ORDER
Archana Wadhwa, Member (J)
1. The appellants are engaged in the manufacture of various plastic products classifiable under Chapter 39 of the CETA, 1985. They are also availing the benefit of modvat credit in respect of various grades of plastic granules which are their main inputs.
2. The appellants’ factory was visited by the central excise officers on 10.12.98, who conducted various checks and verifications. The book balance in RG-23A Part-I in respect of the inputs was shown as 85.192180 M.T., whereas on physical verification of the inputs, the same were found to the extent of 57.700 M.T. As such the visiting officers noticed the shortage of the 27.492180 M.T. in respect of the plastic granules. Further in respect of the quantity of 57.700 M.T. of granules, quantity of 45.675 M.T. was not found in originally packed condition and as such the same was detained by the officers. Further original duty paying documents in respect of two M.T. of granules was also not found to be tallying. Accordingly the quantity of shortage was raised by another two M.T.
3. During the course of further investigations the statement of Shri Moloy Sarkar, the appellants’ employee was recorded. In the said statement he clarified that the was not handling the inputs and the job was being looked after by their factory manager Shri Ghanashyam Mittal. To the same effect was the statement of another employee of the appellant Shri Hansraj Baid, who deposed that Shri Ghanashyam Mittal was the main person at the factory and he could explain everything as regards the inputs. Statement of the said Shri Mittal was recorded by the officers on 24.12.98. In the said statement he clarified that the inputs were not found in the original packing on account of mixing up of the same. He also deposed that certain materials had been rejected by their customers and returned upon payment of duty, the same have been entered in their RG-23A Part-I register and credit has been taken in Part-II. The said material, after rectification were sent to other persons on payment of duty, but the quantity was not deducted from RG-23A Part-I. He also deposed that 9 M.T. of granules were given on loan to M/s. Sonal Poly Plast on December 1, 1998 under the cover of a challan, but the said quantity was not deducted from Part-I and the credit was also not reversed from Part-II.
4. On the above basis show cause notice was issued to the appellant on September 29, 1999 proposing to raise demand of duty of Rs. 10,02,686. The break-up of the said demand was as follows:
(i) Rs. 4,09,405 in respect of 45.675 of granules found not in the original packed condition.
(ii) Rs. 1,64,351 in respect of 29.492 MT of granules allegedly found short.
(iii) Rs. 3,28,930 in respect of 17.916 MT Of rejected materials received back by the appellant from customers for which modvat credit was taken by it.
5. The show cause notice was taken up for adjudication by the Commissioner of Central Excise, Calcutta, when the appellant raised various contentions, before him. The Commissioner vide his impugned order confirmed the demand of duty of Rs. 8,42,093.00 and also imposed penalty of identical amount under the provisions Rule 571(4) of Central Excise Rules, 1944, alongwith confirmation of interest at the appropriate rate in terms of the Rule 571(5) of the Central Excise Rules, 1944. The amount of Rs. 6,09,385 deposited by the appellant during the course of adjudication was appropriated towards the duty liability as confirmed by the Commissioner.
6. Shri J.P. Khaitan, Ld. Adv. appearing for the appellant submits that demand in respect of 45.675 M.T. of granules not found packed in the original condition have been disallowed by the Commissioner by treating the same as shortages. He submits that there is no requirement under the law that the duty paid inputs should be kept intact packed after receipt of the, same in the assessees’ factory. He draws my attention to the statement of Shri Ghanashyam Mittal wherein he has clarified that the said granules, after their receipt in the factory have been mixed so as to send the same to the job-worker for the purpose of manufacture of their final product. Shri Khaitan submits that the above contention has not been accepted by the Commissioner on the ground that three kinds of plastic granules, i.e. LLDP, LDPE and HDPE are separate kinds of inputs used in the manufacture of separate varieties of final product and technically the three kinds are not required to be mixed for the purpose of processing. It is the contention of the appellant that there is no technical material relied upon by the original adjudicating authority for arriving at the above conclusion. On the other hand the Tribunal in the case of Brij Mohan Sheo Kishan vide its Order No. A-16-19/KOL/2001 dt. 16.1.2001 has held that mixing and blending of various grades of granules has undertaken by the manufacturers for the purposes of manufacture of a variety of the final product. The above conclusion was arrived at by the Tribunal after taking note of the letter written by the M/s. Reliance Industries Ltd. who were the primary manufacturer of the granules as also by the letter written by Indian Petro-Chemicals Corpn. Ltd. and Gas Authority of India Ltd. In these circumstances submits the Ld. Adv. that there was no justification for denying the benefit on the ground that the inputs were not found to be in the original packing at the time of the visit of the officers.
