1.These two Revision applications filed before the Central Govt. of India which, under Section 35-P of the Central Excises and Salt Act, 1944, statutorily transferred to this Tribunal as if it were appeals filed before the Tribunal. As the issue is interlinked and connected they are clubbed together and disposed of by this common order.
2. Facts of the case in brief are that the first appellants M/s.
Hindustan Foam Industries, Bhopal (H.F.I.) manufacture polyurethene foam products in their factory at Bhopal. It was established in 1972 as a partnership concern with the partners Shri Zahid Jamil and his family members with 15% shares and the second appellant M/s. AFCO Ltd., Bombay with 85% shares. The factory started production in August, 1973.
Further New Sales Agency as marketing company was formed under the name and style of M/s. Union Agencies ('UA') as partnership concern consisting Zahid Jamil partner of the 1st Appellant (HFI) as working partner with 15% share and second appellants AFCO with 85% share. In view of the fact that M/s. Union Agencies to whom most of the production has been sold to the extent of 95% which has been marketed the goods after retaining a very high margin during the period from December, 1.973 to August, 1975, the Collector of Central Excise, Nagpur charged the appellants for under valued the cleared products by Universal Agencies at a collusion by the appellants and less percentage was sold to 3 or 4 independent parties on the same terms to U.A. with pre-decision clearly show appellants created a shadow market by effecting sporadic sales at irregular intervals. In view of the common interest of the partners in U.A. & H.F.I. and due to wide variation between the Industries ex-factory price and the retail prices of U.A.by his order dated 21-3-1977, the Collector of Central Excise, Nagpur ordered that the assessable value of H.F.I's products should be the value at which the goods were sold by U.A. and not the value at which the goods were sold by H.F.I. to U.A. and others and that the amount of duty should be calculated on this basis and that the difference in duty which was not paid should be paid. It was further held that the losses in production shown by H.F.I. were not genuine and that the losses only upto 12% were admissible and on the balance quantity of goods also duty should be paid. Further he imposed penalty of Rs. 5 lakhs on H.F.I.under Rule 173-0 of the Central Excise Rules, 1944 and ordered for confiscation of plant, machinery, building, etc. of the H.F.I. under Rule 173-Q of the said Rules and however have an option to redeem the same on payment of Rs. 5 lakhs. Aggrieved by this order both the appellants preferred an appeal to the Central Board of Excise and Customs and the Board in the appeal order No. 152 & 153 dated 31-7-1981 held that the Collector was right in disregarding the price charged to M/s. Union Agencies could not be the basis for assessable value unless suitable allowance for costs subsequent to clearance are allowed.
Accordingly, it remanded the case for fresh consideration and adjudication after explaining the basis proposed to be adopted and after hearing the appellants. The Board set aside the part of the Collector's order relating to demand on suppressed production in the absence of reliable basis for arriving at the finding of suppressed production. As regards penalty and fine it reduced the fine in lieu of confiscation from Rs. 5 lakhs to Rs. 1 lakh and penalty on H.F.I. from Rs. 5 lakhs to Rs. 2 lakhs. Not satisfied with the findings of the order of the Board, the appellants have come up before us by way of these two appeals.
3. Shri Y.N. Chopra learned Consultant appeared for the appellants in Appeal No. 1180/81-A, Shri Willingdon Christian, learned advocate appeared for the appellants in Appeal No, 1002/82A and respondent in both the appeals represented by learned Senior Departmental Representative Shri S. Krishnamurthy.
4. Shri Y.N. Chopra raised three points while addressing the arguments.
i) Issue of Show Cause notice only to partners of the appellants' firm but not to the firm itself, ii) Show Cause notice purported to be issued under Rule 10A where Rule 10 is applicable. iii) Time barred Demand. On point of issue of show cause notice he submitted that show cause notice dated 30-8-1976 which is the basis of charge of under-valuation in respect of manufactured goods by the firm. Firm being a manufacturer and demand was levied on the firm but no show cause notice issued to firm but issued to partners. Entire adjudication is bad as issue of show cause notice to firm is mandatory. He urged that firm is a separate identity from its partners and issue of notice to partners is not a service of notice to firm and he placed a reliance reported in 1982 (10) ELT 329 (C.B.E. & C.) - Central Board of Excise and Customs (Appeal Case) v. In Re : Smt. Shyam Kumari Baraut and Ors.
and 1987 (13) ECR 817 (Cegat-NRB) Mukha Mal Gokal Chand v. Collector of Customs & Central Excise, New Delhi.
