BI METAL BEARINGS LTD Vs. COLLECTOR OF C EX

JUDGEMENT

(1.) THIS is an appeal directed against the order of the Collector of Central Excise, Madras, dated 28-10-1987 by which he had demanded a duty of Rs. 1,02,14,154.84 under Rule 9(2) of Central Excise Rules, 1944, besides imposing a penalty of Rs. 30,00,000/- on the appellants under Rule 173Q of the Central Excise Rules.

(2.) The appellants are manufacturers of bimetal bearings and bushings at their units at Hosur and Coimbatore. One of the raw materials required for its manufacture is bimetallic strips. These are manufactured at the appellants' own Strip Mill Division situated at Madras. The Department licensed the Strip Mill Division at Madras in March 1986; following the coming into force of the Central Excise Tariff Act, 1985 with the new Tariff Schedule. However, the Department found that the Strip Mill Division had been manufacturing bimetallic strips earlier as well without obtaining Central Excise Licence and clearing the goods without payment of duty over the years. A Show Cause Notice dated 31-3-1987 was, therefore, issued to the appellants asking them to show cause why

(3.) SHRI Venkataraman, the learned Consultant urged that in respect of the question of limitation there was no suppression of manufacture and clearance of bimetallic strips from the appellants' factory with intention to evade payment of duty because, in the first place, the Department did have knowledge about the existence of the unit manufacturing bimetallic strips because their two units manufacturing bimetal bearings as well as bimetallic strips were located side by side in the same complex in Sembium at Madras at the time when the bimetal bearings manufactured by them became dutiable under Tariff Item 34A of the Central Excise Tariff in the Finance Bill introduced on 29-5-1971, and thereafter immediately the Bearing Plant at Madras was inspected by the Central Excise Officers and the factory was asked to take out a licence. Further, the learned Consultant submitted that in their application for Central Excise Licence on 13-6-1971, they had clearly indicated that bimetallic strips were one of the raw materials for their final product viz. bimetal bearings. Apart from that the learned Consultant urged that even if in 1971 the existence of Strip Mill had escaped departmental notice, then again in subsequent Budget of 1975, when for the first time Item 68 of CET was introduced, covering all other goods not elsewhere specified manufactured in a factory, then at least the Department should have been alert to the existence of the Strip Mill. This is also because the accompanying Budget instructions were very specific to say that only through extensive survey new units could be located. The learned Consultant further pointed out that even the Budget succeeding 1975, there were proposals for increasing the rate of duty on goods falling under Item 68 CET, which again should have led to the knowledge on the part of the Department about the Strip Mill. Further, immediately following the imposition of duty on bearings in 1971, till October 1971, the Unit was under physical control, which means that the Department again had the opportunity then to know about the existence side by side of the unit manufacturing bimetallic strips because under physical control, according to the learned Consultant, the Central Excise Officers personally supervises and allow clearances and could not have been unaware that the raw material bimetallic strips came from the Strip Mill Division which was hardly a few hundred yards away from the bearing manufacturing unit. There were also visits by the inspection groups and audit parties to the bearing plant at Madras. The learned Consultant further urged that the only piece of evidence on which the charge of suppression is based is the letter dated 22-6-1981 from the Superintendent, Central Excise, Coimbatore, to the appellants in which inter alia the Superintendent called for the production of invoices covering purchases of raw material requiring the production of Gate Passes if the raw material is from a sister concern or from their own plant. It was submitted that if the Department had felt that the reply to this communication sent by the appellants was not complete in any respect, it could have also reverted to the subject and elicit further information. However, the matter was left to rest there by the Department. It was further pointed out by the learned Consultant that the appellants had produced before the adjudicating authority detailed data regarding the despatch of the bimetallic strips from their Madras factory, and the receipt thereof at their two Units at Coimbatore and Hosur and issue of the raw material for production of bearings, to prove that whatever was produced by them at Madras was utilised only in their own plant in manufacturing bimetal bearings. Further, these were special type of bimetallic strips manufactured under an agreement with their foreign collaborator M/s. Imperial Clevite Inc. USA, and these strips are not sold in the market. The appellants company is under an obligation not to sell these strips outside as part of the collaboration agreement with the USA Collaborator, whose patented process the appellants are using. Apart from this the learned Consultant referred to the Annual Reports of the appellants from 1971 to 1986 wherein bimetallic strips had been clearly mentioned as raw materials. The installed capacity for producing them as well as their annual production have been given in the Annual Accounts. The Department itself had in 1972 by their letter dated 17-1-1972 called for their Balance Sheet. In view of the position as above, the learned Consultant urged that it can clearly be stated that the existence of the unit manufacturing bimetallic strips was within the knowledge of the Department and as such no suppression can be alleged. The fact that the bimetallic strips as raw material for their Coimbatore Unit was being produced at their Madras factory was clearly intimated to the Department in their reply dated 7-9-1981 to the Superintendent at Coimbatore which was clearly, therefore, bringing to the knowledge of the Department about the manufacturing activity at their Madras plant. The learned Consultant further submitted that the appellants had nothing to gain by evading duty. There was no motive for them to evade duty because they would have been eligible for the exemption under Notification No. 118/75 exempting the goods falling under Item 68 CET from duty when used captively by the same manufacturer in the manufacture of finished products. The learned Consultant also referred to the three affidavits in this connection from the Secretary, Manager (Quality Control), and Manager (Production Services) of their Strip Mill in which it has been averred by these persons that the Central Excise Officers had visited their Strip Mill Division from time to time after 1975.