Full Judgment
2. The brief facts of the case are that appellants are engaged in the manufacture of motor vehicle parts. The department collected information that the appellants had not been paying Central Excise duty on scrap of iron and steel generated in the process of forging, rough turning, grinding etc. in the units of job workers in respect of the inputs on which a credit of duty had been allowed under Rule 57A and that the appellants had not been accounting for such waste/scrap. On a visit to the factory premises of the appellants Central Excise officers observed that the appellants had been sending the steel and forgings in respect of which a credit of Central Excise duty was availed under Rule 57A to various job workers/processers under Rule 57F(2). The job work challan used for removal of inputs for process and return of the processed goods indicated the quantity of steel/number of forged pieces removed and number of forgings/turned pieces/returned to the said factory. The waste/scrap of iron and steel generated in the process of forging and rough turning have not been returned by the job workers to the appellants. It was therefore alleged that duty had not been paid on the difference between the quantity of the raw material received and the quantity of the final products cleared as difference between the two should the waste/scrap generated. Accordingly a show cause notice was issued to the appellant asking them to explain as to why duty amounting to Rs. 4,94,686.53 during the period 1-7-1986 to 31-10-1990 on a quantity of waste/scrap calculated to be 998.462 M.T.s should not be demanded. In reply to the show cause notice the appellant submitted that they sent raw materials to the job workers whose number exceeded hundred. The raw material was sent for forging and rough turning; that the forged and rough turned material was returned to the appellants; that these processes are Precision copy Turning, Broading, Milling, Drilling, Threading, Boxing & Grooving and Grinding; that the waste arising in the course of manufacture is partly irretrievable. To ascertain the truth, the adjudicating authority conducted experiment and found that some losses were irretrievable and confirmed the demand of duty on 536.195 M.T. of scrap in respect of Unit No. 1 and on 157.878 M.T. in respect of Unit No. 2 involving Central Excise duty of Rs. 2,62,790.27 and Rs. 66,819.20 respectively.
3. Shri Satnam Singh, SDR appearing for the appellant submits that the adjudicating authority while calculating the quantity of scrap generated has allowed irretrievable losses that this method of calculation was an indirect method which led to wrong results; that the quantity of scrap generated should have been worked out stagewise which was not done by the Additional Collector. He submitted that the method of claculation adopted by the learned Additional Collector was wrong and therefore prayed that the appeal may be allowed.
4. Shri R. Pal Singh, Consultant submits that the learned Additional Collector had arrived at the figures after conducting actual experiment. He submits that the department had calculated the figures of the scrap generated without allowing any irretrievable loss. He submits that in the processes undertaken by the respondent job workers there is always irretrievable loss and therefore and Additional Collector had rightly come to the conclusion after conducting the actual experiment that there was irretrievable loss. He submits that similar issue had come up before this Tribunal in the case of CCE v.Koran Engg. Pvt. Ltd. In order No. A/1605/95-NB, dated 22-12-1995 this Tribunal had held that there were invisible losses and that from the scrap the invisible loss is to be deducted. He submits that in that case the invisible loss allowed was to the extent of 12% whereas in their case the Additional Collector had allowed a loss of 11% only.
Learned Consultant therefore submits that the impugned order is correct and does not call for any interference and prays that the same may be upheld.5. Heard the submissions of both sides. We find that an experiment was conducted by the adjudicating authority and the result of the experiment was that there were invisible losses in the process of manufacture of motor vehicle parts by the process of forging, grinding, threading etc. We also find that the adjudicating authority had come to the conclusion that invisible loss was to the extent of 11 % of the total weight of forgings. We also observe that the Tribunal in similar circumstances and facts of an identical case had allowed an invisible loss of 12%. We also observe that in the calculation prepared by the department in their appeal memo no explanation has been offered as to why invisible loss was not allowed or to what extent the invisible loss was. No basis for not accepting the invisible loss calculated by the adjudicating authority has been adduced in the parallel calculation produced in the memo of appeal. Having regard to the fact that there is invisible loss coupled with the fact that in a similar case in identical conditions [this] Tribunal allowed an invisible loss of 12% we do not find any infirmity in the impugned order. In the circumstances the impugned order is upheld and the appeal is rejected.