Per: P.G. Chacko
1. M/s.Mahavir Plastics, a partnership firm, is the main appellant, who is aggrieved by demand of duty, penalty, etc. Shri.Upendra Shantilal Kapadia, a partner of the said firm, is aggrieved by the penalty imposed on him. M/s.Shrinath Enterprises is his proprietorship, which is also challenging the penalty imposed on it. In a show-cause notice dated 20/07/2000, the department asked M/s.Mahavir Plastics to show-cause to the jurisdictional Commissioner of Central Excise, as to why :-
a) Central Excise duty amounting to Rs.17,13,341/- on the cloth clips of plastics manufactured and removed clandestinely by M/s.Mahavir Plastics, Vasai (East) should not be demanded and recovered from them under proviso to sub section (1) of Section 11A of Central Excise Act, 1944 (as detailed in annexure B to show cause notice);
b) Central Excise duty amounting to Rs.2,29,293/- on Tablet box and lids (Plastic containers with lids) falling under CSH No.3923.90 of CETA, 1985 manufactured and removed clandestinely by M/s.Mahavir Plastics should not be demanded and recovered from them under proviso to sub section (1) of section 11A of Central Excise Act, 1944 (as detailed in Annexure-C to show cause notice);
c) Central Excise duty amounting to Rs.44,138/- on snap Button (fasteners) of plastics falling under CSH No.3926.90 of CETA, 1985 manufactured and removed clandestinely by M/s.Mahavir Plastics should not be demanded and recovered from them under proviso to sub section (1) of Section 11A of Central Excise Act, 1944 (as detailed in Annexure-D to show cause notice).
d) Central Excise duty amounting to Rs.75,974/- on mosquito lamps repellant appeared to be classifiable under chapter sub heading No.8548.00 CETA, 1985 manufactured and removed clandestinely by M/s.Mahavir Plastics should not be demanded and recovered from them under proviso to sub section (1) of Section 11A of Central Excise Acts, 1944 (as detailed in Annexure-F to show cause notice).
e) The modvat credit amounting to Rs.89,301/- availed in respect of inputs which were used in the manufacture of exempted products and inputs cleared as such should not be disallowed and recovered under proviso to sub section (1) of section 11A of Central Excise Act, 1944 read with Rule 57AH of Central Excise Rules, 1944;
f) The excisable goods viz., cloth clips of plastics total 7461 gross totally valued at Rs4,52,988/- manufactured and removed clandestinely by M/s.Mahavir Plastics and seized under Panchnama dated 27/01/2000 from the premises of M/s.Shrinath Enterprises should not be confiscated under Rule 173Q (1) of Central Excise Rules, 1944;
g) The excisable goods viz., cloth clips of plastics total 446.600 kgs totally valued at Rs.50,000/- which were not accounted in statutory records and lying in the factory premises of M/s.Mahavir Plastics and seized under Panchanama dated 16/02/2000 should not be confiscated under Rule 173Q(1) of Central Excise Rules, 1944;
h) A penalty equal to the amount of duty determined to be payable should not be imposed on them under the provision of section 11AC of Central Excise Act, 1944;
i) A penalty should not be imposed under Rule 173Q(1) of Central Excise Rules, 1944;
j) Interest in terms of Section 11AB of Central Excise Act 1944 should not be charged and recovered from them.
2. The notice also proposed penalties on the other two appellants under Rule 209A of Central Excise Rules, 1944. It also proposed to confiscate certain quantity of cloth clips, which had been seized by the investigating officers of the department and subsequently released provisionally to the assessee (M/s.Mahavir Plastics) against bond and bank guarantee. The demand of duty and other proposals in the show-cause notice were contested. In adjudication of the dispute, ld. Commissioner of Central Excise confirmed the aforesaid demands of duty against M/s.Mahavir Plastics under the proviso to Section 11A (1) of the Central Excise Act, 1944 and imposed on them a penalty equal to the total amount of duty under Section 11AC of the Act. Interest on duty was demanded under Section 11AB of the Act. Penalties of Rs.11.00 lakh each were imposed on M/s. Shrinath Enterprises and Shri Upendra Shantilal Kapadia under Rule 209A of the Central Excise Rules, 1944. Hence the present appeals.
