L. Kant Paper Mills (P) Ltd. Vs. C.C.E. - Court Judgment

Excerpt:
1. this appeal has been filed against the order confirming the demand of duty of rs. 22,67,723.81 and penalty of rs. 50.00 lakh.2. the facts of the case, in brief, are that central excise officers visited the factory premises of the appellants on 14.2.1991. the appellants are engaged in the manufacture of duplex boards.verification resulted in recovery of various records viz. 3 log books of machines for the period between 25.7.90, to 28.7.90, 20.12.90 to 30.1.91 and 31.1.91 to 14.2.91. power consumption register for a period of 1.7.90 to 9.8.90 and 13 duplex board pieces showing production; 18 raw material purchase challans and copies of electricity consumption bills up to january, 1991. the documents were found to be incriminating and were, therefore, seized.3. on physical verification of the stock, the following discrepancies were found:___________________________________________________________________________s. description recorded balance as stock physicallyno. of goods per rg. 1, rg. 23 pt. ia found___________________________________________________________________________ finished goods1. duplex board 48.657 mt 33.877 mt raw materials5. caustic soda 15.000 mt 13.000 mt___________________________________________________________________________ 4. further it was noticed that rgi register was written up to 12.2.91; form iv register was written up to 31.12.90 and rg 23a part i was filled up to 4.2.1991.5. scrutiny of the machine log books indicated that quantities of 7.3 mt and 8.4 mt of finished goods were produced on 12th february 1991 and 13th february, 1991 respectively. on checking the entries of clearances, it was observed that entries were made only up to 11.2.1991 in rgi register up to gate pass no. 368 dt. 11.2.91. a quantity of 6.1.mt was found to have been cleared on 13.2.91 under the cover of gpi no.369 dt. 13.2.91. the amount of duty involved was not found debited in rg 23a part ii in spite of the fact that a reference to debit entry at si. no. 68 of rg 23a part ii in gpi 369 was made. taking these entries into account, the appellants should have held a closing stock of finished goods to the tune of 58.253 mt whereas on physical verification, same was found to be of the order of 33.877 mt; therefore there was a shortage of 24.376 mt involving duty amounting to rs. 17,916.36. similarly the shortage of raw materials as indicated in the aforesaid chart was detected.6. statements of shri jaikaran singh was recorded on 14.2.91. he confirmed non-maintenance of records up to date; admitted shrotages in stock of finished goods and raw materials and stated that these can be explained only by shri laxmi kant, director.7. shri laxmi kant's statement was recorded on 14.2.91 and subsequently on 5.3.1991 and 15.3.91. in his statement, shri laxmi kant stated that the waste paper, the major raw materials on which they are not availing modvat is recorded in form iv register and other items of raw materials on which modvat is taken are incorporated in rg 23a part i; that the production capacity of the plant was 15 tons per day and that out of 100 kgs of waste paper, about 75 to 80 kgs duplex boards were produced.8. shri kant stated that the plant commenced production on 6.3.1990; that power consumption was reflected in electricity bills of february, 1990 represents the powers consumed in the commissioning of the machines; that the factory runs in 3 shifts; that the production is first entered in rg1 and the figures pertaining to raw materials issued in form iv are entered thereafter based on production figures of rg1 adopting formula of 75% to 80% yield; that in respect of raw materials on which modvat is availed, the issue figures are entered on weekly basis even though material used on day-to-day basis based on the requirement for a unit quantity of finished goods. he, however, could not explain the shortages found on physical stock verification. about machine log books, he stated that the same were maintained by production staff and that he had given no orders for maintaining them.he, however, confirmed that the signatures of log books were of shift incharges of his factory. he also admitted that the power consumption register has been prepared under his orders for the period from 1.7.90 to 9.8.90. in respect of the duplex board cards incorporating production figures, he stated that the same were prepared by production staff, but that neither he had given any instruction to prepare such records nor he had any knowledge about these.9. shri kailash, shift incharge of the unit, in his statement recorded on 12.3.91, stated that production capacity of the machine installed in the unit is 15 tonnes per day: that the log books are prepared to give the owner first hand information of the happenings of the shifts/day; that as per directions of the employer, details of production were entered in such log books after 31.1.91; that the production details are recorded daily on production cards and sent to the office everyday.10. the department also found a letter of pickup, sanctioning financial assistance for the project indicating that the installed capacity of the plant was 5000 mtper annum, the average installed capacity was not less than 18 mt. a show cause notice was issued to the appellants asking them to explain as to why duty should not be demanded on 24.376 mt of duplex boards found short; 6.1 mt duplex boards cleared on gp1 without debiting duty leviable: 73.631 mt duplex boards; 407.502 mt duplex boards; 35.09 mt of duplex boards; 43.8 mt of duplex boards; 256.315 mt and 3899.557 mt of duplex boards and why penalty should not be imposed on them.11. in reply to the show cause notice, the appellants submitted that rg1 register was written only up to 12.2.91 and that the production of 12.2.91 and 13.2.91 was not entered as on 14.2.91 the register was taken over by the central excise visiting officers; that the production of 12.2.91 and 13.2.91 was to be entered on 14.2.91 after finishing and sorting and taking of the last shift of 13.2.91; that the entries for production of these two days could not be made in the rg1 