Triveni Rubber vs Commissioner of Central Excise, Kanpur

Pursuant to the direction given by this Court, the Customs, Excise & Service Tax Appellate Tribunal, New Delhi has drawn up statement of case and referred the following four questions for opinion to this Court :

"1. Whether the CEGAT has committed error of law in not deciding whether the Applicants were entitled to the benefits of Notification No. 175/86-C.E. dated 1-3-1986 with effect from 17th June, 1986?

Whether the CEGAT has committed error of law in holding that the question of adjudication of benefits of Notification cannot be looked into in view of the fact that no Appeal had been filed against the remand order holding that the Applicants were entitled to the benefits of Notification with effect from 31st July, 1987?

Whether the CEGAT has committed error of law in not holding that the demand of excise duty for clearances made before 6th November, 1986 were barred by limitation and could not be recovered in view of the proviso of Section 11A(1) of the Central Excise Act?

Whether the Tribunal has committed error of law in not taking into account the fact that the Commissioner had failed to give specific notice and opportunity of hearing as envisaged under the Act and Rules before passing the order impugned in the Appeal before the CEGAT?"

Briefly stated that facts giving rise to the present reference are as follows :

The Central Excise officers searched the factory premises of M/s. Triveni Rubbers and M/s. Winner Rubbers P. Ltd. on 23-1-1991 on the basis of intelligence that these two units were manufacturing rubber belting of vulcanized rubber, having rubber compound more than 25% falling under sub-heading No. 41010.90 of the Schedule to the Central Excise Tariff Act. Subsequently, a show cause notice dated 6-11-1991 was issued to M/s. Triveni Rubbers for demanding Central Excise duty amounting to Rs. 75,62,092.30 in respect of rubber belting manufactured and removed during the period from 6-11-1986 to 1990-91 (sic) on the basis of seized documents and statements recorded by the Central Excise Officers.

Shri R.K. Agarwal, Proprietor had deposed, in his statement dated 24-1-1991 that rubber belting manufactured by them were of the same quality as those being manufactured by M/s. Winner Rubbers P. Ltd. the test result of sample of goods seized from M/s. Winner Rubbers P. Ltd. revealed that percentage of rubber compound was 64.8% and 57.9% by weight. The Collector of Central Excise, vide Order-in-Original No. 21/95, dated 28-4-1995 confirmed the demand of Central Excise duty amounting to Rs. 26,54,781.71 and imposed a penalty of Rs. 10 lakhs adopting the calculation given by the appellants in their reply to the show cause notice regarding figures of rubber belting and taking the value of clearance of finished rubber belting as shown in diaries. The Commissioner, however disallowed them the benefit of S.S.I. exemption Notification No. 175/86 prior to 24-8-1990 when S.S.I. registration Certificate was issued to them holding that the exact date of application for S.S.I registration was not submitted and they were not eligible to avail S.S.I. exemption on the basis of Certificate issued in favour of M/s. Vikrant Udyog Ltd. whom the appellants had taken the factory on lease from. The Collector also did not accept their plea that the challans issued in 1991 were for returned goods as it was not mentioned on the Challan that these were used for returned goods.

Both the appellants and the Revenue filed the appeals against the said Adjudication Order before the Appellate Tribunal. The Tribunal vide Final Order No. 25-26/2001-C, dated 22-2-2002 held that the Revenue had not been successful in substantiating their contention that the appellants had not manufactured rubber belting containing less than 25% of rubber content by weight. The Tribunal also held that the benefit of S.S.I. exemption would be available to them from the date they applied for the registration as Small Scale Industries with the Directorate of Industries and not from the date of granting registration to them. The Tribunal also held that the value of clearance for the year 1991 cannot be worked out on pro rata basis taking into consideration the challan available with the Department. The Tribunal thus remanded the matter for determination of the duty liability in the light of the observations made by it.

The Commissioner, after hearing the learned Advocate who appeared on behalf of the appellants on 13-12-2001, passed the Adjudication Order No. 7/2002, dated 15-4-2002 confirming the demand of Central Excise duty amounting to Rs. 4,51,282/- and imposed equivalent amount of penalty, holding that the appellants in their 149 pages calculations had adopted the same formula which had been given in Note 1 of Annexure 5 to the show cause notice and worked out the percentage of rubber compound which was in existence in their despatches right from 1986-87 to 1990-91. The Commissioner also reached the calculations that (1) They had manufactured both types of rubber belting i.e. containing more than 25% of rubber compound and containing less than 25% of rubber compound; (2) that from the entries recorded in the resumed diaries and clear cut admission of such removal by Shri R.K. Agarwal, Proprietor and Shri Daya Shaker, Munim, it is established that they had indulged in clandestine removal of rubber belting manufactured by them; (3) the appellants at no point of time had refuted the charge of clandestine removal as they had only disputed the quantity and value of clandestine removal as brought out by the investigation in the show cause notice. The Commissioner has also observed that in reply to the show cause notice the appellants had admitted the value of clearance as follows :