3. We have examined the records and heard both sides. In the written submissions filed on behalf of the appellants, we come across the following break-up of the demand of duty raised on M/s.Mahavir Plastics, for the period 01/04/98 to 24/01/2000.
S.No
Item
Amount of duty demanded
a)
Top and bottom holders of cloth clip alleged to be complete cloth clip classifiable under sub-heading No.3924.90
Rs.17,13,341/-
b)
Caps, nozzles, containers, lids and accessories of plastics classifiable under sub-heading 3923.90
Rs.2,29,293/-
c)
Snap fasteners classifiable under sub-heading 3926.90
Rs.44,138/-
d)
Mosquito repellant classifiable under sub-heading No.8548.50
Rs.75,974/-
e)
Modvat credit denied on inputs cleared as such without reversal of credit
Rs.89,301/-
4. In respect of the goods mentioned at ‘a’ and ‘b’ above, the case of the assessee is that they were not liable to pay duty on these goods on account of the exemption available to them under Notifications No.5/98-CE dated 02/06/98 (Sl.No.69) and 5/99-CE dated 28/02/99 (Sl.No.70). It is claimed that the relevant condition (Condition No.10) was satisfied by the assessee for the benefit of exemption. Condition No.10 ibid reads thus: The manufacturer does not avail of credit of duty paid under Rule 57A or 57B on the products mentioned in column (2) or on any other product manufactured in the same factory. It is this condition for claiming the benefit of exemption under the aforesaid notifications, which is claimed to have been satisfied by the assessee. In support of this claim, ld. Counsel for the assessee has relied on a line of decisions of the Tribunal, listed below:-
i) N.M.Nagpal (P) Ltd., Vs. CCE, New Delhi (2001 (130) ELT 359 (Tri-Del)
ii) CCE New Delhi Vs. N.M.Nagpal (P) Ltd., (2001 (135) ELt 606 (Tri-Del)
iii) Final Order No.109/02 dated 15/04/2002 in Appeal No.E/2509/01-C of M/s.Innovative Tech Pack Ltd., Vs. CCE, Delhi
iv) GE Plastics India Ltd., Vs. CCE, (2001 (45) RLT 707 (T)
5. In the case of M/s. N. M. Nagpal (P) Ltd., cited first above, condition No.10 attached to the Notification No.5/98-CE dated 02/06/98 had come to be considered. The Bench held that the condition did not convey the meaning that the manufacturer should not avail of the credit of the duty paid on inputs, which are used in respect of other products manufactured in the same factory. It was accordingly held that the manufacturer should not avail of credit of the duty paid on any product manufactured in the same factory. The expression on any other product was held to be different from the expression in respect of any other product manufactured in the same factory. In the above case, the department had denied the exemption to the assessee on the ground that they had availed MODVAT Credit under Rule 57A or 57B on inputs which were used in or in relation to the manufacture of other final products manufactured by them. The Tribunal negatived the Revenue’s view and held that the exemption was admissible to the assessee inasmuch as the condition No.10 was not referable to any MODVAT Credit on the inputs which were used in or in relation to the manufacture of other final products manufactured by the assessee. This view was followed by this Tribunal in the remaining cases citied by the advocate. The ld. Counsel has, however, fairly pointed out that the Tribunal’s first decision in N.M. Nagpal’s case was set aside by the Hon’ble Supreme Court, which remanded the matter to the Tribunal vide order dated 03/05/2006 in Civil Appeal No.1571/01 (CCE, Delhi Vs. N.M. Nagpal (P) Ltd.). It is pointed out, fairly enough, that the remanded case was decided by this Tribunal in favour of the Revenue. In this connection, ld. Counsel has produced a copy of final order No.732-733/2006-EX dated 09/08/2006 in appeal Nos.E/228/00-B and E/1343/01-C. The Tribunal, in the said final order, had a fresh look at condition No.10 ibid and it was held to the effect that the scope of the condition should be ascertained and understood with reference to the two MODVAT Rules (Rules 57A and 57B) referred to in the text of the condition. Accordingly, it was held that a manufacturer claiming exemption from payment of duty on his final product under Sl.No.69 of the table annexed to notification No.5/98-CE should not have availed MODVAT Credit under Rule 57A or 57B on the inputs used in or in relation to the manufacture of such final product or in the manufacture of any other final product manufactured in the same factory. In the result, the benefit of exemption came to be denied to the assessee. In view of this decision of the Tribunal, which has been heavily relied on by the ld. SDR also, we find that M/s.Mahavir Plastics have no case on merits against the demand of duty on the goods mentioned at ‘a’ and ‘b’. Their plea of limitation will be considered later. The ld. Counsel has also relied on final order No.732-733/2006-EX dated 09/08/2006 for two other benefits, firstly, in support of the prayer for considering the sale price of the goods as cum-duty price for the purpose of Section 4 (4) (d) (ii) of the Central Excise Act and, secondly, in support of the assessee’s claim for the benefit of MODVAT Credit on inputs which were used in or in relation to the manufacture of the finished goods on which duty of excise is sought to be recovered.
