ORDER
P.C. Jain, Vice President
1. Briefly stated the facts of this case are as follows :-
The appellant herein is engaged inter alia in the manufacture of diesel engine (both above and below 10 H.P.) and centrifugal water pumps falling under Chapter Heading 8408.00 and 8413.00 respectively of the CETA, 1985.
2. Diesel engines of capacity above & below 10 H.P., and centrifugal water pumps were exempted from excise duty during the relevant period i.e., 1-12-1991 to 16-6-1993. For the manufacture of these exempted final products, the appellants were procuring non-duty paid inputs under the provisions of Chapter X of Central Excises Rules, 1944. Non-duty paid inputs were brought into the factory under C.T.-2 certificates, issued by the jurisdictional Superintendent of Central Excise.
3. On the basis of intelligence that the appellant was misusing the facility of Chapter X of Central Excise Rules, 1944 by showing excess issue of inputs in the relevant records than their actual use and disposing the same in the manner other than as specified in the application for grant of registration for procuring non-duty paid inputs under Rule 192 ibid, a team of Central Excise Officers visited the factory premises of the appellant on 16-6-1993 and conducted physical varification of stocks of finished goods and non-duty paid inputs (brought for special industrial purpose, under the aforesaid chapter X) in presence of the representatives of the appellants, Shri Devendra Srivastava, Store Incharge, Shri Raj Kumar Sharma, Store Keeper and two independent witnesses. Two verification reports which were part of the Panchnama dated 16-6-1993 marked as Annexure ‘A’ (for non-duty paid inputs brought under Chapter X ibid) and Annexure C (for finished goods) were prepared.
4. The Officers found RG 1 Register in which the appellant was maintaining stock of excisable goods on which it was paying duty. However, the finished stock in the factory as well as in the books was nil on that date.
5. It was also found that the appellant was not maintaining records on production of diesel engine below 10 H.P. and water pumps which was exempted during the relevant period. The appellant was procuring the non-duty paid inputs under Chapter X and using the same for the production of diesel engines below 10 H.P. and water pumps. Therefore, the Officers took the stock of these items and found as follows:-
1. Diesel engine below 10 H.P. : 276
2. Water pumps : 380
6. Some of the records available in the factory were also seized under proper inventory.
7. On demand, Shri P.K. Agarwal, Partner, it is alleged, could not produce other records which were relevant for further investigation. Although he promised that he would produce the relevant records on the next date that is on 17-6-1993 but he did not produce the records.
8. On scrutiny of the records it was felt by the Revenue authorities that the sale invoices/bills issued by the appellants during the last 5 years were required for carrying out further investigations so as to find out the types of diesel engines arid pumps manufactured and cleared from the factory and actual use of inputs in the goods so cleared/ manufactured. However, only sale invoices/bills for the period from March, 1993 to 16-6-1993 only were available in the factory premises on 16-6-1993 and other periods invoices were not made available.
9. On 23-6-1993 Shri Ajay Kumar, Partner of the factory appeared before the Superintendent (Preventive) and stated that the sale invoices/bills prior to April 1993 were not traceable and will be submitted as soon as these are traced out.
10. Inspite of summons dated 16-9-1993, letters dated 15-9-1993, 9-11-1994, 2-4-1996 and 22-7-1996, the appellant never produced the relevant records before the Department as alleged.
11. Shri Devendra Srivastava, Store Incharge of the factory in his statement recorded under Section 14 of the Central Excise Act, 1944 stated that :-
(1) he is working in the said factory since last two years and maintaining all the Central Excise Records viz. RG 16 Register, RT 11 [returns] etc.
(2) quantity issued in RG 16 register was being shown as per the verbal orders of Shri Ajay Kumar Agarwal, partner of the party.
(3) the entry in the column No. 11 & 12 of the said register was being done as per the verbal orders of Shri Ajay Kumar Agarwal,
(4) RT 11 returns were being prepared by him on the basis of RG 16 register and signed by the Shri Ajay Kumar Agarwal.
