Judgment:
1. These are four appeals filed by M/s. J.N.J. Industries, Delhi (hereinafter referred to as JNJ) and three others, namely, M/s.
Meenakshi Wire Products (MWP), M/s. Lakshmi Wire Netting Industries (LWN) and M/s. Weldmesh Industries (WI) against the order of the Principal Collector, New Delhi dated 16.3.1989. By the said order a duty demand of Rs. 5,01,814.01 for the period 1982-86 was confirmed against M/s. JNJ and penalties of Rs. 25,000 each were imposed on M/s.
JNJ Industries, M/s. Lakshmi Wire Netting Industries, M/s. Meenakshi Industries and M/s. Weldmesh Industries.
2. We have heard Shri Naveen Mallick, Ld. Advocate, who appeared for the four appellants and Mr. S. Nunthuk, Ld. JDR, who represented the Respondent Commissioner.
3. By SCN dated 20.10.1987 the Department alleged that S/Shri R.K.Gupta and S.K. Gupta along with Shri K.K. Gupta, Mrs. Shoba Gupta, Mrs.
Anita Gupta and Mrs. Pushpa Gupta had been engaged in the manufacture and clearance of excisable goods i.e., welded wire mesh in two plants, one located at B-3/1 Jilmil Industrial Area, Shahdara, Delhi and another at Plot No. 7, Gali No. 2, Friends Colony, Shahdara, Delhi without payment of Central Excise duty. It was alleged that the said persons had adopted the modus operandi of creating a number of firms, namely, M/s. JNJ at Jilmil Industrial Area, Delhi, M/s. LWN at Friends Colony, Shahdara, M/s. MWP at Friends Colony, Shahdara and M/s. WI at Jilmil Industrial Area, Shahdara by changing the constitution of the firms from time to time with a view to evading Central Excise duty. It was alleged that on 12.11.1986 when the premises of M/s. JNJ was visited by the officers of Anti-Evasion, M/s. JNJ were found engaged in the manufacture of wiremesh falling under Chapter heading 7308.90 (erstwhile TI-68) for which declaration had been filed and accepted by the Department. The Accounts Registers maintained by M/s. JNJ were found to be written upto only 23.6.1986. For the period 24.6.1986 to 12.11.1986 i.e., the day of the visit of the Central Excise Officers no accounts had been prepared by M/s. JNJ and as on 12.11.1986 a stock of 569 bundles of welded wiremesh of assorted sizes were lying in the factory premises in finished condition which was valued at Rs. 1,28, 390. Further investigations showed that at the Friends Colony, Shahdara premises M/s. MWP were engaged in cutting and straightening of iron and steel wire and within the same premises without any demarcation, another firm in the name and style of M/s. LWN were found engaged in the manufacture of welded wiremesh. Shri S.K. Gupta, authorised signatory of M/s. JNJ was also found to be authorised signatory both for M/s. LWN and as well as for M/s. MWP. Shri S.K. Gupta in his statement dated 12.11.1986 at the Friends Colony premises stated that the cut and straightened wire products manufactured by M/s. MWP were consumed by M/s. LWN located in the same premises (Plot No. 7, Gali No.2, Friends Colony, Shahdara) and also by M/s. JNJ located at B-3/1, Jilmil Industrial Area, Shahdara. He also stated that the sale and purchase accounts of M/s. MWP, LWN and M/s. JNJ were not maintained.
Further, though M/s. LWN had declared that their address as Gali No. 2, Plot No. 7, Friends Colony, they were shown to be operating at B-3/1, Jilmil Industrial Area, Shahdara. This fact came to be revealed from the correspondence with Delhi Electric Supply Undertaking (DESU). Both M/s. JNJ Industries and M/s. LWN were engaged in the manufacture of welded wiremesh as per their declarations. Further, M/s. Weldmesh Industries with Registered Office at 756/1, Gali Kundewalan, Ajmeri Gate, Delhi had also works at B-3/1, Jilmil Industrial Area, Shahdara.