6. The ld. SDR has argued that neither of the benefits can be granted to the assessee in a case of clandestine removal of excisable goods, like the present one. The lower authority appears to have taken the same view in the context of considering the assessee’s claim under Section 4 (4) (d) (ii). We find that this view is contrary to the ruling of the apex Court in the case of CCE, Delhi Vs. Maruti Udyog Ltd., (2002 (141) ELT 3 (SC). We also note that the Tribunal s Larger Bench decision in Srichakra Tyres Ltd., Vs. CCE, Madras (1999 (108) ELT 3561) (Tri-LB), which is seen referred to the impugned order was upheld by the Hon’ble Supreme Court in the case of Maruti Udyog Ltd., (supra). Thus it is settled law that the price of the excisable goods as indicated in the relevant invoice should be deemed to be cum-duty price under the provisions of Section 4 (4) (d) (ii) of the Central Excise Act and, accordingly, the manufacturer should be allowed to abate the duty element from such price in the context of determining the assessable value of the goods. We, therefore, hold that the assessee’s claim under Section 4 (4) (d) (ii) of the Act is liable to be considered by the lower authority, in the event of re-quantification of duty. In so far as their claim of MODVAT Credit on inputs is concerned, we have not found any finding in the ld. Commissioner s order and, therefore, he has got to consider this claim as well.
7. The item mentioned at (c) above, is snap fastener, otherwise called snap button. This item, which was also found to have been cleared without payment of duty by the assessee during the period of dispute, was classified by the ld. Commissioner under sub-heading 3926.90 of the CET Schedule. M/s.Mahavir Plastics claimed classification of the item under SH 9606.10 on the ground that the said item was specifically covered by SH 9606.10 of the tariff schedule. On a perusal of the relevant tariff entries, we find that buttons, snap fasteners, etc. were specifically covered by heading 96.06 and that buttons and button blanks were specifically classified under SH 9606.10 of the tariff schedule as it stood during the material period. The ld. Counsel has also invited our attention to the relevant HSN heading 96.06. Explanatory Notes under this heading indicates that the heading covers buttons, studs and similar articles used for fastening or decorating articles of apparel, household linen, etc. This note further gives a list of principal materials used for making buttons, studs, etc., and these include plastics. On the other hand, the rival heading 39.26 broadly covers the articles of plastics. It is settled law that a specific entry will always prevail over the general. Yet another tenent of rule of classification of excisable goods is that, where there are two possible entries for a given excisable product, the later one in the tariff schedule will prevail. Thus, by all means, the snap-fasteners manufactured and cleared by M/s.Mahavir Plastics during the period of dispute were properly classifiable under SH 9606.10 of the CETA schedule. Admittedly, during that period, this tariff entry carried nil rate of duty. In the result, we hold that the assessee is not liable to pay duty on the snap-fasteners.
8. As regards the mosquito repellant mentioned at ‘d’ above, we find that there is a demand of duty of Rs.75,974/- on the assessee, which is under challenge on the ground that such demand of duty is not sustainable in as much as the aggregate value of clearances of the said product in the relevant year (1998-99) was below Rs.50 lakhs. This ground of the appeal has been reiterated by the assessee in their written submissions as well, but yet to be substantiated. The appellant has not come anywhere near establishing the above ground. We are of the view that, for the ends of justice, the assessee should be given more opportunity to prove the above ground before the adjudicating authority.
9. The last item of demand vide ‘(e)’ above is a demand on inputs, which have been found to have been sold without reversal of MODVAT Credit. We have not found any serious challenge to this demand. Further, the ld. Counsel also has not put up a forcible challenge against the said demand of duty on the inputs. In the result, the demand of duty of Rs.89,301/- mentioned at ‘e’ above will stand affirmed.
