1. In this case, a huge lot of art silk fabrics cleared by the appellants and described in the accompaying statutory gate passes as viscose X viscose were seized at Surat in the reasonable belief that they contained synthetic (non-cellulosic) yarn. On chemical test, the fabrics were found to be of nylon X viscose composition which made them liable to higher tariff values and consequently higher amount of central excise duty. In the follow-up action, a small part (87 pieces) out of the same lot of goods and carrying the same brand name "Roop Rani" were seized at the premises of a dealer at Ahmedabad also. On stock-taking, certain shortages and other irregularities were noticed in the appellants' factory. On adjudication of all the violations noticed, the Collector confiscated the fabrics involved, giving option for their release on payment of redemption fine, demanded difference in duty which was found to be payable and further imposed a penalty of rupees one lakh on the appellants under Rule 173Q of the Central Excise Rules, 1944. In appeal, the Central Board of Excise & Customs confirmed the Collector's order, recording, inter alia, that mala fides on the part of the appellants had been clearly proved. Thereupon, the appellants filed a revision application to the Central Government which, on transfer to this Tribunal, has been taken up as the present appeal.
2. Before us, the appellants conceded that part of the department's case which relates to the fabrics seized at Surat. In other words, they admitted that the fabrics declared as viscose X viscose in the central excise documents were actually nylon X viscose on which a higher amount of duty was payable but only a lower amount of duty had been paid.
Their prayer before us was only two-fold as follows :- (1) The small consignment of 87 pieces seized at Ahmedahad, though carrying the same brand name "Roop Rani" was not necessarily composed of nylon X viscose. It was the appellants' case that the fabrics seized at Ahmedabad were of viscose X viscose variety. They stated that they put various brand names on their fabrics according to the customer's choice, meaning thereby that goods of different composition could carry the same brand name if the customer So desired. They stated that according to their information and belief the fabrics, seized at Ahmedabad were subjected to a chemical test by the depatment and statements of two traders, S/Shri G. Dayaram and I. Tekchaad, had been recorded by the department but though the appellants were asking for copies of the said test report and the statements, the department had not made them available to the appellants. Instead, the Collector as well as the Board presumed the fabrics seized at Ahmedabad as of nylon X viscose composition on the sole ground that they carried the brand name "Roop Rani" and that fabrics carrying this brand name which were tested from the Surat lot were found to be nylon X viscose. The appellants believed that the test report and traders' statements were in their favour and that the departrnent had deliberately kept them back. This, according to them, violated the principles of natural justice.
(2) Following the Gujarat High Court judgment in the well-known case of Vijaya Textiles, 1979 E.L.T. (J 181) in which it had been held that processing of grey fabrics into bleached/dyed/printed fabrics did not amount to manufacture, the Central Govt. had issued an Ordinance in 1979 which amended the definition of "manufacture" in Section 2(f) in the Central Excises and Salt Act, 1944 as well as amended the tariff descriptions of cotton fabrics, art silk fabrics etc. to the effect that processing of such fabrics was specifically deemed to be a manufacturing activity. The Ordinance had been given retrospective effect from 1955 but simultaneously Section 5(3) of the Ordinance provided that while duty due on processed fabrics could be demanded for the past period, no penalty could be imposed for not paying the processing duty in the past. The appellants pleaded that benefit of Section 5(3) of the Ordinance should be given to them also and the penalty of rupees one lakh imposed on them be set aside.
3. The learned representative of the department relied on the lower orders. When the case first came up for hearing on 29-7-1985, we had asked the learned representative to get the original case records and report whether any test report and statements of the traders in respect of the fabrics seized at Ahmedabad were available on the record. About 8 weeks' time was given to the learned representative. When the hearing was resumed today, the learned representative expressed her inability in the matter saying that she had not received the case record from the Collector and that the Collector had informed her last month that the said record was lying in the Ministry's office at Delhi. In response to our query, she stated that thereafter no effort had been made to get the record from the Ministry's office.
4. We have carefully considered the matter. Taking the appellants' second plea first, we find that in their judgment [1985 (20) ELT 179 S.C.] in the case of Messrs. Empire Industries Ltd., the Supreme Court have reversed the Gujarat High Court judgment in Vijaya Textiles--1979 E.L.T. (J 181) case. The Supreme Court have held that etymologically bleaching, dyeing, printing etc. of fabrics amounted to manufacture.
The implication of this is that even without taking into account the amendments made by the Ordinance of 1979, processing of grey fabrics, the sort of activity which the appellants were undertaking, amounted to manufacture and attracted duty. We put this Supreme Court judgment to the appellants during the arguments. Their plea was that even so the penalty could not be imposed because of Section 5(3) of the Ordinance.
However, we find from the record that penalty was imposed on them not because of any classification dispute over processing but because serious charges of mis-declaration, unauthorised removals, non-accountal of goods and other attendant violations of Central Excise Rules stood proved against the appellants. We agree with the Board that the appellants were guilty of mala fides and evasion of duty. In the circumstances, the penalty imposed on them under Rule 173Q is sustainable and looking to the nature of the offences committed by the appellants, the amount of the penalty cannot be called excessive.
5. However, we find force in the first plea of the appellants. They have been consistently agitating before the Collector, the Board and now before us that the test report and traders' statements in respect of the goods seized at Ahmedabad should be disclosed to them. The existence of such test report and such statements have not been denied by the department. We specifically directed that the case records be produced before us to verify the facts but this has not been done in spite of sufficient time given. The said test report and the statements may not have been relied upon by the department but if the appellants feel that these documents are vital for their defence, they become relevant evidence for the case and if the department keeps them back, it would amount to violation of principles of natural justice. From the proceedings we find that such violation of principles of natural justice has taken place in respect of the fabrics seized at the premises of M/s Raj Kumar & Co. of Ahmedabad. Although the quantity so seized is insignificant as compared to the overall quantity involved in the Surat seizures and stock shortages, that, in our view, cannot be a ground for glossing over the matter.
6. Accordingly, we set aside the order of confiscation in respect of 87 pieces of fabrics seized at the premises of M/s Raj Kumar & Co. of Ahmedabad. We also set aside the demand for differential duty in so far as it relates to the goods so seized at Ahmedabad. The Collector would be at liberty to decide the matter in respect of these goods seized at Ahmedabad afresh after due compliance with the principles of natural justice. But for this modification, the impugned orders of the Collector and the Board are confirmed in all other respects. The appeal is disposed of in these terms.