Wearwell Tyre and Tube Ind. Vs. Cce - Court Judgment

Excerpt:
1. the appellants were engaged in the manufacture of vehicle tyres falling under cet heading 40.11 during the material period. they cleared 456 nos. of 900-20 size nylon tyres labelled "adv" during the period 1.10.86 to 31.12.86 without payment of duty, treating the goods as tyres of a kind used on animal-drawn vehicles (in short, adv tyres) falling under sub-heading 4011.10 attracting 'nil' rate of duty under notification no. 229/82-ce dated 15.10.1982. the department, by inquiries through its officers, noticed that the above tyres cleared by the appellants were motor, vehicle tyres chargeable to duty @ rs. 1050 per pc. under cet sub-heading 4011.60, that the appellants did not manufacture adv tyres at all and that they cleared the above consignment of tyres in the guise of clearing adv tyres of cet sub-heading 4011.10 chargeable to nil rate of duty. therefore, a show-cause notice dated 26.4.88 was issued to the appellants raising a demand of duty of rs. 4,78,800 on the above consignment of tyres cleared without payment of duty during the aforesaid period. the show-cause notice invoked the extended period of limitation under the proviso to section 11a(1) of the central excises and salt act, alleging that the appellants had suppressed facts and contravened central excise rules with intent to evade payment of duty. the notice also proposed to impose penalty on the appellants under rules 9(2) and 209 of the central excise rules, 1944. the allegations wore denied by the party in their reply to the show-cause notice. the adjudicating authority confirmed the demand of duty against the appellants and imposed on them a penalty of rs. 1.5 lakhs. hence the present appeal.2. examined the records and heard both sides. exemption from payment of duty was available, during the material period, under notification no.229/82-ce dated 15.10.82 to adv tyres. other motor vehicle tyres manufactured and cleared by the appellants were not eligible for the benefit of the notification as held by this tribunal earlier in the appellants' own case viz. wearwell tyre and tube industries v. cce, indore / 1999 (105) elt 313 (tri.)]. in the present appeal, therefore there is no serious contest of the durability of the goods in question, nor has the counsel for the appellants pressed the point before us.3. ld. counsel fairly conceded that the question whether the motor vehicle tyres labelled as adv tyres were exempt from payment of central excise duty under notification no. 229/89-ce had already been settled by the tribunal against the appellants in their own case reported in 1999 (105) elt 313. ld. counsel, however, challenged the demand of duty on the ground of limitation. he submitted that, during the relevant period, the appellants were under physical control of the department and the latter was aware of their activities. therefore, the allegation of suppression was not sustainable against the appellants. there was no documentary evidence on record to show that the appellants had suppressed any material fact with intent to evade payment of duty. the extended period of limitation was, therefore, not invocable in this case, counsel argued. the following decisions of the tribunal were relied on by the counsel:balkrishna industries v. cce, 4. ld. dr referred to para 1.6 of the impugned order and submitted that the appellants had suppressed before the department the fact that they never produced adv tyres in their factory. he particularly referred to the statement dated 31.1.87 of shri a.k. ghosh, asstt. general manager of the company, wherein shri ghosh had stated that they were not manufacturing any tyres which could be used in advs. the dr submitted that the fact that the appellants were clearing motor vehicle tyres under "adv" label without payment of duty was suppressed before the department and, therefore, the duty on the goods could be lawfully demanded by invoking the extended period of limitation.5. we have examined the submissions. the appellants have accepted the tribunal's decision in their own case vide 1999 (105) elt 313. it was held in that case that the tyres specially designed as aero tyres could not be treated as adv tyres and further that, for claiming the benefit of exemption under notification no. 229/82-ce, the tyres should be specially designed for advs. in the instant case, the appellants admitted in their letter dated 31.1.87 that they were not manufacturing any adv tyres. the appellants also admitted that they did not have experienced or knowledgeable quality control personnel in their factory, nor any equipment, to verify manufacture faults in their tyres. the quality control department could only make visual inspection of tyres to detect external defects like cracks or presence of foreign matter. if the tyres were found, on such inspection, to be free from cracks or foreign matter, they were stamped as "ok" tyres. otherwise the tyres (with external defects) were retained as such. we have also perused the statement dated 22.1.87 given to the department under section 14 of the act by shri a.k. roy, chief co-ordinating manager of the appellant-company. shri roy answered question no. 18 as under: "we have repeatedly told the excise department that under clause of adv in excise tariff we are making adv tyres. we are manufacturing adv tyres, strictly as per your tariff description and the same has been duly declared in our classification list." "when the tyres produced by us are not competent to use on automobile vehicles because of some defects or the other, we are clearing them as adv tyres after marking adv on each tyre." we note that there is apparent contradiction between the answers given by the appellants to question nos. 18 and 25. we also notice that, in their letter dated 31.1.87 to the superintendent of central excise, the appellants confirmed that they were not manufacturing any tyres which could be used in advs. their answer to question no. 18 stood retracted by their answer to question no. 25 as well as by their subsequent letter dated 31.1.87. the final stand of the appellants vis-a-vis the allegation in the show-cause notice is, accordingly, that they never manufactured and cleared adv tyres but only cleared defective automobile tyres as adv tyres. admittedly, such clearance, during the material period, was made without payment of duty. the crucial fact that they were clearing automobile tyres as adv tyres during the material period without payment of duty was not disclosed to the department. in other words, the appellants suppressed a material fact before the department with obvious intent to evade payment of duty.ld., counsel has argued that the department was aware of similar clearance of tyres relating to an earlier period viz. dec. 1984 to april 1985, which eventually became the subject-matter of appeal before this tribunal in the case reported in 1999 (105) elt 313. we are unable to accept the knowledge of the department in relation to an earlier period, as constructive knowledge of the appellants, clandestine activity for a later period. it is apparent from the facts and evidence of this case that, in relation to the period october-december 1986, the appellants suppressed a material fact before the department with intent to evade payment of duty on excisable goods which, they knew, were chargeable to duty under cet sub-heading 4011.60. the extended period of limitation has rightly been invoked in this case.6. the decisions cited by ld. counsel are inapplicable or distinguishable on facts. in marmago steel ltd. (supra), it was held that suppression could be alleged only where the documents which indicated the guilty mind of the assessee were not before the excise officers. in the instant case, the appellants have not shown that any documentary evidence indicating mens rea was lying with the department.in hindustan copper ltd. (supra), it was held that the extended period of limitation was not invocable merely because of a change of opinion as to the, correct description of goods. in the instant case, the extended period of limitation was invoked on the ground of suppression of material facts and not on any ground of change of opinion as to the description of goods. in balkrishna industries (supra), the department's allegation was that tyres chargeable to duty at higher rate were removed in the guise of tyres chargeable to lower rate of duty and it was found that direct evidence was not available to susbtantiate the allegation. in the instant case, it is an established fact that automobile tyres chargeable to duty of excise were removed in the guise of adv tyres exempt from duty. the appellants admitted this fact. in view of such admission, no evidence, direct or otherwise, was required to prove the clandestine clearance of tyres. the appellants' own statements disclosed suppression of material fact. in balkrishna industries (supra), on the other hand, there was no evidence of suppression unlike in the instant case.7. in the light of our findings already recorded, we hold that the demand of duty as confirmed by the addl. commissioner is not time-barred and we uphold the same.8. the adjudicating authority has imposed a penalty of rs. 1.5 lakhs on the appellants under rules 9(2) and 209 of the central excise rules, 1944. we find that the impugned order does not disclose any finding whatsoever in relation to penal liability of the appellants. the department's allegation was that the appellants had contravened rules 9(1), 52 and 52a. we have already found clandestine removal of goods in this case. such removal necessarily involved breach of the said rules.rule 9(2) prescribed a penalty of upto rs. 2,000 for removal of excisable goods in violation of rule 9(1). rule 209 provided, inter alia, that a manufacturer who removed any excisable goods in contravention of any of the central excise rules or who contravened any of the rules with intent to evade payment of duty was liable to a penalty not exceeding three times the value of the goods or five thousand rupees whichever was greater. intent to evade payment of duty is also one of our findings against the appellants. consequently, the appellants are liable to be penalised under rule 209. the duty evasion found against the appellants is to the tune of over rs. 4.7 lacs. the value of the goods is many times this amount. the penalty imposed by the adjudicating authority is only rs. 1.5 lacs, which is less than one-third of even the duty amount. we find that this penalty is reasonable.9. in the result, the order of the adjudicating authority is affirmed and the appeal is dismissed.

