Judgment:
1. The appeal is directed against Order-in-Original dated 11.02.94 passed by Collector of Central Excise, Bangalore demanding three sums of Rs. 1,96,483.60, Rs. 70,374.00 and Rs. 5,101.00 from the appellant, M/s. Maxon Engineering (P) Ltd. as Central Excise duty besides imposing penalty of Rs. 20,000/- on them. In addition! the Collector had confiscated certain goods manufactured by the appellant and supplied to certain customers in Calcutta, Indore and Bangalore on the ground that these were non-duty paid. Option was, however, given for the redemption of these confiscated goods subject to payment of fine in lieu of confiscation. The appeal challenges the demand of duty and imposition of penalty on the appellant.
2. Ms. Yovini Rajesh, learned Counsel for the appellant stated that the first mentioned sum had been paid by the appellant by debit to their RG 23A Part II account even before the issue of show cause notice, This amount represented the duty payable on goods supplied to certain customers in Calcutta, Indore and Bangalore which had been removed without payment of duty as appellant had a bona fide belief about the admissibility of exemption Notification 1/93 to the appellant who was availing Modvat benefit. The fact of clearance of goods without payment of duty had, however, been brought to the notice of the Excise Superintendent and his guidance in the matter sought vide their letter dated 6.7.93. The visit of the officers to appellant's factory was subsequent to this letter. The Collector has taken note of this action of writing the letter to the Superintendent but only held that some leniency was called for in the matter of penalty. All the same, he has imposed a penalty of Rs. 20,000/- on the appellant. The show cause notice dated 15.11.93 has been issued for alleged short payment of duty during the period February 1993 to July 1993 and hence time barred for the period earlier than six months from the date of the notice. There was no suppression of facts or intention to evade duty. They had also accepted their liability to pay the sum of Rs. 5101/- which was the modvat credit taken by them on inputs which they could not account for.
The dispute then is limited to the demand of duty of Rs. 70,374/- and penalty of Rs. 20,000/-. This duty demand relates to various items covered by Annexures B, C, D, E, F, G, H, and I to the show cause notice. Annexure B covers 39 items out of which 16 were bought out items which were cleared as such. No modvat was involved on these items. Remaining 23 items were sent out for job work which were received back after such job work. As regards Annexure C this covered 180 items involving duty demand of Rs. 12,918.82. Their plea that these were sent for job work and received back was not accepted by the Collector on the ground that they did not follow the prescribed procedure. The same was the position in respect of Annexures D, E and I involving duty demand of Rs. 428.50, Rs. 3810.85 and Rs. 13,842.25 respectively. Annexure F covered duty demand of Rs. 258.50 which is admitted. Annexure G relates to goods received for repair and return.
The duty demand is Rs. 1700/-. They had questioned the adoption of a higher value for these items and had pleaded that the values indicated in Annexure F should be applied. That involved duty of Rs. 227.75 only for the goods covered by three challans. Their plea was rejected by the Collector. Learned Counsel pleaded that the Collector's decision is based only on a perusal of the challans. They had produced various documents like purchase Bills for bought out items. These have not been considered by the Collector. Where they had not followed the required procedure, it was because of their ignorance. Such failure should be condoned, urged the counsel who cited a Tribunal decision in support of her plea [India Paper Pulp v. Collector of Central Excise, Calcutta-II 3. Resisting the arguments advanced in support of the appeal, Shri Victor Thyagaraj, Senior Departmental Representative supported the Collector's order which, he said, has been passed after considering all the submissions made before him which he found to be unsubstantiated.
The demand of duty has been worked out only on the basis of appellant's own record. The longer period of limitation is justified, he concluded.
4. We have considered the rival submissions. We have perused the record. The major part of the demand amounting to Rs. 1,96,483.60 has already been paid by the appellant by debit to the RG.23A Part II account. It has been explained that the removal of the goods without payment of duty was under a mistaken belief that they were entitled to clear the goods free of duty under the exemption Notification 1/93 and that they had themselves brought the matter to the notice of the Superintendent seeking his guidance. The visit by the officers to their factory and checking of records and stocks was subsequent to their letter and, in fact, the result of their own letter. Their letter has been noted by the Collector in his order who has remarked that the only redeeming feature was that they had written to the jurisdictional Superintendent informing him about the clearances made without payment of duty and seeking guidance but he has observed that, at best, in view of the letter, some leniency is called for in the matter of imposition of penalty. Though a plea has been taken that the show cause notice issued on 15.1 1.93 was time barred, we find that most of the demand falls within a period of six months. Thus, the clearances without payment of duty had been made vide Delivery Challan No. 2 dated 18.5.93 (Duty involved Rs. 3750/-) and Gate Passes, 2, 3, 4 and 5 dated 20.5.93, 25.6.93, 25.6.93 and 28.6.93 (Duty involved Rs. 1,92,545.60).
The notice is not barred by limitation and the amount has also teen rightly paid when appellant was availing modvat facility and had cleared also one consignment on payment of duty prior to the removals in question without payment of duty. Full exemption from duty was not available under the Notification and only partial exemption admissible in accordance with which appellant had subsequently paid duty by debit to the RG.23A Part II account. Full exemption from duty was available under the said Notification only in a case where the manufacturer was not availing modvat credit.
5. Apart from the above mentioned duty demand, the Collector has confirmed duty demand of Rs. 5101/- relating to inputs on which modvat credit had been taken which were not accounted for. This liability has been accepted for the appellant which limits the dispute for decision to the demand of duty for Rs. 70,374/-.
