Plasticolour Corporation Vs. Commissioner of C. Ex. - Court Judgment

Excerpt:
1. both appellants viz. plasticolour corporation and polymer alloys are engaged in the manufacture of black sheating compound and hdpe granules, filled reinforced thermoplastic and black polythelene granules etc. covered under chapter 39 of the central excise tariff act, 1985 and holding the central excise licence no. ariii/14/83 and ar iii/ch.39/8/87. the said units were availing modvat facility under rule 57a and holding permission under rule 57f(2) at the job worker's premises viz. m/s. polymer alloys.2. during the course of checking by the staff of the central excise office, the stock of finished and semi-finished goods and inputs in the premises of m/s. plasticolour corporation and polymer alloys it was noticed that there were differences in physical stock and statutory records. the finished goods i.e.. black sheating compound 8387.9 kgs duly packed in hdpe bags ready for delivery were also lying in finishing room of m/s. plasticolour corporation was not accounted for in any central excise records. the party had indulged in the illicit removal of the finished goods and also failed to pay the central excise duty on 3305.420 kgs. amounting to rs. 46,803.86 and also failed to pay the central excise duty on 31267.615 kgs. of inputs cleared illicitly on which credit of rs. 3,25,452.32 was availed by them, according to the department.3. the goods total 19141.500 kgs valued at rs. 6,42,935.40 which were available in the premises of m/s. polymer alloys was not accounted for in any of the unit were placed under seizure except a film making material. thus they had contravened the provision of rule 173q(2) read with rule 53 of the central excise rules, 1944, it was alleged.4. show cause notices were issued to each of the appellants and on considering their replies and hearing them in the matter, the addl.commissioner of c. ex., ahmedabad passed the impugned order. regarding 8387 kg of finished goods black cable sheating compound found in excess with appellants plasticolour corpn., he accepted their explanation that it was the production of 19-9-1998 and not accounted yet in rg accounts. regarding a quantity of 36.1. kg. black plastic granules reported to be waste and thrown away, the addl. commissioner confirmed the demand for want of evidence to substantiate the plea. in respect of material hdpe found short 1587 kg and a quantity of 1682.32 kg. filled reinforced thermoplastic found short, the addl. commissioner did not accept the defence of appellants that equal quantity was sent for drying to job workers polymer alloys as he held that it was not so found with them. the other plea in this regard that the thermoplastic material was used up in production of 18-9-1988 and 19-9-1988 was also rejected for want of substantiation. a quantity of 634 kg hdpe was also found liable to duty as this quantity has been accepted as not traceable. the addl. commissioner imposed a penalty of rs. 10,000/- on appellants plastic colour corporation under section 173q of central excise rules. on seized goods he appropriated amount of rs. 15,000/- towards redemption fine.5. as regards appellants polymer alloys the addl. commissioner demanded duty on 346 kg of waste and further ordered they should account for the other material and either pay duty or return the material as per procedure prescribed under rule 57f(2) to appellants plasticolour corporation. addl. commissioner also imposed a penalty of rs. 5,0007- under section 173q of the central excise rules on appellants polymer alloys.6. we have heard shri daven parekh, the ld. counsel for the appellants and shri gurdeep singh, the ld. dr. it has been submitted by the ld.counsel that the case against the appellants has been set up on a visit to their factories situated in the same compound by the officers on 20-9-1988. for the three preceding days modvat audit party had been checking their records. their regular employee looking after central excise work had gone on leave and his substitute who attended to the audit party work was new. he could not attend to regular central excise work of making entries in records like rg and also preparing challans for sending materials under rule 57f(2) while attending to audit party.but during those days production work continued and so the accounting work fell into arrears. they are a small unit and only one person attended to central excise work. it is pointed out that no discrepancies had been detected for the period prior to 16-9-1988 i.e.date of audit party visit. some of the shortages in one unit could be found with the other unit and others had been used in production of final product during the three days of audit. on the other hand ld. dr has pointed out that where addl. commissioner was satisfied about the explanation of discrepancy, he had accepted it and had not demanded duty. duty has been demanded rightly on such quantity of the material for which the explanation given was not substantiated by evidence. so far as the job worker appellant is concerned, they have been only asked to either pay duty or send the material back to the other appellants.7. on a careful examination of the rival contentions it is seen that the appellants themselves are not seriously pressing their case against the demand for duty on 36.1 kg of black plastic granule waste reported to have been thrown away, as submitted before us by the ld. counsel.8. apart from that, it is seen that the demand of duty on hdpe1587 kg is on the ground that equal quantity was not found with polymer alloys.but the show cause notice issued to polymer alloys does show presence of hdpe in their premises. the appellants' explanation is that at the time audit party was carrying out audit, this quantity of hdpe was sent from appellants plasticolour corporation to polymer alloys for drying as their drier was not working properly. it is further explained that out of 1587 kg of hdpe, 1345 kg plus 175 amounting 1520 kg were found in the premises of polymer alloys. the show cause notice to polymer alloys confirms this. the balance shortage is further explained as due to weight loss because of evaporation of moisture. this is due to the fact that hdpe is cut under water and hence has a high moisture content which has to be dried. it is also relevant to note that shri nair of plasticolour corporation in his statement following the detection of the discrepancies had said that 1325 kg plus 10 bags of 250 kg plus one bag of 10 kg had been sent to polymer alloys for drying as their drier was not working properly. therefore, it is evident that exactly equivalent quantity of hdpe found short in one unit could not have been found in the other. there is thus sufficient material on record by which the appellants have probabilised their defence in this regard which needs acceptance especially in the absence of denial by the department about the high moisture content of cut hdpe. yet penalty on the appellants polycolour corporation in this regard will be justified for the sending of finished hdpe to job worker, which is outside purview of permission under rule 57f(2) altogether.8. except for the above, the duty demand on other counts has to be upheld in respect of appellants plasticolour corpn. as we see no ground to fault the reasoning of the addl. commissioner. however, the penalty on this appellant is, in the circumstances of the case, reduced from rs. 10,000/- to rs. 5,000/-. (rupees five thousand only).9. so far as appellants polymer alloys are concerned, having regard to their role as job worker for the other appellants, and the nature of the offence vis-a-vis this unit, the penalty on them is also reduced from rs. 5,000/- to rs. 1,000/- (rupees one thousand) only.