Judgment:
1. The appellants were engaged in the manufacture of vehicle tyres falling under CET Heading 40.11 during the material period. They cleared 456 Nos. of 900-20 size Nylon tyres labelled "ADV" during the period 1.10.86 to 31.12.86 without payment of duty, treating the goods as tyres of a kind used on animal-drawn vehicles (in short, ADV tyres) falling under sub-heading 4011.10 attracting 'nil' rate of duty under Notification No. 229/82-CE dated 15.10.1982. The department, by inquiries through its officers, noticed that the above tyres cleared by the appellants were motor, vehicle tyres chargeable to duty @ Rs. 1050 per pc. under CET sub-heading 4011.60, that the appellants did not manufacture ADV tyres at all and that they cleared the above consignment of tyres in the guise of clearing ADV tyres of CET sub-heading 4011.10 chargeable to nil rate of duty. Therefore, a show-cause notice dated 26.4.88 was issued to the appellants raising a demand of duty of Rs. 4,78,800 on the above consignment of tyres cleared without payment of duty during the aforesaid period. The show-cause notice invoked the extended period of limitation under the proviso to Section 11A(1) of the Central Excises and Salt Act, alleging that the appellants had suppressed facts and contravened Central Excise Rules with intent to evade payment of duty. The notice also proposed to impose penalty on the appellants under Rules 9(2) and 209 of the Central Excise Rules, 1944. The allegations wore denied by the party in their reply to the show-cause notice. The adjudicating authority confirmed the demand of duty against the appellants and imposed on them a penalty of Rs. 1.5 Lakhs. Hence the present appeal.

