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TMI Blog1987 (12) TMI 203X X X X Extracts X X X X X X X X Extracts X X X X ..... ed during the period when the appellants had no licence as required under the Central Excise law. Documents seized showed details of wires of 1808 drums and for the remaining 837 drums the length of the wire was taken on pro rata basis. In the statement recorded, it was admitted by the partner of the appellant firm that they were manufacturing these wires from July, 1981 onwards for and on behalf of M/s. Krishna Electrical Industries. It was stated that the latter supplied raw materials to the appellants. The appellants were charged for contravention of Central Excise law and rules as set out in the impugned order. The learned advocate for the appellants pleaded that the goods had been manufactured only after 4-12-1981 i.e. after the date of issue of Central Excise licence. He pleaded that they had applied for the licence on 26-11-1981 and the licence was issued to them as required under the rules after the inspection of the premises by the Central Excise authorities. He pleaded that when the authorities visited the factory, they did not find any goods being manufactured by the appellants as otherwise the officers would have booked a case against them. He pleaded that only trial ru ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Regarding 2645 drums of drop wire it was pleaded that vouchers for return of 2564 km. of wire out of a total of 5173 km. covered by these drums had been produced before the Collector to show that the same after manufacture, had been returned to M/s. Krishna Industries. He stated that there were some other vouchers which the Collector had not taken note and which were available with them in regard to the goods manufactured and sent to M/s. Krishna Industries. He however, could not show as to why these vouchers could not be produced before the Collector and how this came into their possession when the records had been seized earlier. The learned consultant was called upon to file an affidavit in this regard. However, he submitted later after the hearing that the vouchers referred to by him were not of the same nature as were produced before the Collector. No notice therefore, can be taken of these vouchers at this stage. The learned SDR for the department submitted that the 330 coils which had been seized were in measured lengths and that with the tags attached and therefore, were required to be entered in the R.G. 1 register. She pleaded that this could not be treated as semi-finish ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y at the hands of M/s. Krishna Industries. The records seized give the complete details of the quantities of wires manufactured on different dates and the fact of production of the same has been confirmed by the partner of the firm in his statement before the Central Excise authorities. Any denial later in this regard in the face of the evidence has to be rejected as an after thought. We therefore, hold that the appellants have been correctly held to have contravened the provisions of the Central Excise law and the rules as set out in the Collector s order. Taking into account the quantum of the goods involved and the value of the goods involved, we hold that the amount of penalty fine fixed denied is not excessive. The Collector has also correctly demanded duty in respect of the goods which have been held to have been manufactured by the appellants. Redemption fine fixed in respect of the seized goods is also not excessive. The appeal is therefore rejected. 4. [Order per: G.P. Agarwal, Member (J)]. I have had the advantage of perusing the order of my Learned Brother Shri V.P. Gulati. I regret I am unable to agree with him. 5. Though the facts in brief have been stated by my ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Anil Gupta had stated that his firm, that is to say, M/s. Krishna Electrical Industries had received a bulk order of drop wire from P T Department and he took help from the appellants for meeting his own (M/s. Krishna Electrical Industries) requirement of supplies to P T Department. He further stated that the appellant firm and the said M/s. Krishna Electrical Industries are two independent concerns, but side by side these are sister concerns. He further stated that the appellant firm had no independent purchase of raw material like cadium copper and PVC etc. The entire stock of these items was sent to the appellant firm for undertaking the manufacture of semi-finished goods for and on behalf of M/s. Krishna Electrical Industries. He further stated that all these transactions are properly accounted for in the accounts of M/s. Krishna Electrical Industries. In his statement, he further stressed that these drop wires are used only by the P T Department and have no local market on which appropriate amount of excise duty has also been paid. It appears that the Department was not satisfied with the said statements, and therefore, the authorities concerned also investigated the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... M/s. Krishna Electrical Industries after processing against proper challans and they have charged for only labour work done. During the adjudication proceedings the appellants submitted certain bills in original in support of their contention that they processed 2645 drums of drop wires on behalf of M/s. Krishna Electrical Industries. However, the defence of the appellants did not find favour with the Adjudicating Authority. As regards, defence of the appellants with respect to the seized 330 coils, the Adjudicating Authority while conceding that the goods under seizure are only of utility to P T Department further held that the plea of the appellant that these coils were not yet complete as these wires had to undergo a vigorous test such as annealing test, tensile test, wrapping, conductor resistance tests is not