1. The issue involved in all these appeals being connected, they are heard together and disposed by this common order.
2. The first appellant namely M/s. Sri Aral Murughan Spinning Mills Pvt. Ltd. (herein after referred to as AMSM) are engaged in the manufacture of cotton yarn and are registered with the Central Excise Department. On specific intelligence that AMSM was indulging in removing cotton yarn in the guise of hank yarn (exempt from duty), the officers of Central Excise conducted search operations in the premises of AMSM, M/s. Babu Sydicate, Madurai, M/s. Janaki Yarn Traders, Erode, M/s. Shanmugasundaram & Co. on 11.12.2001. The premises of M/s. Sri Lakshmi Yarns, Erode and M/s. Sri Vijayalakshmi Agency, Erode (herein after referred to as SVA) were searched on 12.12.2001. The search conducted at the premises of the last three parties including SVA resulted in the seizure of cotton yarn on the reasonable belief that these were cleared by AMSM without payment of duty. Subsequently, the seized cotton yarn were provisionally released to the last three parties stated above including SVA on execution of bond and furnishing cash security. The search conducted at the premises of AMSM resulted in seizure of documents evidencing the maintenance of different sets of invoices for clearing cotton yarn in the guise of hank yarn and thus evading payment of Central Excise duty. Based on the investigation and examination of records, show cause notice dated 6.6.2002 was issued to AMSM proposing to demand duty of Rs. 2,06,726/- (for cotton cone yarn cleared without payment of duty under 8 invoices recovered from their premises) along with interest and also proposing to impose penalty under Rule 25 of Central Excise Rules, 1944 and to impose penalties under Rule 26 on other appellants. In the said show cause notice, the last three parties mentioned above including SVA were directed to show cause why the cotton yarn should not be confiscated. After further follow up actions and investigations, it was revealed that AMSM had indulged in evasion of Central Excise duty payable on cotton yarn by raising invoices for both cone yarn and hank yarn with same serial numbers for the sales made to SVA. The time of removal and vehicle number mentioned in both the sets of invoices tallied with each other apart from other evidences. It was also seen that to facilitate the clearances of cone yarn in the guise of hank yarn, AMSM resorted to manipulation of production registers, cone winding registers and reeling registers. Again in the reeling registers, the production of hank yarn was inflated than the actual production by showing production against workers who had not actually attended to duty. The clandestine activity of AMSM was evident from the fact that AMSM was having only one 3 HP motor to run 20 reeling machines whereas the 3 HP motor can run at the maximum only four double sided reeling machines at a time which would show that the production of hank yarn was inflated in the registers. Statements of the Managing Director of AMSM Shri M. Ramamoorthy, Shri A.N. Bharathy, Mill Manager and Proprietrix Smt. P. Manimegalai of SVA was recorded among other statements. Based upon such evidences, the department was of the view that Shri M. Ramamoorthy, Managing Director and Shri A.N. Bharathy, Mills Manager had fully and knowingly associated themselves with clandestine removal as well as incorrect accounting and determination of duty thereby resulting in non-payment of Central Excise duty to the Government. Based upon such evidences, another show cause notice dated 7.5.2004 was issued to the appellants herein proposing the demand of duty of Rs. 32,73,025/- along with interest against AMSM for the period from October 1999 to December 2001 along with interest and also proposing to impose penalties under section 11AC and Rule 173Q of the erstwhile Central Excise Rules, 1944 and Rule 25 of Central Excise Rules, 2001 read with Section 38A of Central Excise Act, 1944.
3. After due process of law, the adjudicating authority confirmed the demand of duty of Rs. 2,06,726/- raised in the first show cause notice dated 6.6.2002 and Rs. 32,73,025/- raised in the second show cause notice dated 7.5.2004 against AMSM and imposing equal penalty under section 11AC besides demand of interest. The adjudicating authority also held that the cotton yarn were liable for confiscation and in lieu of confiscation, adjusted the fine against the security deposit made by M/s. Janaki Yarn Traders, M/s. Sri Lakshmi Yarn and SVA besides imposing personal penalty against the appellants herein. However, proceedings against M/s. Janaki Yarn Traders and Sri Lakshmi Yarns were dropped.
4. Aggrieved by the said order, the appellants carried the issue before Commissioner (Appeals) and vide order impugned, the Commissioner (Appeals) upheld the demand of duty, interest and penalty imposed on the appellants. However, reduced the redemption fine imposed/adjusted against M/s. Janaki Yarn Traders and M/s. Sri Lakshmi Yarns. Being aggrieved, the appellants are now before this Tribunal.
5. At the time of hearing, the learned counsel Shri S. Murugappan appearing on behalf of the appellants submitted he is confining his argument only on the ground of limitation and does not wish to argue on the ground of merits. He submitted that two show cause notices were issued on the same set of facts and therefore second show cause notice dated 7.5.2004 is barred by limitation. He relied upon the judgment of the Hon'ble Supreme Court in the case of Nizam Sugar Factory Vs. Collector of Central Excise, Andhra Pradesh reported in : 2008 (9) STR 314 (SC) and contended that at the time of issuance of the first show cause notice itself, the department had full knowledge about the facts, evidences and materials relied upon for issuing the subsequent show cause notice. That since the department had knowledge at the time of issuance of first show cause notice itself, the second show cause notice has to be construed as barred by limitation since nothing prevented the department from including all such allegations in the first instance itself.
