Muthu Paint Industries Private Vs. Collector of Central Excise - Court Judgment

Excerpt:
1. the appeal is against the order of the additional collector of central excise, madurai, dated 25.2.1984. the brief facts of the case are as follows: 2. on the basis of the intelligence gathered, the divisional preventive staff, central excise. madurai made a surprise visit on 10.1.1983 to the appellants' factory situated in kappalur industrial estate, madurai. the accounts of the appellants were checked. shri muthukkaruppa nadar, the managing director was present at that time.the appellants claimed benefit of exemption notification no. 80/80 dated 19.6.1980 on the ground that they were producing paint falling under central excise tariff item 15 without the aid of power. the claims were verified for 1982-83 and it was found that upto 29.12.1982 the total value of the clearances was rs. 3,91,389.33. on a physical verification, paints worth rs. 15,800/- were found in the manufacturing ball of the factory. there was also a one litre tin containing enamel finish paint white with the markings 'ariappoo paint's manufactured by muthu paint industries'. shri muthukkaruppa nadar admitted that m/s.ariappoo paints industries was situated in the adjacent plot and that the partners of that concern, were none but his grand-daughters. on inspection, it was found that there was no activity in the factory nor was there any machinery. but on the scrutiny of the accounts, the total value of sales effected was shown as rs. 9,86,030.36. there was a 50 ml tin with the marking 'manufactured by muthu paint industries private ltd.'. other irregularities were also noticed. a statement was recorded from shri muthukkaruppa nadar, who, inter alia, admitted that both the units were under his control and that he used to sell the paints manufactured in m/s. muthu paint industries through the invoices of m/s. ariappoo paint industries with the intention of evading payment of central excise duty. under notification no. 80/80 total exemption from duty could be claimed only upto rs. 7.75 lakhs and in order to avoid payment of central excise duty he had resorted to such a method. kumari r. sumathi, one of the partners of m/s, ariappoo paint industries, confirmed the statement of her grandfather. the sales of m/s. ariappoo paint industries of goods manufactured without power was shown as rs. 9,86,030.36 whereas m/s. muthu paint industries' clearances were shown as rs, 3.91 lakhs (approximately). further, m/s. ariappoo paint industries stated that they had produced only goods of value rs. 2,07,391.26 for the period 1982-83 and claimed exemption from duty on this value, based on exemption notification no. 117/74 dated 27.7.1974.a show cause notice was issued on 20.7.1983 to the appellants calling upon them to show cause as to why the total value of clearances effected by both the units to the extent of rs. 15,54,738.69 should not be taken into account. there was a demand for duty of rs. 97,215.11. a penalty was also proposed to be imposed. the appellants in their reply contended that they had manufactured paints to the value of rs. 3,91,389.33 on their own and that they had manufactured paints to the value of rs. 7,78,639.10 on behalf of m/s. ariappoo paint industries during the relevant year. they were doing so as loan licensee and should not be treated as manufacturers within the meaning of section 2(f) of the central excises and salt act, 1944. they also stated that the show cause notice was served beyond time.3. on adjudication the additional collector in his elaborate order held that the entire production and clearances amounting to rs. 15,54,738,69 should be treated as production and clearances on account of the appellants and after allowing various discounts, fixed the assessable value as rs. 13,94,393.43 p. he also allowed the exemption of rs. 7.5 lakhs and determined the duty liability as rs. 76,118,97. since the paints were manufactured and cleared without payment of duty and there was suppression of facts under rule 9(2) of the central excise rules, 1944, read with proviso to section 11a of the central excises and salt act, 1944, he imposed penalties as under: 4. we must mention that there was a writ petition no. 12908 of 1984 before the high court of madras and orders were passed on 15.3.1985 directing the tribunal to dispose of the appeal within four weeks from the date of receipt of their order. on 6.10.1985 shri mehta, the learned counsel for the appellants had under taken before the tribunal that he would approach the hon'ble high court of madras for an extension of time upto 6.12.1985. when the appeal was taken up the learned counsel for the appellants intimated us that his client had applied for necessary extension of time before the hon'ble high court.5. the learned counsel argued that the appellants had given a declaration that they were using power for their production and that they were claiming the benefit of notification no. 80/80 dated 19.6.1980. m/s. ariappoo paint industries bad given a declaration that they were manufacturing paints and varnishes without the aid of power and claimed exemption from duty under notification no. 166 of 72 dated 13.7.1972 as amended by notification no. 117/74 dated 27.7.1974. it is urged that the appellants were manufacturing paints with the raw materials given by m/s. ariappoo paint industries. the appellants were as loan licensee manufacturing paints for the value of rs. 7,78,639.10.according to him, the statement was taken under coercive circumstances and should not be acted upon. he pointed out