1. M/s. Nalanda Pen Mfg. Company Private Limited manufactured, among other articles, ball point pens and refills for ball point pens. One of the important part of the refills namely brass tips was got manufactured by them from seven Private Limited Companies on job work basis. The job workers were operating as Small Sector Industries. They were also buying such tips on outright basis from another manufacturer.
M/s. Nalanda Pen Mfg. Co. Pvt. Ltd., were filing classification lists from time to time. The job workers in the Small Sector Industries were exempted from licencing control having filed the requisite declarations from time to time in which the goods manufactured were declared as "Brass tips of the ball point pens" and benefit of Notification No.74/86 as amended by another notification was claimed for their duty free clearances. The classification of such goods was shown under Sub-heading 9608.00.
2. M/s. Nalanda started manufacturing pens and refills from the year 1984 but commenced practice of supply of raw materials and getting the brass tips made from the job workers only from 1988. The Notification No. 104/82, dated 28-2-1982 exempted pens including ball point pens and refills thereof from payment of duty. This notification was superseded by Notification No. 146/82, dated 22-4-1982 which exempted the pens, ball point pens, part of such pens and refills for such ball point pens. The description of the exempted products continued unchanged over later years until the issue of Notification No. 156/90 which for the first time excluded (exempted) parts of the refills also.
3. On 24-12-1990 jurisdictional authority issued a show cause notice demanding duty on the brass tips manufactured during the period March, 1986 to November, 1989. In making this demand, a specific allegation was made of deliberate and wilful intent to evade payment of duty by way of suppression of facts. The allegations as to the penalty were also raised. It was also alleged that land, building etc. were liable to confiscation. This show cause notice was issued to the assessee company and its three Directors namely Shri C.O. Shah, Shri A.D.Sanghavi and Smt. Geeta A. Sanghavi. The Collector after hearing the assessees passed the impugned order whereby he confirmed the demand of duty amounting to Rs. 81,75,492.58, imposed penalty of Rs. 27 lakhs on the Assessee Company and also imposed penalty of Rs. 5 lakhs each on the three Directors. He ordered confiscation of land, building etc. but permitted their redemption on payment of fine of Rs. 25,000/-. The Assessee Company and three Directors have filed separate appeals against this order. These four appeals are, therefore, taken up by us for disposal by this common order.
4. Shri J.J. Bhatt, Senior Advocate, appeared for all four appellants along with Shri S.S. Kalambi, Advocate. Arguing on merits Shri Bhatt claimed that brass tips were part of refills and refills were part of ball point pens. In this way, brass tips were part of parts. He relied upon the judgment of the Tribunal in the case of Collector of Central Excise v. Mahendra Engg. Works, 1993 (67) E.L.T. 134 in which the Tribunal had held that where the notification does not make distinction between parts and sub-parts, there was no justification in denying the benefit to the sub-parts. He stated that ratio of the Tribunal's decision in the case of Audio Vision Electronics v. Collector of Customs, Madras 1987 (31) E.L.T. 796 was also the same where examining the admissibility of certain imported goods under O.G.L. the Tribunal had held that component of a component is also a component of machine and hence importable. It was his claim that even before Notification No. 156/90 specifically extended the exemption to the parts of the refills applying the ratio of these judgments it should be held that the preceding notifications extended their benefit to such parts also.
He stated that this fact was acknowledged by the department. He referred to a letter dated 30-3-1983, a copy of which was placed on the paper book, written by the Assistant Collector of Customs, Appraising Deptt. Group 'A' addressed to manufacturers of refills in which relying upon the meeting of the addressees with the Member, Incharge of Customs, the assessee was informed that Ball Point Tips were eligible for duty exemption under Notification No. 234/82-C.E., dated 1-11-1982.
Learned Advocate then referred to the letter written by the job workers in this very case to the jurisdictional Assistant Collector in May, 1984, referring to this very letter and seeking confirmation from him whether tips manufactured by them which were similar to the imported tips, would also benefit from Serial No. 6 of the Schedule to Notification No. 234/82. He referred to the identical reply of the Jurisdictional Assistant Collector dated 11-2-1985 in which the following paragraph occurred : "I am to inform you that the Tips for refills for ball point pens are considered to be parts of the ball point pens and is covered by the entry 6 of the Schedule appended to Notification No. 234/82-C.E., dated 1-11-1982 as amended." He stated that this stand of the department was unchanged upto the time of issue of Notification No. 156/90. It is his claim that allegation made in the show cause notice that such brass tips for refills were not covered under the earlier notifications during the period covered by the show cause notice is, therefore, without any basis and, therefore, entire show cause notice loses its force.
