ORDER
Gowri Shankar, Member (T)
1. The officers of the department visited on 4.3.1995 the texturing division of Garden Silk Mills at Bareli, Surat. The unit is engaged in the manufacture of textured yarn, out of untextured polyester yarn. The verification of the textured yarn in its finished and unfinished state by the officer led them to conclude that there was a quantity of 9909.072 kgs. of textured yam which was in excess of the quantity entered in the RG1 register. The officers compared the total stock of finished textured yarn and that being processed on the machines with the stock of polyester yarn issued from 1.4.1994 till date and concluded that a quantity of 27757.750 kgs. was in excess of what should have been available as the finished product, taking into account the total quantity of material issued and the finished yarn already cleared. Both these items were seized. After investigation, notice was issued to the appellant proposing confiscation under Rule 173Q(1) of both the quantities of yarn and imposition of penalty. After the considering the course of hearing the appellant, the Commissioner passed orders confiscating the goods and permitting them to be redeemed on fine of Rs. 7 lakhs and imposing a penalty of Rs. 50 lakhs on the assessee. Hence this appeal.
2. Counsel for the appellant does not deny that there was a quantity of 9909.072 kgs. of textured yarn which was not entered in the RG1 register. Immediately after the seizure, Mandal, the plant manager of the appellant, accepted the failure to enter the textured yarn in the RG1 register and attributed it to the mistake of the concerned clerk. It is contended before us that the quantity in question was the production of the day and, in terms of the Board’s instruction, could have been entered in the RG1 register until the next morning. We do not find it possible to accept this contention. The total quantity that was seized was nearly 10 tons. The time of panchnama was 1.45 pm and it is therefore reasonable to conclude that the officers would have come a little earlier. The Commissioner finds that Mandal in his statement had accepted that the failure to enter the stock was due to the mistake of the clerk. If, as is now claimed, the stock could have been entered up to the end of the day, there would be no mistake on anybody’s part, which was required to be admitted. The Commissioner further notes that the normal daily production in the factory was 4 to 4 1/2 tons per day. In that event, the quantity that was present was more than two days’ production. On this being put to the counsel for the appellant, he initially stated, on instruction, that the goods have not been entered in the RG1 register because the staff in the plant had been on strike for two or three days when the officers visited. However we do not find it possible to accept this to be correct. There is no reference to any strike at any stage in any proceedings. When the officers visited the factory, the material was on the machines and being processed.
3. It is further contended that the provisions of Rule 173Q will not apply to this yarn because it was the failure to enter the yarn in the RG1 register itself would not invoke the provisions of Rule 173Q(1). The decision of the Tribunal in Bhillai Conductors vs. CCE 2000 (125) ELT 781 was cited in support. In this decision, the Tribunal has, by a majority view, held that that in the absence of anything to show intent to remove goods without payment of duty, the provisions of Rule 173Q would not apply. The Commissioner, it is true, does not specifically find such intent. We must point out that the circumstances in which the yarn was found highly questionable. The diverse and contradictory explanation offered by the appellant, none of which stands of scrutiny, cannot be ignored. It is clear that the goods had been produced over the preceding two days at least. The panchnama records that the RG1 register showed the finished yarn as on 4.3.1995 to be 15551.037 kgs. In that situation, the presence of such a large quantity of finished goods clearly shows production of more than two days without being entered in the RG1 register. It can only lead to one conclusion that the goods were intended to be removed. There is also another aspect. The notice had invoked the provisions of Rule 226 which provides for confiscation of goods not entered in the accounts which are so required to be entered. No doubt the appellant points out that the Commissioner has specifically not found that the goods are liable to confiscation under Rule 226. However, he had the authority to order the confiscation under that rule. The judgment of the Supreme Court in Assistant Commissioner of Commercial Tax vs. Dharmendra & Co. AIR 1988 (SC 1247) 6 is sufficient authority to justify the confiscation of the goods even in the absence in the order of a specific provision of law. Therefore, even if it is held that the provisions of Rule 173Q will not apply, confiscation of the yarn has to be upheld.
4. We now turn to the other issue. The officers, as we have noted, took an account of stock of finished textured yarn lying in the premises, including that on the texturing machines. After considering the total quantity of yarn that was manufactured and cleared and adding to the existing stock of yarn including waste, he found that this quantity was compared with the raw material i.e. untextured yarn that was received and issued for manufacture, there was a quantity of 27757.750 kgs. the presence of which could not be explained. In oilier words, by utilising the account of yarn that the appellant had received on which it had taken modvat credit, the quantity that could have been manufactured was less by 27757.750 kgs. than the quantity that was seen to have been manufactured. It was pointed out that there is some error in this figure. The panchnama, by applying the same method of calculation, comes to an excess of 2633.53 kgs. which is what was seized. We think therefore it fair to consider this figure.
