COMMISSIONER OF CENTRAL EXCISE, MADURAIversusAYYAPPAN TEXTILES LTD.

                         '
                     [2013] 7 S.C.R. 771


    COMMISSIONER OF CENTRAL EXCISE, MADURAI                         A
                          v.
             AYYAPPAN TEXTILES LTD.
           (Civil Appeal No. 6766 of 2003)
                        JULY 23, 2013.
                                                                    B
        [SUDHANSU JYOTI MUKHOPADHAYA AND
               J. CHELAMESWAR, JJ.]

      Central Excise Tariff Act, 1985:
                                                                    c
       Heading 52. 03 - Cotton yam of various counts - Demand
  raised against assessee for manufacturing cotton of higher
  counts than the declared ones - Held: If on inspection of a
  manufacturing premises on a particular day it is detected that
  goods of a particular specification are being manufactured,       0
  the department is entitled in law to presume that (until the
  manufacturer proves the contra) goods of the same
  specification are continued to be manufactured - However, in
  the instant case, no samples were drawn for Revenue to draw
  an initial presumption - Further, having regard to the paltry     E
  amount involved in the matter and the first appellate authority
' found substance in the defence of assessee, judgment of first
  appellate authority as affirmed by Appellate Tribunal, not
  interfered with.! Evidence Act, 1872 - s.114,111.(d).

       The respondent-assessee was issued a show cause              F
 notice ·dated 24.6.1994 stating that on the inspection of
 its factory premises, entries in two registers indicated that
 the assessee was manufacturing cotton yarn of higher
 counts than the declared ones. Revenue came to the
 prima facie conclusion that the assessee was liable to             G
 pay a further sum of Rs.4,98,034/- towards duty of goods
 allegedly manufactured between 1.2.1989 to 14.8.1993,
 and was also liable to penalty. The Collector, Central

                               771                                  H
    772      SUPREME COURT REPORTS                   [2013] 7 S.C.R.

A Excise confirmed the demand to the extent of
  Rs.1,33,573/-. On appeal by the Revenue, the matter was
  remitted by the first appellate authority and the Deputy
  Commissioner upheld the demand raised in the show
  cause notice. But on appeal by the assessee, the
B Commissioner (Appeals) restricted the demand to
  Rs.1,32,573/- as was initially held by the Collector, Central
  Excise. Revenue's appeal was dismissed by the Tribunal.
          Dismissing the appeal, the Court
C        HELD: 1.1 If the department on inspection of a
                                     a
    manufacturing premises on particular day detects that
    goods of a particular specification are being
    manufactured, the department, in view of the principle
    enunciated in s.114, Illustration (d) of the Evidence Act,
D   1872, is entitled in law to presume that (until the
    manufacturer proves the contra) goods of the same
    specification are continued to be manufactured ..
    However, the case on hand is not a case where the said
    prii1ciple can be applied as no samples were drawn at all
E   for the department 'to draw an initial .presumption. The
    content of the recovered FILE and the statements of the
    employees of the respondent must be examined to
    ascertain the fact whether the respondent manufactured
    during the period covered by the FILE - yarn of a higher
F   count than the declared one. Only after establishing such
    fact the department would be entitled to draw a
    presumption. There is no clear finding on record from any
    one of the authorities· below that the materials gathered
    by the department would establish that basic fact. [para
G   14-15] [778-G-H; 7'79-A-C)
         Ramalinga Choodambikai Mills Ltd. v. Government of
    India & Others 1984 (15) E.L.T. 407 (Mad.) - approved.

          Bojaraj Textiles Mills Ltd. v. Assistant Collector of Central
H
COMMISSIONER OF CENTRAL EXCISE, MADURAI v. 773
          AYYAPPAN TEXTILES LTD.
Excise 1990 (45) E.L.T. 559 (Mad.) and The Government of         A
India represented by its Secretary, Ministry of Finance,
Department of Revenue & Insurance, New Delhi and Others
Ii. The Chirala Co-operative Spinning Mills Ltd., Chirafa 1980
E.L.T. 174 (A.P.) - referred to.
                                                                 B
     Collector of Central Excise, Coimbatore v. Cambodia
Mills Ltd., 2001 (128) E.L.T. 373 (Mad.) - disapproved.

