COMMISSIONER OF C. EX. Vs. MADURA COATS LTD.

JUDGEMENT

(1.) THE respondents are engaged in the manufacture of cotton fabrics, blended fabrics, cotton yarn etc. as a 100% Export -Oriented Undertaking (EOU). Officers of Central Excise visited their factory at Ambasamudram in November 2000 and recovered various records. They also searched another factory of the same company at Aladiyur, which resulted in the recovery of various private records and documents. Statements of one Shri S. Sankarabagam (Manager of the respondent -unit), one Shri R. Manoharan (Sales Administration Manager) and one Shri R. Nallasivan (Sales Executive) were recorded. Statements were also recorded from certain functionaries of the Aladiyur unit. From these statements and scrutiny of records, it appeared to the department that a quantity of 25,349 Kgs. of yarn had been clandestinely removed from the respondent -unit in excess of the quantity covered by invoices issued by the said unit in respect of DTA clearances to the Aladiyur Unit. It, further, appeared to the department that the DTA clearances were undervalued by the party. On this basis, a show -cause notice was issued on 12 -9 -2001 to the respondent demanding duty of Rs. 10,79,335/ - on the yarn cleared by them during the period November 1996 to December 1999, seeking to levy interest on the duty amount under Section 11AB of the Central Excise Act and proposing penalty on the party under Section 11AC. etc. Personal penalties were also proposed on S/Shri S. Sankarabagam and R. Nallasivan. The SCN had invoked the extended period of limitation under the first proviso to Section 11A(1) of the Central Excise Act. The allegation of clandestine removal of goods and other allegations, raised in the SCN, were strongly denied by the noticees and the demand of duty and the proposal to impose penalties were contested. The original authority, after due process of law, confirmed demand of duty to the extent of Rs. 3,72,835/ - against the respondent by invoking the larger period of limitation and imposed on them equal amount of penalty under Section 11AC. The decision of the adjudicating authority was set aside by the Commissioner (Appeals) in an appeal filed by the assessee. The appellate authority found no evidence of clandestine removal of goods, against the assessee. Hence the present appeal of the Revenue.

(2.) LD . SDR reiterated the grounds of the appeal. The Vice President of the respondent -company sought to justify the conclusion reached by the lower appellate authority, by submitting that no confessional statement of any official of the EOU at Ambasamudram or the DTA unit at Aladiyur had been obtained as evidence of having removed any goods clandestinely, that no documentary evidence of physical removal of goods from the Ambasamudram unit or of physical receipt of goods at the Aladiyur unit was available, that no evidence of the Ambasamudram unit having actually manufactured excess quantity of yarn existed and that no evidence of the Ambasamudram having consumed excess raw -materials or excess electricity was available. He submitted that, as rightly observed by Id. Commissioner (Appeals), the Monthly Manufacturing Reports (MMRs) were based on estimates only and that the Profit and Loss Account was based on such MMRs. Hence the lower appellate authority was right in not placing reliance on the P&L Account. He also challenged the appellant's claim that some of the employees of the respondent -company had admitted clandestine removal of yarn. There was no such admission in any of the statements of the employees. In respect of the quantities of yarn cleared under the Dispatch Memos (Annexure V to SCN), the authorized representative of the company submitted that copies of the DTA invoices covering such goods had been produced, which ruled out clandestine removal of the goods. The respondent -unit was working under physical control of the department and most of the clearances were effected in the presence of the Bond Officer. It was only on Saturdays and Sundays (Holidays for the Bond Officer) that yarn was removed without DTA invoices, but such removal had the Bond Officer's oral permission. Subsequently, DTA invoices were raised to cover such removals in a consolidated manner and such invoices were duly verified and certified by the Bond Officer later on. The authorized representative also defended the finding of the Commissioner (Appeals) that the larger period of limitation was not invokable against the assessee in the facts of this case. As their unit was under physical control of the department, any allegation of suppression of facts or of clandestine removal of excisable goods was not tenable against them and, therefore, the extended period of limitation was not invokable in this case. In this connection, reliance was placed on the Tribunal's decision reported in 1991 (51) E.L.T. 434 (T.) affirmed by the Supreme Court in 1997 (95) E.L.T. A151. It was also argued that the respondent had no intention to evade duty inasmuch as any duty, if paid, would have been available as Modvat credit to their own Aladiyur unit. In such a revenue -neutral scenario, the allegation of clandestine removal of goods with intent to evade payment of duty was untenable. In this connection, reliance was placed on the Tribunal's decision in Jay Yuhshin Ltd v. CCE as well as the Supreme Court's judgment in CCE, Mumbai v. Mahindm & Mahindra Ltd. For the se reasons, it was argued that this was not a fit case for invoking the extended period of limitation under Section 11A for demanding duty from the assessee. Without prejudice to these arguments, the authorized representative pointed out that any goods removed clandestinely by EOU without permission of the Development Commissioner could only attract levy of duty under Section 3(1) of the Central Excise Act and not under the proviso to Section 3(1) ibid. If the duty liability were to be worked out on this basis, the quantum of duty would be less than Rs. 2 lakhs as against the duty of over Rs. 3.7 lakhs demanded by the original authority.

(3.) IN her rejoinder, Id. SDR submitted that the plea of physical control of the department was not a valid challenge against the finding of clandestine removal recorded by the original authority inasmuch as physical control did not mean policing of the unit by Central Excise officer round the clock. In this connection, she relied on the Tribunal's decision in Beauty Dyers v. CCE 2001 (136) E.L.T. 339 (Tri. -Chennai). Ld. SDR argued that it was not necessary for the department to prove a case of clandestine removal with mathematical precision, particularly in a case where functionaries of the unit admitted clearance of excisable goods without DTA invoices. In this connection, some of the statements recorded under Section 14 of the Central Excise Act were referred to. According to Id. SDR, there was clear evidence of clandestine removal of yarn by the respondent to their DTA unit during the period of dispute.