CEA No.6 of 2005 -1- IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH CEA No.6 of 2005 DATE OF DECISION: January 27, 2010 COMMISSIONER OF CENTRAL EXCISE, LUDHIANA ...APPELLANT VERSUS SH. RAKESH NAYYAR, M.D., M/S WOOLWAYS ...RESPONDENT (INDIA) LTD., LUDHIANA CORAM: HON'BLE MR. JUSTICE ASHUTOSH MOHUNTA. HON'BLE MR. JUSTICE MEHINDER SINGH SULLAR. PRESENT: MR. SANJIV KAUSHIK, SR.STANDING COUNSEL FOR THE APPELLANT. MR. M.P. DEVNATH, ADVOCATE FOR THE RESPONDENT. ASHUTOSH MOHUNTA, J. This judgement shall dispose of CEA No.6 of 2005 and CEA No.7 of 2005, as common questions of law and facts arise in both these appeals. However, the facts are being extracted from CEA No.6 of 2006. The revenue has filed the present appeal under Section 35G of the Central Excise Act, 1944 (for short hereinafter referred to as ‘the Act’) against the order dated 6.7.2004 of the Customs, Excise and Service Tax Appellate Tribunal (for short CESTAT) on the ground that the following questions of law arise for our consideration :- i) Whether a manufacturer who claimed to have sent Acrylic Fibre (inputs) to job workers for manufacture of Acrylic Yarn and department proved that the said job workers were non existing and fictitious, is liable to pay Central Excise CEA No.6 of 2005 -2- duty as it is evident that the said manufacturer had himself manufactured the said goods and cleared the same without payment of duty as the job workers to whom the inputs claimed to have been sent were found to be non existent and fictitious. ii) Whether any benefit of Notification No.47/94-CE dated 22.09.94 can be given to a manufacturer on the plea that the clandestinely manufactured goods have been used in the manufacture of exported goods as the provisions of this notification are substantive and not merely procedural. iii) Whether the CESTAT is correct to give benefit to the party who has earlier committed fraud and has not paid Central Excise duty and who has not come with clean hands, frank and full disclosure of the facts and has misled the CESTAT in passing an order in its favour. The facts are that M/s Woolways (India) Limited (hereinafter referred to as the ‘Respondent’) are manufacturer-exporter of Acrylic Yarn and Acrylic Knitwear Garments. The Respondents have been duly recognised as an Export House by the Government of India, Ministry of Commerce, New Delhi. The Respondents normally operated under duty exemption scheme of the Export Import policy during the period in dispute. For this purpose, they obtained advance licences from time to time in terms of duty exemption scheme under EXIM policy. In terms of the advance license scheme, they imported raw materials like acrylic fibre, dies etc. required for the manufacture of export goods viz. Acrylic knitwear garments. It seems that till date, the Respondents appeared to have fulfilled all the export obligations for all the advance licences. CEA No.6 of 2005 -3- The Respondents also have another unit (hereinafter referred to unit–II), situated at Village Sahni, G.T. Road, Sahanuwal, Ludhiana. The Respondents had obtained Central Excise registration on 6.9.94 for the Unit No.I. This registration was surrendered on 9.8.96, because the machinery installed at Unit No.1 was not functioning properly and they intended to sell the same. Respondents obtained separate Central Excise registration for their Unit No. II on 8.7.97. Respondents imported acrylic fibre in terms of the Policy provisions under Duty Exemption scheme, before, during and after the period under dispute regularly. Similarly, they exported Acrylic Knitwear garments regularly to discharge the export obligation under the advance licences issued to them from time to time. For conversion of the acrylic fibre to Acrylic Knitwear garments, various stages of manufacture are involved. First of all, acrylic fibre is to be converted into yarn through the process of spinning. Spun yarn is then dyed; Dyed yarn is processed into fabrics. The fabric is converted into knitted garments and knitted garments after necessary final inspection are packed and exported. All the above said facilities are normally not available with the small/ medium level manufacturer exporter. He has to invariably depend upon job workers/ processors. In this kind of trade / industry, the goods are got processed through the brokers. These brokers receive the raw material, get it processed into yarn or fabrics as the case may be and charge their commission on the goods so processed. The entire processing activity etc., outside the factory is done through brokers. These brokers seldom disclose the identity of processors and some times even provide the incorrect name CEA No.6 of 2005 -4- and address of the job workers, in order to maintain secrecy of the business. But under the ground realities and situations of this kind of industry, a manufacturer-exporter has no option but to depend upon such brokers for his survival. In the present case also, the Respondents supplied the raw material imported by them under duty exemption scheme to the various job workers through the network of brokers. The yarn was received by the Respondents from the job workers through the brokers, which was ultimately used by them for the manufacture of export products in discharge of export obligation prescribed under the various licences. It is pertinent to mention here that part of the processing was done in Unit-I or Unit-II of the Respondents themselves. But part quantity was got processed