Judgment:
1. Both the appeals are directed against order-in-original No. 11 / MP/87, dated 29-10-1987 ordering confiscation of 24,819 L. Mts. of processed MMF vide Rule 173Q(i) of the Central Excise Rules, 1944 read with Rule 226 thereof with an option to the appellants to pay fine of Rs. 90,000/- in lieu of confiscation and the direction to pay appropriate duty at the time of clearance and imposing personal penalty of Rs. 25,000/- on appellant M/s. Krishna Silk Mills (Appeal No.E/27/88-Bom.) and of Rs. 20,000/- on appellant M/s. Silk India Corporation (Appeal No. E/28/88-Bom.) under the same Rules.
2. On the search carried out at the premises of the appellants on 28-5-1985, 24819 L. Mtrs of processed MMF was recovered for which no excise payment documents were available. The appellants declared that they used to procure grey MMF from open market and get them processed through three processing nouses, namely M/s. Navjeevan Synthetics, IC.Ganghi and Silver Dyeing which used to return processed fabrics under their challans mentioning therein, the numbers of Gate Passes. The records were reportedly lying at their Bombay office. They were also found to have not followed the condition laid down in Notification No.305/77, dated 5-11-1977 in filing the authorisation and had contravened the provisions of Rule 174A of the Rules. M/s. I.C. Ganghi Dyeing Pvt.
Ltd. came forward with the plea that they had not processed any fabrics for the appellants, whereas the other two processing houses pleaded that whatever processing work was done by them was duly accounted for and there were no acts of contravention on their part. Show Cause Notices were served on all the parties concerned, which were contested by them. On adjudication, however, the impugned order was passed.
3. Mrs. R.S. Desai, the ld. Advocate for the appellants has raised a legal issue, pleaded that, with only an additional duty payable, the provisions of Additional Duties of Excise (Goods of Special Importance) Act, 1957 would stand applicable, which by itself do not provide for confiscation of goods and imposition of penalty and vide Section 3 of the Act, provisions of Central Excises and Salt Act, 1944 and the Rules framed thereunder have been made applicable only in relation to levy and collection of duty. She refers to the decision of Delhi High Court in Pioneer Silk Mills v. U.O.I., 1991 (4) Delhi Lawyers 75 as is followed by North Regional Bench of the Tribunal in Syntex Processors v. Collector, 1994 (71) E.L.T. 386 (Tri.). She also pleads that the appellants are merely merchants who purchase grey material and get processed by Processing Houses and hence they cannot be branded as manufacturers and that the procedural formalities laid down under Central Excises Act and Rules, have to be complied with by the persons who manufacture the excisable goods and when the same has been duly complied with, the appellants cannot be held any way liable and in support of her contention, she refers to the decision in Metal Box India Ltd. v. Collector, 1986 (23) E.L.T. 187 (Tri.), Collector v.Aurofood Pvt. Ltd. -1989 (44) E.L.T. 261 (Tri.) and Apex Electricals v.U.O.I. -1992 (61) E.L.T. 413 (Guj.). She further pleads that, the fabrics found from the appellants were in cut to the required size and the allegation as to their non-duty paid nature is based merely on conjecture, as the department has not carried out further investigation to establish non-duty paid character. Submitting that the demand of duty cannot be based on the evidence as is made available, she has referred to the decision of the Tribunal in Ebenzer Rubbers v.Collector - 1986 (26) E.L.T. 947 (Tri.) and Anita Silk Mills v.Collector 4. Mr. Krishnamurthy, the ld. J.D.R. has however supported the order and has pleaded that the decision of Delhi High Court in Re : Pioneer Silk Mills (supra) is already under challenge before the Supreme Court, and hence cannot be taken as a good law. He also refers to the decision of the Gujarat High Court in Maheshwari Mills v. U.O.I. -1992 (58) E.L.T. 9 (Guj.) to plead that the said High Court has taken the view that the provisions of CESA, 1944 would apply to the recovery of Additional Excise Duty which, in his submission, would also mean to include the provisions regarding confiscation and imposition of penalty. He also refers to the amendment carried out in Section 3 of the Additional Duties of Excise (Goods of Special Importance) Act, 1957 and has pleaded that the same is of a classificatory nature. As regards other points, the ld. J.D.R. has pleaded that with the appellants coming forward with a specific plea that the seized goods were processed through specified process houses, it was for them to establish that those were the duty paid items, and with no support available from those named process houses, the duty, which is against the goods is recoverable and the appellants who are merchants manufacturers cannot disown the duty liability when the process houses deny having processed these goods.