due to absence of dealing hands.12. in regard to the debit entry of gp1 369 dt. 13.2.91, they submitted that it was due to clerical error; that the corresponding entries in rg 23 part 2 could not be made. regarding non-maintenance of raw-material account, it was submitted that it was on account of carelessness and frequent absence of the delaing hand, that there was no intention on their part to evade duty by not accounting the raw materials; that some times inferior quality waste paper was received by them which was rejected and returned. it was also submitted by them that the stock of waste paper was not verified by the officers; that there was sufficient stock of waste paper on 14.2.91; that there was no justification for demand of duty on unaccounted waste paper in the absence of any evidence of consumption of the same.13. explaining the shortage of 24.38 mt of finished goods as on 14.2.91, it was stated that 20.112 mt of stock had got spoiled during rainy season and recycled into finished goods. as a result, the balance of rg1 register as on 12.2.91 stood inflated by 20.112 mt. it was submitted by them that the finished goods so made had been recorded on 25.1.91, 28.1.91 and 29.1.91.14. regarding short accountal of production of 73.631 mt of finished goods as worked out from the resumed log books, it was submitted that the log book was not maintained under the directions of the management.it was also submitted that shri g.s. rajput who had signed the log book was not on their pay-roll. that the statement of shri kailash nath, supervisor was taken under duress; that the factory did not work on sundays whereas the log book shows production on sundays.15. non-accountal of production of 407.507 mt from 1.7.90 to 10.8.90 as worked out from electricity consumption register was explained by saying that shri raju gupta, electrician who maintained this register left the company on 11.8.90; that the maximum capacity of the paint was 5000 mt per annum or 15.15 mt per day of 3 shifts; that the show cause notice reflects production capacity of more than 15 mt per day; that there was no evidence placed on record by the department that sufficient raw material was procured to manufacture this quantity of production.16. regarding production of 35.09 mt duplex boards, reflected by card-board pieces, it was contended that these production cards were not maintained under the orders of the management and that they did not contain the production figures as they did not mention the name of the factory or signature of any person.17. regarding excess production of 256.315 mt for the period up to march 1990 and 3899.557 mt during 1990-1991, it was submitted that these figures have been arrived at by calculating the production on prorata basis on the basis of power consumption and production shown from 1.7.90 to 10.8.90 and that the department had not produced any evidence of clandestine production and removal.18. other discrepancies were explained in similar way. after careful consideration of the submissions made, the adjudicating authority demanded duties and imposed penalty as indicated above.19. shri pradeep jain, the id. advocate, appearing for the appellants, submitted that the collector has erred in relying upon certain documents in the form of log book, electricity consumption bills, pieces of duplex board for demanding differential duty over and above, the quantity shown in rg1 register; that no evidence has been placed on record that the appellants during the material period had obtained huge quantities of raw materials for manufacture of the alleged quantity of duplex boards. it was also contended by them that this much production could not be obtained as the maximum capacity of the plant was 15 mt per day; that the collector has relied on the statements of the people who were not offered for cross-examination though specifically requested by the appellant.20. in regard to non-inclusion of production of 2 days in rg1, viz.12.2.1991 and 13.2.1991 and non-inclusion of certain receipt of inputs and debit of credit in rg 23a part 2, a presumption has been taken that the excess quantities were manufactured and removed clandestinely; that the machine log books should have not been relied upon as they did not contain anything in order to compare the same with rg1; that the statement of shri kailash nath and sri jaikaran singh to implicate the appellant should not have been relied upon in regard to machine log book as they were not offered for cross-examination though specifically requested for by the appellants; that the machine log book only gives the details of the position/working of the machine and not the actual production of the goods on which duty should have been paid; that the collector had not conducted any investigation except the statement of shri jaikaran singh. he submitted that shri jaikaran singh was not offered for cross-examination though it was specifically asked for; that the entries in log book were not signed by any body; neither were they in the hand-writing nor was the hand-writing identified; that the duplex card board slips contains certain figures; that there is no reason given as to why these figures were taken as the figures of production without any corroborative evidence.; that the statements were retracted by an affidavit.21. the id. counsel also submitted that merely because form iv register was filled up to 31.3.1990 it does not conclude that the appellant had manufactured the finished product and had clandestinely removed the same over and above the rg1 register; that the appellants had explained that entries were being made in the registers maintained by them.22. on the question of calculating duplex board production based on power consumption, the id. counsel submitted that power consumption register relied upon was for the period from 1.7.90 to 10.8.90; that while the figures recorded in power consumption register have been accepted, the statement of shri laxmi kant agarwal has been relied upon although the same has been retracted subsequently; that is was also argued by the counsel for the appellants that the demand of rs. 22,67,723,81 has been forced on the