1. This appeal dated 24-7-1982 to the Central Board of Excise Customs, under Section 35 of the Central Excises and Salt Act, 1944 against Order-in-Original C. No. V/32/ 15/1/81 Cx. Adj. I dated 5-5-1982 passed by the Additional Collector of Central Excise, Madras has been transferred to the Tribunal for disposal as an appeal in terms of Section 35P(2) of the said Act.
2. The facts of the case as set out in the Order-in-Original are that on 10-2-1981, the Superintendent of Central Excise, Preventive, visited the factory of the appellants, who held licence L. 4 No. 1/73 (electric bulbs) and perused the accounts and sales invoices of the goods cleared. Certain invoices issued to M/s. Revathi Agencies for the sale of electric bulbs, bearing the brand names 'BIJLITE' and 'REVLITE' were found ; and it was also noticed that the value of these bulbs was not included, while computing the exemption limit of Rs. 5 lakhs in terms of Notification No. 71/78, dated 1-3-1978 and No. 80/80, dated 19-6-1980, which the factory was allowed to avail. After further investigation a show cause notice was issued on 5-9-1981 as to why a penalty should not be imposed and why duty of Rs. 51,682.63, due on electric bulbs manufactured and cleared to M/s. Revathi Agencies during 1978-79, 1978-80 and 1980-81'should not be demanded under Rule 9(2) in terms of proviso to Sub-rule (1) of Rule 10 and proviso to Section 11A as made applicable to Rule 9(2) by Notifications No. 267/77, dated 6-8-1977 and No. 3/81, dated 14-1-1981, respectively. After the reply and giving due opportunity by way of personal hearing, the Additional Collector came to the conclusion that M/s. Revathi Agencies are to be treated as a wholesale dealer only, in respect of 'BIJLITE' and 'REVLITE' bulbs manufactured by the appellants, and they cannot, by any stretch of imagination, be treated as a manufacturer. In these circumstances, the appellants are held to be the manufacturer and only with a view to avoid payment of central excise duty on these bulbs, both the firms have entered into an agreement that the appellants would manufacture the aforesaid two brands of bulbs on behalf of M/s. Revathi Agencies. He also observed that the appellants (a mistake for M/s.
Revathi Agencies) are the indenting agents in respects of the products of the appellants in Andhra Region for which they are paid 8% commission on the invoice value by the appellants, which shows there is business relationship between M/s. Lustre Lampions and M/s. Revathi Agencies. Therefore, the contention of the appellants that Revathi Agencies are the loan licensee and the two brands of bulbs are manufactured by them on their behalf, cannot be accepted and duty should be paid on the bulbs supplied to M/s. Revathi Agencies. For the purposes of demanding duty, the extended time-limit under Rule 9(2) is correct since certain facts with regard to the production of the said bulbs with intent to evade payment of duty were suppressed. He accordingly imposed penalty of Rs. 5,000 on the appellants under Rule 173Q and demanded duty of Rs. 51,682.63 due on the quantity of bulbs supplied to M/s. Revathi Agencies during 1978-79, 1979-80 without payment of duty due thereon.
3. The appellants state that they are manufacturers of electric lighting bulbs falling under Item 32, C.E.T. and had duly filed classification list and price list and maintained a personal ledger account, R.G.I, account and submitted R.T. 12 returns. Even after the introduction of the small scale industry Notification No. 71/78, dated 1-3-1978, they cleared goods after observing excise formalities and continued to do so after the advent of Notification No. 80/80, dated 19-6-1980. When M/s. Bijli Products (India) Pvt. Ltd. had some problems, the appellants approached them and were permitted to use their brand name 'Bijlee' and sell them as their own products without any payment of royalty. Such bulbs were manufactured from 1-1-1978 to 7-11-1978 and the value of Rs. 1,59,883.70 was included in the computation of value for exemption under Notification No. 71/78. For their own bulbs, the sale was on list prices except in Andhra Pradesh, where M/s. Revathi Agencies were appointed as indenting agents on a commission of 8% vide letter dated 7-12-1977. In all other places, the bulbs are sold directly and M/s. Revathi Agencies merely book orders which are made directly by the appellants and 8% commission is paid.