M/s. WI were also found to be engaged in the manufacture of welded wiremesh. Shri R.K. Gupta, Proprietor of M/s. Weldmesh Industries had in his Bank account shown the address of M/s. Weldmesh Industries as Jilmil Industrial Area, Shahdara. Since the actual clearance of welded wiremesh manufactured and sold by the said four firms during the past five previous years could not be ascertained as no accounts of purchases of raw materials and sale of welded wire mesh were maintained by them, the Department relied on the total purchase of H.B. and G.I.wire by them and for purposes of calculating production, the raw material purchased was taken into account. As regards conversion charges, the written statements given by S/Shri R.K. Gupta and S.K.Gupta on 21.4.1987 and 2.3.1987 was relied upon by the Department. The Department calculated that during the period between 1982-83 and 1986-87, the four units/firms had cleared welded wiremesh to the tune of Rs. 1,98,19,760.47 with a duty liability of Rs. 6,04,979.46.
4. In reply to the SCN M/s. MWP contended that it was not correct to say that there was no demarcation between the premises of M/s. MWP and LWN, both located at Plot No. 7, Friends Colony, Shahdara. It was contended that M/s. MWP was a trading concern engaged in cutting and straightening of iron and steel wire, which was not a manufacturing activity as defined under Section 2(f) of the Central Excise and Salt Act, 1944. Further, it was contended that M/s. MWP had started their trading activities in December, 1984 and from August, 1985, M/s. LWN had started manufacturing of weldmesh at Plot No. 7, Friends Colony, Shahdara at the premises next to M/s. Meenakshi Wire Products. It was also contended that there was a wall between the two premises. On behalf of M/s. WI it was stated that they were engaged in the trading of wire and wiremesh from the year 1982 from B-3/1, Jilmil Industrial Area, Shahdara. They also contended that the said firm, i.e. M/s. WI, was a Proprietary concern with Shri R.K. Gupta as its Proprietor. It was also contended that the premises, namely, B-3/1, Jilmil Industrial Area was purchased from the DDA, jointly by S/Shri S.K. Gupta, V.K.Gupta, R.K. Gupta and K.K. Gupta in the year 1973-74. As regards the declaration filed with their Bankers, namely, State Bank of Bikaner, it was contended that even during 1983, when their premises were raided by the Central Excise Officers, M/s. Weldmesh Industries were not registered as a manufacturing unit. On behalf of M/s. LWN, it was contended that they had started manufacture of MS and GI weldmesh since August, 1985. They also stated that they (M/s. LWN) were a partnership firm with S/Shri S.K. Gupta and R.K. Gupta as Partners. In April, 1986, the said Partnership firm became a proprietary concern of Mrs. Shoba Gutpa, W/o Shri R.K. Gupta as sole proprietor. On March 31, 1987 M/s.
LWN had finished stock of goods as well as raw-material lying in the different premises. Further, M/s. LWN had not taken the benefit of exemption under Notification No. 175/86 on the first clearance of Rs. 15 lakhs. As regards M/s. JNJ it was submitted that M/s. JNJ were an independent unit which was entitled for exemption separately. According to M/s. LWN the confusion has arisen because another unit with similar name also existed at B-3/1, Jilmil Industrial Area, Shahdara prior to April, 1983. Since that unit was closed in April, 1983 and the plot of B-3/1, Jilmil Industrial Area was subsequently purchased by M/s. LWN and the electric connections and other installations were made in the name of M/s. LWN. Further, it was also on record that originally the premises, namely, B-3/1, Jilmil Industrial Area, Shahdara, were the manufacturing premises of another firm, viz. M/s. Jai Narain Jain and Company (JNJ) between May, 1982 and August, 1985. From August, 1985 the premises of M/s. JNJ were taken over by M/s. Pushpa Gupta, W/o Shri S.K. Gupta. As regards M/s. JNJ, it was contended that they had started manufacture of weldmesh from the said premises from the year 1985.
Simultaneously, the manufacturing activities of M/s. Jai Narain and Co.
was closed. M/s. JNJ under the Proprietorship of Smt. Pushpa Gupta started manufacturing weldmesh on job basis from raw-materials sent to them by their various customers. M/s. JNJ contended that their clearances for the year 1986-87 had not exceeded Rs. 15 lakhs as envisaged under Notification No. 175/86. It was further contended that M/s. JNJ had nothing to do with M/s. LWN since they were located at different premises and was controlled and owned by different persons.
