1. Both the appellants manufacture TV cabinets from commercial plywood.
During the period 1-4-1979 to 26-11-1982 and from 1-4-1979 to 25-11-1982 respectively they manufactured such TV cabinets and cleared them without payment of duty. During this period Notification No.104/82-C.E. as amended from tune to time was in force. According to this Notification handicrafts were exempt and it appears to have been the understanding of the appellants that TV cabinets were covered by this Notification and, therefore, no duty was payable thereon.
2. The Central Excise authorities visited the appellants' factory on 26-11-1982 and 25-11-1982 and made seizures of documents and some TV cabinets. Allegations were made and both the appellants were asked to show cause why duty should not be demanded on the TV cabinets cleared by them during the period 1-4-1979 to 26-11-1982 and from 1-4-1979 to 25-4-1982 respectively and why penalty should not be imposed on them.
Both the appellants pleaded that TV cabinets should be considered as 'handicrafts' and they relied on the opinions of several bodies connected with Handicrafts. They referred to the definition adopted by UNCTAD, Inter-Governmental Group of Experts on Tariff Classification, International Labour Office Report on the meeting of Experts on the Role of Industries, Report on the Survey of Handicrafts in Delhi, 1976 by Delhi State Industrial Development Corporation (Government of India) and extracts of books published by All India Handicrafts Board, Ministry of Commerce, etc. They also pleaded that the Department was wrong in clubbing the production of three Units, which they claimed were entirely independent. They argue that these firms - the appellants No. 1, M/s. Ajanta Cabinet Works and Ajay Cabinet House and appellants No. 2, M/s. Mutul Industries and M/s. R.R. Industries - were separately registered under the Income Tax and Sales Tax and had different constitutions. The appellants also pleaded before the Collector that no Unit in Delhi producing TV cabinets had ever taken out Central Excise Licence or entered into any excise formalities.
3. The Collector did not accept the defence of the appellants. He refused to consider that TV cabinets were 'handicrafts'. He referred to theoretical and literary sense and gave a meaning to the term 'handicrafts' in the light of his own views. He observed that an empty wooden TV cabinet is a thing of utility and not a thing of joy or one of decorative value. The Collector ultimately held against the appellants and besides ordering confiscation and penalty of Rs. 1,00,000/- and Rs. 1,50,000/-, he demanded Central Excise duty amounting to Rs. 7,63,235/- and Rs. 12,82,633.08 on the goods alleged to have been removed by the appellants respectively.
4. We heard Shri Chopra, the learned Consultant for both the appellants. Shri Chopra argued on merits and also on limitation, submitting that the demands raised by the Collector was substantially time-barred. Shri Chopra relied on the same evidence on which he relied before the Collector and showed the various documents placed before the Collector.
5. Shri Chakraborty, the learned DR accepted that the Collector's findings on whether the goods manufactured were 'handicrafts' was not based on the evidence placed before him. He however, argued that the meaning should have been ascertained on the basis of trade parlance and popular knowledge which the Collector did not do. He said that the Survey Reports filed by the appellants have no evidentiary value and submitted that they did not represent trade parlance. We asked him to state whether any enquiry was conducted to ascertain how the TV cabinets were known in the trade. Shri Chakraborty submitted that no such enquiry was conducted and said that there was a vacuum in so far as this question is concerned. He, therefore, strongly suggested that the matter may be remanded to the Collector to make an enquiry in this regard. As a reason for praying for remand, the learned DR also submitted that the Collector did not go into the question of the essential character of the TV cabinet. In this context the learned DR's attention was drawn by Shri Chopra to the judgment of the Tribunal in the case of Pad-mini Products v. Collector of Central Excise, Bangalore [1988 (35) E.L.T. 543 (Tribunal)]. A similar question arose there and the Tribunal accepted the survey report and other documents which are similar to the documents placed before us in these appeals. Shri Chakraborty formally reiterated the Department's arguments in Padmini Products (supra). However, he persisted with his request for remanding the matter to the Collector. Shri Chopra, the learned Consultant then submitted that he would pray for a decision on merits and pleaded that the matter relates to a period commencing ten years ago and may not be remanded at this stage. He submitted that even if the Tribunal gives him relief on the question of time-bar he would be satisfied and will pay duty upto six months prior to the issue of show cause notices, if ordered to do so.
6. In so far as time-bar is concerned, Shri Chopra, submitted that the show cause notice was issued on 19-5-1983 for the period 1-4-1979 to 26-11-1982 for the appellants at Sl.No. 1 and for the second appellants show cause notice was issued on 19-5-1983 for the period 1-4-1979 to 25-11-1982. He submitted that there are no explicit grounds in the show cause notices and that there are no allegations of mis-statement or suppression of facts, justifying extension of the period of limitation upto 5 years. He cited various judgments of the Tribunal and of the Supreme Court, namely - (i) Collector of C. Ex. v. Chemphar Drugs and LinimentsS.P. Kumria & Sons v. Collector of C. Ex. reported in 1985 (22) E.L.T. 142 (T) (Order No. 287/89-C.E., dated 23-6-1989).
