Keramos (Through Its Proprietor ... vs Customs, Excise & Gold (Control) ...
2002 Latest Caselaw 1973 Del

JUDGMENT

D.K. Jain, J.

Rule D.B.

1. An order dated 28 December 2001, passed by the Customs, Excise and Gold (Control) Appellate Tribunal under Section 35-F of the Central Excise Act, 1944 (for short the Act), directing the petitioner to deposit a sum of Rs. 14 lacs as a pre-condition for entertainment of its appeal, is under challenge in this writ petition.

2. Briefly stated, the background facts, giving rise to this petition are:

The petitioner, an individual, is engaged in the business of printing, decorating and ornamenting the glazed tiles under the trade name 'KERAMOS'. The tiles manufactured by the petitioner are classifiable under Chapter heading 6906.10 of the Schedule to the Central Excise Tariff Act, 1985. The glazed tiles are the raw material for his activity but these are not manufactured by him. The tiles manufactured under various brands are procured from different sources by paying full duty of excise. The final product of the petitioner is claimed to be customer specific inasmuch as printing and decoration of tiles is done as per the specifications/design approved by the customers. Sometimes printing and decoration is done on the tile as it is but sometimes it is required to be cut into different sizes. The petitioner does not sell the unprocessed glazed tiles of other manufacturers. Being a small scale unit, the petitioner was availing of the benefit of small scale industry (SSI) exemption in respect of its first clearance up to Rs. 50 lakhs.

3. During the course of survey at petitioner's premises, it was noticed by the survey party that the tiles worked on were bearing the brand name of other manufacturers, who were not eligible for SSI exemption and consequently the petitioner was also not entitled to SSI exemption. Accordingly, on 7 June, 1999, the petitioner received a notice from the Excise authorities asking it to show cause as to why excise duty of Rs. 8,64,244/- should not be demanded and recovered from him for the period 6 January 1999 and 30 April 1999 and why penalty under Section 11AC and interest under Section 11AA of the Act should not be imposed/recovered from him for availing the benefit of small scale industry notification illegally. Yet another show cause notice dated 29 November 1999 was received by the petitioner asking him to explain as to why excise duty amounting to Rs. 9,25,474/- should not be demanded and recovered from him for the period from 1 May 1999 to 30 September 1999 and also why penalty under Section 173Q of the Central Excise Rules, 1944 be not imposed on him. As noted above, the SSI exemption was sought to be denied on the alleged ground that the petitioner was clearing the printed and decorated tiles under the brand name of other manufacturers who were not entitled to the benefit of the said notification and, as such, he could not claim the benefit of the said notification.

4. Rejecting the petitioner's detailed reply, stating that he had nothing to do with the brands of other manufacturers, for whom he was not even carrying out any job work, and explaining his entire activity, the adjudicating authority, vide its orders dated 29 November 1999 and 31 January 2000, confirmed the aforenoted demand on account of the excise duty, besides levying penalty of Rs. 1 lac on the petitioner. As a result of the said orders, a total demand of Rs. 18,89,718/- was created against the petitioner.

5. Aggrieved, the petitioner preferred appeals to the Commissioner, Central Excise (Appeals) but without any success. He took the matter in further appeal to the Tribunal. Along with the appeal, an application was also filed seeking waiver of deposit of the duty and penalty demanded. The impugned order has been passed on this application, holding that the petitioner does not have a strong prima facie case so as to be entitled to a complete waiver of the amount demanded.

6. The petition is resisted by the respondents mainly on the ground that the petitioner being engaged in the printing/decorating/ornamenting the glazed tiles, bearing the brand names of other big manufacturers, who are not eligible for SSI exemption, he is also not entitled to the benefit of SSI exemption Notification No. 175/86, as amended by notification No. 1/93-CE dated 28 February 1993.

7. We have heard Mr. A.N. Haksar, learned senior counsel for the petitioner and Ms. Suman Bagga, learned counsel for the respondents.