appellants on the basis of electricity consumption whereas it is an admitted position that on the alleged meter reading register, production figures are alleged to have been found only for the period from 1.7.90 to 10.8.90; that in the absence of any such alleged figure of electricity consumption for the remaining period, it is a total presumption that excess duty has been evaded; that the collector has demanded duty on the quantities over and above the rg1 register which makes the production up to 21 mt per day which is beyond the installed capacity of the plant; that no evidence was produced that the maximum installed capacity of the plant was 15 mt per day of the 3 shifts during the relevant period; that there was frequent power cuts in kanpur and, therefore, the installed capacity of production cannot be obtained regularly; that there are timely cleanings and long closures of the factory and, therefore, the pro rata calculation figure is most inappropriate; that no evidence has been placed on record to show that the appellants had procured prorata raw materials for the manufacture of the alleged quantities of finished product.23. the id. counsel, summing up his arguments, prays that in view of the above submissions the appeal may be allowed.24. shri p.k. jain, the id. sdr appearing for the revenue, submits that the collector has given detailed findings in the impugned order and that he reiterates those findings, adding that the pro rata production was calculated on the basis of consumption of electricity and the production during that particular period. he submits that this basis appears to be a sound basis and the collector has rightly calculated the production based on the electricity consumed and the production figure during the relevant period.25. heard the submissions of both sides. perused the evidences on record. we find that particularly the following issues arise for determination.26. we note that physical verification of the stock was undertaken.physical verification showed that there were certain shortages. we also note that rg1 register was written upto 12.2.1991. the officers visited their factory on 14.2.1991. the facts have been taken into consideration while arriving at the figure of shortage of 24.376 mt and we uphold the finding in the impugned order on this account.27. the explanation of the appellant that the figure of 6.1 mt duplex board cleared in gp1 without debiting duty leviable is not acceptable and, therefore, duty amounting to rs.2,168.06 has been correctly confirmed in the impugned order.28. having regard to the demand of duty on 73.631 mt duplex boards, we note that this figure is based on the production cards on 2.2.91, 3.2.91, 11.2.91;and 13.2.91. these figures are not independent, but tally with the figure shown in the machine log books. since these figures are based on documents and no evidence has been produced as to what these figures were, simply saying that the log books and duplex board cards were not maintained under orders of the management, does not prove that the figures could not be relied upon. no alternative explanation has been given by the appellants to prove that the figures in the log books and duplex board cards indicate not the production, but some other thing. in the absence of and proof produced by the appellants, we uphold that these figures indicated production and since the goods were not removed with payment of duty, therefore, duty has been correctly demanded on them.29. from the evidence placed before us in respect of 407.502 mt of duplex board, we note that this figure has been arrived at on the strength of power consumption register which incorporated not only the daily power consumption details, but also the corresponding daily production figures for a period of 39 days. when these figures were compared with the production recorded in rg1 register, it showed that the appellants had recorded only 155.190 mt of duplex boards against the production figure of 562.792 mt. thus, the production was recorded short by 407.502 mt. the explanation of the appellants was that such huge quantity of finished goods of duplex boards cannot be manufactured as it required substantial inputs and that no evidence has been placed on record that such substantial quantities of inputs were procured by the appellants. it was also contended by the appellants that the capacity of the plant was only 15 mt per day. it was also contended by them that the collector has wrongly relied upon the power consumption register for the period from 1.7.90 to 10.8.90 and that it would look absurd for any party to maintain such power consumption register for only a short period if the said party is to engage itself in clandestine removal. we note that instead of explaining the position and explaining the figures in the power consumption register, the appellants have contended that nobody would maintain such a register for a short duration. we note that power consumption is one of the factors. we also note that power consumption bills are received periodically. we also note that the maintenance of the power consumption register under the direction of the director has been admitted by the director himself. the appellants have not explained as to what the figures of production shown in the power consumption register pertain to any other category except the production. in the absence of any explanation coming forth from the appellants as to how the figures of production were recorded in the register, were different from the actual production date-wise in that register. we, therefore, hold that the appellants have not explained the entries in the register and, therefore, the lower authorities have rightly taken the figures as figures of production as shown in the register and uphold the demand of duty on the quantity of duplex boards produced, but not recorded in the rg1 register. we also note that the admitted position by the appellants was that the installed capacity of the plant was 15 mt per day. we note that the power consumption register was maintained for 39 days and if we multiply this with the per day production at the rate of 15 mt/day, the production