2000 (5) TMI 724 - AT - Central Excise

Issues Involved:
1. Duty liability on worsted woollen yarn supplied to Defence Ordnance Clothing Factory.
2. Allegation of clandestine manufacture and removal of yarn without payment of central excise duty.
3. Discrepancies in documents and accounts.
4. Evidence of purchase and manufacture of yarn.

Detailed Analysis:

1. Duty Liability on Worsted Woollen Yarn:
The case revolves around the duty liability on 137016.5 kgs. of worsted woollen yarn (70% wool + 30% Nylon) supplied to the Defence Ordnance Clothing Factory (OCF) at Shahjahanpur. The central excise officers alleged that the mill had clandestinely manufactured and removed the yarn without paying central excise duty and without issuing central excise gate passes. The duty evaded was calculated at Rs. 29,72,791.67 for the period from February 1983 to July 1988.

2. Allegation of Clandestine Manufacture and Removal:
The show cause notice dated 2-12-88, along with an addendum dated 7-3-90, alleged that the mill had removed the worsted woollen yarn clandestinely without paying central excise duty. The Commissioner of Central Excise, Chandigarh, confirmed the demand and imposed a penalty of Rs. 30 lakhs. The adjudicating authority based the allegations on discrepancies found in the mill's accounts and documents during a visit by central excise officers on 5-9-88.

3. Discrepancies in Documents and Accounts:
The central excise officers found no discrepancies in the stock of manufactured yarn in the EB4 excise godown when compared with the RGI register. However, discrepancies were noticed in the documents related to the supplies to OCF and the purchase of yarn by the mill. The mill's tenders for supply of WWY to the OCF were accepted by the Directorate General of Supplies and Disposal (DGS&D), and the mill supplied the yarn during the period from November 1983 to July 1988. The central excise officers seized various documents/files during their visit, but no evidence was found to substantiate the allegation of clandestine manufacture.

4. Evidence of Purchase and Manufacture of Yarn:
The mill claimed that the WWY was purchased from outside and not manufactured by them. The adjudicating authority admitted that woollen yarn was purchased from outside but did not discuss what happened to the yarn purchased from the market. The mill argued that the yarn purchased from outside was not brought to the mill's premises but was inspected and dispatched from the godown. There was no evidence to substantiate the allegation that the yarn purchased from outside was received in the factory premises.

The adjudicating authority's conclusion was based on discrepancies in the records and correspondence related to the tenders by DGS&D for the supply of WWY. The mill argued that the responsibility of ensuring the specifications of the yarn lay with the supplier, and the goods were accepted by DGS&D without any controversy. The adjudicating authority did not find any material evidence to substantiate the allegation of clandestine manufacture, such as records of raw materials, manufacturing processes, intermediate stages of production, packing, power consumption, or labor records.

Conclusion:
The Tribunal concluded that the allegation of clandestine manufacture was not proved. The discrepancies in the records and the evidence provided were not sufficient to substantiate the allegation. The impugned order was set aside, and the appeal was allowed with consequential benefits to the appellants as per law.

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