8. It is vehemently submitted by Mr. Haksar that the finding of the Tribunal to the effect that the petitioner does not have a strong prima face case is ex facie illegal inasmuch as the Tribunal has failed to take into consideration the relevant facts of the petitioner's case. It is pointed out that the petitioner is carrying on his business of printing and decoration on the tiles in his own right as a manufacturer of printed tiles and not by way of a job worker of a large scale manufacturer; he has absolutely no association with the brand names of various tile manufacturers whose tiles are used merely as raw material; the petitioner purchases the duty paid tiles from the market on which the brand name of the respective manufacturer is pre-cast; being a ceramic tile, the brand name of the manufacturer cannot be erased; the petitioner is selling the decorated tiles under his brand name "Keramos" for which invoices are issued under the said brand. It is, thus, asserted that the petitioner being a small scale manufacturer is entitled to SSI exemption notification and, therefore, no amount of duty and penalty as demanded is payable by him. Ms. Bagga, learned counsel for the respondents, on the other hand submits that since the tiles printed/decorated by the petitioner bear the brand names of big manufacturers and he is also using their original packing, he is not eligible for SSI exemption.

9. Right of appeal is a creation of the Statute. While granting such right of appeal, the legislature is competent to impose any condition. Section 35F, falling in Chapter VIA, dealing with the filing of appeals, stipulates that a person desirous of appealing shall deposit with the adjudicating authority the duty demanded or penalty levied. In other words, deposit of the entire amount demanded is a condition precedent for entertaining an appeal. However, a discretion has been conferred on the appellate authority to dispense with such deposit, if in the opinion of the authority deposit of duty or penalty would cause undue hardship to the person concerned. Of course the authority has to keep in mind the interests of revenue. The provisions are mandatory in nature and failure to deposit the amount in question renders the appeal incompetent. The factors to be kept in view while considering an application of waiver of deposit are well established. These are: a prima facie case in favor of the applicant; the balance of convenience qua deposit or otherwise; irreparable loss, if any, to be caused in case waiver is not granted and safeguarding of public interest. (See: Asstt. Controller, Central Excise, West Bengal v. Dunlop ).

10. At this juncture, we are not concerned with the merits of the controversy as to whether the petitioner is eligible for the SSI exemption notification or not because that would be a matter which will have to be gone into by the Tribunal at the time of final hearing of the appeal. It would not be desirable for us to embark upon a detailed enquiry at this stage itself to find out whether the stand of the petitioner is on terra firma. The only question for consideration is as to whether the Tribunal has exercised the discretion vested in it under Section 35-F of the Act correctly in directing the petitioner to make a deposit of Rs. 14 lakhs as a pre-condition for entertainment of its appeal, on sound legal principles by taking into consideration all the relevant facts.

11. Having carefully perused the order of the Tribunal, we are of the opinion that while coming to the conclusion that the petitioner has failed to make out a strong prima facie case, the Tribunal has not only ignored certain material facts, it has also not kept in view the scope of the relevant SSI exemption notifications, which has the effect of vitiating the impugned order. The said omission would also operate as undue hardship on the petitioner.

12. In Explanation III appended to Notification No. 1/93 dated 28 February 1993, which replaced the original SSI Exemption Notification No. 175/86, as also in the old notification, the material expression is "where a manufacturer affixes" the specific goods with the brand name of another person, who is not eligible for the grant of exemption under the notification. In the present case,it is not the case of the Revenue that the petitioner has consciously affixed the brand name of another manufacturer. On the contrary, it is not disputed that the brand name of that manufacturer is pre-casted on the tiles used by the petitioner and unless the tiles are cut into small pieces, which depends on the motif or design, it will carry the brand of the manufacturer. Further, the revenue has not controverter the stand of the petitioner that since the brand is pre-casted in the tile itself, it is not possible to erase it, particularly keeping in view the thickness of the tile. We say no more at this stage, because any expression of opinion on merits at this juncture will neither be desirable nor proper as possibility of such conclusions influencing the appellate authority cannot be ruled out. Suffice it to say that the material facts, as highlighted by the petitioner and not controverter by the respondents in their reply affidavits, except reiterating that the tiles sold by the petitioner carry the brand name of some manufacturers, in our opinion, makes out a very strong case in favor of the petitioner. As noticed above, the non-consideration of these vital and relevant facts has vitiated the impugned order of the Tribunal and, therefore, it cannot be sustained.

13. For the foregoing reasons and keeping in view the financial hardship, pleaded by the petitioner and noticed by the Tribunal, we are of the considered view that it is a fit case where the appeal of the petitioner should be heard on merits without insisting on pre-deposit being made by the petitioner as a condition precedent for hearing the appeal. Accordingly, we set aside the impugned order and direct the Tribunal to hear the appeal of the petitioner without insisting for the pre-deposit. The petition is allowed and the Rule is made absolute in the above terms. However, there will be no order as to costs.