convincing. As regards the removal of 2645 drums of electric drop wire the Adjudicating Authority held that against the charge of manufacturing of 2645 drums equivalent to 5173 Kms., the appellants had supplied only vouchers of 2564 Kms. showing fabrication of drop wire, but ultimately held against the appellants mainly because - (i) the quantity of drop wires report ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not been defined in the Central Excises and Salt Act, 1944. However, Section 2(d) of the said Act defines excisable goods means goods specified in the Schedule to the Central Excise Tariff Act, 1985 as being subject to a duty of excise and includes salt. Section 2(f) of the same Act defines manufacture as including any process incidental or ancillary to the completion of a manufactured product. It is now well known that the charge to excise duty under Section 3 of the Act is attracted in case of manufacture of an excisable goods. What is meant by the word manufacture as used in Section 3 of the Act was considered by the Supreme Court originally in Union of India v. Delhi Cloth and General Mills Ltd., AIR 1963 S.C. 791 = 1977 E.LT (J 199) wherein it was observed as follows :- (17).... to become goods" an article must be something which can ordinarily come to the market to be bought and sold....." (18) This consideration of the meaning of the word goods" provides strong support for the view that manufacture which is liable to excise duty under the Central Excises and Salt Act, 1944 must be the bringing into existence of a new substance known to the market." In tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... x (Law) Board of Revenue v. M/s. PIO Food Packers, AIR 1980 S.C. 1227 = 1980 E.LT. 343 (S.C.) and quoted with approval the following passage appearing in the case of Anheuser - Busch Brewing Association v. United States, (1907) 52 ED 336: Manufacture implies a change, but every change is not manufacture, and yet every change in an article is the result of treatment, labour and manipulation. But something more is necessary.............There must be transformation, a new and different article must emerge, having a distinctive name, character or use"..... At some point processing and manufacturing will merge. But where the commodity retains a continuing substantial identity through the processing stage we cannot say that it has been manufactured"." 12. Again the Supreme court in the case of Union Carbide India Ltd. v. Union of India, Supra while reiterating the same view and further added that articles in crude or elementary form are not dutiable as they are merely intermediate products and not goods. In paragraph 7 of the judgment their Lordships held that it would be difficult to believe that the aluminium cans or torch bodies produced by extrusion process would attract the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ility to P T Department . In the process he submitted that all these facts are admitted to M/s. Krishna Electrical Industries and to lay emphasis he drew our attention to the statement of Shri S.S. Aggarwal, Partner of the saidfirm M/s. Krishna Electrical Industries recorded on 10-12-1981. In his statement Shri S.S. Aggarwal has admitted that the appellant firm had no independent purchase of raw-materials like Cadmium Copper and PVC wire etc. and that raw-material in the shape of Cadmium Copper and PVC wire etc. was sent to the appellant firm for undertaking the manufacture of semi-finished goods on behalf of the M/s. Krishna Electrical Industries for which the appellant firm was paid the labour charges. Shri Kapoor further contended that the fact that after receiving the semi-finished goods from the appellant firm the said firm M/s. Krishna Electrical Industries carried out the various vigorous tests as perstandardspecification prescribed by the P T Department and after doing so delivered the same to the P T Department and discharged the duty liability is also admitted to the said firm M/s. Krishna Electrical Industries. On this premises it was argued by Shri Kapoor that whe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... raph Department. And that the appellant firm had no such facility by way of extensive laboratory in the factory premises at the relevant time. From the contract entered between the P T Department and M/s. Krishna Electrical Industries I find that it was the condition precedent that PVC drop wire cadmium copper conductor dia must conform to ITD Specification No. S/WS-118D, dated 25-1 -1980. From the said standard Specification No. S/WS-118D, dated 25-1-1980 I find that the specification requires a reference to the following Indian standard Specifications :- (a) I.S : 2665 and (b) I.S : 694-1977 From I.S : 694-1977 I find that for making the PVC insulated cables marketable the following acceptance tests are required to be carried out on electric wires and cables : (a) Annealing test, (b) Tensile test, (c) Wrapping test, (d) Conductor resistance test, (e) Test for thickness of insulation and Sheath; and (f) Insulation resistance test. Besides the above, high voltage tests by way of spark and water immersion are also required to be carried out where these are immersed in a water bath at 60.30oC and after 24 hours a voltage of 3 KV (Gms.) is applied. These are co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... M/s. Krishna Electrical Industries, M/s. Krishna Electrical Industries were the manufacturers and not the appellant firm; and (ii) that it is not proved by the department that the appellant clandestinely removed 2645 drums of drop wire. 16. While elaborating that the appellant firm is not the manufacturer Shri Kapoor submitted that right from the beginning it was the case of the appellant that the appellants and M/s. Krishna Electrical Industries are two independent concerns; that M/s. Krishna Electrical Industries are licensed manufacturer of the wires in question; that the