for 39 days will be 585 mt. the production according to the power consumption register during the 39 days comes to 562.792 which is less than the estimated production. moreover, the installed capacity and production capacity of a plant may slightly vary.production may sometimes be more and sometimes less. how this figure was in excess greatly on account of production capacity has not been explained by the appellants. we, therefore, hold that duty on this account has been rightly demanded by the lower authorities. the impugned order confirming the demand of duty on the production not recorded in this regard is upheld.30. a lot of emphasis was placed on installed capacity of the plant.here we are not concerned with the installed capacity. we are concerned with the production capacity. production capacity may be slightly more or slightly less than the installed capacity depending on a number of factors. that simply because the installed capacity of the plant was 15 mt, nothing has been brought on record that the production capacity was not more on certain days or during a certain period.31. in regard to demand of duty on 43.800 mt of duplex boards arrived at on the basis of adopting the norm that 80 kgs of duplex boards are normally produced out of 100 kgs of waste the paper, we note that this figure has been arrived at on the basis of 18 raw-material challans which were not accounted for in form iv register. since there is no evidence that the raw materials received under these bills was actually converted into duplex boards and there is no evidence that such duplex boards were removed without payment of duty; further holding that raw materials might have been consumed for the production of duplex boards, calculated on the basis of power consumed per unit, we hold that demand of duty of rs. 15,549/- on 43.800 mt of duplex boards is not sustainable in law.32. in regard to the production shown in production cards for 6 days, 35.09 mt of duplex boards was found to have been produced in excess of the recorded balance in rgi register. it has been stated that these cards were never maintained under instructions of the management.however, the statement of their employee clearly shows that production cards were being maintained showing the production. the plea that they have not been signed by any body or that the person who maintained them has not been identified is not acceptable in view of the fact that there is a statement of the employee who clearly states that production cards were being maintained. more so, the normal practice in a factory is that the manufacturing section indicates the manufacture in a document and form that document, the production figures are incorporated in the rgi register. looking to this aspect and the facts and contentions of both the parties, we are inclined to accept that the production cards indicated the correct production for the days. in this view of the matter, we sustain the findings in the impugned order in respect of the excess production of 35.06 mt of duplex boards over and above the balance recorded in rgi and confirm the demand on this duplex board to the extent of rs. 12,452.90.33. in regard to calculating the production for the periods alleged in the show cause notice on the basis of average production and power consumption, we hold that there is sufficient material placed in the records inasmuch as the power consumption register pertains to day-to-day figures for 39 days showing consumption of power date-wise as well as production of goods. this becomes a base for determining the normal production based on the number of units consumed for 1 mt of duplex boards. under the central excise rules, there is a provision for such determination. we also note that this determination is spread over 39 days which is sufficiently long time to be representative of the norm of production. we also note that the director of the appellant company has admitted that this power consumption register was maintained under his orders. looking to this aspect and also the fact that during these 39 days, the production was being recorded in the power consumption register as also consumption of electricity date-wise and also the fact that during these days when machine log books were maintained invariably, the production recorded in the rgi register was less than the production recorded in the power consumption register and the machine log book, this was the regular pattern followed by the appellants. in this view of the matter, we hold that on the basis of power consumption register and the production, norm of production was correctly taken by the lower authorities to arrive at a normal recorded production of 256.315 mt of duplex boards for the year feb. 1990 to march. 1990 and of 3899.557 mt of duplex boards produced but not recorded during the period april, 1990 to 31.2.91. we, therefore, uphold the findings in the impugned order in this regard.34. on the question of penalty, after looking into all the facts and circumstances and the evidence on record, we note that the quantum of penalty is too high. having regard to all the facts and the discussion on various shortages, as indicated above, we reduce the penalty to rs. 10.00 lakh (rupees ten lakh).35. two more issues were raised in the contentions of the appellant.the first issue was about cross-examination of certain individuals who had explained the entries in the records. we note that only the entries have been explained by these employees. no alternative explanation has been given by the appellant. the records are self-explanatory and, therefore, we hold that denial of the opportunity of cross-examination has not resulted in miscarriage of justice.36. the second issue was about retraction. we note that the statements are only explanation of records. explaining the records differently or attaching a different meaning to those explanations is no retraction.this appears to be only a device to get away from the rigorus of penalty etc. we, therefore, hold that retraction is a mere formality and an after-thought.37. but for the above modifications, the impugned order is upheld and the appeal is disposed of accordingly.