7. The learned Consultant submitted that many decisions have been taken by the Tribunal where it has been held that extended period of limitation cannot be applied unless the grounds for allegations of suppression of facts or mis-statement are clearly stated and the appellants are given an opportunity to defend themselves. Shri Chopra also argued that the appellants never attempted to manufacture and clear TV cabinets secretly and submitted that these cabinets being supplied to well-known manufacturers of TV sets, the C. Ex. Department could have, at any time, verified the source of the cabinets from the manufacturers of TV sets. He stated that no manufacturer of TV cabinets ever took out a licence or paid duty thereon as these were handicrafts and were exempt. The learned Consultant further submitted that the appellants had no intention to evade payment of Central Excise duty as even if they paid duty, there was a set-off Notification available (Notifn. No. 201/79-C.E.) and the buyers would have enjoyed this set-off.
8. Shri Chopra further pleaded that though he has agreed to pay duty upto 6 months prior to show cause notices, he did not give up his case on merits. He submitted that the documents filed by him, which were not at all considered by the Collector, clearly indicated that the TV cabinets produced by the appellants were handicrafts exempt from payment of Central Excise duty. Besides, referring to the various documents filed by him, [the Survey Report of the Delhi Small Industrial Development Corporation (DSIDC) etc.]; and with reference to pages 54,52 and 51 of the paper book he submitted that in this survey, TV cabinets were accepted as handicrafts as can be seen at Sl.Nos.
623,732 and 767. The learned Consultant further argued that there was absolutely no suppression of the production and emphasised that accounts of the cabinets were kept by the manufacturers of TV sets also. Shri Chopra, therefore, pleaded that there is absolutely no case for enlarging the period of limitation or for imposition of penalty as both the appellants did not do anything dishonestly or clandestinely.
9. In his reply Shri Chakraborty submitted that the show cause notices contained the essential ingredients to justify the application of enlarged period of limitation. He referred to the enclosures to the show cause notices and submitted that there was enough material there for extending the period of limitation. The learned DR further argued that the show cause notices invoked Rule 9(2) and as this Rule had to be read with Section 11 A, and that as Rule 9(2) referred to clandestine removal, it must be presumed that the show cause notices intended to demand duty for the larger period. He pleaded that the Department did not know about the production of the cabinets and, therefore, there was suppression. He further submitted that the availability of set-off under Notification No. 201/79 is only hypothetical and the appellants were liable to pay duty. He submitted that no agreements between the appellants and the buyers were shown to the Department and relied upon a judgment of the Tribunal in the British India Corporation v. Collector of Central Excise reported in 1986 (25) E.L.T. 727 Tribunal.
10. In his rejoinder, Shri Chopra reiterated his arguments on the merits and limitation and asserted that the Department could not have been unaware of the production of cabinets by the appellants. After all, these cabinets were supplied to manufacturers of TVs like Weston Ltd. and Beltek, both being well-known manufacturers. He further submitted that proper accounts were kept by the appellants and the figures taken by the Department were from these very accounts.
11. We have considered the submissions of both sides. We take the question of limitation first. We perused the show cause notices and its enclosures carefully. Paragraph 18 of the enclosures bears out the plea made by Shri Chopra that appellants maintained records. It was from this record that the Department obtained the figures. This is a point in their favour because this shows that the manufacture and clearance of the TV cabinets was not 'clandestine' as alleged.
12. The show cause notices, however, do not mention the period of demand as being from 1-4-1979 to 26-11-1982 and 1-4-1979 to 25-11-1982.
But the demands are made under Rule 9(2) and Section 11A is not mentioned at all. The word 'suppression' or 'mis-statement' does not occur anywhere in the show cause notices. There is no mention of Proviso to Section 11A by which the period of limitation is sought to be enlarged.
13. In S.P. Kumria (supra), the Tribunal held that unless the show cause notice alleges mis-statement or suppression of facts, the extended period of 5 years, would not be applicable. In its earlier orders in Steriware Pvt. Ltd. (Order No. 287/89-C dated 23-6-1989) the Tribunal held that there being no allegation of suppression or mis-statement in the show cause notice, only normal period of limitation can be applied to the demand.
14. The most important judgment cited by Shri Chopra in this regard was delivered by the Supreme Court in Collector v. Chemphar (supra). In this judgment, the Hon'ble Supreme Court laid down principles governing demands beyond the period of 6 months. Without presuming to summarise, we reproduce the relevant portion of the Supreme Court's judgment below :- "In order to make the demand for duty sustainable beyond a period of six months and upto a period of 5 years in view of the proviso to Sub-section 11A of the Act, it has to be established that the duty of excise has not been levied or paid or short-levied or short-paid, or erroneously refunded by reasons of either fraud or collusion or wilful mis-statement or suppression of facts or contravention of any provision of the Act or Rules made thereunder, with intent to evade payment of duty. Something positive other than mere inaction or failure on the part of the manufacturer or producer or conscious or deliberate withholding of information when the manufacturer knew otherwise, is required before it is saddled with any liability, before the period of six months. Whether in a particular set of facts and circumstances there was any fraud or collusion or wilful mis-statement or suppression or contravention of any provision of any Act, is a question of fact depending upon the facts and circumstances of a particular case." 15. We examined the facts of these matters keeping in mind the ratio of the Supreme Court decision. We have already observed that the show cause notices do not make any allegation of suppression or mis-statement. In the fact of the accounts maintained by the appellants it cannot be held that there was any attempt by the appellants to suppress their production. They never made any statement to the Central Excise Department and, therefore, there cannot be any question of mis-statement. It is nobody's case that the appellants did not believe that the TV cabinets they were producing were handicrafts. They supplied them to well-known companies and it cannot be believed for a moment that such supplies could be kept beyond the knowledge of the Central Excise Department or that there could have been clandestine removals. Therefore, there is absolutely no evidence or even indication that the appellants consciously or deliberately withheld any information. On the other hand, they conducted their business openly.