from out side as the Respondents did not have the capacity for processing the entire material in their own units. During the year 1996-97 and 1997-98, the Respondents cleared acrylic fibre/mohir tops to the various job workers through the brokers. The name and addresses as given by the broker were entered in the records of the Respondents. After necessary job work, processed material was received by the Respondents in their factory which was ultimately used in the goods exported by the Respondents. There is no dispute about the factum of export of the garments by the Respondents. On 11.7.2000 premises of the Respondents was raided by the officers of the Central Excise, Ludhiana. They took away the entire records / books of accounts etc. of the Respondents. Statements of various employees were also recorded. Enquiries were conducted from the sales tax authorities/excise authorities with regard to various job workers. All these CEA No.6 of 2005 -5- investigations culminated in the Show Cause Notice No. V(55)15/59/LDH- I/2K/5748 dated 23.3.2001. The Commissioner of Central Excise, vide order dated 31.7.2003 however, brushed aside all the submissions made by the Respondents and confirmed the entire Central Excise duty demand of Rs. 98,28,561/– by invoking proviso to Section 11A of the Central Excise Act, 1944. Equal amount of penalty was also imposed under Section 11AC of the Act. Apart from that a penalty of Rs. 5,00,000/– was imposed under Rule 173Q of the Central Excise Rules, 1944. The Respondents preferred an appeal before the CESTAT against the Order dated 31.7.03 passed by the Commissioner of Central Excise. The CESTAT vide order dated 06.07.04 allowed the appeals filed by the Respondents. The Revenue argued that the Respondents had manufactured yarn out of imported fibres in the factory as the job workers to whom the fibres have been claimed to have been sent are fictitious and non existent and cleared the goods without payment of duty. That apart, it was argued that the Respondents had not followed the procedure set out Notification No.47/94-CE dated 22.9.1994. On the other hand, the Respondents had argued that no substantial question of law arises for the consideration of this Hon’ble Court. All the questions raised in the present appeal are questions of facts. It was submitted by the Respondents that the CESTAT is the last fact finding authority and the CESTAT has arrived at the correct conclusion after going through detailed facts involved in the present case. The duty demand in the present case depends on ascertainment of the fact whether the final products CEA No.6 of 2005 -6- have been exported or not. The CESTAT has applied its mind and after proper appreciation of facts and evidence on record has held that no duty can be demanded on the raw material used in the manufacture of the final product as the final product has ultimately been exported. The CESTAT records that the Revenue has not led in any evidence to show that the yarn was manufactured by the Respondents themselves in their factory. On the other hand the CESTAT appreciates the evidence on record which shows that the raw material has been used in the manufacture of final products which have been exported. The Respondents drew our attention that on the basis of non- existence of various job workers, inference has been drawn that the entire goods have been manufactured by the Respondents themselves and cleared without payment of duty. No evidence of procurement of acrylic fibre has been led in by the department. No evidence has been adduced to prove that Respondents had procured the acrylic fibre clandestinely which was used in the manufacture of acrylic yarn. The Respondents further submitted that on the other hand, there is conclusive evidence to prove that the entire quantity of Acrylic fibre was imported by the Respondents against their various advance licences under the duty exemption scheme from time to time. There is not an iota of evidence to establish that the yarn after manufacture was cleared without payment of duty for home consumption. Not even a single document has been produced or statement of any person of the Respondents or any buyer/dealer, etc., in the market has been recorded to establish that the yarn after manufacture was cleared without payment of duty in the home market. Needless to say that excise duty is leviable on the manufacture of excisable CEA No.6 of 2005 -7- goods and becomes payable on the removal of the excisable goods. On the other hand, there is plethora of evidence by way of export documents establishing that yarn after manufacture was used in knitted garments which were subsequently exported by the Respondents in order to discharge their export obligation under the advance licence scheme. We have heard both the sides and considered the submissions of the both sides. The Tribunal being the final fact finding body after noting various evidences on record has held as under:- “6.We have considered the submissions of both the sides. The contention of the Appellants is that they import acrylic fibres without payment of duty against the Advance Licences and export knitted garments manufactured out of so imported fibre and that they have produced evidence in support such as DEEC Books, Shipping Bills, etc. On the other hand the Adjudicating Authority has confirmed the demand of Central Excise duty on yarn on the ground that the job workers whom the fibre was supposed to have been sent to by