1986-87

Rs. 27,78,383.80

1987-88

Rs. 49,14,607.26

1988-89

Rs. 52,56,013.28

1989-90

Rs. 13,69,874.68

1990-91

NIL (Clearance of returned goods only which are already included in past clearances as reflected in diaries)

The Commissioner has also mentioned in Para 10 of the Adjudication Order dated 15-4-2002 that the learned Advocate, who had appeared on behalf of the appellants, had forcefully pleaded and emphasised that there was no calculation mistake in the year-wise calculation sheets submitted by them; that the appellants had rectified their mistake and submitted correct value of clearance before the Tribunal at the time of appeal against Adjudication Order dated 28-4-1995 as far as they related to rubber belting containing more than 25% of rubber compound. The Commissioner did not accept their arguments that the challans were only for returned goods in 1991. However, the Collector has held that the value cannot be worked out by the Department assuming clandestine removal on pro rata basis for charging of duty for the year 1990-91.

The Commissioner also extended the benefit of S.S.I. to them with effect from 31-7-1987.

On appeal filed by M/s. Triveni Rubbers, the Tribunal, vide Final Order No. 260/2002-C, dated 4-12-2002 has held that the Adjudication Order has been passed in terms of the remand order of the Tribunal, the demand is not hit by time limit as the same pertains to the period commencing from 6-11-1996 which is well within the period of 5 years specified in Proviso to Section 11A of the Central Excise Act; the penalty is not excessive and is within limit specified under Rule 173Q of the Central Excise Rules, 1944. The Tribunal has also held that benefit of S.S.I. Exemption No. 175/86, dated 15-3-1986 cannot be claimed by them on the basis of Registration Certificate issued in favour of Vikrant Udyog and the benefit of S.S.I. Exemption would be available to them from the date they applied for registration as S.S.I. with the Directorate of Industries i.e. 31-7-1987 in view of the specific finding of the Tribunal in the remand order which had not been challenged by them. The Tribunal, however, set aside the demand of interest under Section 11AB of the Central Excise Act.

We have heard Shri Pankaj Bhatia, learned counsel assisted by Shri Gopal Verma on behalf of the applicant and Shri S.P. Keswarwani, learned senior standing counsel for the Revenue.

Shri Bhatia, learned counsel for the applicant submitted that the Tribunal was not justified in holding that as the earlier order dated 22-2-2001 passed by the Tribunal had become final and had not been challenged the issue relating to S.S.I. exemption cannot be re-agitated in the present appeal. The submission is wholly misconceived. In the earlier order dated 22-2-2001 the Tribunal had categorically held the applicant not to be entitled for the benefit of S.S.I. exemption which was available to the earlier Unit but would be entitled for exemption from the date of application i.e. 31-7-1987. This order had become final between the parties as the applicant did not challenge the same in any higher forum. That being the position, we are of the considered opinion that the Tribunal was justified in holding that this issue cannot be reopened in the second round of litigation.

Shri Bhatia, learned counsel for the applicant further submitted that the show cause notice was issued on 6-11-1986 and the demand prior to that period has also been raised which could not have been done as it is hit by the proviso to Section 11A of the Central Excise Act, 1944. We may mention here that before the Tribunal the Senior Departmental Representative had categorically stated that the demand is confined to the period 6-11-1986 onwards and does not relate to any period prior to it. This statement had been disputed by Shri Bhatia before us. However we find from the adjudication order that the demand has been raised with effect from 6-11-1986 even though 1986-87 had been mentioned. That being the position, we are of the considered opinion that there is no illegality in the demand as confirmed by the Tribunal as it falls well within the period of 5 years from the date a show cause notice issued to the applicant.

Shri Bhatia then submitted that there was no suppression, concealment or fraud or misstatement and therefore, the extended period of limitation as provided under Section 11A was not available and the demand is therefore, wholly illegal. From the order of the Tribunal we do not find any such plea having been raised. The only plea raised before the Tribunal was that the demand beyond the period of five years under Section 11A of the Act could not have been raised. That being the position, we are of the considered opinion that the order passed by the Tribunal does not suffer from any legal infirmity.

The questions referred to us are answered in favour of the Revenue and against the assessee.