2005 (98) ECC 218 (Tri)

CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL

South Zonal Bench -- Chennai

Shri P.G. Chacko, Member (J) and Shri Jeet Ram Kait, Member (T)

Commissioner of Central Excise, Coimbatore

Versus

Acufil Machines & Style Pack (Electronic) Co.

Appeals No. E/V-1863 & 1864/1998/MAS

[Arising out of Order-in-Appeal Nos. 14 & 15/98 (CBE) dt. 29.4.1998 passed by the Commissioner of Central Excise (Appeals), Tiruchirapalli)]

Final Order No. 542 & 543/2004, dt. 23.6.2004, Certified on 15.7.2004

Appeal

Authorisation -- Objection -- Assessee submits that the authorisation to file these appeals is not proper as it does not bear the signature of the Commissioner. The original authorisation by the Commissioner is available on our record and the same bear the jurisdictional Commissioner's signature. The Consultant's objection cannot be sustained -- Section 35B of CEA.

Demand & Penalty

ACUFIL -- Confirming the demand of duty, Order has to be restored -- Unable to sustain the penalties imposed by the original authority under Section 11AC and Rule 173Q inasmuch as Section 11AC as not in force during the relevant period and no apportionment of the quantum of penalty under the two provisions has been provided by that authority. Hence, penalty set aside -- Section 11 AC r/w. Rule 173 Q of CER.

PRESENT :

Shri A. Jaya Chandran, JDR for the appellants.

Shri R. Balagopal, Const. for the respondents.

Cases Cited :

1. Bentex Industries v. CCE, New Delhi, 2003 (151) ELT 695 (Tri-Del).................... [Para 6]

2. Electro Mechnical Engg. v. CCE, 2003 (152) ELT 194 (Tri-Del).......................... [Para 6]

3. K.R. Balachandran v. CCE, Coimbatore, 2003 (151) ELT 68 (T)......................... [Para 6]

Per : P.G. Chacko

These are two appeals filed by the department against the order of the Commissioner (Appeals), whereunder a demand of duty of Rs. 2,99,721 which had been confirmed by the original authority against ACUFIL MACHINES (one of the appellants) was dropped and penalties of Rs. 2,99,721 and Rs. 15,000 imposed by the said authority on M/s. ACUFIL MACHINES and M/s. STYLE PACK (ELECTRONICS) CO. (the other appellants) were vacated.

2. This is a case originating from a Show-cause notice issued to the aforesaid parties, wherein the main allegation raised by the department against M/s. ACUFIL MACHINES was that they had cleared a part of their own production of packing and allied machines under the invoices of M/s. STYLE PACK (ELECTRONICS) CO. with intent to take undue benefit of SSI exemption under Notification No. 175/86-CE and Notification No. 1/93-CE. The Show-cause notice was issued on the basis of the results of certain investigations conducted by the department. Officers of Central Excise had visited the factory premises of M/s. ACUFIL MACHINES (hereinafter referred to as ACUFIL) and M/s. STYLE PACK (ELECTRONICS) CO. (hereinafter referred to as STYLE) on 16.12.1995. In the premises of STYLE the officers found certain machines viz. Welding machine, Bench grinder, Air compressor, Lathe and Cutting machine. They also found some raw materials such as unmachined castings, steel sheets etc. There was no sign of any manufacturing activity in the premises, which looked like a godown rather than a factory. Shri Athinarayanan, Partner of the firm, stated that the premises had never been used for manufacture of any machinery. Further, inspection of the premises by the officers revealed that there was power consumption to the extent of only 120 units in the premises for the period from January 1995 to 23rd September, 1995 as evidenced by entries in the Electricity Consumption Card recovered from the premises. No generator was found in the premises, either. In the premises of ACUFIL, the officers found that they were manufacturing packing machines, processing machines and spares thereof and had the necessary Central Excise registration for the purpose. The manufacturing activities were going on at the time of the officers' visit. They also noticed the presence of the goods in semi-finished condition, which were bearing the name of `STYLE' on them. A few numbers of Control Panel Boards and name plates bearing the name of `STYLE' were also found in the store room of ACUFIL. The officers also visited the residence-cum-office of Shri R. Ethirajan, partner of ACUFIL. Mahazars were drawn in respect of the inspected premises. Statements were recorded on 16.12.95 from Shri Athinarayanan and Shri R. Ethirajan, wherein they, inter alia, stated that the goods shown to have been cleared from the premises of ACUFIL under the invoices of STYLE had actually been manufactured by ACUFIL and that STYLE had been floated by ACUFIL only for the purpose of remaining within exemption limits under the aforesaid Notifications. In January 1996 Shri Athinarayanan and Shri R. Ethirajan wrote letters to the jurisdictional Assistant Commissioner, wherein they claimed that the above statements were recorded under coercion and hence not voluntary.

