Full Judgment
2. The facts of the case briefly stated are that SCNs were issued to M/s. Kejriwal Enterprises, M/s. Priyanka Metals and M/s. Gautam Metals Industries & Others alleging that the appellants had taken Modvat credit illegally in-as-much as it was alleged that M/s. Kejriwal Enterprises availed Modvat credit of duty paid on copper bars without actually receiving the bars in the factory premises and utilised the said Modvat credit for payment of duty on goods which were never produced out of the said bars. It was alleged that M/s. Kejriwal Enterprises issued 57F(2) Challans to various rollers without sending/receiving any goods. It was also alleged that M/s. Kejriwal sold the copper bars in the open market without debiting the Modvat credit availed of and that they issued Bogus Gate Passes to various persons without sending the goods so as to facilitate availment of Modvat credit by the said persons on the basis of these gate passes.
The allegation against M/s. Priyanka Metals was that they issued fake challans under Rule 57F(2) of Central Excise Rules, 1944 on the basis of which various other noticees namely M/s. Bhartiya Tar Udyog, M/s.
Ganpati Rolling Pvt. Ltd., M/s. Kaycee Electricals, M/s. Vimla Rolling Mills (P) Ltd., M/s. S.G. Manufacturing Co. (P) Ltd. and M/s. Gautam Metal Industries. It was further alleged that M/s. Priyanka Metals had issued fake 57F(2) Challans showing movement of copper bars, copper wire rods to the rollers/re-rollers whereas no goods actually accompanied the said challans.
3. M/s. Ganpati Rolling Mills (P) Ltd., M/s. Kaycee Electricals and M/s. Vimla Rolling Mills opted to settle the dispute under the Kar Vivad Samadhan Scheme.
4. Shri C. Hari Shankar, Ld. Counsel appears for M/s. Kejriwal Enterprises and M/s. Priyanka Metals whereas Shri L.P. Asthana, Ld.
Counsel appears for M/s. Gautam Metals. In respect of Kejriwal Enterprises and M/s. Priyanka Metals, it was argued that Rule 57-I provided for taking of credit. It was submitted by the Ld. Counsel that utilisation of the credit is important and not taking of credit. He submits that whatever credit was utilised by the appellants, it was utilised for payment of duty on enamalled copper wire. It was submitted that all the purchasers of enamalled copper wire had already paid the duty for which they had taken Modvat credit. Ld. Counsel, therefore, submits that there was no loss of Revenue to the authorities. He submitted that since Modvat credit was utilised for payment of duty on enamalled copper wire and duty on enamalled copper wire has been paid back to the Revenue, there was no question of any demand of duty from the appellants.
5. He submits that penalty has been proposed under Rules 52A, 173Q, 226 and 209A. He submits that penalty under Rule 52A can be imposed only where excisable goods are involved. He submits that in the instant case it has been held by the authorities below that there was no movement of the goods and therefore, the Ld. Counsel submits that the provisions of Rule 52A are not applicable to the facts of the present case.
6. Ld. Counsel submits that penalty under Rule 173Q can be imposed only on a manufacturer, a producer, a registered person of ware-house or a registered dealer. He submits that the authorities below have held that the appellant was not undertaking any of the aforesaid activity of manufacturer or producer. He, therefore, submits that the provisions of Rule 173Q will not be applicable to him. He submits that Sub-Rule (a) of Rule 173Q(1) provides for imposition of penalty in case excisable goods are removed in contravention of any provisions of these Rules. He submits that the findings of the Department are gate passes were issvied but the excisable goods were not removed. Similarly he submits that penalty under Sub-Rule (b) of Rule 173Q(1) can be imposed if a manufacturer does not account for any excisable goods manufactured, produced, restored by him. He submits that this provision also is not applicable to the case of the appellant.
Ld. Counsel submits that under Rule 52A, the maximum penalty for any violation is only Rs. 1,000/-.
