1998(03)LCX0127
IN THE CEGAT, WEST ZONAL BENCH, MUMBAI
S/Shri K.S. Venkataramani, Vice President and J.N. Srinivasa Murthy, Member (J)
MIPCO SEAMLESS RINGS (GUJ.) LTD.
Versus
COLLECTOR OF C. EX., VADODARA
Order No. 778/98-WZB, dated 28-3-1998 in Appeal No. E/389/92-Bom
Cases Quoted
Logwell Forge v. Collector — 1996(12)LCX0050 Eq 1997 (090) ELT 0384 (Tribunal) — Referred [Para 5]
Steel & Industrial Forgings v. Collector — 1991(01)LCX0103 Eq 1991 (053) ELT 0609 (Tribunal) — Relied on [Para 5]
Collector v. Sunray Computers — 1987(12)LCX0089 Eq 1988 (033) ELT 0787 (Tribunal) — Relied on [Para 5]
T.M. Industries v. Collector — 1993(07)LCX0068 Eq 1993 (068) ELT 0807 (Tribunal) — Referred [Para 6]
Balls and Cylpebs v. Collector — 1996(06)LCX0092 Eq 1997 (092) ELT 0496 (Tribunal) — Referred [Para 8]
Garden Silk Mills v. Collector — 1990(05)LCX0036 Eq 1991 (051) ELT 0373 (Tribunal) — Referred [Para 8]
Milton Laminates Pvt. Ltd. v. Collector — 1991(06)LCX0049 Eq 1996 (083) ELT 0421 (Tribunal) — Referred [Para 8]
Advocated By : Shri M.H. Patil, Advocate, for the Appellant.
Shri S.V. Singh, JDR, for the Respondents.
[Order per : K.S. Venkataramani, Vice President]. - The Appellants manufacture excisable goods seamless rings both unmachined and machined. On 5-10-1990 Central Excise Preventive Officers visited Appellants factory and found some rings packed in gunny bags lying outside Bonded Store Room (BSR). They were packed in 389 bags (22,788 nos.) with yellow labels and 403 bags contained 21,869 rings with red labels. Shri J.B. Sojitra, Company Secretary gave a statement on 9-10-1990 saying the rings found in gunny bags were those which were found unsuitable for manufacture of bearings being not as per customers specifications. The visually scrap rings were given red label and dimensionally defective rings bore yellow labels. He further stated that they followed a practice of storing such rings separately and at the time of sale of such rings they were weighed and accounted for in RG-1 record as scrap of iron and steel. The officers formally seized the rings for non-accountal in RG-1 on 3-1-1991.
2. It was further noticed by the officers on scrutiny of records recovered from the Appellants factory and on comparison with RG-1 register for machined rings that 14,310 numbers of such rings having duty liability of Rs. 64,601.91 duly found “O.K.” after inspection had not been accounted for in statutory RG-1 register.
3. The officers also found on a scrutiny of Appellants balance sheets for the period 1985-86 to 1988-89 in the Schedule “other income” the Appellants had recevied amounts towards design, development and processing charges from their customers. Shri Sojitra explained in his statement that these charges are recovered from customers by issuing debit notes being reimbursement of cost already incurred by the Appellants. But he felt these were not includable in assesable value.
However, the department took the view contra in the proceedings that were initiated against the Appellants. Shri Sojitra also stated that the difference in the machined rings between inspection reports and RG-1 account was due to duplication of certain entries. On 7-3-1991 Additional Commissioner of Central Excise, Vadodara issued show cause notice which came to be adjudicated by the impugned order dated 30-1-1992 by which the Additional Commissioner confirmed duty demand of Rs. 4,05,354.63 on design and development charges recovered through debit notes during 1987-88 and 1988-89, and also confirmed the demand of Rs. 64,601.91 on clearances of machined rings during May to September, 1990 based on difference in figures entered in inspection reports and RG-1 account. Additional Commissioner also ordered confiscation of scrap rings found outside BSR without entry in RG-1 levying fine in lieu of confiscation of Rs. 50,000/-. A penalty of Rs. 25,000/- was also imposed on the Appellants.