Judgment:
1. This appeal has been filed against the Order confirming the demand of duty of Rs. 22,67,723.81 and penalty of Rs. 50.00 lakh.

2. The facts of the case, in brief, are that Central Excise Officers visited the factory premises of the appellants on 14.2.1991. The appellants are engaged in the manufacture of Duplex Boards.

Verification resulted in recovery of various records viz. 3 Log Books of machines for the period between 25.7.90, to 28.7.90, 20.12.90 to 30.1.91 and 31.1.91 to 14.2.91. Power Consumption Register for a period of 1.7.90 to 9.8.90 and 13 Duplex Board pieces showing production; 18 raw material purchase challans and copies of Electricity consumption bills up to January, 1991. The documents were found to be Incriminating and were, therefore, seized.

3. On physical verification of the stock, the following discrepancies were found:___________________________________________________________________________S. Description Recorded Balance as Stock physicallyNo. of goods per RG. 1, Rg. 23 Pt. IA found___________________________________________________________________________ FINISHED GOODS1.

Duplex Board 48.657 MT 33.877 MT Raw Materials5.

Caustic Soda 15.000 MT 13.000 MT___________________________________________________________________________ 4. Further it was noticed that RGI register was written up to 12.2.91; Form IV Register was written up to 31.12.90 and RG 23A Part I was filled up to 4.2.1991.

5. Scrutiny of the Machine Log Books indicated that quantities of 7.3 MT and 8.4 MT of finished goods were produced on 12th February 1991 and 13th February, 1991 respectively. On checking the entries of clearances, it was observed that entries were made only up to 11.2.1991 in RGI Register up to Gate Pass No. 368 dt. 11.2.91. A quantity of 6.1.

MT was found to have been cleared on 13.2.91 under the cover of GPI No.369 dt. 13.2.91. The amount of duty involved was not found debited in RG 23A Part II in spite of the fact that a reference to debit entry at SI. No. 68 of RG 23A Part II in GPI 369 was made. Taking these entries into account, the appellants should have held a closing stock of finished goods to the tune of 58.253 MT whereas on physical verification, same was found to be of the order of 33.877 MT; therefore there was a shortage of 24.376 MT involving duty amounting to Rs. 17,916.36. Similarly the shortage of raw materials as indicated in the aforesaid chart was detected.

6. Statements of Shri Jaikaran Singh was recorded on 14.2.91. He confirmed non-maintenance of records up to date; admitted shrotages in stock of finished goods and raw materials and stated that these can be explained only by Shri Laxmi Kant, Director.

7. Shri Laxmi Kant's statement was recorded on 14.2.91 and subsequently on 5.3.1991 and 15.3.91. In his statement, Shri Laxmi Kant stated that the waste paper, the major raw materials on which they are not availing modvat is recorded in Form IV Register and other items of raw materials on which modvat is taken are incorporated in RG 23A Part I; that the production capacity of the plant was 15 tons per day and that out of 100 KGs of waste paper, about 75 to 80 KGs Duplex Boards were produced.

8. Shri Kant stated that the plant commenced production on 6.3.1990; that power consumption was reflected in electricity bills of February, 1990 represents the powers consumed in the commissioning of the machines; that the factory runs in 3 shifts; that the production is first entered in RG1 and the figures pertaining to raw materials issued in Form IV are entered thereafter based on production figures of RG1 adopting formula of 75% to 80% yield; that in respect of raw materials on which modvat is availed, the issue figures are entered on weekly basis even though material used on day-to-day basis based on the requirement for a unit quantity of finished goods. He, however, could not explain the shortages found on physical stock verification. About machine log books, he stated that the same were maintained by production staff and that he had given no orders for maintaining them.

He, however, confirmed that the signatures of Log books were of shift incharges of his factory. He also admitted that the power consumption register has been prepared under his orders for the period from 1.7.90 to 9.8.90. In respect of the duplex board cards incorporating production figures, he stated that the same were prepared by production staff, but that neither he had given any instruction to prepare such records nor he had any knowledge about these.

9. Shri Kailash, Shift Incharge of the unit, in his statement recorded on 12.3.91, stated that production capacity of the machine installed in the unit is 15 tonnes per day: that the log books are prepared to give the owner first hand information of the happenings of the shifts/day; that as per directions of the Employer, details of production were entered in such log books after 31.1.91; that the production details are recorded daily on production cards and sent to the office everyday.

10. The Department also found a letter of PICKUP, sanctioning financial assistance for the project indicating that the installed capacity of the plant was 5000 MTper annum, the average installed capacity was not less than 18 MT. A Show Cause Notice was issued to the appellants asking them to explain as to why duty should not be demanded on 24.376 MT of Duplex Boards found short; 6.1 MT Duplex Boards cleared on GP1 without debiting duty leviable: 73.631 MT Duplex Boards; 407.502 MT Duplex Boards; 35.09 MT of Duplex Boards; 43.8 MT of Duplex Boards; 256.315 MT and 3899.557 MT of Duplex Boards and why penalty should not be imposed on them.

