Calcutta High Court

Excise vs M/S. Tamralipta Co-Operative on 14 December, 2023

Author: Rajarshi Bharadwaj

Bench: Rajarshi Bharadwaj

OD-85

                                   CEXA/2/2007

                       IN THE HIGH COURT AT CALCUTTA
                  SPECIAL JURISDICTION (Central Excise)
                              ORIGINAL SIDE


                                          COMMISSIONERATE OF CENTRAL
                                          EXCISE, HALDIA COMMISSIONERATE

                                                -Versus-

                                          M/S. TAMRALIPTA CO-OPERATIVE
                                          SPINNING MILLS LIMITED

BEFORE :
THE HON'BLE JUSTICE SURYA PRAKASH KESARWANI
          And
THE HON'BLE JUSTICE RAJARSHI BHARADWAJ
Date : 14th December, 2023
                                                                         Appearance:
                                                    Mr. Bhaskar Prasad Banerjee, Adv.
                                                              Mr. Tapan Bhanja, Adv.
                                                                   ...for the appellant.

                                                        Mr. Sagar Bandopadhyay, Adv.
                                                            Mr. Arijit Chakraborty, Adv.
                                                                      Mr. S. Nandy, Adv.
                                                                   ...for the respondent.


1.      Heard    Mr.     Bhaskar   Prasad       Banerjee,     learned       standing

        counsel assisted by Mr. Tapan Bhanja, learned Advocate for

        the     appellant/department      and     Mr.    Sagar      Bandopadhyay,

        learned counsel assisted by Mr. Arijit Chakraborty and Mr.

        S. Nandy, learned Advocates for the respondent/assessee.

2.      This    appeal   was   admitted    on    2.7.2007    on    the    following

        substantial questions of law:
                                        2




           "(a)     Whether      the   learned      Tribunal    had    failed   to
           appreciate that onus lay on the respondent to prove
           that    the    conditions       imposed    in     Notification      Nos.
           4/97-CE, 5/98-CE, 5/99-CE, 6/00-CE were satisfied in
           the instant case ?
           (b) Whether in the facts and circumstances of the
           case,    the    Tribunal        should     have     held    that     the
           Respondent      had    failed     to     discharge    the    onus    of
           proving that the two conditions mentioned in the said
           Notifications, namely, that the goods in question had
           to be sold to the apex bodies by the respondent and
           that a certificate should be issued from the said
           apex bodies to the respondent at the time of the
           clearance of goods that the said goods were going to
           be used only on handloom had been satisfied ?
           (c) Whether the learned Tribunal should have inferred
           from the facts on record that the role of the apex
           bodies was in the nature of selling or commission
           agents and not that of direct purchasers of the said
           goods from the Respondent ?"
Facts:

3. Briefly stated facts of the present case are that the

respondent/assessee M/s. Tamralipta Co-operative Spinning

Mills Limited is engaged manufacturing of cotton yarn in

both plain reel hank form as well as cross-reel hank form

and also in cones falling under Chapter Sub-heading

5205.11, 5206.19, 5206.11 and 5206.12 of the Schedule to

the Central Excise Tariff Act, 1985 (hereinafter referred

as the Tariff Act) having registration No.2/R-VI/MID/92

dated 13.6.1992.

4. The respondent availed benefit of exemption from payment

of central excise duty in terms of Exemption Notification

No.4/97/CE dated 1.3.1997 (serial No.78), No.5/98-CE dated

2.6.1998 (serial No.96) and 6/2000-CE dated 1.3.2000

(serial No.4). The aforesaid notifications require

conditions for availing exemption which is reproduced

below (as reproduced in paragraph 2 of the impugned order

of the Tribunal):

"If the manufacturer produces at the time of clearance a certificate from an authorised officer of the Handloom Co-Operative Society, National Handloom Development Corporation (NHDC) or State Government Handloom Development Corporation, as the case may be that the yarn is going to be used only on handloom.

The goods so purchased by aforesaid agencies, the payment for which is to be made by cheque drawn by such Co-Operative Society or Corporation, as the case may be, on its own Bank Account."

5. However, a show cause notice was issued by the Director

General of Central Excise, Intelligence, Kolkata Zonal

Unit dated 27.12.2002 requiring the respondent/assessee to

show cause to the Commissioner of Central Excise, Kolkata-

II, Commissionerate as to why:-

i) Central Excise duties amounting to Rs.2,31,81,177/-

(Rupees Two Crores thirty one lacs eighty one thousand one hundred seventy seven only) should not be demanded and recovered from them in terms of the first proviso to Section 11A(1) of the Act;

ii) Interest at appropriate rate should not be charged from them in terms of Section 11AB of the Act;

iii) Penalty in terms of Rule 173Q of the erstwhile Rules (Rule 25 of Central Excise No.2, Rules 2001) read with Section 11AC of the Act should not be imposed on them.