that no show cause notice was issued to m/s. ariappoo paint industries. according to him, the show cause notice should have been given to the owner of m/s. muthu paint industries (p) ltd. without which the demand for duty would be invalid. he relied on the decision of the madras high court reported in 1985 ecr 221 indian overseas bank v. the collector of customs, madras and ors. and also the decision of the tribunal reported in 1984 ecr 1620 m/s. hazari lal gauri shankar, badaun, up v. collector of central excise, kanpur. the two partners of m/s. ariappoo paint indus-tries do not have any proprietary interests in the other factory. the two factories are distinct legal entities and the findings should not therefore be accepted.6. the learned counsel also urged that the show cause notice is time-barred. he relied on the rulings reported in 1983 elt 413 : 1983 ecr 274 d : ravindra steel limited, nagpur v. collector of central excise nagpur. he further stated that there was no allegation in the show cause notice of fraud, collusion, wilful mis-statement or suppression of facts with intent to evade payment of duty. the show cause notice was also vague for this proposition he relied on 1983 elt 322 b. lakssmichand v. government of india. he also relied on 1985 (19) elt 441 : 1985 ecr 17 jagjivandas and co. thane v. collector of central excise, bombay-ii where the tribunal has held that while some of the circumstances were innocuous the remaining circumstances were either not proved or were inconclusive to hold that the manufacture of goods was for and on behalf of the other the learned counsel therefore argued that if the demand for duty was held to be illegal, the levy of penalty cannot be sustained.7. shri tripathi, the learned sdr urged that the show cause notice contained adequate allegations and evidence regarding the fraud intended to be perpetrated. a reference to the contravention under rule 9 was also pointed out. the learned sdr urged that the appellants were the manufacturers of the entire quantity of the paints and that the other unit was merely a camouflage created to evade payment of duty.the theory of loan-licensee was trotted out for the occasion. he placed reliance in order no. 709/85-c dated 8.10.1985 (e/appeal no. 827 of 1982-c) m/s. metal box india limited, calcutta v. collector of central excise, calcutta. in that decision the tribunal has held that the raw materials were supplied by the appellants therein to another firm, who manufactured the waxed paper and received the conversion charges. it was held as follows: though the broad wordings of section 2(f)(iv) indicate that only he who is actually carrying on the manufacturing activity is the manufacturer but if a person acts through an agent and the latter carries on the manufacturing activity, it is the principal who should be held as the manufacturer.8. the undisputed facts of the case disclose that the appellants were claiming the benefit of notification no. 80/80 dated 19.6.1980 while m/s. ariappoo paint industries were claiming the benefit of notification no. 117/74 dated 27.7.1974. it is also seen that both the factories are situated adjacent to each other. the partners of m/s.ariappoo paint industry are none else than the granddaughters of shri muthukkaruppa nadar, the owner of the appellants, it is seen that on 10.1.1983 the officers visited the premises and found the appellants manufacturing paints with the aid of power. the accounts disclosed that the total sales of paints by the appellants were shown to be rs. 3,91,389.83. at the same time, the accounts of m/s. ariappoo paint industries show sale of paints valued at rs. 9,86,030 36. according to the appellants, m/s. ariappoo paint industries had manufactured goods to the value of rs. 2,07,391.26 without the aid of power and the balance goods were got manufactured through the appellants. in this connection, the appellants relied on notification no. 305/77 dated 5.11.1977. according to them, the appellants manufactured the goods as loan licencee. it must be mentioned that the appellants had not come forward with this case at the earliest opportunity. if this version is true, shri muthukkaruppa nadar, who was actually managing both the factories should have disclosed the same to the officers. further, there is no record to substantiate the plea 'that the appellants were manufacturing the goods as loan licencee. notification no. 305/77 dated 5.11.1977 contemplates furnishing information to the department in writing and also giving an undertaking to the proper officer agreeing to discharge all liabilities arising under the central excise act and rules. there is a form prescribed and procedures have been prescribed for complying with certain formalities. there is no document in support of the contention that the appellants were availing the benefit of notification no. 305/77 as a loan licencee.9. the next ground urged by shri d.n. mehta was that there was no show cause notice to m/s. ariappoo paint industries and hence the proceedings were not valid. in 1981 elt 389 (del.) 1981 ecr 350d, poona bottling co. ltd, and anr. v. union of india and ors. m/s. poona bottling co. ltd. were manufacturing soft drinks for m/s. parle (exports) pvt ltd. an objection was raised that show cause notice was not issued to m/s. parle (exports) pvt. ltd. in regard to the soft drinks manufactured. the hon'ble high court has observed in paragraph 13 as follows: if m/s. parle are the manufacturer and its total manufacture is to be considered for deciding whether the exemption of 25% of duty can be claimed, the