appellant firm applied for Central Excise Licence on 26-11-1981 and the same was issued on 4-12-1981; that drop wires in question are exclusively meant for P T Department and have no local market; that since M/s. Krishna Electrical Industries had to supply the drop wires to the P T Department as per contract and the appellant factory was idle since no licence was granted up to 4-12-1981; M/s. Krishna Electrical Industries decided to send raw material for processing the same for and on their behalf to the appellant and that the appellant after receiving the raw material processed the same and returned it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... paid through cheques to the appellants. Thus from these established facts it is clear that the instant case is not a simple case of raw materials being sent and new finished articles being manufactured. On the other hand the instant case is a case where M/s. Krishna Electrical Industries were owners of the raw materials throughout and at the end they took away all the goods processed on their behalf including the waste left by paying only the labour charges to the appellant firm. In other words, the instant case is a case of one unit employing another unit on hired labour basis. In this view of the matter I am supported by the ratio of the Supreme Court judgment rendered in the case of Shri Agency v. S.K. Bhattacharjee, 1977 E.LT. (J 168) and Bajrang Gopal Lal Gajabi v. M.N. Balkundri, 1986 (25) E.L.T. 609 and also by the judgment rendered by this Tribunal in the case of H. Guru Instruments Ltd. v. Collector, 1987 (27) E.LT. 269. Thus I hold that the appellant was not the manufacturer. 17. With regard to the duty liability Shri Kapoor, learned Consultant submitted that the demand of duty from the appellant is illegal because neither any excisable goods was produced by the appella ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ads as follows :- "(ii) Excise Duty: The price indicated in para 1(a) above are exclusive of Excise Duty which is payable extra as admissible in keeping with the calculated monthly rate of supply as stipulated in Clause 2(b) (ii) of the purchase order within the Scheduled Delivery period. Present rate of Excise duty is 20 + 5%. Surcharge on Excise duty equally 21% in all as indicated in Tender offer. Any statutory variation within the Scheduled delivery period shall be to the purchaser s account. Any increase beyond the Scheduled delivery period will be to the supplier s accounts but the benefit of any downward revision will go to the purchaser. Payment is subject to the production of Certificate signed by the Director/Manager or any responsible officer of the firm in the proforma at Annexure B ." Basing his argument on the said clause learned Consultant argued that when it is conceded by the Adjudicating Authority that the drop wire in question were of utility to the P T Department only and the burden of Excise duty was to be borne by P T Department, there was no question of any clandestine removal or evasion of any duty. He further submitted that if Department was doubt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot yet complete, intended to undergo annealing, tensile test, wrapping, conductor resistance tests is not convincing to me." Though he conceded that the goods under seizure are only of a utility to P T Department . Why the Collector found the plea of the party that the goods under seizure were not complete, intended to undergo annealing, tensile test, wrapping, conductor resistance tests not convincing to him is not known. He has not recorded any reason or reasons for holding so. In view of my discussion above with reference to the charge of removal of 2645 drums of electric drop wire, I hold that the goods under seizure were not complete as the same were required to undergo the said vigorous tests. The finding of the learned Collector that since the goods had taken shape of electric wires and cables they were required to be accounted for in R.G.1 Register also cannot be sustained in view of the decision of the Hon ble Supreme Court rendered in the case of Union of India v. Delhi Cloth and General Mills, Supra. In that case the assessee for the purpose of manufacturing Vanaspati purchased groundnut and til oil from the open market or directly from the manufacturers of such oil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as justified? (iii) whether in the facts and circumstances of the case personal penalty was called for? The points of difference are, therefore, under Section 35D(1) of Central Excises and Salt Act, 1944 read with Section 129C of the Customs Act, 1962 referred to the President of the Tribunal for decision in accordance with law. Sd/- Sd/- (V.P. Gulati) (G.P. Agarwal) Member (T) Member (J) 2-12-1987. 21. [Order per : M. Santhanam, Member (J)]. - Since there was a difference of opinion in respect of the decision in this case, the matter was referred to me by the Hon ble Sr. Vice-President under Section 35D(1) of the Central Excises and Salt Act read with Section 129C(5) of Customs Act for hearing on the points of difference formulated by Shri V.P. Gulati, Member (Technical) and Shri G.P. Agarwal, Member (Judicial) who comprised the North Regional Bench. 22. The facts of the case are that on 8-12-1981, the factory premises of the appellants was inspected and on verification, the department found a stock of 330 coils of drop wires PVC insulated Cadmium Conductors of size 1/0.63 mm valued at Rs. 25,329.30. The appellants got a L-4 Licence on 4-12-1981 for the m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the case of D.C.M., South Bihar Sugar Mills, Sandoz India and P.O. Food Packers. In paragraph 14, he has observed that mere processing of Cadmium copper into drop wire without carrying out the various prescribed vigorous tests would not amount to manufacture as laid down by the Hon ble Supreme Court. Since the wire was required by the P T Department and had no local market, he held that until and unless they conformed to the prescribed standard, duty liability would not be attracted. His finding was that the 2645 drums were in semi-finished forms. The appellants only received the raw material, processed the same and returned it to M/s. Krishna Electrical Industries. He was of the view that the ratio of the Supreme Court s decision in Shree Agencies reported in 1977 E.L.T. (J 168) would apply to the present facts. Even in regard to the 330 coils seized, he held that they were not complete or had undergone further vigorous tests. 