    Superfil Products Ltd. v. CCE, Chennai 2002 (48) ·R.L.T.
319 (CEGAT - Chennai) - cited.
                                                                 c
     1.2 On the other hand, the 1st appellate authority
found that the defence of the assessee - that the test
reports obtained by it for a different purpose but not to
ascertain the count of a day are not representative of the
count of the production of the entire week - is a tenable D
defence. The Tribunal instead of deciding the correctness
of such a conclusion went into the questions of law
unwarranted by the facts of the case. Further, having
regard to the paltry amount involved in the matter, the long ·
and chequered history of the litigation and the resultant E
wastage of time of the various fora, coupled with the fact
that the 1st appellate authority found some substance in
the defence of the assessee, judgment under appeal is
not interfered with. [para 16-17] [779-C-F]
                     Case Law Reference:                         F
  2001 (128) E.L.T. 373 (Mad.)     disapproved       para 10
  2002 (48) R.L.T. 319             cited             para 10
  (CEGAT • Chennai)
  1984 (15) E.L.T. 407 (Mad.)      approved          para 10     G

  1990 (45) E.L.T. 559 (Mad.)      referred to       para 10
  1980 E.L.T. 174 (A.P.)           referred to       para 10
                                                                 H
    774       SUPREME COURT REPORTS                     [2013] 7 S.C.R.


A       CIVIL APPELLATE JURISDICTION : Civil Appeal No.
    6766 of 2003.

        From the Judgment and Order dated 07.01.2003 of the
    Customs, Excise and Gold (control) Appellate Tribunal, South
    Zonal bench at Chennai final Order No. 4 of 2003 in Appeal
8
    No. E/252/02.

        K. Radhakrishnan, Binu Tamta, Shalini Kumar, 8. Krishna
    Prasad for the Appellant.

c         The Judgment of the Court was delivered by

          CHELAMESWAR, J. 1. This is a statutory appeal under
    section 35L (b) of the Central Excise Act, 1944 against the
    Final Order No.4/2003 of the Customs Excise & Gold (Control)
    Appellate Tribunal, South Zonal Bench at Chennai passed in
0   Appeal No.E/252/02 on dated 7.01.2003.

        2. This is a typical case where at every stage of the
  litigation irrelevant legal principles were pressed into service
  resulting in colossal waste of time of adjudicators including time
E of this Court.

          3. Briefly stated the facts are as follows:

        4. The respondent company is engaged at least from 1985
  in the business of manufacturing of various counts of cotton yam
F falling under heading 52.03 of the Central Excise Tariff Act,
  1985 at the relevant point of time. It appears that at the relevant
  point of time the rate of tax on the yam manufactured depended
  on the counVfinesse of the yarn. Higher the count higher the
  duty. On 30.08.1993, the officers of the Central Excise
G Department inspected the factory premises of the respondent
  company and recovered two registers and a file. In the show-
  cause notice dated 24.06.1994 issued by the department which
  resulted in the present litigation, the contents of the seized
  documents are described as under:
H
COMMISSIONER OF CENTRAL EXCISE, MADURAI v. 775
 AYYAPPAN TEXTILES LTD. [J. CHELAMESWAR, J.]
    "The officers found TWO REGISTERS showing the· A
    datewise details on count, strength and the Court Strength
    Product of various counts of yarn manufactured by them
    pertaining to the period 14.12.1985 to 31.12.1990 and A
    FILE containing the yarn test reports of various counts
    manufactured by Mis. Ayyappan Textiles Limited and B
    tested at Sitalakshmi Mills Group Central laboratory,
    Madurai on a weekly basis. The said two Registers and
    file were recovered from the party.

