ORDER
S.L. Peeran, Member (J)
1. The Revenue is aggrieved over the Order-in-original No. 113/2003-RP dated 28.02.2003, passed by the Commissioner of Customs & Central Excise, Visakhapatnam.
2. The finding portion recorded by the Commissioner is reproduced below:
I have carefully gone through the case records and submissions made by the assessee in their written reply as well as at the time of personal hearing. There are three issues involved in this case, namely (i) the excess quantity of 5189 numbers of sleepers, which were seized as being taken unaccounted for; (ii). Shortage of 82539 numbers of MCI Inserts on which credit was taken; (iii) shortage of special cement on which credit was taken.
(i) As regards the seizure of 5129 numbers of sleepers, it is seen that these were in their factory premises and not removed. These sleepers are meant for Railways only. The assessee has maintained that the excess sleepers were the result of piled up rejected sleepers over a long period or time and have also produced the certificate to this effect by the Junior Engineer/Inspecting Engineer of the Concrete Sleeper Plant S.E. Railways.
The seizure was justified if it was found that the assessee had intention to remove the goods without payment of duty. This is not seen the case here. Firstly, the sleepers are found inside the factory premises, secondly there is no free market for these sleepers as the same are manufactured for S.E. Railways as per contractual obligations in which MCI inserts and other main raw materials are supplied free to them either by the Railways or at their direction, by other persons; The assessee is bound to account for the sleepers ones these are manufactured out of raw materials supplied by the Railways. The assessee has produced a certificate of verification from the Junior Engineer/Asstt Inspecting Engineer, Concrete Sleeper Plant that there were 5237 numbers of rejected sleepers lying with the assesses as on 25.9.01. These factors taken together do not justify the seizure of the goods and their proposed confiscation. This is now the consistent view in a number of decisions arising out of the Cegat decision in M/s Bhillai Conductors (P) Ltd. v. CCE Raipur wherein it was held that confiscation not attracted by mere non accountal of goods in RG1 when there is no evidence that such non accountal of goods still in the factory was with intent to evade payment of duty. The fact that there is no open market for such goods for disposal is an additional ground to hold that there cannot be any intention to remove them without payment of duty. These goods are therefore liable to be released.
(ii) As regards the shortage of 82,589 number of MCI Inserts, it is seen that the assessed has maintained that 20756 number of inserts were used in 5189 number of sleepers under seizure, some quantities were taken back by the Railways when there was no modvat on them in 1996, that there will be wastage of these inserts in manufacturing operations. They have stated that they are entitled for 2% waste as per their agreement with the Railways, that they have not adjusted the wastage so allowed as no deduction of inserts wasted has been made in their accounts. They have also taken the plea that shortage of 50150 out of 82589 Numbers was already under adjudication by the Assistant Commissioner in his order No. 46/2000 against which their appeal was pending before the Commissioner (Appeals). They have also maintained that some Inserts were returned to Railways before 1996 when there was no Modvat on them. Their claim that the MCI inserts which were not Modvatable and were returned to the Railways in 1996 cannot be verified in the absence of any specific details given.
The show cause notice does not rely on any basic document like RG23 A or Form IV account registers in which the quantity of inputs received was recorded and Issued. Only some statements and Mahazars are referred as relied upon. I had called for the Form IV register and found that the shortage of 50150 number of MCI inserts recorded in 12/1998 was not reflected in the carried over figures and the shortage of 82589 numbers would, therefore include the quantity of 50150. The result is that there is a net shortage of 32439 inserts over the recorded balance after accounting for the shortage of 50150 numbers.
The assessee had maintained in the statements recorded that they were allowed wastage of 2% in MCI inserts in the manufacturing operations and that the shortage found was on account of accumulated loss or wastage as they were not recording the losses so occurring in their record of raw material. For examining the claim of the assessee, I have looked into the statements relied upon in this case. As per the statement recorded in the course of investigation from the MD as well as other executives of the company, it is found that the Railways make, free of cost, supply of inserts etc. to the assessee for use in the manufacture of PSC sleepers under the Contract. It therefore, follows that the assessee must render their account to the Railways and if there were any diversion of MCI inserts, this would be settled by proper payment or compensation to the Railways for the loss. There is no enquiry with the Railways. This contention of the assesses was not verified in investigation. The fact that a case of shortage of 50150 number of MCI Inserts was earlier booked and adjudicated had also been overlooked in investigation as the assessee had made a claim in their statements that the shortage of 82389 number of MCI inserts Included the earlier shortage of 50150 numbers also.
