Godrej and Boyce Mfg. Co. Ltd. Vs. Collector of Central Excise - Court Judgment

Excerpt:
1. this appeal is directed against order-in-original dated 30-6-1989 passed by the collector of central excise, bombay confirming demand of duty of rs. 19,35,681.60, confiscating the assets of the manufacturer but allowing redemption on payment of fine of rs. 1 lakh and imposing penalty of rs. 1 lakh on the manufacturer and rs. 10,000/- each on the managing director, production planning officer, manager (excise) and warehouse in-charge of the manufacturer.2. appellant is engaged in the manufacture of cabinets bearing the name "visadex" and was clearing the cabinets paying duty on the approved value.3. the dispute in the appeals relate to the period september 1982 to august 1987. officers of the preventive and intelligence headquarters, bombay visited the factory and checked the stock of cabinets in the bonded store-room and noticed that cabinets along with card pockets were kept together in the bonded store room. they questioned various officers of the manufacturer and recorded statements. the officers stated that card pockets were being supplied to customers only if ordered by them. taking the view that card pockets are integral part of cabinets, show cause notice was issued to the manufacturer and various officers of the manufacturer alleging that card pockets are integral part of cabinets and sold together with cabinets to customers and therefore the value should have been included in the value of cabinets but such value had not been included and there was thus evasion of duty. it was also alleged that there was mis-declaration of value with intent to evade duty and contravention of relevant rules of the central excise rules, 1944 and supply of card pockets was not brought to the notice of the department and correct value was not declared. the larger period of limitation available under the proviso to section 11a(1) of the act was sought to be availed. it was proposed to confiscate machinery and other assets of the manufacturer and to impose penalty on the manufacturer and the officers.4. the manufacturer and the officers resisted the show cause notice on various grounds. they contended, inter alia, that card pocket is not an integral part of cabinet which can be used without card pocket and card pockets had been supplied only to those customers who wanted the same.they explained that there are three kinds of transactions, namely, sales only of cabinets, sales only of card pockets and sales of cabinets and card pockets to some customers who desired the same under two separate invoices. they also contended that there was no suppression of any material fact and all facts were being disclosed to the department from time to time and the department was also aware of the real state-of-affairs and, therefore, larger period of limitation was not available. they further contended that there was no justification for imposition of penalty.5. overruling all these contentions, the collector of central excise, bombay passed the impugned order.6. learned counsel for the appellant made submissions on merits as well as on the ground of limitation. the sum and substance of the case of the department is that card pocket is an integral part of "visadex cabinet" and cabinets with card pockets are being supplied to all customers, though under separate invoices and the value of card pockets had not been declared and was not being included in the value of cabinets and thus there was evasion of excise duty. every one of the submissions is sought to be rebutted by the appellant herein. according to the appellant, cabinet contains an arrangement to hold number of trays and card are placed in the trays. some customers may desire to have support for the cards and card pocket is used as a support for the cards. all customers do not use card pockets. cabinet is complete and functional without card pocket and therefore value cannot be included in the value of cabinet. they also pointed out that even in the reply to the show cause notice a stand was taken that supply of card pocket, which was a bought out item, was optional, that is, only at the desire of the buyer. according to them, at all relevant times they had disclosed the real state-of-affairs and there was no suppression or intention to evade duty.7. we will take up the question of limitation first. the period in question is september 1982 to august 1987. the superintendent of central excise, bombay sent a letter dated 18-9-1979 to the appellant in continuation of an earlier letter stating that the cera party during the course of inspection of appellants records during february 1979 and march 1979 had made certain observations. the letter sought clarification of the observations: 2. clearance of card pockets and certain other articles. the letter stated as follows: "it was also seen from the trade price list of cabinet systems (printed price list) that the assessee sells the following goods without payment of duty. please clarify and intimate quantity, value and duty involved of the above products cleared in the past".it is pointed out by shri k. srivastava, sdr that copy of the letter sent by the appellant in reply of this letter has not been placed before us. this letter dated 18-9-1979 would clearly indicate that as early as in 1979 the department was aware that the appellant was selling card pockets without payment of duty. according to shri k.srivastava, it may be that at that time card pockets were not being sold along with cabinets and the observations by the audit would not lead to the inference of sale of card pockets along with cabinets.considering the basic stand of the appellant that there were three varieties of sales as already indicated above, we are of opinion that the basis of the letter was the knowledge of the department that there were atleast some instances of sale of cabinet and card pockets to some customers. it appears that the superintendent, central excise, visited the office of the appellant for the purpose of investigation sometime in 1986. appellants manager wrote letter dated 9-7-1986 to the collector in that connection informing him that excise duty is paid on visadex cabinets and craft pockets required to be used are bought out items and are supplied to the customers separately if ordered through them and there is no manufacturing activity in craft pockets undertaken by the appellant. these two letters would indicate that during the period covered by the superintendent's letter, the appellant had no intention of suppressing any material fact. on the other hand, there was disclosure of material facts and department was aware that pockets were also being sold by manufacturer of cabinet. necessary inference is that knowledge extended to the fact that there were sales of pockets to customers who were buying cabinet also. in these circumstances, the allegation that the manufacturer had intention to evade duty cannot be accepted and the larger period of limitation under proviso to section 11a(1) of the act cannot be availed and notice is barred by time.8. various aspects of the question arising on merits were not properly dealt with or considered by the adjudicating authority. the basic question is whether card pocket is an integral part of cabinet. the department and the manufacturer took diametrically opposite stands. the manufacturer further contended that all buyers of cabinets do not buy pockets from the appellants. the cabinets can be used without using the card pockets and card pocket is sought only by those customers who desired some support for holding cards. according to shri k.srivastava, sdr the appellant did not make available various details of transactions. if that be so, details could have been called for and records could have been examined. it appears to us that what was the real purpose for which card pocket is necessary or is used was not properly considered by the collector. if we had taken a view against the assessee on the question of limitation, we would have been inclined to remand the case to the adjudicating authority for decision on merits. we do not propose to do so since we have already held that the notice is barred by limitation.9. since the demand fails, the question of imposition of penalty and confiscation would not arise.10. for the reasons indicated above, we set aside the impugned order and allow the appeals.

