2013 (9) TMI 311 - AT - Central Excise

Notification 5/98, Notification 5/99, Notification 6/2000, Notification 3/2001 and Notification 6/2002-C.E - Revenue enforced the bond executed at the time of provisional release of the said goods, and directed appropriation of the security deposit tendered against the same, and imposed penalty u/s11AC of the Act and under Rule 173Q of the Central Excise Rules, 1944 r.w. Rule 25 of the Central Excise Rules, 2002 - The dispute was related to the period October 1996 to December 2002 - During the period various Notifications granted exemption to cotton fabrics subjected to various processes were issued Held that - The allegations against the appellants, as levelled in the Show Cause Notice and confirmed by the Commissioner, to be bereft of substance - No case for clubbing the processes carried out at Bhagyalakshmi and Famous can be said to have been made out - They were evidence on record clearly independent units independently working for the grey fabric supplier on their own account - The allegation of usage of power in mercerizing and stentering was also on the basis of the material on record without substance - In any event, in view of the fact that (i) the processes carried out at Bhagyalakshmi and Famous nave been held to be independent and not liable to be clubbed, (ii) the fabric cleared by Bhagyalakshmi to Famous is admittedly not marketable, (iii) there was no demand confirmed against Famous and (iv) the processes of baling and packing cannot be regarded as amounting to manufacture , no case for enforcing any duty demand against Bhagyalakshmi can be said to exist. The demand, as confirmed by the Commissioner against Bhagyalakshmi, along with the penalties on Famous and Shri N.K. Gajera, were not sustainable and the Commissioner s order does not survive. All the evidences, which were produced by the appellant before the Commissioner had not been contradicted or controverted during the course of hearing by the learned SDR - The invoice dated 16-12-2002, whereunder the motor found in the premises of Bhagyalakshmi was stated to have been purchased, as actually relating to such purchase - the Commissioner s ground for rejecting the said invoice was only that it had not been produced during the course of investigation - In the backdrop of other evidence relied by the appellant, the said invoice appeared to have been believable and in any case no case for presuming that the appellant had, in the past, operated, apart from already existing motor of 10 HP and 3.5 HP, another 10 HP motor on the mercerizing machine, can be said to exist, especially in view of the certificate of the Gujarat Vidyut Board which, coming from a statutory governmental authority, necessarily had to be accepted, in the absence of any evidence to discredit its trustworthiness. As the usage of power in the process of stentering at Famous was concerned, as had already been noticed, even if stentering were assumed to have taken place with the aid of power, that would not make any difference, as no demand had been confirmed against Famous - That apart, the only evidence to support the allegation of usage of power in stentering was the statements of the personnel of Bhagyalakshmi and Famous which, for the reasons already stated cannot be relied upon as the sole evidence to sustain the charge levelled by the Revenue - As against this, the learned Counsel for the appellant had pointed out that the photographs taken at the time of search/visit indicated that LPG Cylinders were used in stentering process - no demand having been confirmed against Famous, this issue was not of any substantial significance. The mere fact that grey fabrics were initially procured and finally dispatched by Bhagyalakshmi, or that common account was maintained for the processes carried out at Bhagyalakshmi and Famous cannot justify clubbing the processes or arrogating duty liability on all the said processes to the final fabrics as cleared from Bhagyalakshmi after baling and packing - As regards the usage of power in the process of mercerizing carried out in Bhagyalakshmi, was woefully insufficient to sustain the case of the Revenue - The allegation of high level of electricity consumption, etc., can hardly be taken into account, as neither the Show Cause Notice nor the impugned Order-in-Original, indicated that any analysis was conducted to ascertain what the normally acceptable level of electricity consumption would be, or how the consumption by Bhagyalakshmi was disproportionate in this regard.

Summary

Issues Involved:
1. Demand of Central Excise Duty against Bhagyalakshmi Processor Industries.
2. Confiscation of goods and enforcement of bond.
3. Imposition of penalties on Bhagyalakshmi, Famous Textiles Packers, and Shri N.K. Gajera.
4. Applicability of exemption notifications.
5. Marketability and excisability of processed fabrics.
6. Clubbing of processes carried out at Bhagyalakshmi and Famous.
7. Usage of power in processing activities.
8. Admissibility of retracted statements and affidavits.
9. Separate identity and liability of Bhagyalakshmi and Famous.

Detailed Analysis:

1. Demand of Central Excise Duty against Bhagyalakshmi Processor Industries:
The Commissioner confirmed a demand of Rs. 5,46,12,662/- against Bhagyalakshmi Processor Industries, along with equivalent penalties. The Tribunal found that the processed fabric cleared by Bhagyalakshmi to Famous was not marketable, and thus, not excisable. The Tribunal emphasized that both manufacture and marketability are necessary conditions for duty liability, as established in Triveni Engineering Industries Ltd. v CCE.

2. Confiscation of goods and enforcement of bond:
Goods valued at Rs. 20,90,555/- and Rs. 2,63,764/- were confiscated, and the bond executed at the time of provisional release was enforced. The Tribunal did not specifically address this issue separately but implied that the confiscation was not justified as the primary demand itself was found unsustainable.

3. Imposition of penalties on Bhagyalakshmi, Famous Textiles Packers, and Shri N.K. Gajera:
Penalties were imposed under various sections of the Central Excise Rules. The Tribunal set aside these penalties, reasoning that the demand itself was unsustainable, and thus, the penalties could not be upheld.

4. Applicability of exemption notifications:
The Tribunal discussed various exemption notifications and concluded that cotton fabrics processed without the aid of power/steam remained exempted throughout the relevant period. The processes at Bhagyalakshmi and Famous were not found to be clubbed, and thus, the exemptions were applicable.

5. Marketability and excisability of processed fabrics:
The Tribunal noted the Revenue's admission that the fabric in wet condition was not marketable. Consequently, no duty could be demanded on such clearances, as marketability is a sine qua non for excisability.

6. Clubbing of processes carried out at Bhagyalakshmi and Famous:
The Tribunal rejected the Revenue's argument for clubbing the processes at Bhagyalakshmi and Famous. It highlighted the separate identities, different partners, separate PAN numbers, and independent operations of the two firms. The Tribunal found no commonality of managerial control or financial interplay to justify clubbing.

7. Usage of power in processing activities:
The Tribunal found insufficient evidence to support the usage of power in the processes of mercerizing and stentering. The evidence of high electricity consumption was not substantiated with any analysis. The Tribunal accepted the appellant's submissions, supported by the Gujarat Vidyut Board's certification, that the sanctioned load was never exceeded.

8. Admissibility of retracted statements and affidavits:
The Tribunal held that the Commissioner erred in rejecting the affidavits retracted by the appellants. Citing Parle Beverages Pvt. Ltd. v. C.C.E., the Tribunal stated that affidavits should be admitted in evidence and their probative value assessed. The Tribunal found that the retractions were made at the first opportunity, undermining the credibility of the original statements.

9. Separate identity and liability of Bhagyalakshmi and Famous:
The Tribunal emphasized that Bhagyalakshmi and Famous were independent entities with no common partners. The processes carried out at each firm were distinct and could not be clubbed. The Tribunal concluded that no duty liability could be attributed to Bhagyalakshmi for the processes carried out at Famous.

Conclusion:
The Tribunal allowed the appeals, setting aside the demand and penalties imposed by the Commissioner. It held that the processed fabric was not marketable, the processes at Bhagyalakshmi and Famous could not be clubbed, and the usage of power was not substantiated. The Tribunal also found procedural errors in rejecting the retracted affidavits. Consequently, the order of the Commissioner did not survive.