Judgment:
1. These are six appeals. Two appeal has been filed by M/s. Wearwell Tyres & Tubes Limited against the demand of duty and alleged clearance of green tyres in the garb of tread rubber sheets, etc. Four appeals have been filed against Modvat credit by M/s. Verma Tyres, M/s. Devi Tyres and M/s. S.K. Tyres. Since all the four appeals arise out of the same common order, they were heard together and are being disposed of by this common order.
2. The facts of the case briefly stated are that M/s. Wearwell Tyres are engaged in the manufacture of tyres. M/s. Verma Tyres, M/s. Devi Tyres and M/s. S.K. Tyres also manufacture tyres. All the four appellants were availing Modvat facility and had filed declarations to that effect under Rule 57G. The factory of these four appellants are adjacent to each other. The brand name of tyres manufactured by M/s.
Wearwell Tyres is Wearwell. M/s. Verma Tyres, Devi Tyres and S.K. Tyres are also manufacturing tyres with brand name Wearwell. During the visit of M/s. Verma Tyres, Devi Tyres and S.K. Tyres, the Central Excise officers found no stock of raw materials like drum, core cement, naptha liquid which are essential raw materials for tyres making. On earlier occasion in the year 1987 the stock of these raw materials was not found with these three appellants. Scrutiny of the records revealed that M/s. Wearwell Tyres supplied machinery, stores steam, hot water, man power, technical assistance, tools, diesel oil and moulds to other appellants. The officers also found from the project report that M/s.
Verma Tyres, S.K. Tyres and Devi Tyres were receiving green tyres instead of tread rubber, beads and rubberised material with textile.
The project report also revealed that all the raw material is indigenous, the major raw material which is green tyre will be supplied by M/s. Wearwell Tyres. The officers, therefore alleged that tyres manufactured in the unit of M/s. Wearwell Tyres are cleared as if manufactured by other three appellants. It was, therefore alleged that M/s. Wearwell Tyres were clearing green tyres to M/s. Verma Tyres, Devi Tyres and S.K. Tyres without payment of duty leviable on green tyres.
It was also alleged that during the period 1986-87,1987-88 and 1988-89- M/s. Wearwell Tyres had totally cleared 13,199 green tyres to other units without payment of duty amounting to Rs. 68,07,347.56. It was also alleged that three appellants had availed credit of duty paid on inputs i.e. tread rubber, rubber sheets compound with textile material and beads on the strength of documents issued by M/s. Wearwell Tyres without physical receipt of these inputs and wrongly showing it as used in the manufacture of green tyres by making wrong entry in RG 23A Part-I & II and availed this credit. A show cause notice was therefore issued to the four appellants asking the appellants (M/s. Wearwell Tyres) as to why the differential duty should not be demanded from them and asking the other three appellants to explain as to why Modvat credit taken by them should not be disallowed and recovered and why a penalty should not be imposed on them.
3. In reply to the show cause notice, the appellants submitted that their factory was under physical control during that period and, therefore the Department was well aware of the clearance made by them; that in the present case, there was no allegation of fraud, collusion, or any wilful mis-statement or suppression of facts or contravention of any provisions of the rules with intent to evade payment of duty, therefore the extended period of five years under Section 11A could not be invoked. In this case, a show cause notice was issued on 12-12-1989 demanding duty for. the period 1986-87,1987-88 and 1988-89. On allegation of denying Modvat credit, it was contended by the appellants that the provisions of Rule 57A and 57G were fully complied with; that the accounts in the prescribed registers were maintained; that RT 12 returns were finally assessed for that period and, therefore there was no question of any violation of any provisions of Rules 57A to 57H and, therefore the denial was not warranted. It was also contended that the show cause notice was issued to them earlier on 20-5-1987, they had been charged with the supply of tread rubber and beads without following the prescribed procedures. It was contended by them that the supply of tread rubber and beads was admitted in this show cause notice; that in the present show cause notice a different stand has been taken by the Department which is totally contradictory. It was contended by M/s. Wearwell Tyres that they never cleared green tyres to M/s. Verma Tyres, S.K. Tyres and Devi Tyres but only supplied the raw materials like tread rubber, beads and compounds with textile. About technical report of Bank of India, it was contended by the appellants that in the report it has been mentioned that both units have plant and machinery required for manufacture of tyres right from stage of raw material to the finished goods; that the installed capacity of each unit was 10,000 tyres per annum. After considering the submissions made, the Commissioner confirmed the demand of duty amounting to Rs. 68,07,347.58 against M/s. Wearwell Tyres. A penalty of Rs. 17 lacs imposed on M/s. Wearwell Tyres. Modvat credit was disallowed to M/s.