Judgment:
1. This appeal is directed against Order-in-Original dated 30-6-1989 passed by the Collector of Central Excise, Bombay confirming demand of duty of Rs. 19,35,681.60, confiscating the assets of the manufacturer but allowing redemption on payment of fine of Rs. 1 lakh and imposing penalty of Rs. 1 lakh on the manufacturer and Rs. 10,000/- each on the Managing Director, Production Planning Officer, Manager (Excise) and Warehouse in-charge of the manufacturer.

2. Appellant is engaged in the manufacture of cabinets bearing the name "visadex" and was clearing the cabinets paying duty on the approved value.

3. The dispute in the appeals relate to the period September 1982 to August 1987. Officers of the preventive and intelligence headquarters, Bombay visited the factory and checked the stock of cabinets in the bonded store-room and noticed that cabinets along with card pockets were kept together in the bonded store room. They questioned various officers of the manufacturer and recorded statements. The officers stated that card pockets were being supplied to customers only if ordered by them. Taking the view that card pockets are integral part of cabinets, show cause notice was issued to the manufacturer and various officers of the manufacturer alleging that card pockets are integral part of cabinets and sold together with cabinets to customers and therefore the value should have been included in the value of cabinets but such value had not been included and there was thus evasion of duty. It was also alleged that there was mis-declaration of value with intent to evade duty and contravention of relevant rules of the Central Excise Rules, 1944 and supply of card pockets was not brought to the notice of the Department and correct value was not declared. The larger period of limitation available under the proviso to Section 11A(1) of the Act was sought to be availed. It was proposed to confiscate machinery and other assets of the manufacturer and to impose penalty on the manufacturer and the officers.

4. The manufacturer and the officers resisted the show cause notice on various grounds. They contended, inter alia, that card pocket is not an integral part of cabinet which can be used without card pocket and card pockets had been supplied only to those customers who wanted the same.

They explained that there are three kinds of transactions, namely, sales only of cabinets, sales only of card pockets and sales of cabinets and card pockets to some customers who desired the same under two separate invoices. They also contended that there was no suppression of any material fact and all facts were being disclosed to the Department from time to time and the Department was also aware of the real state-of-affairs and, therefore, larger period of limitation was not available. They further contended that there was no justification for imposition of penalty.

