Judgment:
1. After examining the records and hearing both sides, we note that in the impugned order the Commissioner has ordered recovery of Rs. 23,10,812/-found to have been taken as excess credit by the assessee in respect of inputs as such in stock, inputs contained in semi-finished goods and those contained in finished goods in stock on 7.3.01, the date on which they started clearing their final products on payment of duty. The Commissioner has also imposed penalty of equal amount on the party under Section 11AC of the Central Excise Act. His order is in adjudication of a show-cause notice dated 24.3.04. The appellants challenge it on merits as well as on the ground of limitation.
2. It appears from the records that, in respect of inputs present as such in stock on 7.3.01, the appellants had filed a declaration wherein the stock of inputs as such was mentioned as 9,08,555 kgs. The Department, after a visit by their officers to the appellants' factory on 17.2.2003, booked a case against them on the basis of certain records recovered from their premises. These records included a stock book marked as 'II/2' and another record marked as 'II/1'. Both the records were found to have been maintained by one Shri Palani who had by that time quit the company. The stock book marked as II/2 indicated a stock of 3,24,158 kgs of raw material as on 7.3.01, while the other register marked as II/1 indicated the raw material stock to be 9,08,555 kgs. The Department's case was that the entries in the register marked II/2 were genuine and those contained in the other register were cooked up. Accordingly, the aforesaid show-cause notice was issued alleging wilful misstatement against the party and invoking the extended period of limitation for recovery of excess credit and for imposition of penalty.
3. It is submitted by ld. Counsel that the register maintained by Shri Palani has no evidentiary value in the absence of oral evidence of Shri Palani. The Department has not recorded any statement from him. The stock of raw material as declared by the appellants with reference to the date 7.3.01 was supported by the input-output ratio and the particulars of manufacture of final products out of such raw material, furnished subsequently. It is submitted that the Department has accepted the payments of duty on the final products which were claimed to have been manufactured out of the stock of raw materials declared by the appellants. Apart from this case on merits, ld. Counsel has also set up an apparently valid defence on limitation. He has produced a copy of letter dated 1.4.01 issued by the Deputy Commissioner to the appellants with reference to stock of materials available in their factory as on 7.3.01. This letter mentioned the stock of paper (raw material) at 9,08,555 kgs. In this letter, the Deputy Commissioner instructed his Range Officer to undertake necessary checks of the figures furnished by the assessee to verify the correctness of the credit claimed. There was a direction to the Range Officer to report compliance also. It is submitted by ld. Counsel that, had the Range Officer undertaken the necessary checks as directed by the Deputy Commissioner, it would have been found that there was no misdeclaration of input stock by the appellants. Apparently, neither in the show-cause notice nor in the impugned order is there any reference to the Range Officer's compliance report. Prima facie, the Dy. Commissioner's instructions were not carried into effect by the Ranger Officer, for which the assessee cannot be faulted. Had the Range Officer complied with his superior's instructions, he would have, perhaps, found correct declaration of the input stock by the assessee, in which event there would have been no room for any show-cause notice. In this scenario, prima facie, the appellants seem to have a good case against the impugned demand on the ground of limitation.
4. In the result, there will be waiver of predeposit and stay of recovery in respect of the duty and penalty amounts.