Judgment:
1. Both appellants viz. Plasticolour Corporation and Polymer Alloys are engaged in the manufacture of black sheating compound and HDPE granules, filled reinforced thermoplastic and black polythelene granules etc. covered under Chapter 39 of the Central Excise Tariff Act, 1985 and holding the Central Excise licence No. ARIII/14/83 and AR III/Ch.39/8/87. The said units were availing Modvat facility under Rule 57A and holding permission under Rule 57F(2) at the job worker's premises viz. M/s. Polymer Alloys.

2. During the course of checking by the staff of the Central Excise office, the stock of finished and semi-finished goods and inputs in the premises of M/s. Plasticolour Corporation and Polymer Alloys it was noticed that there were differences in physical stock and statutory records. The finished goods i.e.. black sheating compound 8387.9 kgs duly packed in HDPE bags ready for delivery were also lying in finishing room of M/s. Plasticolour Corporation was not accounted for in any Central Excise records. The party had indulged in the illicit removal of the finished goods and also failed to pay the Central Excise duty on 3305.420 kgs. amounting to Rs. 46,803.86 and also failed to pay the Central Excise Duty on 31267.615 kgs. of inputs cleared illicitly on which credit of Rs. 3,25,452.32 was availed by them, according to the Department.

3. The goods total 19141.500 kgs valued at Rs. 6,42,935.40 which were available in the premises of M/s. Polymer Alloys was not accounted for in any of the unit were placed under seizure except a film making material. Thus they had contravened the provision of Rule 173Q(2) read with Rule 53 of the Central Excise Rules, 1944, it was alleged.

4. Show cause notices were issued to each of the appellants and on considering their replies and hearing them in the matter, the Addl.

Commissioner of C. Ex., Ahmedabad passed the impugned order. Regarding 8387 kg of finished goods black cable sheating compound found in excess with appellants Plasticolour Corpn., he accepted their explanation that it was the production of 19-9-1998 and not accounted yet in RG accounts. Regarding a quantity of 36.1. kg. black plastic granules reported to be waste and thrown away, the Addl. Commissioner confirmed the demand for want of evidence to substantiate the plea. In respect of material HDPE found short 1587 kg and a quantity of 1682.32 kg. filled reinforced thermoplastic found short, the Addl. Commissioner did not accept the defence of appellants that equal quantity was sent for drying to job workers Polymer Alloys as he held that it was not so found with them. The other plea in this regard that the thermoplastic material was used up in production of 18-9-1988 and 19-9-1988 was also rejected for want of substantiation. A quantity of 634 kg HDPE was also found liable to duty as this quantity has been accepted as not traceable. The Addl. Commissioner imposed a penalty of Rs. 10,000/- on appellants Plastic Colour Corporation under Section 173Q of Central Excise Rules. On seized goods he appropriated amount of Rs. 15,000/- towards redemption fine.