This is not loaded on the prices of the bulb but is met from the profit of the company. M/s. Revathi Agencies approached the appellants to manufacture 'Bijlite' and 'Revlite' brands and they agreed to do so out of their own raw materials but with those brand names as a loan licensee under Central Excise Law. This was being done from 17-2-1979 to 31-1-1981. Thus, from 1-2-1973 onwards Lustre Lampion bulbs were being manufactured, from 1-1-1978 to 7-11-1978 Bijlee brand from 17-2-1979 to 31-1-1981 Bijlite and Revlite brands were manufactured by the appellants. The Superintendent said M/s. Revathi Agencies should apply for L. 4 licence and they did so, enclosing appellants' letter dated 19-1-1979. Therefore, they gave a declaration on 27-2-1979 that no manufacture elsewhere was being got done. On 1-3-1979 the Superintendent informed them that the value of proposed transactions being less than 80% of the Rs. 5 lac exemption limit, there was no need for a licence and a declaration under Notification 111/78, dated 9-5-1978 should be filed. M/s. Revathi had also fild a declaration on 10-3-1979 under Notification 305/77, dated 5-11-1977 issued under Rule 174A for maintenance of accounts by the appellants on behalf of the loan licensee but the Superintendent said it was not necessary, perhaps on second thought and declaration under No. 111/78 will suffice.
Accordingly this declaration was filed on 10-3-1979 and was accepted on 15-3-1979 stating that M/s. Revathi are exempted from operation of Rule 174 and before 15th April every year the declaration regarding being within 80% of the limit should be filed and if it was exceeded, they would need a L. 4 licence. They should also send an annual return of clearances from the premises of the appellants. Accordingly, a simple stock account was maintained and value of clearances for 1979-80 and 1980-81 was reported on 20-2-1980 and 6-4-1981 by M/s. Lustre Lampions.
Thus, proof is produced that it was with written permission of the Superintendent that the manufacture on behalf of M/s. Revathi Agencies was undertaken. Accordingly to Government of India letter F. No. D.23/21/78-TRU dated 23-5-1978, the Law Ministry as well as the CBEC have accepted the concept of a Loan Licence and stated that the Loan Licensee would be eligible for the exemption separately. Hence there was no legal objection to the appellants as well as the loan licensee, availing of exemption. With these facts, the grounds of appeal are : (1) The order states that only when the Range Officer pointed out that the value of 'Bijlee' bulbs should be included for Exemption Notification 71/78, they stopped manufacture of these bulbs from 30-11-1978 and adopted the novel method of asking M/s. Revathi, their indenting agents, for Andhra, to apply for a loan licence for manufacture of Bijlite and Revlite, on their behalf, by M/s. Lustre Lampions. This is challenged and no evidence has been furnished. In fact, the value of Rs. 1,69,883.70P had already been taken alongwith their own bulbs. The order also failed to take into account payment of duty during 1978-79, 1979-80 and 1980-81 and this would not have been necessary, if a novel method could have been employed and no evidence is provided to show that "Bijlee" was renamed as "Bijlite" and "Revlite". The appellants cannot bow to presumptions and convictions based on false or non-existent grounds to apply the extended period for raising the demand. (2) The order holds that since raw material was not supplied by M/s. Revathi, they would not be a loan licensee but this is not correct. Even for Patent and Proprietary Medicines, where this concept originated, no de jure manufacturer supplies the raw materials.
The Agreement of 17-2-1979 contains a condition to allow 1% deduction towards breakages/fusages and this has been misconstrued to be a normal trade discount. This is a normal trade practice for fragile goods.
