COMMISSIONER OF CENTRAL EXCISE, BOMBAYversusM/S. RELIANCE INDUSTRIES LTD.

A           COMMISSIONER OF CENTRAL EXCISE, BOMBAY
                                       v.
                    M/S. RELIANCE INDUSTRIES LTD.

                              AUGUST 19, 2004
B
                [S.N. VARIAVA AND ARIJIT PASA YAT, JJ.]

         Central Excise Act, 1944/Central Excise Rules. 1944; Rules 49, 173F
    and 173G(1) rlw. Rule 9(1) :

c        Short payment of excise duty on Polyster Filament Yarn-Show cause
    notice-Demand confirmed by Revenue-Quashed by CEGAT-On appeal,
    Held :Tribunal failed to consider various aspects relating to evasion of
    duty--Yarn winds on tubes does not cease to loose its characteristics
    merely because it breaks off before forming into a product of desired
D   weight/specification-It cannot be treated as waste as claimed by the
    assessee-No reasons for treating it so, explained by the assessee-
    Tribunal to hear the matter afi"esh in accordance with law-Directions
    issued.

E         Appellant-Revenue issued a show cause notice to respondent-
    assessee alleging short payment of duty on account of non-disclosure
    of actual production of Polyster Filament Yarn (POY) in the appropriate
    records and its removal without payment of duty thereon. The Collector
    confirmed the demand of certain amount of excise duty, imposed
F   penalty and ordered confiscation of the goods or fine in lieu of
    confiscation. Assessee challenged it before the CEGAT. Appeal was
    allowed by the Tribunal on the ground that there was no allegation of
    fra"d, mis-declaration or intention to evade duty. Hence the present
    appeal by the Revenue.

G        It was contended for the Revenue that the specific case of the
    authorities was that what was cleared was taken as waste but it was
    sold as yarn; that there was definite indication in the show cause notice
    about the intention to evade duty; that the Tribunal did not notice that
    in order to show what was being taken out was waste, separate register
H   was required to be maintained; that allegation was of mis"declaration
                                       628
               C.C.E. v. RELIANCE INDUSTR1ES LTD.                 629
so far as yarn is concerned, and not of waste as was observed by the A
CEGAT; that for removal and destruction of waste, particular procedure
in terms of Rule 49 is prescribed but that has not been followed; that
the effect of presence of the goods in the finishing room and the
purpose as to why it was taken there, has not been explained by the
assessee; and that if the stand was that the goods in question were B
waste, the assessee was required to prove it.

     Assessee submitted that there was no suppression or mis-
declaration as claimed by the authorities; that it has not been shown
by the Revenue that as to how there was any intention to evade
payment of excise duty; and that since the documents placed before C
the Collector were not considered by it, CEGAT was justified in setting
aside the order of the Collector.

     Dismissing the appeal, the Court
                                                                        D
      HELD : I.I. Tribunal has not approached the controversy in the
proper perspective. Various aspects which have been specifically noted
by the Collector were really not considered by CEGAT. Its conclusions
that there was no allegation of fraud, mis-declaration or intention to
evade duty,primafacie do not appear to be correct. The material being E
wound on tubes was yarn. It did not cease to be yarn because it broke
off before the required weight was achieved. It only became waste if it
got entangled or messed up or ifthe tubes ofless weight were cut. It was
for the assessee to show categorically that this happened. [633-8, C, DJ

     1.2. The log sheet deal with tubes. But without question the weight F
shown in the log sheets is of yarn. This primafacie indicates that tubes
having yarn of less than I kg. are also being logged. Thus, the Collector
was right in arriving at the conclusion that the log sheets show presence
of yarn on tubes, even of 1 kg. or less. The Collector had specifically
noted that if the assessee had destroyed the tubes of 1 kg. or less of G
POY, the reason why the production as shown in the daily log sheets
was not explained. Thus, fresh hearing of the appeal by CEGAT would
be the ap1nopriate course. So far as para (iv) of the show cause notice
is concerned, the matter is remitted back to the CEGAT for fresh
hearing and adjudication in accordance with law. So far as part (v) of H
    630                  SUPREME COURT REPORTS [2004] SUPP. 3 S.C.R.

A show cause notice is concerned, the view of the CEGAT is correct.
                                                        1633-D, E, H; 634-AI

         CIVIL APPELLATE JURISDICTION : Civil Appeal No. 3226 of
    1998.

B        From the Judgment and Order dated 28.11.97 of the Central Excise
    and Gold (Control) Appellate Tribunal, New Delhi in A. No. E/4504/93-
    C in F.O. No. 596 of 1997-C).

