was still in the bonded store room (Annexure - B to SCN).
3. Heard learned Advocate Shri K. Narasimhan for appellants. He first submitted arguments on Part II (supra). Two basic issues are raised in grounds of appeal:
(I) Whether denial to cross-examine the Dy. Chief Chemist or his authorised representative by the appellant before the adjudicating authority is violative of the principles of natural justice? If so, what is the probative value of the test report of such an authority?
(II) Whether the test report of the National Test House which admittedly is based on the ISI specifications (IS : 1315-1977 for ascertaining the linear density of yarn spun on cotton system – count of yarn) should be accepted in preference to that of the Dy. Chief Chemist of THE CRCL?
4. With respect to (I) above, he submitted that failure to allow cross-examination of the Chemical Examiner/Dy. Chief Chemist violates principles of natural justice. He cited :
Aurnodaya Mills Ltd. -1985 (21) E.L.T 390 (Guj.) & Kiran Overseas – 1988 (33) E.L.T. 362 (Tribunal).
5. With respect to (II) above, he cited decision of Hon’ble Supreme Court in Bombay Oil Industries -1995 (77) E.L.T. 32 (S.C.) in which it was held that when any Notification is silent on testing standards to be adopted, then ISI standard shall apply to imported goods. Hon’ble Supreme Court had followed its own decision in DCM [1977 (1) E.L.T. (J 199) (S.C.)] which was on Central Excise Tariff on same lines. Simply because CRCL is not equipped to test as per ISI the Order-in-Original discards it, which is illegal. ISI specification here is IS : 1315-1977.
6. Learned Advocate also challenged the conclusion in Para H page 21 of Order-in-Original that they had tempered with samples for their tests. There is no evidence to show this, it is a biased conclusion and an ex parte one, particularly because the Asst. Director of National Test House (NTH) was available for cross-examination but learned Collector did not want it. Since 17 out of 27 tests of NTH showed counts of 42S contrary to Dy. Chief Chemist’s findings, conclusion fairly drawn should be in favour of assessee.
7. With respect to Part I of the case (Annexure A of SCN) covering period from 1-4-1982 to 27-10-1986 he argued as followed :-
(a) Department has responsibility to periodically draw and test check samples, which is conceded in para 4 (page 41 of the Paper Book) of the impugned order. If so, why these results are not disclosed and taken into consideration despite being asked to? Also Order-in-Original is silent with respect to Test Memo 5/85, dated 29-10-1985 on which Superintendent’s cross-examination revealed that no Test Report was available. He cited Remalinga Choodambikai Mills – 1985 (15) E.L.T. 407 wherein it is held that the test sample’s report is valid till next periodic samples is drawn. This was followed in 1990 (45) E.L.T. 559 (Mad.) and in 1980 (6) E.L.T. 174 (A.P.). As the monthly RT-12 returns having been assessed on the basis of last test report, no roving enquiry is permissible later, on Daily Spinning & Production Register (DSPR).
(b) The entries in DSPR (relied on in Order-in-Original) are not truly representative of the count of yarn actually produced because :
(i) counts are determined in a rough and ready method for this as there is no laboratory in their mills;
(ii) only the average count of all lots of yarns of 1st shift is recorded therein (affidavit of Mohan Ram);
(iii) Excise duty can only be computed on count of a representative sample of a single yarn and not on average count as has been done in Order-in-Original. Cited Vidharabha Mills -1979 (4) E.L.T. J 555. Order-in-Original has distinguished it on grounds of seizure. But no seizure was involved as only question of Provisional Assessment was involved. Also cited case of Coimbatore Pioneer Mills reported in C.B.E. & C. Case-law Digest of 1972;
(iv) the letter of M/s. Balaji Knitting Mills referred to in para 27 of Order-in-Original is used to draw a wrong conclusion by suppressing the last two sentences thereof which reads as follows:
“They complain that they have lost heavily in the previous supply of 50 bags because the count was coarser. Please look into this.”
This evidence clearly shows that complaint is of supply of coarser counts, quite contrary to department’s allegations;
(v) Rule 9(2) cannot be involved as there is not clandestine removal. Cited N.B. Sanjana in 1978 (2) E.L.T. J 399 (S.C.) followed in Air Conditioning Corporation -1985 (19) E.L.T. 206 (Tribunal).
8. He therefore concluded that the impugned Order-in-Original was liable to be set aside.
9. Heard ld. JDR Shri Ravinder Saroop. He argued that samples were drawn as per Basic Manual and to get them tested by an outside agency/laboratory, appellants should have taken consent of department. Not having done so, the results of NTH are not binding. He further submitted that the results of retest by CRCL is only marginally different from the report of NTH and cited 1995 (76) E.L.T. 114 in the case of Maheswari Mills which laid down that assessee was bound by result of retest by CRCL. Thirdly, the daily wrapping register was never shown to Central Excise Officer, only weekly summary was shown. Therefore, the DSPR was only authentic document.
10. We have carefully considered the arguments on both sides and the records of the case.
11. With respect to Part II of the matter (supra) (Annexure B of SCN), we find that the benefit of doubt, in the interests of justice must go to the appellant for the following reasons :-
(i) Failure to cross examine the Dy. Chief Chemist etc., when the allegation in the SCN mainly rests on the test reports in violative of principles of natural justice. We cannot in these circumstances ignore the case-laws of Arunodaya Mills & Kiran Overseas (supra), particularly as no case-laws are cited to the contrary by learned JDR.