Moreover the appellants prices varied from Rs. 2.05 to Rs. 2.50 whereas M/s. Revathi were from Rs. 1.80 to Rs. 2.00, which would not have been possible if the relationship was between buyer and seller. The 1% allowance was therefore very restrictive. (3) With regard to certain credit notes being given to M/s. Revathi and since these were also given to other dealers, Revathi were mere wholesale dealers, the reasoning is wrong. Since they were paying for raw materials, convention requires supply of good quality and also credit in respect of goods short delivered, damaged or otherwise becoming useless. The system of credit notes cannot decide whether M/s. Revathi Agencies are de jure manufacturers or merely a wholesale dealer intentionally created by the appellants. (4) It is stated in the order that to evade payment of duty the agreement was entered into, but there is no proof of this allegation. Morever, "Bijlite" and "Revlite" are suggested by Revathi Agencies and there is no proof that all three brands are one and the same. (5) The order holds that since 8% commission is given, there is business relationship, but it has failed to examine if this commission is first given from profits and indents of bulbs of the appellants, whose bulbs are not under discussion and dispute. Business relationship is relevant only for Section 4 and the order based on an irrelevant ground to find the manufacturer, as defined in law, is totally wrong. (6) In reply to the show cause notice it was claimed that six months from 14-9-1981 would be the period for demanding duty, if at all, but all that is said is that certain facts have been suppressed, without showing what suppression was made. On the other hand, the officers seized two note books showing account of manufacture for M/s. Revathi from. 18-2-1979 to 31-3-1980 and 1-4-1980 to 31-3-1981 from which figures for 1979-80 and 1980-81 were supplied to the Range Officer. These were used to segregate manufacture by the preventive, audit and stock taking officers, but are surpisingly not referred to in the impugned order and evidence favourable to the appellants has not been made use of. (7) The true position was that the appellants paid duty as follows :1978-79 Rs. 6.46 lacs Rs. 21,943.51+Rs. 1,074.941979-80 Rs. 5.04 lacs Rs. 686.641980-81 Rs. 6.09 lacs Rs. 8,399.50+Rs. 419.73M/s. Revathi Agencies :1978-79 Rs. 79,897.00 Exempted declaration filed1979-80 Rs. 240,474.65 -do- If it was intended to evade duty, no duty would have been paid and their own clearances should have shown a steep fall, which is not the case. (8) The penalty of Rs. 5,000 has been imposed without discussing the various violations alleged and it is illegal in terms of Rule 173Q.(9) Only when Rule 9(1) is contravened does Rule 9(2) come into operation. Since annual statements were being regularly received on behalf of Revathi Agencies, the clearances were not clandestine. Rule 9(2) would not also apply since written instructions of the concerned officer were given. (10) The entire proceedings are not based on facts or evidence but presumptions and assumptions and even under Rule 9(2) the demand for Rs. 57,682.63 P is barred by limitation. On these grounds the order deserves to be set aside.
4. Shri Bhatnagar for the appellants and S/Shri Kunhi krishnan, Lakshmi Kumaran and S.N. Khanna, for the respondent were heard at length on 16/17-2-1984, 26-4-1984 and 16-5-1984. Shri Bhatnagar reiterated the contentions in the written appeal. He stated that Notification No.305/77 required that a person who gets his goods manufactured by another manufacturer need not take out a licence, if he authorises the manufacturer to comply with all procedural formalities and rules in respect of the goods manufactured and furnishes information for determining the value under Section 4. Accordingly, a declaration was made on 10-3-1979 by M/s. Revathi Agencies and confirmed by the appellants and the declaration was countersigned by the Superintendent of Central Excise and the Superintendent asked for a declaration under Notification No. 111/78. This was accepted on 15-3-1979 and M/s.
Revathi were informed that before the 15th April each year on reaching 80% of the exemption limit, they would come within the ambit of the licensing provision and have to comply with other Central Excise formalities. Counsel then referred to Government of India MF(RD) F. No.B23/21/7 8- TRU dated 23-5-1979 (page 130) of R.K. Jain's Tariff, which clarified that the value of goods cleared by a manufacturer on behalf of his loan licensee should not be taken into account for the purpose of determining the eligibility of the manufacturer to exemption Notification No. 71/78 (now 80/80). The required declarations were accordingly being given every year, but on 5-7-1981, a show cause notice was received by the appellants and duty was demanded and penalty imposed for the goods cleared under the declaration and exemption. The Assistant Collector was wrong in holding that because of payment of 8% commission and 1% breakage allowance to M/s. Revathi Agencies, they were mere wholesale dealers and not loan licensees. The Ministry's instructions referred to above, were superseded by an instruction dated 14-5-1982, which clarified that the loan licensee would be separately eligible for exemption under Notification No. 71/78 now 80/80 provided they supply raw material, technical know-how etc. and their clearances do not exceed the prescribed limits. He claimed promissory estopped as this clarification came later and relied on (1977 E.L.T. J 67) Nav Gujarat Paper Industries v. Superintendent Central Excise, where it was held that a Trade Notice is binding and the department is estopped from contending to the contrary. He also relied on D-Bench Order relating to National Steel Industries (1983 E.L.T. 1238) and (1980 E.L.T. 6) M/s.
Guest Keen Williams, among other precedents. In the case of M/s.
