Judgment:
1. A common show cause notice was issued to Sotex, Sonic, Unity Industries and Stelex demanding duty from them amounting to Rs. 8,23,830/- Rs. 66,74,620/- Rs. 38,78,441/- and Rs. 33,22,749/- respectively, and proposing penalty under 209A on V.V. Rajani, the partner of Unity Industries. Each of them manufactured watch straps.
The notice took note of the fact that the three entities in question, Sotex, Sonic and Unity Industries (Stelex being a division of Sotex) were either partnership firms or proprietary concerns and the partners and proprietors were closely related to each other. It alleged that the units were "working in collusion with each other and engaged in clandestine receipt and removal of excisable goods without payment of duty and to suppress correct identity of each of the unit and to suppress the correct production and clearance." It alleged that all the units belonged to Mahendrabhai Majithia and that they were only shown on paper to be separate units. Elsewhere, the notice specifically says that the units had financial relationship with each other and require to be termed as one unit and the value of their clearances are to be clubbed together as one unit and the value of their clearances are to be clubbed together and their eligibility to SSI exemption requires to be determined afresh for the last five years. After these recitations, the notice goes to demand individually duties from each of these entities.
2. In his order adjudicating on the notice, the Collector has demanded the total of the duties demanded on each of these four entities only from Sotex. He has confirmed the demand of Rs.1,44,56,483/- on the watch straps which have been manufactured.
3. It is well settled that higher duty cannot be confirmed in an adjudication order than is demanded in the notice. The action of the Commissioner in confirming the demand liability of Rs. 1,46,99,740/- from Sotex far in excess of duty demanded therefore cannot be upheld.Apart from this, there are other contradictions in the order. The notice, as we have noted, proposed that the manufacture was by one unit. The Commissioner, however, seems to think otherwise. In various places in his order, he records that the straps were fully manufactured in each of the units. In paragraph 26 he refers to the confession of the three supervisors of the units that all four had fully manufacturing facility to say that they had cleared fully manufactured excisable goods without payment of duty. He refers to it in paragraph 32 once again and says, "Hence the goods seized from all the four units are fully manufactured and liable to confiscation," after rejecting the argument that the straps were not fully manufactured because they were to be inspected at Sotex. Subsequently he has said that Majithia was "the real authority and all four units are only different facts". He repeats that they are not separate entities in real and therefore clearances should be clubbed.
4. We find one set of conclusions to be clearly contrary to the other.
Manufacture is conversion of one article into another. When the Commissioner says that each of these units "fully manufactured" the watch straps, he says that each of them converted the steel strips to another commercially different article, watch straps. When he later says that the real manufacturer is somebody else, there is clearly a contradiction. Perhaps, as the departmental representative suggest, he meant to say that the benefit of the notification would not be available because it was one manufacturer manufacturing in different factories, a situation referred to paragraph 2 of the notification. If that were the case, the notice and the order should have at least referred to that paragraph of the notification. At the very least, the order of the Commissioner is lacking in clarity and unity. The matter will have to be examined and decided afresh by him.
5. Our discussions so far have related to watch straps which have been manufactured. Modvat credit taken of the duty paid on 20,773.8 kgs of stainless steel coils found short on a visit by the officers has been demanded from Sotex. The Commissioner has not accepted the explanation tendered in the rely to the notice that these coils had been sent to slitting to job worker, Precisions Metal Slitters Pvt. Ltd. and were yet to be returned, admitting the technical lapse in not following rule 57 F(4). Nor are we able to do so. Mr. Vijay Ashar, the manager of Precision had in his statement on 24.2.98 told the officers that the firm had received 48.758 tons of coils from Sotex from 15.5.97 to 12.10.97 and it received nothing thereafter. The reply sets out the dates on which the steel was sent to Precision and returned by it after slitting. According to these figures as on 15.10.97 a quantity of 24305 kgs. was with Precision yet to be returned. The shortage that was found was not this quantity, but 20474 kgs. There was an attempt on the part of the representative of the appellant to say that the shortage that was found was not precise because it was based on visual assessment.
There is however no evidence in support of his contention. Neither the panchnama relating to shortages and excesses which were found by the officers nor other evidence has been produced. We are unable to accept this contention. Accordingly, the demand by the Commissioner on this score is confirmed. Since there might or might not be a penalty on Sotex with regard to the other charges, this aspect should be taken into account by the Commissioner in determining penalty leviable on it.
6. Appeal 1608 of Sotex is partly allowed, setting aside the order demanding duty with regard to manufacture of watch straps. The other three appeals are allowed. The matter is remanded to the Commissioner for adjudicating afresh in accordance with law.