26. Shri V.P. Gulati, Member (Technical) was of the view that the appeal should be rejected. Shri G.P. Agarwal, Member (Judicial) held that the impugned order should be set aside and the appeal allowed. 27. The points of difference according to the t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dras v. Madras Chemicals). 30. In regard to the 2645 drums, the appellants version is that the raw material was supplied by M/s. Krishna Electrical Industries. I have only to refer to page 41 of the Paper Book where the statement of Shri Agarwal which adverts to this aspect. Further the appellants have claimed that the goods had been returned after processing and under proper challans. Even the department admits that in respect of certain quantity, vouchers had been produced. This statement of the partner and the appellants is confirmed by the statement of M/s. Krishna Electrical Industries. The appellants have stated that the further processing like testing, reeling and packing have been done by M/s. Krishna Electrical Industries. The question is whether the Krishna Electrical Industries were the manufacturers or the appellants. On this issue, it is safe to conclude that M/s. Krishna Electrical Industries were the manufacturers. The circumstances are: (i) the supply of the entire raw materials by M/s. Krishna Electrical Industries to the appellants; (ii) the appellants, after processing the goods had sent them to M/s. Krishna Electrical Industries under proper challans. In their ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... had no rating order, they utilised the same. The entire production was accounted for in the RG-1 Register of M/s. Krishna Electrical Industries. The case of the appellants cannot be rejected merely on the ground that the raw material register of M/s. Krishna Electrical Industries was not properly maintained. It is significant to note that no action has been taken against M/s. Krishna Electrical Industries. If they were the manufacturers of these 2645 drums, then the order of the Hon ble Supreme Court in Shree Agencies s case would definitely apply. Shri V.P. Gulati, Member (Technical) in the course of the order, has rejected the appellants case on the ground that it was not material as to whether the raw material had been supplied by M/s. Krishna Electrical Industries. But the question, as to who would be the manufacturer, in a particular case, cannot be determined on broad legal basis but with respect to the facts in each case. From the evidence adduced, it is clear that the Krishna Electrical Industries had engaged the appellants to process the goods. In the circumstances, I agree with the Member (Judicial) that in regard to the 2645 drums, it could not be said that there was a c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eep the waste material properly tagged. Further the condition of the goods fully packed in gunny bags indicates that they were finished products assessable to duty. The non-entry of these products in the RG-1 Register is, therefore, a violation. The intention of the appellants in not making the entries is itself manifest, I do not agree with the contention that there was no mens rea to evade payment of duty. The decision cited by the Ld. Consultant does not apply to the present facts. Hence, I agree with Member (Technical) that in regard to the 330 coils, violation has been made out. The confiscation of the 330 coils is justified. 33. On the question of penalty, in view of my above observations, the circumstances of the case call for the imposition of a personal penalty only in regard to the 330 coils. Since the Bench has to decide the quantum of redemption fine and the penalty in the light of the majority view, I am leaving this question open to be decided by the Bench. 34. My findings on the points are as follows:- (i) I hold that the demand for duty on 2645 drums of electrical wires and cables was not justified; (ii) I hold that the confiscation of the 330 coils of elect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ew, I am leaving this question open to be decided by the Bench . Accordingly the case was posted for hearing on the question as what should be the redemption fine for redeeming the seized 330 coils of electrical wires and cables and also what should be the personal penalty with respect to the offence proved in relation to these seized 330 coils. 38. Shri J.S. Agarwal, learned Counsel for the appellants submitted that the value of the seized 330 coils was only Rs. 25,239.30 whereas the value of 2645 drums of electrical wires and cables was Rs. 3,96,331.00 and for both the offences the composite penalty of Rs. 1 lakh was imposed by the adjudicating authority. He further submitted that the appellants admittedly applied for the Central Excise Licence on 26-11-1981 which was granted on 4-12-1981, i.e. to say much before the date of visit and seizure of 330 coils. He further submitted that all through it was the contention of the appellants that these coils were not required to be entered into RG-1 register. However, he submitted that in view of the majority decision he is not challenging the confiscation but submits that while fixing the redemption fine and amount of penalty all the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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