Full Judgment
Price lists and classification lists, RT 12 returns and RG 23A Part II accounts have been filed with the Department ever since the applicants commenced their production and classification and price lists were approved and RT 12 returns were also assessed. In 1987 due to labour problems in the applicants' factory and increase in demand from the customers of the applicants it was not possible for the applicants to adhere to the delivery schedule for supply of the goods and, therefore, they got some quantity of the said goods manufactured from the job workers i.e. M/s. Pearl Enterprises (Applicants in E/Stay/ 2361/91-C in E/4033/91-C). After the goods manufactured from the raw materials supplied by the applicants were ready for delivery in the factory premises of the job workers the applicants prepared gate passes from their factories and after payment of duty to the extent leviable on Pearl Enterprises, the applicants were sending the gate passes to Pearl Enterprises with instructions that the goods should be delivered by Pearl Enterprises to M/s. Universal Luggage Manufacturing Co. Ltd. who were their customers (admittedly the applicants did not obtain prior permission of the Collector as stipulated in Rule 57F for sending raw materials to Pearl Enterprises for carrying out job work). Apart from this, the applicants were also manufacturing the said goods from raw materials in their own factory and sending them directly to M/s.
Universal Luggage Manufacturing Co. under GP Is after payment of appropriate duty. The factory and office premises of the applicants as well as residential premises of some of the partners were raided by the Excise authorities on 22-2-1989 and thereafter a show cause notice was issued as to why a penalty should not be imposed on the applicants under Rule 173Q. The adjudicating authority vide order dated 29-7-1991 imposed a penalty of Rs. 1,50,000/- on each of the applicants and hence the present applications for waiver of predeposit and stay of the penalty.
2. E/Stay/2361/91-C in E/4033/91-C. - The applicants are a Small Scale Industrial Unit engaged in the manufacture of articles of plastic and fabric goods to be used as components in plastic moulded suit cases and briefcases. The articles of plastic were classifiable under sub-heading 3922.90 during the period 1-3-1986 to 9-2-1987 and under sub-heading 3926.90 during the period 10-2-1987 onwards and are totally exempt from duty vide S1. No. 38 of the Table appended to Notification 132/86-C.E., dated 1-3-1986 and S1. No. 39 of the Table appended to Notification 53/88-C.E., dated 1-3-1988. The articles of plastic are manufactured from polyvinyl chloride sheets falling under subheading 3920.32 which were purchased on payment of duty leviable under Section 3 of the CESA or additional duty under Section 3 of the Customs Tariff Act, 1975.
Prior to commencement of the manufacture of the said goods in their factory premises another Unit by name M/s. Crystal Plast which is a sister concern of the applicants were manufacturing the said goods in the said Estate and the goods were also being supplied to the same customers to whom the applicants were supplying the said goods manufactured by them. By order dated 7-8-1986 the Collector of Central Excise, Pune held that the goods manufactured by Crystal Plast were non-excisable and the proceedings were dropped. The applicants informed the Jurisdictional Assistant Collector of Central Excise about the commencement of the manufacturing operation in the month of January 1988 and also filed annual declarations showing the description of the goods manufactured, value of the clearances of the preceding financial year and the authority under which the said goods manufactured by the applicants were totally exempt from duty or non-excisable and the last such declaration was filed on 16-1-1989. The show cause notice in this case was issued on 16-8-1989 demanding duty of Rs. 39,69,064.12 for the period 1-4-1986 to 31-3-1989 in respect of articles of plastic falling under Chapter 39 and component parts of travel goods alleged to be classifiable under sub-heading 4201.90. The Department contends that since the said articles of plastic were not manufactured directly from the raw materials falling under sub-heading No. 39.01 to 39.15 they were subject to basic duty at the rate of 15% ad valorem and SED. The adjudicating authority confirmed the demand and also imposed a penalty of Rs. 20 lakhs under Rule 173Q and also confiscated land, building, plant and machinery with an option to redeem on payment of a fine of Rs. 1 lakh in lieu of confiscation.
3. We have heard Shri L.P. Asthana, learned Counsel and Shri Gautam Ray, learned SDR.4. Regarding Vipul Plastics Industries and Art Pack Industries, the applicants seek waiver of predeposit of the penalty which according to them cannot be imposed in terms of Rule 173Q as it applies only to a manufacturer or a producer or a licensee of a warehouse. As the impugned order proceeds on the basis that the applicants are not the manufacturers but only suppliers of raw materials and M/s. Pearl Enterprises, the job workers has been treated as manufacturer and the entire charge against the applicants being that they issued gate passes in respect of goods got manufactured by M/s. Pearl Enterprises in order to enable M/s. Universal Luggage Manufacturing Co. to avail of higher notional credit under Rule 57A, Rule 173Q will not be attracted. Prima facie it appears that their contention is correct. Rule 173Q provides for confiscation of goods and imposition of penalty in the event of any manufacturer or producer or licensee of a warehouse removes excisable goods in contravention of any of the provisions of the Central Excise Rules or does not account for1 any excisable goods manufactured, produced or stored by him or takes credit of duty for being used in the manufacture of final products wrongly or without taking reasonable steps to ensure that appropriate duty on the said inputs had been paid as indicated in the gate passes or any other approved documents. The applicants have succeeded in showing a prima facie case in their favour. We, therefore, waive the predeposit of the penalty and stay its recovery during the pendency of the appeals in E/Stay/2359/91-C & E/Stay/2360/91-C in Appeals No. E/4031 & 4032/91-C.5. Arguing next on the Stay application No. E/Stay/2361/91-C filed by M/s. Pearl Enterprises, the learned Counsel submitted that the duty demand is not sustainable in view of the Tribunal's decision in the case of Bradma of India Ltd. v. Collector of Central Excise, Bombay [1990 (16) ETR 459] wherein the Bench had occasion to interpret Notification 68/71 (which is the predecessor to Notification 132/86) and hold that if articles of plastic are produced out of the artificial resin and plastic materials in any form under 15A(1) on which duty has been paid, then they are entitled to exemption in terms of the Notification and the emergence of an intermediate product (in that case the plastic sheet emerged prior to the stage of 'Model plastic blank cards', the final product for which exemption was sought) did not preclude the appellants from claiming benefit of the Notification. The learned Counsel also submits that the demand is barred by limitation.
The applicants had been filing annual declarations with all the details right from the inception of the manufacture in January 1986 and the details were verified by the Jurisdictional Officers and no objection had been raised earlier nor were the applicants asked to take out a licence or to pay duty. Therefore, the applicants cannot be held to be guilty of any suppression or misdeclaration so as to justify invoking the extended period of limitation.
6. The learned DR, however, would contend that suppression is established as the declarations do not indicate the Heading No. of the Schedule to the Central Excise Tariff Act under which the goods are classifiable.
7. We have perused the Collector's order dated 7-8-1986 holding identical goods manufactured by M/s. Crystal Plast to be non-excisable as they are not "goods". We have also gone through the declarations filed by the applicants. Against S1. No. 4 of the declaration the full description of the goods has been stated by the applicants: PVC Portfolio, 8. In this background the applicants have made out a prima facie on the limitation aspect and therefore, we waive the predeposit of the duty and penalty and stay the recovery of the same during the pendency of the appeal in E/Stay/2361/91-C in E/4033/91-C.9. In the result all the 3 stay applications are allowed in the above terms.