1. In all these appeals, common issue involved is whether Modvat Credit of the duty paid on PVC Resin is available to them.
2.1 Shri K.L. Rekhi, learned Consultant, submitted in respect of Appeal filed by M/s. Sanco Plastic Pvt. Ltd.; Appellant No. 1, that they are manufacturing PVC compound for various types of wires and for other applications; that the proportion of PVC Resin and other chemicals is different for different formulations and varies from 60 to 85 per cent; that the Central Excise Officers drew samples of the PVC Compound on 4.2.99 and as per the Test Report of the Shriram Institute for Industrial Research the percentage of PVC Resin was found to be 42.60 per cent; that, however, the Central Revenue Control Laboratory on testing the sample found the percentage of PVC Resin to be 43.9 per cent; that another sample was drawn on 17.1.2000 and as per Test Report of CRCL, the percentage of PVC resin was found to be 52.5%; that a show cause notice dated 12.4.2001 was issued to them for disallowing the Credit alleging that they had shown excessive use of suspension grade of PVC Resin that what was actually required; that the Commissioner has confirmed the demand and imposed penalties.
2.2 The learned Consultant, further, submitted that the entire demand is based on conjectures and surmises as the same has been raised on the ground that only 55% PVC resin should have been used by them for manufacturing PVC Compound; that no evidence has been led by the Revenue to show that actually only 55% PVC resin was used and the remaining quantity was removed as such; that in the absence of evidence of removal of PVC resin as such, the demand of duty is not sustainable.
He also emphasized that each time, the test reports showed different percentage of PVC resin as 76.3% & 43.9% and accordingly no reliance can be placed on these reports; that moreover the test report of CRCL cannot be relied upon as the sample was drawn on 17.1.2000 for which period demand has not been raised. He also referred to the minutes of the meeting of the PVC Compound manufacturers with the Department of Telecommunications which shows the percentage of PVC resin as 70% plus/minus 5%. He also contended that the extended period of limitation is not invocable since they have been regularly filing the RT-12 Return with extracts of RG1 and RG23A registers together with modvatable invoices; that the figures of production of PVC compound and utilization of PVC resin were always available with the Revenue. He also emphasized that no input output ratio has been prescribed by the Department. Reliance has been placed on the decision in the case of Oudh Sugar Mills Ltd. v. UOI, 1978 ELT (J172) (SO wherein the Supreme Court did not uphold the demand of duty as the findings were based on the show cause notice which was without any tangible evidence and were based only on inferences involving unwarranted assumptions.
3. Arguing the matters on behalf of M/s. Tayaji & Sons Pvt. Ltd., Shri K.L. Rekhi submitted that no sample of the PVC compound manufactured by them was taken and tested; that extended period of limitation is not invocable and demand is time barred as the show cause notice has been issued on 24.3.2000 for demanding duty for the period 1995-96 to 1998-99; that Tayaji & Sons were filing RT 12 returns regularly.
4. Another argument given by the learned Consultant in respect of the Appellants represented by him is that no reliance can be placed on the literature of various companies and the opinion expressed by the Directors/Managers of these companies as technical qualifications of these persons have not been spelt out. These are big companies having massive plants which are fully automated. The machinery purchased by the Appellants is cheap one and being new units, only set up in 1996, their consumption of PVC resin initially was high due to lack of experience. With the subsequent years the consumption of PVC has come down. Further, their request to cross-examine Shri Mahesh Kumar, Deputy General Manager of M/s Shriram Vinyl & Chemical Industries had not been allowed. Finally he has submitted that even as per the technical literature and the opinion of various persons, the percentage of resin varies between 40% to 70%; that the demand of duty has been calculated on the presumption that the percentage of resin in PVC compound is 55% only; that if at all the demand of duty can be made, it should have been calculated by taking the percentage of PVC resin as 70 per cent.
5.1 Shri K.K. Anand, learned Advocate, on behalf of M/s. M.C.I.(India), M/s. Shree Amar Chemicals and M/s. Vikas Industries, besides adopting the submissions made by Shri K.L. Rekhi, learned Consultant, mentioned that the allegations made by the Revenue are that emulsion grade PVC resin cannot be used in the manufacture of PVC compound meant for insulated wire and cables and that they have shown excess consumption of suspension grade PVC resin. He submitted that it has been held by the Tribunal in the case of Phosphate Co. Ltd, v. CCE, Calcutta II, 1995 (80) ELT 579 (T) that the demand entirely based on the assumption and inferences drawn on the basis of excess consumption in the absence of evidence as to clandestine removal is not sustainable; that Shri M.R. Sablok, General Manager, Sar Polymers Pvt.
