Western Trading Vs. Commissioner of C. Ex., (Adj.) - Court Judgment

Excerpt:
1. the above applications for waiver of pre-deposit of duty of rs. 28,53,237/- confirmed against m/s. poonam drums containers pvt. ltd., and penalty of equal amount imposed thereupon, together with penalties of varying amounts imposed upon the remaining applicants who are registered dealers and penalty imposed upon the director of m/s. poonam drums containers pvt. ltd., arise out of the order of commissioner of central excise. the ground for confirmation of duty is that m/s. poonam drums containers pvt. ltd. took the credit on goods described as coils in the invoice while what was received by them was sheets. in other words the main charge is that there is no co-relation between the input supplied and the form in which the input reached factory of poonam drums containers pvt. ltd. 2. on hearing both sides we note that in cases involving identical issue the tribunal had, in the case of dhimant trading co. and ors. v.cce granted unconditional waiver of pre-deposit of duty and penalty and the stay order was followed in the case of bharat vijay iron factory v.cce in order no. ci/4327-37/wzb/2002, dated 18-12-2002 [2003 (153) e.l.t. 166 (tribunal)]. we now note that the cases of dhimant trading co. have been finally decided by order no. cii/4433 to 4456/2002 dated 31-12-2002 [2003 (159) e.l.t. 421 (tri. - mumbai)]. in this batch of cases the tribunal has set aside the penalties imposed upon the dealers in para 12 of its order. as regards the manufacturer the tribunal has directed the commissioner to pass order on the eligibility to credit based upon the quantitative co-relation. the relevant paragraphs of the tribunal's order are reproduced below : "7. as we understand it, this circular requires that co-relation be established between the number of sheets obtained from a coil and the coil which is obtained from the cutters after cutting. the object of the challans is to ensure this co-relation. now, where the invoices issued by the dealers for one coil, as long as the total weight of the sheets which is obtained after cutting and de-coiling tallies with the weight of the coil, the correlation required in the circular is established. it is not contended that there is any loss of material due to cutting and decoiling. in cases where the invoices are for more than one coil, the same principle will have to be followed i.e. the total number of sheets obtained by decoiling must be shown to tally with the total number of sheets after decoiling. the trade notice does not require specific co-relation between a coil and any one out of the sheets obtained from one coil. except in terms of weight, co-relation between the sheets and coils is in fact not possible. we were informed that the coils do not bear upon them throughout their length any numbers or identifying marks. we were informed that the primary manufacturers paint at the outer end of the coil with a number. therefore, where a coil is cut these numbers on all but one sheet will be available, if at all it has not been obliterated as a result of various handling operation, only on one sheet. having regard to the nature of the goods, a closer co-relation would be impossible. "8. such co-relation is in fact what is generally achieved in any larger number of cases, where the goods are received in large number. sheets received by a manufacturer of automobile bolts, nuts and innumerable items fastener used as inputs do not bear upon them identifying marks, and the only co-relation that is possible and which is accepted by it is the accounts maintained by the manufacturer of the use and the final product. thus, to continue the example, bolts and nuts received in large quantities by manufacturer of machinery do not bear upon them individual number. correlation with the finished product can only be established by the total number of bolts or nuts used in the finished machine. while the commissioner keeps repeatedly referring in his order, to his view that the "most liberal" of the tribunal's orders to ask for correlation, he does not cite any decision which requires a greater correlation than this in respect of such goods. in other words, except for cases where the inputs bear a specific identification mark, such as a serial number, specific physicals correlation between that input and its use in the manufacture of finished product. to take a case of a motor vehicle which contains a large number of parts, such as gear wheels, rotary engine blocks, axial, steering assembly, control etc, none of these components presence in a motor vehicle can physically be co related with the stock received by the manufacturer of that motor vehicle. this was in fact emphasized by the tribunal in its decision in standard industries v. cce -- 2001 (136) e.l.t. 124 with regard to goods received in bulk. the tribunal emphasised therein that in case of such bulk cargo correlation by means of physical identity is impossible to establish. no hard and fast rule can therefore be laid down as to the criteria for establishing the correlation between the inputs and finished products. thus the criteria to be adopted would depend on the facts of a particular case. "9. for the goods under consideration by us we would say that as long as weight of the sheets received by the manufacturer, adopting the approval contains in the trade notice, that as long as the weight of the sheets and the weight of the coils tally and reasonably corresponds in time between the despatch of the sheets by the dealers and the receipt by the manufacturer correlation has been established with the required degree. we note in this case the absence of any allegation or evidence that any non duty paid coils were received by the dealer or the cutters. we also note that there is not the slightest evidence as to what happened to the numerous coils that the dealer received. it is not alleged that they issued invoices in addition to the ones under consideration in respect of the goods or sheets or coils obtained from them." 3. since the issue itself has been finally decided as seen from the above, we, after waiving the requirement of pre-deposit of duty and penalties and staying recovery of the same, finally decide the appeals themselves by way of remand for quantitative co-relation in so far as the manufacturer, m/s. poonam drums containers pvt. ltd., are concerned and set aside the penalties imposed upon the dealers. the liability to penalty, if any, of the manufacturer, will depend upon the extent of credit that is denied, if any, after the co-relation exercise has been carried out.