6. We have gone through the impugned order to examine the defence plea that the Collector had not considered their submissions properly and had gone only by the delivery challans. We find that with regard to the plea about 39 items covered by Annexure B of the show cause notice the Collector had perused the purchase bills and the delivery challans and found that the goods despatched could not be correlated to the purchase bills. For the other goods claimed to have been despatched for job work it was found by the Collector that the challans did not contain any indication that the goods were cleared for job work and the nature of job work required to be carried out. The procedure under Notification No. 214/86 dated 25.3.86 for sending materials for job work and receiving the processed goods from the job worker had not been followed. In view of this position the Collector held that the credence could be attached to the plea that goods were sent out for processing and were subsequently returned. We agree with his finding.
7. Duty demand of Rs. 12,918.82 has been confirmed by the Collector for 180 items covered by Annexure C of show cause notice. The period involved is from 10.2.93 to 3.7.93. The total value of the goods is Rs. 2,58,376. Out of this the clearances prior to 15.5.93 viz. 6 months prior to the issue of the show cause notice accounted for Rs. 71,859/- as seen from the date wise statement (Annexure C). The Collector has held that as the appellant had admitted that they had not given any undertaking to the jurisdictional Assistant Collector as required under Notification 214/86 that very admission would mean that the concession envisaged under Notification 21 4/86 could not be extended. He has accordingly confirmed the demand of duty for goods cleared vide Annexure C. The non-filing of such an undertaking by itself does not point to a case of suppression or contravention with intent to evade duty. The demand relating to this period is barred by limitation. For the items covered within the six months period that is clearances after 15.5.93, the matter needs to be looked into afresh with reference to the records about the despatch for job work and return of the processed material. If this is borne out by documents, the appellant's claim would be vaild. The matter needs to be looked into afresh by the adjudicating authority.
8. The other demands relate to Annexures D, E, F, G, H and I to the show cause notice. Of these annexures F and H are interconnected.
Appellant has accepted the liability in respect of Annexure F which accounts for Rs. 227.75 + Rs. 30.75. Annexure H relates to machinery and parts cleared and the dispute relates to valuation of such goods cleared. Appellant claims that the value taken in Annexure F should he adopted by Annexure H also. This has been examined by the Collector in paragraph 25 of his order. He has noted that the delivery challans 2408, 2409 and 81 dated 13.2.93, 13.2.93 and 22.5.93 respectively referred to in Annexure H showed that appellant had fabricated machinery and parts from the materials received from customers. As new products have emerged, duty is to be paid on such products. The basis of valuation adopted by the department for such machinery items produced had been indicated which has not been controverter with any basis by the appellant and it has only been claimed that the values shown in Annexure F should be adopted. We find that Annexure F relates to machinery and machinery parts cleared. The three delivery challans mentioned are the same as what has been indicated in Annexure H. As the delivery challans included in both these Annexures viz. F and H are the same. It is not clear how different values have been taken by the department. There is no indication that the goods are different as the delivery challans bear the same number. The matter requires to be examined further at the hands of the adjudicating authority.
9. Annexures D, E and I had been considered by the Collector in paragraph 24 of his order. This relates to material on which modvat credit had been taken which were held to have been removed without payment of duty or reversal of the credit taken. Collector has noted that appellant had accepted that they had not issued the challans as required under Rule 57F(2). No evidence had also been produced to show that appellant had obtained permission for sending the goods under the said Rule. The claim has not been supported by evidence in the shape of prescribed Form Annexure IV Register or modvat input movement register.
As regards the items covered by the other Annexures E and I, appellant had accepted removal of certain items (SI. Nos. 3, 4, 5 and 9) without payment of duty and agreed to pay duty of Rs. 1732.90. The remaining goods were claimed to have been sent for job work and received back Collector has observed that this argument has been advanced without supporting evidence and following prescribed procedure.
10. For the goods covered by Annexure G the plea was taken that these were received for repair and return. The Collector has held that this was only a claim and no documentary evidence was produced. The requirements of Rule 173H have not been complied with to allow duty free release in terms of that provision.
11. It was submitted that the omissions in regard to despatch of inputs on which modvat credit had been taken for job work and returnare and duty demand should not have been raised.In support of such a claim, a decision of the Tribunal in India Paper Pulp v. Collector of Central Excise (Technical Member, K. Sankararaman) was a party to that decision. That decision affords no help to the appellant as in that case the appellant had declared the input magnesite. The Gate Passes showed the desription magnesite lump while they received magnesite powder, the powdering having been got done by a job worker. The discrepancy between the description in the Gate Pass and the form of the material received was not considered a factor for denial of credit. There was no denial by the department of receipt and use of the input by the appellant. Such is not the case here. The documents were not complete and prescribed procedures had not been followed. The claim of removal of materials for job work and their return after such job work had not been substantiated.
12. Summing up, we find that the Collector's order is sustainable for the most part except for the items covered by Annexures C and H which requires to be reconsidered by the Collector. As we have upheld his order for the rest of the items which account for the major part of duty demand, the quantum of penalty imposed is justified. We uphold the penalty and the demand of duty for the items other than Annexures C and H. The finding in respect of these two Annexures C and H are set aside and the matter remanded for de novo decision after giving the opportunity of personal hearing. The correctness of the amounts of duty involved may be checked by the adjudicating authority.