TaxTMI 
TaxTMI 
2011 (9) TMI 656
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....e, 1944 read with Rule 25 of the Central Excise Rules, 2002. He further imposed penalty of Rs 5,00,000/- on M/s Famous Textiles Packers [hereinafter referred to as 'Famous'] under Rule 173 Q of the Central Excise Rules, 1944 read with Rule 25 of the Central Excise Rules, 2002, and penalty of Rs 5,00,000/- on Shri N K Gajera, partner of Bhagyalakshmi under Rule 26 of the Central Excise Rules, 2002. M/s Bhagyalakshmi, M/s Famous and Shri N K Gajera are in appeal before us. 2 Briefly, the facts and issues are as follows: (i) Bhagyalakshmi and Famous are partnership firms of S/Shri N K Gajera, Shambhubhai Gajera and Mohesh Shah in the former and Vrijlal Gajera, Karamsibhai Gajera and Manubhai Shah. However, there is, no partner common to Bhagyalakshmi and Famous. (ii) Bhagyalakshmi and Famous are engaged in processing of grey fabrics on job work basis for M/s Movement Impex Trading Company [hereinafter referred to as 'Movement']. Separate bills are raised, for job work by Bhagyalakshmi and Famous and separate payments are made to the said firms. (iii) Grey fabrics sent by Movement are received by Bhagyalakshmi, in whose factory they are subjected to ....
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.... steam". As against this, the Explanation to S No 103 of Notn 6/2000-CE (supra), S. No 114 of Notn 3/01-CE (supra) and S. No 114 of Notn 6/02-CE (supra) read thus: "For the purposes of this exemption, cotton fabrics subjected to any one or more of the following processes with the aid of power, shall be deemed to have been processed without aid of power or steam, namely:- (a) lifting to overhead tanks or emptying in underground tanks or handling of chemicals such as acids, chlorine, caustic soda, (b) mixing and stirring of dyes, kerosene, caustic soda, gum paste and emulsion etc, by stirrer, or (c) colour fixation by passing steam or applying sodium silicate." (iii) 'Woven fabric of cotton', subject to certain specified processes, were notified as exempted from duty subject, however, to the condition that such exemption was not available if the processing took place in a factory having facilities for bleaching or dyeing or printing with the aid of power/steam. The relevant entries in the abovementioned Notifications, extending such exemption were, (a) S. No 110 of Notn 5/98-CE dated 2.6.98, (b) S. No 105 of Notn 5/99-CE dated 28.2.99 (c) S. No 105 of....
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....r of Bhagyalakshmi, V K Gajera, partner of Famous, K S Sabapathy Mishra, Production Supervisor of Bhagyalakshmi and S S Bhsdoria, Labour Contractor of Bhagyalakshmi, were recorded during the investigation. A holistic appreciation of the statements reveals that they admit mercerizing in the premises of Bhagyalakshmi to have been carried out with the aid of power since inception and the process of squeezing and stentering in the premises of Famous to also have been carried out with the aid of power. 8 Subsequently, these statements were stated to be retracted, vide affidavits. Though these affidavits are not on record; the fact that they were executed, and furnished along with the reply to the Show Cause Notice that came to be subsequently issue, is not disputed. The veracity and credibility of the affidavits though has been called into question by the Revenue. 9 On the basis of the investigations the units were visited with a Show Cause Notice dated 14.7.03, in which the case of the Revenue was, essentially that Famous was a dummy unit created so as to split up activities performed in the premises of Bhagyalakshmi and Famous and, thereby, irregularly avail the benefit of....
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....idence, as it was not produced before the visiting Central Excise officers, and did not convince the Commissioner that it related to the electric motor found in the premises of Bhagyalakshmi. (iv) In any case, the law did not permit admission into evidence, tendered in such a manner. On the other hand, oral evidence in the case indicated that the electric motor had been used by the appellant since beginning for manufacture of its products. (v) The electricity consumption was high, thereby indicating that electricity was not used merely for lifting water and mixing chemicals, as averred by the appellant, but was actually used in the manufacturing processes. (vi) Consequent to bleaching and mercerizing in Bhagyalakshmi, the fabric, in wet condition, was immediately transferred to Famous, where it was squeezed and, thereafter, stentered. In the form in which the fabric was transferred from Bhagyalakshmi to Famous, it was admittedly non-marketable. (vii) After stentering, the fabric was again brought back to the premises of Bhagyalakshmi, for baling and folding.. After completion of these processes, the fabric was packed and returned to the grey fabric suppliers....