Verma Tyres, Devi Tyres and S.K. Tyres and the penalties o Rs. 2.7 lac, Rs. 1.9 lac and Rs. 1.8 lakh were imposed on M/s. Verma Tyres, Devi Tyres and S.K. Tyres respectively. Being aggrieved by this order the captioned appeals have been filed before us.
4. Shri G. Shivdas, ld. Counsel submits that M/s. Wearwell Tyre has been clearing tread rubber, beads and rubber sheets on payment of duty to three appellants; that the clearance was made under the cover of gate passes; that the three units (the appellants) in addition to M/s.
Wearwell Tyre took Modvat credit on the strength of gate passes; that RG 23A Part-I register of the three appellants had an entry for receipt of the inputs; that the Department had verified the receipt of the above items, therefore the allegation that M/s. Wearwell Tyre cleared green tyres is not supported by the evidence. Ld. Counsel submits that a show cause notice was issued on 20-5-1987 in which it was alleged that M/s. Wearwell Tyre had not declared three items in question as final products in the declaration; that this show cause notice when examined in the light of the present show cause notice it will be evident that there is contradiction in the two allegations levelled against the assessees. He submits that the rubber sheets, tread rubber and beads, were received by the three companies which fact is substantiated by the corresponding entries in RG 23A Part-I & II; that these entries in RG 23A register were verified by the Excise officers.
On the question of availability of the inputs in the manufacture of green tyres referred to in the Panchnama, ld. Counsel submits that in the premises of Verma Tyre, the Excise officers required to undertake the process of manufacture of green tyres; that the rubberised cloth and tread necessary for the manufacture of green tyres was brought from the premises of the appellants; that it further records in the process two beads were affixed on the configuration of the rubberised sheet; that the Panchnama does not indicate source of beads; that this shows that beads were obtained from closing stock of the beads available with M/s. Verma Tyre; that if M/s. Verma Tyre were receiving green tyres, there was no question of all the beads being available with them; that according to the records of M/s. Verma Tyre four beads were on 29-1-1997 in their stock as is evident from the relevant RG 23A Part-I.Ld. Counsel submits that their placing reliance on the letter dated 21-8-1988 from the Joint Director of Industries, Bhopal which is based on the information collected by them. According to this, these three companies purchased tread rubber, rubberised fabrics and beads from M/s. Wearwell Tyre; that this report has been partly relied upon by the Department. Ld. Counsel submits that the factory of the appellants was in physical control and that the officers were visiting their factory frequently and the goods were being examined before clearance; that all the documents necessary for clearance of the goods show that the goods cleared were tread rubber, rubber sheet with textile material and beads; that the correspondence exchanged between the Department clearly shows that the appellants (M/s. Wearwell Tyre & Tubes) have been supplying tread rubber, rubber products and beads to the three remaining appellants; that the allegation of the Department regarding availability of 52 number BCL mark green tyres belonging to M/s. Verma Tyres is not correct inasmuch as BCL stand for Balice Central Lag and had nothing to do with the Big Chip brand of M/s. Verma Tyre. It was explained by the ld. Counsel that M/s. Wearwell Tyres were evolving new tyres; that materials used were having special marks made on them; that BCL did not represent the brand marking of M/s. Verma Tyre; that Shri Handa of M/s. Verma Tyre had never admitted that 52 numbers of BCL mark green tyres were meant for M/s. Verma Tyre; that Shri Handa had only stated that BCL was their trade mark but had not admitted that 52 numbers found in the premises of M/s. Wearwell Tyre were meant for M/s.
Verma Tyre; that 52 numbers tyres were subsequently procured in the premises of M/s. Wearwell Tyre and cleared on payment of duty; that even if these 52 tyres with marking of BCL represented the brand name of M/s. Verma Tyre, there was nothing on record to hold that in the past M/s. Wearwell Tyre had cleared green tyres to M/s. S.K. Tyres, Verma Tyres and Devi Tyres.
5. Ld. Counsel submits that the demand for duty is for the period 24-1-1987 to 31-3-1989; that the show cause notice was issued on 12-12-1989 thus the demand of duty is beyond a period of six months; that this demand is barred by limitation inasmuch as the identical proceedings were initiated by the department by their show cause notice dated 21-5-1987; that in that show cause notice, the allegation was that the appellants had removed green tyres in the guise of components like tread rubber, rubber sheet and beads .Thus the fact remains that the Department knew that M/s. Wearwell were removing green tyres and thus the Department cannot allege that there was suppression, mis-statement etc.; that the present show cause notice placed reliance on the Panchnama which is a same document which was relied upon for the earlier show cause notice. Ld. Counsel submits that the demand is barred by limitation on the ground that the duty being demanded on these green tyres is available as Modvat credit to the receiving units.