5. His next claim was that although show cause notice was issued to the Assessee Company, the actual manufacturers of such tips were job workers who were incorporated Companies, independent entities and operating under the notifications covering the Small Industries assessees. It was his claim that even though the Collector has referred in his discussions to the relationship between the job workers and the Appellant Company, no claim is made in the show cause notice that due to commonality of some Directors, the appellants and the job workers should be deemed to be one entity and their clearances should be clubbed. He submitted that earlier in June, 1987 the Department had conducted an enquiry in the relationship of the Appellant Company with other 8 Companies. The job-workers had informed the department that they had separate factory licence, separate registration under the S.S.I., separate plant and machineries and all other facilities. The department thereafter had not pursued these enquiries. In fact, the manufacture on job work basis of ball point pens commenced only after the enquiry was conducted without any action being taken by the Department. Learned Advocate referred to paragraph 22.4 of the impugned order where the Collector himself has observed that show cause notice does not reflect any enquiry to bring the nexus between the job workers and the Appellant Company in order to show that such division was made only to evade payment of duty. The learned Advocate claims that at all times the job workers were independent units and in the absence of any allegation made in the show cause notice the Collector's action of holding the present assessees as Manufacturers of the brass tips was wrong.
6. Learned Advocate also claimed that the demand suffered from limitation. Although in the show cause notice a specific allegation was made, the department at all times was aware that job workers were manufacturing tips and the claims-of the job workers for benefit of the notification was accepted and allowed by the Departmental Officers from year to year. It was his claim that all these job workers were separately constituted independent entities and that they could not be equated with the Appellants/Assessees on the ground of common ownership. Thus, there is no suppression of any fact. Since the assessees apparently were not manufacturing brass tips, no allegation can be made on the intent to evade payment of duty.
7. Shri S. Kannan, JDR submits that in terms of their internal arrangement this appeal was to be argued by the Senior Departmental Representative. Since Senior Departmental Representative was on leave, he submits that either the proceedings be adjourned or he be given time to file written,submissions.
The Bench observed that this request should have been made before the commencement of the arguments on behalf of the appellants and could not be entertained after their arguments were over. Shri Kannan then proceeded to argue the matter.
8. He submits that parts of refills were specifically exempted only vide Notification No. 156/90. This notification could not be said to have retrospective effect and, therefore, it must be held that parts were not exempted earlier. In these circumstances, it was for the assessees operating under the self removal procedure to be cautious in claiming the benefit of the notification and wherever they had wrongly claimed benefit, the allegation of suppression could be made and sustained. As regards the argument that the goods were manufactured by job workers and not by the Appellant Company, he states that the discussions made in the impugned order have brought out the fact that these units were created as colourable devices and that the relationship between 8 units and the Appellants/assessees were not at arm's length. Therefore, in this case, the principal Manufacturers i.e., Appellants/assessees was correctly taken to be the manufacturers of such tips. As such they were required to declare the factum of their manufacturing such tips in the C.Ls. which they have not done. On this count, he defended the impugned order.
9. We have carefully considered the rival submissions and have perused the judgments and the notifications cited by the appellants.
10. It is correct that what was exempted by the notifications current during the period covered under the show cause notice were ball point pens, parts of ball point pens and refills. Strictly interpreted the notification did not seem to cover the parts of the refills. However, the department at all times had agreed and accepted that coverage of these notifications extended to parts of the refills also. It is evidence from the correspondence between the Importers and the Customs authorities as also between the Small Scale manufacturers of such tips and the jurisdictional excise authorities. It is in this belief and knowledge that manufacturers had claimed the benefit of these notifications and it is also not dispute that the department had accepted the various declarations and had permitted the manufacturers to clear such tips without payment of duty. The show cause notice described the brass tips as chargeable to duty. In the show cause notice, there is no reference to the mind of the Board given through jurisdictional customs authorities to the effect that the benefit of the earlier notifications extended to such tips also. Separately and independently the Tribunal have held that where the notification exempts the components, parts of the components or sub-parts of that part would also benefit from the notification. This being the case, it must be held that show cause notice in mistaken sense of products had alleged that brass tips were leviable to duty. Therefore, on merits, we find that allegations made in the show cause notice do not sustain.
11. Since the appeals succeed on merit, it is not necessary for us to go about the question as to whether actual manufacturers were the job workers or whether the present Appellant Company should be held to be actual manufacturers. This is because in either case the benefit of the notifications being available the question of short levy of duty would not occur. For the same reason, there is no necessity for our going into the aspect of demand being hit by limitation.
12. Since the appeal of the Appellant Company succeeds on merit, the appeals filed by the individual Directors would also succeed.
13. In the result, we allow all the four appeals, set aside the orders of the Collector and order consequential relief to the extent warranted.