ORDER
Jyoti Balasundaram, Member (J)
1. This appeal arises from the order of the Collector (Appeals) confirming the order of the Assistant Collector demanding duty of Rs. 7,60,821.84 on 483.8469 metric tonnes of printing and writing paper made out of bagasse during the period from 15-9-1985 to 14-3-1986 and cleared by wrongly availing the benefit of exemption under Notification No. 191/80 dated 8-12-1980.
2. The appellants are the manufacturers of a wide variety of paper including printing and writing paper containing not less than 75% by weight of pulp made from bagasse. They had been availing of the benefit of Notification 191/80 under which printing and writing paper falling under TI 17(1) of the erstwhile first Schedule to the Central Excises & Salt Act, 1944 containing not less than 75% by weight of pulp made from bagasse was exempt from the whole of the duty of excise leviable thereon. The appellants had filed classification lists for this purpose which were approved on 23-8-1984. A show cause notice dated 18-9-1985 demanding duty on the paper on the basis that verification of the log book and machine production registers indicated that in some of the shifts the percentage of bagasse pulp was less than 75% was dropped by order dated 30-4-1986 of the Assistant Collector. Subsequently a show cause notice was issued on 15-8-1986 proposing levy of duty on 483.8469 metric tonnes of paper produced during the period from 15-9-1985 to 14-3-1986 without extending the benefit of the above Notification, on the basis of a calculation which is as follows:
"i) Consistency of wood pulp x 25 = Weight of the wood pulp mixed ---------------------------------- 100 ii) Consistency of bagasse pulp x 75 = Weight of bagasse pulp mixed ---------------------------------- 100 Total pulp mixed in the flow box = Weight of wood pulp + weight of bagasse pulp Percentage of ratio of wood pulp mixed = Weight of wood pulp x 100 -------------------------- Total pulp mixed. Percentage of ratio of bagasse pulp mixed = Weight of bagasse pulp + 100 ----------------------------- Total pulp mixed"" The other allegation in the show cause notice was that the appellants had not maintained certain registers as required under Trade Notice 145/84 dated 21-9-1984. 3. The appellants replied to the show cause notice contending inter alia as follows : (a) They had maintained statutory records such as log books containing all the details required to be entered in the form prescribed in the Trade Notice. (b) The formula adopted by the Department is incorrect as it takes into account only the consistency of the bagasse pulp and wood pulp used whereas the flow rate is more relevant. (c) The flow itself was maintained at 77% of bagasse and 23% of wood pulp to ensure that ultimately the ratio between the two was not less than 75: 25.
The Assistant Collector by order dated 30-6-1986 confirmed the demand disallowing the benefit of the exemption notification. The lower appellate authority having upheld the order of the adjudicating authority, the appellants have preferred this appeal before us.
4. The period of demand is from 15-9-1985 to 14-3-1986 and even during this period the benefit has been given except for certain number of hours for some days. It is significant to note that there has been no demand either for the prior or subsequent period and that no penalty has been imposed! The learned Counsel refers to the Trade Notice dated 21-9-1984 wherein the procedure for availing of concession under Notification 191/80 has been prescribed. The relevant paragraphs of the Trade Notice are para 1, which says that the manufacturers of paper who intend to avail of the concession should inform the Department of their intention to avail of the concession stating inter alia the details/ratio of the various materials to be used by them for making pulp, para 4 – mixing register in Form A, para 6 – Register of test of consistency in Form B and para 8 which stipulates that if the accounts presently maintained by the manufacturer contain all the information as stipulated in the accounts prescribed herein, such accounts would be accepted in lieu of Form A & B Registers. He relies upon letters from the Assistant Collector dated 13-7-1984 and 23-8-1984. In the letter of 13-7-1984 the Department has, after verification of the process of the manufacture of the paper of the particular variety has permitted ascertainment of total quantity of bagasse pulp at the end of the day, on the ground that the two verticle chests i.e. tanks containing bagasse pulp are calibrated and, therefore, the quantity discharged each time could be noted and total quantity passed on to the two chests can be ascertained. The provisional assessments were finally assessed on 23-8-1984. In this view of the matter the learned Counsel submits that the Department has acquiesced in the maintenance of records by the appellants in the same manner in which they were being maintained prior to the issue of the Trade Notice. Therefore, non-observance of the procedure set out in the Trade Notice viz. non-maintenance of Form A & B Registers cannot be held against the appellants.
5. Regarding the discrepancies in the appellants’ own records the argument is that the valves are adjusted admittedly in 78 : 22 ratio and not 75 : 25 as wrongly prescribed by the, Department. Regarding wood pulp there is time synchronising inasmuch as the reading is taken every two hours. Regarding bagasse pulp the reading is taken as and when the tank is empty and full. The Department has taken intermediate reading in the account for bagasse pulp and the average of both tanks has been worked out which is not the correct method of working out the percentage of bagasse in the paper. The log books-maintained show that the valves were sealed in the ratio of 77 : 23 taking the overall picture. He submits that the demand is to be set aside and in support of his contention he cites the decision of the Hon’ble Supreme Court in the case of Oudh Sugar Mills v. Union of India -1978 (2) ELT J 172.
