TaxTMI 
TaxTMI 
1997 (9) TMI 550
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....anded duty of approximately Rs. 2.68 crores. He has found that appellants could not account for 124 M.Ts. of polyester chips, principal raw material for POY and concluded that 119.6 M.Ts. of yarn has been manufactured out of this quantity of raw material and cleared by the appellant without paying duty of approximately Rs. 1.00 crore. He has found that during stocktaking of the finished goods in the appellant's factory, there was an excess of 4.347 M.Ts. of POY of certain denier over the balance in the R.G.I Register and a shortage of 1.946 M.T. of certain other deniers. He has confiscated the goods in excess with an option to redeem on payment of fine of Rs. 1.00 lakh and demanded duty of approximately Rs. 1.63 lakhs. He has imposed the following penalties. Rs. 50 lakhs under sub-rule (1) of Rule 173Q; Rs. 1,000/- under Rule 226; Rs. 500/- each under Rule 52 and sub-rule (2) of Rule 9; He has confiscated the plant and machinery, with an option to redeem payment of Rs. 50 lakhs. 3. Notice and a Corrigendum was issued in August, 1984, and first adjudicated by the Director (Anti-Evasion) in June, 1985. This order was set aside by the Bombay High Court on a writ pe....
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.... be given for shortages on account of pilferage (16.957 MTs), presence of dust removed by cleaning the chips before they are processed (23.698 MTs); moisture contained in the chips lost by driage (46.904 MTs), invisible losses in the form of spillage, etc. (9.475 MTs). 8. The appellant had claimed insurance in 98 claims from the insurers on the grounds of pilferage, i.e. on the grounds that chips were pilfered during transit from the ships from which the chips were unloaded on the Bombay Port Trust docks to its factory. The appellant had not taken this pilferage into account while entering the entries of raw material received in the form of register. An affidavit of G. H. Padlya, an employee, was filed before the Director in support of its contention. In this affidavit Padlya had said that claims were filed for 16,957.200 kgs of chips pilfered and that "as a result, the insurance company passed our claim for Rs. 21,77,543.04". He added "This amount includes not only payment of pilferage of 16,957.200 kgs. but also certain quantity of chips which were contaminated". He had attached a tabulated statement showing the present status of insurance claim and said that column 5 of ....
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....up its plant. In the letter, there is a statement that in the process of drying chips in cyclone apparatus, dust is extracted from the chips and into dust bins. The letter explains that the percentage of loss on this account will vary according to the quality and uniformity or lack of it of the shape and sizes of the chips, but suggested a possible maximum of 0.5%, with a range of 0.2% to 0.3% in case of reasonably good quality of chips. The appellant had relied on an affidavit dated 25th June, 1987, of J.H.W. Rink of Didier Engineering in support of the contention that there would be a loss due to moisture contents of approximately 0.5%; that polyester chips during production handling and transportation absorb moisture to the extent of approximately 0.5% and that during the process of drying the moisture is removed in order to ensure a maximum content of 0.005% (normally lower) before spring is commenced. The Director has not accepted this contention on the ground that no literature about the plant was produced; that the loss of weight during driage would be made good when the yarn produced cools and reabsorbs moisture to the same extent. He has also said that the claim is an afte....
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....nners plant. This finding of the Director falls for want of substantiation. 11. It is interesting to note that the Director does not advance the same argument to the appellant's claim to the extent of 0.25% on account of loss of, dust from the polyester chips from the cyclone separator. This contention too was based only on the letters of Didier Engineering, written in May, 1985. The Didier accepts this claim straightaway. Hence we do not see why the other claim on account of moisture should be differently treated in the absence of any specific material to substantiate such rejection. 12. During the proceedings before the Director, the appellant had stated that it used 37.902 MTs. of spin finished oil which was coated on the yarn after it was spun. This quantity was added to the quantity of polyester chips in arriving at the total quantity of raw materials found unaccounted for. Therefore, when the Director says that the shortage on account of dust removal is of set by the addition of spin finished oil, and in real terms, there is no loss, he ignores the fact that spin finish oil has already been separately considered as an input and its weight added to the quantity....
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.... material have taken place at other times in the appellant's factory on account of the reasons claimed by it. 16. The next ground for demand of duty is that the appellant cleared yarn of denier below 640 as yarn of 755 denier on which the duty was less by Rs. 46.25 per kg. Denierage is the standard of the fineness of synthetic or silk yarn and a denier is defined as its weight in grams of 9000 metres of yarn; hence the lower the denier, the finer the yarn. Polyester yarn was liable for duty at the relevant time at various rates as specified by notification. At the relevant time rates of duty notified were as follows : Below 350 deniers ... Rs. 90/- per kg. 350 - 750 deniers ... Rs. 65/- per kg. Above 750 deniers ... Rs. 18.75 per kg. The allegations is that the appellant misdeclared the yarn of lower de....