We cannot totally ignore the plea that had the appellants paid duty, the users would have got set-off under Notification No. 201/79.
Therefore, the ratio of the Supreme Court Judgment clearly applies to the facts of the matter. Shri Chakrabortys argument that the mere mention of Rule 9(2) should lead to a presumption of allegations of suppression or mis-statement is stated only to be dismissed. Such presumption would neither be legal or just. There is nothing either in the show cause notices as perused by us or in the facts as assessed and examined by us to justify extension of the limitation periods in these cases. There is also nothing in the judgment in British India Corporation (supra) cited by the learned, DR to hold otherwise.
16. Therefore, keeping in mind the case law and also the appellants' pleas and evidence produced by them before the Collector and before us to show that there was no suppression of facts or mis-statement, we hold that in the facts of these matters the demands for the periods beyond 6 months prior to the dates of show cause notices are clearly time-barred.
17. Shri Chopra's plea that he would give up case for the period within six months prior to the show cause notices was solely because he did not want the matters to be remanded. We, however, feel that in spite of our finding on limitation, interests of justice requires that we should examine the merits of the demand. We proceed to do so.
18. The entire question on merits is whether the TV cabinets manufactured by hand, from some parts manufactured with the aid of power, are exempt from duty under Notification No. 55/75-C.E.. The Department seems to have taken the view, among others, that since power is used in some stages, the cabinets cannot be called handicrafts. Shri Chopra relied on an order of the Central Board of Excise & Customs in an appeal filed by Shyam Sunder Metal Industries and Ors. and reported in 1982 ECR 289D. In this order, the Board held that handicrafts exempted from Notification No. 55/75 are necessarily those handicrafts in the manufacture of which the processes are ordinarily carried on with the aid of power. This order, further held that since there is no difinition of handicrafts in the notification or elsewhere in Tariff Item 68, the meaning assigned to the terms in common trade parlance or by any person dealing with and conversant with the goods has necessarily to be adopted. In para 35 of the same order, the Board held that the term 'handicraft' is not averse to the use of machines in their manufacture so long as the essential character of the product is derived from the hand made aspect.
19. The Board's Orders are not binding on this Tribunal, but prior to the establishment of this Tribunal, the Board was the highest Appellate Authority. Therefore, this order has a persuasive value.Padmini Products v. Collector of C.Ex., 1988 (35) E.L.T. 543 (Tribunal). In this order, the Tribunal held that goods may be produced partly by hand and partly by use of machines but this can be considered as handicrafts only if the product acquires its essential character in the finished form by use of hand. In paragraph 7 of the Order, the Tribunal observed that the use of the machine in the manufacture of a product does not preclude an article from the category of handicraft when essential character of that product is shaped by use of hand. It is the appellants' case here that though some jobs are done with the aid of machines, the final assembly of the T.V. Cabinets is done by hand, including the decorative work, where necessary. Therefore, the ratio of the judgment in Padmini Products (supra) is applicable to the facts of this appeal also. Our attention was also drawn to Order Nos.
123-126/81B-1 dt. 24-2-87 in G.5. Industries v. Collector -1989 (43) E.L.T. 148 (Tribunal).
21. In Padmini Products while examining whether the goods were handicrafts or not, the Tribunal relied on various documents similar to those produced before us here, including the report of UNCTAD. In this matter before us, the appellants placed reliance on the UNCTAD Report, and a Survey Report of the DSIDC and some other documents, DSIDC is one which surveyed the production of handicrafts and its findings have to be given due consideration as being representative of the knowledge of people who know the subject. The Collector completely ignored the evidence produced by the appellants. Our assessment of the evidence convinces us that as a fact, the T.V. cabinets assembled by the appellants are handicrafts. This view is in consonance with the findings of the Tribunal and the Central Board of Excise and Customs, earlier referred to. The process of manufacture as declared by the appellants was not questioned or disproved by the Department.
Therefore, as there is enough evidence before us, we see no need to remand the matters to the Collector. On the basis of all the evidence placed before us, we hold that TV cabinets assembled by the appellants were handicrafts entitled to the benefit of the Exemption Notification.
Therefore, we further find that the entire demands are on merits, unsustainable. Demands for the period preceding six months in both appeals are set aside also on the ground of limitation.
21A. In view of these findings, the penalties and the demands for duty for the entire period are set aside. Any other consequential relief be given to both appellants, if legally due.