1995(08)LCX0078
IN THE CEGAT, EASTERN BENCH, CALCUTTA
S/Shri P.C. Jain, Member (T) and T.P. Nambiar, Member (J)
K.P. ROY VARGHESE
Versus
COLLECTOR OF CENTRAL EXCISE, CALCUTTA-I
Order Nos. A-849-850/CAL/95, dated 1-8-1995 in Appeal Nos. E/179/92 & E/180/92
Cases Quoted
Narne Tulaman Manufacturer Pvt. Ltd. v. Collector — 1988(09)LCX0036 Eq 1988 (038) ELT 0566 (S.C.) [Para 14]
U.O.I. v. Delhi Cloth and General Mills — 1977 (001) ELT (J 199) (SC) [Para 14]
Advocated By : Shri Sekhar Mukhopadhyay, Advocate and Shri S. Dasgupta, Consultant, for the Appellants.
[Order per : T.P. Nambiar, Member (J)]. - These are two appeals filed by the appellants against the Adjudication Order passed by the Collector of Central Excise, Calcutta-I in Order No. CPO/31/COLLR-21/91, dated 19-12-1991. In terms of the impugned order a duty for a sum of Rs. 2,87,465.50 was demanded from the appellant firm, M/s. Safrroys; a sum of Rs. 50,000.00 was imposed as penalty on it and another penalty of Rs. 5,000,00 imposed on the appellant, Shri K.P. Roy Varghese, Partner of M/s. Safrroys.
2. The allegations on which a show cause notice was issued on the appellant firm as well as the partner of the said firm who is also another appellant herein, were that the appellant firm being a manufacturer of `Automatic Capsule-making Machine and Parts thereof’ falling under the sub-heading 8422.90 of the Schedule to the Central Excise Tariff Act, 1985 had contravened the provisions of Section 6 of the Central Excises and Salt Act, 1944 (the Act for short) read with Rule 174 of the Central Excise Rules, 1944 (the Rules for short) and also the provisions of Rule 9(1) read with Rules 173G(1), 173B, 173C, 173F, 173G(2) read with Rules 52A, 173G(4) read with Rules 53 and 226 of the Rules, inasmuch as they had manufactured and removed from their factory the `Automatic Capsule-making Machine and Parts thereof’ valuing Rs. 57,49,310.00 during the year, 1987-88 without payment of the duty in this regard.
3. The case of the Department is that on the basis of an intelligence collected and developed by the officers of Centralised Preventive Organisation, Calcutta-I Collectorate, that the said Firm had removed such Machine without payment of duty, they conducted simultaneous searches at the factory as well as the residential premises of the appellant firm and the partner, Shri Varghese also the appellant herein. The searches resulted in the recovey and seizure of altogether 35 (thirty-five) records and documents. They also found an Agreement made on Ist August, 1983 wherein the appellant firm agreed to remove `Capsule-making Machine’ in knocked down condition during the period 1987-88 valuing Rs. 57,49,310.00. They had also examined the Managing Director of M/s. Medicaps Ltd. with whom the appellant firm had executed the above-said Agreement. He had deposed that the appellant firm had supplied the goods to M/s. Medicaps Ltd. during the year 1987-88. The case of the Department is that the appellant firm is not entitled to the benefit of Notification No. 175/86-C.E., dated 1-3-1986 as amended, as because (sic.) the total value of complete assembled machine removed by them was of Rs. 57,49,310.00. Therefore, the appellants were asked to show cause as to why the duty should not be demanded and why they should not be penalised. The appellant firm as well as the partner, Shri Varghese filed a reply denying the same. They stated that they had not manufactured any machine in their factory as alleged in the show cause notice and they did not produce any such machine. It was stated by them that they could not get sufficient accommodation at the premises they were occupying during the relevant period at 9, Gurusaday Road, Calcutta and consequently they could not start production and fulfil the contract made with M/s. Medicaps Pvt. Ltd. It was also stated that in April, 1989 they fixed up suitable accommodation at 15, Swinhoe Lane, Calcutta-42 and obtained Central Excise Licence as also trade licence. So they also stated that prior to 1989, they had been carrying on trading activities of various machinery parts and components including parts and components of capsule-making plant from their office-cum-store room at 425, Shamsul Huda Road since 1978. They also stated that parts and components supplied by them were, in turn, purchased by them from the open market backed by bills and vouchers. Since they could not fulfil the contract as per the agreement they did not assemble any machine and remove the same during 1987-88. They also denied the allegation that the capsule-making machine was despatched in C.K.D. condition. He also stated that the classification sought in the show cause notice is not tenable. For all the above-said grounds they stated that the duty is not payable. After personal hearing and due adjudication the impugned order is passed.