5. overruling all these contentions, the Collector of Central Excise, Bombay passed the impugned order.

6. Learned Counsel for the appellant made submissions on merits as well as on the ground of limitation. The sum and substance of the case of the Department is that card pocket is an integral part of "visadex cabinet" and cabinets with card pockets are being supplied to all customers, though under separate invoices and the value of card pockets had not been declared and was not being included in the value of cabinets and thus there was evasion of excise duty. Every one of the submissions is sought to be rebutted by the appellant herein. According to the appellant, cabinet contains an arrangement to hold number of trays and card are placed in the trays. Some customers may desire to have support for the cards and card pocket is used as a support for the cards. All customers do not use card pockets. Cabinet is complete and functional without card pocket and therefore value cannot be included in the value of cabinet. They also pointed out that even in the reply to the show cause notice a stand was taken that supply of card pocket, which was a bought out item, was optional, that is, only at the desire of the buyer. According to them, at all relevant times they had disclosed the real state-of-affairs and there was no suppression or intention to evade duty.

7. We will take up the question of limitation first. The period in question is September 1982 to August 1987. The Superintendent of Central Excise, Bombay sent a letter dated 18-9-1979 to the appellant in continuation of an earlier letter stating that the CERA party during the course of inspection of appellants records during February 1979 and March 1979 had made certain observations. The letter sought clarification of the observations: 2. Clearance of card pockets and certain other articles. The letter stated as follows: "It was also seen from the trade price list of cabinet systems (Printed price list) that the assessee sells the following goods without payment of duty.

Please clarify and intimate quantity, value and duty involved of the above products cleared in the past".

It is pointed out by Shri K. Srivastava, SDR that copy of the letter sent by the appellant in reply of this letter has not been placed before us. This letter dated 18-9-1979 would clearly indicate that as early as in 1979 the Department was aware that the appellant was selling card pockets without payment of duty. According to Shri K.Srivastava, it may be that at that time card pockets were not being sold along with cabinets and the observations by the audit would not lead to the inference of sale of card pockets along with cabinets.

Considering the basic stand of the appellant that there were three varieties of sales as already indicated above, we are of opinion that the basis of the letter was the knowledge of the department that there were atleast some instances of sale of cabinet and card pockets to some customers. It appears that the Superintendent, Central Excise, visited the office of the appellant for the purpose of investigation sometime in 1986. Appellants Manager wrote letter dated 9-7-1986 to the Collector in that connection informing him that excise duty is paid on Visadex Cabinets and craft pockets required to be used are bought out items and are supplied to the customers separately if ordered through them and there is no manufacturing activity in craft pockets undertaken by the appellant. These two letters would indicate that during the period covered by the Superintendent's letter, the appellant had no intention of suppressing any material fact. On the other hand, there was disclosure of material facts and Department was aware that pockets were also being sold by manufacturer of cabinet. Necessary inference is that knowledge extended to the fact that there were sales of pockets to customers who were buying cabinet also. In these circumstances, the allegation that the manufacturer had intention to evade duty cannot be accepted and the larger period of limitation under proviso to Section 11A(1) of the Act cannot be availed and notice is barred by time.

8. Various aspects of the question arising on merits were not properly dealt with or considered by the adjudicating authority. The basic question is whether card pocket is an integral part of cabinet. The Department and the Manufacturer took diametrically opposite stands. The manufacturer further contended that all buyers of cabinets do not buy pockets from the appellants. The cabinets can be used without using the card pockets and card pocket is sought only by those customers who desired some support for holding cards. According to Shri K.Srivastava, SDR the appellant did not make available various details of transactions. If that be so, details could have been called for and records could have been examined. It appears to us that what was the real purpose for which card pocket is necessary or is used was not properly considered by the Collector. If we had taken a view against the assessee on the question of limitation, we would have been inclined to remand the case to the adjudicating authority for decision on merits. We do not propose to do so since we have already held that the notice is barred by limitation.

9. Since the demand fails, the question of imposition of penalty and confiscation would not arise.

10. For the reasons indicated above, we set aside the impugned order and allow the appeals.