the Appellants for conversion into yarn were found to be fictitious and thus they have themselves manufactured the yarn and removed the same for home consumption clandestinely without payment of Central Excise duty leviable thereon. The investigation conducted by the Revenue, it appears from the records, remained confined to the stage of non-existence of the job workers only. Once the Revenue found that the job workers are fictitious, the charge has been levelled against them and confirmed in the impugned Order that they had themselves CEA No.6 of 2005 -8- converted fibre into yarn and cleared it without payment of duty. No material/evidence has been brought on record to even indicate as to whether any investigation was carried out as to whom the said yarn had been sold and how the same was removed from the factory of the Appellants. The yarn in question is 4,43,954 kgs. of acrylic yarn, 18,060 kgs. of acrylic waste and 15,170 kgs. of Moha yarn. Some material should have been brought on record to show the sale of the said yarn to some persons. In absence of any such material the entire case of the Revenue is based on assumptions and presumptions that is, as the job workers are fictitious, the entire yarn has been cleared clandestinely without payment of duty. It is well settled that duty cannot be confirmed on the basis of suspicion howsoever strong it may be. It has been held by the Supreme Court in the case of Oudh Sugar Mills Ltd. v. UOI, 1978 (2) E.L.T. (J 172) that findings arrived at without any tangible evidence and based only on inferences involving unwarranted assumptions are vitiated by an error of law. We also observe that the Appellants, on the other hand has brought on record the copies of Shipping bills, invoices, bank realization certificate, DEEC Books of export and redemption letters issued by the licensing authority accepting the discharge of export obligations by the Appellants. The Revenue has not contradicted any of these documents adduced by the Appellants. Thus it cannot be denied by Revenue that the Appellants have not exported the garments CEA No.6 of 2005 -9- in fulfilment of their export obligation. The Appellants have shown the E.O. (Export Obligation) Discharge Certificates issued by the Office of the Joint Director General of Foreign Trade which clearly mentions as under :- “As per export documents submitted by you, you have fulfilled 100% E.O., therefore, the case has been remanded by this office on 16-2-99. This office has no objection if Customs redeem B.G./Bonds as per Rules. Both parts of DEEC Books in original have been sent to Customs authorities at port of Regn. as per Para 7.26 of current H.B. of Procedures (Vol. 1). You are advised to approach concerned Customs Authorities for redemption of BG/LUT.” It is also not the case of the Revenue that the Appellants had procured garments from the market for the purpose of exporting the same in fulfillment of their export obligation. Accordingly we set aside the impugned Order and allow both the appeals.” After perusing the impugned order passed by the Tribunal and after hearing counsel for the parties, we find that the respondents imported acrylic fibres against advanced licences under duty exemption scheme. The export knitted garments were manufactured out of the imported fibre and ample evidence has been adduced in support such as DEEC books, Shipping Bills, etc. The Revenue has also not placed any material on record which could show as to whom the imported yarn has been sold and how the same was removed clandestinely from the factory premises of the appellant. In CEA No.6 of 2005 -10- the absence of any such material, the findings of the adjudicating authority and the Commissioner (Appeals) that the entire yarn has been cleared clandestinely without payment of duty cannot be sustained. Not even a single document has been produced in order to establish that the yarn after manufacture was cleared without payment of duty in the home market. A perusal of the export documents clearly shows that the yarn after manufacture was used in knitted garments which were subsequently exported by the respondent in order to discharge their export obligations under the advanced licence scheme. The Hon’ble Apex Court in Oudh Sugar Mills’s case (supra) had clearly held that duty cannot be confirmed on the basis of mere suspicion, howsoever strong it may be. Furthermore, the assessee has brought on record ample evidence in the shape of copies of shipping bills, invoice, Bank Realization Certificate, DECC Books of export and redemption letters issued by the licencing authority which clearly shows that they have exported the garments in fulfilment of their export obligation. In this regard, export Obligation Discharge Certificate issued by the office of Joint Director General of Foreign Trade has already been produced which clearly acknowledges the fact that the manufacturer has fulfilled 100% export obligation. In view of the above, we entirely agree with the order passed by the Tribunal and on the basis of submissions and evidences on record, we find no infirmity in the order passed by the CESTAT. In these circumstances, all the questions of law, as raised in this appeal, are decided in favour of the assessee and against the Revenue. CEA No.6 of 2005 -11- In the net result, the appeal of the revenue is dismissed and the order of the Tribunal is upheld. (ASHUTOSH MOHUNTA) JUDGE January 27, 2010 (MEHINDER SINGH SULLAR) Gulati JUDGE