notice had to be issued to m/s. parle and not the petitioners. it is a contradiction to issue the show cause notice and claim duty from petitioners and at the same time issue notice to m/s. parle. this shows complete non-application of mind.applying the same principle, if the appellants are considered to be the manufacturers and a demand for differential duty is made on them, the question of show cause notice to m/s. ariappoo paint industries would not arise. the arguments of the learned counsel for the appellants were that m/s. ariappoo paint industries were not manufacturers of the excess production of paints for rs. 7,78,639.10. the rulings cited by the learned counsel were in two cases where ownership to the goods were claimed by third parties. it is significant to note that m/s. ariappoo paint industries never filed any application to the adjudicating authority claiming ownership of the goods. it is an elementary fact that in the course of investigation enquiries are made from various parties and various statements are recorded. ultimately, some of the persons may be found not to have any connection with the alleged offence. others may be found to have a prima facie case against them.yet others may be found to be in the position of witnesses. a show cause notice will be issued only to those in the second category. such a person cannot justifiably contend that the show cause notice issued to him is bad merely because no notice has been issued to someone else who is in a position to testify to his innocence. if that be the case, there is nothing to prevent him from citing such other person as a witness in his favour, shri mehta's plea on behalf of the appellants was on those lines, namely that m/s. ariappoo paint industries were in a position to testify to the appellants' innocence, but no show cause notice was issued to them. but in that case they should have cited m/s.ariappoo paint industries or its partners as witnesses, which they did not do. in this situation it is futile for them to complain that the principles of natural justice were violated because no show cause notice was issued to m/s. ariappoo paint industries.10. there are certain intrinsic features in the case which proved that the appellants are the manufacturers of the goods. during the coursel of inspection it was noticed that there was a tin with the printed markings "ariappoo paint manufactured by muthu paint industries private limited 626711". this is the clinching factor to show that m/s. ariappo paint industries and m/s. muthu paint industries were constituted with different names solely with a view to evade payment of tax. the position is made clear by the admission of shri muthukkaruppa nadar at the time of the inspection. we do not agree that shri muthukkaruppa nadar was compelled to make such a statement. a close reading of the statement indicates that it was voluntary and that shri muthukkaruppa nadar came out with the entire facts, because there was no scope for escape. added to it we have the statement of kumari sumathi which confirms that m/s. ariappoo paint industries was only a name lender and the entire affairs were managed by shri muthukkaruppa nadar, it must be pointed out that m/s. ariappoo paint industries did not have any document to show that raw materials were supplied to the appellants for the manufacture of finished goods. no attempt has been made to place any evidence in support of such a plea. the only reasonable inference is that the two firms with distinct names were created for the purpose of the records and as a camouflage to evade payment of duty.11. the contention that the show cause notice is time barred is not acceptable because the very facts of the case indicates that there was a deliberate and wilful suppression of materials. the appellants have been claiming exemption under notification no. 80/80 even though they were manufacturing the goods far in excess of the limits prescribed under the notification. as already stated, the theory of loan licencee does not impress us. we are also not impressed with the arguments that the show cause notice is vague. the additional collector rightly held that the appellants were using m/s. ariappoo paint industries as a camouflage to cover their illicit activities.12. the lower authority has demanded a sum of rs. 76,118.97 as duty on the ground that the appellants were liable for entire production on clearance excluding trade discount. but it is seen from the records that m/s. ariappoo paint industries had shown rs. 2,07,391.26 as goods manufactured in their factory. there is no finding that m/s. ariappoo paint industries had used power in that manufacture. in any event, there is scope for doubt whether this amount of production should not be held to have been manufactured by m/s. ariappoo paint industries by manual labour. the appellants are entitled to the benefit of doubt to that extent only. the duty liability has to be determined after deducting the quantity of goods shown to have been manufactured by m/s.ariappoo paint industries as per their letter dated 5.3.1983.13. on the question of penalty, considering the manner in which the entire affairs had been manipulated, we are of the view that the penalty levied cannot be said to be excessive.14. in the result, the order of the additional collector is upheld except for the modification that the demand of duty should be reworked after deducting the clearances for rs. 2,07,391.27 shown to have been manufactured in m/s. ariappoo paint industries factory without the use of power. the appeal is disposed of accordingly.

