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TMI Blog2008 (5) TMI 93X X X X Extracts X X X X X X X X Extracts X X X X ..... ting to Rs. 39,68,880/- for period from April 2001 to September 2001; SCN No. CE 20/Misc-Inv/Diwan Sons/R-28/4/2001 dated 27-9-2002 for demand of duty amounting to Rs. 61,50,000/- for the period from October 2001 to March 2002 and SCN No. IV/(hdqr. - Prey.) 12/01/03 dated 12-8-2003 for demand of duty amounting to Rs. 1,05,27,577/- for the period from April 2001 to March2003. The Commissioner by this order - (a) confirmed the demand of duty amounting to Rs. 2,06,46,457/- (37,68,880 + 61,50,000 + 1,05,27,577) against Diwan Sons under provision to Section 11A(1) of the Act, along with interest on this duty at the applicable rate under Section 11AB of the Act; (b) imposed penalty of Rs. 2,05,46,457/- on Diwan Sons under Section 11AC of the Acts and penalty of Rs. 25 lakhs each on Shri Surinder Diwan and Sudhir Diwan under Rule 26 of the Central Excise Rules, 2001/2002; and (c) imposed penalty of Rs. 5 lakh each on Shri M.L. Diwan and Mrs. Usha Diwan under Rule 26 of the Central Excise Rules, 2001/2002. 1.1 Diwan Sons is a private limited company with Shri Surinder Diwan and Shri Sudhir Diwan, who are real brothers as its Directors. M/s. East West Attire is a proprietorship firm wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons in the Show Cause Notices are that :- (a) the garments made on account of tailoring activity of Diwan Sons i.e. the garments stitched through Diwan Sons for the customers out of the fabrics purchased by them from Diwan Sons, would also at tract Central Excise Duty which has not been paid, and (b) East West Attire and Ethnocity, are dummy units created by Diwan Sons for the purpose of duty evasion and clearances of these units is liable to be clubbed with the clearances of Diwan Sons for the purpose of SSI exemption. The Show Cause Notices dated 7-5-2002 and 27-9-2002 demand duty from Diwan Sons on the garments made as per the specifications of the customers, out of the fabrics purchased by them for Diwan Sons that is, on the garments manufactured as part of "tailoring activity". In the third Show Cause Notice dated 12-8-2003, in addition to the above issue, the duty demand has also been raised by denying the benefit of SSI exemption to East West Attire and Ethnocity by clubbing the clearances of these two firms during period from 1-4-2001 to 31-3-2003 with the clearances of Diwan Sons during this period. It is these three Show Cause Notices which have been adjudicated by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ification 76/86-C.E. In this regard a certificate from Assistant Director, (Handicrafts) had been produced before the adjudicating authority, but the same was not considered. (v) Diwan Sons had no connection with East West Attire and Ethnocity and these two firms were never controlled and supervised by Surinder Diwan and Sudhir Diwan of Diwan Sons, as held by the Commissioner. (vi) Since the first two Show Cause Notices dated 7-5-2002 for period from April, 2001 to September 2001 and dated 27-9-2002 for period from October 2001 to March 2002 had been issued without invoking proviso to Section 11A(1), there is no justification for invoking extended issued under proviso to 11A(1) in the 3rd Show Cause Notice dated 12-8-2003 for period April 2001 to March 2003 and therefore major portion of duty demand raised by this Show Cause Notice is time-barred. In this regard, reliance is placed on Hon'ble Supreme Court's judgment in case of Nizam Sugar Factory v. CCE, reported in 2006 (197) E.L.T. 465 (S.C.) = 2008 (9) S.T.R. 314 (S.C.). (vii) Since duty demand itself is liable to be set aside, there is no question of imposing any penalty. 2.2 Shri Virender Choudhary, learned Departmental r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and Ethnocity, are dummy units floated by Diwan Sons and whether the clearance of East West Attire and Ethnocity are liable to be clubbed with the clearance of Diwan for the purpose of SSI exemption benefit. The fourth point of dispute is whether the major portion of duty demand raised vide Show Cause Notice dated 12-8-2003 is time-barred. 4. Eligibility for exemption under Notification 76/86-C.E., dated 10-2-1986 :- This Notification provides for full duty exemption to 'handicrafts'. Whether a particular item would merit classification as a 'handicraft' depends upon factor like intricacies of designs, quantum of individual artistic skill, extent of value addition on account of ornamentation by hand ? The nature and extent of ornamentation by hand and value addition on account of it would be different in, different garments and this has to be individually ascertained. In this case, the sale of the garments, in question, stitched as per the measurements and specifications of individual customers had take place during April 01 to March 03 period and at that time no such claim was made. Even during investigation, no such claim was made. Therefore, at the time of adjudication such a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of duty evasion against them. (d) From the above, it is clear that the production of Diwari Sons had been artificially Split up into three units while the three units continued to function under the control and supervision of Surinder. Diwan and Sudhir Diwan, the Directors of Diwan Sons. 6. Is the major portion of duty demand raised vide Show Cause notice dated 12-8-2003 for period from April 2001 to March 2003 time barred? 6.1 The first two Show Cause Notices dated 7-5-2002 and dated 27-9-2002 which demand duty on the garments manufactured as part of "tailoring activity" of Diwan Sons are within the normal limitation period. In the third Show Cause Notice dated 12-8-2003, which covers period from April 2001 to March 2003 and in which longer limitation period under proviso to Section 11A(1) has been invoked, demand of duty on the garments manufactured as part of "tailoring activity" is not the only issue and duty demand linked with this issue is within the normal limitation period. The other issue on account of which duty demand has been made and which had not been raised in the earlier two Show Cause Notices is the clubbing of the clearances of East West Attire and Ethnocity wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by a person for his customers out of the fabrics supplied by the customers as per the customers' specifications, is only of scale and if the former is accepted as manufacture attracting excise duty, the latter also has to be accepted as a process of manufacture attracting excise duty. 7.2 However the most important plea of the Appellants is that even if the goods, in question, are held to be excisable and not eligible for the handicraft exemption Notification No. 76/86-C.E., in terms of the provisions of Rule 7AA of the Central Excise Rules, 1944 and its successor Rule 4(3) of Central Excise Rules, 2001/2002, Diwan Sons are not liable to pay duty in respect of the garments made as part of their tailoring activity, as per the individual customer's specifications as - (a) there is no dispute about the fact that it was not compulsory for a customer purchasing fabrics from sale outlets of Diwan Sons to get the garments stitched through them only; and (b) Stitching of garments took place after the sale of the fabrics to the customers and according to the appellants, for this reason the garments cannot be said to have been made on account of Diwan Sons. 7.2.1 We find that though thi ..... 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