(ii) The National Test House is not a private laboratory. It is a Central Government Organisation employing highly trained technical personnel and is equipped with modern technical equipment. Therefore, we cannot brush aside the technical accuracy of its reports.
(iii) Merely because CRCL is not equipped to test as per IS 1315 :1977 and hence tests to older standards, we cannot subscribe to the view that ISI standard is irrelevant to the issue. The ISI is the only legally prescribed standard of the Central Government. Therefore, we have to apply the Hon’ble Supreme Court’s decision in the case of DCM (supra), particularly as learned JDR has not cited any ruling to the contrary. Hence the judgment of the Apex Court is the law of the land.
(iv) It is in this context that the refusal to allow cross-examination of the Dy. Chief Chemist etc. is to be viewed as a serious violation of principles of natural justice. If this had been allowed, the appellants could have had an opportunity to enquire the testing methodology and standards adopted by CRCL and its suitability vis-a-vis the ISI.
(v) There is no evidence to prove that the samples sent to NTH were tampered with or substituted and if this was suspected by Learned Collector, he should have accepted offer of the cross-examination of NTH Asst. Director to bring evidence on record. Not opting for this, now the ld. Commissioner cannot suspect the results of the NTH.
(vi) Learned JDR has cited case of Maheshwari Mills (supra). In the facts of that case, the methodology and standard for testing was not contested. Therefore, the said case-law stands distinguished on facts; and
(vii) Because in the majority of the samples in Test Reports of NTH, the count is 42S, therefore, in view of all these circumstances, the benefit of doubt shall go the appellants.
12. With respect to the issue in Part-I (Annexure A of SCN), we again find that considering all the facts and circumstances of the case, the benefit of doubt goes to the appellant for the following reasons :-
(i) The impugned Order-in-Original admits that periodical samples were drawn and tested by the Range Officer as per prescribed procedure. If that be so, then transparency of adjudication proceedings required that the Show Cause Notice and impugned Order-in-Original disclosed the results thereof and if it did not support the case of Revenue, lead evidence/arguments to justify their rejection. But strangely, the impugned Order-in-Original is silent. When this is read with the deposition of the Superintendent regarding Test Memo 5/85, dated 29-10-1985, this silence creates serious doubts in our minds. The just and legally correct conclusion to be drawn is that this silence indicates that either no tests were conducted or the results do not support their case. If the former is true, then as per case-law cited in 1985 (15) E.L.T. 407 (supra) the last sample tested would be valid during this period. The Order-in-Original is silent on this. It is nobody’s case that no sample was ever drawn and tested, as no classification list is approved finally without the test report. On the other hand, if the test results do not support their case, then it is the department which is more guilty of suppression rather than the assessee. Therefore, either way, this silence only propels us to extend the benefit of doubt to the appellants;
(ii) The averment of the Technical person of the Mills Shri Mohan Ram has not been seriously and adequately considered in the impugned Order-in-Original. He has testified that –
(a) the DSPR is only recording average count of 1st shift;
(b) there was no laboratory (except a weighing scale) in the mills to test the exact counts of each lot; and
(c) therefore the DSPR contained entries of only a rough method of testing and was for some degree of quality control.
The averments at (a) & (c) could have been tested by cross-examining him, which was not done by ld. Collector. The averment at (b) was merely a physical fact which was verifiable even at adjudication stage. From records of case, we find it was not verified. Therefore, we harbour serious doubts on the accuracy of the counts entered in the DSPR.
(iii) We totally accept the legal position that for the purpose of computing the excise duty of yarn, the count of single yarn from a representative sample of each lot, is the correct and relevant methodology and not the average count. The citation of Vidharbha Mills & Coimbatore Pioneer Mills have not been countered or challenged by learned JDR. Therefore, we are duty bound to follow these. Since admittedly the DSPR contains only average counts, therefore any duty demand based solely thereon, without adequate circumstantial corroboration, does not survive. Benefit of doubt must, in such a case, go to the appellants.
(iv) We are inclined to accept the true import of the letter of M/s. Balaji Knitting Mills relied upon in the impugned Order-in-Original, by reading the entire letter. Their complaint that they have received coarser counts yarn is very clearly worded. Therefore, this corroborative evidence, instead of helping the case of Revenue, actually damages it substantially. No other corroborative evidence is forthcoming. There is no corpus delecti – no seizure of goods to prove that count has been mis-declared. No other corroborative evidence like statements of other buyers/recipients have been recorded to show that they received higher count yarns as alleged. Therefore, on this ground also, the benefit of doubt goes to the appellants; and
(v) In view of the discussions above at (iv), it is clear that clandestine removal is not proved and Rule 9(2) not applicable. This also means that penal action is not warranted.
13. Taking into consideration the aforesaid discussions/finding, we are forced to conclude that Revenue has failed to established a position of preponderance of probability vis-a-vis the allegations in the show cause notice. Instead the benefit of doubt must go to the appellants.
14. Therefore, the impugned order-in-original is set aside unconditionally and the appeals succeed accordingly.