Case: Commnr. Of Central Excise, Madurai Vs. M/S. Ayyappan Textiles Ltd

The respondent company is engaged at least from 1985 in the business of manufacturing of various counts of cotton yarn 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 yarn manufactured depended on the count/finesse of the yarn. Higher the count higher the duty. On 30.08.1993, the officers of the Central Excise 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 asofficers found TWO REGISTERS showing the 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 M/s. Ayyappan Textiles Limited and 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 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 (iii 60s (iv) 82s.. Subsequently, the statements of Spinning Manager of respondent company and Technical Manger from M/s. Sitalakshmi Group of Mills, were recorded, (the details of which 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 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 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 thefind that the assessees contention has considerable force as the count determined on the basis of test conducted on the basis of sample drawn on a particular days production during a week cannot be the representative of the whole weeks production.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.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 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 the impugned order dated 07.1.2003 dismissed the appeal. Hence the instant appeal.

Court's reasoning:
In our opinion the view taken in Ramalinga 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 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 (untill the manufacturer proves the contra) goods of the same specification are continued to be manufactured.15. However, the case on hand is not a case where the 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 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 of the authorities below that the material gathered by the department would establish that basic fact.