12. In view of the non-production of records by the appellant, despite repeated reminders and summons as aforesaid, the officers again visited the factory premises on 16-8-1996 alongwith Shri Pradeep Poddar, Chartered Engineer to find out the actual quantity of inputs & it’s type contained in their respective final product manufactured by the party.
13. On examination of the goods and dismantling thereof, report was prepared by the said Chartered Engineer. Gist of the said report is as follows :-
(A) 5 types of centrifugal water pumps. One piece of each variety of water pumps was got dismantled by Shri Pradeep Poddar and Officers in the presence of Shri Ajay Kumar Agarwal, Shri S.B. Tewari, the Testing Engineer of the party and two independent witnesses. The bearings fixed with each Model were verified and a chart marked as Annexure (A-I) was prepared to this effect on the spot by Shri Pradeep Poddar, Chartered Engineer.
(B) Similarly, Diesel Engines of various Models available in the factory were ascertained and a separate chart marked as Annexure (A-II) was prepared by Shri Pradeep Poddar.
14. Statement of Shri Poddar, Chartered Engineer was also recorded on the spot on 16-8-1996 before the Supdt. Central Excise, Agra under Section 14 of the Central Excise Act, 1944. Later on Shri Poddar also submitted a typed chart certifying the major components contained in various models of the Diesel Engines examined and found on 16-8-1996.
15. The Officers, on the basis of the aforesaid certified charts, RG – 16 Register and RT 11 returns, worked out the actual consumption of major inputs/components in production of the diesel engines (above and below 10 H.P.) and water pumps during the relevant period 1-12-1991 to 16-9-1993. Details of the said work sheet are given as under :-
(i) the figures for each type of inputs received by the party and issue thereof were taken from the RG 16 register.
(j) the quantity of final products manufactured were taken from the RT-11 returns.
(k) in respect of water pumps, only bearings of various types were considered for the purpose of investigations. From the chart marked as Annexure A-I, prepared by Shri Poddar on 16-8-1996, it can be seen that “Ball bearings” of types 6305,6306,6307 & 6309 and taper roller bearing (T.R. Bearings) of type 30207 were used in the manufacture of water pumps. Out of the above said bearing, Ball Bearing of type 6306 and T.R. bearing of type 30207 were used in TWO NUMBERS, while the remaining types of Ball Bearings were always used in single numbers. The production figures of final product were taken from the RG-16 register, wherein the quantity of production was recorded against each type of bearings issued. The details of inputs received, contained in the manufacture of the final product, the value and duty involved on the quantity of inputs misused during the period 1-12-1991 to 16-6-1993 are shown in the chart appended marked as Annexure “D”. As per this chart, it can be ascertained that the said party had shown excess issue of bearings in their RG -16 register as compared to actual use in the manufacture of final products.
(1) similarly from the Annexure “A-2” prepared by the said Chartered Engineer, it can be ascertained that in the case of manufacture of diesel engines (of & below 10 H.P.), only one major input/component was attached in one diesel engine, except in the case of T.R. bearings which were always used in two numbers. However, in the case of 10 H.P. (double piston) engine except fuel tank which was used in single number, all the other major components/inputs were used in two numbers. But on perusal of resumed challan book for the period 24-6-1992 to 21-7-1992 (only made available by the said party) in respect of the clearances of diesel engines, and the sale invoices for the period 1-4-1993 to 16-6-1993 (only made available by the party) it can be seen that the party had not cleared any 10 H.P. diesel engine (double piston) from their factory premises. Thus, it can be concluded that the said party was not engaged in the manufacture of double piston diesel engine of 10 H.P. during the relevant period of this case. Hence, on application of above referred ratio of consumption of major inputs/components, the figures of actual use of inputs in the manufacture of diesel engine (quantity of final product as shown in RG-16 register against the major inputs) was worked out for the period 1-12-1991 to 16-6-1993, the details of which are shown in Annexure “D”. In the case of diesel engines also, excess issue of inputs had been shown against actual consumption.