7. In so far as Rule 226 is concerned, Ld. Counsel submits that the penalty under this Rule is only Rs. 2,000/-. In so far as penalty under Rule 209A is concerned, Ld. Counsel submits that it has been held by the authorities below that there was no movement of goods but it was a movement of documents only and therefore, penalty under Rule 209A cannot be imposed as penalty under this Rule can be imposed only on any person who acquires possession of or in any way is concerned in transporting, removing, depositing, keeping, concealing, selling or purchasing or in any other manner deals with any excisable goods which he knows or has reason to believe, are liable to confiscation under the Act, or these rules shall be liable to a penalty not exceeding three times the value of such goods. He submits that the facts of the case do not warrant imposition of penalty on any person under Rule 209A.8. Shri L.P. Asthana, Ld. Counsel submits that M/s. Gautam Metals cannot be treated as manufacturer in-as-much as they were only converting copper wire above 6 mm to copper wire of less than 6 mm. He submitted that there are a number of decisions on the issue that conversion of copper wire of thickness of 6 mm and above to copper wire of thickness less than 6 mm and below does not amount to manufacture.
In support of his contention he cited the decision of this Tribunal in the case of Premier Winding Wires & Conductors v. CCE, Nagpur reported in 2000 (115) E.L.T. 698. Ld. Counsel submits that in the case of Resistance Alloys (I) Ltd. reported in 1996 (84) E.L.T. 507, this Tribunal held that drawing of stainless steel electrical resistance wire of lesser gauge from wire of higher gauge does not amount to manufacture. Ld. Counsel submits that the Hon'ble Supreme Court confirmed the finding of the Tribunal that process of drawing of wires from wire rods would not amount to manufacture in the case of CCE, Bombay v. Jyoti Engg. Corpn. contained in Tribunal's Order No.685/87-B, dated 14-10-1987 [1989 (42) E.L.T. 100 (T)]. He submitted that similar view was taken by the Tribunal in the case of Mithan Wires reported in 1999 (34) RLT 252. It was submitted by the Counsel that this Tribunal in the case of Bothra Metal Industries v. CCE reported in 1998 (99) E.L.T. 120 held that cold drawing of duty paid copper strips and wires does not bring into existence any new commodity and hence does not amount to manufacture under Section 2(f) of the Central Excise Act, 1944. Ld. Counsel also referred to the judgment of this Tribunal in the case of Navsari Processing Industries v. CCE, Baroda reported in 1996 (85) E.L.T. 386 holding that reducing the dimension or gauge of the wire rod is not a process of manufacture as it does not result in emergence of a new commodity. Ld. Counsel submits that the decision of the Tribunal in the case of Premier Winding Wires and Conductors is pertinent in-as-much as it refers to drawing of wires from copper wire rods and is also a case pertaining to the new tariff. He submits that since the activity undertaken by them did not amount to manufacture, therefore, M/s. Gautam Metals were not manufacturer. He submits that since M/s. Gautam Metals were not manufacturer, therefore, they were not liable to penalty under Rule 173Q.Ld. Counsel made an alternative plea that the allegation against the appellant was that they were dealing in challans issued under Rule 57F(2). He submits that there was no evidence brought out on record whatsoever to prove that the appellant had utilised 57F(2) challans for the purpose of evasion of duty or there was a violation of any provisions of the Act.
9. Shri M.M. Dubey, Ld. DR submits that the fact remains that M/s.
Kejriwal Enterprises purchased copper wire rods from M/s. MMTC and M/s.
HCL. He submits that these copper wire rods were sold in the market as such. However, a large scale fraud was committed on Revenue in-as-much as GP.Is issues by r. MMTC and M/s. HCL were used by the appellant for purpose of taking credit and for purpose of issuing further G.P. 1s wrongly stating that out of the copper wire rods they were manufacturing enamalled copper wire through job workers and were utilising the Modvat credit taken for the purpose of paying duty on enamalled copper wire though no enamalled copper wire was ever manufactured or accompanied the gate passes. He submits that, therefore, there has been a violation of provisions of the Central Excise Act and Rules at the point of taking credit by M/s. Kejriwal Enterprises and at the point of issuing GPIs, stating that they were being issued for payment of duty on enamalled copper wires. He reiterates the findings of the Ld. Commissioner which are detailed findings.
10. We have heard the rival submissions. We note that there are three distinct cases. The first case is against M/s. Kejriwal Enterprises.
