K.S. Venkataramani, Member (T)

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

(i) the Bimetallic strips manufactured in the Strip Mill should not be classified under Tariff Item 68 of the First Schedule to the Act during the period covered under the SCN i.e. from 1-3-1982 to 28-2-1986;

(ii) duty amounting to Rs. 1,02,14,154.84 should not be demanded on them under Rule 9(2) read with Section 11-A of the Act under the extended time limit of 5 years since it was held that the manufacture of the bimetallic strips was surreptitious, and their removals clandestine, with intent to evade payment of duty; and

(iii) penalty should not be imposed on them under Rule 173Q for the contravention of Section 6 of the Act read with Rule 174, Rules 9(1), 52A, 53,173B, 173G, 173C and 173F read with 173G as aforesaid.

In their reply thereto the appellants contested the proposed classification in the Show Cause Notice of the bimetallic strips under the erstwhile Item 68 of the Central Excise Tariff and they also contended that the Department could not in any case invoke the longer period for demanding the duty under Section 11A of the Central Excises Salt Act, 1944 because the Department knew all along about the existence of the unit manufacturing bimetallic strips. On consideration of the submissions made the Collector held that the goods were classifiable under Tariff Item 68 of the Central Excise Tariff and demanded duty of Rs. 1,02,14,154.84 for the period 1-3-1982 to 28-2-1986 holding that the manufacture of bimetallic strips was suppressed and the goods cleared clandestinely with the intent to evade payment of duty. He also imposed a penalty of Rs. 30,00,000/- under Rule 173Q of the Central Excise Rules.

3. Shri S. Venkataraman, the learned Consultant appearing for the appellants, at the outset submitted that the appellants undertake to confine their submissions in the appeal to the charge of suppression of the fact of manufacture and clandestine clearances of bimetallic strips, and that no arguments regarding the excisability of the goods would be adduced. With the consent of the parties, therefore, the appeal was proceeded with this specific undertaking that the question to be decided will be confined to the issue of whether or not there was suppression of fact with intention to evade payment of duty for the Department to invoke the longer period of 5 years for demanding duty short levied under Section 11A of the Central Excises Salt Act, 1944 since the appellants have specifically given up the grounds of their appeal relating to the excisability and classification of the goods produced by them.

4. 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