ORDER
P.S. Bajaj, Member (J)
1. In these appeals filed by the appellants, common impugned order-in-appeal has been challenged vide which the Commissioner (Appeals) has confirmed five orders-in-original of Deputy Commissioner confirming the duty demand with equal amount of penalty and interest as detailed their against the appellants.
2. The issue in all the appeals relates to wrongful availment of Modvat credit on the input molasses, used in the manufacture of ethyl alcohol (exempted excisable goods) though meant for the manufacture of ethyl alcohol denatured (dutiable excisable product) during the period in dispute.
3. The learned Counsel has contended that since the appellants are engaged in the manufacture of both the products i.e. ethyl alcohol and ethyl alcohol denatured which are exempted as well as dutiable products and had been reversing the credit @ 8% of the value of its clearances of exempted product on account of the credit taken by them on the molasses used in that product, they were covered by the provisions of Rule 57AD. Therefore, no demand could be confirmed against the appellants.
4. On the other hand, the learned SDR has reiterated the correctness of the impugned order.
5. We have heard both the sides and gone through the record. The perusal of the record shows that the appellants are no doubt engaged in the manufacture of ethyl alcohol (exempted excisable goods) as well as ethyl alcohol denatured (dutiable excisable goods) and molasses is their common input for both the products. But it remains undisputed that during the period in dispute, the molasses as inputs were utilised for the manufacture of exempted excisable goods which were cleared at nil rate of duty and this fact was not disputed before the Commissioner (Appeals) by them. No doubt they had been reversing the amount (r) 8% of the value of clearances during that period under the belief that they were covered under the provisions of Rule 57AB of the Rules. But in our view, they were labelling under the mistaken belief that benefit of the provisions of this Rule was available to them during the period in dispute, as the exempted excisable products ethyl alcohol was also their one of their final products which attracted nil rate of duty and this rule places restrictions on the availability of Modvat credit on the inputs utilised in the manufacture of such a product. The rule clearly stipulates that when the inputs are used in or in relation to the manufacture of exempted products, the manufacturer shall maintain separate inventory and accounts of the receipt and use of the inputs for this purpose and shall not take credit of the duty paid on such inputs. The appellants did not maintain any separate inventory and accounts in respect of the molasses used in or in relation to the manufacture of the exempted product i.e. ethyl alcohol. Therefore, in our view, the Modvat credit had been rightly denied to them for the disputed period. We do not find any illegality in the impugned order in this regard and uphold the same.
6. Regarding the imposition of penalty, the contention of the learned Counsel that there was no mala fide intention on the part of the appellants and that they worked under the bonafide belief that they were entitled to the benefit of the provisions of Rule 57AD(2) of the Rules and as such, the penalty should be set aside, in our view deserves to be accepted. The appellants are holding licence for the manufacture of both exempted as well as dutiable products detailed above and the input (molasses) for both the products is common. The fact they had been reversing the credit amount @ 8% of the value of clearances of the exempted products, clearly shows that they were under the bonafide belief that they were protected by the provisions of Rule 57AD(2). The record also shows that they had even cleared the dutiable and excisable products (ethyl alcohol denatured) during the year 2000-2001 which was manufactured by them out of the duty paid molasses as inputs. Therefore, keeping in view the facts and circumstances of the case and the conduct of the appellants, in our view, the penalty imposed on the appellants deserves to be set aside.
7. In view of the discussion made above, the impugned order is accordingly modified as the same is upheld regarding confirmation of duty, but is set aside in respect of imposition of penalty, on the appellants. The appeal of the appellants accordingly stands disposed of.