4. Learned Advocate, Shri Sekhar Mukhopadhyay appearing alongwith Shri S. Dasgupta, Ld. Consultant contended before us that there is absolutely no evidence to show that the appellant firm had manufactured the machines in question during the year, 1987-88 and removed the same. In this connection, he pointed out that the appellant firm was only dealing in trading activities and they were purchasing the parts from the open market and were supplying the same. He pointed out that the appellant firm is only a SSI Unit and in this connection, he drew our attention to Annexure B which is the certificate of registration. That certificate was dated 14-11-1983 and the manufacturing activity mentioned therein was for production-cum-processing of components for capsule-making machines, machinery spares and gears. He, further, stated that this certificate was further amended on 13-9-1989 and it was in that amended certificate they have mentioned that the appellant firm’s activity is assembling of automatic capsule-making machine. He pointed out that the learned Collector had observed that in the year, 1983 itself they had obtained the certificate for assembling of automatic capsule-making machine; but it is not a correct statement of fact and he has misread the certificate in this regard. He also pointed out that several statements in the reply to the show cause notice furnished by the appellants were not taken into consideration by the adjudicating authority and the order is not a speaking order. He also contended that the documents produced by the appellants were also not discussed in the order. It was further pointed out that Shri R.C. Mittal, the Managing Director of M/s. Medicaps was examined in this case and he, in this connection, drew our attention to Question No. (3) as well as the Answer thereto, wherein he had mentioned about an order dated 4-4-1984. All these facts were not taken into account and the order is thus a non-speaking order inasmuch as it has not taken into consideration several materials relied upon by the appellant firm and pleaded by them in the reply to show cause notice. Shri Mukhopadhyay, ld. Advocate, therefore, stated that there is no evidence to show that the appellants have cleared the machine in question and the impugned order is liable to be set aside.
5. But the learned S.D.R., Shri D.K. Saha stated that the agreement dated 1-8-1983 clearly goes to show that the appellant firm had agreed to manufacture the machines and supply the same. He drew our attention to the agreement executed by the appellant firm and stated that the appellant firm has not denied the execution of the agreement. He also pointed out that the agreement is dated 1-8-1983 and on the very same date the appellants had supplied the same parts as per Annexure F which is also dated 1-8-1983. All these things will go to show that the appellant firm is not coming with clean hands. On the contrary, he pointed out that Shri R.C. Mittal, the Managing Director had clearly stated that the appellants had supplied the machine in 1987-88 and there is no reason to discard the same. Shri D.K. Saha also pointed out that if the appellant firm were not manufacturing the capsule-making machines in their factory, there was no necessity by them to execute such an agreement. He also pointed out that there was no reason as to why Shri R.C. Mittal should give an evidence against the appellants in this regard. No enmity is alleged by the appellants in this regard. The evidence of Shri Mittal which is duly corroborated by the agreement is a complete proof to show that the appellant firm had removed the goods in question without payment of duty. He also pointed out that the machine was correctly classified under Heading No. 8422.00 and thus he stated that the order passed by the adjudicating authority is in accordance with law. He also relied upon the other obsevations in the order and stated that the appeals may be dismissed.
6. We have considered the submissions of both sides. The point for determination is whether the Department has proved that the appellant firm has removed the capsule-making machine during the period, 1987-88 without payment of duty in this regard. In order to prove the same the Department has also to show that such a machine was manufactured by the appellant firm and the same was removed. The first document relied upon by the Department is the agreement executed by the appellants as well as M/s. Medicaps. The case of the appellant firm is that this agreement could not be complied with and they did not supply any machine during the year, 1987-88.
7. Learned Adjudicating Authority has placed much reliance on the fact that the appellant firm had obtained a certificate in the year, 1983 for the assembling of automatic capsule-making machines and in view of this certificate they were producing the automatic capsule-making machines.
8. In the first instance, it is to be seen that the learned adjudicating authority has misread the S.S.I. Certificate produced by the appellant firm. The first S.S.I. Certificate was issued on 14-11-1983 for the manufacturing/processing of the following articles -
`components for capsule-making machine, machinery spares and gears (not based on aluminium ingots)’
Therefore, it is seen that the above certificate was not for assembling of the machines.
