2009 (7) TMI 591 - AT - Central Excise

Appellate Tribunal affirms duty demands & penalties on companies for excise duty evasion in denim manufacturing

PARAMOUNT MILLS LTD. Versus COMMISSIONER OF CENTRAL EXCISE, MADURAI

The Appellate Tribunal upheld duty demands and penalties on two companies for manufacturing denim fabrics without paying central excise duty. The ... Demand- The evidence indicate that the Appellant (PM) was engaged in the manufacture of denim fabrics, whether or not processed, falling under Central Excise Tariff Heading 5702.10 and that PM was selling the same to KGD without payment of central excise duty. PM was getting dyed/sized yarn from KGD (weaving) and after completion of job work, the fabrics were returned by PM to KGD. Held that- The demand has been confirmed on manufacture and clearance of denim fabrics on their own account against PM & PTM. The transaction between KGD on one hand and PM/PTM on the other is in the nature of ‘principal to principal’ in as much as there was sale of goods. PM & PTM have procured their own material and manufactured Denim fabrics and cleared the same without payment of duty. The quantity of denim and sized fabrics received for weaving from KGD and returned to KGD on job work basis has not been taken into consideration while calculating the demand of duty. The contention that the appellants placed purchase orders under Rule 4(5)(a) of the Cenvat Credit Rules, 2004, is only partially correct in as much as they received dyed yarn from KGD for job work and after the completion of job work, the fabrics were returned to KGD and the above movement is covered under Rule 4(5)(a) ibid. However, the same procedure cannot be adopted for the yarn procured by PM/PTM on their own account and they cannot be treated as job workers in respect of such yarn. Therefore, PM/PTM are real manufacturers of Denim fabrics manufactured out of dyed yarn procured on their own account and they cannot be treated as job workers. Therefore, duty liability of PM/PTM is sustainable. Thus uphold the duty demands and penalty. Issues:Manufacture of denim fabrics without payment of duty by two companies, applicability of duty liability, extended period of limitation, penalty imposition on the Managing Director.Manufacture of Denim Fabrics:The case involved two companies manufacturing denim fabrics without paying central excise duty. Evidence showed that both companies were engaged in manufacturing denim fabrics, as admitted by their employees. Purchase orders for denim weaving yarn were also found, indicating the production of denim fabrics. The contention that fabrics were not marketable as denim due to lack of certain processes was rejected, establishing the liability for duty on unprocessed denim fabrics.Duty Liability and Job Work Basis:The demand for duty was confirmed on the manufacture and clearance of denim fabrics by the companies on their own account. The companies procured material, manufactured denim fabrics, and cleared them without paying duty. The argument that they acted as job workers was dismissed, as they were deemed the real manufacturers of denim fabrics from dyed yarn procured on their own account, leading to the duty liability being upheld.Extended Period of Limitation:The appellants failed to disclose crucial information to the department regarding the procurement and sale of yarn for denim fabrics. Monthly returns inaccurately declared the fabrics as exempted instead of dutiable, indicating deliberate misstatement. The reliance on a letter and communication with the department was deemed insufficient to prove the department's knowledge of the transactions, leading to the rejection of the limitation defense.Penalty Imposition on Managing Director:The Managing Director, being the key figure aware of the manufacturing and procurement processes for denim fabrics, was held liable for penalty. His involvement in placing purchase orders for denim weaving yarn and knowledge of the operations established his responsibility, justifying the penalty imposition.The Appellate Tribunal upheld the duty demands, penalty on the companies, and the penalty on the Managing Director, dismissing the appeals and affirming the impugned orders. The judgment highlighted the manufacturing activities, duty liability, disclosure obligations, and individual accountability in cases of excise duty evasion.