           Perusal of the two registers and the files revealed
    that the assessee was manufacturing higher counts over             C
    and above the tolerance limit in respect of the following
    counts declared to the department and cleared the same
    without payment of appropriate duty on the higher counts,
    (1) 40s (ii) 43s (iii) 60s (iv) 82s. ·
                                                                       D
                                             (emphasis supplied)

     5. Subsequently, the statements of Spinning Manager of
respondent company and Technical Manager from Mls.
Sitalakshmi Group of Mills, were recorded, (the details of which
                                                                       E
may not be necessary for the present purpose,) and on the
basis of the abovementioned material, the department came
to the prima facie conclusion that the respondent company is
liable to pay a further sum of Rs.4,98,034/- towards the duty
on the goods allegedly manufactured between 1.2.1989 to
14.8.1993 and also liable to penalty. Therefore, the show cause        F
notice was issued.

     6. Upon receipt of the explanation, the Collector of Central
Excise vide order dated 4.10.1994 confirmed the demand to
the extent of Rs.1,33,573/- holding that the assessee did not          G
dispute his liability to pay higher tax on the basis of the material
contained in the two registers recovered with respect to the
balance of the demand based on the material contained in the
FILE:-
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     776      SUPREME COURT REPORTS                  [2013] 7 S.C.R.


A.         " ... I find that the assessee's contention has considerable
           force as the count determined on the basis of test
           conducted on the basis of sample drawn on a particular
           day's production during a week cannot be the
           representative of the whole weeks production."
B
         · 7. Aggrieved by the same, the department carried the
     matter in appeal before the tribunal. The tribunal vide order
     dated 25.06.1997 allowed the appeal and remitted the matter
     for afresh adjudication.

C      8. On such remand, the Deputy Commissioner who heard
  the matter passed order dated 31.8.1998 concluding that the
  respondent is liable to pay the entire amount of Rs.4,98,034/-
  as demanded by the show-cause notice. Aggrieved by the
  same, the respondent carried the matter once again before the
D Commissioner (Appeals) who by his order dated 22.03,2002
  allowed the appeal partially and restricted the demand to
  Rs.1,33,573/- incidentally relying upon the findings recorded on
  4.10.1994 (already extracted). Once again, the department
  carried the matter in appeal before the tribunal. The tribunal by
E the impugned order dated 07.1.2003 dismissed the appeal.
  Hence the instant appeal.

         9. The operative portion of the impugned order reads as
     under:

F          "I have carefully considered the submissions made by
           both sides and perused the records. This Bench also in
           the case of Superfil Products Ltd. Vs. CCE, Chennai has
           followed the judgment rendered by the Hon'ble High Court
           of Judicature at Madras in the case of Cambodia Mills Ltd.
G          (supra), the ratio of the above decision has a binding force
           on this Bench. By respectfully following the judgment
           rendered by the Hon'ble High Court at Madras in the case
           of CCE, Coimbatore Vs. Cambodia Mills Ltd. (supra) and
           the judgment rendered by this Bench in the case of Superfil
H          Products Ltd. Vs. CCE, Chennai (supra), I reject the
COMMISSIONER OF CENTRAL EXCISE, MADURAI v. 777
 AYYAPPAN TEXTILES LTD. [J. CHELAMESWAR, J.]
    appeal filed by the revenue and sustain the impugned              A
    order passed by the Commissioner (Appeals). Ordered
    accordingly."

     10. In substance, following the earlier judgment of the
Madras High Court rendered in Collector of Central Excise, 8
Coimbatore v. Cambodia Mills Ltd., 2001 (128) E.L.T. 373
(Mad.) and Superfil Products Ltd. v. CCE, Chennai. 2002 (48)
R.l.T. 319 (CEGAT - Chennai), the appeal was dismissed.
Whereas the decisions relied upon by the department in
Ramalinga Choodambikai Mills Ltd. v. Government of India C
& Others 1984 (15) E.L.T. 407 (Mad.), Bojaraj Textiles Mills
Ltd. v. Assistant Collector of Central Excise 1990 (45) E.l.T.
559 (Mad.) and The Government of India represented by its
Secretary, Ministry of Finance, Department of Revenue &
Insurance, New Delhi and Others v. The Chirala Co-operative
Spinning Mills Ltd., Chirala 1980 E.l.T. 174 (AP.) were simply D
ignored.

