Gowri Shankar, Member (T)
1. In the order impugned in this appeal, the Collector has confirmed the notice dated 4-2-1994 issued to the appellant demanding duty on the scrap obtained in the manufacture of ball and roller bearings, during the period from January, 1989 to January, 1992. The appellant sent out to job workers the rough forgings made by it to grind and otherwise finish them, in order to obtain the inner and outer rings (or races, as they are more correctly referred) of the bearings finished to the degree of precision required. In the course of this process, some amount of waste results, part of which is irrecoverable, being in the form of very fine particles that are blown away, the remaining being in the form of turnings and shavings. The latter was required, either to be cleared by the job worker on payment of duty, or to be returned to the appellant. The job worker did neither of these, but removed the scrap without paying duty.
2. Some time in 1989, the department asked the appellant to give details of the amount of scrap generated. The appellant in its letter of 12-3-1989 wrote to the jurisdictional Superintendent saying that, despite the difficulties encountered, it had ascertained the weight of the scrap generated during the operations by the job workers to be approximately 10% of the weight of the turned rings. This letter, as well as another letter written, emphasised that the percentage was approximate. Notices were issued in February, 1991 to the appellant demanding duty on scrap which arose between 1 March, 1986 and 31 June, 1989, and proposing penalty for failure to pay the duty. These notices calculated the amount of scrap on which duty was demanded by applying the figure of 10% furnished by the appellant. The adjudicating authority confirmed the demand for duty and also imposed a penalty on the appellant. Subsequently, the department carried out some verification on its own in 1992 and, in consequence, took the view that the scrap generated was 42% to 50% of the material supplied to the job worker, finally settling on 40%. Notices were issued demanding duty on the scrap arising between February, 1992 and August, 1993, reckoned to be 40% of the unfinished rings. Each of these notices was for a period not exceeding six months. The adjudicating authority confirmed the proposal in the notices.
3. Next was issued a notice, dated 4-2-1994, referred to in the first paragraph above. This notice alleged suppression of the fact that the percentage of the recoverable scrap was 40. The Collector has confirmed the duty demanded in the notice and imposed a penalty on the appellant.
4. It will be evident from the above narration that there was at no time a clear determination by anybody of the extent of scrap generated. The appellant, in its letter of 12-3-1989, had referred to the approximate figure of 10%, which was accepted and acted upon by the department. It was also urged by the advocate for the appellant, and not rebutted by the departmental representative, that it was only during the proceedings before the Collector on the notice dated 4-2-1994 that the appellant was, by letter 19-12-1994 communicated a copy of the report of the officers who conducted the verification. This report, as a matter of fact, indicates that only 50% of the material sent by the appellant is returned to it from the job worker, and out of the 50% lost in the job workers’ hand, 25% is visible and remaining invisible. The contention of the appellant that if this note is relied upon, duty should not be demanded, as it would then be required to account for only 50% of the material sent by it to the job worker and duty should be limited to 25% of the visible scrap, appears to us to be sound. The Collector has in fact not gone by this report. He relies on 40.21% loss determined by the department. The basis for this determination has never been made known to the assessee. The only document that the department relies upon is the report, which shows the total loss to be 50%, half of each being recoverable and irrecoverable. On merits, therefore, it is not possible to say with any degree of reasonableness that the waste is 40%.
5. The appellant, in our judgment has also a case on limitation. It was open to the department – indeed, required of it – while granting the permission under Rule 57F(2), to determine the percentage of waste that would arise, and insist on being disposed of according to the rules. Instead, the department has chosen to direct the appellant to perform this function, and in addition, accepted for three years the figures that the appellant gave, including for part of period covered by the notice presently under consideration. It cannot then turn around and accuse the appellant of suppression of facts. We are, in point of fact, unable to see what great difficulty lay in ascertaining the amount of scrap. All that was required to be done was to weigh representative samples of the unfinished rings sent to the job worker, the finished rings obtained therefrom, and the scrap actually obtained. Why the department, instead of determining the percentage, chose to ask the appellant to determine and accept it blindly is beyond our understanding. Whatever be the reasons for this, having done so, we are of the view that the extended period of limitation cannot be invoked by accusing the appellant of suppression, more particularly when the department itself is unsure about the scrap generated relative to the material sent to the job worker.
6. For these reasons, we are unable to support the impugned order and set it aside by allowing the appeal. Consequential relief, according to law.