Judgment:
1. The appeal is against the order of the Additional Collector of Central Excise, Madurai, dated 25.2.1984. The brief facts of the case are as follows: 2. On the basis of the intelligence gathered, the Divisional Preventive staff, Central Excise. Madurai made a surprise visit on 10.1.1983 to the appellants' factory situated in Kappalur Industrial Estate, Madurai. The accounts of the appellants were checked. Shri Muthukkaruppa Nadar, the Managing Director was present at that time.

The appellants claimed benefit of Exemption Notification No. 80/80 dated 19.6.1980 on the ground that they were producing paint falling under Central Excise Tariff Item 15 without the aid of power. The claims were verified for 1982-83 and it was found that upto 29.12.1982 the total value of the clearances was Rs. 3,91,389.33. On a physical verification, paints worth Rs. 15,800/- were found in the manufacturing ball of the factory. There was also a one litre tin containing enamel finish paint white with the markings 'Ariappoo Paint's manufactured by Muthu Paint Industries'. Shri Muthukkaruppa Nadar admitted that M/s.

Ariappoo Paints Industries was situated in the adjacent plot and that the partners of that concern, were none but his grand-daughters. On inspection, it was found that there was no activity in the factory nor was there any machinery. But on the scrutiny of the accounts, the total value of sales effected was shown as Rs. 9,86,030.36. There was a 50 ML tin with the marking 'Manufactured by Muthu Paint Industries Private Ltd.'. Other irregularities were also noticed. A statement was recorded from Shri Muthukkaruppa Nadar, who, inter alia, admitted that both the units were under his control and that he used to sell the paints manufactured in M/s. Muthu Paint Industries through the invoices of M/s. Ariappoo Paint Industries with the intention of evading payment of central excise duty. Under Notification No. 80/80 total exemption from duty could be claimed only upto Rs. 7.75 lakhs and in order to avoid payment of central excise duty he had resorted to such a method. Kumari R. Sumathi, one of the partners of M/s, Ariappoo Paint Industries, confirmed the statement of her grandfather. The sales of M/s. Ariappoo Paint Industries of goods manufactured without power was shown as Rs. 9,86,030.36 whereas M/s. Muthu Paint Industries' clearances were shown as Rs, 3.91 lakhs (approximately). Further, M/s. Ariappoo Paint Industries stated that they had produced only goods of value Rs. 2,07,391.26 for the period 1982-83 and claimed exemption from duty on this value, based on exemption Notification No. 117/74 dated 27.7.1974.