They also claimed that they were entitled to a separate exemption limit of Rs. 15 lakhs. They also submitted that while for working out the demand the Department had taken the total procurement of raw-material of all the units, but at the same time, for quantifying demand the finished products lying with M/s. JNJ and M/s. LWN as on 31.3.1987 had not been taken into account which worked out to Rs. 8,37,656.59 in the case of M/s. JNJ Industries and Rs. 9,77,268.75 in respect of ' M/s.
LWN. This had not been deducted from the value of clearances worked out by the Department which amounted to Rs. 18,14,925.25. If proper deductions, have been worked out as stated above, the duty demand for the year 1986-87 would be nil. After considering the defence of the four noticees, the Principal Collector observed that the allegation against S/Shri R.K. Gupta, S.K. Gupta, B.K. Gupta, K.K. Gupta along with Mrs. Shoba Gupta, Mrs. Anita Gupta and, Mrs. Pushpa Gupta was that they had manufactured and cleared wiremesh manufactured in 2 plants located respectively at B-3/1, Jilmil Industrial Area, Shahdara and Plot No. 7, Friends Colony, Shahdara in a clandestine manner by floating various manufacturing and trading concerns in the names of M/s. JNJ Industries, M/s. Lakshmi Wire Netting Industries and M/s.
Weldmesh Industries, all having the same address, namely, B-3/1, Jilmil Industrial Area, Shahdara and M/s. Meenakshi Wire Products having its address at Plot No. 7, Friends Colony, Shahdara. Whereas M/s. JNJ and M/s. LWN were actually engaged in the manufacture of welded wiremesh, M/s. Weldmesh Wire Industries were engaged in the sale of welded wiremesh procured from M/s. JNJ and M/s. LWN. M/s. MWP was engaged in the cutting and straightening of wire which in turn was supplied to M/s. JNJ and LWN for manufacturing welded wire mesh. The allegation against them was that the aforesaid persons operating the 4 firms were operating in an illegal manner to avoid payment of excise duty and the said units were operating without any proper legal footing and their composition changed without any legal documents and without executing any valid documents or deeds either while dissolving its earlier character as Partnership or while creating a new proprietary concern or partnership firm. In other words, the said persons had been operating under various names and styles without observing any legal formalities with a view to evading payment of excise duty. After hearing the submissions made on behalf of the Noticees and after examination of the record the Principal Collector found that premises, B-3/1 at Jilmil Industrial Area, Shahdara was initially purchased by M/s. Lakshmi Wire Netting Industries in the name of four persons, namely, S/Shri R.K.Gupta, S.K. Gupta, Late V.K. Gupta and K.K. Gupta; that the premises continued to be in the name of the firm M/s. Lakshmi Wire Netting Industries; that the electric connections were in the name of M/s.
Lakshmi Wire Netting Industries; that the two different firms, namely, M/s. JNJ and M/s. WI operated from the same place; but they had different Proprietors and partners; that the documents relating to different Government Agencies were signed by any one of the four persons mentioned above; that the signatures were given by the said persons in any capacity which suited them at the relevant point of time; that the constitution of the concerns were changed from time to time without complying with any legal requirements/formalities. In particular, the Principal Collector noted that two documents were submitted by M/s. Lakshmi Wire Netting Industries, one by Mrs. Shoba Gupta and the other by Mr. R.K. Gupta within a span of about 3 months declaring the same unit to be a Proprietary concern and subsequently as a Partnership concern. This clearly proved mala fides on their part.
The Principal Collector also found that no documents/receipts of raw-material and finished goods were maintained by them and this had been admitted by Shri R.K. Gupta and Shri S.K. Gupta at different points of time and by their letter dated 11.3.1987 in which they had admitted the fact of manufacturing welded wiremesh in the plants. They had also admitted that the manufactured product had been sold by raising the invoices in the name of M/s. Weldmesh Industries and M/s.