4. Shri M.H. Patil, learned Counsel appeared for the Appellants and Shri S.V. Singh, ld. DR presented the department’s case.
5. We have duly considered the rival submissions. The major portion of the demand in Rs. 4,05,354/- being duty on design, development and processing charges recovered through debit notes by the Appellants from their customers during the period 1987-88 and 1988-89. The Appellants have urged that the classification of unmachined seamless rings was in dispute from 1-3-1986 to 29-2-1988. The Appellant claimed classification under such Heading 7208.00 Central Excise Traiff Act, 1985 as pieces roughly shaped by forging on which duty is at specific rate @ Rs. 365 per M.T. while department sought to classify the goods under sub-heading 7308.90 CETA as other articles of iron and steel @ 15% ad valorem. The Appellants have pointed out that the issue has been decided in their favour by the Jurisdictional Assistant Commissioner of Central Excise holding that the goods are classifiable under sub-heading 7208. CETA vide his orders-in-original D/52/93, dated 26-8-1993 and D/30/94, dated 29-4-1994. Reliance is also placed by the Appellants on the decision of the Tribunal in the case of Logwell Forge v. Collector - 1997 (090) ELT 384 holding such unmachined iron and steel products correctly classifiable under sub-heading 7208.00 CETA. It has been argued by the Appellants that in view of such classification of the goods duty thereon will be at specific rate and not on value thereof, and, as such the question of recovery of duty on the design and development charges does not arise at all. We see a lot of force in this argument. The Assistant Commissioner’s order on classification relates to the classification list filed by the Appellants and disposes of the show cause notices proposing classification of the goods under Heading 73.08 CETA by accepting the Appellants claim for classification under Heading 72.08. The Assistant Commissioner has in such acceptance followed Tribunal decision in the case of Steel & Industrial Forgings v. Collector - 1991 (053) ELT 609 as well as Central Board of Excise & Customs Circular F.No. 139/79/87-Cx. 4, dated 18-9-1989. This order of the Assistant Commissioner has also not been reviewed and hence the classification of the goods as decided therein has attained finality, and it is relevant and applicable to the material period in this case. We also note that major portion of the supply by the Appellants in this case is of such unmachined rings to M/s Anti Friction Bearings Corp. and the Appellants have obtained a Chartered Accountant’s certificate on the costing. Hence of that portion relating to other than unmachined rings, the demand, in our view, has to be redetermined by the Additional Commissioner during which the Appellants should also submit the copies of their contract with M/s ABC regarding the design and development charges, (which the impugned order notes were not submitted during the adjudication proceedings) as well as the Chartered Accountant’s certificate for such redetermination of demand. The Appellants may also be heard in the matter. As for the includability of design and development charges in assessable value, the Additional Commissioner, we find has rightly relied upon Tribunal decision in the case of Collector v. Sunray Computers - 1987(12)LCX0089 Eq 1988 (033) ELT 0787 (Tribunal), 1988 (016) ECR 99 wherein the Tribunal inter alia held that cost of services having nexus with manufacturing and marketability of the goods, such as pre-manufacturing research, planning and designing was includable in the assessable value.