9. The said certificate which was amended on 13-9-1989 is also produced before us and that certificate was issued by the Directorate of Cottage and Small-Scale Industries to the appellant firm for the following activities :-
(i) Components for Capsule-making machines, Machinery Spares & Gears (Not based on Aluminium Ingot).
(2) Assembling of Automatic Capsule-making Machine.
Therefore, it is seen that it is only on 13-9-1989 they got the permission from the Directorate of Cottage and Small-Scale Industries for assembling of automatic capsule-making machine. Therefore, the observation of the learned adjudicating authority that they were in possession of this permission from 1983 is against the records. The adjudicating authority has not applied his mind in this regard.
10. It is further seen that certain important factors were not discussed or taken note of by the adjudicating authority. In this case, Shri R.C. Mittal who is the Managing Director of M/s. Medicaps was examined by the Department. Question No. (3) and the answer given to that effect by him, reads as follows :-
“Question No. (3) : When the order for supply of capsule-machine was placed to M/s. Safrroys, Calcutta? Please supply a copy of the order.
Answer : Order for supply of first machine was placed on 1-8-1983 and the order for the second machine was placed on 4-4-1984. Copies of orders are supplied as desired."
11. It is thus seen that the first order, according to Shri Mittal, was placed on 1-8-1983. The supply of the machine against that order is not in dispute in this proceeding. The second order was placed on 4-4-1984. It is against that order the purported removal of machine is alleged in the show cause notice. A perusal of the reply of the Managing Director, Shri Mittal of M/s. Medicaps goes to show that both these orders were put forth before the adjudicating authority as desired. But the copy of the order dated 4-4-1984 was not supplied to the appellant firm and there was no mention in the show cause notice to that effect. There is also no mention about this aspect in the whole of the adjudication order. This material document which should have been taken into account by the adjudicating authority was not dealt with by him and he has also not applied his mind in this regard. In order to show that there was an unauthorised removal, the burden is cast on the Department. The Department should have also taken into account all the documents which it had recovered during the course of enquiry. Therefore, the order dated 4-4-1984 which was admittedly produced by the Managing Director, Shri Mittal should have been looked into and there is no discussion in the order as to why the same is left out. The case of the Department should stand on its own strength and not by the evidence furnished by the appellants.
12. It is now seen that the appellants in paras 8 and 9 of their reply have stated as follows :-
“Para 8. In support of the above contention and as against the charge for manufacture and removal of goods valued at Rs. 57,49,310.00 [Para 1(i) of the show cause notice] the petitioners refer to M/s. Medicaps Ltd. order dated 1-8-1983 vide Annexure `J’. It would appear from the said order that the order pertained to supply of specific parts and components mentioned therein. If the invoices/challan mentioned in Annexure `A’ to the show cause notice are compared with the above order, it would be found that supply of the goods had been made strictly according to the order i.e. of individual parts and components. Even the total value mentioned in the order agree with the total amount of the invoices and each invoice/challan refer to the order in question.”
“Para 9. The petitioners submit and contend that the goods supplied under cover of the above mentioned invoices had been purchased by the petitioners from open market. In support of the contention a bunch of 10 bills are enclosed herewith vide (K-1 to K-10). Other bills will be produced in course of the personal hearing.”
13. Although the appellants had submitted that several documents which are invoices placed at pages 45 to 65 of the paper-book, to justify their claim that the same producers supplied basic parts and components, those documents were not at all taken note of by the learned adjudicating authority and he has not made any discussion in this regard. In order to come to a definite conclusion against the appellants it was the duty of the adjudicating authority to take into consideration this plea submitted by the appellant firm and to consider those documents produced by them. The fact that this plea was not dealt with in the adjudication order nor is there anything to show that these documents were considered by him, shows that there is a lack of application of mind on the defence taken by the appellants and that violates the principles of natural justice.
14. It is further seen that the appellants contended that the goods supplied under the cover of invoices were purchased by them in the open market and the invoices produced by them which are 10 bills were also not discussed by the adjudicating authority. This again resulted in the violation of principles of natural justice. It is further seen that the appellants in their reply to the show cause notice challenged the classification of the goods under sub-heading 8422.90. In their written argument before the Collector of Central Excise, Calcutta-I, they had stated as follows :-
“There has been no application of mind before issuance of the show cause notice inasmuch as even proper care for classification of the goods involved has not been taken by the departmental officers. The goods have been classified at para 1 of the show cause notice as falling under sub-heading No. 8422.90. A simple reading of the Heading No. 84.22 would reveal that the said headng relates to MACHINERY FOR FILLING, CLOSING, SEALING, CAPSULING OR LABELLING BOTTLES whereas capsule-making machine is meant for manufacturing empty capsules for medicines.”
