RATHI SUPER STEELS LIMITED Vs. C.C.E.

JUDGEMENT

(1.) BY the captioned stay petition, the applicants have sought waiver of pre -deposit of duty amounting to Rs. 57,68,933 and a penalty of Rs. 40 lakhs on the applicants.

(2.) ARGUING the stay petition, Shri M. Chandrashekhar, Ld. Senior Advocate with Shri Kamaljit Singh, Ld. Advocate for the applicants submitted that the applicants started their activity in trading of iron and steel products at Ghaziabad some time in July 1993; that the applicants entered into an agreement with M/s. Rathi Alloys and Steels Limited for purchase of the manufacturing unit at A -1, Industrial Area, G.T. Road, Ghaziabad with effect from 16.8.93; that the applicants got themselves registered with the Central Excise Department with effect from 16.8.93; that the applicants were engaged in the manufacture of bars and rods; that the raw materials for the said products being ingots and billets etc.; that the Government of India allowed deemed Modvat credit on the inputs procured by the applicants from the market. The Ld. Sr. Counsel for the applicants argued the applicants have filed a copy of the Order in the case of M/s. Rathi Udyog Limited whereby the demand of duty against M/s. Rathi Udyog Limited on almost identical grounds was dropped; that the appellants wanted a date of hearing on any day after 2.11.97 by their letter dated 20.10.97; that this hearing was necessary to clarify the position of the applicants vis -a -vis the Order in the case of M/s. Rathi Udyog Limited. It was argued by the Ld. Senior Counsel that as major amount of duty was relating to the period when the factory was owned by M/s. Rathi Alloys and Steels Limited. It was contended by the Ld. Senior Advocate M/s. Rathi Alloys and Steels Limited had another factory at Rajkot which was still operating; that M/s. Rathi Super Steels Limited, the applicants in this case had nothing to do with M/s. Rathi Alloys and Steels Limited and M/s. Rathi Alloys and Steels Limited had two companies and were independent entity. Elaborating the position, the Ld. Senior Advocate submits that the applicants purchased the manufacturing unit on 16.8.93 and the period for which the demand of duty has been confirmed is from April 1993 to October 1993; that the total quantity of goods allegedly involved in the instant case is 6,188 390 MT of M.S. Billets for the period April 1993 to October 1993; that out of the total quantity 6,188 390 MT of M.S. Billets only 144.260 MT related to the applicants and the balance quantity was relating to M/s. Rathi Alloys and Steels Limited; that if at all any demand of duty can be confirmed against the applicants, then it can be only in respect of 144.260 MT received by the applicants and not for the quantity of 6,188 390 MT of M.S. Billets. The Ld. Senior Advocate submitted that this Tribunal in the case of Bhuvaneslwari Chemicals v. CCE in para 5 of its judgment held as under - - We have carefully considered the submissions made by the learned Counsel and the learned SDR. The question here is whether the appellants' firm and its partners can be fastended with the duty liability and penalty for the irregularity committed by the previous firm and its partners from whom the appellants had purchased the firm. In other words whether the duty for the period 1985 -86 could also be demanded from the appellants for the reasons that they are the present owners of the firm whose previous owners had failed to take out a Central Excise Licence and pay duty on the goods cleared from the factory. Examining this issue with reference to the provisions of the Act and the Rules, it is seen that under Rule 9 of the Central Excise Rules, the liability to pay duty is on the persons who are actual manufacturers of the goods. Similarly under Section 6 of the Act read with Rule 174 of the Rules, an obligation to take out a licence is also upon the manufacturers. The Scheme of the Act and the Rules contemplates that the person actually manufacturing the goods is the manufacturer of the goods and liability to pay duty will be on the manufacturer. This position of the Rule and the Act is supported by the provisions of Rule 225 which lays down that if any excisable goods are removed by any person from the place where they are produced or manufactured in contravention of the Rules, the producer or the manufacturer or the licensee shall be held responsible for such removal and shall be liable to be dealt with according to the provisions of the Act or the Rules as if he had removed the goods himself. Therefore, in the present case, the question here is who was the actual manufacturer during the period 1985 -86. Surely, the present appellants were not, because they had purchased the firm only on 10.5.86 which was clearly after the end of the financial year 1985 -86. The Collector's reasoning that the appellants herein should pay the duty demanded and collect it from the erstwhile partners of the firm has omitted to consider the terms of sale because it is seen from the sale deed dated 10.5.86 that it has been specifically provid ed therein "The purchaser shall not be liable for any debt liabilities outstanding loans, taxes and charges standing in the name of the said firm upto this date". Apart from this, the legal position in terms of Transfer of Properties Act is that dues from the previous firm is always first charge on the immovable property of the firm and in view of this position, the Department even now is not de -barred from taking steps for the recovery of the amount due from the erstwhile firm and its partners in accordance with law. In any case the demand for the period 1985 -86 from the appellants' firm is not well -founded and this demand of duty from the appellants is therefore set aside. As regards the penalty, the appellants have pleaded that it is dis -proportionate having regard to the duty involved. Considered the fact that the appellants themselves have come forward initially with their declaration about their manufacturing activity, there is some ground for reducing the quantum of penalty which is accordingly reduced to Rs. 5,000. The appeal is disposed of in the above terms." The Ld. Senior Counsel further submitted that this view was further supported by the decision of this Tribunal in the case of Makers Development Services (P) Limited 1988 (33) ELT 126.

(3.) THE Ld. Senior Counsel also submitted that similar ruling was issued by the Apex Court in the case of Deputy Commissioner of Sales Tax v. Shah Shukhraj Peerajee AIR 1968 SC 67. He submitted that in view of these decisions, the liability for the major period should have fastened on M/s. Rathi Alloys and Steels Limited. He submitted in Annexure 'M' to the show cause notice the Department itself had treated both M/s. Rathi Alloys and Steels Limited and M/s. Rathi Super Steels Limited as separate entities, therefore, the case should have been decided on that basis which was not done. He submitted that the applicants had received alleged quantity on which the total amount of duty works out to Rs. 1,33,741 and that if all the grounds taken for defence were rejected the only amount that could be recovered was only Rs. 1,33,741. He also submitted that the Commissioner has seriously erred in imposing a penalty under Rule 173Q; that the said Rule can be invoked Against the manufacturer, producer, registered person or registered dealer; that in the instant case, the applicants were not covered under any of the category of Rule 173Q prior to 16.8.93 and, therefore penalty cannot be imposed on the applicants for the act of omission of any other persons; that in the show cause notice, there was no charge at all of collusion or connivance; that no fact has been proved that there was collusion or connivance; that the entire order of the Commissioner talks of collusion and connivance; that thus the Commissioner had travelled beyond the scope of show cause notice; that the transporter's statement which had been relied upon by the Department has not proved the receipt of the goods by the applicants as no acknowledgment or receipt or payment of cost of raw materials has been proved or brought on record.