JNJ.5. Shri Naveen Mallick, Ld. counsel, who appeared for the appellants, submitted that the premises B-3/1, Jilmil Industrial Area, Shahdara was purchased by the Partnership Firm M/s. Lakshmi Wire Netting Industries from DDA in 1976. The said firm consisted of four partners, namely, S/Shri S.K. Gutpa, V.K. Gupta, R.K. Gupta and K.K. Gupta. They had installed machinery for wire netting and had registered themselves with the Sales Tax Authorities. Subsequently, in January, 1982 another firm by name, M/s. Jai Narain Jain and Co., a Proprietary firm of Shri V.K.Gupta had imported a weldmesh machine and installed it at B-3/1, Jilmil Industrial Area, Shahdara. Shri V.K. Gupta was also a Partner in M/s.
Lakshmi Wire Netting Industries. M/s. Jai Narain Jain and Co. had also used B-3/1, Jilmil Industrial Area, Shahdara as their manufacturing premises. Simultaneously, the manufacturing activity of M/s. Lakshmi Wire Netting Industries was stopped and machines belonging to M/s.
Lakshmi Wire Netting Industries were disposed of. The manufacturing activity of M/s. Jai Narain Jain & Co. started in May, i982 and they initially filed a declaration with the Excise Department in 1982 and took out a L-4 Licence in 1983 for the manufacture of welded mesh falling under erstwhile TI-68. The investment on plant and machinery of M/s. Jai Narain Jain & Co. was less than Rs. 20 lakhs. M/s. Lakshmi Wire Netting Industries, after ceasing their manufacturing activity of weldmesh entered into trading activity in weldmesh from the office premises of B-3/1, Jilmil Industrial Area, Shahdara. They continued their trading activity till April, 1983. In April, 1983, M/s. LWN surrendered their L-4 Licence. Subsequently, in December, 1983 Shri R.K. Gupta started a proprietary firm, namely, M/s. Weldmesh Industries and started trading activity from the office premises of B- 3/1, Jilmil Industrial Area, Shahdara. The trading activity of M/s. Weldmesh Industries was confined to wiremesh and wire. However, in June/July, 1984 M/s. Weldmesh Industries shifted its office to Ajmeri Gate, Delhi from where they continued their trading activity in wiremesh and wire along with Shri R.K. Gupta, who continued to be a partner of M/s. LWN.Ld. counsel submitted that the entire basis of the duty demand has been on the assumption that whatever quantity of welded wiremesh was sold by M/s. LWN and M/s. Weldmesh Industries were manufactured by M/s. Jai Narain Jain & Co. Ld. Counsel submitted that this assumption was not correct. In May, 1983, Shri V.K. Gupta, Proprietor of M/s. Jai Narain Jain and Co. had passed away and his wife, Smt. Anita Gupta, had become the Proprietor of M/s. Jai Narain Jain & Co. She remained the Proprietor of the said concern till 1985. In August, 1985 the Proprietary concern M/s. Jai Narain Jain & Co. was dissolved and they had stopped manufacturing welded wiremesh. From August, 1985, therefore, there was no concern by the name of Jai Narain Jain & Co.
nor they were manufacturing any wiremesh. The premises at B-3/1, Jilmil Industrial Area, Shahdara was thereafter taken over by a new firm by name M/s. J.N.J. Industries, a proprietary concern of Ms. Pushpa Gupta w/o Shri S.K. Gupta. M/s. JNJ started manufacture of welded wiremesh and a declaration to this effect was also filed with the Central Excise Department. Ld. counsel submitted that upto August, 1985 M/s. Jai Narain Jain & Co. had been filing their classification lists from time to time with all the relevant particulars. Till the death of Shri V.K.Gupta all the particulars required were being submitted along with the classification list. In terms of Notification No. 46/81 a unit was entitled to avail exemption if the number of workers working in the unit was not more than 10. Further, the product manufactured by them being totally exempted from duty, even as per the classification list filed during the relevant time, clearances effected during April and May, 1983 was eligible for exemption under Notification No. 77/83 as they were less than Rs. 30 lakhs. Thereafter the clearances were also eligible for exemption under Notification No. 46/81. Further, Ld.