6. The Appellants have also contended that they are not liable to pay duty Rs. 64,601.91 on 14310 nos. of machined rings. They have argued that the Additional Commissioner has ignored the fact that the machined rings are tested at several stages and they had further explained that there could possibly be duplication of entries, and, in any case, inspection report is a private record having no statutory status and cannot be the basis of charge of clandestine removal without collateral evidence. Reliance was placed on Tribunal decision in the case of T.M. Industries v. Collector - 1993 (068) ELT 807. As against these contentions, it is seen that the Additional Commissioner has given his finding with reference to the remark of final inspection in the inspection note book of machined rings received from job workers wherein quantities found `O.K.’ and found defective have been noted. The contention that there are duplication of entries has also been effectively rebutted by observing that the scrutiny of two inspection notes revealed that both are totally different entries of different dates. Further, Tribunal decision in T.M. Industries case was one where the Appellants therein had challenged the very authenticity of the private accounts and it was not so established, whereas in the present case the Appellants admit that inspection reports are their private records regularly maintained. It is also seen that Shri Sojitra, Company Secretary, had given his statement on 20-2-1991 on the duplication theory with reference to his explanatory letter dated 15-2-1991, and specifically pointed out the date on which duplication had occurred. This, as noted above, has been found unacceptable. In the same statment there were other inspection reports showing difference which were pointed out, to which Shri Sojitra had replied that those were due to negligence of their staff. In these circumstances, when there is satisfactory evidence of non-entry of figures from final inspection reports on to statutory RG-1 account, the demand for duty on the machined rings as above, is well founded and is upheld.
7. Another argument of the Appellants is on limitation saying that they have not suppressed any facts from the department and hence the demand is time barred. This argument fails due to what has already been noted above regarding non-accountal machined rings, and also due to the reason that there is no evidence that the audit parties were furnished with their balance sheet showing recovery of design and development changes separately by debit notes.
8. The other issue is the confiscation of visually scrap and dimensionally scrap rings valued at Rs. 1,30,200/- and redemption levied thereon. The Appellants have contended it was the prevailing practice to weigh to scrap at weigh bridge outside the factory at the time of removal and a account for it in RG-1 at that stage. They have stated in 1991 only the Department has prescribed procedure for removing goods outside the factory for weighment. They have further stated that the scrap rings could not be cleared also due to the fact that the department had around that time taken the view that the scrap rings are chargeable to duty ad valorem @ 15% and did not allow clearance on specific rate of Rs. 600 P.M.T. The Appellants have relied upon a series of Tribunal decisions including Balls and Cylpebs - 1997 (092) ELT 496 and Garden Silk Mills v. Collector - 1991 (051) ELT 373 to say that goods which are found still within the factory premises, which had not reached the stage of removal cannot be confiscated under Rule 173Q (Central Excise Rules). Examining these contentions, we find that the factum of non-accountal of the scrap rings in the statutory RG-1 Register at the material time is not denied. The Appellants have only explained the circumstances that it was due to the prevailing practice of weighment of the scrap at the time of clearance and simultaneous entry with Central Excise records. Admittedly the scrap is excisable goods liable to duty and the law requires entry thereof in RG-1. The charge of non-accountal stands established and it is also not denied. There are only mitigating circumstances such as the fact that the department itself subsequently had given permission recognising the prevailing practice. A reading of Rule 173 (b) show that if any manufacturer does not account for any excisable goods manufactured by him, then all such goods shall be liable for confiscation and the manufacturer shall be liable to a penalty. In the case law cited by the Appellants the decisions have not addressed themselves specifically to the provisions of Rule 173Q(b) and the learned DR has cited before us a decision contra reported in 1996 (083) ELT 421. Therefore we hold that confiscation for non-accountal of scrap rings as excisable goods would be justified under the above said Rule as also the penalty on the Appellants. However, as noted above there are mitigating circumstances and accordingly the fine on the goods is reduced from Rs. 50,000/- to Rs. 10,000/- and the penalty on the Appellants is reduced from Rs. 25,000/- to Rs. 5,000/-.
9. The appeal is thus disposed off holding that :
(i) The addition of design and development charges for purposes of demanding duty has to be redetermined with reference to clearance of machined rings.
(ii) The duty demand of Rs. 64,610.91 on clearances of machined rings is upheld.
(iii) The confiscation and redemption fine for non-accountal of scrap rings is also upheld but the redemption fine and penalty are reduced.
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Equivalent 1998 (102) ELT 396 (Tribunal)