          Anoop G. Chaudhary, Ms. Nisha Bagchi, Sanjay Grover and B.
C Krishna Prasad for the Appellants.
         S. Ganesh, K.R. Sasiprabhu, A.M. Dave, M.K.S. Menon and Ms. G.
    Indira for the Respondents.

          The Judgment of the Court was delivered by
D
          ARIJIT P ASAY AT, J. : The Commissioner of Central Excise,
    Bombay calls in question the legality of the order passed by the Customs
    Excise and Gold (Control) Appellate Tribunal, Delhi (hereinafter referred
    to as the 'CEGA T') quashing the order in original dated 21.5.1993 passed
E   by the ColleCtor of Central Excise Bombay-Ill (in short the 'Collector').

          Background facts giving rise to the present appeal are as follows :

          A show-cause notice dated 28/29 .10.1985 was issued to the respondent
F   alleging short payment of duty on account of non-disclosure of 126.66
    MTs. of production of Polyster Filament Yam (in short 'POY') in the
    RG-1 register and removal without payment of duty thereon. The short
    payment was stated to be Rs. 1,06,07,775. Similarly, another allegation
    related to removal of 5.65 MTs. of POY without payment of Rs. 4, 75, 187.50.
    Though there were several charges only two of them namely charge Nos.
G   (iv) and (v) relating to the aforesaid allegations were confirmed. The
    collector confirmed the demand of duty of Rs. 1,06,07,775 raised in para
    (iv) of the impugned show cause noti~e. He also confirmed the demand
    of duty raised under para (v) of the said show-cause notice to the extent
    of Rs. 2,99,406.25. He imposed penalty of Rs. 25,00,000 under Rule
H   173Q of the Central Excise Rules, 1944 (in short the 'Rules') besides
         C.C.E. v. RELIANCE INDUSTRIES LTD. [PASAYAT, J.]               631

ordering for confiscation of the land, building, plant, machinery etc. used A
in connection with the offending goods in respect of which the demand
of duty had been confirmed above. However, he has granted to the assessee
an option to pay a fine of Rs. 10,00,000 in lieu of confiscation.

     So far as para (iv) of the show cause notice is concerned, as noted B
above that related to the allegation that the respondent, (hereinafter referred
to as the 'assessee'), had not accounted in the RG-I register for the
production of POY on bobbins of one kg. and less to the tune of 126.66
MTs, for the period October 1982 to April, 1985 and had removed them
without determining the Central Excise Duty as required under the
provisions of the Central Excise Act, 1944 (in short the 'Act') and Rules C
173F and 173G (1) read with Rule 9(1) of the Rules resulting in short
payment of Central Excise Duty to the tune of Rs. 1,06,07,775.

      So far as para (v) of the show cause notice is concerned it was alleged
that the assessee had removed 5.65 MTs. of POY during October, 1982 D
to April, 1985 without determining the duty leviable and without payment
of duty as required under the pretext of samples for texturisation resulting
in short payment of duty to the tune of Rs. 4,73,187.50. However, the
Collector confirmed the duty to the extent of Rs. 2,99,406.25. The
Collector held that tubes of I Kg. and less were taken to the finishing room E
though there was no denial of the fact that there is a market for tubes of
one kg. and less. But the assessee took the stand that it did not market
any such tube keeping in view its reputation and markP-t credibility. They
were removed as waste. The Collector found that according to the
directions given on 22.11.1983, the assessee was required to maintain F
separate records for the different kinds of waste and the log sheets indicated
that the bobbins of the yarn were not waste, as claimed.

      Order of the Collector was challenged before the CEGAT. The
primary stand of the assessee before the CEGAT was that the demand as
raised is beyond the period of limitation and in order to attract the extended G
period of limitation, allegation of suppression, non-disclosure or fraud was
to be made. There was no such specific allegation and, therefore, the
extended period of limitation was not applicable. In any event, it was
submitted what was sold can not be termed as yarn and was waste. Several
materials which were placed before the Collector to substantiate the stand H
    632                  SUPREME COURT REPORTS (2004] SUPP. 3 S.C.R.

A that no yarn was sold, has not been considered.         Though the basis of
    allegation was that market enquiry revealed item sold to be yarn and not
    waste, there was no evidence to support the conclusion. Accordingly, both
    on the ground of limitation and lack of material to show that the yarn was
    sold the levy was not proper. Central Excise authorities took the stand
B   that ample material existed to show that assessee had suppressed the .
    sale and had removed the dutiable goods without payment of duty.
    There were specific allegations made to apply extended period oflimitation.
    The Collector was justified in rejecting the unsupportable pleas of the
    assessee.

c        CEGAT accepted the stand of the assessee and set aside the Collector's
    order.