(m) the difference in the actual stock of inputs (brought by the party under the provisions of Chapter X) against the recorded balance in the RG – 16 register was also noticed by the officers on 16-6-1993.
(n) on perusal of the figures of column 10 of the Annexure “D” it can be seen that the party was showing the use of inputs in excess than that of their actual use in their RG 16 register as well through the monthly RT11 returns by showing incorrect consumption ratio, (o) total duty which was involved on the inputs misused during the period 1-12-1991 to 16-6-1993 was calculated as Rs. 23,41,823.00 in Annexure “D” (Inputs valued at Rs. 1,56,12,136.00).
16. A show cause notice dated 2-1-1997 was issued to the appellant proposing recovery of duty to the tune of Rs. 23,41,823.00 on the inputs received by the appellant under Chapter X ibid during the period 1-12-1991 to 16-6-1993 and shown as having been used in the statutory records without actual consumption thereof. It was also proposed to impose penalty under Rule 173Q read with Rule 196(1) as also penalty equal to the duty determined under Section 11 AC of the Central Excise Act, 1944. A penalty was also proposed on Shri K.K. Agarwal, Partner under Rule 209 A ibid.
17. On adjudication concerned Commissioner, Central Excise has confirmed the aforesaid demand of duty against the appellant under Rule 196 ibid. He has also imposed penalty of equivalent amount under Section 11 AC and under Rule 173Q. He has also imposed penalty of Rs. 2 lakhs on Shri A.K. Agarwal under Rule 209A ibid.
18. Ld. Advocate Shri A.K. Jain has submitted that detailed submissions were made by the appellant before the adjudicating authority with substantial evidence as also to adduce to undertake to adduce further evidence in the shape of invoices and bills (which were not actually produced being bulky if the adjudicating authority required to examine the said invoices.
19. It was further pleaded before the said authority by the appellant that the very basis of the show cause notice is wrong and unreliable for the following reasons :-
(a) the factory was first checked on 16-6-1993 and the officers found no evidence to book the case against them.
(b) the five types of centrifugal pumps and the diesel engines as available in the factory on 16-8-1996 were got dismantled & component/inputs used therein were verified.
(c) if the components were to be verified by the dismantling the pumps and engines, then they should have been got dismantled as on 16-6-1993, (i.e. on the date of search). But it was not done.
(d) the officers took for granted that during the period from 1-12-1991 to 16-6-1993 same types of centrifugal water pumps & diesel engines were manufactured as were available on 16-8-1996. The officers have not given any reason for presuming the type of centrifugal water pumps & diesel engines manufactured during 1-2-1991 to 16-6-1993 to be identical to those available on 16-8-1996.
(e) the officers also did not collect and correlate the various internal records to ascertain the number and type of various centrifugal water pumps and diesel engines manufactured during the period 1-12-1991 to 16-6-1993. (4) the figures worked out by the officers are purely imaginary, hypothetical and based on presumption.
(5) the demand accordingly is based on pure surmises and presumptions without any evidentiary value and lawful standing. The Hon’ble Supreme Court in Oudh Sugar Mills Ltd. v. Union of India, 1978 (2) E.L.T. (J172) (S.C.) have held that the show cause notice to be based on some facts and specific data & specific allegations & should not be based on inferences drawn from unwarranted assumptions. The party placed reliance on this judgment.
(6) the basic issue is whether the quantity and type of goods produced can be determined on the basis of goods produced after a lapse of three years without ascertaining the type of goods manufactured during the period in question. The answer is negative. As such, action would be purely imaginary and hypothetical.
(7) the party have also filed some copies of the audit report, challans & returns of monthly sale etc. to prove that they did not misuse the facility under Chapter X procedure.