It is seen that vide question 23 in the statement of Sri M.S. Raju, M.D. dated 8.10.01. It was put to the assessee to explain the large number of wasted inserts which was found recorded in the Contract sheet available in file No. 65 seized. The papers in the file as seen from the statement, seem to show that there was indeed wastage in the manufacturing process. I have called for and examined the file No. 65 referred in question Number 23 in statement dated 8.10.01 of Shri Raju, Managing Director. The file contains copies of Contracts entered with the Railways. There is also a statement or sheet, which gives details of the MCI, inserts as per Contracts. This sheet shows total receipt of inserts, quantity used in manufacture, quantity as wastage. Thus in one sheet a loss of 26454 number of MCI inserts under Contract Number 82/ dt.20.7.83 & 1962 dt. 30.5.90 is shown. There is a wastage of 4465 as per Contract Number 3593 dated 24.6.99. There are similar details/sheets of account of MCI inserts for other contracts. This document shows that there are losses registered in manufacturing operations and their account is rendered to the Railways from time to time as per the respective contracts. In the same file, it is seen that there is a provision for wastage of 2% of MCI inserts up to 14.4.1997 and @ 0.5% of the total consumption of inserts, thereafter. The assessee is rendering an account of the use of the inserts and claiming wastage to the extent agreed. Also, there will be wastage of sleepers in testing and consequent wastage of inserts. The assessee is showing use of 4 inserts per sleeper as per their form IV account and no wastage is shown in their form IV account. Therefore, their contention that the shortage noticed is as a result of wastage over a long time and that such wastage was not being shown in their form IV account is accepted in the face of the above facts.
There is no case for demand if the inputs are wasted in the manufacturing operations. Also, a quantity of 50150 of MCI inserts, which were found short during the visit on 22.12.98 is included in the shortage again as no correction or entry was made in the records namely the RG23 or form IV and the discrepancy in the accounts has been carried on despite a case being booked for the shortage. After accounting for this quantity of 50150 numbers, the shortage unaccounted remains at 32439. This quantity, in my view, has to be taken as used in the manufacturing operations or wasted as there is no use of these inserts other than in the PSC sleepers.
Consequently, there will be no case for any demand or recovery on account of the shortage recorded. This finding, however, in no way, holds good in respect of the shortage of 50150 numbers of inserts, which are a matter of decision with the Commissioner (Appeals). In short, what is decided is the shortage of 32439 number of inserts in this case leaving 50150 as the same is already adjudicated and is pending in appeal before the Commissioned (Appeals).
(iii) As regards the removal of 1000 bags (50 MT) of Special Cement on which they had taken the Cenvat Credit, to S E Railways, Kurda Road Division as seen from the file No. 20 recovered under mahazar dated 25.9.01, the assessee has stated that the cement was sent on an urgent call for restoration of works due to cyclone in Orissa. The assessee was required to remove the cement on payment of duty. This was not done. This amounted to wilful suppression on their part. The amount of RS. 17500/- therefore, is liable to be Recovered under proviso to Section 11A(1) and the assessee is also, liable to penal action under Section 11AC.
As can be seen from the above findings, the Revenue has agreed with the reasoning given by the Commissioner that the shortage found was fully accounted. In the ‘Grounds of Appeal’ the Revenue has now taken fresh grounds which were not in the show cause notice. It is submitted in the ‘Grounds of Appeal’ that-
Even though the agreement with the railways provide for wastage of 2% in manufacture of sleepers, it is pertinent to mention that, it is not a loss and therefore the waste inserts should have been accounted for and duty discharged thereon.
In terms of ‘Grounds of Appeal’ the Revenue has accepted the facts of wastage, of 2% in manufacture of sleepers. The Revenue proceeded on the ground of shortage of MCI Inserts. The Commissioner in the impugned order has examined all the records and contention of the assessee that they are entitled to wastage of 2% as per their Contract Agreement with the Railways. The Railways has not initiated any proceedings. Now the Revenue has taken new grounds that the duty should have been discharged on the wastage of Inserts which was not a ground in the snow cause notice. Therefore the learned Counsel while replying to the learned DR’s contention submits that the Revenue cannot raise fresh grounds now. He relies on the Apex Court judgment rendered in the case of Commissioner of Central Excise, Delhi-III v. Carrier Aircon Ltd. reported in 2005 (184) ELT 113 (S.C.). The learned Counsel submits that in the Commissioner’s findings, it has been noted that there is pending proceedings in respect of 150 number of Inserts and the same cannot be taken into consideration. He submits that this findings are supported by the Apex Court judgment rendered in the case of ECE Industries Ltd. v. CCE, New Delhi . He submits that the order is based on verification of facts and there is no infirmity in the order and therefore the Revenue’s appeal is required to be rejected.
4. On a careful consideration of the matter and perusal of the above extracted findings, we notice that the Commissioner has undertaken the exercise in verifying all the records and has come to a clear conclusion that there was no shortage but there was only wastage of Inserts to an extent of 2% in terms of the Contract Agreement with the Railways. The Railways had not initiated any proceedings. The Commissioner has given a finding that the investigating authority has not verified the facts pleaded by the assessee. We notice from the ‘Ground of Appeal’ that the Revenue has accepted the facts of wastage of 2%. Now they have taken a new ground that the appellants should have discharged the duty on the wastage of Inserts which was not a ground in the show cause notice. Therefore the plea raised by the learned Counsel has to be accepted. There is no infirmity in the impugned order. The impugned order is legal and proper. There is no merit in the Revenue’s appeal and the same is rejected.
(Pronounced and dictated in the open court)