5. As regards appellants Polymer Alloys the Addl. Commissioner demanded duty on 346 kg of waste and further ordered they should account for the other material and either pay duty or return the material as per procedure prescribed under Rule 57F(2) to appellants Plasticolour Corporation. Addl. Commissioner also imposed a penalty of Rs. 5,0007- under Section 173Q of the Central Excise Rules on appellants Polymer Alloys.

6. We have heard Shri Daven Parekh, the ld. Counsel for the appellants and Shri Gurdeep Singh, the ld. DR. It has been submitted by the ld.Counsel that the case against the appellants has been set up on a visit to their factories situated in the same compound by the officers on 20-9-1988. For the three preceding days Modvat audit party had been checking their records. Their regular employee looking after Central Excise work had gone on leave and his substitute who attended to the audit party work was new. He could not attend to regular Central Excise work of making entries in records like RG and also preparing challans for sending materials under Rule 57F(2) while attending to audit party.

But during those days production work continued and so the accounting work fell into arrears. They are a small unit and only one person attended to Central Excise work. It is pointed out that no discrepancies had been detected for the period prior to 16-9-1988 i.e.

date of audit party visit. Some of the shortages in one unit could be found with the other unit and others had been used in production of final product during the three days of audit. On the other hand ld. DR has pointed out that where Addl. Commissioner was satisfied about the explanation of discrepancy, he had accepted it and had not demanded duty. Duty has been demanded rightly on such quantity of the material for which the explanation given was not substantiated by evidence. So far as the job worker appellant is concerned, they have been only asked to either pay duty or send the material back to the other appellants.

7. On a careful examination of the rival contentions it is seen that the appellants themselves are not seriously pressing their case against the demand for duty on 36.1 kg of black plastic granule waste reported to have been thrown away, as submitted before us by the ld. Counsel.

8. Apart from that, it is seen that the demand of duty on HDPE1587 kg is on the ground that equal quantity was not found with Polymer Alloys.

But the show cause notice issued to Polymer Alloys does show presence of HDPE in their premises. The appellants' explanation is that at the time Audit party was carrying out audit, this quantity of HDPE was sent from appellants Plasticolour Corporation to Polymer Alloys for drying as their drier was not working properly. It is further explained that out of 1587 kg of HDPE, 1345 kg plus 175 amounting 1520 kg were found in the premises of Polymer Alloys. The show cause notice to Polymer Alloys confirms this. The balance shortage is further explained as due to weight loss because of evaporation of moisture. This is due to the fact that HDPE is cut under water and hence has a high moisture content which has to be dried. It is also relevant to note that Shri Nair of Plasticolour Corporation in his statement following the detection of the discrepancies had said that 1325 kg plus 10 bags of 250 kg plus one bag of 10 kg had been sent to Polymer Alloys for drying as their drier was not working properly. Therefore, it is evident that exactly equivalent quantity of HDPE found short in one unit could not have been found in the other. There is thus sufficient material on record by which the appellants have probabilised their defence in this regard which needs acceptance especially in the absence of denial by the department about the high moisture content of cut HDPE. Yet penalty on the appellants Polycolour Corporation in this regard will be justified for the sending of finished HDPE to job worker, which is outside purview of permission under Rule 57F(2) altogether.

8. Except for the above, the duty demand on other counts has to be upheld in respect of appellants Plasticolour Corpn. as we see no ground to fault the reasoning of the Addl. Commissioner. However, the penalty on this appellant is, in the circumstances of the case, reduced from Rs. 10,000/- to Rs. 5,000/-. (Rupees Five thousand only).

9. So far as appellants Polymer Alloys are concerned, having regard to their role as job worker for the other appellants, and the nature of the offence vis-a-vis this unit, the penalty on them is also reduced from Rs. 5,000/- to Rs. 1,000/- (Rupees One thousand) only.