3. As already noted, the department's case in the Show-cause notice was that ACUFIL cleared goods manufactured by themselves in their factory as if the same were goods manufactured by STYLE. It was further alleged that STYLE had abetted this activity of ACUFIL rendering themselves liable for penalty under Rule 209 A of Central Excise Rules, 1944. Accordingly, the Show-cause notice raised a demand of duty on ACUFIL and proposed penalty on them as well as on STYLE. The demand of duty and other proposals were resisted by the noticees. Ultimately, in adjudication of the dispute, the original authority confirmed the demand of duty against ACUFIL and imposed penalties on ACUFIL and STYLE. The penalty on ACUFIL was under Rule 9(2) and Rule 173 Q and under Section 11 AC and that on STYLE was under Rule 209 A ibid. The appeals preferred by the two parties against the orders of the Dy. Commissioner were allowed by the Commissioner (Appeals). Hence, the present appeals of the department. Appeal No. E/1863/1998 is against the dropping of the demand of duty and the penalty on ACUFIL while Appeal No. E/1864/1998 is against the dropping of the penalty on STYLE.

4. We have heard both the sides. Ld.DR submits that the order of Ld. Commissioner (Appeals) cannot be sustained in law as his finding that there is no independent evidence on record to prove that the machines manufactured by ACUFIL had been cleared on the invoices of STYLE is grossly erroneous. This finding is challenged on the following grounds:

(i) Nine machines were available at ACUFIL's premises, which were, admittedly, the machines required for the manufacture of packing & allied machines, whereas the fewer machines which were found in the premises of STYLE were not enough for carrying out such process of manufacture. Hence there could not have been any manufacturing activity in STYLE's premises.

(ii) The electricity consumption in STYLE premises was to the meagre extent of 120 units for the period January to September 1995 as evidenced by the Electricity Consumption Card recovered from those premises. There was no evidence of any further consumption of power, nor was any generator found to have been installed in the premises. This shows that there was absolutely no manufacturing activity in the premises. Had there been any manufacturing activity by STYLE, who had Central Excise registration for the manufacture of the goods in question, they would have maintained the necessary statutory records. No such records were found in their premises.

(iii) The confessional statements of Shri Athinarayanan and Shri R. Ethirajan were voluntary insofar as the clandestine activity detected by the officers was concerned. Both of them admitted that STYLE had been floated by ACUFIL with intent to avail the benefit of the exemption Notifications by manipulating the aggregate value of clearances. The letters written by Shri Athinarayanan and Shri R. Ethirajan to the Department in January 1996 retracting their earlier statements cannot be admitted in evidence. According to Ld. DR, the lower appellate authority has overlooked this fact and proceeded to uphold the defence of the parties. It is further argued that, when there was admission of the department's charge, it was not necessary for the department to adduce any independent evidence to substantiate the charge.

5. Ld. Consultant has raised a preliminary objection. He submits that the authorisation to file these appeals is not proper as it does not bear the signature of the Commissioner. He has gone by a copy of the authorisation which is in his hands. The original authorisation by the Commissioner is available on our record and the same bears the jurisdictional Commissioner's signature. The Consultant's objection cannot be sustained.

6. Ld. Consultant submits that the charge against ACUFIL cannot be sustained inasmuch as there is neither any allegation nor any finding of financial flow back or of mutuality of interest between them and STYLE. The two firms have separate Central Excise Registration; they were working in separate premises; they were maintaining separate accounts for Income tax and Sales tax purposes; they were using separate machineries for their manufacturing activity; they were employing separate labour and so on. Ld. Consultant further submits that the allegation that there was no manufacturing activity in STYLE premises is baseless inasmuch as substantial turnover of clearances of finished goods was reported by STYLE for each of the financial years within the period of dispute. For instance, the total clearance effected by STYLE during 1992 - 93 was of the order of Rs. 8 lakhs in terms of value of clearance. The Consultant further submits that the entire manufacturing activity was not mechanised. Certain operations were done manually and certain other operations were done through job workers. Therefore the four machines of STYLE were enough for the purpose of manufacturing the goods in question. The Consultant has also relied the following decisions:

(1) K.R. Balachandran v. CCE, Coimbatore, 2003 (151) ELT 68 (Tri-Chennai)

(2) Bentex Industries v. CCE, New Delhi, 2003 (151) ELT 695 (Tri-Del)

(3) Electro Mechnical Engg. Corpn. v. CCE, 2003 (152) ELT 194 (Tri-Del)

The case law mentioned at Sl. Nos. 2 and 3 above has been pressed into service to drive home to us the point that, as no mutuality of interest was found between ACUFIL and STYLE, the allegation of clandestine activity is not sustainable against any of them.

7. Yet another contention raised by the Consultant is that the Mahazar drawn by the Central Excise officers in relation to Style was not recorded in their premises but in the Central Excise office. In order to expose the illegality of such proceedings, STYLE wanted to cross-examine the officers, but the request was turned down by the original authority without stating any valid reason.

8. We have given careful consideration to the submissions. There is no dispute regarding the separate identity of ACUFIL and STYLE. The Show-cause notice does not say that any of them is a dummy of the other unit for all purposes. The main factual allegation raised in the notice is that, during the relevant period, there was no activity of manufacture of packing and allied machines in the factory of STYLE and that the goods manufactured by ACUFIL were shown as having been manufactured by STYLE and were cleared under invoices drawn in the name of STYLE. The factual question, therefore, is whether there is any evidence of manufacturing activity in the premises of STYLE for the material period. The department has shown that the power consumption by STYLE during the first 9 months of the year 1995 was to the extent of 120 units only and that there was no consumption of electricity during the rest of the period of dispute. The department has also shown that STYLE had not used any generator in their premises and also that they had not maintained any records which ought to have been maintained by any registered manufacturer of excisable goods. These evidences have gone unrebutted in this case. Therefore, the finding of the original authority that STYLE, had not manufactured packing & allied machines in their factory during the material period has to be sustained. Ld. Commissioner (Appeals) has not even attempted to assess this finding in his order. In this context, we consider the Consultant's submission that only a part of the manufacturing activity of STYLE was mechanised. He has not been able to substantiate this contention in relation to manufacture of packing & allied machines. This apart, we find, there is a clear admission by the partners of the two firms that STYLE had been floated by ACUFIL for the purpose of keeping themselves within SSI exemption limits. These statements of the partners have not been validly retracted in this case.

We have seen letters written by Shri Athinarayanan and Shri Ethirajan to the Assistant Commissioner in January 1996, which were too belated and did not contain any categorical retraction of what was admitted by the two partners in their statements dt. 16.12.1995 given under Section 14 the Central Excise. It was the very basis of the Show-cause notice that was conceded by Shri Athinarayanan and Shri R. Ethirajan. In the absence of valid retraction, the admission by the parties went totally in favour of the Revenue's case and it was not necessary for the department to struggle for any further evidence. We, further, observe that, where the allegation raised by the department against the assessee for the purposes of denying the benefit of SSI exemption is squarely admitted by the parties, considerations such as financial flowback and mutuality of interest do not become relevant. For this reason, the case law cited by Ld. Consultant is of no aid to the respondents' case.

9. We have found that the department has established a case for demanding duty from ACUFIL and, therefore, the order of the original authority confirming the demand of duty has to be restored. However, we are unable to sustain the penalties imposed by the original authority under Section 11 AC and Rule 173 Q inasmuch as Section 11 AC was not in force during the relevant period and no apportionment of the quantum of penalty under the two provisions has been provided by that authority. The penalty imposed on ACUFIL is set aside. However, the penalty on STYLE, which was imposed by the original authority on the basis of the finding that they had abetted the offence of ACUFIL, has to remain. We have noted that STYLE had allowed their invoices to be misused by ACUFIL for clearance of the goods in question. Certainly, a case of abetment has been made out against STYLE. However, the quantum of penalty imposed by the Dy. Commissioner is on the higher side. We reduce it to Rs. 5,000 in the facts and circumstances of the case.

10. The impugned order is set aside & the order of the original authority is affirmed with the above modification. Appeals accordingly stand disposed of.

……………………….