11. In reply to the Show Cause Notice, the appellants submitted that RG1 Register was written only up to 12.2.91 and that the production of 12.2.91 and 13.2.91 was not entered as on 14.2.91 the register was taken over by the Central Excise visiting officers; that the production of 12.2.91 and 13.2.91 was to be entered on 14.2.91 after finishing and sorting and taking of the last shift of 13.2.91; that the entries for production of these two days could not be made in the RG1 due to absence of dealing hands.

12. In regard to the debit entry of GP1 369 dt. 13.2.91, they submitted that it was due to clerical error; that the corresponding entries in RG 23 part 2 could not be made. Regarding non-maintenance of raw-material account, it was submitted that it was on account of carelessness and frequent absence of the delaing hand, that there was no intention on their part to evade duty by not accounting the raw materials; that some times inferior quality waste paper was received by them which was rejected and returned. It was also submitted by them that the stock of waste paper was not verified by the officers; that there was sufficient stock of waste paper on 14.2.91; that there was no justification for demand of duty on unaccounted waste paper in the absence of any evidence of consumption of the same.

13. Explaining the shortage of 24.38 MT of finished goods as on 14.2.91, it was stated that 20.112 MT of stock had got spoiled during rainy season and recycled into finished goods. As a result, the balance of RG1 Register as on 12.2.91 stood inflated by 20.112 MT. It was submitted by them that the finished goods so made had been recorded on 25.1.91, 28.1.91 and 29.1.91.

14. Regarding short accountal of production of 73.631 MT of finished goods as worked out from the resumed log books, it was submitted that the log book was not maintained under the directions of the management.

It was also submitted that Shri G.S. Rajput who had signed the log book was not on their pay-roll. that the statement of Shri Kailash Nath, Supervisor was taken under duress; that the factory did not work on Sundays whereas the log book shows production on Sundays.

15. Non-accountal of production of 407.507 MT from 1.7.90 to 10.8.90 as worked out from electricity consumption register was explained by saying that Shri Raju Gupta, Electrician who maintained this register left the company on 11.8.90; that the maximum capacity of the paint was 5000 MT per annum or 15.15 MT per day of 3 shifts; that the Show Cause Notice reflects production capacity of more than 15 MT per day; that there was no evidence placed on record by the Department that sufficient raw material was procured to manufacture this quantity of production.

16. Regarding production of 35.09 MT Duplex Boards, reflected by card-board pieces, it was contended that these production cards were not maintained under the orders of the management and that they did not contain the production figures as they did not mention the name of the factory or signature of any person.

17. Regarding excess production of 256.315 MT for the period up to March 1990 and 3899.557 MT during 1990-1991, it was submitted that these figures have been arrived at by calculating the production on prorata basis on the basis of Power Consumption and production shown from 1.7.90 to 10.8.90 and that the Department had not produced any evidence of clandestine production and removal.

18. Other discrepancies were explained in similar way. After careful consideration of the submissions made, the adjudicating authority demanded duties and imposed penalty as indicated above.

19. Shri Pradeep Jain, the Id. Advocate, appearing for the appellants, submitted that the Collector has erred in relying upon certain documents in the form of Log Book, Electricity consumption bills, pieces of duplex board for demanding differential duty over and above, the quantity shown in RG1 Register; that no evidence has been placed on record that the appellants during the material period had obtained huge quantities of raw materials for manufacture of the alleged quantity of duplex boards. It was also contended by them that this much production could not be obtained as the maximum capacity of the plant was 15 MT per day; that the Collector has relied on the statements of the people who were not offered for cross-examination though specifically requested by the appellant.

20. In regard to non-inclusion of production of 2 days in RG1, viz.

12.2.1991 and 13.2.1991 and non-inclusion of certain receipt of inputs and debit of credit in RG 23A part 2, a presumption has been taken that the excess quantities were manufactured and removed clandestinely; that the machine log books should have not been relied upon as they did not contain anything in order to compare the same with RG1; that the statement of Shri Kailash Nath and Sri Jaikaran Singh to implicate the appellant should not have been relied upon in regard to machine log book as they were not offered for cross-examination though specifically requested for by the appellants; that the machine Log Book only gives the details of the position/working of the machine and not the actual production of the goods on which duty should have been paid; that the Collector had not conducted any investigation except the statement of Shri Jaikaran Singh. He submitted that Shri Jaikaran Singh was not offered for cross-examination though it was specifically asked for; that the entries in Log Book were not signed by any body; neither were they in the hand-writing nor was the hand-writing identified; that the duplex card board slips contains certain figures; that there is no reason given as to why these figures were taken as the figures of production without any corroborative evidence.; that the statements were retracted by an affidavit.

21. The Id. Counsel also submitted that merely because Form IV Register was filled up to 31.3.1990 It does not conclude that the appellant had manufactured the finished product and had clandestinely removed the same over and above the RG1 Register; that the appellants had explained that entries were being made in the Registers maintained by them.

