Judgment:
1.1. The Appellant has challenged the order of adjudication dated 26.03.2004 raising duty demand of Rs. 22,83,382/-under Section 11A of the Central Excise Act, 1944, imposing equal amount of penalty under Section 11AC with direction to recovery interest under Section 11AB of the said Act, contending that the order suffers from bar of limitation, lack of consideration of invisible process loss as well as tolerance permissible when there was no clandestine removal at all found. It was also contended that the authorities below simply following mathematical formula worked out the shortage of finished goods to the extent of 735.531 MT out of the worked out figure of 897.897 MT in Annexure 'C' to the Show Cause Notice (SCN) detecting shortage of 10.198 MT of spring leaves in the course of investigation on 21.04.2000. Although, the process of manufacture involves series of activities such losses which are inevitable to occur were not given due weightage while calculating the impugned unaccounted finished goods in Annexure 'C' to the show cause notice.
1.2. So far as the maintainability of proceeding is concerned, it was grievance of the Appellant that the proceeding was time barred since there was no suppression of facts noticed by the Department at any time for the period from 01.05.1998 to 20.04.2000 in respect of show cause notice issued on 13.06.2003. The ld. Counsel invited our attention to page-66 of the paper book to submit that a declaration under Rule 173B was filed with the authorities relating to the period from 01.04.2001.
According to him, the input output ratio that was narrated in the page -73 of the paper book was not considered by the Department which otherwise would have resulted with no adverse conclusion against the appellant.
1.3. In the course of hearing, the ld. Counsel also submitted that the burning loss, scaling loss, boring loss and turning loss which are all inherent in the nature of activity were not liable to be discarded and not even a single percentage allowed towards the same. These, being the inevitable process loss incurred, such aspect should have been considered, while working out unaccounted stock under Annexure 'C' to the show cause notice and that was not done. Therefore the appellant is entitled to deductions relating to usual reasonable processing losses.
1.4. In respect of his contentions, the Ld. Counsel relied upon a decision of the Hon'ble Supreme Court in the case of Tamil Nadu Housing Board v. Collector of Central Excise, MadrasIndian Tool Manufacturers v. Assistant Collector of Central Excise, Nasik Collector of Central Excise, Bombay and Collector of Central Excise v. Chemphar Drugs & Liniments to 2. The ld. JDR appearing for Revenue submitted that the ld.Adjudicating Commissioner has passed a very reasoned and speaking order not merely on the basis of finding on the date of investigation which resulted with shortage of 10.918 of Spring leaves valued at Rs. 2,29,284/-. But the Authority also found several evasive practices adopted by Appellant, such as: no record maintained to show physical existence of day-to-day basis stock in process, test check on 20.12.2000 revealed discrepancy in weight of packing material, stock recorded in Excise record widely varied with the stock figures submitted to Andhra Bank, no declaration filed as to the generation of scrap and process loss, the figure furnished to Income Tax Authorities and the Central Excise Authorities dispersed as exhibited in Annexure A to the show cause notice, Modvat credit was all along utilized to discharge duty liability without any duty paid from PLA Account and no authentic evidence was led to prove quantum of process loss claimed for which that was found to be unreasonable and loan availed from the Andhra Bank giving false stock figures was a questionable conduct. He submitted that there are several reasons attributed to the practice of showing short quantity of production claiming huge loss to accommodate either no purchase of raw-material or through Modvat credit through mere paper transaction or to benefit benami suppliers of raw material or spurious materials out of money lent by Andhra Bank. Therefore the reasoned order passed by the ld. Adjudicating Authority does not call for interference.
4.1. The ld. Adjudicating Authority found that there was a short of stock found in the course of investigation on 21.04.2000, discrepancy in the sale figures disclosed by the Appellant to Income Tax Authority as well as Central Excise Authority and that was depicted in Annexure 'A' to the show cause notice. It was found that the appellant was only discharging duty liability out of Modvat credit and nothing form PLA.The authority also noticed that day-to-day basis record was not maintained to exhibit existence of stock in process. The reason why figures furnished to the Income Tax Authority and Central Excise Authority exhibit in Annexure TV to SCN deferred remained unsatisfactorily explained. Stock checking on the date of investigation resulted with shortage of 10.918 MT of spring leaves was without any reason to the defence of the Appellant. Reason why huge quantity of raw materials were purchased availing loan from Andhra Bank furnishing inflated stock figures remained unexplained. Whether purchase of raw materials were only paper transactions to discharge duty liability through Modvat credit remained unexplained. We also found submissions of Revenue had force. There was no tangible evidence brought to record to claim the process loss to the extent claimed by the appellant.
However, it was noticed that Annexure 'C' to the show cause notice appears to have not taken into account the permissible inevitable process loss incurred in the course of manufacture to work out unaccounted finished goods. It is quite probable that incurrence of process loss in a manufacturing process is attributable to various genuine factors of production and quite inherent depending on the facts and circumstances. Therefore, the Assessing Authority is required to consider such permissible loss to the extent the facts and circumstances of the case justify. The Appellant may adduce necessary evidence to satisfy the authority in respect of claim of inevitable process loss to the extent its case justifies and the Authority granting fair opportunity may come to a rational conclusion.
4.2. The citations made by the ld. Counsel were examined by us and those are chiefly on the ground of limitation. For the discrepancy of the figures we have noticed from Annexure 'A' followed by false stock statement submitted to Andhra Bank which remained unrebutted and no records maintained to show day-to-day stock in process and other circumstances submitted by the ld. JDR, we are of the view that the appellant is not entitled to the benefit of the judgments of the Hon'ble Supreme Court without bringing the facts of the appellant to the fore of the judgment. Therefore, while rejecting the plea of limitation, we find reasonable to permit reconsideration of permissibility of process loss to a justifiable extent as indicated above granting reasonable opportunity of hearing to the Appellant. We uphold findings of the Authority below on all other allegations in the Order of adjudication in absence of any merit to the defence of the Appellant.
5. In the result we allow the appeal to the limited extent as stated above, remanding the matter for redetermination of duty liability under Annexure 'C' and 'D' to the show cause notice following principles of natural justice. The matter of imposition of penalty shall be re-considered by the ld. Adjudicating Authority only upon completion of reassessment.