Full Judgment
2. Appeal is directed against Order-in-Original No. 27/94 dated 28-4-1999 passed by the Collector of Central Excise, Bombay-Ill. As per this order a liability of Rs. 1,33,02,518 has been imposed on the appellant in relation to Polyethylene Barrels manufactured during the period from 1987 to 1991. Out of that, Rs. 1,03,09,087 as Modvat credit is stated to have been wrongly availed in violation of the provisions contained in the rules. A penalty of Rs. 25 Lacs has also been imposed on the appellant invoking the provisions contained in 173Q of the Central Excise Rules, 1944.
3. Departmental authorities conducted search of the appellants premises in January, 1991. According to the Learned Counsel representing the appellant, virtually entire records belonging to the appellants were seized and are with the Department. When show cause notice was issued which culminated in the order impugned in this appeal, appellant sought return of the documents seized. Instead of returning documents, photocopy of some of them which are sought to be relied on by the authorities alone were supplied. Copies so supplied were not legible.
This fact was communicated to the Collector and request was made to furnish readable copies. According to the Learned Counsel no action was taken by the Collector on that request. Documents which were not sought to be relied on by the Collector, were not even returned. In such a situation, it is contended that the Department denied a fair opportunity to the appellant to make an effective defence in the case.
4. Appellants were engaged in the manufacture of Polyethylene Barrels.
Nearly 250 barrels manufactured in plant at Talasari were taken by the departmental authorities. They were weighed. From that weight, average weight of barrel manufactured by them was found to be 9.02 Kg. In the manufacture of each barrel burning loss was assessed by the Department at 2%. By resorting to this process the weight of each barrel was found to be around 9.2 Kg. and the number of barrels manufactured during the relevant period was assessed. That was found to be in excess of the actual number cleared by the appellant. The difference was taken to be barrels manufactured and clandestinely removed. It was in relation to this clandestine removal, according to the Learned Counsel, duty demand of Rs. 29,01,607 was levied. This forms part of the total demand of Rs. 1,33,02,518 confirmed in the order impugned.
5. The above procedure adopted by the Department in dividing the entire stock of raw material by 9.2 Kg. to find out the total number of barrels manufactured is under serious attack. Appellant was not only having its Plant in Talasari but also was having another Plant at Patalganga. The weight of barrel manufactured at that Plant was not taken into consideration, but the raw materials consumed in both the Plants were taken for finding out the total number of barrels manufactured. Further, according to the Learned Counsel, Department's officials conducted survey of the barrels manufactured by the appellants in their two Plants subsequent to the proceedings which resulted in the impugned order. That survey showed the weight of the barrels to vary from 9.2 Kg to 9.8 Kg. Further, it was argued by the Learned Counsel that the weight of the barrels depended on the requirement of their customers. Depending on the nature of the goods to be stocked in the barrels, weight will vary. This contention of the appellant raised before the Collector was not adverted to, it is argued.
6. Modvat credit to the tune of Rs. 43,74,012 was denied by the Collector on the ground that it was taken on the basis of quadruplicate copy of the Bill of Entry. According to the Learned Counsel, quadruplicate copy of the bill of Entry is a permissible document on the basis of which Modvat credit could be claimed. In support of this contention, he relies on the decision of this Tribunal in Timex Watches Ltd. v. CCE, Meerut -1998 (98) E.L.T. 743.
7. At the time of seizure Department came across certain private documents. Regarding the stock in factory entries were seen made in those private records. The company was maintaining RG 23 register.
Entries seen in RG 23 were much more than that seen in private records.
Collector while passing the impugned order ignored the entries made in RG 23 and relied on the entries made in private records. According to the Collector appellant got only that much raw material seen in the private records and not the entire quantity mentioned in the RG 23 register. So, Modvat credit in relation to the excess quantity entered in the RG 23 register was denied. This accounts for the claim of Rs. 40.59 Lacs. If the quantity of raw material that was recorded in the private registers alone are reckoned as raw material received by the appellants in the factory, Learned Counsel proceeds to argue that total number of barrels found by the Collector as having been manufactured could not have been so manufactured. On this basis, it is contended that the claim of duty on the finished product and the denial of Modvat credit cannot co-exist. They are mutually destructive.
