Full Judgment
The officers therefore, seized the goods. The investigations revealed that M/s. Walker (India) Ltd. cleared goods worth of Rs. 13,29,546.40 during the year 1989-90 and goods worth of Rs. 40,79,926/- during the period 2-4-1990 to 23-12-1990 without payment of duty and availing the inadmissible exemption. Accordingly, a show cause notice was issued to the appellants asking them to explain as to why duty should not be demanded from them, why the seized goods should not be confiscated and why penalty should not be imposed. In reply to the show cause notice, the appellants submitted that they were using power on the date of visit of the officers as there was a heavy demand of shoes on account of festival season; that the appellants used power for a week or so to complete the orders; that the appellants had filed declaration for exemption from licensing control; that the Central Excise Officers were visiting their factory; that there was no suppression or wilful mis-statement to raise the demand for the extended period; that the appellants were using power for embossing the trade mark of the company on the shoes; that embossing of trade mark is not a process of manufacture; that the shoes are complete and marketable even before embossing of trade mark with the aid of power; that this clearly shows that no power was being used in the manufacture of shoes; that the value taken for demanding duty should be considered as inclusive of duty; that the elements of transport and freight should also be considered for working out the demand. In support of their contentions, they cited and relied upon the judgment of the Tribunal in the case of Rana Rubber Industries v. C.C.E., Meerut reported in 1987 (32) E.L.T.433; that there was no mala fide intention to evade payment of duty and therefore, no penalty can be imposed. In support of this contention, they cited and relied upon the judgment of the Apex Court in the case of Hindustan Steel Ltd. v. State of Orissa reported in 1978 (2) E.L.T.(J 159) and Cement Marketing Co. of India v. Asstt. Commissioner of Sales Tax reported in 1980 (6) E.L.T. 295. After careful consideration of the submissions made and the evidence on record, the Id. Collector held that the goods are liable to confiscation and therefore, imposed a fine of Rs. 3 lacs in lieu of confiscation as the goods were released provisionally. The Id. Collector imposed a personal penalty of Rs. 1 lakh on M/s. Walker (India) Ltd. and also imposed a personal penalty of Rs. 10,000/- on Shri Karim B. Jiwani, Director of the company and hence the appeals.
3. Shri Vinay Garg, the learned Advocate appearing for the appellants submitted that the appellants had filed declaration in the year 1989-90 describing their process of manufacture; that the officers of the Department had visited the factory and satisfied themselves on the question of admissibility of concession of Notification No. 49/86 and Notification No. 175/86; that show cause notice dated 29-4-1992 was time barred; that power operated machines were not being used in respect of hand-made shoes and therefore, the appellants were entitled to the benefit of exemption that the Id. Collector wrongly held that hand-made shoes were made out of parts which in turn are made with the aid of power-operated machines for a period of about one week; that the Collector had wrongly held that it follows that appellants had made parts in respect of handmade shoes with the aid of power-operated machine during the period 2-4-1990 to 23-12-1990; that the appellants' Director Mr. Karim B. Jiwani, in his statement dated 24-12-1990 has very categorically stated that they have been using power for cutting leather for all types of shoes including hand-made shoes very recently so as to increase the production; that this statement is to be read in the light of the fact that it was festival season and only to increase production during the festival season, power-operated machines were being used in cutting leather for hand-made shoes also. The Id. Counsel submitted that no power was used by the appellants for the period prior to 15-12-92. The Id. Counsel submitted that the Id. Collector had wrongly held that the use of power for embossing trade mark on the shoes would disentitle the appellants to the benefit of Notification No. 49/86 in respect of hand-made shoes; that embossing trade mark is not a process of manufacture. The Id. Counsel also submitted that parts of footwear have been separately classified under Chapter 64 of Schedule to CETA, 1985 from footwear. The Id. Counsel submitted that this Tribunal in the case of J.S. Industries reported in 1989 (43) E.L.T. 148 had held that manufacture of components with the aid of power would not disentitle the final product from the benefit of exemption, if the final product has been manufactured without the aid of power; that there was no prohibition in having power operated machines and manufacturing goods without the aid of power in the facts under Notification No. 49/86; that the seized shoes were valued less then at Rs. 60/- each that the Id. Collector did not allow the appellants deduction on account of freight and transport charges claimed by the appellants to arrive at the assessable value of the footwear cleared during the period 2-4-1990 to 23-12-1990; that redemption fine of Rs. 3 lakhs is too much excessive when the value of the confiscated goods was only Rs. 6,18,750/-; that this Tribunal in the case of Dolphin Laboratories reported in 1987 (29) E.L.T. 243 had held that confiscation and redemption fine is illogical when goods have already been cleared. Summing up his arguments, the Id. Counsel submitted that in view of the submissions and the evidence on record, no duty is demandable nor the confiscation of goods and penalty was warranted. He therefore, prayed that the impugned order may be set aside.
