| SooperKanoon Citation | sooperkanoon.com/8005 |
| Court | Customs Excise and Service Tax Appellate Tribunal CESTAT Tamil Nadu |
| Decided On | Dec-02-1994 |
| Reported in | (1995)(77)ELT167Tri(Chennai) |
| Appellant | Meenam Rexine Pvt. Ltd. |
| Respondent | Collector of Central Excise |
2. Shri Balaraman and Shri Gopalakrishnan, the learned Consultants appearing for the petitioners submitted that initially a show cause notice was issued demanding a duty of Rs. 1,02,44,715 in addition to excess MODVAT credit in a sum of Rs. 13,22,059 and in adjudication the demand was reduced to Rs. 37.56 lakhs aforesaid, and this would prima facie show that without any basis a huge and exorbitant demand was raised in the show cause notice which was considerably brought down.
3. The learned Consultant submitted that in the manufacture of rexine cloth duty has been levied under the Act for the period 1988-89 to 1992-93 by issue of a show cause notice dated 28-9-1993. The petitioner company is manufacturing rexine cloth classifiable under sub-heading 5903.19 of the Central Excise Tariff Act and the main raw material for the goods in question is cotton cloth and PVC resin. The main allegation in the show cause notice was that on the basis of quantity of PVC resin used for coating the rexine cloth found on the basis of sample test conducted on 17-12-1992 and 22-2-1993 the petitioner could have manufactured and removed the excisable goods rexine cloth without payment of duty. The petitioners gave detailed statements and evidences inter alia explaining how the test conducted by the Department was incorrect and how there was a variation in the two tests conducted by the Department itself in regard to the use of PVC resin vis-a-vis the product namely rexine cloth and also how the petitioners unit which is only a small scale unit where the operations are mainly done without any precision instrument the quantum of outcome is bound to be far lower than in a factory where machinery is used. The details and the evidences furnished by the petitioners were accepted by the learned adjudicating authority and the basis of the authority in the show cause notice, namely the use of PVC resin was totally dropped.
4. The Department without dropping proceedings altogether and without issue of a second show cause notice proceeded to levy duty on the basis of chlorinated paraffin wax which is one of the raw materials used in the manufacture of rexine cloth for the purpose of giving a coating and giving a glassy appearance to the fabric. It was submitted that in respect of the chlorinated paraffin wax the petitioner company had purchased the same from M/s. Agroflex Reinforce Inc. and one of the employees of the petitioner company, namely Murugesan on his own independently abusing his position in the company as a trusted Accountant purchased the goods from the normal supplier and sold it to his relations with which the petitioner company was in no way connected. This plea has not been properly appreciated by the learned adjudicating authority.
5. It was urged that cotton cloth is the main raw material for the manufacture of rexine cloth and the cotton cloth was purchased by the petitioners from mills at Tirupathur and Erode and though detailed investigation was conducted by the Department in this regard, they did not find anything adverse against the petitioners. It was, therefore submitted that there was nothing on record against petitioner with reference to the purchases of the main raw materials, and therefore, the finding in the impugned order that rexine cloth must have been manufactured and cleared without payment of duty merely on the basis of the use of chlorinated paraffin wax is not prima facie sustainable either in law or on facts.
6. It was further urged that the buyers of the rexine cloth even though initially gave a statement against the petitioners, have given affidavits contradicting their own statements before the departmental authorities and even though the petitioners wanted to cross examine them, an opportunity was not given resulting in the violation of the principles of natural justice vitiating the impugned order.
7. The learned Consultant further submitted that in any event the unit is a small scale unit and is also sick to boot, and reliance was placed on a certificate issued by the State Bank of India, Ramanathapuram, dated 16-9-1994 stating that "the petitioner unit has been identified as sick unit by our rehabilitation cell at Zonal Office, SBI, Madurai.
They are at present under nursing programme" and the State Bank of India has also sanctioned a term loan without interest and concessional rate of interest on the outstandings. It is further mentioned that SIPCOT has also given similar concessions.
8. Shri Jeyaseelan, the learned DR took us through the impugned order and drew our attention to para 62.13 where the learned adjudicating authority has referred to the formula of the petitioners vis-a-vis the test results for finding out the quantum of production and submitted that prima facie this is sustainable. The learned DR also referred to para 86 wherein the adjudicating authority has referred to the petitioners' own formula in working out the quantum in the impugned order. Regarding the plea relating to an allegation in the show cause notice with regard to chlorinated paraffin wax and also the denial of an opportunity of cross examination, he submitted that prima facie the evidence would support the charge and these are all matters to be gone into at the time of final disposal of the appeal and not at this interlocutory stage.
9. We have carefully considered the submissions made before us. We find that in the show cause notice initially raised a demand of more than Rs. 1.2 crores besides Rs. 13.22 lakhs for irregular MODVAT credit and the Demand has been very considerably brought down in the impugned order. On going through the show cause notice, we find that the main allegation against the petitioners is about the use of PVC resin used for coating the rexine cloth. We also note that sample test was conducted by the Department on 17-12-1992 and 22-2-1993. No doubt there is a variation in the test of the Department, and in the impugned order the learned lower adjudicating authority has referred to the petitioners own formula. This has got to be considered prima facie in the light of the plea, that the petitioners' unit is only a manually operated unit and does not have sophisticated machineries and therefore the quantum of output cannot be worked out on an ad hoc basis. We find that the cotton cloth is the main raw material for the goods in question and the records would reveal that the plea of the petitioners that during investigation at the mills in regard to the supply of cotton cloth; nothing against the petitioners was found has not been controverted in the impugned order. Taking note of the fact that cotton cloth being primary raw material; in the absence of any valid grounds in purchase and use of in regard to the same; either in the show cause notice or any finding against appellant/petitioner in the impugned order, we find considerable force prima facie in the plea of the learned Consultants that the quantum worked is not acceptable in entirety. At this stage, as rightly submitted by the learned DR, we are of the view that the plea in regard to cross examination of the purchasers of rexine cloth and also the plea that the basis in the show cause notice was changed and a different basis was adopted without bringing this fact to the notice of the petitioners will be questions which would call for in depth study and consideration. We therefore reserve those pleas for consideration at the time of final disposal of the appeals.
10. The unit is a small scale unit and the State Bank of India by a certificate dated 16-9-1994 cited supra identified the unit as a sick unit. We take note of the fact that a sum of Rs. 6.18 lakhs has been given by the State Bank of India as term loan in a bid to revive the sick unit. We also note that concession has been extended on grounds of sickness to the petitioner unit by the SIPCOT and also the State Bank of India. We have gone through the balance sheet of the petitioner company for the year ending 31-3-1994 and we find that as against the loans and advances a sum of Rs. 19.97 lakhs is outstanding. There is an outstanding under the column sundry creditors in a sum of Rs. 27.28 lakhs. The accumulated loss as per the balance sheet is more than Rs. 27.28 lakhs.
11. The Department has no specific instructions about the financial solvency of the petitioner firm.
12. Taking into consideration the pleas advanced as set out above and also the financial position, the petitioner company is directed to pre-deposit a sum of Rs. 4.00 lakhs (Rupees four lakhs), Sh. Nagu, Managing Director and Sh. Senthil Velavan are directed to pre-deposite and each Rs. 5000/- and other petitioners each Rs. 1000/- on or before 31-3-1995 and report compliance, subject to which the balance of duty and the entire penalty would stand dispensed with pending appeal. We also grant stay of recovery of the balance subject to petitioner's complying with other order. The matter will be called on 31-3-1995 for reporting compliance.