INTERSCAPE Vs. COMMISSIONER OF CENTRAL EXCISE

JUDGEMENT

(1.) Shri Vinoo K. Naik (appellant in Appeal No. 2336/98) is the proprietor of the concern M/s. Interscape (appellants in Appeal No. 2335/98). Hotel Rajputana Palace Sheraton, Jaipur (appellant in Appeal No. 216/98) is a unit of M/s. ITC Hotels Limited (erstwhile Hotels Division of M/s. ITC Limited). M/s. Interscape were awarded a contract, as per two agreements dated 23 -6 -92 and 25 -8 -92 entered into between them and M/s. ITC Ltd. (incorporated under the Companies Act, with registered office at Kolkata), to make different items of furniture for a 5 -Star Deluxe Hotel at Jaipur, which later on came to be known as Hotel Rajputana Palace Sheraton (hereinafter referred to as Hotel RPS). The work was executed by M/s. Interscape through sub -contractors in 1992 -93, with the raw materials supplied by M/s. ITC and as per the specifications, drawings and designs supplied by them. On 12 -12 -95, officers of Central Excise visited Hotel RPS and called for details of the above contract, which were furnished by M/s. ITC. Copies of the two agreements also were supplied by M/s. ITC. Statements of Shri Vinoo K. Naik of M/s. Interscape and Shri Abhijit Chakrawarti of M/s. ITC were recorded under Section 14 of the Central Excise Act. The Central Excise officers subsequently inspected various items of furniture manufactured at site by M/s. Interscape. They seized the furniture items which were believed to be liable to confiscation under the Central Excise Act. On the basis of scrutiny of the agreements, details of the works done thereunder, the statements recorded under Section 14, etc., the department found that M/s. Interscape had manufactured various furniture items chargeable to duty of excise under Headings 94.01 and 94.03 of the Central Excise Tariff Schedule and had cleared the same without payment of duty. The department also found that M/s. Interscape had suppressed material facts relating to such manufacture and clearance. Accordingly, the proviso to Section 11A(1) of the Central Excise Act was invoked and show -cause notice dated 13 -9 -96 was issued to M/s. Interscape, Shri Vinoo K. Naik, M/s. ITC Ltd., and Hotel Rajputana Palace Sheraton. An addendum to the SCN was issued subsequently to M/s. Interscape. The SCN alleged that, by suppressing material facts and contravening various provisions of the Central Excise Act, 1944 and the Central Excise Rules, 1944 with intent to evade payment of duty, M/s. Interscape had manufactured and removed furniture items of total value of over Rs. 1 crore without payment of Central Excise duty amounting to Rs. 35,49,367/ -. Apart from demanding the duty, the SCN (read with the addendum) proposed to impose penalties on M/s. Interscape under Rules 9(2), 52A and 173Q and under Section 11AC. The notice also proposed to impose penalties on Shri Vinoo K, Naik and M/s. ITC under Rule 209A. Further, it called upon M/s. Interscape and M/s. ITC to show cause, why the seized furniture items should not be confiscated under Rules 9(2) and 173Q. The show cause notice was contested by the noticees. The Commissioner of Central Excise who adjudicated on the dispute passed Order No. 26/97 confirming against M/s. Interscape a demand of duty of Rs. 20,79,309.62 under Section 11A read with Rule 9(2) and imposing on them a penalty of Rs. 20 lakhs under Rule 173Q. The Commissioner also imposed penalties of Rs. 1 lakh and Rs. 10 lakhs respectively on Shri Vinoo K. Naik and M/s. Hotel Rajputana Palace Sheraton under Rule 209A. All the seized furniture items in respect of which duty demand was confirmed were confiscated under Rule 173Q with option to M/s. Hotel RPS to redeem the goods by paying Rs. 6.5 lakhs as redemption fine along with duty amount of Rs. 20,79,309.62 (in the event of this amount of duty not having been paid by the assessee by the time of redemption of the goods). The appeals mentioned earlier in this paragraph are against this order of the adjudicating authority.