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.... affidavit as its witness, as, if the Revenue desire to cross examine the said deponent, he could always have been summoned therefor. Reliance was placed, for this purpose, on the judgement of the Hon'ble Supreme Court in Parle Beverages Pvt Ltd v CCE, 1998 (98) ELT 585 (SC). (iv) The entire allegation that Famous was a dummy unit of Bhagyalakshmi had, apparently, been given up by the Commissioner while passing the impugned Order-in-Original as was manifest from his finding that Famous and Bhagyalakshmi were independent partnership firms engaged in job work for grey fabric suppliers. That apart, the partners in Bhagyalakshmi and Famous were different, there was no allegation of financial interplay or flow back between the said units and the said units were separately assessed to Income Tax and Sales Tax and operated with separate PAN Numbers. (v) Insofar as the issue of use of power was concerned, it arose only in the context of mercerizing and stentering, as there was no allegation that bleaching was done with the aid of power, and, insofar as hydro extraction was concerned, even if it was done with the aid of power, it would be deemed to have been done with the ....
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....id of power, was not significant, as there was no duty demand on Famous. Besides, the photographs placed on record also indicated that the stentering machine was run on LPG, and not on power. In view of the above, it was submitted that the demands confirmed against the appellant by the Commissioner had no legs to stand on and, therefore, deserved to be set aside. 15 Per contra, Shri S.K. Mall, the learned SDR appearing for the Revenue urged thus: (i) In view of the oral evidence available on record, the submissions of the appellant regarding non usage of power could not be accepted. Rather, the said evidence clearly disclosed that power was admittedly used in the processes of mercerizing, lifting of water, caustic soda, stentering, hydro extraction and baling and packing. (ii) Use of power in lifting of water was itself sufficient to exclude Bhagyalakshmi from the benefit of exemption, as lifting of water was not one of the processes which could be deemed to be carried out with the aid of power where power was actually used therein. (iii) The retraction of the admission made by the personnel of Bhagyalakshmi and Famous,....
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....ption notifications. 17 Having heard learned Counsel and learned SDR and perused the relevant records, we proceed to decide the issues in controversy. At the very outset, three important features of the case deserve to be noticed. (i) It is the case of the Revenue, from the beginning, that the fabric cleared by Bhagyalakshmi to Famous was not marketable, being in wet condition. Para 6.0 of the Show Cause Notice, wherefrom the present proceedings emanated, specifically states thus in so many words: "Goods processed at Unit No 1 was wet cotton fabric which has under gone the process of mercerizing and bleaching, 'the same being in wet condition was not marketable. To make the said fabric marketable further process of squeezing and stentering has to be done invariably. This process was being carried out at Unit No 2'. (Emphasis supplied) The inevitable sequitur of this finding is that there can be no question of any duty liability on the clearances from Bhagyalakshmi and Famous, - and indeed, there is no such proposal in the Show Cause Notice either. This is for the simple reason that manufacture and marketability are two ingredients which are required to be cu....
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....ess of baling and packing, no duty liability could obviously arise merely because of non-specification of these processes under the exemption Notifications.The question of exemption can arise only where an activity is, in the first instance, dutiable. Where the activity does not amount to manufacture, and is not, therefore, dutiable in the first place, the question of subjecting it to duty under any exemption Notification cannot, obviously, arise. Such an approach would be contrary to the most basic tenets of the Central Excise law. (iv) There is a difference between the case of the Revenue, as proposed in the Show Cause Notice, and as confirmed by the Commissioner in the impugned Order-in-Original. The Show Cause Notice proceeds on the premise that Famous was only a dummy unit created by Bhagyalakshmi, so as to bifurcate its clearances and wrongly avail the benefit of exemption. As against this, there is no finding, in the impugned Order-in-Original of the Commissioner, to the effect that Famous was a dummy unit. Rather, as the learned Counsel rightly emphasized, the specific finding of the Commissioner as contained in para 3.9.1 of the....
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....o 1, being operated with the aid of electric motor, after completion of these processes the fabric was packed and returned back to the customers. Here it is worth to appreciate that while transferring the mercerized and bleached cotton fabrics, in wet condition to Unit No 1, Noticee No 1 had not been preparing any document/challan as well as under any circumstances wet cotton fabrics cannot be removed as final product as responsibility and ownership of goods during process at Noticeee No 2 remains with Noticee No 1 only. The entire process from grey cotton fabric till packing and bailing was being carried out in continuous process. The work related to procurement of grey fabrics, processing and dispatching thereof were being handled by Noticee No 1. One partner in both the units, who is also a partner in Mumbai based gray supplier. They are maintaining a common account for process of mercerizing, bleaching and stentering on day to day basis reflecting quantity of cotton fabrics mercerized, bleached and stentered for day to day which evident from a register which was recovered from them having records of all processing which were being maintained on day to day basis for the pe....