Judgment:
1. The above applications for waiver of pre-deposit of duty of Rs. 28,53,237/- confirmed against M/s. Poonam Drums Containers Pvt. Ltd., and penalty of equal amount imposed thereupon, together with penalties of varying amounts imposed upon the remaining applicants who are registered dealers and penalty imposed upon the Director of M/s. Poonam Drums Containers Pvt. Ltd., arise out of the order of Commissioner of Central Excise. The ground for confirmation of duty is that M/s. Poonam Drums Containers Pvt. Ltd. took the credit on goods described as coils in the invoice while what was received by them was sheets. In other words the main charge is that there is no co-relation between the input supplied and the form in which the input reached factory of Poonam Drums Containers Pvt. Ltd. 2. On hearing both sides we note that in cases involving identical issue the Tribunal had, in the case of Dhimant Trading Co. and Ors. v.CCE granted unconditional waiver of pre-deposit of duty and penalty and the stay order was followed in the case of Bharat Vijay Iron Factory v.CCE in order No. CI/4327-37/WZB/2002, dated 18-12-2002 [2003 (153) E.L.T. 166 (Tribunal)]. We now note that the cases of Dhimant Trading Co. have been finally decided by order No. CII/4433 to 4456/2002 dated 31-12-2002 [2003 (159) E.L.T. 421 (Tri. - Mumbai)]. In this batch of cases the Tribunal has set aside the penalties imposed upon the dealers in para 12 of its order. As regards the manufacturer the Tribunal has directed the Commissioner to pass order on the eligibility to credit based upon the quantitative co-relation. The relevant paragraphs of the Tribunal's order are reproduced below : "7. As we understand it, this circular requires that co-relation be established between the number of sheets obtained from a coil and the coil which is obtained from the cutters after cutting. The object of the challans is to ensure this co-relation. Now, where the invoices issued by the dealers for one coil, as long as the total weight of the sheets which is obtained after cutting and de-coiling tallies with the weight of the coil, the correlation required in the circular is established. It is not contended that there is any loss of material due to cutting and decoiling. In cases where the invoices are for more than one coil, the same principle will have to be followed i.e. the total number of sheets obtained by decoiling must be shown to tally with the total number of sheets after decoiling. The trade notice does not require specific co-relation between a coil and any one out of the sheets obtained from one coil.

Except in terms of weight, co-relation between the sheets and coils is in fact not possible. We were informed that the coils do not bear upon them throughout their length any numbers or identifying marks.

We were informed that the primary manufacturers paint at the outer end of the coil with a number. Therefore, where a coil is cut these numbers on all but one sheet will be available, if at all it has not been obliterated as a result of various handling operation, only on one sheet. Having regard to the nature of the goods, a closer co-relation would be impossible.

"8. Such co-relation is in fact what is generally achieved in any larger number of cases, where the goods are received in large number. Sheets received by a manufacturer of automobile bolts, nuts and innumerable items fastener used as inputs do not bear upon them identifying marks, and the only co-relation that is possible and which is accepted by it is the accounts maintained by the manufacturer of the use and the final product. Thus, to continue the example, bolts and nuts received in large quantities by manufacturer of machinery do not bear upon them individual number. Correlation with the finished product can only be established by the total number of bolts or nuts used in the finished machine. While the Commissioner keeps repeatedly referring in his order, to his view that the "most liberal" of the Tribunal's orders to ask for correlation, he does not cite any decision which requires a greater correlation than this in respect of such goods. In other words, except for cases where the inputs bear a specific identification mark, such as a serial number, specific physicals correlation between that input and its use in the manufacture of finished product. To take a case of a motor vehicle which contains a large number of parts, such as gear wheels, rotary engine blocks, axial, steering assembly, control etc, none of these components presence in a motor vehicle can physically be co related with the stock received by the manufacturer of that motor vehicle. This was in fact emphasized by the Tribunal in its decision in Standard Industries v. CCE -- 2001 (136) E.L.T. 124 with regard to goods received in bulk.

The Tribunal emphasised therein that in case of such bulk cargo correlation by means of physical identity is impossible to establish. No hard and fast rule can therefore be laid down as to the criteria for establishing the correlation between the inputs and finished products. Thus the criteria to be adopted would depend on the facts of a particular case.

"9. For the goods under consideration by us we would say that as long as weight of the sheets received by the manufacturer, adopting the approval contains in the trade notice, that as long as the weight of the sheets and the weight of the coils tally and reasonably corresponds in time between the despatch of the sheets by the dealers and the receipt by the manufacturer correlation has been established with the required degree. We note in this case the absence of any allegation or evidence that any non duty paid coils were received by the dealer or the cutters. We also note that there is not the slightest evidence as to what happened to the numerous coils that the dealer received. It is not alleged that they issued invoices in addition to the ones under consideration in respect of the goods or sheets or coils obtained from them." 3. Since the issue itself has been finally decided as seen from the above, we, after waiving the requirement of pre-deposit of duty and penalties and staying recovery of the same, finally decide the appeals themselves by way of remand for quantitative co-relation in so far as the manufacturer, M/s. Poonam Drums Containers Pvt. Ltd., are concerned and set aside the penalties imposed upon the dealers. The liability to penalty, if any, of the manufacturer, will depend upon the extent of credit that is denied, if any, after the co-relation exercise has been carried out.