(2.) M/s. Interscape had also manufactured various items of furniture for M/s. Umaid Bhawan Palace, Jodhpur tinder a labour contract awarded by the latter. Officers of Central Excise who visited the premises of M/s. Umaid Bhawan Palace (for short, U.B. Palace) on 15 -1 -96 and made enquiries found that various furniture items such as service counters, TV/music units, wardrobes, round mirror frames, TV trolleys and a variety of tables and other items had been manufactured and supplied by M/s. Interscape and that Central Excise duty had not been paid on any of the items. The said furniture items were seized as they were believed to be liable to confiscation under Rule 173Q. Statements of Shri Vinoo. K. Naik (proprietor of M/s. Interscape) and Shri Hari Singh (Corporate Accountant of M/s. U.B. Palace) were recorded. Shri Vinoo K. Naik stated, inter alia, that the contracted work had been completed in October, 1994. Shri Hari Singh stated that the work had been started in 1989 and was completed in March, 1995. The Central Excise officers collected from them details of the work, payments made under the contract etc. They also recorded a statement of one Shri Chandrasekhar Kanetkar (Managing Director of M/s. Chandrasekhar Architects Pvt. Ltd., interior designers who had designed the furniture items manufactured by M/s. Interscape and supplied to M/s. U.B. Palace), who furnished the particulars of payments received from M/s. U.B. Palace towards interior designing charges. He also stated that the furniture works had been completed in October, 1994. On the basis of the results of investigation, the department issued show cause notice dated 1 -3 -96 to M/s. Interscape and M/s. U.B. Palace. The notice issued to M/s. Interscape raised a demand of Central Excise duty of Rs. 20,10,156/ - on them in respect of the various furniture items manufactured by them in the premises of M/s. U.B. Palace and proposed to confiscate the furniture items (valued at Rs. 82,78,677/ -) under Rule 173Q and to impose penalty under Rules 9(2), 52A, 173Q, 210 and 226. The notice issued to M/s. U.B. Palace proposed to impose penalty on them under Rule 209A. An addendum to the show cause notice was later issued to M/s. Interscape for charging interest on duty under Section 11AB as also for imposing penalty under Section 11AC. Both M/s. Interscape and M/s. U.B. Palace contested the show cause notices. After hearing the noticees, the Commissioner by order No. 20/97, dated 18 -12 -97 confirmed against M/s. Interscape demand of duty of Rs. 11,20,117/ - under Section 11A and imposed on them a penalty of Rs. 2.5 lakhs under various provisions of the Central Excise Rules, 1944. He also confiscated, under Rule 173Q, those items of furniture which were held to be dutiable. However, option was given to M/s. U.B. Palace to redeem the goods on payment of a fine of Rs. 1 lakh as also on payment of the aforesaid amount of duty (if not already paid by M/s. Interscape). Appeal No. E/2337/98 -D, filed by M/s. Interscape, is against this order of the Commissioner.

(3.) Heard Counsel for the appellants and SDR for the Revenue. It was submitted by ld. Counsel for M/s. Interscape and Shri Vinoo K. Naik that M/s. Interscape had not manufactured any of the furniture items. They had assigned the works to several independent contractors on a principal -to -principal basis. M/s. Interscape had no control over the sub -contractors or their workers. Most of the raw materials required for the job work were supplied by M/s. ITC and the actual job work was carried out by the sub -contractors. The role of M/s. Interscape was only that of a trader and they could not be considered as manufacturer. All the items mentioned in the annexure to the SCN were in a state of having become part and parcel of the Hotel's immovable property and were not marketable and excisable. Without prejudice to this contention, ld. Counsel contended that the furniture items in question could be considered as handicrafts by virtue of their special visual appeal and substantial ornamentation. As handicrafts were exempt from duty under Notification No. 76/86 -C.E., dated 10 -2 -86, the said items were not chargeable to duty of excise. In this connection, reliance was placed on the Hon'ble Supreme Court's decision in CCE v. Louis Shoppe -[1996 (83) E.L.T. 13 (S.C.)]. It was further submitted that M/s. Interscape were under a bona fide belief at the relevant time that the furniture items could not attract levy of Central Excise duty owing to the Exemption Notification No. 76/86 -C.E. as also the Tribunal's decision in the case of Louis Shoppe. Therefore, the department's allegation that they had suppressed material facts with intent to evade payment of duty was baseless and invocation of the extended period of limitation against them was not justifiable. It was also argued by the Counsel that the provisions of Section 11AB were not applicable to the case. It was further argued that where a penalty was imposed on M/s. Interscape under Rule 173Q no penalty could be imposed on the proprietor under Rule 209A. It was requested that all these arguments be considered mutatis mutandis in the connected appeal (E/2337/98) also. Ld. Counsel for M/s. Hotel RPS adopted the arguments relating to demand of duty on the furniture items acquired by the hotel. Their additional argument was that M/s. Hotel RPS were neither liable to pay any duty of excise on the furniture items nor to be penalised. There was no proposal in the SCN to impose any penalty on Hotel RPS, nor to recover any duty from them. It was also pointed out by the ld. Counsel that, in a similar case, the Commissioner (Appeals), Allahabad had exonerated their sister unit viz. Welcom Group Mughal Sheraton (Agra) from penal liability under Rule 209A as per Or -der -in -Appeal No. 236 -C.E./KNP -I/97, dated 1540 -97.