Full Judgment
Revenue has filed the present appeal. After hearing both sides duly represented by Shri N V B Nair Ld. DR and Shri Hardik Modh Ld.
Advocate. I find that the respondent unit was visited by the Central Excise Officers on 2.5.1997. On verification of the records and physical stock taking, it was observed that the statutory record for modvat credit were maintained upto 14.2.1997 and no entries were made thereafter for receipt and issue of the inputs for the period 15.12.1997 to 1.5.1997. A shortage of 221.388 MT of pig iron totally valued at Rs. 13.61 lakhs approximately and involving Central Excise duty of Rs. 2,04,230/- was detected. The said shortage was admitted by the proprietor of the firm.
2. On the above basis proceedings were initiated against the appellant for confirmation of duty on the said shortages and for imposition of penalty. The show cause notice issued to the respondent for the said purpose culminated into an order passed by Dy. Commissioner confirming the demand of duty of Rs. 2.04,230/- under Section 11A of the Central Excise Act, 1944 read with Rule 571 of the Central Excise Rules.
Penalty of identical amount was also imposed under the provisions of Section 11AC read with Rule 571(4).
3. On appeal against the above order the appellant pleaded that there was processing loss of the inputs during the course of manufacture of their final product i.e. castings which are sophisticated in nature and require high degree of precision and as such wastage of pig iron was on the higher sides. The above stand of the respondent was accepted by commissioner (Appeals) and by observing as under, order was set aside.
"There is no dispute in the impugned order about the removal of inputs clandestinely as such by the appellants after taking modvat credit, which is primarily to be proved for demanding duty of the modvat credit availed on the inputs found short. The entire case has been booked on the ground that there was excessive loss of inputs shown by the appellants. It is also on record that the appellants were allowed to show the stock of inputs found short in the RG-1 register, which means that duty would be discharged on these inputs whenever shown as cleared. The appellants have relied on the decision of Tribunal in the case of Petro Carbon & Chemicals Company (supra), wherein it is held that demand worked out on the basis of ratio fixed by the department was not sustainable. In the absence of any evidence to show that there was any clandestine clearance of inputs as such, I am inclined to accept the defence plea raised by the appellants that the inputs in question were lying very much within the factory. Since the demand is not sustainable, the penalty on the appellant firm is also not sustainable".
4. After considering the submissions made by both the sides and after going through the impugned order of Commissioner (Appeals). I find that the appellate authority has decided the matter on all together different grounds, which were not the subject matter of dispute. The demand in question has not been raised on the ground of difference or the shortages between the quantum of inputs issued for manufacture and the quantity of final product record in RG-1 register. The shortages have been detected in respect of the inputs received by the respondents and duly entered in RG-23A Part-I register and credit taken thereon in RG-23 Part-II. The assesses plea that there was more processing loss during the course of manufacture has no application to the facts of the instant case inasmuch as the quantum of inputs issued for manufacture of the final product is always inclusive of the loss, which the inputs may undergo during the course of manufacture. As such, after issuance, loss of inputs cannot be accepted as a justifiable explanation for the shortages of inputs vis-is recorded balance as reflected in RG 23A Part-I. It is also seen that the proprietor of the firm accepted such shortages in his statements recorded on 2.5.1997 and 19.1.1998 and had also agreed to pay the duty thereon. The Respondents having availed the modvat credit on the inputs were duty bound to account for the same and their failure to offer any plausible explanation for the said shortage has correctly resulted in confirmation of demands of duty by the original adjudicating authority. Accordingly, I restore the order of Dy. Commissioner confirming the demand of duty against the respondents.
However in the facts and circumstances of the case penalty imposed upon the respondent's is reduced to Rs. 50,000/-. The appeal is disposed of in above terms.