M/s. Kejriwal Enterprises are covered by Order-in-Original No. 1/99 in which the adjudicating authority has held that M/s. Kejriwal Enterprises had availed illegally credit of Rs. 11,78,197/-. Ld.
Commissioner also disallowed Rs. 17,29,690/- taken as credit by M/s.
Priyanka Metals. Under this Order-inOriginal the Commissioner has imposed a penalty of Rs. 12 lakhs on M/s. Kejriwal Enterprises and Rs. 29 lakhs on M/s. Priyanka Metals. He has also imposed a penalty of Rs. 10 lakhs on Shri Sunil Kejriwal and Rs. 5 lakhs on Shri K.C. Kejriwal.
11. We note that M/s. Kejriwal Enterprises and M/s. Priyanka Metals have been receiving duty paid copper rods. We note that these copper rods were being sold by these two units in the market. We find that credit was being taken by these two units on the strength of gate passes. We have perused the statements recorded of various persons concerned. We find that it has been confirmed by these persons that copper wire rods received from MMTC and HCL were being sold in the market. Though these statements are retracted but the time period is so big that these retractions cannot be given any credence.
12. Section AA of Central Excise Rules under Rule 57A provides for taking credit of duty paid on inputs. There is a provision under Rule 57F that the inputs may be removed for home consumption but Rule 57F(3) provides that all removals of inputs for home consumption shall be made on payment of duty equal to the amount of credit availed in respect of such inputs. In the instant case we note that though credit of duty paid on copper wire rods was taken but when they were sold, there was no debit of duty equal to the amount of credit taken. Thus, the credit taken becomes illegal. We, therefore, hold that the Ld. Collector has rightly confirmed the demand of Rs. 11,78,197/- against M/s. Kejriwal Enterprises and a demand of Rs. 17,29,690/- against M/s. Priyanka Metals. In so far as imposition of penalty on M/s. Kejriwal Enterprises and M/s. Priyanka Metals is concerned, we note that no doubt a fraud has been perpetrated on Revenue and therefore, a deterrent penalty is called for. Since the penalty could be much higher and penalty almost equal to the amount of credit taken has been imposed, we do not see any reason to interfere with the imposition of penalty or with the quantum thereof.
13. In so far as imposition of penalty on Shri Sunil Kumar Kejriwal and K.C. Kejriwal is concerned, we note that no doubt these two persons were concerned with the illegal disposal of copper wire rods, therefore, penalty is warranted in their case. However, looking to the facts and circumstances of the case, we find that the quantum of penalty on these two persons is on the higher side, the same is, therefore, reduced to Rs. 5 lakhs in the case of Shri Sunil Kejriwal and Rs. 2.5 lakhs in the case of Shri K.C. Kejriwal.
14. Separate SCNs were issued to five persons concerned along with Gautam Metal Industries. We find that there was a lot of case law produced by the Ld. Counsel to prove that reducing the gauge of wire did not amount to manufacture though in some cases, Ld. DR submitted that the case law cited and relied upon by the appellants either pertained to the old tariff or was not on copper rod wires but was on different items. However, we find that in the case of Premier Winding Wires and Conductors, the decision of the Tribunal was on wires in coils pertaining to copper. This Tribunal in para 3 of the order in this case held "3. We have considered the submissions of both the sides. There is no rebuttal from the Revenue that the inputs which are brought by them are classifiable under 7408.11 being in the coil form. In view of this position, it cannot be said that the inputs were copper bars and copper rods. The issue, therefore, involved in the matter about redrawing is squarely covered by the decision of this Tribunal in the case of CCE, New Delhi v. Mithan Wires and CC, Calcutta v. Indian Tin Manufacturing Co. reported in 1999 (34) RLT 321.
Following the ratio of these decisions, we allow the appeals." 15. Thus, we find that M/s. Gautam Metal Industries were not manufacturer and since they were not manufacturer, therefore, no duty can be demanded from them nor can any penalty be imposed on them. In this view of the matter, impugned order No. 4/99, dated 9-3-1999 is set aside and the appeals are allowed with consequential relief in accordance with law.