Ltd. has opined that both PVC suspension Grade and PVC Emulsion grade have identical composition and both materials are used after compounding with heat, light stabilisers, DOP, DBP, Plasticizers and various fillers and that in Cable Compounding PVC Emulsion grade can also be mixed with suspension grade for wire and cable application. The learned Advocate also referred to Test certificate given by the Department of Industries, Haryana Govt. Quality Marking Centre For Electrical Goods wherein it is mentioned that sheet of PVC compound granules made by mixing of Emul Paste and suspension grade PVC Resin has been tested as per ISI specification No. 13176-1991 for Tensile Strength, Elongation, Hardness, Specific Gravity and Volume Resistivity and results satisfied the requirements. The learned Advocate, further, mentioned that enquiry made from Shri Prag Jain of Wardhman Cables showed that 70 percent of PVC resin can be used in the manufacture of PVC compound; that Shri Parasaran Bhutarial, Director of M/s. Welcold Industries has mentioned that up to 80% of PVC resin could be used in the manufacturing of PVC compound.
5,2 Finally the learned Advocate contended that demand is time barred as intent to evade payment of duty has not been proved as the credit of duty was utilized by them towards payment of duty on clearances of their finished goods, PVC compound, under invoices issued under Rule 52A of the Central Excise Rules, 1944. He relied upon the decision in Godrej Foods Ltd. v. UOI, 1993 (44) ECC220 (MP): 1993 (68) ELT 28 (MP) wherein the Madhya Pradesh High Court has held that a mere mechanical repetition of language of Proviso to Section 11A(1) of the Central Excise Act would not confer jurisdiction on Collector to invoke extended period of limitation until the suppression without intent to evade duty has been proved. Reliance has also been placed on the decision in the case of Batliboi and Company Ltd. v. CCE, Surat, 2000 (68) ECC 422 (T) : 2000 (17) ELT 460 (T) and India Tin Industries v.CCE, Bangalore, 1994 (70) ELT 731 (T) wherein it has been held that when "the Department was fully aware of the entire manufacturing activities of the Appellant as disclosed in the detailed classification list, RT12s, RG23 Part-I and Part II and also the input gate passes and in such a situation the show cause notice issued on 20.10.1992 is clearly barred by limitation." The learned Advocate emphasized that the word "emulsion" was clearly mentioned in the invoices and as such Department was aware of use of emulsion grade PVC resin.
6. As the issue involved in Appeals filed by M/s. Vinica Plastic Pvt.
Ltd., Shri Virendra Vashist, M/s. Monarch Polymer and Shri Manish Kumar Jain is similar, we do not accede to the request of the learned advocate for adjournment and take up the appeals for disposal after perusing the records. The charge against M/s. Vinica Plastic Pvt. Ltd. and their Director, Shri Virendra Vashisth is that they had mis-utilised Modvat Credit by showing excessive use of suspension grade of PVC resin. The demand has been confirmed against them on the ground that only 55% PVC resin should have been used by them for manufacturing PVC compound. It has been submitted by them in their grounds of appeal that the entire duty demand is based on conjectures and surmises as no evidence has been led by the Revenue to show that actually only 55% PVC resin was used and the rest was removed as such; that the test reports have shown different results when the samples were tested thrice, that they manufacture PVC compound of three types and the lack of testing facilities and proper quality control, the percentage of PVC compound is not stable; that extended period of limitation is not invocable as they have been regularly filing RT-12 returns alongwith extracts of RG 23A and modvatable invoices.
7. M/s. Monarch Polymer and Manish Kumar Jain, Partner, have also made the similar contentions in their Grounds of Appeal. In addition, it has been submitted that the demand of duty is not sustainable as their finished product was never tested for its chemical composition.
8. Countering the arguments, Ms. Charul Baranwal, learned SDR, alongwith Shri P.M. Rao, learned DR, submitted that emulsion grade PVC resin cannot be used in the manufacture of PVC compound; that Shri Parag Jain, Director of M/s. Vardhman Cables Ind. (P) Ltd., in his statement dated 18.3.99, stated that the emulsion grade PVC resin cannot be used in the manufacture of PVC compound meant for cable application due to its poor dielectric properties and impurities present in it; that similarly Shri Prasan Kumar Bhutaria, Director of M/s. Welcord Ind. (P) Ltd. has also stated in his statement dated 12.3.99 that emulsion grade PVC resin could not be used in the wires and cables application; that Shri A. Guha, Chief Regional Manager, M/s.
IPCL, in his letter dated 16.2.99 also informed the same and also mentioned that depending upon type and class of cable, PVC resin percentage varies from 40% to around 60% of the total compound weight; that Shri Mahesh Kumar, Deputy General Manager of M/s. Shriram Vinyl & Chemical Industries in his letter dated 21.4.99 opined that PVC resin is used between 40-70 per cent in the manufacture of PVC compound and emulsion grade PVC resin was not used for wires and cables; that as per literature of M/s. Chemplast Samnae Ltd., emulsion grade PVC resin is used in leather cloth, wall paper and flooring, cellular vinyl leather cloth, dip slush and rotational moulding for toys, boots, etc.; that nowhere in the literature it was stated that it could be used for cable application.
