1990 (11) TMI 169 - HC - Central Excise

Issues Involved:
1. Suppression of material facts and evasion of excise duty.
2. Liability of petitioners to pay excise duty on goods supplied by job-workers.
3. Validity of the show-cause notice under the proviso to Section 11A of the Central Excise Act.
4. Prima facie case for levying duty on goods manufactured through sub-contractors.
5. Allegations of job-workers being sham or bogus entities.
6. Limitation period for issuing the show-cause notice.

Issue-wise Detailed Analysis:

1. Suppression of Material Facts and Evasion of Excise Duty:
The petitioners were accused of getting excisable goods manufactured from small-scale manufacturers (job-workers) using raw materials supplied by them, thus evading excise duty on the value of the articles manufactured and supplied by job-workers between 1-4-1981 and 28-2-1986. The Department alleged that the petitioners adopted this method to avoid payment of excise duty, and the value of the total clearances during the period was estimated at Rs. 9,25,96,498/-, with a differential duty of Rs. 73,42,587.37ps. demanded.

2. Liability of Petitioners to Pay Excise Duty on Goods Supplied by Job-Workers:
The petitioners argued that they are not liable to pay excise duty on the value of goods supplied by independent job-workers, who are recognized as small-scale units and pay excise duty on their manufacture under the Act. The petitioners contended that the job-workers are independent manufacturers and not mere agents of the petitioners.

3. Validity of the Show-Cause Notice under the Proviso to Section 11A:
The petitioners challenged the validity of the show-cause notice on the grounds that it was barred by time and the proviso to Section 11A was not applicable since no fraud, suppression, or misstatement was alleged in the notice. The petitioners also argued that the notice was vague and lacked particulars, making it unsustainable in law.

4. Prima Facie Case for Levying Duty on Goods Manufactured through Sub-Contractors:
The Department argued that the petitioners got manufactured certain completed equipment through sub-contractors, which were despatched directly to the work-site, and there was suppression of the value of those excisable goods. The Department contended that these goods should be considered as goods manufactured by the petitioners themselves, as the petitioners supplied raw materials, design, and specifications to the sub-contractors and cleared the goods directly to the site under petitioners' invoices.

5. Allegations of Job-Workers Being Sham or Bogus Entities:
The petitioners contended that the show-cause notice did not contain any allegations that the job-workers were sham or bogus entities. They argued that the Department cannot initiate proceedings to treat the value of goods supplied by the job-workers as the petitioners' clearances in the absence of such allegations.

6. Limitation Period for Issuing the Show-Cause Notice:
The petitioners argued that the show-cause notice was barred by limitation, as it did not satisfy the ingredients to invoke the extended period of limitation under the proviso to Section 11A, which requires allegations of fraud, collusion, or wilful misstatement of facts.

Judgment:
After careful consideration of the materials on record, arguments advanced by both sides, and relevant case law, the court concluded:

1. The Department failed to establish that the petitioners suppressed the fact of manufacturing excisable goods through sub-contractors and evaded payment of duty on those goods.
2. There was no tangible basis for the Department's assumption that all goods manufactured through sub-contractors should be treated as the petitioners' manufacture.
3. The Department did not establish that the job-workers were not manufacturers on their own account or that they were mere dummies and bogus concerns.
4. The abstract of figures furnished by the Department lacked a break-up of the exact value of articles manufactured through job-workers, making the basis for the demand vague and uncertain.
5. The mere fact that job-workers delivered components directly to the worksite and the petitioners presented a consolidated invoice to their customers did not automatically imply that the value of all invoices should be deemed as excisable goods manufactured by the petitioners.
6. The show-cause notice did not satisfy the ingredients to invoke the extended period of limitation under the proviso to Section 11A, as there were no allegations of suppression, fraud, or wilful misstatement of facts.

The court held that the Department failed to make out a prima facie case to uphold the show-cause notice and permitted them to continue with further proceedings of adjudication. Therefore, the court quashed the show-cause notice (Annexure-'O') and made the rule absolute.

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