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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 ..... Attire, B-2, Basement, Sunder Kiran Building, 6/41, W.E.A. Karol Bagh, New Delhi, and Mrs. Usha Diwan, Proprietor - M/s. Ethnocity, B-l, Basement, Sunder Kiran Building, 6/41, WEA Karol Bagh, New Delhi against order- in-Original No. 27-29/2004 dated 31-8-2004 passed by Commissioner of Customs, Delhi-I in respect of three Show Cause Notices - SCN No. CE-20/Misc - Inv/Diwan Sons/R-28-4-2001 dated 7-5-2002 for demand of duty amounting 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are provided by Diwan Sons. 1.3 In January 2003 the Officers of Central Excise Commissionerate, Delhi-I searched the premises of Diwan Sons, East West Attire, Ethnocity and of their associate concern and conducted detailed inquiry with the Directors/Proprietors of Diwan Sons, East West Attire, Ethnocity etc. and also with their employees and on completion of enquiry, three Show Cause Notices, mentioned above, were issued. The allegations 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 man ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4(3) of Central Excise Rules, 2001/2002, only refer to a person who acts as a merchant-manufacturer and not the person who uses the product from his own consumption with no further intention to trade in garments. (iv) Most of the garments made by Diwan Sons as part of tailoring activity, as per the individual customer's specifications have consider able embroidery work on them and hence the same are classifiable as 'handicrafts' and therefore exempt from duty under Notification 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... duly in respect of these garments got stitched by Diwan Sons through a tailoring firm out of the fabrics purchased by the customers and as per the specifications of the customers. Second point of dispute is as to whether the garments, in question, most of which, according to appellants, have substantial embroidery, are handicrafts and hence eligible for full duty exemption under Notification No. 76/86-C.E., dated 10-2-1986. The third point of dispute is whether East West Attire 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 ? ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Diwan in his statement dated 22-4-2003, confirming the statements of his father and his wife, has stated that East West Attire in the name of his father Shri M.L. Diwan and Ethnocity in the name of his wife Mrs. Usha Diwan had been started in 2001 when excise duty was imposed on apparels and the clearances of garments by their main company - Diwan Sons had exceeded Rupees One Crore. Both these units - Ethnocity and East West Attire were closed down in the year 2003 after booking of the case 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 co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e even if it is saleable to a single person only. For saleability it is not necessary that a product must be saleable in a showroom or in a shop. As regards the argument that making garments for an individual customer as per his specifications is tailoring activity, not attracting excise duty, this argument is also incorrect as difference between large scale manufacture of garment by a job worker for a merchant- manufacturer out of the fabrics and accessories supplied to the job worker and making of a few garments 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 gar ..... 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