9. The learned SDR, further, submitted that with the use of 80-90% of PVC resin, PVC compound would be semi-rigid and it would be difficult to use the same for manufacturing general purpose cable; that this view is supported by the opinion given by Shri Mahesh Kumar, Dy. General Manager of Shriram Vinyl & Chemical Industries Ltd.; that as per the different experts and literature, percentage of PVC resin in PVC compound meant for further use in the manufacture of wire and cables could be maximum up to 70%; that the use of PVC resin shown by all the Appellants is much more than the actually used in the manufacture of PVC compound; that the Adjudicating Authorities have allowed the consumption of 55 per cent of PVC resin in the manufacture of PVC compound on the basis of average of 40% to 70% of PVC resin normally used in the manufacture of PVC compound meant for further consumption by the manufacturers of PVC wire. The learned SDR finally contended that larger period of limitation for demanding duty is invocable as the Appellants have manipulated the records in order to avail higher Modvat Credit and they have wilfully suppressed actual consumption of raw material with intent to evade Central Excise duty.
10. In reply Shri K.K. Anand, learned Advocate, mentioned that Shri M.R. Sablok has given an Affidavit after attending the office of the CCE, Delhi on 15.5.2002 for cross-examination; that he has mentioned in his Affidavit that in his cross-examination by the CCE, he had stated that in cable compounding PVC emulsion grade can also be mixed with suspension grade for wire and cable application and PVC resin of suspension grade can be used up to 80% of total PVC compound depending on end properties/application. The learned Advocate emphasized that Shri Sablok has Plastic Engineering background and technical experience of two decades having served various organizations and he has given his Affidavit on the basis of information gathered from international technical literature like SOLVAYSA updated March 2000 designed by Owentes Brussels.
11. We have considered the submissions of both the sides. Regarding the use of emulsion grade of PVC resin in the manufacture of PVC compound both sides have produced different opinions. On going through the same we observe that where Revenue has produced opinions about non-usability of emulsion grade PVC resin, the Appellants have produced opinions to the effect that PVC emulsion grade can also be mixed with suspension grade for wire and cable application. In fact Shri M.R. Sablok has given on Affidavit also to the effect. Further, M/s. Finolex Industries Ltd. have also given a letter in which it is mentioned that emulsion grade PVC resin can be used by mixing with suspension for manufacturing cable compound. Shri D.K. Malhotra Polymer Technologist has also opined that suspension grade resin when mixed with higher K. Value Emulsion Resin improves physical and electrical properties of the compound. No chemical test report has been brought on record to show that emulsion grade PVC resin cannot be used for such use. Further, no material has been adduced by the Revenue to show that the Appellants had not purchased emulsion grade PVC resin and the same had been disposed of by them as such. In absence of such material and in view of conflicting opinions it cannot be alleged with certainty that the emulsion grade PVC resin cannot be used for manufacturing PVC compound for use in the manufacture of wires and cables. Regarding percentage of PVC resin used in the manufacture of PVC compound we observe that in respect of some Appellants the Revenue had not drawn any sample of the compound manufactured by them to prove its allegation that the Appellants had wrongly shown use of more quantity of PVC resin. Even in cases where the samples have drawn the test results are different at different times. This fact has also been noted by the Adjudicating Authority in the impugned Order No. 1/2002 dated 7.3.2000 wherein it is mentioned that "there appears to be some mistake in conducting first test in CRCL....." Further, Revenue has not brought on record any evidence to show as to how the alleged excess quantity of resin had been disposed of. The Appellants have also contended that their machineries are not very sophisticated ones and in the initial stage they utilized more resin which subsequently has come down. This averment has not been specifically controverted by Revenue. The learned Advocates have also referred to the specifications agreed upon in a meeting between the PVC Compound Manufacturers and General Manager, Telecommunication, Quality Assurance, New Delhi. According to the Minutes of this meeting PVC Resin percentage would be 70% + 5%. In view of this the Revenue cannot arbitrarily take 55% as the norm for demanding duty. The Revenue has not succeeded in proving that the Appellants have shown the utilization of PVC resin in excess than what is required as no tangible evidence has been adduced by it. It is settled law that the duty cannot be demanded on conjectures and surmises. The Supreme Court in the case of Oudh Sugar Mills Ltd. v. Union of India, 1978 ELT (J172) quashed the Order directing the Appellants to pay the additional excise duty on the quantity of sugar allegedly short accounted for holding that "the finding that 11,606 maunds of sugar were not accounted for by the appellant has been arrived a without any tangible evidence and is based only on inferences involving unwarranted assumptions. The finding is thus vitiated by an error of law." Accordingly we allow all the appeals.