          In suppo11 of the appeal learned counsel for the appellant submitted
  that the CEGAT has lost sight of relevant aspects. It is not as if there was
D no allegation of mis-declaration or unauthorized removal. The specific case
  of the authorities was that what was cleared was taken as waste but it was
  sold as yarn. There was definite indication in the show cause notice about
  the intention to evade duty. The Tribunal did not notice that in order to
  show what was being taken out was waste, separate register was required
E to be maintained in terms of a direction given on 22.11.1983, but that was
  not done. In the classification list which was filed, there was no mention
  of the size of the alleged waste. Allegation was mis-declaration so far as
  yarn is concerned, and not of waste as was observed by the CEGAT. It
  has been specifically observed by the Collector that there can be yarn even
F up to the weight of 50 gms., and when the issue related to one kg., prima
  facie the product was yarn. For removal and destruction of waste, particular
   procedure in terms of Rule 49 is prescribed but that has not been followed.
  The effect of presence of the goods in the finishing room and the purpose
   as to why it was taken there, has not been explained by the assessee. There
   is no dispute that it can be sold. What was contended was that it was not
G done by the assessee due to its reputation. In the log sheets, it has been
   clearly indicated to be yarn, but the effect of such mention as yarn was
   not considered by the CEGAT. If the stand was that the goods in question
   were waste the assessee was required to prove it. When there is unauthorized
   removal, obviously the goods were to be treated as yarn. Above being the
H position extended period of limitation was applicable.
        C.C.E. v. RELIANCE INDUSTRIES LTD. [PASAYAT, J.]               633

      Per contra, learned counsel for the assessee submitted that there was A
approval of the classification list. There .was no suppression or mis-
declaration as claimed by the authorities. Duty as waste has been paid and
it has not been shown that as to how there was any intention to evade
payments of duty. Voluminous documents were placed before the
Collector which were not considered and, therefore, CEGAT was justified B
in setting aside the order of the Collector.

        We find that Tribunal has not approached tt>e controversy in the
proper perspective. Various aspects which have been highlighted above
and specifically noted by the Collector were really not considered by the C
CEGAT. Its conclusions that there was no allegation of fraud, mis-
declaration or intention to evade duty, prima facie do not appear to be
correct. The material being wound on tubes was yam. It did not cease
to be yam because it broke off before the required weight was achieved.
It only became waste if it got entangled or messed up or if the tubes of
less weight were cut. It was for the assessee to show categorically that D
this had happened. The log sheets deal with tubes. But without question
the weight shown in the log sheets is of yam. This prima facie indicates
that tubes having yarn of less than 1 kg. are also being logged. Thus the
Collector was right that the log sheets show presence of yarn on tubes, even
of I kg. or less. The Collector had specifically noted that, if the assessee E
had destroyed the tubes of I kg. or less of POY, the reason why production
was shown in the daily log sheets was not explained. Thus, fresh hearing
of the appeal by the CEGAT would be the appropriate course. The relevant
aspects like presence of the articles in the finishing room, effect of mention
in the log sheets and effect of non-maintenance of required records and F
the allegations contained in the show-cause notice to apply extended period
of limitation must be considered in proper perspective. At the same time,
if the assessee wants to place reliance on any material on record, the
CEGAT should also consider it.

      Accordingly, so far as para (iv) of the show cause notice is concerned, G
we remit the matter back to the CEGAT for fresh hearing .and adjudication
in accordance with law. It would consider the relevant aspects on the basis
of materials already on record and to be placed by the parties in support
of their respective stands, and to take a decision afresh in accordance with
law.                                                                          H
    634                    SUPREME COURT REPORTS [2004] SUPP. 3 S.C.R.

A         So far as para (v) of show cause notice is concerned, the view of
    the CEGAT appears to be correct as the assessee had disclosed as to what
    was being taken for texturisation, and it was indicated in the documents
    which were verified by the. authorities. That being so the order of the
    CEGAT so far as the para (v) of the show cause notice is concerned, stands.

B
            The ultimate result is that the CEGAT shall hear the matter afresh
    so far as para (iv) of the show cause notice is concerned, relating to alleged
    unauthorised removal of POY in smaller bobbins weighing one kg. or
    less and the evasion of duty thereof, if any, is concerned .

c            The appeal is disposed of accordingly without any order as to costs.

    S.K.S.                                                  Appeal disposed of.