6. By the aforesaid show cause notice, two other noticees

i.e. noticee no.2, West Bengal State Handloom Weavers' Co-

Operative Society Limited (Tantuja) and noticee No.3, West

Bengal Handloom and Powerloom Development Corporation

Limited (Tantusree) were also required to show cause to

the Commissioner of Central Excise as to why penalty under

Rule 209A of the erstwhile Central Excise Rules, 1944 read

with Rule 26 of the Central Excise (No.2) Rules, 2001 may

not be imposed. The aforesaid show cause notice was

issued to the respondent/assessee for the period from

December, 1997 to March, 2002. The Commissioner of

Central Excise, Haldia Commissionerate adjudicated the

show cause notice by Adjudication Order dated 29.12.2003,

whereby he denied exemption to the respondent/assessee and

imposed central excise duty amounting to Rs.2,31,81,177/-

under Section 11A of the Central Excise Act, 1944

(hereinafter referred to as the Act, 1944) and also

imposed interest under Section 11AB and penalty equal to

the amount of duty under Section 11AC of the Act. Penalty

of Rs.10,00,000/- on each of the two other assessees were

also imposed under Rule 209A of the Rules, 1944.

7. Aggrieved with the adjudication order, the

respondent/assessee preferred an appeal before the

Customs, Excise and Service Tax Appellate Tribunal, East

Zone Bench at Kolkata. The other noticees have also

challenged the levy of penalty. The Tribunal, by the

impugned order dated 14.7.2006 allowed the appeal of the

respondent/assessee recording a finding of fact that the

respondent/assessee has complied with aforequoted

conditions of the relevant exemption issued under Section

5A of the Act, 1944. Paragraphs 3 to 10 of the impugned

order of the Tribunal are reproduced below:

"3. As is apparent from the above condition annexed to the Notification, the yarn manufactured by the Spinning Mills is exempted from the payment of duty, if the same is sold to Apex bodies specified in the Notification and such apex bodies make payment for the

value of the yarn so purchased, by cheque, drawn on its own bank account. Admittedly, the yarn manufactured by the spinning mills was being sold by them to Tantuja and Tantusree, at the price fixed at the Yarn Committee Meeting. Admittedly, Tantuja and Tantusree are Apex bodies established by the State Government as West Bengal Handloom & Powerloom Development Corporation Ltd. The spinning mills (the appellants herein), are undertakings of Government of West Bengal and come under the Administrative control of the Cotton and Small Scale Industry Department, Government of West Bengal. As per the norms fixed by the Government, it is obligatory on the part of the spinning mill to produce at least 50% hank yarn of the total production of the spinning mill so as to save the handloom industry. Such hank yarns are suitable for use of the handloom sector, the Government of West Bengal Cotton and small scale Industry department, vide Notification dated 25/02/94, laid down the procedure for selling of yarn as also the process of fixation of price to ensure proper distribution of the same, with an objective to ensure the distribution of such yarn to the million handloom weavers in the unorganized sector mostly located in Rural areas and at remote places. The Apex bodies Tantuja and Tantusree were established with the sole objective to cater the raw material requirements of rural handloom weavers.

4.There is no dispute in the present appeal that the yarn in question has been sold to Tantuja and Tantusree, who have taken deliveries and have made payments within seven days from the date of receipt of

the goods by way of cheques drawn on the said Apex bodies accounts. The requisite certificates have also been produced to the effect that such yarn would be used in the handloom industry.

5.The Commissioner in his impugned order held that though the payment of the yarn in question has been made by Tantuja and Tantusree by way of cheque but the investigation conducted by the revenue revealed that the appellants were holding sale meeting with the Tantuja and Tantusree officers and traders were also invited. Traders were directed to make payment to Tantuja and Tantusree by way of pay order or bank draft and the said Tantuja and Tantusree, after receiving payment from the traders, deduct 1.5% Commission for their services and would make payments to the yarn manufacturers by way of cheque. The Commissioner has concluded that though the sales were being shown as having been made to Tantuja or Tantusree, the same were in fact being made to traders, with the connivance of Tantuja and Tantusree.

As regards second condition of the Notification requiring production of a certificate from an authorised officer of National or State Handloom Development Corporation at the time of clearance from the factory to the effect that such cleared yarn was going to be used in handloom, the Commissioner has observed that the appellants have not taken sufficient care to see that the traders are selling the yarn to handloom weavers only. The spinning mill have only produced certificate without ensuring that such yarn is actually being used in the handloom and no steps have

been taken by them to the above effect. As such, he has concluded that the second condition is also not satisfied.

