2005 (8) TMI 494 - AT - Central Excise

Imposition of Penalty - Demand - extended period of limitation under the proviso to Section 11A(1) - Valuation of grey fabric - HELD THAT - The facility to go behind the declaration and start an inquiry into the declarations made under notification 27/92 was required to be done by the proper officers, at the relevant time of attending to the RT12 assessments as filed. The present show cause notice, has been issued only on 5-12-2000, after a full fledged enquiry that started somewhere on 25-11-1998. Search of Nangalia Groups and others were caused. If the Departmental Officers, with all the resources of man power and backing of law to conduct an enquiry, took almost 2 years to come to a prima facie conclusion of under declared values by the traders, it is unfair to visit the assessee, to have knowledge, and having to being knowingly to have declared lower prices as declared to have vide notification 27/92 by the Trader when in the milieu of the law, MMF processing trades as understood then and commercial practice at that time was otherwise i.e. during the relevant period 1997-98 to 15-12-1998. We would therefore find no reasons or find ingredients exist to uphold the invocation of the larger period of demand in the facts herein. Duty demands and liabilities to confiscation therefore cannot be upheld. The plea on behalf of Nangellia group, made by ld. Advocate Sh. Bulachandani, that they are manufacturer and weavers of fabrics and the prime quality of Gray fabrics were sold and the declarations made for the fabrics sent for processing by them was more than the costing thereof and being defective not of saleable standard the valuation of such of Gray cannot be of comparable fabrics being sold in the market as of prime quality has force. In any case, the valuation is being composed with market sale price of Gray fabrics, without any evidence of similar quality being on record. The traders were required to and gave the cost plus declaration. Mixing of lots and other commercial consideration went in the declaration made. The evidence similar grey quality receipts of M/s. Rupa was not on record. The proposed valuations cannot upheld. Different qualities of Gray are a commercial reality. That cannot be ignored by Revenue. We find force in the arguments and the grounds taken by the appellants in this appeal. No demands on merits can be arrived at. We find no mens rea or knowing concert with any alleged evasion and dealing with excisable goods knowingly that such goods excluded to confiscate is on record. We find no reason to visit them with Rule 209A penalties as arrived. The imposition of penalty under Rule 173Q and Section 11AC as arrived cannot be upheld on facts herein and also the position in law not upholding of such joint read with penalties, following the decision in case of Jay Yuhshin Ltd. 2001 (8) TMI 234 - CEGAT, NEW DELHI ; Since no duty demand and or penalties or confiscation are being arrived at, the penalties under Rule 209A are not upheld in all cases as arrived in the impugned order. Thus, we find no merits to uphold the order in these appeals. The order is set aside and the appeals allowed.

Issues Involved:
1. Demand of Central Excise Duty
2. Imposition of Penalties under Rule 173Q(1) and Section 11 AC
3. Imposition of Penalties on Directors/Partners/Authorized Signatories under Rule 209A
4. Imposition of Penalties on Nangalia Group of Companies under Rule 209A
5. Interest on Delayed Payment of Duty under Section 11AB
6. Confiscation of Seized Processed Fabrics
7. Confiscation of Land, Building, Plant & Machinery under Rule 173Q(2)(a)
8. Invocation of Extended Period of Limitation under Proviso to Section 11A(1)

Detailed Analysis:

1. Demand of Central Excise Duty:
The Tribunal examined the demand for Central Excise duty on processed fabrics removed by various processing units to the Nangalia Group of Companies from 1-4-1997 to 16-12-1998. The duty was determined based on the undervaluation of grey fabrics supplied by traders. The Tribunal found that the processors had declared the valuation based on traders' declarations as per Notification 27/92 and had no legal obligation to verify these declarations. The Tribunal concluded that the processors could not be held liable for undervaluation as they acted in good faith based on the declarations provided by traders.

2. Imposition of Penalties under Rule 173Q(1) and Section 11 AC:
Penalties were imposed on the processing units for alleged deliberate misdeclaration. However, the Tribunal found that there was no evidence of collusion or deliberate misdeclaration by the processors. The Tribunal referred to the Larger Bench decision in CCE v. Bhilwara Processors Ltd. and Sangam Processors (Bhilwara) Ltd. v. CCE, Jaipur, which supported the processors' actions based on traders' declarations. Consequently, the penalties under Rule 173Q(1) and Section 11 AC were not upheld.

3. Imposition of Penalties on Directors/Partners/Authorized Signatories under Rule 209A:
Penalties were also imposed on individual directors, partners, and authorized signatories of the processing units. The Tribunal found no specific evidence indicating their involvement in any collusion or deliberate undervaluation. Therefore, the penalties under Rule 209A were not upheld for these individuals.

4. Imposition of Penalties on Nangalia Group of Companies under Rule 209A:
Penalties were imposed on the Nangalia Group of Companies for aiding and abetting in the undervaluation. The Tribunal found that the declarations made by the Nangalia Group for the fabrics sent for processing were based on commercial realities and not on any intent to evade duty. The Tribunal concluded that there was no mens rea or knowing concert with any alleged evasion, and thus, penalties under Rule 209A were not justified.

5. Interest on Delayed Payment of Duty under Section 11AB:
The Tribunal ordered the processing units to pay interest at 20% per annum on the delayed payment of Central Excise duty. However, since the duty demands were not upheld, the interest liability also could not be enforced.

6. Confiscation of Seized Processed Fabrics:
The Tribunal confiscated the seized processed fabrics but allowed their provisional release against a bond and bank guarantee. Since the duty demands were not upheld, the confiscation order was also set aside.

7. Confiscation of Land, Building, Plant & Machinery under Rule 173Q(2)(a):
The Tribunal ordered the confiscation of land, buildings, plant, and machinery of certain processing units but provided an option for redemption on payment of a fine. However, since the duty demands and penalties were not upheld, the confiscation order was also set aside.

8. Invocation of Extended Period of Limitation under Proviso to Section 11A(1):
The Tribunal examined the invocation of the extended period of limitation for demanding duty. It found that the processors had no reason to suspect the traders' declarations and acted in good faith. The Tribunal concluded that the extended period could not be invoked as there was no evidence of collusion or deliberate misdeclaration by the processors.

Conclusion:
The Tribunal set aside the order demanding duty, imposing penalties, and confiscating assets. The appeals were allowed, and no merits were found to uphold the original order.

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