5. As regards second and third issue he explained the distinction between Rule 10 and 10A which were in force prior to 6-8-1977 and as the Department was aware of the declared price and there was no case of non declaration or suppression, hence case of misstatement was covered by Rule 10 and not the Rule 10A which was the residuary section. The demand covered for the period December 1973 to August, 1975 and demand has been issued after expiry of one year and hence entire demand is time barred. In support of his contention of applicability of Rule 10, and time barred demand he cited the following decisions :Inspector Central Excise v. Bengal Paper Mills Co. Ltd. -1978 (2) E.L.T. (J 515) 2) Gopal Paper and Board Mills v. Union of India -1981 (8) E.L.T. (P 97) 3) Ramsey Pharma Private Ltd. v. Superintendent, Central Excise Allahabad and Ors. -1983 (12) E.L.T. 78 4) Devidayal Rolling & Refineries Pvt. Ltd. v. A.V. Borkor Superintendent Central Excise and Ors -1983 (12) E.L.T. 338 (Bombay) 5)Garden Reach Ship Builders & Engineers Ltd. v. Collector of Central Excise - 1989 (42) E.L.T. 506 6. Shri Willingdon Christian, advocate who appeared for the second appellants submitted that second appellant was made a party to the proceedings by issuing a show cause notice as partner of the first appellant firm though real charge was on the first appellant firm. He adopted the arguments advanced by Shri Chopra and added that show cause notice, dated 30-8-1976 issued is the first show cause though it spoke two previous notices were issued and infact no such notices were issued. The Board has not considered the reply filed by the 2nd appellant to the show cause notice and application of Rule 10 and time barred demand aspect though it was specifically urged. In September, 1975 the first appellant firm nearly sold 96% to the independent dealers hence ex-factory gate price ought to have been taken and at any rate the entire demand is time barred as Rule 10 was applicable to the relevant period for charge of undervaluation as the price list was approved by the Department and hence the residuary Rule 10A is not applicable as held in case of Union Carbide (India) Ltd. v. Assistant Collector of Central Excise 7. Shri Krishnamurthy submitted that issue of show cause notice to partners is as good as to issue to the firm as the firm and partners are one and the same. As regards applicability of Rule 10 and Rule 10A he submitted that this is a clear case of suppression as it was pre-planned to evade tax as clearly found in the original order passed by the Collector as he has given a clear finding deliberate arrangement was made to undervalue the goods by creating a shadow market. In view of the intentional suppression he submitted that Department was justified invoking the larger period beyond by one year under residuary power vested under Rule 10A of the Act.
8. We have gone through the arguments and perused the records. On facts, it is true the show cause notice dated 30-8-1976 which is the basis for the charge of undervaluation and initiation of proceedings was not served on firm as such but it was issued only to partners of the appellant firm. Hence the first issue is to be decided in this case whether the firm is a separate and distinct legal entity apart from its partners. Issue of show cause is a mandatory provision and it should be served on the person chargeable either for non-payment or for short levy. In this case the appellant firm was charged for under-valuation and short payment of duty as the appellant firm is a manufacturer of the product. But it is strange that the firm was not served with the notice but the partners. The term 'Person' has not been defined in the Central Excises and Salt Act, 1944. In the absence of definition of the term 'Person' in the Excise Act, the term has to be understood as used in legal terminology which includes individual, firm Society, Club Association of person etc. Excise duty is leviable on the excisable goods manufactured by the person who is a manufacturer and the excise law does not contemplate more than one party as manufacturer of the same commodity. The contention of the appellants has got a force in distinguishing the firm from partners in view of the ratio of the decision cited supra. Apart from the cases cited by them in a recent case which is reported in 1989 (42) E.L.T. 1.89 in the case of Additional Collector of Central Excise v. Kathiresan Pillai, Hon'ble Madras High Court while dealing with the matter of cancellation of licence and validity of issue of show cause notice, observed that issue of show cause notice to the firm is not valid, as no show cause notices were issued to the partners as the licences were in the name of the partners. Neither the firm was licence holder nor has it applied for renewal. Hence the notice issued to the firm was non est in law. In this instant case it is reverse that the firm was licence holder for manufacture of excisable goods and firm was charged for under-valuation and imposed duty and penalty but show cause notice was served on partners hence notice issued to the partners was non est in law. The firm is a separate legal entity from its partners for the purpose of Central Excise Act, irrespective of the treatment of the firm and partners under General law. In view of this finding charging firm for under-valuation and for short levy is unjustified in the absence of issue of show cause notice to the firm. As regards other issues, we observe from the records that the show cause notice dated 30-8-1976 for the demand was issued to the appellants under Rule 10 A, as then in force. The demand covered the period from December, 1973 to August, 1975. It means it was issued after just one year. As on the date of issue of show cause notice there were two Rules which provided for the recovery of the short duty levied. Rule 10 applied when duties or charges have been short-levied through inadvertance, error, collusion or mis-construction on the part of an officer, or through mis-statements as to the quality, description or value of such goods on the part of the owner. Under this Rule read with Rule 173 there was time limit of one year for making demands for duties short-levied.
There was no time limit under Rule 10A. In a way it was a residuary section. Residuary provision should be applicable when other proviso were exhausted. According to the Department it was a case of suppression and hence Rule 10 A is applicable. But on facts the price lists filed by the appellants was duly approved and appellants have removed the goods after payment of duty on the basis of approved value.
Difference arose on account of assessable value adopted by the Department by taking the sale price of the goods sold by the related person cannot be the basis of non-declaration or suppression to bring the appellants under residuary Rule 10A of the Act as envisaged in the decided cases cited by the appellant mis-statement, charge of under-valuation was specifically covered under Rule 10 itself and hence the Rule 10A was not applicable. The demand having been issued after the expiry of the time limit as provided in Rule 10, the appellants succeed on this second ground also.
9. In the view we have taken, we do not find any justification in the imposition of fine and penalty levied by the Collector and reduced by the Board. Accordingly, weset aside the fine and penalty.
10. In the result, we allow the appeal in full with consequential relief to the appellants.