6. After hearing both sides, we find that admittedly Tantuja and Tantusree are Apex Handloom Co-operative Societies and as per Notification issued by the State Government were required to purchase the yarn from the appellants to ensure their proper distribution. Two conditions of the Notification as regards purchase of goods by the Apex Body and payment by cheque from their own accounts stands satisfied in the present case. Admittedly, there is no direct sale by the spinning mills to the traders, as recorded in the impugned order. The presence of traders in the meeting held for fixation of prices and payment by such traders to the Apex bodies, who in turn made payments to the appellants does not establish that the goods were sold directly to the traders. On the other hand it establishes that the goods were purchased by the Apex body in question, for further distribution to the traders, who further sold the same to the ultimate Handloom weavers, who might be located in the interior of the country having no access to the Apex Body for direct purchase of the goods. In any case, there being no further condition as regards the disposal of the purchased yarn by the Apex body, revenue's anxiety to reach the purchaser of the Apex body and the ultimate purchaser of the yarn is beyond the scope of the notification. The Commissioner has also referred to the fact that the yarn was being lifted from the mill premises even after the sale to the Apex Body was

completed. This has been explained to us in terms of the Notification issued by the State Government on 25/02/94. The spinning mills are required to provide services of their godown and storing places so as to avoid extra financial burden on the Apex Body to look for the storage of the purchased yarn somewhere else. This fact, by itself and in the light of the State Government Notification leaves no scope for any adverse inference against the appellants that the goods were being sold by them to other buyers and not to Tantuja and Tantusree.

7. As regards the second condition of the Notification, we find that the Appellants have admittedly produced the certificate from the relevant authorities to show that the goods are to be used in the handloom industry. There is no evidence on records to show that the same have been used elsewhere. In fact the Commissioner has observed in his impugned order that it was not possible for the local jurisdictional Central Excise authorities to ascertain the authenticity of such certificate. If that be so, then the certificates are required to be accepted by the revenue. Failure on the part of the revenue to produce any evidence contrary to the certificates cannot be made a ground to hold the certificate to be incorrect.

8. On the contrary the appellants have produced on record the experts opinion in the shape of letters from the members, College of Textile Technology stating that Cotton yarn in cross reel hanks are suitable for handloom industry due to two advantages viz., it can be bleached or dyed in hank form and due to less chance of

entanglement during the process. The letter further states that in powerlooms industry the packages normally used are cone and cheese, which are directly wound from the ring bobbins. The quality should be good with adequate strength for use in powerloom industry, for use in powerloom industry. The said certificate has been discarded by the Commissioner on the ground that the same does not specifically say that hank yarn cannot be used in powerloom. We find that it is the revenue, who is alleging the use of yarn in powerloom industry and as such, it is for them to prove so. They have failed to produce any evidence to show that the said yarn has been used in powerloom.

9. The applicants have also strongly contended that having produced the certificate to that effect, no further onus is cast upon them by the notification conditions to ensure that the same are actually used in the handloom industry. The appellants having produced certificates issued by the Tantuja and Tantusree for each and every clearance, there was full and complete compliance of the condition. Notification did not require any end use certificate from actual users of the goods. The yarn having been purchased by Tantuja and Tantusree, it was their duty to see the fair distribution of the same to the handloom sector. It is well established by various decisions of the Tribunal that no end use certificate is required to be furnished in the absence of any such requirements built in the notification. Further, the expression "for use" has been interpreted as "intended to be used". In as much the certificate for intended use were issued, and

further use of the same being in the hands of Apex body, who are held responsible for distribution, the fact of actual use of the yarn will not effect the appellant's claim to the benefit of the notification. Wherever the legislation intended to impose actual use condition, the same has been specifically introduced in the notification. Such an extraneous condition cannot be imposed by the adjudicating authority.

10. In view of the foregoing, we do not find any reasons to deny the benefit of exemption notification in question to the various manufacturing unit or to impose penalties, either upon them or on Tantuja and Tantusree. The impugned orders are set aside and all the appeals are allowed with consequential relief to the appellants."

8. Aggrieved with the afore-referred/quoted impugned order of

the Tribunal, the revenue has filed the present appeal.

9. It is also relevant to mention that the appellants herein

have also filed an appeal against the impugned order of

the Tribunal with respect to the co-noticee raising

limited question of penalty imposed upon them under Rule

209A of the Rules, 1944. The appeal filed by the

Department was allowed by a co-ordinate Bench of this

Court in Central Excise Appeal No.3 of 2007 decided on

24.2.2023. Against the aforesaid judgment and order

passed by a co-ordinate Bench, the concerned noticee filed

a Special Leave Petition (Civil), Diary No.29915/2023