8. The above arguments advanced by the Learned Counsel representing the appellant have not been properly dealt with by the Collector in the impugned order. After denying the existence of raw materials entered in the RG 23 based on the entries in private records, was it possible for the appellants to manufacture total number of barrels found by the Collector? No answer to this doubt is available in the impugned order.
9. The fact that appellants records were seized by the Excise Department in January, 1991 is not in dispute. Out of the documents seized only a few are referred to by the Collector. Remaining documents have not been returned to the party till date. For what purpose those documents are retained by the Department is not clear from the orders passed by the Collector. Readable copies of the documents relied on by the Collector have also not been supplied to the party. Without getting readable copies they could not put forth effective defence to the show cause notice. In the above circumstances, we are inclined to accept the plea put forth by the Learned Counsel representing the appellant that the appellant was denied fair opportunity to defend themself. In other words, we hold that Collector passed the impugned order in violation of the principles of natural justice. Order passed by authority in violation of the principles of natural justice is to be taken as non est. Therefore, we set aside the order of the Collector impugned in this appeal and remit the matter back to the jurisdictional authqrity to re-adjudicate the matter afresh in the light of the observations made earlier in this order. Adjudicating authority must return documents which are not sought to be relied on by him in these proceedings. In relation to the documents which are being relied upon, readable copies should be furnished to the appellant.
10. Before denying Modvat credit on the ground of failure of the appellant to furnish valid copes evidencing payment of duty, the law laid down by this Tribunal in the decision referred to above should be taken into consideration. Learned Counsel further submitted that the appellants are in possession of triplicate copy of Bill of Entry in relation to four consignments. Those documents, if produced, must be properly considered by the adjudicating authority. Since this is a long pending matter, we direct the adjudicating authority to pass final order after affording reasonable opportunity of being heard to the appellant, within four months from the date of receipt of a copy of this order.
11. When this appeal was filed, they moved a petition praying for stay of recovery of the amount. That application was disposed of by Tribunal by order dated 24-10-1994, wherein the appellant was directed to deposit a sum of Rupees One Crore in cash and to furnish bank guarantee for the remaining amount as confirmed by the Collector. Aggrieved by that order party moved the High Court of Delhi by filing C.W. 1335/96.
As per order dated 18-4-1996 passed by the High Court on CM. No.2524/96, the order of the CEGAT was modified. Appellant was to pay a sum of Rs. 73 Lacs as ordered therein :- "It would be open to the respondents to forthwith encash the bank guarantee of Rs. 33 Lakhs. Mr. Desai agrees to the encashment of the said bank guarantee and submits that the petitioner would execute necessary documents to facilitate encashment of the bank guarantee.
As notices above, the petitioner has already paid Rs. 10 lakhs to the respondents. The balance sum of Rs. 30 lakhs would be paid by the petitioner in three installments of Rs. 10 lakhs each in a period of three months. The first instalment of Rs. 10 lakhs would be paid on or before 15th May, 1996, the second instalment would be paid on or before 15th June, 1996 and the third instalment would be paid on or before 15th July, 1996. For the balance sum of approximately Rs. 60 lakhs the petitioner undertakes not to create any charge on its unsecured assets to the extent of Rs. 60 lakhs.
The appeal would be heard on merits in due course after the petitioner has deposited the aforesaid amount." Order passed by the High Court has been complied with. Appellants deposited money and furnished bank guarantee. This means that Rs. 73 Lakhs have been received by the Department as pre-condition for hearing the appeal, as contemplated by Section 35F of the Act. When the impugned order is set aside, Department is bound to return the money so deposited. We direct the respondents to return the above sum as expeditiously as possible, at any rate, within six weeks from the date of receipt of a copy of this order.
12. Appeal is disposed of in the above terms by remanding the entire matter to the adjudicating authority.