Grooves Products, Madras v. C.C.E., Madras (1983 E.L.T. 2402) relating to patent and proprietary medicines, duty was demanded from the loan licensee. In the present case, an affidavit was filed that the loan licensee is getting the exemption and this was with the knowledge of the Excise authorities. Shri Bhatna-gar contended that there was no clandestine removal and the special period in Rule 10 or Section 11 could not be invoked. He cited 1983 E.L.T. 1674 in this regard and argued that there was no occasion for imposing any penalty.
5. Shri Kunhikrishnan referred to the reply to the show cause notice which shows that the raw materials were of the appellant who also manufactured the bulbs and only the brand name was of the so-called loan licensee. The trade mark owner cannot be treated as a "manufacturer" under Section 2(f). He cited 1978 E.L.T. J 78 and 1980 E.L.T. 263 to support his contention. Under Notification No. 71/78 no manufacturer could clear goods free of duty in excess of Rs. 5 lakhs.
In Notification No. 80/80 this was made more specific and the emphasis was on the factory from which clearances were made, even if it was run by a different manufacturer at different times. He contended that there was no res judicata in the matter of assessment [1962 (2) S.C.R.(644)]. The onus for establishing the claim for exemption lay on the party claiming it [1959 (35) I.T.R. 3136 and 1983 E.L.T 162 (C.E.G.A.T.)]. The order gives details of the clearances on behalf of M/s. Revathi Agencies during 1978-79, 1979-80 and 1980-81. Since they did not supply any raw material or know-how or inspect the manufactured goods etc., they could not be considered as manufacturers for the purposes of the exemption notification.
6. At the resumed hearing, the learned counsel referred to the declaration dated 27-2-1979 from M/s. Revathi Agencies that they are not holding any loan licence for the manufacture of electric lighting bulbs with any other manufacturer and the letter from the Superintendent dated 8-3-1979 stating that the volume of the proposed bulbs manufactured being less than the 80% of the exemption limit of Rs. 5 lakhs, there was no need for a licence but they should file a declaration under Notification No. 111/78 and get it approved. This declaration was accepted on 13-4-1979. Declarations on 22-2-1980 and 6-4-1981 were also made by the appellants showing the clearances on behalf of the loan licensees M/s. Revathi Agencies. The departmental officer had instructed them not to show this production and clearance in the R.G. 1 but to maintain a private account. These accounts as well as the invoices and delivery challans had been seen and signed by the officers. Since everything was done with the department's knowledge, the extended period under Rule .9(2) or under Rule 10, could not be invoked. The Bombay High Court had held that the goods should be removed in contravention of Rule 9(1) and removal should be clandestine, if Rule 9(2) was to be attracted (1980 E.L.T. 156). It was also held that where Central Excise authorities were frequently visiting a factory and a show cause notice did not allege any fraud, suppression or mis-statement, the special period of five years under Rule 10 or Section 11 A, as the case may be, will not be applicable (1981; E.L.T. 738). The Madras High Court had also held that where the Central Excise authorities were themselves in doubt as to the excisability and did not object to clearance of goods, Rule 9(2) cannot be invoked (1977 E.L.T. J 193). Shri Bhatnagar also referred to a Tribunal decision that it was not believable that Central Excise officers were unaware of manufacture of certain goods under Tariff Item 51(2) and Rule 9 was not contravened as it was incumbent on the department to take steps to recover duty (1984 E.C.R. 752). In this case officers were visiting the factory and the show cause notice dated 5-9-1981, was issued more than six months after the last operative date, namely, 31-1-1981, hence all the demands from 6-2-1979 upto this date, were time-barred.
7. At the final hearing, Shri Khanna pointed out that on 5-12-1978 the appellants exceeded the limit of Rs. 5 lakhs under Notification No.71/78. Revathi Agencies were being given 8% commission and on 15-12-1978 they took out a L. 4 loan licence, evidently to help the appellants avail of further exemption up to Rs. 5 lakhs. They did not supply raw material, technical know-how, specifications etc. so they could not be treated as a manufacturer and Notification No. 305/77 was not applicable, more so, as the appellants did not comply with the Act/Rules. It is clear from the facts that the appellants were the manufacturer and M/s. Revathi are a mere buyer of their good.s. Since the appellants failed to comply with the rules, the five year extended period was clearly attracted and penalty was justified. Shri Bhatnagar conceded that the appellants did not discharge the liabilities undertaken on 19-1-1979, but they were misled because their declaration was returned saying Notification No. 305/77 was not applicable and only the declaration under Notification No. 111/78 was required. The Superintendent also said no R.G. 1 record was necessary for loan Licensees' goods and hence there was also no mention in their R.T. 12's and gate passes. The clarification of 11-5-1982 was not in existence and instructions of 23-5-1978 clearly allowed the exemption to a loan licensee, if the goods manufactured on his behalf and their clearances do not exceed the limit and there were no conditions, as subsequently brought in. He pleaded for setting aside the order of the Additional Collector.