5. Considering the submissions made, and going through the records and taking up first the validity of the order in so far as the order of confiscation and imposition of fine and penalty is concerned, the decision of Delhi High Court in Pioneer Silk Mills, (supra) and the one of North Regional Bench in Re : Syntex Processors (supra) hold that it is not permissible to order confiscation and impose penalty in recovery of the Excise duty under Additional Excise Duty (Goods of Special Importance) Act, 1957. The decision of Gujarat High Court in Maheshwari Mills (supra) also does not go contrary to the view expressed by the Delhi High Court as the same has not dealt with the specific issue which was before the Delhi High Court. Though subsequently an amendment is carried out in Section 3 of the said Act, there is no mention that the amendment has retrospective operation or that it is merely a classificatory in nature. Merely because an appeal is preferred against the judgment of Delhi High Court, would not make it non-applicable till the same is reversed. Reading of the section (Pre-amendment) also indicates that the views of the High Court are in conformity with the then existing statutory provisions. In that view of the matter the order of confiscation as also of imposition of penalty cannot be sustained and are therefore, set aside with consequential reliefs.
6. As regards the demand for the additional excise duty the factual position that emerges out is that, the goods are subjected to such duty, and there is no evidence available on record that the duty has been paid. No documents have been produced in that regard. The appellants have come forward with plea that they are procuring grey fabrics and get them processed through various processing houses. They have also disclosed the names of three processing houses namely I.C.Ganghi Dyeing Pvt. Ltd., Navjeevan Synthetic and Silver Dyeing. On investigation I.C. Ganghi Dyeing Pvt. Ltd. have denied having processed any grey fabrics for either of the appellants, whereas other two have pleaded that whichever goods were processed by them were despatched under valid documents. The appellants have not provided any explanation against the plea of I.C. Gandhi Dyeing and have not co-related the seized goods with any duty paying documents supplied to them by other two processing houses. With no co-relation made by the parties who are supposed to have account for the same, it has to be concluded mat the seized goods have not suffered duty. Even assuming that because of further processing by the appellants, by way of cutting them into pieces they may not be able to perfectly co-relate the goods, they could by production of some convincing evidence establish with reasonable certainty that the goods seized are those, which were received under valid duty paying documents. Even that is not done.
Under the circumstances the duty liability on the goods is upheld.7. The issue then would be whether the duty could be demanded from the appellants, who undisputedly are not engaged in the manufacturing activity. The appellants are not merely traders as is commonly understood. If that was so, they could not be saddled with the liability to pay any duty. Here however, they are the one who procured grey fabrics and got them processed through processing houses and are known as 'Merchant manufacturers', standing on a footing different from the one for ordinary traders. They are required to give letter of authorisation to the job workers, furnishing necessary particulars so as to enable such job workers to discharge the duty liability. A presumption could have been raised that duty burden must have been discharged by job workers, who in such circumstances are recognised as manufacturers. Here however, the evidence discloses that one job worker named by them has denied having done any job work for them and the others two plead to have paid duty on the goods manufactured by them but the appellants have not been able to co-relate the said documents with the seized goods evidencing even the basic fact that these goods were processed by them. The Delhi High Court has in Poona Bottling Co.
v. Union of India 1981 (8) E.L.T. 389 (Del.) and Allahabad High Court has in Hind Lamps Ltd. v. U.O.I., 1978 (2) E.L.T. (J 78), taken the view that person on whose behalf the goods are manufactured would also be taken to discharge duty liability, if the actual manufacturer has not paid the same, and here the identity of the actual maufacturers remains undisclosed. In these circumstances the liability of the appellants to pay the duty amount has to be upheld. The department is therefore at liberty to collect the duty payable on seized goods from the appellants.