2. Examined the records and heard both sides. Exemption from payment of duty was available, during the material period, under Notification No.229/82-CE dated 15.10.82 to ADV tyres. Other motor vehicle tyres manufactured and cleared by the appellants were not eligible for the benefit of the Notification as held by this Tribunal earlier in the appellants' own case viz. Wearwell Tyre and Tube Industries v. CCE, Indore / 1999 (105) ELT 313 (Tri.)]. In the present appeal, therefore there is no serious contest of the durability of the goods in question, nor has the counsel for the appellants pressed the point before us.

3. Ld. Counsel fairly conceded that the question whether the motor vehicle tyres labelled as ADV tyres were exempt from payment of central excise duty under Notification No. 229/89-CE had already been settled by the Tribunal against the appellants in their own case reported in 1999 (105) ELT 313. Ld. Counsel, however, challenged the demand of duty on the ground of limitation. He submitted that, during the relevant period, the appellants were under physical control of the department and the latter was aware of their activities. Therefore, the allegation of suppression was not sustainable against the appellants. There was no documentary evidence on record to show that the appellants had suppressed any material fact with intent to evade payment of duty. The extended period of limitation was, therefore, not invocable in this case, counsel argued. The following decisions of the Tribunal were relied on by the counsel:Balkrishna Industries v. CCE, 4. Ld. DR referred to para 1.6 of the impugned order and submitted that the appellants had suppressed before the department the fact that they never produced ADV tyres in their factory. He particularly referred to the statement dated 31.1.87 of Shri A.K. Ghosh, Asstt. General Manager of the Company, wherein Shri Ghosh had stated that they were not manufacturing any tyres which could be used in ADVs. The DR submitted that the fact that the appellants were clearing motor vehicle tyres under "ADV" label without payment of duty was suppressed before the department and, therefore, the duty on the goods could be lawfully demanded by invoking the extended period of limitation.

