ORDER
S. Kalyanam, Member (J)
1. This appeal is against the order of the Addl. Collector of Central Excise, Kochi. The learned lower authority has held that the appellants have clandestinely manufactured and removed tread rubber and has demanded duty of Rs. 1,07,040.07 and has levied penalty of Rs. 7,000/- on the appellants. The quantum of tread rubber held to have been manufactured and clandestinely removed has been worked out on the basis of shortage of reclaimed rubber which is used as one of the raw materials. Statements were recorded from the employees of the appellants and the ratio in which various raw materials were used for producing one batch of tread rubber was also ascertained and taking the percentage of the reclaimed rubber used, the quantification in respect of tread rubber held to have been manufactured and removed had been worked out.
2. The learned Consultant for the appellants pleaded that he is not disputing the fact that there was shortage of reclaimed rubber noticed when the authorities paid surprise visit to the factory. He pleaded that the lower authority merely on speculation came to the conclusion that reclaimed rubber found short was in fact used for manufacture of tread rubber and proceeded to penalise the appellants. He pleaded that no evidence has been produced in regard to the actual production or clandestine removal of the excess tread rubber alleged to have been manufactured and cleared from the factory. He pleaded that the lower authority has merely relied upon the element of shortage without examining the other parameters relevant to the production of tread rubber. He pleaded that the Tribunal in the following cases have held that in a situation like this clandestine manufacture and removal could not be taken to have been established : –
(i) Ebenezer Rubbers Ltd. v. CCE, Ahmedabad reported in 1986 (26) E.L.T. 997. Spl. Bench, New Delhi.
(ii) Premier Packaging Pvt. Ltd. v. CCE, New Delhi – reported in 1986 (26) E.L.T. 333 – NRB, New Delhi.
(iii) Order No. 521/1988 dated 6-10-1988 in the case of Simplex Rubber Industries v. CCE, Cochin – SRB, Madras.
He also referred to the judgment of the Kerala High Court in the case of George Varghese v. CCE reported in 1992 (60) E.L.T. 361. He pleaded that the High Court has clearly held that without taking into consideration the other parameters like installed capacity of the factory, labour employed, power consumption, various raw materials used the quantum regarding clandestine removal based on shortage of one material cannot be taken to be established. He pleaded that the appellants have given explanation for the shortage and the Department has made enquiries in this regard. Out of a lot of 1500 Kgs of reclaimed rubber about 1000 Kgs were returned to the supplier of the rubber as the same was not of desired quality and he pleaded that the supplier had also confirmed the same. He pleaded that in view of this, in the absence of any other corroborative evidence on record, manufacture and clandestine removal could not be established and the lower authority was in error in penalising the appellants.
3. The learned DR reiterated the finding of the lower authority in his order.
4. We observe that in the present case on check of the raw material in the appellants’ factory certain discrepancies were found on physical verification of the raw material from the recorded balance in the raw material accounts and since the discrepancies in regard to reclaimed rubber were there, the authorities proceeded to investigate as to the reasons for the shortage. Statements were recorded from the appellants’ employees who stated that raw materials brought in were used in the manufacture of the goods and there was no occasion where the goods were sent out of the factory for any purpose. Shri V.K. Thampy, the proprietor in his statement recorded on 26-9-1988 mentioned that some raw rubber which was found defective had been sent back to the supplier viz. M/s. United Trading Agency, on 21-9-1988. The learned lower authority in this regard has observed as under in para 5 of the impugned order:
“From the above facts and circumstances and the statements given by all the concerned persons, it is clear that there was a confirmed shortage of 1119.50 Kgs. of reclaimed rubber for which none of them had any plausible explanation. All of them on the other hand, confirmed the shortage and also agreed that the raw material was never sold or exchanged and all the raw materials were utilised in the manufacture of tread rubber only. Retractions for the first time, however, came from Shri Thampy when he sent a petition on 26-9-1988 in which significantly enough he never questioned or challenged the correctness of the statement given by him on the same date, but gave the following explanation for the shortage of reclaimed rubber”.
On going through the records we find that Shri V.K. Thampy has given only one statement in a question & answer form on 26-9-1988 and he has answered the questions as were put to him. There is no specific query asked regarding shortage noticed and the reasons therefor. There is however a letter dated 26-9-1988 addressed to the Supdt. Headquarters Preventive, Cochin by Shri Thampy wherein he has taken a plea that out of the lot of 1500 Kg reclaimed rubber which was bought from M/s. United Trading Agency, Ernakulam, 1000 Kgs were returned on 21-9-1988 for exchange and the return of the rubber had been acknowledged by M/s. United Trading Agency and the said exchanged material were yet to be received and the shortage had been attributed to this return. Appellant’s statement in the question answer form dated 26-9-1988 is to the effect that the raw materials were never sold or sent out for the manufacture and for any other reason and it cannot be said to mean that the appellant had stated that he had not sent reclaimed rubber out for replacement. The supplier of the reclaimed rubber to whom it was returned has also confirmed about the receipt of the rubber and the Departmental Officers asked the Manager of the supplier Co. viz. M/s. United Trading Agency probing questions as to the records of their supply of reclaimed rubber to the appellant and return of reclaimed rubber as replacement and what they ultimately did to the returned reclaimed rubber. The authorities also found that the rubber received had not been entered into the accounts as Shri Reji Mathew, Manager of the United Trading Agency stated that the said 1000 Kgs which were returned were sold to other parties. While every thing does not appear to be in order in regard to return of the reclaimed rubber, the fact remains that there was no conclusive evidence also to show that reclaimed rubber was in fact used by the appellant to produce tread rubber and no investigation has been done in regard to the use of other materials to ascertain whether the quantum of other raw materials used could be such as to result in additional production of tread rubber by using the alleged short quantity of 1000 Kgs of reclaimed rubber. No evidence regarding clandestine removal of tread rubber has also been produced. Other parameters such as electric power consumed and other raw materials used for production of excess tread rubber are also not there. The appellant has relied upon the judgment of the Tribunal and also of the High Court of Kerala in the case of George Varghese v. CCE – reported in 1992 (60) E.L.T. 361 (Ker.) in support of his plea that based on the evidence of shortage of one raw material, clandestine manufacture and removal of tread rubber cannot be taken to be established. As mentioned above, in the absence of any conclusive evidence, and in the facts and circumstances of the case, benefit of doubt has to be given to the appellant. We, therefore, allow the appeal of the appellant with consequential relief.