It was submitted by the ld. Counsel that the findings of the Commissioner that M/s. Wearwell Tyre had adopted this method of clearance of green tyre to the said three units in order to enable the appellants and other three appellants to avail the benefit of Notification No. 231/85, dated 11-11-1985 is incorrect inasmuch as M/s.
Wear-well Tyre did not avail the benefit of Notification No. 231/85; that the present show cause notice proposes to demand duty on the quantity of green tyres considering them to be clearances of the appellants; that when the appellants are not availing the benefit of this notification even if the quantity of green tyres in question is added to the value of clearances it would make no difference. Ld.
Counsel also submits that it is the settled position now that where duty paid by the manufacturer is available to the customer it cannot be said that removal was with an intent to evade payment of duty by the manufacturer and in such a situation the longer period of limitation is not invokable. In support of this contention, ld. Counsel cites and relies upon the decision of this Tribunal in the case of SAIL 1985 (22) E.L.T. 487, in the case of Patson Transformers (P) Limited 1997 (93) E.L.T. 402 (Tribunal) and in the case of Chloride Industries Limited [Final Order No. 1015/Cal/97, dated 13-8-1997] including the decision reported in 1997 (95) E.L.T. 568. He therefore prays that the entire demand of duty is time barred.
6. Summing up his arguments, ld. Counsel submits that in view of above submissions and the contention raised before the lower authorities and now reiterated the appellants have been able to make out a case on merits that the appeal may be allowed and also that the demand is hit by limitation.
7. Shri H.K. Sharan, ld. SDR countering the arguments of the ld.Counsel submits that the issues involved in the present case are clandestine removal of 1399 green tyres by M/s. Wearwell Tyres to M/s.
Verma Tyre, Devi Tyre and S.K. Tyre, wrong availment of Modvat credit by M/s. Verma Tyre, S.K. Tyre and Devi Tyre; that there was no denial of natural justice inasmuch as the officers were asked to be present for cross-examination on 17-2-1997 and 9-3-1997 but the appellants did not attend the personal hearing; that the essential chemicals like drums, core cement, naptha local requirement of the manufacture of tyres were not in the factory; that the tyre building machines were not found in the premises of M/s. Verma Tyre; that the confidential report dated 8-4-1998 submitted by A.M. clearly stated that M/s. Verma Tyre, Devi Tyre and S.K. Tyre were processing green tyres from M/s. Wearwell Tyre; that 52 numbers of BCL mark green tyres were found in the factory of M/s. Wearwell Tyre; that BCL is the trademark of Verma Tyre; that this fact was admitted by M/s. Verma Tyre in another office memo dated 28-3-1988 by Shri S.S. Chakravarty, Manager (Administration) which stated that the green tyres were being clear to M/s. Verma Tyre, S.K.Tyre and Devi Tyre.
8. Heard the submissions of both sides. Let us first examine the contention of the appellants that the demands are time barred. We note that the appellants have relied upon the judgments of this Tribunal in the case of Patson Transformer (P) Limited 1997 (93) E.L.T. 402 (Tribunal). In this case this Tribunal observed that the appellant was removing the parts of transformers falling under Tariff Item 68 of the erstwhile (sic) to his other factory for further manufacture on invoice price under Notification No. 120/75-C.E. by declaring lower invoice prices than the prices at which he sold such goods to an independent buyer and thus making short payment of duty. It was found that the appellant was availing of set-off of duty at the other unit. It is not possible to agree that he had any intention to evade payment of duty, since he was clearly entitled to the benefit of Notification No.118/75-C.E. and could have cleared the goods without payment of any duty to the other factory by following the procedure of that notification. Therefore, suppression of facts as alleged, even if true, could not have been with intention to evade payment of duty. The proviso to Section 11A of Central Excise Act, 1944 could not be invoked.
