Commissioner of Central
Excise, Bombay Vs. M/S. Reliance Industries Ltd  Insc 469 (19
S.N. Variava & Arijit
Pasayat Arijit Pasayat, J.
The Commissioner of Central Excise, Bombay calls in question the legality of
the order passed by the Customs Excise and Gold (Control) Appellate Tribunal,
Delhi (hereinafter referred to as the 'CEGAT') quashing the order in original
dated 21.5.1993 passed by the Collector of Central Excise Bombay III (in short
Background facts giving rise to the present appeal are as follows :
A show-cause notice dated 28/29.10.1985 was issued to the respondent
alleging short payment of duty on account of non-disclosure of 126.66 MTs. of
production of Polyster Filament Yarn (in short 'POY') in the RG-I register and
removal without payment of duty thereon. The short payment was stated to be
Rs.1,06,07,775/-. Similarly, another allegation related to removal of 5.65 MTs.
of POY without payment of Rs.4,75,187.50/-. Though there were several
charges only two of them namely charge Nos. (iv) and (v) relating to the
aforesaid allegations were confirmed. The collector confirmed the demand of
duty of Rs.
1,06,07,775/- raised in para (iv) of the impugned show cause notice. He also
confirmed the demand of duty raised under para (v) of the said show-cause
notice to the extent of Rs.2,99,406.25/-. He imposed penalty of Rs.25,00,000/-
under Rule 173Q of the Central Excise Rules, 1944 (in short the 'Rules')
besides ordering for confiscation of the land, building, plant, machinery etc.
used in connection with the offending goods in respect of which the demand of
duty had been confirmed above. However, he has granted to the assessee an
option to pay a fine of Rs.10,00,000/- in lieu of confiscation.
So far as para (iv) of the show cause notice is concerned, as noted above
that related to the allegation that the respondent, (hereinafter referred to as
the 'assessee'), had not accounted in the RG-I register for the production of
POY on bobbins of one kg. and less to the tune of 126.66 MTs, for the period
October 1982 to April, 1985 and had removed them without determining the
Central Excise Duty as required under the provisions of the Central Excise Act,
1944 (in short the 'Act') and Rules 173 F and 173 G (1) read with Rule 9 (1) of
the Rules resulting in short payment of Central Excise Duty to the tune of
So far as para (v) of the show cause notice is concerned it was alleged that
the assessee had removed 5.65 MTs. of POY during October, 1982 to April, 1985
without determining the duty leviable and without payment of duty as required
under the pretext of samples for texturisation resulting in short payment of
duty to the tune of Rs.4,73,187.50/-. However, the Collector confirmed the duty
to the extent of Rs. 2,99,406.25/-. The Collector held that tubes of 1 Kg. and
less were taken to the finishing room though there was no denial of the fact
that there is a market for tubes of one kg. and less. But the assessee took the
stand that it did not market any such tube keeping in view its reputation and
They were removed as waste. The Collector found that according to the
directions given on 22.11.1983, the assessee was required to maintain separate
records for the different kinds of waste and the log sheets indicated that the
bobbins of the yarn were not waste, as claimed.
Order of the Collector was challenged before the CEGAT. The primary stand of
the assessee before the CEGAT was that the demand as raised is beyond the
period of limitation and in order to attract the extended period of limitation,
allegation of suppression, non-disclosure or fraud was to be made. There was no
such specific allegation and, therefore, the extended period of limitation was
not applicable. In any event, it was submitted what was sold can not be termed
as yarn and was waste. Several materials which were placed before the Collector
to substantiate the stand that no yarn was sold, has not been considered.
Though the basis of allegation was that market enquiry revealed item sold to be
yarn and not waste, there was no evidence to support the conclusion.
Accordingly, both on the ground of limitation and lack of material to show that
the yarn was sold the levy was not proper. Central Excise authorities took the
stand that ample material existed to show that assessee had suppressed the sale
and had removed the dutiable goods without payment of duty. There were specific
allegations made to apply extended period of limitation. The Collector was
justified in rejecting the unsupportable pleas of the assessee.