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....er, since this was a new terminology in the market, there are some resistence from the market and it was decided that Orkay should redesignate this textured yarn as 160/2. I say that the resultant denier of the two-ply yarn of 160 deniers each ply is 320 and as such though technically there is no much difference between a 160/2 two-ply textured yarn and a 320 denier single ply textured yarn, the market nevertheless was more at ease with the terminology 160/2. Accordingly, to overcome market resistence, Orkay started calling its singly ply 320 denier textured yarn made from 755 denier POY as textured yarn of denier 160/2. I say that when texturising units of Orkay Group of Industries started making single ply 320 denier textured yarn from POY of 755 denier they did not discontinue the manufacture of two ply yarn. However, most of the two ply yarn was consumed by Orkay Silk Mills Limited themselves in their weaving unit at Sakinaka and in Job workers' whereas single ply 320 denier textured yarn described as 160/2 was mostly sold in the market. Negligible quantity of two ply yarn was also sold in the market. This is because two ply yarn gage a slightly better feel and finish and Or....
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.... accept single ply texturised yarn of 320 as doubled ply yarn of 160 deniers. This is what the Director says in the order. However, the fact remains that the appellant cross-examined all the witnesses most of whom had in effect said that there was no material difference for practical purposes to a weaver between double ply 160 denier yarn and single ply 320 denier yarn. The department had recorded the statements of various persons in their enquiries into this aspect, H.B. Vyas, the Managing Director of the Bombay Silk Mills; S.K. Mahajan, partner of M/s. Mahajan Silk Mills; B. Mehra, Partner Subodh Textiles; M.D. Mutreja, Trustee of Paramount Silk Mills; Z. Cherian, Weaving Master, Champak Textiles; V.C. Jain, Karta of Bharat Silk Mills; S.M. Kejariwal, Proprietor, S.K. Textile Mills; Ashok Arora, Proprietor of Gauri Silk Mills. The relevant portion of the statements are summarised below: Vyas - I received two lots of polyester yarn described as 160/2 deniers. I understand 160/2 denier - as being 160 denier of 2 ply or 320 resulting denier. S.K. Mahajan - We manufacture suiting and shirting of synthetic blended fabrics in our unit. Since 1982 we have received two consignment ....
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....60 deniers double twist yarn. The fabric produced out of 160/2 yarn is slightly superior to fabric produced from 320 denierage single ply, but both can be used for manufacture of suiting. The price of 160/2 yarn should be higher than the price of 320 denier single ply yarn because of extra labour involved in using two plies and it was higher in 1983-84 also on account of duty difference on POY. I am aware that both Orkay and Reliance Textiles have marketed single ply 320 yarn as 160/2 denierage. We have purchased from Orkays and from Reliance through their Agents 320 deniers single ply texturised yarn described as 160/2. S.K. Mahajan - It is correct that, texturised yarn described as 160/2 in Invoice 928 could not have been double yarn made by doubling two plys of 160 deniers each. Although I had said in my statement before the Central Excise Officers that yarn purchased by me is described as 160/2 does not appear to be two fold yarn. The statement was made on the basis of records available. Afterwards a sample was drawn and I saw that it was not two fold yarn. B.P. Mehra - Resultant denierage of 160/2 single ply is the same as 320 denier single ply texturised yarn and for al....
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....320 deniers single ply yarn instead of being 160/2 deniers ply yarn. I may have received 320 deniers single ply yarn at times. 19. It would be seen from these extracts that, it was only Arora and Kejriwal who have more or less stuck to their original statements that there is a distinction between 320 deniers single ply and 160 deniers two ply. Arora was a job worker for Orkay and so did not pay for the yarn that he received. Others have in effect said that there is no such difference; that yarn of 160 deniers could not have been sold for its price at which they bought the yarn described as 160/2 denier; that physical examination would be required before determining the denierage and number of plies and it made no difference to the users whether the yarn is 160/2 deniers or 320 deniers single ply. The Director has either not referred to the depositions in cross-examination of those witnesses which were in favour of the appellant or dismissed them by saying that no person in the market would accept the yarn described as 160/2 when it was actually 320 deniers and by saying that they have not given satisfactory answers. That the last statement is incorrect is evident on reading....
