Judgment:
1. Both these appeals involving common question of law and facts were heard together and are being disposed of through this common order.
2. M/s. Orissa Women's Voluntary Services, hereafter referred to as OWVS, the first appellants, entered into an agreement with M/s. Konark Television Ltd. for assembling populated circuit boards (PCBs) out of the parts/components supplied by M/s. Konark Television Ltd. They supplied these assembled PCBs to Konark Television Ltd. without payment of duty in what they claimed was bonafide belief on their part that since certain essential parts like transistors had to be fitted into PCBs at the premises of Konark, the goods in the form they were removed from their premises did not attract excise duty. Collector of Central Excise on initiation of proceedings against OWVS, the first appellants and M/s. Konark Television Ltd., the second appellants, held that OWVS were actual manufacturers who were liable to pay duty. He held that benefit of exemption Notification No. 373/86, dated 29-7-1986 was not available to them since they had not followed Chapter X procedure. He also held that in case OWVS failed to discharge the duty liability, duty is chargeable from Konark since PCBs were got assembled on their account. Penalties were also imposed on both the appellants.
2. Arguing for the appellants, Shri S.A. Mohanty the learned Advocate on behalf of the OWVS submits that the PBCs manuf actured by them were not marketable as such since the essential parts like transistors had to be fitted on to them in the premises of Konark. In any case, he submits assuming any duty was payable the goods were fully exempted under Notification 373/86 since these were admittedly used in the manufacture of television sets of screen size not exceeding 36 cm in the premises of Konark. The Konark also had a L-6 licence but CT-2 certificate was not issued in their favour out of misconception. The only procedural irregularity was that Chapter X procedure as such was not followed but there is no dispute about the actual use of these PCBs in the manufacture of television sets at the premises of Konark. The procedural irregularity cannot have the effect of denying substantive benefit which is otherwise admissible under law. In support of his contention, he cites judgment in the case of Collector of Customs v.J.K. Synthetics Ltd. as reported 1996 (87) E.L.T. 582. This referred to the judgment of Hon'ble Apex Court in the case of Thermax Private Ltd. v. Collector of Customs as reported in 1992 (61) E.L.T. 352. It is his contention that the Tribunal itself in a series of orders has held that procedural infraction cannot have the effect of denying substantive benefit under law, and cites the case of CCE v. IOL as reported in 1993 (66) E.L.T. 215, Hydrabad Allwyn Industries v. CCE as reported in 1990 (45) E.L.T. 584, TISCO v. CCE as reported in 1994 (70) E.L.T. 478 and CC v. J. Fibre Corpn. as reported in 1993 (67) E.L.T. 320.
3. Arguing on behalf of the Konark Television Ltd. the Learned Advocate, Shri S.K. Mohanty submits that demand itself is time barred and they are not liable to any penalty even apart from the merits of the case. He draws out attention to page 2 of the reply to the show cause notice placed at page 28 of the Appeal E/5057/93-B1 relating to M/s. Konark Television Ltd. He submits that they were regularly filing RT 11 returns in regard to receipt of inputs and when on scrutiny of these returns the Suptd. of Central Excise found that the television sets manufactured were in excess of the PCBs received, they explained to the Central Excise authority that they were receiving PCBs from OWVS who were assembling these on job work basis. In these circumstances, there was no attempt to suppress anything from the department and department knew about this as early as Nov., and Dec, 1990 and therefore, the show cause notice issued on 10-7-1992 alleging short levy by invoking extended period under proviso to Section 11A was not sustainable. He submits that they were having L-6 licence but it was an omission on their part not to issue CT-2 certificate. This omission resulted from a bona fide belief that they were not perhaps required to issue CT-2 certificate since the raw materials for these PCBs were duly entered in their factory records and were sent to OWVS under regular challans. There was no attempt to suppress anything nor any attempt to evade duty. In fact, all the PCBs received from OWVS were used in television sets and therefore, the impugned goods even otherwise were eligible to exemption. Mere non-following the Chapter X could not wipe out the benefit otherwise available both under exemption Notification.
