Tribunal upholds duty demand against Varun Silk Mills for clandestine fabric manufacture

The Tribunal confirmed a duty demand of Rs. 39,51,943 against M/s. Varun Silk Mills (P) Ltd. for clandestine manufacture and clearance of MMF (P) dyed Fabrics post lease agreement with Shri Shashikant Popatlal Jariwala. Despite the appellant's argument that the factory was leased to Jariwala during the relevant period, the Tribunal held that Varun remained the manufacturer and central excise assessee. As the demand was not contested on merits and liability was established, the Tribunal upheld the lower authorities' decision and dismissed the appeal on 6-7-2010.

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Issues:
Demand of duty against M/s. Varun Silk Mills (P) Ltd. for clandestine manufacture and clearance of MMF (P) dyed Fabrics post lease agreement with Shri Shashikant Popatlal Jariwala.

Analysis:
The lower authorities confirmed a duty demand of Rs. 39,51,943/- against M/s. Varun Silk Mills (P) Ltd. for clandestine manufacture and clearance of MMF (P) dyed Fabrics. The confirmation of duty and penalty was based on a search conducted by departmental officers and statements of various individuals. The appellant did not contest the findings of clandestine removal but argued that during the relevant period, the factory was leased to Shri Shashikant Popatlal Jariwala, absolving them of liability.

The advocate for the appellant argued that the textile processing unit was leased to Shri Shashikant Popatlal Jariwala after which the clandestine activities occurred. However, it was revealed that the central excise license remained in the name of M/s. Varun Silk Mills (P) Ltd., and all filings were done under their name. Referring to a Calcutta High Court decision, the advocate contended that excise duties are recoverable from the lessee who actually produced the goods, not the lessor.

The Tribunal noted that Shri Shashikant Popatlal Jariwala provided statements as an authorized signatory of M/s. Varun Silk Mills (P) Ltd. The central excise license and registration continued to be in the name of M/s. Varun Silk Mills (P) Ltd., making them the assessee and manufacturer. The internal arrangement between Varun and Jariwala did not change this fact. The Tribunal rejected the appellant's argument, stating that Varun remained the manufacturer and central excise assessee, regardless of the internal lease agreement.

Given that the demand was not contested on merits and the liability to pay duty was established against the appellant, the Tribunal confirmed the impugned order passed by the lower authorities and dismissed the appeal. The judgment was pronounced on 6-7-2010.

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