CEGAT accepted the stand of the assessee and set aside the Collector's
In support of the appeal learned counsel for the appellant submitted that
the CEGAT has lost sight of relevant aspects. It is not as if there was no
allegation of mis-declaration or unauthorized removal. The specific case of the
authorities was that what was cleared was taken as waste but it was sold as
yarn. There was definite indication in the show cause notice about the
intention to evade duty.
The Tribunal did not notice that in order to show what was being taken out
was waste, separate register was required to be maintained in terms of a
direction given on 22.11.1983, but that was not done. In the classification
list which was filed, there was no mention of the size of the alleged waste.
Allegation was mis- declaration so far as yarn is concerned, and not of waste
as was observed by the CEGAT. It has been specifically observed by the
Collector that there can be yarn even up to the weight of 50 gms., and when the
issue related to one kg., prima facie the product was yarn. For removal and
destruction of waste, particular procedure in terms of Rule 49 is prescribed
but that has not been followed. The effect of presence of the goods in the
finishing room and the purpose as to why it was taken there, has not been
explained by the assessee. There is no dispute that it can be sold. What was
contended was that it was not done by the assessee due to its reputation. In
the log sheets, it has been clearly indicated to be yarn, but the effect of
such mention as yarn was not considered by the CEGAT. If the stand was that the
goods in question were waste the assessee was required to prove it.
When there is unauthorized removal, obviously the goods were to be treated
as yarn. Above being the position extended period of limitation was applicable.
Per contra, learned counsel for the assessee submitted that there was
approval of the classification list. There was no suppression or
mis-declaration as claimed by the authorities. Duty as waste has been paid and
it has not been shown that as to how there was any intention to evade payments
Voluminous documents were placed before the Collector which were not
considered and, therefore, CEGAT was justified in setting aside the order of
We find that Tribunal has not approached the controversy in the proper
perspective. Various aspects which have been highlighted above and specifically
noted by the Collector were really not considered by the CEGAT. Its conclusions
that there was no allegation of fraud, mis-declaration or intention to evade
duty, prima facie do not appear to be correct. The material being wound on
tubes was yarn. It did not cease to be yarn because it broke off before the
required weight was achieved. It only became waste if it got entangled or
messed up or if the tubes of less weight were cut. It was for the assessee to
show categorically that this had happened. The log sheets deal with tubes. But
without question the weight shown in the log sheets is of yarn. This prima
facie indicates that tubes having yarn of less than 1 kg. are also being
logged. Thus the Collector was right that the log sheets show presence of yarn
on tubes, even of 1 kg. or less. The Collector had specifically noted that, if
the assessee had destroyed the tubes of 1 kg. or less of POY, the reason why
production was shown in the daily log sheets was not explained. Thus fresh
hearing of the appeal by the CEGAT would be the appropriate course. The
relevant aspects like presence of the articles in the finishing room, effect of
mention in the log sheets and effect of non-maintenance of required records and
the allegations contained in the show-cause notice to apply extended period of
limitation must be considered in proper perspective. At the same time, if the
assessee wants to place reliance on any material on record, the CEGAT should
also consider it.
Accordingly, so far as para (iv) of the show cause notice is concerned, we
remit the matter back to the CEGAT for fresh hearing and adjudication in
accordance with law. It would consider the relevant aspects on the basis of
materials already on record and to be placed by the parties in support of their
respective stands, and to take a decision afresh in accordance with law.
So far as para (v) of show cause notice is concerned, the view of the CEGAT
appears to be correct as the assessee had disclosed as to what was being taken
for texturisation, and it was indicated in the documents which were verified by
the authorities. That being so the order of the CEGAT so far as the para (v) of
the show cause notice is concerned, stands.
The ultimate result is that the CEGAT shall hear the matter afresh so far as
para (iv) of the show cause notice is concerned, relating to alleged unauthorised
removal of POY in smaller bobbins weighing one kg. or less and the evasion of
duty thereof, if any, is concerned .
The appeal is disposed of accordingly without any order as to costs.