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TMI Blog2007 (3) TMI 578X X X X Extracts X X X X X X X X Extracts X X X X ..... e referred terry towel manufacturers. Officers obtained yarn stock notes, sizing and warping report notebooks relating to the above terry towel manufacturers from M/s. Sri Muthu Industries. Scrutiny of records of M/s. Sri Muthu Industries, Sankarankoil revealed that they had undertaken the sizing and warping of cheese yarn of EASM supplied by M/s. Peeyelyes International, Jaisar Spintex Ltd. and group concerns during 4/99 to 2/2002. 2. A perusal of the documents obtained from the above said terry towel manufacturers and sizing unit situated at Sankarankoil indicated that those units had actually received 10 s cotton yarn on cheese from EASM, which had been described as plain reel hank yarn in the invoices of EASM. Statements of the authorized persons of the terry towel manufacturers and the documents recovered seemed to corroborate the above modus operandi of EASM. Similar statements were given by several other buyers of hank yarn from EASM who stated that yarn received were cones/cheese. 3. The following persons also had bought yarn of EASM from Sri Amman Traders in cones and had never bought yarn in hank form, as per their statements: Shri Kumaran Textile Traders, Shri Kumara ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1,250/- and No. 11/03-04 dt. 2-12-2003 for Rs. 1,03,500/- should not be adjusted against the duty liability detailed in sub para (i) above. It was also proposed to penalize Shri P.K. Duraiswamy under Rule 209A of Central Excise Rules, 1944/Rule 26 of Central Excise (No. 2 Rules) 2001. 6. The assessee contested the allegations. They did not have facility to manufacture cone yarn as they had open ended machines which could make only cheese yarn. They had not supplied cheese yarn in the guise of hank yarn. Their records had been periodically inspected and no irregularity had been noticed. The demand was therefore time barred. They had sold yarn mostly to manufacturers of terry towels who exported them. Export consumption was exempt and their buyers could have procured yarn without payment of duty. Failure to follow the prescribed procedure in this regard did not disentitle them to the benefit. The allegations were based on statements that were not corroborated. Therefore the proposals had to be dropped. 7. Considering their reply to the show cause notice, in adjudication, the Commissioner observed that the subject case was not one of removal of excisable goods without ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eal, the appellants have canvassed their case almost entirely on the basis that the impugned cotton yarn cleared by them was mainly for export consumption by Jaisar and other terry towel manufacturers who manufactured and exported terry towels on their own and through merchant exporters. Those terry towel manufacturers had followed the procedure for export and had obtained proof of export whenever they had exported terry towels. The appellants claim is that they did not have facility for manufacturing cone yarn. They denied the allegation of supplying cheese yarn in the guise of hank yarn. The yarn supplied to Jaisar and Jagannathan Company had been converted into terry towels and exported. Therefore, the appellants had no intention to clear cheese yarn as hank yarn as the yarn procured by manufacturers for export was not liable to duty. They submitted details of duty liability on their clearances of yarn used in towels exported by their various buyers accepted by the department to show that the demand was not sustainable. The adjudicating authority could not produce Shri J. Lakshmanan and Shri C. Saravanan and failed to appreciate that those witnesses had admitted that the co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g the arguments in the appeals the Ld. Advocate representing the appellants submitted that what they had cleared was only hank yarn, which was exempted and the value of which was excluded from the aggregate value of clearances for the benefit of SSI Notification. It was argued that only hank yarn had been removed and that too to exporters. In any case, all the goods had been exported after converting the yarn into terry towels. Entire demand was based on the documents of exporters. Citing the invoices of EASM No. 47 dated 15-5-2000, and the Invoice No. 116 of the exporter in Annexure B-I to the SCN of the same date, it was submitted that all the consignments weighed in multiples of 96 in Kgs, 96 Kgs being the weight of one chippam or hank. Invoice No. 116 dated 2-8-2001 was for 28 chippams wherein the weight was 2688 kgs. All the quantities listed in the annexure to the SCN were hanks which had been converted into terry towels and exported. In Mangalore Chemicals Co. reported in 1991 (55) E.L.T. 437 (S.C.), the Apex Court had held that when substantial condition was fulfilled procedural lapse should not be a ground for denial of exemption. Clearances for export consumption could no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cuments reflecting their transactions with EASM were recovered. The documents seized showed that these units had received 10s cotton yarn on cheese from EASM falsely described in the invoices as 10s plain reel hank yarn. The records of Sri Muthu Industries also showed that during 4/99 to 2/2002 they had undertaken sizing and warping of cheese yarn of EASM supplied by the above said units. Sri L. Sivasankaranarayanan of M/s. Sansons Exports had stated, inter alia, that only cheese yarn could be used in the power looms. Shri C. Saravanan, had deposed that they had purchased cheese yarn from