ORDER
K. Sankararaman, Member (T)
1. The appeal is directed against the Order-in-Original No. 158/93 passed by the Collector of Central Excise, JAIPUR demanding Central Excise duty of Rs. 17,635/- and imposing penalty of Rs. 15,000/- on the appellant on the charge of manufacture and clearance of cement without payment of appropriate duty leviable thereon.
2. Shri Pankaj Malik, learned Chartered Accountant submitted that appellant was procuring non-duty paid clinker from manufacturers thereof under Chapter X Procedure and clearing the cement manufactured therefrom by grinding the same along with gypsum. In addition appellant was producing clinker in their own factory, the cement manufactured from which was being cleared on payment of the appropriate concessional duty leviable in terms of Notification No. 154/90. The duty leviable on cement manufactured from clinker procured from outside was Rs. 215/- PMT. Clearances were made by the appellant after the relevant date i.e. 28-1-1991 at the aforesaid rate of duty after the value of clearances from the appellant’s factory had crossed Rs. 75 lakhs. Prior to that event, appellant was availing of the benefit of small scale unit exemption available under Notification No. 175/86. Officers of Central Excise Department visited the appellant’s factory on 17-3-1991 and conducted stock checking which revealed a shortage of 182.954 M.T. of the clinker procured from outside. It was held by the Collector in the impugned order that the quantity of clinker found short had been used in the manufacture of cement which had not been accounted for in the statutory records maintained by the appellant and that the same had been cleared without payment of duty. Appellant had admitted the shortage of clinker detected by the officers but claimed that the same had been used in the appellant’s factory for manufacture of cement and that the workers had, by mistake, used the said procured clinker instead of using clinker produced in appellant’s factory. Admitting the short payment of duty representing the difference between Rs. 215/- PMT leviable on cement manufactured with clinker procured from outside and Rs. 90/- PMT leviable on cement made from clinker produced by themselves, sum of Rs. 24,492.95 had been deposited by the appellant. Taking into account this amount, the Collector had demanded the differential amount of Rs. 17,635/- and imposed penalty of Rs. 15,000/. It was contended by the learned Consultant that the Collector had erred in holding that appellant had not raised the plea of use of clinker procured from outside along with their own production of clinker before the Investigating Officers and that the plea raised in this regard by them was an after-thought. This is contested by pointing out that even in the original statement recorded on 17-3-1991 the Managing Director had stated that the clinker received from outside and which was found short had been used in the manufacture of cement and that they had paid duty on such cement though such payment was of a lesser amount than what was correctly payable.
3. Resisting the arguments advanced in support of the appeal, Shri M. Ali, JDR stated that the relevant provisions in Chapter X required separate accounting of the material received under that Procedure. The charge against the appellant which has been sustained in the impugned order is that the clinker received from outside which was found short had been used by the appellant in the manufacture of cement over and above the quantity of clinker of their own production which had been accounted for in the production figures. The records maintained by the appellant had shown that during the relevant period appellant had not received clinker from outside and the entire production of cement was from clinker from their own manufacture on which they had paid the correct rate of duty. The cement made from clinker received from outside which was found short had been manufactured and cleared without payment of any duty and that is why the Collector had demanded duty on the said quantity of cement relatable to clinker obtained from outside. Accordingly, he supported the impugned order.
4. We have taken note of the arguments advanced by both sides. The relevant provisions of Chapter X have been gone through by us. While, no doubt, Rule 194 provides for the separate storage and accounting of the material received under the Chapter X Procedure, the processing thereof in the manufacturing process does not, however, require segregation of the material so procured and other materials produced in the factory of the manufacturer in the manufacturing process. In any case, if the appellant has mixed such quantities contrary to any statutory stipulation, that will be an offence attracting appropriate penal consequences but it cannot lead to the inference that the procured material has been issued in the manufacture of cement which had been clandestinely removed. The Managing Director of the appellant had taken the stand at the earliest point of time that the clinker received from outside was taken for use by their labourers in the manufacture of cement and that the same had been treated, wrongly, as their own clinker for the purpose of discharging duty liability. He had admitted this mistake on their part and had deposited the difference in duty between the rates of duty leviable on the two varieties of cement, namely, one made from own production of clinker and the other from bought out clinker. The argument advanced that during the relevant period appellant had not received any clinker from outside and therefore, the entire production of cement in that period has to be treated as having been manufactured from their own production of clinker and the missing quantity of clinker procured from outside had been used for manufacture of their quantity of cement not accounted for by them cannot be accepted since in the matter of production of cement and procurement of clinker there can be time gap. In the circumstances, we are inclined to give the benefit of doubt to the appellant for accepting the plea that the shortage of procured clinker was on account of the use of the same in the manufacture of cement which was accounted for by them but wrongly discharging a lower duty liability. We, accordingly, set aside that part of the order of the Collector demanding the differential duty after taking into account the amount of differential duty deposited by them. As regards the penalty we find that the differential duty involved is about Rs. 24,000/-. But for the visit of the officers and the detection of shortage of clinker, the short payment of duty may not have come to light. The payment of the differential duty by the appellant is a case of virtue out of necessity. In the facts and circumstances of the case and the fact that the differential duty involved was Rs. 24,000/-, we find that the penalty of Rs. 15,000/- cannot be said to be disproportionate or excessive. We accordingly decline to interfere with this finding. The impugned order is, however, set aside on the question of duty demanded. The appeal is accordingly partly allowed in respect of the duty demanded.