5. Collector of Central Excise at internal page 6 of the order has recorded that "it is not disputed that the P.C. Boards manufactured/supplied by M/s. O.W.V.S. to M/s. K.T.V. were used solely with Television receivers manufactured by M/s. K.T.V. falling under CHS 8528.00 of the Central Excise Tariff Act, 1985 as parts of the said apparatus. Therefore, its classification or dutiability under CHS 8529.00 of the Central Excise Tariff Act, 1985 is undoubted and if at all some parts are left to be used by M/s. K.T.V. in their factory premises it will not affect the position with regard to levy of duty on the said product...." From this, therefore, it is clear that it is an admitted position that PCBs assembled by OWVS and supplied to Konark have been used in the manufacture of television sets. Notification No.373/86, dated 29-7-1986 exempts television chassis (also known as populated circuit board), falling under Heading No. 85.29 of the Schedule to the Central Excise Tariff Act, 1985, from the whole of the duty of excise leviable thereon which is specified in the Schedule. By way of proviso it stipulates that such television chassis is used in the manufacture of broadcast television receiver sets of screen size not exceedings 36 centimetres and provided further that where such use is elsewhere than in the factory of production of the said television chassis, the procedure specified in Chapter X of the Central Excise Rules, 1944 is followed. In other words, exemption is given on the condition that these PCBs are used in television sets not exceeding 36 cm and if such use is at place other than the factory, Chapter X procedure is followed. There is no dispute about the use of these PCBs in television sets of screen size not exceeding 36 cm. Chapter X however, was admittedly not followed. The question, therefore, is if the appellants are otherwise eligible to remove goods under exemption would not following the Chapter X procedure disentitle them for such exemption. It was pleaded before us that Konark had L-6 licence and in fact were receiving from others also such PCBs by following Chapter X procedure. They did not issue CT-2 certificate in case of OWVS under the mis-conception that perhaps they were not required to do so since the raw materials for the manufacture of PCBs were supplied by them. On going through the various case laws cited at the Bar, we are satisfied that merely not following Chapter X procedure in its entirety cannot have the effect of denying substantive benefit to which the appellants otherwise are entitled to under law. Once it is admitted that the impugned goods were, in fact, used in the manufacture of television sets of required size there is substantial compliance with requirements of Notification. Collector of Central Excise has denied the benefit on the ground that the procedure as laid down in Chapter X has not been followed. As indicated earlier once the fact of exemption is proved, that is, the goods in fact were used in the manufacture of television sets of specified size, there is substantial compliance with the requirements of Notification and procedural requirement in such cases acquires the character of a mere technicality. What is important is the fact of exemption having been proved and since there is no dispute about the PCBs having been used in the manufacture of TV sets, we are satisfied that the appellants OWVS are not required to pay any duty.
Similarly, there cannot be two manufacturers for the same product and therefore, KTV also, since the impugned goods have in fact been used in manufacture of TV, are not liable to pay any duty. On going through the correspondence as set out in reply to the show cause notice by the Konark to explain the excess receipt, we are satisfied that the department knew about this fact as early as 1990 and yet no action appears to have been taken against Konark and therefore, penal liability against them is not substainable.
6. We also note the arguments of Learned DR that the Hon'ble Apex Court had ruled that the concession is not available in the absence of L-6 licence. [CC v. J.K Synthetics as reported in 1996 (87) E.L.T. 582].
The Hon'ble Apex Court referred to the judgment rendered in the case of Thermax Pvt. Ltd. v. CC and distinguished it and explained scope of the judgment. They particularly referred to the observation of the Board that benefit of exemption or concession should be granted wherever the intended use of material can be established by the importer or by other evidence. Where it was denied was a case where the assessee produced no material to show that the "beneficiary" factory was eligible for the concession under Rule 192. We also note the arguments of the Learned DR that no complete disclosure was made by Konark indicating the fact of manufacture or receipt of PBCs by Konark. We have however referred to the correspondence with Konark which clearly indicates that they were receiving PCBs from OWVS.7. In short, we are of the view that since the department knew about the receipt of goods, penal liability against them is not sustainable.
Similarly, they cannot also be made to pay duty once it is held that duty at all was payable by OWVS since there cannot be two manufacturers. In regard to duty liability, as mentioned earlier, mere non-following Chapter X procedure would not affect substantive benefit under law. At the same time it is admitted position that OWVS did not follow the Chapter X procedure and it was conceded by the Learned Advocate appearing for OWVS that they are not contesting the fact of "manufacture" seriously though certain parts had to be added to the impugned goods. In view of this, we are of the view that OWVS are liable to penalty. It was submitted by the Learned Advocate that OWVS is a voluntary organisation whose only purpose is welfare of destitute and rehabilitation of women and they are not a profit making organisation. There was no intent to evade duty as such. We are of the view that keeping in view the objects of the organisation and there could not have been intent to evade duty, a nominal imposition of penalty would meet the ends of justice. We therefore, reduce the penalty on M/s. OWVS to Rs. 5,000/- only. Both the appeals are disposed of in these terms.