10. We shall now turn to the plea of limitation. The ld. Counsel has argued that all the relevant facts were within the knowledge of the department. Prior to 01/04/98, the assessee was manufacturing and clearing the same goods on payment of duty, a fact which was known to the department. From 01/04/98, there was no requirement of payment of duty on account of the exemption notifications and, therefore, no duty was paid during this period. The ld. Counsel, on this basis, submits that the allegation of suppression of facts would not be tenable against the assessee in as much as such facts were very much within the knowledge of the department. In this connection, reliance has been placed on Pushpam Pharmaceuticals Company Vs. CCE, Bombay (1995 (78) ELT 401 (SC) and Tamil Nadu Housing Board Vs. CCE, Madras (1994 (74) ELT 9 (SC). In both the cited cases, it was held to the fact that, where the relevant facts were known to both the parties the omission by one to do what he might have done and not that he must have done does not render it suppression of facts for the purpose of Section 11A (1) of the Central Excise Act. On the other hand, it is argued by the ld. SDR that the relevant facts were not at all disclosed to the department during the material period and that such facts were covered only through subsequent investigations. The assessee admittedly did not maintain statutory records covering manufacture and clearance of dutiable goods during the material period. No RG-1 register was maintained, nor was any statutory invoice under Rule 57A of the Central Excise Rule 1944 issued at the time of clearance of the goods. All the transactions were entered only in private records. Clearances were made under bills or challans, some of which were not even in the name of the assessee. The Ld SDR has also pointed out that Shri Upendra Shantilal Kapadia has admitted these facts consistently in all his statements recorded under Section 14 of the Central Excise Act, and none of these statements was retracted at any point of time. All the transactions were clandestine. In such a situation, according to the ld. SDR, the benefit of the apex Court’s decision cited by the ld. Counsel would not be available to M/s.Mahavir Plastics.
11. We have found favour with these submissions of the ld. SDR, which are in conformity with the conspectus of facts and evidence on record. Evidently, there was a clandestine activity by the assessee during the period of dispute. Suppression of facts with intent to evade payment of duty is inbuilt in such clandestine activity. As rightly pointed out by the ld. SDR, the relevant facts were gathered by the department through subsequent investigations. It is, therefore, not correct to say that the relevant facts were known to the department during the period of dispute. In such a situation, the decisions of the apex Court cited by the ld. Counsel would not be of any avail to the assessee.
12. The ld. Counsel has submitted that there were decisions of this Tribunal in favour of the assessee and, therefore, the assessee believed bona fide that they could claim the benefit of exemption under the relevant notifications. In other words, the assessee understood the meaning of condition No.10 in the same manner as this Tribunal interpreted it in the first case of N.M.Nagpal (P) Ltd. These arguments are far from convincing inasmuch as the decisions cited by the ld. Counsel were rendered after the period of dispute and it is illogical to think that the assessee entertained a belief in favour of exemption from payment of duty on the subject goods under the spell of the cited judgements. Moreover, this plea of bona fide belief is not forthcoming in any of the statements given by the partners of the assessee-firm under Section 14 of the Central Excise Act. In answer to specific queries, on the other hand, Shri Upendra Shantilal Kapadia asserted that they did not choose to pay duty on the goods under market compulsions. In the circumstances, we are unable to accept the plea made by the ld. Counsel based on bona fide belief or the case law cited by him in support of such plea. Yet another glaring evidence against the assessee can be found in one of the documents relied upon in the show-cause notice, which is a letter dated 23/03/99 of M/s.Mahavir Plastics addressed to the Superintendent, Central Excise Range office. That letter read thus:-
“We have not manufactured any clips in the current year”.
13. The ld. Counsel has made an endeavour to explain this submission of the party, by pointing out that the assessee meant to say that they had not manufactured any clips as such in the year 1998-99. We wish, M/s.Mahavir Plastics could have given this explanation in their letter itself. Thus, by and large, the Revenue has been able to make out a case of suppression of facts against the assessee. Accordingly, it is held that no part of the demand of duty is time-barred.