5. We have examined the submissions. The appellants have accepted the Tribunal's decision in their own case vide 1999 (105) ELT 313. It was held in that case that the tyres specially designed as aero tyres could not be treated as ADV tyres and further that, for claiming the benefit of exemption under Notification No. 229/82-CE, the tyres should be specially designed for ADVs. In the instant case, the appellants admitted in their letter dated 31.1.87 that they were not manufacturing any ADV tyres. The appellants also admitted that they did not have experienced or knowledgeable quality control personnel in their factory, nor any equipment, to verify manufacture faults in their tyres. The Quality Control Department could only make visual inspection of tyres to detect external defects like cracks or presence of foreign matter. If the tyres were found, on such inspection, to be free from cracks or foreign matter, they were stamped as "OK" tyres. Otherwise the tyres (with external defects) were retained as such. We have also perused the statement dated 22.1.87 given to the department under Section 14 of the Act by Shri A.K. Roy, Chief Co-ordinating Manager of the appellant-company. Shri Roy answered Question No. 18 as under: "We have repeatedly told the Excise Department that under clause of ADV in Excise Tariff we are making ADV tyres. We are manufacturing ADV tyres, strictly as per your tariff description and the same has been duly declared in our classification list." "when the tyres produced by us are not competent to use on automobile vehicles because of some defects or the other, we are clearing them as ADV tyres after marking ADV on each tyre." We note that there is apparent contradiction between the answers given by the appellants to Question Nos. 18 and 25. We also notice that, in their letter dated 31.1.87 to the Superintendent of Central Excise, the appellants confirmed that they were not manufacturing any tyres which could be used in ADVs. Their answer to question No. 18 stood retracted by their answer to question No. 25 as well as by their subsequent letter dated 31.1.87. The final stand of the appellants vis-a-vis the allegation in the show-cause notice is, accordingly, that they never manufactured and cleared ADV tyres but only cleared defective automobile tyres as ADV tyres. Admittedly, such clearance, during the material period, was made without payment of duty. The crucial fact that they were clearing automobile tyres as ADV tyres during the material period without payment of duty was not disclosed to the department. In other words, the appellants suppressed a material fact before the department with obvious intent to evade payment of duty.

Ld., Counsel has argued that the department was aware of similar clearance of tyres relating to an earlier period viz. Dec. 1984 to April 1985, which eventually became the subject-matter of appeal before this Tribunal in the case reported in 1999 (105) ELT 313. We are unable to accept the knowledge of the department in relation to an earlier period, as constructive knowledge of the appellants, clandestine activity for a later period. It is apparent from the facts and evidence of this case that, in relation to the period October-December 1986, the appellants suppressed a material fact before the department with intent to evade payment of duty on excisable goods which, they knew, were chargeable to duty under CET Sub-heading 4011.60. The extended period of limitation has rightly been invoked in this case.

6. The decisions cited by ld. Counsel are inapplicable or distinguishable on facts. In Marmago Steel Ltd. (supra), it was held that suppression could be alleged only where the documents which indicated the guilty mind of the assessee were not before the excise officers. In the instant case, the appellants have not shown that any documentary evidence indicating mens rea was lying with the department.

In Hindustan Copper Ltd. (supra), it was held that the extended period of limitation was not invocable merely because of a change of opinion as to the, correct description of goods. In the instant case, the extended period of limitation was invoked on the ground of suppression of material facts and not on any ground of change of opinion as to the description of goods. In Balkrishna Industries (supra), the department's allegation was that tyres chargeable to duty at higher rate were removed in the guise of tyres chargeable to lower rate of duty and it was found that direct evidence was not available to susbtantiate the allegation. In the instant case, it is an established fact that automobile tyres chargeable to duty of excise were removed in the guise of ADV tyres exempt from duty. The appellants admitted this fact. In view of such admission, no evidence, direct or otherwise, was required to prove the clandestine clearance of tyres. The appellants' own statements disclosed suppression of material fact. In Balkrishna Industries (supra), on the other hand, there was no evidence of suppression unlike in the instant case.

7. In the light of our findings already recorded, we hold that the demand of duty as confirmed by the Addl. Commissioner is not time-barred and we uphold the same.

8. The adjudicating authority has imposed a penalty of Rs. 1.5 Lakhs on the appellants under Rules 9(2) and 209 of the Central Excise Rules, 1944. We find that the impugned order does not disclose any finding whatsoever in relation to penal liability of the appellants. The department's allegation was that the appellants had contravened Rules 9(1), 52 and 52A. We have already found clandestine removal of goods in this case. Such removal necessarily involved breach of the said rules.

Rule 9(2) prescribed a penalty of upto Rs. 2,000 for removal of excisable goods in violation of Rule 9(1). Rule 209 provided, inter alia, that a manufacturer who removed any excisable goods in contravention of any of the Central Excise Rules or who contravened any of the rules with intent to evade payment of duty was liable to a penalty not exceeding three times the value of the goods or five thousand rupees whichever was greater. Intent to evade payment of duty is also one of our findings against the appellants. Consequently, the appellants are liable to be penalised under Rule 209. The duty evasion found against the appellants is to the tune of over Rs. 4.7 lacs. The value of the goods is many times this amount. The penalty imposed by the adjudicating authority is only Rs. 1.5 lacs, which is less than one-third of even the duty amount. We find that this penalty is reasonable.

9. In the result, the order of the adjudicating authority is affirmed and the appeal is dismissed.