counsel also drew attention to the fact that there was no evidence on record to show that the raw material purchased by M/s. Weldmesh Industries was in fact manufactured welded wiremesh by M/s. Jai Narain Jain and Co. in the same year or that they had cleared the finished products in the same financial year. Ld. counsel also submitted that in their reply to the SCN M/s. Jai. Narain Jain & Co. had submitted that the figure of Rs. 35,96,385.65 shown as clearances by M/s. Jai Narain Jain for the year 1983-84 was without any basis. Even after taking into account the clearances and purchases made by M/s. WI till 26.5.1983 it did not work out to more than Rs. 30 lakhs. Further, even if the figures for the year 1983-84 claimed by the Department were correct the same was still within the eligible exemption limits under Notification Nos. 77/83 and 46/81. As regards clearances for the year 1984-85, the appellants had shown the total number of workers as 9 in the classification list filed by them which made them eligible for exemption under Notification No. 46/81. On this ground alone the duty demand of Rs. 3,22,139.40 should have been dropped. He also relied on the copy of the classification list with effect from 1.4.1984 duly approved by the Assistant Collector. As regards the clearances for the year 1982-83, Ld. counsel submitted that the demands were totally arbitrary. He submitted that the demand made by the Additional Collector for the clearances for 1982-83 had already been deposited.
Therefore, the further demand made for the said period was not only wrong but also not maintainable on the principle of res judicata.
6. As regards M/s. LWN, Ld. counsel submitted that this firm had nothing to do with M/s. MWP or M/s. JNJ as these were separate legal entities. A perusal of the declaration filed by M/s. Lakshmi Wire Netting Industries in 1985 would show that they had started manufacturing wiremesh only in August, 1985-86 and their production had been less than Rs. 20 lakhs and in terms of the Notification No. 77/85 they were not required to pay any duty. Just for the reason that there was no formal agreement in writing relating to the formation of the partnership, it cannot be assumed that the partnership did not exist in fact. From April, 1986 M/s. LWN had become a proprietary concern with Smt. Shoba Gupta as its Proprietor. The manufacturing activity of M/s.
LWN at No. 7, Friends Colony, Shahdara had nothing to do with manufacturing activity in B-3/1, Jilmil Industrial Area, Shahdara. It was a mere coincidence that the names of the two firms remained the same. Ld. Counsel submitted that it has to be borne in mind that at the time when M/s. LWN started its operation at Friends Colony, the firm operating from the premises of B-3/1, Jilmil Industrial Area had closed down. This can be verified from the records available with the Department. It was, therefore wrong to conclude that the two firms were one and the same as has been assumed by the Department. The findings of the Principal Collector that the two firms were working from both the premises was, therefore fallacious. Ld. Counsel also submitted that though M/s. LWN operating from No. 7, Friends Colony, Shahdara may have the same persons as Partner/Proprietor of another firm, the firms themselves were independent.
7. Ld. Departmental Representative reiterated the findings of the Principal Collector.
8. We have considered the submissions. From the record, it appears that M/s. Laxmi Wire Netting Industries (LWN), a partnership firm consisting of four partners namely S/Shri S.K. Gupta, R.K. Gupta, V.K. Gupta and K.K. Gupta, all sons of Shri L.R. Gupta, got allotted in their name Plot No. B-3/1 Jilmil Industrial Area Shahdara from the Delhi Development Authority sometime in 1973-74. The firm consisting of four brothers, according to the appellants, were engaged in the manufacture of welded wire mesh until April, 1982. The appellant's stand is that the premises of the firm was taken over around April, 1982 by the Proprietary concern by name Jai Narain Jain and Company (JNJ) of which Shri V.K. Gupta (one of the partners of the LWN) was sole proprietor.
Simultaneously LWN started trading activity and stopped manufacturing activity. LWN further continued the trading activity from the same premises. The sole proprietor of JNJ, Shri V.K. Gupta, died in an accident in May, 1983 and thereafter JNJ & Co. continued its manufacturing activity under the sole proprietorship of the wife of Late Shri V.K. Gupta, Smt. Anita Gupta for sometime till August, 1985.
