ORDER
Moheb Ali M., Member (T)
1. These appeals arose out of the order of Commissioner of Central Excise Mumbai. In the impugned order the Commissioner disallowed credit of Rs. 20,07,486/- availed by the appellant under Rule 57-I, confirmed demand for Rs. 5,66,872/- under proviso to Section 11A, confirmed demand amounting to Rs. 1,74,724/- under Rule 57I (2) of the Central Excise Rules, 1944 demanded under three show cause notices, imposed penalties under Section 11AC, Rule 57I, Rule 173Q and Rule 209A of the Central Excise Rules. The Commissioner thus disposed of three show cause notices by a common order; Hence these appeals.
2. The facts are that the appellant M/s. Kirit Plastic Industries has availed of modvat credit on plastic granules and sent them by following procedure under Rule 57F(3)/57F(4) to M/s. Polyfab Plastic Industries for getting them converted into Lay Flat Tubes. The appellant contends that he received back LFTs from the job worker. The appellant thereupon subjected the Lay Flat Tubes to cutting and sealing before clearance to their suppliers on payment of duty under regular Central Excise invoices. The show cause notice alleges that the lay flat tubes manufactured out of the inputs sent by the appellants were not received and were disposed of out and out to the customers of the appellant although the appellant paid duty thereon. The further allegation is that M/s. KPI, the appellant is not entitled to SSI exemption under Notification No. 1/93 when the value of clearances of M/s. Polyfab Plastic Industries are clubbed with the ones of M/s. KPI. The third allegation is that M/s. KPI are liable to pay an amount equal to credit of modvat availed on the inputs that were found short. Extended period of limitation has been invoked in this case.
3. Heard both sides.
4. In so far as the first allegation is concerned the department’s contention that lay flat tubes have been cleared from the job workers premises directly is based on the finding that there is no manufacturing activity in M/s. KPI’s The department’s hold that M/s. KPI is merely acquiring duty paid plastic granules, is taking of modvat credit on them, sending them to the job workers premises and clearing the same from the job workers premises without ever receiving back the intermediate goods. The appellants’ contention however, is that he has been registered SSI unit and has been paying duty on the plastic bags manufactured out of the lay flat tubes received from the job worker and clearing them regularly by properly accounting for them. It is argued on behalf of the appellant that the department has been accepting the duty paid on the plastic bags made out of Lay Flat Tubes and therefore cannot contend that cutting and sealing of lay flat tub does not amount to manufacture. It is argued that once goods are manufactured and duty is paid on the final product the appellant is entitled to take credit on the inputs. In regard to the second allegation that the clearances made by the job worker namely M/s. Polyfab Plastic Industries should be clubbed along with the clearances of M/s. KPI, the appellant, it is argued that in view of explanation -II to Notification No. 1/93, the value of clearances made from M/s. Polyfab Plastic Industries cleared under Notification No. 8/96 dt. 23.7.96 cannot be added to the value of clearances made by that unit. Thus if the value of goods cleared at nil rate of duty were excluded from the total value of clearances of M/s. Polyfab Plastic Industries and the balance is added to the value of clearances of M/s. KPI, the appellant would still be entitled for exemption under Notification No. 1/93. In regard to the shortages, it is argued, that the allegation is built on surmises. The Commissioner held that the appellant manufactured a certain number of plastic bags in a given period. He then calculated the quantity of input that is required to manufacture the said bags. He then held that since the appellants have manufactured a certain quantity they would have got inputs of a certain weight. Since the quantity of inputs as arrived at by the Commissioner was not accounted for, he held that there was a shortage of inputs on which credit had been taken. It is argued that the quantity of inputs supposed to have been received by the appellants calculated on such a formula ignores the fact that there could be processing losses etc. It is also argued that to allege shortage of inputs any calculation based on a formula, which is neither authentic nor true, is permissible.
5. We have considered the various submissions. The contention that the intermediate product lay flat tubes have not been received back to the appellant’s factory is mainly based on two assumptions. Firstly, there is no machinery in the appellants factory and secondly the premises give an impression of disuse for number of months. It appears that one of the persons admitted that no manufacturing activity goes in M/s. KPI’s premises. We observe that M/s. KPI have been cutting and sealing the lay flat tubes received from the job workers before clearance on payment of duty. The department agrees that such an activity amounts to manufacture. When they accept duty from the appellant. To undertake an activity of cutting and sealing no big machinery is required. In any case M/s. KPI have been paying duty on the finished product i.e. plastic bags and had been duly accounting for the tubes received and the bags cleared. Evidence suggest that the intermediate goods were indeed received into the appellants’ factory. We have carefully gone through the reasoning given by the Commissioner for clubbing the value of clearances of M/s. KPI and M/s. Polyfab Plastic Industries. Whatever are the merits of the contentions raised by the Commissioner in regard to clubbing, we observe that the Commissioner has failed to give allowance to the value of the goods cleared under nil rate of duty under notification No. 8/96 by M/s. Polyfab Plastic Industries as required to notification No. 1/93. If such an allowance is given then even after clubbing the value of balance goods produced by M/s. Polyfab Plastic Industries to the value of clearances made by M/s. KPI the latter would still be within the SSI limits Demand on this ground does not survive. We observe that the Commissioner has found shortages of inputs on which modvat credit had been taken purely by a mathematical calculation. His finding that to make a plastic bag one needs granules of a particular weight is not based on any expert opinion. He has also failed to give allowance to the fact that there can be processing and other losses when goods are manufactured. No other evidence except the contention of the Commissioner that a manufacturer needs so much input to make an unit of final product exists in this case. The finding of the Commissioner that there was a shortage of inputs calculated in this manner has to be rejected for lack of evidence. In regard to the penalties imposed under various Sections/Rules of the Central Excise Act and Rules, we observe that since the main demand and reversal of credit itself is set aside the penalties do not survive.
6. The appeals are allowed and the order of the Commissioner is set aside.
(Operative part pronounced in Court)