4. Shri A.K. Madan, the learned SDR appearing for the respondents submits that the main issue for determination in this case is whether the appellants had used power in the manufacture of goods described as hand-made footwear. He submitted that on the date of visit of Central Excise Officers, they found the appellants using power for the manufacture of hand-made footwear. He submitted that Mr. Akbar Jiwani, Director of the appellants' company, in his statement, recorded on 24-12-1990 stated that the appellants were using power for cutting leather for all types of shoes to increase the production; that Shri Karim B. Jiwani, the other Director of the firm confirmed that they were using power for cutting leather for all types of shoes; that no doubt, in reply to the show cause notice, the appellants had contended that power was used for a week or so just to complete the festival orders. He submitted that this contention cannot be accepted as no concrete evidence has been brought on record to show that it was only for a short period to meet the festival rush of orders; that power was being used in respect of hand-made shoes for embossing the trade mark.
He submitted that the contention of the appellants that manufacture of hand-made footwear was complete even without the embossing of the trade mark is not tenable inasmuch as all the shoes were being embossed before clearance. He submitted that since every bit of the hand-made footwear is being embossed with trade mark, therefore, embossing was an integral part of the completion of the process of manufacture. He submitted that the admitted position was that leather was being cut with the aid of power and that embossing of the trade mark on the hand-made footwear was being done with the aid of power, therefore, the appellants were not entitled to the benefit of Notification No. 49/86.
5. On the question of sale value being considered as inclusive of freight and transport charges and the Central Excise duty, the Id. SDR submitted that the appellants did not produce any evidence at deliveries were not being given at the factory gate and that some freight or cost of transportation is included in the value of the footwear; that in the absence of concrete evidence to this effect, the Id. Collector has rightly denied the decision account of freight.
6. Heard the submissions of both sides, perused the case law cited by the appellants. We find that the main issue for determination before us is whether the appellants are entitled to the benefit of Notification No. 49/86 and Notification No. 175/86 as amended. For purpose of this, the basic issue is whether the appellants were using power in the manufacture of hand-made footwear. The admitted position is that the power operated machines were installed and used in the premises where hand-made footwear was being manufactured. It is also an admitted position that on the date of visit of the officers, power operated machines were being used for cutting the leather in respect of all the footwear including hand-made footwear; that this position was further confirmed by the two Directors that power-operated machines were being used for cutting leather and embossing hand-made footwear. The further contention of the appellants was that it was a temporary phenomenon as there was rush of orders on account of festival season being very close by. However, the appellants could not produce any evidence that the consumption of power was much lower before this festival rush. The appellants cited and relied upon some judgments on this issue. However, we find that the Apex Court in the case of C.C.E. v. Ra-jasthan State Chemical Works "22. We are therefore, of the view that if any operation in the course of manufacture is so integrally connected with the further operations which result in the emergence of manufactured goods and such operation is carried on with the aid of power, the process in or in relation to the manufacture must be deemed to be one carried on with the aid of power. In this view of the matter, we are unable to accept the contention that since the pumping of the brine into the salt pans or the lifting of coke and limestone with the aid of power does not bring about any change in the raw materials, the case is not taken out of the Notification. The exemption under the Notification is not available in these cases. Accordingly, we allow these appeals. In the facts and circumstances of the case, we make no order as to costs." We also observe that the Apex Court in the same judgment in Para 17 held that what does "manufacture " mean? For this purpose, Para 17 of the order is reproduced below : "17. The transfer of raw material to the reacting vessel is a preliminary operation but it is part of a continuous process but for which the manufacture would be impossible. The handling of the raw materials for the purpose of such transfer is then integrally connected with the process of manufacture. The handling for the purpose of transfer may be manual or mechanical but if power is used for such operations, it cannot be denied that an activity has been carried on with the aid of power in the manufacturing process the use of diesel pump sets to fill the pans with brine is an activity with the aid of power and that activity is in relation to the manufacture. It is not correct to say that the process of manufacture starts only when evaporation starts. The preliminary steps like pumping brine and filling the salt pans form integral part of the manufacturing process even though the change in the raw material commences only when evaporation takes place. The preliminary activity cannot be disintegrated from the rest of the operations in the whole process of manufacture. Similarly, when coke and lime are taken to the platform in definite proporations for the purpose of mixing, such operation is a step in the manufacturing process. It precedes the feeding of the mixture into the kiln where the burning takes place. The whole process is an integrated one consisting of the lifting of the raw materials to the platform mixing coke and lime and then feeding into the kiln and burning.
These operations are so interrelated that without anyone of these operations manufacturing process is impossible to be completed.
Therefore, if power is used in anyone of there operations or anyone of the operations is carried on with the aid of power, it is a case where in or in relation to the manufacture the process is carried on with the aid of power."Standard Fireworks Industries Sivakasi and Anr. v. C.C.E., Madurai reported in 1987 (28) E.L.T. 56 had also examined the term 'manufacture'. Para 6 of this order is reproduced below : "6. The claims for refund advanced by the appellants have been rejected on the footing that they are not covered by the Notification of 1977 inasmuch as cutting of wires and conditioning of paper have been carried with the aid of power. The Id. Counsel for the appellants has strenuously contended that the statutory authorities under the Act and the Tribunal have overlooked the fact that in Item 68 at the relevant time the words 'manufactured in a factory' occurred. We do not think that there is any substance in this contention. The Notification purports to allow exemption from duty only when in relation to the manufacture of the goods no process is ordinarily carried on with the aid of power. It is not disputed that the cutting of the steel wires or the treatment of paper is a process for the manufacture of goods in question. Since those processes were carried on with the aid of power though requirement of the Notification would not be answered so as to entitle the appellants to exemption from duty. It is not necessary to refer to any authority inasmuch as on the analysis indicated above the claim for refund appears to have been rightly rejected." Following the judgment of the Supreme Court in the cases cited above, we hold that cutting of leather and embossing of the footwear with the brand name is manufacture for the purpose of levy of duty. We also hold that the power operated machines in cutting the leather and embossing the trade mark on footwear is used in the manufacture of hand-made footwear. In this view of the matter we hold that the benefit of Notification No. 49/86 as amended by Notification No. 175/86 for non-use of power shall not be admissible to the appellants.
7. On the question of deduction of freight and transport charges, we agree with the findings of the Id. Collector, Central Excise holding that in the absence of any documentary evidence in this regard, the deduction cannot be allowed.
8. Insofar as the redemption fine is concerned, we find that the value of the goods is only Rs. 6,18,750/- and the fine is Rs. 3 lacs. The fine appears to be on the higher side. Having regard to the reduce the same to Rs. 1 lac (rupee one lac only).
9. Having regard to the facts and circumstances of the case, we do not see any reason to interfere with the imposition of penalty or nor the quantum thereof.
10. The impugned order is modified to the extent stated above and the appeals are disposed of accordingly.