A show cause notice was issued on 20.7.1983 to the appellants calling upon them to show cause as to why the total value of clearances effected by both the units to the extent of Rs. 15,54,738.69 should not be taken into account. There was a demand for duty of Rs. 97,215.11. A penalty was also proposed to be imposed. The appellants in their reply contended that they had manufactured paints to the value of Rs. 3,91,389.33 on their own and that they had manufactured paints to the value of Rs. 7,78,639.10 on behalf of M/s. Ariappoo Paint Industries during the relevant year. They were doing so as loan licensee and should not be treated as manufacturers within the meaning of Section 2(f) of the Central Excises and Salt Act, 1944. They also stated that the show cause notice was served beyond time.

3. On adjudication the Additional Collector in his elaborate order held that the entire production and clearances amounting to Rs. 15,54,738,69 should be treated as production and clearances on account of the appellants and after allowing various discounts, fixed the assessable value as Rs. 13,94,393.43 P. He also allowed the exemption of Rs. 7.5 lakhs and determined the duty liability as Rs. 76,118,97. Since the paints were manufactured and cleared without payment of duty and there was suppression of facts under Rule 9(2) of the Central Excise Rules, 1944, read with proviso to Section 11A of the Central Excises and Salt Act, 1944, he imposed penalties as under: 4. We must mention that there was a Writ Petition No. 12908 of 1984 before the High Court of Madras and orders were passed on 15.3.1985 directing the Tribunal to dispose of the appeal within four weeks from the date of receipt of their order. On 6.10.1985 Shri Mehta, the learned Counsel for the appellants had under taken before the Tribunal that he would approach the Hon'ble High Court of Madras for an extension of time upto 6.12.1985. When the appeal was taken up the learned Counsel for the appellants intimated us that his client had applied for necessary extension of time before the Hon'ble High Court.

5. The learned Counsel argued that the appellants had given a declaration that they were using power for their production and that they were claiming the benefit of Notification No. 80/80 dated 19.6.1980. M/s. Ariappoo Paint Industries bad given a declaration that they were manufacturing paints and varnishes without the aid of power and claimed exemption from duty under Notification No. 166 of 72 dated 13.7.1972 as amended by Notification No. 117/74 dated 27.7.1974. It is urged that the appellants were manufacturing paints with the raw materials given by M/s. Ariappoo Paint Industries. The appellants were as loan licensee manufacturing paints for the value of Rs. 7,78,639.10.

According to him, the statement was taken under coercive circumstances and should not be acted upon. He pointed out that no show cause notice was issued to M/s. Ariappoo Paint Industries. According to him, the show cause notice should have been given to the owner of M/s. Muthu Paint Industries (P) Ltd. without which the demand for duty would be invalid. He relied on the decision of the Madras High Court reported in 1985 ECR 221 Indian Overseas Bank v. The Collector of Customs, Madras and Ors. and also the decision of the Tribunal reported in 1984 ECR 1620 M/s. Hazari Lal Gauri Shankar, Badaun, UP v. Collector of Central Excise, Kanpur. The two partners of M/s. Ariappoo Paint Indus-tries do not have any proprietary interests in the other factory. The two factories are distinct legal entities and the findings should not therefore be accepted.

6. The learned Counsel also urged that the show cause notice is time-barred. He relied on the rulings reported in 1983 ELT 413 : 1983 ECR 274 D : Ravindra Steel Limited, Nagpur v. Collector of Central Excise Nagpur. He further stated that there was no allegation in the show cause notice of fraud, collusion, wilful mis-statement or suppression of facts with intent to evade payment of duty. The show cause notice was also vague for this proposition he relied on 1983 ELT 322 B. Lakssmichand v. Government of India. He also relied on 1985 (19) ELT 441 : 1985 ECR 17 Jagjivandas and Co. Thane v. Collector of Central Excise, Bombay-II where the Tribunal has held that while some of the circumstances were innocuous the remaining circumstances were either not proved or were inconclusive to hold that the manufacture of goods was for and on behalf of the other The learned Counsel therefore argued that if the demand for duty was held to be illegal, the levy of penalty cannot be sustained.