This particular argument of the appellants was not at all dealt with by the adjudicating authority. On the contrary in para 8.6 of the impugned order by applying the decision in the case of Narne Tulaman Manufacturer Pvt. Ltd. v. C.C.E. reported in 1988 (038) ELT 566 which was followed by another Supreme Court decision reported in 1977 (001) ELT (J 199) (SC) = 1963 (Supplement I) SCR 586 in the case of U.O.I. v. Delhi Cloth and General Mills, the adjudicating authority has simply rejected the arguments of the appellants. But he has no specifically discussed the points urged by the appellants. The burden is now on the Department to prove that a particular goods falls under a particular tariff and in the adjudication proceedings proper reasonings for rejecting the contention of the appellants should have been furnished. Since that is not done by the adjudicating authority, the impugned order is not a speaking order in this behalf.
15. Another factor which is to be observed in this case is that the whole case is based on the statement of Shri R.C. Mittal, Managing Director of M/s. Medicaps alongwith the agreement executed between the appellants and M/s. Medicaps. But there is no enquiry made with Shri Mittal with reference to his accounts books as to what are the payments he had made for the above-said machine and how the payments were made. Such an enquiry would have corroborated the facts clearly and since the burden is on the Department to prove that there was such an unauthorised removal the same cannot be decided without making a complete enquiry in this behalf. In this connection, material portion of the order of the learned adjudicating authority is contained in para 8.3 which reads as follows :-
“8.3. In reply to the SCN as well as at the time of personal hearing, the said concern or their consultants had taken such pain to explain, though they signed the agreement, they could not execute the same as they had neither any factory premises at the material time nor any suitable accommodation for manufacture of the machines. They supplied only parts/machines after purchasing them from the market. In support of their contention, they produced a letter dated 1-8-1983 of M/s. Medicaps Pvt. Ltd. for supply of the machinery and necessary components. But I find that the said concern has scrupulomsly avoided explaining as to when they were not in a position to manufacture complete machine at Calcutta because they had no factory or sufficient space, why they obtained SSI certificate in 1983 for assembling of automatic capsule-making machines showing the location of the factory at 9, Gurusaday Road, Calcutta-19, (subsequently changed to 15, Swinhoe Lane, Calcutta-42 on 13-9-1989) and why they submitted the quotation dated 21-7-1983 (which formed part of the agreement) when it was known to them beforehand that they were not in a position to manufacture complete machine and why proforma invoice No. SFR/006/83-84, dated 17-7-1984 was raised for supply of complete automatic capsule-making machine (II) alongwith pin bar set on turn key basis at the factory at Pithampur in District - Dhar (MP) mentioning specifically therein that Central Sales-tax, Central Excise duty extra as applicable at the time of delivery. The fact that the said concern deliberately refrained from explaining this point, shows, the culpability of their mind and that they were aware that Central Excise duty was payable on the complete machine as otherwise the fact that Central Excise duty extra as applicable at the time of delivery would not have been mentioned either in the agreement dated 1-8-1983 or in the proforma invoice. Therefore, knowing fully well, the leviability of duty on the machine, they deliberately avoided the payment of such duties.”
16. A perusal of this order shows that the learned adjudicating authority has held against the appellants on the ground that the appellants refrained from explaining the point as to why they had submitted the quotation dated 21-7-1983 and then it was known to them that they were not in a position to manufacture the goods. That may be a circumstance against the plea of the appellants. But the S.S.I. certificate produced by the appellants goes to show that it was only in 1989 they got the permission for assembling of automatic capsule-making machine. Therefore, the appellant firm has explained the same which is not taken note of by the adjudicating authority. Even otherwise, an explanation of the appellants is not sufficient to infer that they had produced a machine and removed it without payment of duty. These facts should have been discussed on the evidence available on record and corresponding investigations made by the Department and not on mere presumption or assumption. The non-explanation of the appellants may be one of the factors; but here as already pointed out, several pleas of the appellants were not taken note of by the adjudicating authority. In such circumstances, this is a fit case which requires to be remanded to the learned adjudicating authority to readjudicate the case by taking into consideration the several factors as mentioned in this order and he should pass a speaking order in this behalf after observing the principles of natural justice. Accordingly, the appeal is allowed by way of remand to the Collector of Central Excise, Calcutta-I with a direction to readjudicate the case in the light of the observations given in this order and by observing the principles of natural justice.
Equivalent 1996 (83) ELT 560 (Tribunal)