ORDER
Jyoti Balasundaram, Vice President
1. The Appellants herein hold Central Excise Registration Certificate for the manufacture of Sulphur and Petroleum products such as Motor Spirit, HSD, LOD, LSHS etc and Organic Chemicals falling under Chapter 25, 27 and 29 of the Schedule to the Central Excise Tariff Act, 1985 respectively.
2. A show cause notice dated 03/08/98 was issued to them for contravention of the provisions of Rule 57C read with Rule 57A or the Central Excise Rule 1944 inasmuch as they had manufactured;
(i) Low Sulphur Heavy Stock (hereinafter referred to as “LSHS”) classifiable under CETA sub-heading 2713.00 and cleared the same at “NIL” rate of duty to M/s TATA Electric Company Limited, Trombay under Notification No. 75/84 CE dated 01/04/94 upto 22/07/96 and under Notification No. 8/96 CE dated 23/07/96 during the period from 23/07/96 to 31/08/96 for manufacture of electricity;
(ii) Long Residues (hereinafter referred to as “LR”) falling under CETA sub-heading 2713.30, which is an intermediate product and claimed exemption under Notification No. 217/86 and 67/95 dated 16/03/95 for captive consumption for use in their plant as Fuel, which is exempted from payment of duty;
(iii) Refinery Gases (hereinafter referred to as “RG”) falling under CETA sub-heading 2711.19 and claimed exemption of captive consumption in manufacture of fully exempted product.
3. The total duty demand of Rs. 3,98,28,000/- was worked out on the basis that the exempted goods formed 10.1653% of the total production on petroleum product cleared by the appellants between 01/04/94 to 31/08/96. Show cause notice sought to recover the entire amount under the provisions of Rule 57I together with interest under Section 11AB read with Rule 57I, as well as imposition of penalty under Section 11AC read with Rule 57I.
4. The demand was contested both on merits as well as on limitation.
5. The Commissioner of Central Excise, Mumbai confirmed the demand raised in the notice, together with interest and imposed a penalty of equal amount; hence this appeal.
6. We have heard Shri Bhave, Ld Counsel, and Shri Singhal, DR. The first plea of the appellants that the demand is barred by limitation is not tenable – in the declaration filed under Rule 57G for availment of credit on inputs to be used for the manufacture of final products, nowhere did the assessee declare that the same inputs will be used for the manufacture of exempted products as well as dutiable products. The provisions of Rule 57C state that credit of specified duty shall not be allowed on such quantity of inputs, which are used in the manufacture of final product, which is exempt from whole of the duty leviable thereon or chargeable to Nil rate of duty. Taking of credit on that quantity of inputs, which has gone in the manufacture of exempted products, was legally not permissible in the first place. The assessees were required to reverse the cradit taken on such quantity. The assessee has also failed to maintain a separate account for the quantity of inputs used in the manufacture of exempted goods. The provisions of Rule 57D relied upon by the appellants do not support their case. In the case of Auto & General Industries v. CEGAT, New Delhi reported in 2002 (143) ELT 487 (Del.), the Hon’ble Delhi High Court held that the extended period was available to the department against the petitioner, who suppressed material facts from the department by misleading it with declaration filed under Rule 57G with intent to avail credit on goods, on which no duty was paid. The ratio of the above order is squarely applicable in the facts to the present case and therefore, we hold that the demand is not time barred.
7. On merits, we hold that demand is sustainable in view of the fact that the show cause notice is confined to recovery of credit to the extent that Long Residues and Refinery Gases have been used in the manufacture of fully exempted products and recovery of credit on inputs used in LSHS is confined to that quantity of inputs used in the manufacture of LSHS cleared to TATA at Nil rate of duty, which was subsequently used for power generation, which is not excisable. However, the appellants state that the entire amount of credit taken by them during the dispute under is not Rs. 39.82 crores on the basis of which, 10.1653% was worked out but to Rs. 27.84 crores, as seen from the certificate issued by the Range Superintendent. They further submit that some of the inputs, for example Sulfolene on which credit has been denied, was not used in the production of LSHS and therefore, credit was rightly availed on those inputs, which were solely used in the manufacture of dutiable products. The appellants raised this defence at the time of filing reply to the show cause notice, but no finding has been recorded thereon by the Commissioner.
8. They have also stated that Mercaptan, Return Stream of Naphtha, Tetra Ethyl Lead etc were used actually for manufacturing of products like Toluene and Xytol, LPG, Motor Spirit and Naphtha, and not for manufacture of any exempted product in dispute and therefore, the demand will have to be computed afresh, after taking into account the Superintendent’s certificate. They further submit that certain inputs, on which credit has been denied, were not used in or in relation to the manufacture of any of the three exempted products in dispute.
9. We see substance in the above. Therefore, while upholding the duty demand, we set aside the impugned order and remand the case to the Commissioner for re-quantification of duty after verification of exact amount of credit taken by the appellants during the period in dispute and after verifying their stand that certain inputs on which credit has been denied were not at all used in the manufacture of the LSHS, Long Residues or Refinery Gases covered in this case. Fresh orders shall be passed after extending an opportunity to them of being heard in their defence. The levy of interest under Rule 57I read with Section 11AB and penalty under Rule 57I read with Section 11AC are set aside for the reason that the period in dispute is prior to the introduction of Section 11AB and 11AC into the Central Excise Act and for the reason that a consolidated/composite penalty is not permissible in law, as held by the Tribunal in a number of decisions.
10. The appeals are disposed of in the above terms.
(Operative part pronounced in court)