2009 (4) TMI 769 - AT - Central Excise

Tribunal holds MSML liable for duty on cotton yarn, dismisses appeal, and upholds penalties

METTUR SPINNING MILLS LTD. Versus COMMISSIONER OF C. EX., SALEM

The Tribunal determined MSML as the manufacturer of the cotton yarn in question, rejecting CPSML's claim. MSML was held liable to pay duty under ... Clandestine manufacture and removal - shortage of cotton and cone yarn - 'manufacturer' of goods - Held that: - the printouts were not generated from the computer during investigation but were recovered from the residential premises of the officers of MSML and CPSML/office premises - M/s. MSML have not challenged the corroborative evidence. Further, no duty has been demanded on the yarn converted from the cotton sent by CPSML to MSML in terms of Notification No. 214/86 dt. 25-3-86. Demand upheld - penalties reduced - appeal allowed in part. Issues Involved:1. Determination of the manufacturer of the goods in question.2. Duty liability of CPSML as per the declaration filed under Notification No. 214/86-CE.3. Quantification of the demand.4. Individual penalties on the concerned persons.Detailed Analysis:(i) Determination of the Manufacturer of the Goods in Question:MSML contended that they could not be considered the manufacturer of the cotton yarn and that CPSML should be considered the manufacturer. They relied on the Memorandum of Understanding (MoU) dated 8-7-2000, which indicated that CPSML had control over MSML's operations. MSML argued that CPSML purchased raw materials, managed production, and handled financial transactions, suggesting CPSML's operational control over MSML. However, the Tribunal found no merit in this submission. MSML was registered with the Central Excise department as a manufacturer and had not surrendered their license, whereas CPSML had not obtained a manufacturing license. The MoUs did not establish CPSML as the manufacturer. Furthermore, MSML's engagement in manufacturing for other entities and the testimonies of yarn dealers supported the conclusion that MSML was the manufacturer. Thus, the Tribunal held that MSML was the manufacturer of the cotton yarn in question.(ii) Duty Liability of CPSML as per Declaration Filed under Notification No. 214/86-CE:Notification No. 214/86-CE exempts goods manufactured as job work from excise duty, provided the raw material supplier undertakes to use the goods in the manufacture of final products or remove them without payment of duty. MSML argued that CPSML, as the raw material supplier, should discharge the duty liability. However, the Tribunal clarified that the notification only applied to accounted goods and did not shift the duty liability for clandestinely removed goods from the job worker to the raw material supplier. The Tribunal distinguished the cited cases, noting that they did not address the issue of liability for clandestinely cleared goods. Consequently, the Tribunal rejected MSML's argument and held that MSML was liable to pay the duty.(iii) Quantification of the Demand:MSML challenged the evidentiary value of computer printouts used for quantifying the duty demand, arguing non-compliance with Section 36(b) of the Central Excise Act, 1944. However, the Tribunal noted that the printouts were recovered from the premises of MSML and CPSML officers, not generated during the investigation. The Tribunal found the printouts corroborated by other evidence, including private diaries, broker records, dealer records, transporter documents, and bank account details. MSML did not challenge this corroborative evidence. The Tribunal also noted that no duty was demanded on yarn converted from cotton sent by CPSML under Notification No. 214/86. Thus, the Tribunal upheld the quantification of the duty demand.(iv) Individual Penalties:The Tribunal upheld the penalties imposed on P. Balakrishnan, M. Kathiresan, P.K. Mahamune, and D. Krishnan, based on their individual roles in the evasion scheme. However, considering the totality of the circumstances, the Tribunal reduced the penalties as follows:1. P. Balakrishnan: Rs. 50,00,000/-2. M. Kathiresan: Rs. 2,50,000/-3. P.K. Mahamune: Rs. 5,00,000/-4. D. Krishnan: Rs. 5,00,000/-Conclusion:The Tribunal upheld the duty demand and penalties on MSML, dismissed MSML's appeal, and allowed the Revenue's appeal by enhancing the penalty to match the duty demand. The penalties on the individuals were reduced considering the overall facts and circumstances.