6. Against this, the learned AR Shri R. Subramanian submitted that both the show cause notices are entirely different and therefore the contention of the appellants that the second show cause notice is barred by limitation is erroneous. That in the first show cause notice, the demand was raised on account of confiscation of the seized goods based on eight invoices only whereas in the second show cause notice the demand of duty is for Rs. 32,73,025/-, for the period October 1999 to December 2001 for the clandestine clearances of goods. The first show cause notice dated 6.6.2002 was issued by the department complying with the statutory time limit (six months) prescribed under section 110 of the Customs Act, 1962, as made applicable to Central Excise seizure cases wherein confiscation of seized goods is proposed. Thereafter, on follow up action as well as further investigation, detail show cause notice was issued subsequently for the clandestine removal of the goods for the period between October 1999 and December 2001. It is also pointed out by him that the first show cause notice was for a different period, which is September 2001 to December 2001. The allegations raised in the second show cause notice is mainly regarding clandestine removal of the goods and further the documents relied upon are entirely different. That therefore, it cannot be said that both the show cause notices are in verbatim repetitive of one another or that was issued on the identical set of facts, evidences or allegations. It was also argued by the learned AR that though the statements relied upon in the subsequent show cause notice had been recorded by the department prior to issuance of the first show cause notice, that most of the statements were recorded just one or two months prior to the issuance of the first show cause notice. Only some of the statements have been included as relied upon document in the first show cause notice whereas all the statements recorded have been relied upon for issuing the second show cause notice. It was necessary for the department to correlate and formulate the allegations based upon the statements, invoices, registers and other documents recovered from the premises of various parties for putting forward the allegation of clandestine removal of the goods. That therefore, the second show cause notice has been issued on 7.5.2004 after formulating precisely the allegations based on the statements and documents recovered.
7. We have heard the submissions made by both sides.
8. The learned counsel for the appellants has submitted that he is not arguing on the merits of the case and is confining his arguments only on the issue of limitation. It is his case that since two show cause notices were issued on identical set of facts, evidences, allegations, the subsequent show cause notice raising a demand of Rs. 32,73,025/- is barred by limitation. We have perused the records carefully and considered the arguments put forward by both sides. We have to say that we cannot agree with the submission made by the learned counsel that both the show cause notices are based on identical set of facts, evidences or allegations. The show cause notice dated 6.6.2002 is for the period September to December 2001. The proposal in the show cause notice is for confiscation of the seized goods and demand of duty of Rs. 2,06,726/- from AMSM for removal of such goods to SVA, Janaki Yarn Traders and Sri Lakshmi Yarn clandestinely. The first show cause notice is thus limited to the duty demand pertaining to the seized quantity of goods only. The allegations are with regard to why the goods should not be confiscated and why duty should not be demanded for the confiscated goods. In the first show cause notice the relied upon documents are only 25. Whereas show cause notice dated 7.5.2004 is a detailed show cause notice wherein the modus operandi adopted by AMSM for clandestinely clearing cotton yarn in the guise of hank yarn has been explained in detail. The evidences regarding each of the traders, transporters have been stated along with the details of invoices that have been recovered by the department. The method adopted by AMSM is that at the time of clearance of cone yarn, they would raise invoices for cone yarn. Once the yarn reaches the destination, the cone yarn invoices would be substituted with hank yarn invoice bearing the same serial number as if they had cleared only hank yarn. The invoices recovered from AMSM showed that some of the invoices bore the same serial number, for example, Sl. Nos. 291/1.9.2001, 308/11.9.2001, 401/5.11.2001, 401/5.11.2001, 414/16.11.2001, 414/16.11.2001, 450/7.12.2001, 454/10.12.2001. However, for Central Excise accounting purpose, AMSM showed these clearances as hank yarn vide Invoice Sl. No. 291/1.9.2001, 308/11.9.2001, 401/5.11.2001, 414/16.11.2001, 450/7.12.2001 and 454/10.12.2001. Thus, both the cone yarn invoice and hank yarn invoice have same serial numbers which were raised to M/s. SVA. The time of removal and vehicle number mentioned in both the sets of invoices tallied with each other. Thus, in the second show cause notice, a detail nature of the allegations are raised which is entirely different from the first show cause notice. We have to say that the basis for demand of duty in the first show cause notice and the second show cause notice is entirely different. The department has relied upon 59 documents for issuance of the second show cause notice whereas in the first show cause notice they have relied upon 25 documents as stated earlier. All these would go to show that both the show cause notices are entirely different and therefore the judgment in the case of Nizam Sugar Factory (supra) relied by the learned counsel for the appellant
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is not applicable to the facts of the present case. In addition, we do take note of the argument put forward by the learned AR that there was a time limit prescribed under section 110 of Customs Act, 1962 for issuance of show cause notice proposing for confiscation of the goods when the goods have been seized. Thus, the first show cause notice appears to have been issued by the department to comply with this statutory time limit and confining the proposal for confiscation, imposition of fine, penalty and duty demand to such allegation only. Though the date of recording of statements may be before issuance of first show cause notice (6.6.2002), we have to consider the fact that department would require more time for investigation, follow-up action, formulation of allegations based on such statements and invoices for issuing of the second show cause notice raising the allegation of clandestine removal of goods and duty demand on this count. Considering the voluminous nature of evidences, we do hold that the issuance of the second show cause notice dated 7.5.2004 is legal and proper and not hit by limitation as argued by learned counsel for the appellants. 9. From the discussions made above, we find no ground to interfere with the impugned order. The impugned order is upheld and the appeals are dismissed.