7. Shri Tripathi, the learned SDR urged that the show cause notice contained adequate allegations and evidence regarding the fraud intended to be perpetrated. A reference to the contravention under Rule 9 was also pointed out. The learned SDR urged that the appellants were the manufacturers of the entire quantity of the paints and that the other unit was merely a camouflage created to evade payment of duty.

The theory of loan-licensee was trotted out for the occasion. He placed reliance in Order No. 709/85-C dated 8.10.1985 (E/Appeal No. 827 of 1982-C) M/s. Metal Box India Limited, Calcutta v. Collector of Central Excise, Calcutta. In that decision the Tribunal has held that the raw materials were supplied by the appellants therein to another firm, who manufactured the waxed paper and received the conversion charges. It was held as follows: Though the broad wordings of Section 2(f)(iv) indicate that only he who is actually carrying on the manufacturing activity is the manufacturer but if a person acts through an agent and the latter carries on the manufacturing activity, it is the principal who should be held as the manufacturer.

8. The undisputed facts of the case disclose that the appellants were claiming the benefit of Notification No. 80/80 dated 19.6.1980 while M/s. Ariappoo Paint Industries were claiming the benefit of Notification No. 117/74 dated 27.7.1974. It is also seen that both the factories are situated adjacent to each other. The partners of M/s.

Ariappoo Paint Industry are none else than the granddaughters of Shri Muthukkaruppa Nadar, the owner of the appellants, it is seen that on 10.1.1983 the officers visited the premises and found the appellants manufacturing paints with the aid of power. The accounts disclosed that the total sales of paints by the appellants were shown to be Rs. 3,91,389.83. At the same time, the accounts of M/s. Ariappoo Paint Industries show sale of paints valued at Rs. 9,86,030 36. According to the appellants, M/s. Ariappoo Paint Industries had manufactured goods to the value of Rs. 2,07,391.26 without the aid of power and the balance goods were got manufactured through the appellants. In this connection, the appellants relied on Notification No. 305/77 dated 5.11.1977. According to them, the appellants manufactured the goods as loan licencee. It must be mentioned that the appellants had not come forward with this case at the earliest opportunity. If this version is true, Shri Muthukkaruppa Nadar, who was actually managing both the factories should have disclosed the same to the officers. Further, there is no record to substantiate the plea 'that the appellants were manufacturing the goods as loan licencee. Notification No. 305/77 dated 5.11.1977 contemplates furnishing information to the department in writing and also giving an undertaking to the proper officer agreeing to discharge all liabilities arising under the Central Excise Act and Rules. There is a form prescribed and procedures have been prescribed for complying with certain formalities. There is no document in support of the contention that the appellants were availing the benefit of Notification No. 305/77 as a loan licencee.

9. The next ground urged by Shri D.N. Mehta was that there was no show cause notice to M/s. Ariappoo Paint Industries and hence the proceedings were not valid. In 1981 ELT 389 (Del.) 1981 ECR 350D, Poona Bottling Co. Ltd, and Anr. v. Union of India and Ors. M/s. Poona Bottling Co. Ltd. were manufacturing soft drinks for M/s. Parle (Exports) Pvt Ltd. An objection was raised that show cause notice was not issued to M/s. Parle (Exports) Pvt. Ltd. in regard to the soft drinks manufactured. The Hon'ble High Court has observed in paragraph 13 as follows: If M/s. Parle are the manufacturer and its total manufacture is to be considered for deciding whether the exemption of 25% of duty can be claimed, the notice had to be issued to M/s. Parle and not the petitioners. It is a contradiction to issue the show cause notice and claim duty from petitioners and at the same time issue notice to M/s. Parle. This shows complete non-application of mind.