6. The DR’s reply is as follows :
(i) The exemption notification has to be strictly construed and the burden is upon the assessee to prove eligibility for exemption.
(ii) Letters dated 13-7-1984 and 23-8-1984 are prior to the issue of the Trade Notice in question.
(iii) The case of the Department does not rest only on the allegation that the records prescribed in the Trade Notice have not been maintained.
(iv) The appellants’ own records show that paper contains less than 75% bagasse.
(v) The method of recording the reading every two hours adopted by the Department is a practical and correct one and there is no need to go by the recording at the end of the day.
(vi) The sealing of the valves at 78: 22 is not proved.
7. After the conclusion of the hearing the appellants upon the directions of the Bench filed the following documents :
(i) Illustrative copies of log book for the period September 1985 showing consistency of Bagasse pulp.
(ii) Illustrative copies/extracts from bagasse and wood pulp consistency register for the above-said dates showing consistency of bagasse pulp and wood pulp.
(iii) Illustrative copies/page from log book for 14-1-1986 & 17-1-1986 showing sealing of the valves by Central Excise Officers for bagasse and wood pulp in the ratio of 78: 22.
(iv) Illustrative pages establishing mixing ratio as 79: 95 : 20.5.
(v) Flow chart
8. Log books in question have been maintained as per the directive and with the concurrence of the Assistant Collector and other Central Excise Authorities. Maintenance of these documents was totally with their knowledge as is evident from the fact that these log books have been signed on a daily basis after checking factual position.
Monthly returns in Form C were also regularly filed with Central Excise Authorities.
There is no demand/objection from the Department either for the period prior to the period covered by the present show cause notice or for the period subsequent thereto.
One paper-making machine is exclusively assigned for making paper out of bagasse pulp and wood pulp. The flow-chart shows that the two tanks for bagasse pulp for feeding this machine through the blending chest are of identical capacity (i.e.) 45 cubic meters. When any one tank is completely empty, it is refilled to the brim and consistency of the same at the time of filling up of the tank is noted in the log book. Time is also noted accordingly. Thus in the log books, separate columns are found mentioning consistency of tank 1 and tank 2, together with the time of recording consistency. Consistency is recorded as and when the tank is filled.
Wood pulp line is common for the four machines. There is however a separate pipeline for carrying pulp to the blending chest connected to the paper machine in question. Wood pulp flow is a continuous operation unlike that of bagasse. Consistency of wood pulp is noted at regular intervals of two hours in the log book.
It is significant to note that time of recording consistency of the wood pulp and bagasse pulp is not the same.
From the log book the company works out exact consumption of bagasse pulp for the entire day. After making necessary adjustments for opening balance and closing balance, that day’s consumption of bagasse is arrived at. The machine production is taken at actuals for that day. Thereafter the percentage of bagasse pulp content is arrived at. Whenever percentage is more than 75 exemption is availed. These calculations are checked and approved on a daily basis by the officer posted in factory.
The pipelines carrying bagasse pulp and the wood pulp are fitted with valves to control the flow of the pulp fed to the blending chest where mixing of pulp takes place. The valves are sealed by the Central Excise officers posted to the factory as is evident from the illustrative photo-copy of log books.
The authorities have calculated the demand inter alia on the following assumptions in the present case :
(i) The assumption of the Department is that flow of bagasse pulp and wood pulp is in the ratio of 75 : 25, this is unwarranted and is not based on any evidence.
(ii) Log books record consistency of two tanks of bagasse taken at different points of time separately and the Department has averaged these two consistencies while working out the demand in the present case.
(iii) To explain the next assumption of the Department, reference may be made to example of 18-09-1985 as can be seen from the entry of 18-9-1985. However, the bagasse log book records consistency at 20.15 hours and 22 hours of the two tanks as 3.5 and 3.2 respectively. The wood pulp log book records consistency as 3.6 at 20 hours and as 3.0 at 22 hours. The Department has assumed that 3.6 has been consistency of wood pulp during the entire two hours from 20 to 22 hours. Consistency has been assumed at the beginning of the time as consistency throughout the two hours as far as wood pulp is concerned. There is no basis for this assumption.
(iv) In addition, wood pulp consistency has been recorded at 20 hours, bagasse pulp consistency recorded at one tank at 20.15 hours and for the other at 22 hours. Consistency recorded at different time are being considered together to work out the demand erroneously.
(v) The company has been making adjustments in the log book for opening balance and closing balance of bagasse pulp to arrive at the actual bagasse consumption in a day and these calculations have been duly verified and certified by the authorities themselves on a day-to-day basis. However, in the present calculations adopted by the Department in the impugned order, no adjustments whatsoever have been made for the opening balance and closing balance for the period of time considered by them.
(vi) It is not correct for the Department to hold that sealing of the valve and 78 and 22 is averaging for the entire day as there is no averaging involved. In fact it represents sealing of the valve to the blending chest of the two sources of pulp. The log book records show that the sealing has been done by the Central Excise Officers.
9. From the above discussion, it is seen that the calculations of the Department are based on assumptions without a reasonable basis, and, therefore, the demand is liable to be set aside.
10. We, therefore, set aside the impugned order and allow the appeal with consequential relief, if any, due to the appellants.