7. Countering the arguments Shri N.K. Mishra, Ld. JDR appearing for the Revenue reiterates the findings of the Commissioner in his impugned order.
8. As regards the denial of credit in respect of 45.675 M.T. of granules it is seen that the same were seized and subsequently provisionally released by the Revenue on the ground that the same were not found to be in original packing at the time of visit of the officers. Apart from the fact that there is no such rule under the modvat chapter requiring the assessees to keep the inputs in original packed condition till the same are issued for processing, I also note that the appellants have been able to fully explain the presence of the inputs in bags other than the original packs. Shri Ghanashyam Mittal’ statement clarifies that they had mixed different types of granules, which explains the fact of the same being in different packings. The above contention has not been accepted by the Commissioner on the ground that there is no such requirement of mixing of different grades of the granule’s. The above observation by the adjudicating authority, as has been rightly argued by the Ld. Adv., is based upon his personal views and there is no technical material to support the same. The Tribunal in the above referred matter has takennote of the fact, though in a different context, that such mixing and blending of various types of granules does take place before the same are used for manufacture of final product so as to obtain the requisite variety of the final product. The above view of the Tribunal was based upon the appreciation of the evidences produced by the appellants in those cases in the shape of the certificates by the primary manufacturer of granules and other relevant materials. I also note that there is no evidence on record that the appellants have cleared the goods in original packings to outsiders and have replaced the same with the other material. In view of this, I am inclined to accept the Ld. Adv.’s submission that there was no justification for denial of modvat credit of Rs. 4,09,405 in respect of the said quantity of 45.675 M.T. of granules. I order accordingly.
9. Further demand of duty of Rs. 3,28,930 has been confirmed by rejecting the modvat credit in respect of 17.91652 M.T. of materials which was rejected and returned by the appellants’ customers. On going through the Commissioner’s order I find that he accepts the receipt of such returned rejected materials and their entry in Part-I and taking of credit in Part-II. The appellants have also shown that such rejected material was subsequently used by them in the manufacture of the final product, which was cleared by them on payment of duty. Their only lapse is that no debit entry in Part-I, in respect of the said material was made by them. Shri Khaitan submits that subsequently, after the visits of the officers they have reduced the quantity of 17.91652 M.T. from their RG-23A Part-I. However, there was no justification for denial of credit in respect of the rejected and returned goods.
10. I agree with the above contention of the Ld. Adv. The appellants have placed on record the challans showing that the said returned material was sent by them to job-workers for manufacture of the final product which has been cleared by them on payment of duty. The said challans have been ignored by the Commissioner on the ground that the same are irrelevant after 1.4.2000 inasmuch as new CENVAT schemes have been introduced. However, this fact by itself is not sufficient to deny them to credit in the absence of any verification and doubt by the Revenue as regards the correctness of the said documents. The credit cannot be denied to them and the appellants are only required to reduce the said quantity of 17.911652 M.T. from their RG-23A Part-I record.
11. Modvat credit of Rs. 1,03,758 in respect of 11,5756 M.T. of granules has been disallowed on the ground that they were found short at the time of visit of the officers. Out of the said quantity the appellants have claimed that 9 M.T. of granules was sent by them to M/s. Sonal Poly-plast without making any entries to their modvat records, inasmuch as the said clearance was on loan basis and the appellant was expecting to receive back the material shortly. Shri Khaitan submitted that the above transaction has taken place on the basis of the challan which was also produced before the officers at the time of their visit and as such there can be no mala fide on their part. The balance of 2.57566 M.T. allegedly found short was on account of clerical errors. However Shri Khaitan fairly agrees that he is unable to explain such shortages with any authentic documentary evidence.
12. I find that the assessee after receiving the inputs and after having entered the same in their records and after having taken the credit in respect of the same is duty-bound to utilise the same in their own factory for the manufacture of the final product. There is no provision for clearance of the inputs on loan basis to another outside parties without making any entries in RG-23A Part-I and without reversing the modvat credit in their Part-II. As such the clearance of the goods to M/s. Sonal Poly-plast was clearly without any authority of law. The appellants have also admitted the shortage of the balance 2.5 (approx.) M.T. and has not been able to explain the same. Accordingly I am of the view that the duty in respect of 11.57566 M.T. of granules is required to be confirmed against the appellant. I order accordingly.
13. As regards the personal penalty I find that only an amount of Rs. 1,03,758 remains confirmed against the appellant by this order. The penalty is accordingly reduced to Rs. 50,000 (rupees fifty thousand). Appeal is disposed of in above manner.