GOPAL ZARDA UDYOG Vs. COMMISSIONER OF CENTRAL EXCISE

JUDGEMENT

(1.) Whether, in the facts and circumstances of the case, the tribunal was justified in holding that the additive mixture processed by the three appellants herein was excisable and classifiable under chapter sub-heading 2404.49 of Central Excise Tariff Act, 1985 and that the department was right in invoking the extended period of limitation under the proviso to section 11-A(1) of Central Excise Act, 1944 (hereinafter referred to as "the Act").

(2.) Briefly, the facts of the case are that M/s. Hari Chand Shri Gopal, M/s. Gopal Industries and M/s. Gopal Zarda Udyog were the three assessees engaged in the manufacture of Chewing Tobacco (Final Product) falling under sub-heading 2404.40 of Tariff Act, 1985. In the manufacture of the final product, they were using an intermediate product known as "additive mixture". An intelligence was collected by the officers of the preventive wing of the Commissionerate to the effect that the appellants were manufacturing the said "additive mixture" without obtaining registration certificate under section 6 of the 1944 Act read with rule 174 of the Central Excise Rules, 1944; that they have been removing the said goods clandestinely from their factories situated in Delhi; that they were unauthorisedly clearing the said goods under transfer challans to their factories in UP and HP (where the final product was manufactured). On the basis of the aforestated intelligence, various premises belonging to the three appellants were searched. Enquiries were also made from traders dealing in the kimams as well as from the manufacturers and the suppliers of the raw material. The partners of the three appellant firms were also examined. The department was informed that the said "additive mixture" consisted of various ingredients like raw-kimam, menthol, aromatic chemicals, spices, gulab jal, attar and perfumes etc. The process of preparing additive mixture was explained in detail by the partners. On the aforestated investigations, three separate show-cause notices were issued, all dated 25-3-1997. In the said show-cause notices, it was alleged that the appellants were clandestinely manufacturing and clearing additive mixture falling under sub-heading 2404.49 (up to 22-7-1996) and falling under sub-heading 2404.40 on and after 22-7-1996, in contravention of the provisions of the said 1944 Act and the Rules with intention to evade duty/assessment. The show-cause notices further record that on 15-10-1996 M/s. Gopal Industries and M/s. Hari Chand Shri Gopal voluntarily obtained registration certificates for the manufacture of the said mixture under rule 174. The three show-cause notices were in respect of the period 18-3-1994 to 26-9-1996 under the proviso to section 11-A(1) of the 1944 Act. In the case of M/s. Gopal Zarda Udyog, the department demanded duty for the period 18-3-1994 to 15-4-1995; in the case of Hari Chand Shri Gopal, the demand was for the period 14-6-1995 to 24-9-1996; but in the case of M/s. Gopal Industries, the department demanded duty for the period 16-6-1995 to 26-9-1996.

(3.) On dated 21-11-1997, replies were given to the three show-cause notices. The appellants submitted that they were engaged in the activity of manufacturing chewing tobacco, which was an excisable product on which they have been paying duty. In the reply, the appellants explained at length the process by which the additive mixture came to be produced in the three factories in Delhi. According to the appellants, the additive mixture was not a final product; that it was a transient product; it was not noticeable to the naked eye and that it was unsaleable and useless for any other purpose. According to the appellants, the composition of additive mixture was known only to the blender. According to the appellants, the entire process was shrouded in secrecy and was known only to the blender. In the said reply, the appellants alleged that the details of the process of manufacturing the final product as well as the formulation of the additive mixture at the intermediate stage was known to the department since 1992-93; that their records and registers stood verified by the department since 1992-93; that the said records indicated the receipt and utilization of the additive mixture in the manufacture of the branded chewing tobacco (final product) and that the said records were duly checked by the department from time to time. That, the partners of the appellants were also examined in 1992 by Superintendent of Central Excise, New Delhi, when the entire process of mixing and blending of the raw-material and the status of transfer of the additive mixture from their units in New Delhi to their factories in UP and HP was explained. In support of what is stated above, the appellants placed reliance on the panchnama dated 20-10-1992, under which their units were searched by the department and which indicated the stock position of the raw-material, additive mixture and the branded chewing tobacco. According to the department, in 1993, the Superintendent of Central Excise had personally visited their factories and had also studied in detail the process of manufacturing the branded chewing tobacco. The appellants further contended that there was no intent to evade as the said mixture was non-dutiable. In this connection, they relied on the notification No.121/94-CE, dated 11-8-1994 under which additive mixture (input) falling under chapter sub-heading 2404.49 captively consumed in the manufacture of chewing tobacco (final product) stood exempted from payment of duty. That, the department had not denied their entitlement to exemption under the said notification in the show-cause notices. That, in fact, after seizure the said mixture was released/cleared under the above notification without levy of duty and, therefore, the department was not entitled to invoke the extended period of limitation.