Applying the same principle, if the appellants are considered to be the manufacturers and a demand for differential duty is made on them, the question of show cause notice to M/s. Ariappoo Paint Industries would not arise. The arguments of the learned Counsel for the appellants were that M/s. Ariappoo Paint Industries were not manufacturers of the excess production of paints for Rs. 7,78,639.10. The rulings cited by the learned Counsel were in two cases where ownership to the goods were claimed by third parties. It is significant to note that M/s. Ariappoo Paint Industries never filed any application to the adjudicating authority claiming ownership of the goods. It is an elementary fact that in the course of investigation enquiries are made from various parties and various statements are recorded. Ultimately, some of the persons may be found not to have any connection with the alleged offence. Others may be found to have a prima facie case against them.

Yet others may be found to be in the position of witnesses. A show cause notice will be issued only to those in the second category. Such a person cannot justifiably contend that the show cause notice issued to him is bad merely because no notice has been issued to someone else who is in a position to testify to his innocence. If that be the case, there is nothing to prevent him from citing such other person as a witness in his favour, Shri Mehta's plea on behalf of the appellants was on those lines, namely that M/s. Ariappoo Paint Industries were in a position to testify to the appellants' innocence, but no show cause notice was issued to them. But in that case they should have cited M/s.

Ariappoo Paint Industries or its partners as witnesses, which they did not do. In this situation it is futile for them to complain that the principles of natural justice were violated because no show cause notice was issued to M/s. Ariappoo Paint Industries.

10. There are certain intrinsic features in the case which proved that the appellants are the manufacturers of the goods. During the coursel of inspection it was noticed that there was a tin with the printed markings "Ariappoo Paint manufactured by Muthu Paint Industries Private Limited 626711". This is the clinching factor to show that M/s. Ariappo Paint Industries and M/s. Muthu Paint Industries were constituted with different names solely with a view to evade payment of tax. The position is made clear by the admission of Shri Muthukkaruppa Nadar at the time of the inspection. We do not agree that Shri Muthukkaruppa Nadar was compelled to make such a statement. A close reading of the statement indicates that it was voluntary and that Shri Muthukkaruppa Nadar came out with the entire facts, because there was no scope for escape. Added to it we have the statement of Kumari Sumathi which confirms that M/s. Ariappoo Paint Industries was only a name lender and the entire affairs were managed by Shri Muthukkaruppa Nadar, It must be pointed out that M/s. Ariappoo Paint Industries did not have any document to show that raw materials were supplied to the appellants for the manufacture of finished goods. No attempt has been made to place any evidence in support of such a plea. The only reasonable inference is that the two firms with distinct names were created for the purpose of the records and as a camouflage to evade payment of duty.

11. The contention that the show cause notice is time barred Is not acceptable because the very facts of the case indicates that there was a deliberate and wilful suppression of materials. The appellants have been claiming exemption under Notification No. 80/80 even though they were manufacturing the goods far in excess of the limits prescribed under the Notification. As already stated, the theory of loan licencee does not impress us. We are also not impressed with the arguments that the show cause notice is vague. The Additional Collector rightly held that the appellants were using M/s. Ariappoo Paint Industries as a camouflage to cover their illicit activities.

12. The lower authority has demanded a sum of Rs. 76,118.97 as duty on the ground that the appellants were liable for entire production on clearance excluding trade discount. But it is seen from the records that M/s. Ariappoo Paint Industries had shown Rs. 2,07,391.26 as goods manufactured in their factory. There is no finding that M/s. Ariappoo Paint Industries had used power in that manufacture. In any event, there is scope for doubt whether this amount of production should not be held to have been manufactured by M/s. Ariappoo Paint Industries by manual labour. The appellants are entitled to the benefit of doubt to that extent only. The duty liability has to be determined after deducting the quantity of goods shown to have been manufactured by M/s.

Ariappoo Paint Industries as per their letter dated 5.3.1983.

13. On the question of penalty, considering the manner in which the entire affairs had been manipulated, we are of the view that the penalty levied cannot be said to be excessive.

14. In the result, the order of the Additional Collector is upheld except for the modification that the demand of duty should be reworked after deducting the clearances for Rs. 2,07,391.27 shown to have been manufactured in M/s. Ariappoo Paint Industries factory without the use of power. The appeal is disposed of accordingly.