22. On the question of calculating duplex board production based on power consumption, the Id. Counsel submitted that power consumption register relied upon was for the period from 1.7.90 to 10.8.90; that while the figures recorded in power consumption register have been accepted, the Statement of Shri Laxmi Kant Agarwal has been relied upon although the same has been retracted subsequently; that is was also argued by the Counsel for the appellants that the demand of Rs. 22,67,723,81 has been forced on the appellants on the basis of electricity consumption whereas it is an admitted position that on the alleged meter reading Register, production figures are alleged to have been found only for the period from 1.7.90 to 10.8.90; that in the absence of any such alleged figure of electricity consumption for the remaining period, it is a total presumption that excess duty has been evaded; that the Collector has demanded duty on the quantities over and above the RG1 Register which makes the production up to 21 MT per day which is beyond the installed capacity of the plant; that no evidence was produced that the maximum installed capacity of the plant was 15 MT per day of the 3 shifts during the relevant period; that there was frequent power cuts in Kanpur and, therefore, the installed capacity of production cannot be obtained regularly; that there are timely cleanings and long closures of the factory and, therefore, the pro rata calculation figure is most inappropriate; that no evidence has been placed on record to show that the appellants had procured prorata raw materials for the manufacture of the alleged quantities of finished product.

23. The Id. Counsel, summing up his arguments, prays that in view of the above submissions the appeal may be allowed.

24. Shri P.K. Jain, the Id. SDR appearing for the Revenue, submits that the Collector has given detailed findings in the impugned order and that he reiterates those findings, adding that the pro rata production was calculated on the basis of consumption of electricity and the production during that particular period. He submits that this basis appears to be a sound basis and the Collector has rightly calculated the production based on the electricity consumed and the production figure during the relevant period.

25. Heard the submissions of both sides. Perused the evidences on record. We find that particularly the following issues arise for determination.

26. We note that physical verification of the stock was undertaken.

Physical verification showed that there were certain shortages. We also note that RG1 Register was written upto 12.2.1991. The Officers visited their factory on 14.2.1991. The facts have been taken into consideration while arriving at the figure of shortage of 24.376 MT and we uphold the finding in the impugned order on this account.

27. The explanation of the appellant that the figure of 6.1 MT duplex board cleared in GP1 without debiting duty leviable is not acceptable and, therefore, duty amounting to Rs.2,168.06 has been correctly confirmed in the impugned order.

28. Having regard to the demand of duty on 73.631 MT Duplex Boards, we note that this figure is based on the production cards on 2.2.91, 3.2.91, 11.2.91;and 13.2.91. These figures are not independent, but tally with the figure shown in the machine log books. Since these figures are based on documents and no evidence has been produced as to what these figures were, simply saying that the log books and duplex board cards were not maintained under orders of the management, does not prove that the figures could not be relied upon. No alternative explanation has been given by the appellants to prove that the figures in the log books and Duplex Board cards indicate not the production, but some other thing. In the absence of and proof produced by the appellants, we uphold that these figures indicated production and since the goods were not removed with payment of duty, therefore, duty has been correctly demanded on them.

29. From the evidence placed before us in respect of 407.502 MT of Duplex Board, we note that this figure has been arrived at on the strength of Power Consumption Register which incorporated not only the daily power consumption details, but also the corresponding daily production figures for a period of 39 days. When these figures were compared with the production recorded in RG1 Register, it showed that the appellants had recorded only 155.190 MT of Duplex Boards against the production figure of 562.792 MT. Thus, the production was recorded short by 407.502 MT. The explanation of the appellants was that such huge quantity of finished goods of duplex boards cannot be manufactured as it required substantial inputs and that no evidence has been placed on record that such substantial quantities of inputs were procured by the appellants. It was also contended by the appellants that the capacity of the plant was only 15 MT per day. It was also contended by them that the Collector has wrongly relied upon the Power Consumption Register for the period from 1.7.90 to 10.8.90 and that it would look absurd for any party to maintain such power consumption register for only a short period if the said party is to engage itself in clandestine removal. We note that instead of explaining the position and explaining the figures in the Power Consumption Register, the appellants have contended that nobody would maintain such a Register for a short duration. We note that Power Consumption is one of the factors. We also note that power consumption bills are received periodically. We also note that the maintenance of the Power Consumption Register under the direction of the Director has been admitted by the Director himself. The appellants have not explained as to what the figures of production shown in the power Consumption Register pertain to any other category except the production. In the absence of any explanation coming forth from the appellants as to how the figures of production were recorded in the Register, were different from the actual production date-wise in that register. We, therefore, hold that the appellants have not explained the entries in the Register and, therefore, the lower authorities have rightly taken the figures as figures of production as shown in the Register and uphold the demand of duty on the quantity of Duplex Boards produced, but not recorded in the RG1 Register. We also note that the admitted position by the appellants was that the installed capacity of the plant was 15 MT per day. We note that the Power Consumption Register was maintained for 39 days and if we multiply this with the per day production at the rate of 15 MT/day, the production for 39 days will be 585 MT. The production according to the Power Consumption Register during the 39 days comes to 562.792 which is less than the estimated production. Moreover, the installed capacity and production capacity of a plant may slightly vary.