5. The appellant’s explanation issued for this excess has been that it is due to the addition of anti-static oil. It was contended that anti-static oil was required to be applied to the yarn when it is textured and that since such oil remains on the yarn after it is finished, it adds to the weight of the yarn. The Commissioner has refused to accept this explanation on the following grounds. There were no proper accounts maintained by the appellant of the issue and utilisation of anti-static oil over a period of time. The quantities of oil that the appellant had stated to have been consumed were so unrealistic and cannot be accepted. After hearing the counsel for the appellant, we are not in a position to interfere with the Commissioner’s finding in this regard. It is not disputed by the Commissioner or by the departmental representative that anti-static oil is required to be used in the manufacture of textured yarn. It was therefore an essential raw material. It would therefore be reasonable to accept that the appellant maintains records of the issue of such oil to the shop-floor and monitors use of such oil. It is clear that this has not been done. Mandal in one of his statements has said that the central stores department of the mill purchased the oil in bulk and issued it as and when required by texturing department and that to produce such records within a week. In fact in his further statement, Mandal says that the appellant had not maintained any inward register for anti-static oil separately and other materials received by its stores department which sent the oil to the texturing division for consumption and that before exhausting the stock of anti-static oil, the would intimate the stores manager on the telephone for supply of oil. Mandal said that it did not have any more records regarding consumption of the oil by the texturing division.
6. This conduct on the appellant’s part is significant. Any manufacturer would keep a record of raw material issued by it to the shop-floor from time to time. This would be necessary not only to ensure that there was no waste or pilferage of the product but would be necessary for costing of the product. The omission on the part of the appellant to maintain any proper records of oil is significant. The Commissioner also records that the data produced by the appellant shows that the pattern of consumption has been so erratic as to defy the belief. He finds that, going by the data submitted by the appellant, 9250 kgs. of oil was used in the texturing between March and November 1994 of 984210 kgs. of yarn whereas for texturing 280432 kgs. of yarn between 1.12.1994 and 4.3.1995, 28580 kgs. of oil was used. If these figures are correct, it would follow that during the first period, the ratio of oil to yarn was 106 whereas in the succeeding three months, it was 10. The attempt by the counsel for the appellant to explain this gross discrepancy is not convincing. He contends that the consumption of oil depends upon various factors such as speed of the texturing machine. However, there is not the slightest support in evidence for this contention which, on the face of it, is unbelievable. Antistatic oil is used to prevent generation of static electricity by the friction between the yarn and the texturing machine and other components of machinery on which the yarn is worked. If the texturing machines work at a higher speed, they would produce greater quantity of yarn. In any event, it has not been shown that the yam produced in the different periods were of different denierage or that the machine in the appellant’s factory was capable of different speeds. No answer was forthcoming on both these aspects. We therefore do not find it possible to hold that the entire unaccounted production is attributable to the use of the oil. Another factor deserves mention. A large number of products of Chapter 27 were notified under Rule 57A with effect from 1.4.1994. From this date onwards, duty paid on such goods of that chapter could be taken as credit under rule 57A and to be used towards payment of duty on the finished products. The benefit of modvat credit was therefore available to anti-static oil. The appellant has however chosen not to avail this facility and this is intriguing. When asked about this, counsel for the appellant has no answer except to say that credit was not taken. This factor, relied upon by the departmental representative, is not one that can be ignored.
7. It is therefore legitimate to conclude that the entire loss can by no means be attributed to the use of anti-static oil. The circumstances before us accept what the Commissioner has said that the appellant intended to remove these goods without payment of duty. The Commissioner’s reliance upon the statement of Nimesh Desai, excise clerk of the appellant, in which he said, “many times yarn used to be received by me without any challan and on instructions of Mandal and Marathe would be removed without any invoice being made”, is well taken. This is a clear point towards the conduct of the appellant. In this situation, therefore, the provisions of Rule 173Q have been rightly applied. However, in deciding the quantum of penalty, we have to take note of the fact that the duty involved on these goods is Rs. 24 lakhs and that at least to some extent, the weight of the anti-static oil would have contributed to the weight of the product. Taking these aspects into account, we reduce the penalty imposed on the appellant from Rs. 50 lakhs to Rs. 35 lakhs.
8. The appeal is thus partly allowed.