1. This appeal having been originally preferred as a revision petition to the Government has been transferred to this Tribunal under the provisions of Section 35-P and is being disposed of as an appeal under this order.
2. On a surprise inspection on 5.1.1977 of what is described as the factory premises of the appellant, M/s. Alwyn Industrial Corpn., the Central Excise officers found that 2148 coils and 15,260 Mtrs. of electric wires and cables had been manufactured without obtaining any Central Excise licence therefor and had been removed without payment of Central Excise duty. Thereafter a show cause notice was issued calling upon the appellant to show cause why a penalty should not be imposed under Rule 173Q of the Central Excise Rules and why the duty payable on the above said goods are not to be demanded under Rule 9(2). In the reply the appellant denied that either coils or cableds had been manufactured by them. References have been made in the show cause notice to loans obtained by the appellant from the State Bank of India allegedly for manufacturing purposes. In this reply to the show cause notice the appellant denied having engaged itself at any time in such work and claimed that wires and cables purchased from third parties were alone pledged or hypothecated to the bank for obtaining the loan and hence no licence had been taken and no duty was payable.
3. The Collector of Central Excise by his order dated 26.8.1977 concluded that in view of the fact that the appellant had obtained the loan from the bank for manufacture and in the absence of any records produced to prove purchase from third parties for purposes of pledging or hypothetication to the bank, the defence of the appellant could not be accepted. He accordingly held that the appellant is proved to have manufactured the above said quantity of cables and coils and demanded duty of Rs. 19,245.75 and imposed a penalty of Rs. 25,000/-. On appeal therefrom the Central Board of Excise and Customs agreed with the Collector on both his conclusions and rejected the appeal. It is against the said order of the Board that the revision had been preferred to the Government.
4. We have heard Shri 3. S. Agarwal, Consultant for the appellant and Shri R. Deb, SDR for the Respondent. Shri Agarwal contends that the burden is on the Department to establish that the appellant was ever engaged in the manufacture of wires and cables and in the absence of any proof thereof the orders of the lower authorities are totally incorrect. He contends that even through the correspondence from the bank no conclusion can be drawn as to the alleged manufacturing activity of the appellant. He finally contended that in any event the show cause issued on 25.2.1977 was barred by time under Section 40(2) of the Central Excises and Salt Act and for that reason also the orders of the lower authorities are incorrect. Shri Deb for the Department contended that the very fact that the appellant had applied for a loan from the State Bank of India for manufacturing wires and cables and had obtained a loan and hypothecated its articles of manufacture also to the Bank would prove that the appellant had been engaged in manufacture of these articles and the denial by the appellant cannot be accepted.
He further contended that the provisions of Section 40(2) of the Central Excises and Salt Act do not apply to Departmental proceedings such as issue of show cause notices and, therefore, there can be no bar of limitation thereunder. In this connection, Shri Deb made reference to another letter from the State Bank of India to the Excise authorities dated 9.5.1977.
5. We have carefully considered the facts disclosed as also the submissions from both sides. Admittedly, there is no actual evidence of the manufacturing activity carried on by the appellant. The show cause notice refers to a visit by the authorities on 5.1.1977 of what is described as the factory premises of the appellant. It may be seen from the records that even earlier on 27.12.1976 the authorities had recorded a statement from the appellant. Even in that statement the appellant had denied having manufactured wires and cables at any time, though he admitted "having obtained a loan of Rs. 15,000/- from the bank. The appellant had further admitted that statements had been submitted to the bank from 12.1.1973 to 28.11.1974. The appellant had stated in the said statement that such goods as were pledged to the bank had been purchased from other manufacturers or dealers, but that records relating to such purchases were not available and had been destroyed. So far as the correspondence from the bank is concerned, they appeared to have consisted of a letter dated 5.4.1976 and another letter dated 21.12.1976. In the letter dated 5.4.1976 the State Bank of India had informed the Excise authorities that the appellant had obtained a cash credit limit of Rs. 50,000/- and that the loan amount was sanctioned for the manufacture of electric wires and cables and as per stock statements received the appellants, manufacturing of cables was done by them. Along with the letter dated 21.12.1976 copies of 12 stock statements had been sent by the bank to the authorities.
Therefore, even these letters do not refer to any actual inspection by the bank or any personal knowledge on the part of the bank of the manufacturing activities carried on by the appellant. During the course of the hearing in this appeal Shri Bhatia at that stage appearing for the Department, had produced a copy of another letter from the State Bank of India to the Department dated 9.5.1977. But Shri Agarwal objected to the production of this document at this stage since no reference had been made thereto either on the show cause notice or even during the course of the adjudication proceedings or the appeal therefrom. In the circumstances, no reliance can be placed on this letter or the contents thereof.
6. As earlier noted the appellant had denied manufacture of wires and cables even when the appellant's statement was first recorded on 27.12.1976 which was even before the visit by the authorities of the premises of the appellant. The same denial has been repeated in the reply to the show cause notice as also in the hearings during the adjudication proceedings. It is pointed out by Shri Agarwal that "if really any manufacturing process had been carried on by the appellant this fact could have been established by the production of proof regarding at least obtaining of the necessary licence therefor from the Municipal Authorities or the power connection for the same or at lease statements of persons who had been engaged in the actual manufacture or purchase of the manufactured product. In the absence of proof on any one of these matters the reliance only on the letters from the bank appeared to us to be insufficient to draw a conclusion that the appellant must have been engaged in the manufacture of wires and cables. The consistent case of the appellant that no such manufacturing activity was carried on by the appellant cannot be rejected merely on the basis of the two letters from the State Bank of India, wherein also no specific statement is made about the actual manufacturing operations.
7. In this view we are of the opinion that the order of the lower authorities about acceptable proof of the manufacturing activities of the appellant cannot be supported. For this reason itself the order of the Board appealed against is liable to be set aside. The further contention of Shri Agarwal is that in any event the proceedings were barred by time under the provisions of Section 40(2) of the Central Excises and Salt Act. For this proposition he realised upon the decision of the Andhra Pradesh High Court in Rajasthan Tobacco v.Assistant Collector of Central Excise (1979 ELT 637 J). But the Allahabad High Court in Geep Flash Light Industries v. Union of India (1979 ELT 674 J) had considered the matter fully and had taken into consideration another judgment of the Madhya Pradesh High Court in Universal Cable Ltd. v. Union of India [1977 TLR 1925] and had held that the provisions of Section 40(2) do not apply to proceedings initiated by the Central Excise authorities for quantification and realisation of duty and that the bar of limitation under that section can only be set up in proceeding before a Court of Law. We are accordingly of the opinion that the appellant cannot rely upon Section 40(2) to contend that the proceedings are barred by time.
8. In the result, this appeal is allowed and the order of the Board dated 22.9.1980 is set aside.