1989 (2) TMI 118 - HC - Central Excise

Summary

Issues Involved:
1. Jurisdiction of the Collector to issue show cause notice and pass the impugned order.
2. Whether the two units, Swadeshi Dyeing & Bleaching Mills Pvt. Ltd. and Silver Processors, constitute a single manufacturing unit or factory.
3. Applicability of exemption notifications regarding the use of power in processing cotton fabrics.
4. Maintainability of the petitions in light of the availability of an alternate remedy.

Detailed Analysis:

1. Jurisdiction of the Collector:
The petitioners challenged the jurisdiction of the Collector to issue the show cause notice and pass the impugned order. The court noted that the petitioners, through their counsel, assured that they would not challenge the findings of fact recorded by the Collector but would only raise the question of jurisdiction. The court proceeded to hear the petitions on this basis.

2. Single Manufacturing Unit or Factory:
The primary contention was whether Swadeshi Dyeing & Bleaching Mills Pvt. Ltd. and Silver Processors constituted a single manufacturing unit. The Collector concluded that the two units were essentially one composite unit or factory, managed by the same group, and engaged in manufacturing and clearing excisable goods without paying duty. The court upheld this finding, noting several factors:
- The premises of the two units were adjoining and used interchangeably.
- The lease agreement between the partnership firm and the company was deemed a camouflage.
- The construction of a compound wall with an opening for movement between the units indicated their interconnected operations.
- Electricity was provided by the partnership firm to the company without clear evidence of payment.
- The partnership firm purchased a felt calendering machine, which works with power, and subsequently rented and sold it to the company.

3. Applicability of Exemption Notifications:
The court examined the exemption notifications dated April 20, 1982, and November 8, 1982. These notifications exempted certain processes from excise duty, provided they were carried out without the aid of power or steam. The court found that the units split their operations to exploit these exemptions:
- The non-power operated unit (Silver Processors) carried out initial processes like bleaching and mercerising.
- The power-operated unit (Swadeshi Dyeing) performed finishing processes like calendering and stentering.
The court concluded that this arrangement was a method to secure undue advantage of the exemptions, as the processed fabric had to undergo both sets of operations to be marketable.

4. Maintainability of the Petitions:
The Department raised a preliminary objection regarding the maintainability of the petitions, citing the availability of an alternate remedy through an appeal before the Appellate Tribunal under Section 35-E of the Act. The court acknowledged this but decided to hear the petitions on merits due to the passage of more than three years and the potential unnecessary expenses for the petitioners. However, the court limited the hearing to the question of jurisdiction and did not permit challenges to the Collector's factual findings.

Conclusion:
The court upheld the Collector's order, concluding that the two units were indeed a single manufacturing entity set up to exploit exemption notifications. The court found no infirmity in the Collector's decision and discharged the petitions with costs. The prayer for continuation of interim relief was refused.