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....h of them was engaged in processing of the grey fabric on job work basis was also acknowledged, it is difficult to comprehend the subsequent finding of the Commissioner Bhagyalakshmi was liable to be regarded as the 'actual processor of the fabrics'. Where two units are separately 'processing goods', and neither of them is a dummy of the other, Central Excise law does not contain any provision for clubbing of the 'processes' carried out in the said two units. This is all the more so in the present case where there are no common partners in the two units, the machinery employed in the two units are different, the job work bills are separately raised by the two units and the payment is separately made. The learned Counsel has also pointed out the fact that Bhagyalakshmi and Famous had separate PAN Numbers and were separately assessed to Income Tax and Sales Tax. In the wake of these facts, the mere fact that grey fabrics were initially procured and finally dispatched by Bhagyalakshmi, or that common account was maintained for the processes carried out at Bhagyalakshmi and Famous cannot, in our view, justify clubbing the said processes, or arrogating duty liability, on all the said pr....
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....rtions of the learned SDR on the point, we have ourselves examined the issue of whether baling and packing could amount to 'manufacture' or not.There is no dispute about the fact that the fabric does not undergo any physical or chemical change as a result of mere baling or packing as these only involved the processes of folding and stacking of the fabric and packing thereof. These processes would also, nevertheless, be liable to be regarded as amounting to 'manufacture' if any such deeming fiction is to be found in any of the relevant statutory provisions. 27 Section 2(f) of the Act, as it stood during the period of dispute, read thus: "(f) 'manufacture' includes any process,- (i) incidental or ancillary to the completion of a manufactured product, and (ii) which is specified in relation to any goods in the Section or Chapter Notes of (the First Schedule) to the Central Excise Tariff Act, 1985 (5 of 1986) as amounting to manufacture, and the word 'manufacturer' shall be construed accordingly and shall include not only a person who employs hired labour in the production or manufacture of excisable goods, but also any person who engages in their production or manufa....
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....s rule, according to Maxwell, means that, when two or more words which are susceptible of analogous meaning are coupled together they are understood to be used in their cognate sense. They take as it were their colour from each other, that is, the more general is restricted to a sense analogous to a less general. The same rule is thus interpreted in 'Words and Phrases" (Vol. XIV, p. 207) : 'Associated words take their meaning from one another under the doctrine of noscitur a sociis, the philosophy of which is that the meaning of a doubtful word may be ascertained by reference to the meaning of words associated with it; such doctrine is broader than the maxim Ejusdem generis.' In fact the latter maxim 'is only an illustration or specific application of the broader maxim noscitur a sociis". Having extracted the above passage from the decision in Hospital Mazdoor Sabha (supra), the Hon'ble Supreme Court went on, in Rohit Pulp & Paper Mills v C.C.E., 1990 (47) ELT 491 (SC), to invoke the doctrine for interpreting an exemption notification. 30 Even if one were to examine the Tariff Heading 52.07, one finds that, of the sub entries therein, sub-heading 5207.10 deals with fabr....
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....ement having been recorded in illegal manner, (iii) it was unconvincing to assume that so many persons were forced to sign false statements over such a long period of time, (iv) the retractions, therefore, were solely with the intention of targeting the adjudication process in a planned manner, and were not produced during investigation, as this would allow the investigating authority to collect corroborative evidence to sustain the case, (v) the law did not permit a person to create evidence in his own favour by swearing an affidavit and (vi) there was no reason as to why the defence did not produce the deponents as witnesses of the defence so that both sides would get opportunity to examine and cross examine them to elicit the truth. Based on the above reasoning, the Commissioner held in para 3.5.4 of the impugned Order-in-Original that he did not admit the said affidavits in evidence. 34 The law relating to admitting of affidavits in evidence, in adjudication proceedings under the Act, stands settled by the Hon'ble Supreme Court in Parle Beverages Pvt Ltd v C.C.E., 1998 (98) ELT 585 (SC). In that case, the affidavit produced by the assessee in its favour,....
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....s was conducted to ascertain what the normally acceptable level of electricity consumption would be, or how the consumption by Bhagyalakshmi was disproportionate in this regard. Bhagyalakshmi specifically contended, even before the Commissioner, that the 10HP motor which was found lying loose in its premises could not be regarded as having been connected to the mercerizing machine, as this would result in the total connected load reaching 23.5 HP which would be in excess of the load sanctioned by the Gujarat Vidyut Board. For this, they also relied on the certificate dated 22.9.01 of the Gujarat Vidyut Board, to the effect that the sanctioned load had never been exceeded by them. It was also pointed out, before the Commissioner, that the said 10 HP motor found lying loose could not be said to have been installed in place of the 10 HP Motor used for lifting water as lifting of water was essential for mercerizing. Reliance was also placed, in support of these submissions, on the affidavit, dated 5.12.05, of Shri Narayanan Neelakantan Nair. It is also a matter of record that the photographs taken at the time of visit do not indicate that the motor found loose was ever installed ....