8. M/s. Revathi Agencies were exempted from taking out a central excise licence in terms of Notification No. 305/77, upon their authorising the appellants to (i) comply with all the procedural formalities under the Act and Rules, in respect of the goods manufactured on their behalf ; (ii) to furnish the price at which they are selling the goods for determining the value and (iii) on the appellants agreeing to discharge all liabilities under the said Act and Rules. It is an admitted position that the appellants did not file the required price list, for determining the assessable value under Section 4, of the bulbs purported to have been manufactured on behalf of M/s. Revathi Agencies.
It is further clear that production/clearance of these goods was not entered in the statutory R.G. 1/E.B. 4 records and that they were not cleared on gate passes, as required by Rule 51A nor were they shown in the R.T. 12 returns. It is, therefore, patent that there was non-compliance by the appellants of the terms under which goods manufactured by them on behalf of a loan licensee could avail of the exemption granted under Notification No. 71/78 and its successor No.80/80. These goods could not, as such, be deemed to be de jure the goods of the loan licensee and, since they were actually manufactured and cleared by the appellants, they must form part of their clearances for practical as well as legal purposes. These have to necessarily be added to their clearances, for the purposes of computing entitlement to the exemptions under Notification No. 71/78 or 80/80. The calculation of liability to duty, consequent on inadmissibility of any concession to M/s. Revathi Agencies, as made out by the department is thus unexceptionable. The question remains whether the demand is wholly or partly time-barred, as urged by the appellants. We have given careful consideration to the pleadings of both parties. There is considerable force in the argument of Shri Khanna that it is not only for wilful mis-statement or suppression, that the extended period under Section 11 or Rule 10 could be invoked but contravention of any of the provisions of the Act or Rules, with intent to evade payment of duty. In this case, rules have been undoubtedly contravened and goods were manufactured without proper accounting and were improperly cleared. It is true that the department was informed by M/s. Revathi Agencies that it would get its goods manufactured by the appellants, but there was wilful non-compliance with the mandatory requirements ; and what may well have started as a legal attempt to avoid payment of duty and get the benefit of exemption twice, has in fact turned out to be an attempt to evade payment of duty, by availing of an unauthorised and inadmissible exemption. In this view of the matter, the limit of six months would not be attracted but the longer period. We would, therefore, uphold the order to this extent. At the same time, we cannot ignore the fact that the departmental officers had been informed regarding manufacture on loan licence basis and the appellants had declared the quantities in question, so they could very well have acted much earlier to safeguard the revenue interest. It was also their duty to ensure that the value of clearances declared by and on behalf of M/s. Revathi Agencies and accepted was legally correct on the basis of prices. Counsel also relied on some private accounts which had been initialled by departmental and audit officers. However, the entries purporting to be the goods made for the "Revathi Agencies", were shown in pencil in the remarks column of these raw material records, so it cannot be said with certainty that they had actually been seen by the officers. Besides, they are not part of the records and the appellants would very well have examined these officers in their defence during the proceedings. Even so the department has relied on the appellant's records to compute duty and we see some force in the contentions regarding the severity of the penalty. There is one other point raised by Shri Bhatnagar relating to the clarification of 14-5-1982 being applied retrospectively, since it went substantially beyond the earlier clarification of 23-5-1978. We observe that the show cause notice was issued in 1981, well before this clarification, and was for clearing the bulbs without payment of duty, without gate passes and observing other rules. Since they had in fact undertaken to so comply but failed to do so, we find no force in the contention, although, as observed earlier, there are reasons for mitigation as regards the quantum of penalty.
9. In the circumstances of the matter, we feel it would be fair and just if the penalty is modified. While, therefore upholding the impugned order in regard to demand for duty, we reduce the penalty to Rupees five hundred only. The appeal is otherwise rejected.