various mills and traders including EASM and that EASM had always described cheese yarn as hank yarn in their invoices. They had required only cone yarn for manufacture of terry towels. He submitted the documents showing purchase of such yarn from EASM during 2001-2002. They had not incurred any expenditure for converting hank yarn into cone yarn. Sri J. Lakshmanan, MD of Jaisar gave a similar statement as regards the requirement of cheese yarn for manufacturing terry towels and that hank yarn had never been used for the purpose. He handed over in-passes showing details of receipt of cone bags i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d not justified the need to cross examine these persons. The appellants had not indicated which parts of the statements they had wanted to challenge. It was never the case of the appellants that those statements had been obtained under duress. They were not retracted. In quasi-judicial proceedings preponderance of probability was adequate to establish the charges. There were sufficient documentary evidence to sustain the charges found in the impugned order. The demand was revised considering the realization as cum-duty-price. The Commissioner justified invocation of larger period and penalties imposed on the basis that EASM had committed fraud and Sri Duraiswamy, MD and Sri Kailasam, Manager, were responsible for such activities committed by EASM. 15. The scrutiny of yarn stock notes, sizing and warping report note books recovered from Sri Muthu Industries relating to terry towel manufacturers PLS, Jaisar, and PTE showed that these terry towel manufacturers had received 10s cotton yarn from EASM described in their invoices as plain reel hank yarn. Terry towel manufacturers had confirmed that hank yarn had not been used in the manufacture of terry towels. Shri C. Saravanan had dep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... diture statements to show that they had not incurred expenditure to convert hank yarn to yarn on cone/cheese to back the claim that they had not received hank yarn from EASM. There is no analysis of its (profit and loss accounts/ expenditure statements) contents in the order or the response of the appellants to its contents if the same had been supplied to them. Instead it is seen that these were not furnished to them for scrutiny. The same observation applies to certain registers of the sizing and warping mills used to frame the charges. As the appellants did not receive an opportunity to examine these witnesses, it was essential to provide these records to them as they contained material information and the appellants had been deprived of their right to challenge their authenticity or acceptability as evidence. It was alleged by the appellants that vague and unauthenticated documents written by labourers were relied upon without questioning them. So, these were unreliable. These charges have not been addressed in the impugned order. That they did not retract their statements does not lend evidentiary value to their statements as they were not self incriminating confessions. 18. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d converted the yarn bought into terry towels and exported the towels. As argued in the appeal, in such a situation they could have legitimately procured the yarn on cheese without paying duty in terms of Notification No. 47/94-C.E. (N.T.) and later Notification No. 43/2001 for export consumption. Or they could have paid duty if they had cleared cheese yarn and claimed refund of the duty credit. Not fulfilling the procedural conditions was not fatal to their claim for export benefit. We do not therefore find any motive behind the fraud alleged against EASM. The terry towel manufacturers involved also spoke of receiving cone yarn from the appellant EASM, in their statements. In his statement dated 10-7-2003, Shri. C. Saravanan categorically stated that they had purchased only cone yarn from EASM etc. The tables appearing in the impugned order compiled from documents and records recovered from the major buyers of yarn from EASM relied to establish the department s case show receipt of cone or cone bags . It is nobody s case that EASM had sold cone yarn. They had no facility to manufacture cone yarn as they had open ended machines with which cheese yarn alone could be manufactured. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Traders, Vigneswara Terry Mills and Venkataswara Terry Mills, had confirmed converting cone yarn received by them from EASM into terry towels. In view of the retractions by buyers of hank yarn from EASM during hearing the above statements do not advance the case of the Revenue that cheese yarn had been sold in the guise of hank yarn by the appellants. 24. Once we accept the claim that the appellants had not cleared cheese yarn in the guise of hank yarn duty liability on the clearances made by the appellants during the material period need not be revised as was proposed in the show cause notice. The value of these yarn clearances legitimately deserve to be excluded from the value of clearances for the purpose of computing eligibility of appellants clearances to SSI benefit. 25. Appellants had claimed that the extracts of in-passes contained 29 entries spread over three years whereas Jaisar had received 186 consignments during the material time. Therefore the record relied on had not been maintained in the normal course of business and was unreliable. Similar allegation was raised against the drivers trip sheets which contained a few entries and not a substantial number consid ..... X X X X Extracts X X X X X X X X Extracts X X X X
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