9. In the case of SAIL 1985 (22) E.L.T. 487, this Tribunal observed that right from 1962, the goods were allowed to be cleared after paying duty only as forged products under T.I. 26AA(ia). In the classification lists, which were approved by the Asstt. Collector and which situation continued even after the induction of T.I. 68, the goods were described by the appellants under the heading finished steel products as wheels and axles. The appellants are, therefore, justified in contending that the Asstt. Collectors, before according approval on the classification lists, were aware of this fact. Again, RT 12 returns duly accompanied by gate passes were being submitted by them. If the appellants entertained a bona fide belief that their goods were falling under T.I.26AA (ia), which belief Department endorsed by going on to approve the classification lists, till as late as May, 1979, it does not lie in the mouth of the Department to even suggest that there was suppression on the part of the appellants, much less mis-statement, or that it was case of any clandestine removal. Therefore, there is absolutely, no justification in invoking or applying the extended period of limitation of 5 years for the demand of additional duty by reference to T.I. 68.
10. In the case of Chloride Industries Limited, this Tribunal held that the Board itself found that the proforma credit of duty paid on parts cleared from Shyamnagar factory was taken at the respondent's Entally and Haldia factories. Therefore, it is apparent that even if the valulation of the parts cleared at the Shyamnagar factory have been enhanced, the respondents would have taken immediately the credit in respect of that enhanced valuation at their aforesaid two factories i.e. Entally and Shyamnagar. There is, therefore, no loss of Revenue in the real sense as observed by the Collector in the impugned order. The point raised by the Board, in our view, is only of academic interest and does not lead to any evasion of duty at all. In the circumstances, we do not find any substance in the Revenue's appeal. The impugned order passed by the Collector is not worth interfering with since the objection raised is merely a technical objection. Hence the appeal is rejected.
11. In the case of Hein Leahmann (I) Limited 1997 (95) E.L.T. 568, this Tribunal held that "Insofar as the limitation is concerned, we find that the similar goods were being produced when old Central Excise Tariff was in force and the Department was aware of the goods and the fact that they were being described as Rima Profile steel wires. Under the old Central Excise Tariff, they were being classified under T.I. 68 and were being supplied to their own unit at Durgapur. We, therefore consider that no grounds have been made for invoking the extended period of limitation. Thus while we confirm the classification under Heading No. 73.08 sub-heading No. 7308.90, we restrict the demand to the normal period of limitation from the relevant date as explained under Section 11A of Central Excise Act/1944." 12. We have perused the above decisions. We find that in the instant case even if it is assumed that M/s. Wearwell Tyre had cleared green tyres declaring them as tread rubber, rubber sheets with textile material and beads the benefit of duty paid on tyres would have been taken by M/s. Verma Tyre, Devi Tyre and S.K. Tyre in the form of Modvat credit of duty. Thus there cannot be any intention to evade payment of duty, hence on limitation issue the appellants succeed.
13. Insofar as the clandestine removal of green tyres by M/s. Wearwell Tyre is concerned, we find that the entire case is built on visit of the officers to the premises of M/s. Verma Tyre and subsequent follow up action at other premises. We note that during the year 1987 a show cause notice was issued to M/s. Wearwell Tyre alleging that the appellants had cleared tread rubber, beads, rubber sheets combined with textile material which were not declared. Thus the present allegation of clearing of green tyres in the garb of tread rubber, beads and rubber sheets combined with textile material is a contradiction. The only evidence available with the Department is presence of 52 green tyres marked BCL. There is no other evidence to prove that the actual green tyres were being cleared and in the duty paying documents, they were being shown as tread rubber, beads, rubber sheets combine with textile material. Some portion of the certain reports are being relied upon but the reports relied upon are to be read as a whole and if read as a whole contradiction come out clearly in those reports. It is settled law now that any allegation of clandestine removal must be proved to the hilt. In the instant case, except the availability of 52 numbers of green tyres marked BCL which is the trademark of M/s. Verma Tyre found in the premises of M/s. Wearwell Tyre lends more support to the contention of the appellants that these tyres were being manufactured on experimental basis. BCL means Balise Central Lag and not Big Chip Lug. In the absence of any evidence the green tyres found in the premises of Verma Tyre, Devi Tyre and S.K. Tyre, the Department has not proved the case of clandestine removal beyond creating some doubt. However suspicion howsoever grave cannot take the place of proof. The position that the tread rubber, beads, and rubber sheets combined with textile material were actually being cleared by M/s.
Wearwell Tyre is based on duty paying documents and corresponding entries in the form of RG 23A Part-I & II maintained by M/s. Verma Tyre, S.K. Tyre and Devi Tyre. These entries in the registers maintained by the appellants were verified at times by the officers and found correct. Nothing has been brought on records that these entries were false entries or the verification of the Department was false. In the circumstances, we hold that even on merits, the Department has not been able to make out a case. Thus the appellants succeed both on merits and limitation. In the result, the appeals are allowed.
Consequential relief, if any, shall be admissible to the appellants in accordance with law.