ORDER
P.C. Jain, Member (T)
1. The brief facts of the case in so far as material to the issues involved are that the appellants availed of the benefit of Notification No. 135/83 dated 30.4.83 on the excess sugar produced during the period May 1983 to September 1983. The appellants were initially given a provisional credit of Rs. 11,75,000/- and on final clearance of the entire excess production, an additional amount of Rs. 6,34,177.19 was also sanctioned in full and final settlement of the benefit. Final credit was given on 25.7.84.
2. A show cause notice dated 23.1.85 was, however, issued to the appellants demanding Rs. 69,560.40 on the following two grounds:-
(i) In calculating the base average production, the loss occurring in processing of brown sugar during the corresponding period of base years 1978-79, 1979-80 and 1980-81 was deducted which ought not to have been done. This resulted in lowering the base production and thereby increased the excess production in the incentive period referred to above namely, May 1983 to September, 1983.
(ii) The ratio of 65:35 for levy and free sale sugar must be applied on the basis of clearances of excess production in each month. If under levy, more than 65% out of the excess production is cleared, such quantity shall be treated as levy sugar category for incentive rebate eligibility.
The demand was confirmed by the original adjudicating authority on the basis of the aforesaid two grounds.
3. The lower appellate authority while dealing with the first ground has observed as follows:-
“From the points put forth by appellants at the time of personal hearing, it can be seen that appellants unhesitatingly and without any reservations conceded the correctness of the reasoning adopted by the lower authority at item No. 1 of para 3 of the impugned order. Hence, there is no need to dwell on the objection raised by appellants in their appeal on this particular point.”
On the second ground the lower appellate authority has observed that “the appellants themselves adopted the ratio 65:35 and procured rebate on the excess production of sugar in May 1983 and June 1983 with reference to the average production calculated with reference to the total production during the corresponding period of the previous three sugar years. It does not, therefore, look logical on the part of the appellants to question the same ratio 65:35 adopted by the lower authority in the original order. It is true that Notification No. 135/83 dated 30.4.83 does not specifically mention anywhere the ratio 65:35. But this ratio adopted by the lower authority has a nexus to the proviso in para 1 of the notification read with clauses (a) and (b) of the Explanation in the said para.” Accordingly the lower appellate authority has held that the application of ratio 65:35 as adopted by the lower original authority is correct in law.
4. The learned representative for the appellants has strongly contested the observation on the first ground mentioned in the show cause notice. He vehemently stated that at no point of time the representatives accepted the methodology adopted by the Supdt. of Central Excise regarding addition of reprocessing loss for computing the average production. He drew our attention to para 2 of the notification which sets out the method for computing the production of sugar during the period mentioned in Col. (1) of the Table appended to para 1 of the said notification. He stated that if the loss occurring during reprocessing of the damaged or brown sugar is not taken into account while calculating the sugar produced during the incentive period, the same should not logically be included in calculating the average production during the base period. Computation of production of sugar in terms of paragraph 2 of the said notification does not make any distinction between computation of sugar produced in the incentive period and sugar produced during the base period.
5. On the second issue, namely the application of ratio 65:35 to clearances made during each month, the learned representative stated that the notification does not make any mention of such ratio. This ratio has to be taken care of by the Directorate of Sugar on the overall basis of production to be achieved by each factory in the entire sugar year. The Department is merely required to follow the circular of the Directorate of Sugar to identify whether any particular consignment pertains to levy sugar or to free sale sugar. If any clearance is made out of excess production in terms of a release order from the Directorate of Sugar as pertaining to levy sugar, then the rate of rebate applicable to levy sugar would apply and in case such release order pertains to free sale sugar then the rate of rebate applicable to free sale sugar would apply. He also pointed out that the Department itself is not consistent in the application of ratio on the monthly basis. Where the free sale sugar has been cleared in excess of 35% in a particular month, the Department has restricted it to 35% of clearance while calculating the rebate. But where it has fallen short of 35% it has limited the claim to the actual quantity of free sale sugar. This is not logical on the basis of the Department’s own understanding.
6. Shri Vadivelu, the learned Departmental Representative submitted that for calculating average production in terms of the said notification, actual production of sugar including brown sugar, has to be taken into account because that brown sugar has been duly accounted for in the R.G.I account. Any processing loss occurring on reprocessing of such brown sugar in subsequent years cannot be allowed to be deducted from calculating the average production of the base year because such loss had occurred not in the relevant base year but in subsequent periods. What condition (iv) of para 2 of the said notification states is that reprocessed brown sugar should not be taken into account. in computing the production of sugar if such brown sugar has already been included in computing the production. Para 2 of the said notification is silent about the treatment to be given to losses on processing of defective or damaged or brown sugar. On ground (ii) the learned D.R. reiterated the observations of the Collector (Appeals) in the impugned order.
7. We have carefully considered the submissions made on the two issues involved in the present appeal. We observe, as rightly pointed out by the learned representative of the Department, that para 2 of the notification is silent about the treatment to be given to reprocessing losses. We, however, observe that para 2 of the notification refers to the method of computing the production of sugar during the period mentioned in Col. (1) of the Table appended to the notification. Col. (1) of the said Table refers to sugar produced in the factory during the incentive period as well as the average production during the corresponding period of the three base years. In other words, the fourth condition, in para 2 of the notification referring to the method of computing the production of sugar has to be applied to the excess production of sugar as well as to the average production of sugar.’ We, therefore, do not find any reason in applying one criterion for determining excess production and another for average production. While making a case for inclusion of entire brown sugar (without deduction of processing loss), the adjudicating authority has taken the support of the sucrose content and while denying the inclusion of the loss in brown sugar in the/incentive period he takes the ground that the sugar pertaining to the processing loss cannot be said to have been cleared on payment of duty. Strictly going by the method of computation referred to in para 2 of the notification brown sugar if taken into account in the R.G.I as sugar produced in the relevant year should not be included again after its reprocessing has been done in terms of condition (iv) of the said para. It would, therefore, depend on the facts in each case whether the brown sugar has already been taken into account in production of any relevant year or not. Since it is a common case of both the appellants and the Department that brown sugar had been duly accounted for in R.G.I in the year of its production and it has been reprocessed in subsequent year, inclusion of brown sugar after reprocessing again in the production is not warranted. In other words ‘reprocessing loss’ in respect of brown sugar should not be deducted in computing excess production as well as base production (i.e. average production). We would, however, agree with the observation of the original adjudicating authority to the effect that the quantity pertaining to the loss occurring in reprocessing of brown sugar would not be eligible for any rebate inasmuch as such excess production cannot be said to have been cleared on payment of any duty. Combined effect of both these findings in respect of first issue is the same which has been reached in ground (i) of para 2 above. Appeal on this issue is decided against the appellants.
8. On the second issue we agree with the appellants that the ratio 65:35 for levy and free sale sugar is a matter concerning the Directorate of Sugar. There is no basis in the notification to apply this ratio to the clearance of excess production sugar in each month. Proviso to Para (1) of the notification does not provide any nexus, as observed by the lower appellate authority, for calculation of the aforesaid ratio for each month. Proviso to para (1) says that if any excess production sugar is cleared as levy sugar then the amount of exemption calculated at the rate applicable to levy sugar shall not exceed the amount of duty of excise payable on such quantity of levy sugar (in a particular consignment). Similarly, if any excess production sugar is cleared as free sale sugar, then the amount of exemption calculated at the rate applicable to free sale sugar shall not exceed the amount of duty of excise payable on such quantity of free sale sugar (in that particular consignment). Accordingly the appeal is allowed on the second issue.
9. Demand of duty should be revised in the light of foregoing divisions.