Production may sometimes be more and sometimes less. How this figure was in excess greatly on account of production capacity has not been explained by the appellants. We, therefore, hold that duty on this account has been rightly demanded by the lower authorities. The impugned order confirming the demand of duty on the production not recorded in this regard is upheld.30. A lot of emphasis was placed on installed capacity of the plant.

Here we are not concerned with the installed capacity. We are concerned with the production capacity. Production capacity may be slightly more or slightly less than the installed capacity depending on a number of factors. That simply because the installed capacity of the plant was 15 MT, nothing has been brought on record that the production capacity was not more on certain days or during a certain period.

31. In regard to demand of duty on 43.800 MT of Duplex Boards arrived at on the basis of adopting the norm that 80 Kgs of Duplex Boards are normally produced out of 100 Kgs of waste the paper, we note that this figure has been arrived at on the basis of 18 raw-material challans which were not accounted for in Form IV Register. Since there is no evidence that the raw materials received under these bills was actually converted into Duplex Boards and there is no evidence that such Duplex Boards were removed without payment of duty; further holding that raw materials might have been consumed for the production of Duplex Boards, calculated on the basis of power consumed per unit, we hold that demand of duty of Rs. 15,549/- on 43.800 MT of Duplex Boards is not sustainable in law.

32. In regard to the production shown in production cards for 6 days, 35.09 MT of Duplex Boards was found to have been produced in excess of the recorded balance in RGI Register. It has been stated that these cards were never maintained under instructions of the management.

However, the statement of their Employee clearly shows that production cards were being maintained showing the production. The plea that they have not been signed by any body or that the person who maintained them has not been identified is not acceptable in view of the fact that there is a statement of the employee who clearly states that production cards were being maintained. More so, the normal practice in a factory is that the manufacturing section indicates the manufacture in a document and form that document, the production figures are incorporated in the RGI Register. Looking to this aspect and the facts and contentions of both the parties, we are inclined to accept that the production cards indicated the correct production for the days. In this view of the matter, we sustain the findings in the impugned order in respect of the excess production of 35.06 MT of Duplex Boards over and above the balance recorded in RGI and confirm the demand on this duplex board to the extent of Rs. 12,452.90.

33. In regard to calculating the production for the periods alleged in the Show Cause Notice on the basis of average production and power consumption, we hold that there is sufficient material placed in the records inasmuch as the Power Consumption Register pertains to day-to-day figures for 39 days showing consumption of power date-wise as well as production of goods. This becomes a base for determining the normal production based on the number of units consumed for 1 MT of duplex boards. Under the Central Excise Rules, there is a provision for such determination. We also note that this determination is spread over 39 days which is sufficiently long time to be representative of the norm of production. We also note that the Director of the appellant company has admitted that this Power Consumption Register was maintained under his orders. Looking to this aspect and also the fact that during these 39 days, the production was being recorded in the Power Consumption Register as also consumption of electricity date-wise and also the fact that during these days when machine log books were maintained invariably, the production recorded in the RGI Register was less than the production recorded in the Power Consumption Register and the machine log book, this was the regular pattern followed by the appellants. In this view of the matter, we hold that on the basis of Power Consumption Register and the production, norm of production was correctly taken by the lower authorities to arrive at a normal recorded production of 256.315 MT of duplex boards for the year Feb. 1990 to March. 1990 and of 3899.557 MT of duplex boards produced but not recorded during the period April, 1990 to 31.2.91. We, therefore, uphold the findings in the impugned order in this regard.

34. On the question of penalty, after looking into all the facts and circumstances and the evidence on record, we note that the quantum of penalty is too high. Having regard to all the facts and the discussion on various shortages, as indicated above, we reduce the penalty to Rs. 10.00 lakh (Rupees Ten lakh).

35. Two more issues were raised in the contentions of the appellant.

The first issue was about cross-examination of certain individuals who had explained the entries in the records. We note that only the entries have been explained by these employees. No alternative explanation has been given by the appellant. The records are self-explanatory and, therefore, we hold that denial of the opportunity of cross-examination has not resulted in miscarriage of justice.

36. The second issue was about retraction. We note that the statements are only explanation of records. Explaining the records differently or attaching a different meaning to those explanations is no retraction.

This appears to be only a device to get away from the rigorus of penalty etc. We, therefore, hold that retraction is a mere formality and an after-thought.

37. But for the above modifications, the impugned order is upheld and the appeal is disposed of accordingly.