     11. In Cambodia Mills Ltd. (supra), the division bench of
the Madras High Court was considering a case where samples
of yarn were drawn from the mill. It was found that the samples       E
were of higher counts than what was being declared by the
manufacturer. The department demanded a higher rate of tax
on the entire production made subsequent to the date of
inspection in view of the fact that the yarn produced on the date
of inspection was found to be of higher counts. Eventually the        F
matter reached the High Court. It appears that the question
before the High Court in the aforementioned case was "whether
the differential duty on the differential count of yarn which is in
excess of the declared counts shall be demanded for the entire
production from the period of drawal of the sample till the next      G
sample ..... " (para 7). The High Court opined that there was no
material on record to support the conclusion drawn by the
department and directed the demand be restricted only to the
yarn manufactured on the date of the drawal of the sample.

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    778      SUPREME COURT REPORTS                   [2013) 7 S.C.R.

A         12. On the other hand, the department relied upon the
    decision in· Ramalinga Choodambikai Mills Ltd. (supra), Which
    is also a case of cotton yarn. Samples were drawn on
    14.9.1966. On that day, 69 bales of cotton yarn manufactured
    prior to that date were lying in a packed condition in the factory
s   premises. Finding that the samples were of higher count than
    the declared count by the manufacturer, the department
    demanded a higher tax not only on the 69 bales of yarn existing
    in the factory premises on the date of the drawal of the samples
    but also further material manufactured between the date of
c   inspection (14.09.1966) and 20.10.1966 on which date fresh
    samples had again been drawn. The question was whether the
    demand in so far as it pertained to the yarn manufactured
    between the two dates of inspection solely on the basis of the
    test report of the samples drawn on the first date of inspection
    is legally tenable. The High Court held that such a demand was
0
    tenable. 1

        13. The said decision was followed in Bojaraj Textiles
  Mills Ltd. (supra) and The Chirala Co-operative Spinning Mills
  Ltd. (supra). Unfortunately, none of the above-mentioned three
E judgments appear to have been brought to the notice of the
  division bench of the Madras High Court when it considered
  the case of Cambodia Mills Ltd. (supra).

          14. In our opinion the view taken in Ramalinga
F Choodambikai Mills Ltd. (supra) appears to be a sound view
  in law and obviously based on the principle enunciated under
  Section 114 of the Evidence Act in illustration (d) "that a thing
  or state of thins which has been shown to be in existence within
  a period. shorter than that within which such things or states of
G things usually cease to exist is still in existence." If the
  department on inspection of a manufacturing premises on a
  particular day detects that goods of a particular specification
  are being manufactured, the department is entitled in law to
  presume that (until the manufacturer proves the contra) goods
  of the same specification are continued to be manufactured.
H
 COMMISSIONER OF CENTRAL EXCISE, MADURAI v. 779
  AYYAPPAN TEXTILES LTD. [J. CHELAMESWAR, J.]
       15. However, the case on hand is not a case where the           A
 above principle can be applied as no samples were drawn at
 all for the department to draw an initial presumption. The content
 of the recovered FILE and the statements of the employees of
 the respondent must be examined to ascertain the fact whether
 the respondent manufactured during the period covered by the          B
 FILE - yarn of a higher count than the declared count. Only after
 establishing such fact the department would be entitled to draw
 a presumption. We do not find any clear finding on record from
 any one 0f the authorities below that the materials gathered by
 the department would establish that basic fact.                       c
      16. On the other hand the 1st appellant authority found that
 the defence of the respondent - that the test reports obtained
 by the respondent for a different purpose but not to ascertain
 the count of a day are not representative of the count of the
 production of the entire week - is a tenable defence.                 D

         17. The Tribunal instead of deciding the correctness of
...such a conclusion went into the questions of law unwarranted
   by the facts of the case. Having regard to the paltry amount
   involved in the matter, the long and chequered history of the       E
   litigation and the resultant wastage of time of the various fora,
   coupled with the fact, the 1st appellate authority found some
   substance in the defence of the respondent, we are not inclined
   to interfere with the judgment under appeal. The appeal is
   dismissed.                                                          F
  R.P.                                         Appeal dismissed.