According to the appellants from August, 1985, the manufacturing activity of JNJ & Co. was taken over by another sole proprietorship concern with Smt. Pushpa Gupta, wife of Shri S.K. Gupta as the proprietor. The name and style of the firm was changed to JNJ Industries instead of JNJ and Company from that time onwards. In other words, the manufacturing unit manufacturing welded wire mesh continued to operate till April, 1985 from the same factory premises though the ownership of the manufacturing units changed hands and their legal composition also changed from partnership to sole proprietorship along with its name and style; Though the Department has alleged that the change over from Partnership firm to Proprietary firm and the changes made in the name and style was without following proper legal requirements, there is nothing to show that this affected its claim for the benefits flowing from notification Nos. 105/80, 77/83 and 77/85 as a manufacturer operating from the premises B-3/1 Jilmil Industrial Area, Shahdara (hereinafter referred to as Jilmil Factory) irrespective of its composition and names. It is no doubt true that the appellants have not disputed the fact that the above units had not been maintaining or keeping necessary documents relating to receipts, despatch of raw material or finished goods. Letter dated 11.3.1987 annexed to the show cause notice from S/Shri S.K. Gupta, R.K. Gupta have admitted to this fact along with the fact of manufacturing of welded wire mesh both the two plants namely, Jilmil Factory and Friends Colony Factory. The claim of the appellant is that M/s. LWN re-started manufacturing activities at another plot No. 7, Gali No. 2, Friends Colony, Shahdara, Delhi (hereinafter referred to as Friends Colony Factory), with S/Shri R.K. Gupta and S.K. Gupta as its partner from 1985. In other words, it appears that whereas till April, 1983, M/s.
LWN with its four original partners carried on manufacturing activities at Jhilmil Colony Factory, subsequently M/s. LWN had shifted its manufacturing activities to the Friends Colony Factory from 1985 with only two partners namely S/Shri R.K. Gupta and S.K. Gupta as the partners. Between the period 1983 and 1985, the partnership firm of LWN was only carrying on trading activities from the premises of Jhilmil Factory. From these set of facts, the Principal Collector had drawn the conclusion that all the persons named in the show cause notice had created different firms in different names and styles without complying with the required legal formalities. He has also observed that the appellants had not been able to bring any documentary evidence in support of their contention relating to the switchover from manufacturing activity to trading activity by M/s. LWN and the frequent change in status in the ownership of M/s. JNJ from partnership to proprietorship, etc. We find these findings have not been directly controverted by the appellants. Their claim is that since they were in any event entitled to the benefit of the small scale exemption notifications referred to supra, there was no need for them to maintain accounts of the receipts of raw materials or about clearance of finished goods. Principal Collector has observed that there were discrepancies in the statements given by Shri S.K. Gupta on 24.11.1986 claiming that Smt. Pushpa Gupta was the sole proprietor of M/s. JNJ & Co. and the statement given to ESI that Shri R.K. Gupta was the proprietor of M/s. JNJ & Co. Though there is no proper explanation to this contradiction from the appellants, the inconsistency in our view, does not materially affect the eligibility of the units to the benefit of the Notifications. Having regard to the admitted chequered history of the units and the lack of proper documentation about their production and clearance, the department appears to have taken a more convenient course of relying on total receipt of raw materials by all the four units together for the relevant period for calculating the duty liability of the units.
9. We find that the objection raised by the 1d. advocate for the appellants about the method adopted by the Department in making demand on the basis of only the total amount of raw material procured by all the four units has some force. The Department should have investigated the matter further and collected information from other sources relating to the actual production of finished products of each of the manufacturing units during the relevant period before fastening the liability on them. Lack of proper documentation on the part of the appellants would not justify quantification of duty demand on the basis of raw materials alone especially in view of their uncontroverted eligibility to SSI exemption notification.
10. Further, the appellants' claim that the finished products lying with M/s. JNJ and M/s. LWN as on 31.3.1987 had not been taken into account, which if taken together, would neutralise the demand for the year 1986-87, has merit since there is no allegation that the firms were not entitled to the benefits of the exemption notifications.
11. As regards the penalties imposed, these cannot be sustained unless the department is able to establish wilful evasion of duty on the part of the appellants. Mere failure to maintain the records, as in the present case cannot justify imposition of penalty.
12. Having regard to the above facts, we are unable to sustain the impugned order and the same is set aside. All four appeals are accordingly allowed in the above terms.