20. However the adjudicating authority has rejected by the aforesaid pleas on the alleged ground that it is apparent from the Panchnama that the appellant was not maintaining true account of the inputs received and the consumption thereof in the finished products. Since there was no mention of the variety and the type of the finished goods manufactured out of inputs in the RG -16 Register maintained by it and also the appellant could not produce any record internal or statutory before the Officers on the date of visit so as to ascertain the correct production, sale of finished goods etc., even after repeated reminders/summons. In the circumstances the Officers had no option but to visit the factory again on 16-8-1996 with the Chartered Engineer for ascertaining the inputs/components consumed in the finished goods manufactured by it under Chapter X procedure.
21. It is further observed from the impugned order that the adjudicating authority has arrived at the ratio between inputs and finished goods as shown in RG -16 Register and two tables namely Table A, Table B have been set out in the impugned order. Comparing the two tables the adjudicating authority had drawn a conclusion without considering the various pleas of the appellant and the evidence adduced, or undertaken to be adduced before him by the appellants.
22. Ld. Advocate Shri A.K. Jain for the appellants has submitted that the impugned order suffers from violation of principles of natural justice. No reasons have been given by the adjudicating authority for discarding the evidence adduced before him. Merely because the records were not available at the time of the first visit of the Officers to the factory, it did not mean that the records were not available. All those records were later on subsequently produced before the adjudicating authority but those have been totally ignored. The adjudicating authority, he submits, has come to his own predetermined conclusion without examining the pleas of the appellant and the evidence adduced by it. He therefore prays for setting aside the impugned order and allowing the appeal.
23. We have heard both sides and we have carefully considered the pleas advanced from both sides. We agree with the ld. Advocate Shri A.K. Jain that the appellants have taken a number of pleas based on documents. They also undertook to produce all the various sale invoices/and bills but the authority never directed the appellant to do so and get them examined. They produced the following evidence before the adjudicating authority :-
(a) details of Ball bearings used in the production of centrifugal water pumps/pumps with trolly from 1-12-1991 to 16-6-1993 which were purchased under Chapter X procedure.
(b) details of inputs purchased by them under Chapter X procedure and used in the manufacture of I.C. diesel engines during 1-12-1991 to 16-6-1993.
(c) charts showing details of items manufactured by them for the month of December, 1991 to June, 1993.
(d) internal audit report for the period December, 1991 to June, 1993 containing details of inputs used and the goods manufactured.
(e) pamphlets showing different models of I.C. Diesel engines and technical specifications of the engines manufactured by them. Manual book of Diesel engines.
(g) pamphlets indicating the technical specifications of the different types of pumps.
But the said authority has not taken into account any of those pleas. We find substantial force in the plea of the appellant that merely because certain types of diesel engines and water pumps were available on 16-8-1996 on the day of second visit of the concerned officers, it does not mean that the appellant had not produced other types of diesel engines and water pumps during the relevant period requiring consumption of more inputs than were found in those diesel engines and pumps on 16-8-1996. The adjudicating authority is duty bound to consider entire evidence produced by the appellant before it and come to a conclusion after taking that evidence into account. It is a different matter if the evidence is not found worthy of reliance by him. But he should do so only after making proper inquiries and come to a definite finding in that regard; otherwise he cannot discard that evidence.
24. In view of the foregoing we are of the view that the matter is fit for remand for re-adjudication in the light of the above observations and directions. Consequently, we set aside the impugned order and allow the appeal by remand for re-adjudication. It is further directed that the adjudicating Officer (concerned Commissioner) should complete the de novo proceedings and issue a fresh order within 3 months from date on receipt of this order, failing which pre-deposit made in pursuance of the Stay Order of the Tribunal would be refunded to the appellant. Bank guarantee should be discharged.
25. Operative part of the order, as aforesaid, was pronounced in the Court. Detailed order is now being issued.