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....produce the machine records which they did not answer. They have not even on their own produced the pre-determined draw ratio of 755 denier POY claimed to have been manufactured by them. In view of the findings herein I am not relying upon the results of the samples tested as they have not been properly drawn. The fact that 755 POY was a yarn at lower rate of duty compared to POY of 640 denier as it is only POY of 640 denier which could be drawn into texturised yarn of 160 denier. Therefore, I find that they have misdeclared the denierage of 640 denier yarn as 755 denier and have thus evaded duty. In view of findings herein above I do not rely on the test reports and the evidence in cross-examination of the Deputy Chief Chemist before me. Further, the search of assessees' premises was conduced on 26-3-84, and in view of the fact that I am not relying on the results of any test report, it is not relevant from where and when the samples were drawn. The assessees conduct in not maintaining and keeping the sanctity of records leads me to believe that the officers have also not relied upon drawing the samples from the assessees' captive texturising units in and near its premises. ....
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....ample. Such cross-examination was done in both the proceedings before its Directors Tekchandani admitted in a reply to questions in cross-examination that each ply in a two ply yarn must have the same number of filaments; one can separate two ply yarn into its two component plies and in doing so no violence would be done to the filaments in the yarn. He accepted that there was no equipment in the laboratory where it was tested to count number of filaments in the yarn. He further said that the yarn was actually tested by Khandekar. He was given by the advocate for the assessee, two samples. The record shows that he separated one of the two samples into two plies easily and instantaneously. He was unable to separate a sample marked DV into two such separate plies. Khandekar too was unable to separate the two plies, in sample DV, was able to separate the plies in the other sample (D-l). Khandekar too performed in the same manner with regard to the two samples, placed before it. These two samples also corresponded to the samples DV & Dl. Record indicates that the sample DV was from the sample of the yarn covered by 985 sold to Bombay Silk Mills. This is the sample that was in dispute. ....
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....covered by merge Nos. 1527 and 3004. The samples from which, on test, establish absence of misdeclaration. The test report thus adds some support to the appellants case. 30. It has therefore, to be concluded that the Department has not made out its case in regard to misdeclaration with regard to the denierage of the yarn. 31. The remaining question with regard to this appellant relates to the excesses and deficiencies which are alleged to have been found in the stock of excisable goods during the stock taking which was conducted. The Director has found that the stock taking showed excess of 27 M.Ts of POY of same denierages and a shortage of 9.946 M.Ts of other denierage when complied with the production in the RG-1 register. It is the appellants contention that eleven different teams of officers were simultaneously taking stocks of the yarn lying in different places of the factory, that each team made summary of the quantity of stock verified by it, grouping it into denierage and that because of the fact that there were so many officers conducting stock taking at one time, and an absence of effective co-ordination of each team, the shortages and excesses state to h....
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....th goods coming in and going out when this was going on, is not without merit. However it had been able to establish, only one specific case of error in the figures in the Panchanama. The appellant's officers were present throughout the stock taking and had accepted the correctness of the stock taking by signing the panchanama. The appellant did not immediately, or shortly after the stock taking call for reverification on the grounds that were subsequently urged. On balance, therefore, we have to confirm the Directors finding we have to verify the correctness except for the errors pointed above. There is however no material to support the contention that the shortage and excess were deliberate in order to evade payment of duty. 33. The other appeals are by Orlando Synthetic Industries Ltd., K.D.B. Crimping Dyg. & Bleaching, Paramount Synthetics P. Ltd., Orkay Polyester, Orkay Textile Corporation and Orkay International. These 6 Appellants were texturising units i.e. to say, they received POY and texturised yarn. At the relevant time texturised yarn was exempted from payment of duty, provided that it had been manufactured out of POY on which duty had been paid. The notificat....
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....ontention is that since it manufactured a commodity which was exempted from duty, it was not required to maintain any central excise record. The Directors view that merely because there was production prior to first receipt of POY from the first appellant, it must have received non-duty paid POY, not supported by any evidence. The contention that it received a stock of POY from Orkay Investment has not been dealt with by him. Therefore, independently of finding with regard to the first appellant, the benefit of doubt has to go to this appellant. Except for Orlando Synthetics Industries Ltd. and K.D.B. Crimping Dyeing and Bleaching, the findings against the other units are identical quantity of pressurised yarn manufactured by them is greater than the quantity that could have been made out of the POY established to have been received by them on payment of duty and the excess had been manufctured out of non-duty paid POY. In the case of Orlando Synthetics Industries Limited and K.D.B. Crimping Dyeing and Bleaching, the Director agrees that the production of texturised yarn is less than the total quantity of POY received and drop charges against it. It would, therefore, follow that no....