14. The ld. Counsel has also submitted that, in a case of this nature, there can be no penalty on the assessee. In this connection also, he has relied on final order No.732-733/06 dated 09/08/2006. It is submitted that the issues involved in this case are in the nature of legal issues and, therefore, a penalty under Section 11AC of the Central Excise Act on the assessee should be avoided. The ld. SDR has vehemently opposed this plea. We have already found that the assessee by their conduct attracted the provisions of the proviso to Section 11A (1) of the Act. As the basis of penalty under Section 11AC is no different from the basis of extended period of limitation under the proviso to Section 11A (1) of the Act, the penal provisions of Section 11AC also would get attracted. Even if it is assumed that the issues involved in this case are purely legal issues, that is no factor detracting from, or mitigating, penalty under Section 11AC. It is settled law today that the penalty under Section 11AC is mandatory where at least one of the ingredients thereof is established by the Revenue. Suppression of facts is one of such ingredients and the same stands established in this case. Consequently, there is no room for the assessee to resist the penalty under Section 11AC of the Act. The quantum of penalty would, of course, depend on the quantum of duty. As we have already found some of the issues to be fit for remand, the lower authority will be required to re-quantify the demand of duty and accordingly, re-quantify the quantum of penalty to be imposed under Section 11AC.
15. Ld. Counsel has also argued against the penalty imposed on M/s.Shrinath Enterprises and Shri Upendra Shantilal Kapadia. It is submitted that the findings recorded against them are not enough for penalty under Rule 209A of the Central Excise Rules, 1944. We have heard the ld. SDR in this connection. He has reiterated the relevant findings of the Commissioner. We find that the ld. Commissioner penalized Shri Upendra Shantilal Kapadia under the above rule for his activities such as floating a firm by name M/s.Shrinath Enterprises with the sole intention to divert cloth clips through the same and evade payment of duty, instructing job workers to raise bills in the name of M/s.Shrinath Enterprises though the raw materials and moulds were supplied by M/s.Mahavir Plastics, etc. As against M/s.Shrinath Enterprises, the adjudicating authority found that they colluded with the assessee in the evasion of duty. Under Rule 209A, a person, who is sought to be penalized, should be found to have acquired possession of, or to have dealt with, excisable goods in any other manner with the knowledge or belief that the goods are liable to confiscation under the Act or Rules. In the impugned order, it appears, the ld. Commissioner has not addressed the penalty-related issue in the light of this provision of law. We are of the view that this issue also requires to be re-considered in the correct perspective in so far as M/s.Shrinath Enterprises are concerned. As regards Shri Upendra Shantilal Kapadia, the ld. Counsel has been able to challenge the penalty imposed on him, successfully on the strength of case law. He has cited CC (EP) Vs. Jupiter Exports (2007 (213) ELT 641 (Bom), wherein it was held by the Hon’ble High Court that where a partnership firm was penalized under Section 112 of the Customs Act, 1962, separate penalties could not be imposed on its partners. Shri Upendra Shantilal Kapadia was a partner of M/s.Mahavir Plastics. We have already held that M/s.Mahavir Plastics are liable to be penalized under Section 11AC. Therefore the separate penalty imposed on the partner under Rule 209A would not be sustainable.
16. In the result, we dispose of these appeals:
a) By holding that M/s.Mahavir Plastics are liable to pay duty of Rs.17,13,341/- as well as duty of Rs.2,29,293/-;
b) By holding that they are not liable to pay duty on the snap fasteners, which were chargeable to nil rate of duty under SH 9606.10 of the tariff schedule during the period of dispute;
c) By holding that the assessee is entitled to the benefit of Section 4 (4) (d) (ii) of the Act in respect of the final products in question;
d) By directing the lower authority to reconsider the question whether the benefit of exemption under any Notification would be admissible to the assessee in respect of the mosquito repellant manufactured and cleared during the period of dispute;
e) By directing the lower authority to consider the assessee’s claim of MODVAT Credit on inputs used in or in relation to the manufacture of their final products during the period of dispute;
f) By holding the assessee liable to be penalized under Section 11AC of the Central Excise Act and directing the lower authority to quantify the amount of penalty depending on the amount of duty;
g) By directing the lower authority to take fresh decision on the penal liability, if any, of M/s.Shrinath Enterprises under Rule 209A of the Central Excise Rules, 1944; and
h) By allowing the appeal filed by Shri Upendra Shantilal Kapadia.
17. Needless to say that, on all the issues remanded hereunder, the ld. Commissioner shall give the parties a reasonable opportunity of being heard.