Dr. Satish Chandra, J.
All the appeals have been filed by the appellant-assessee against the judgment and order dated 09.09.2003 passed by the Customs Excise & Service Tax Appellate Tribunal, New Delhi in E/501-503/0-C, E/997 & 1004-02-C of 2002.
The Appeal Defective No. 54 of 2004 is the quantum appeal and remaining appeals are pertaining to the various penalties.
On 19.08.2010, a Co-ordinate Bench has admitted the quantum appeal on following substantial questions of law:-
'....(1) Whether in spite of the appellant having specifically pressed ground no.1 of the memorandum of appeal regarding process loss and the provisions of rule 57D which permits the process loss (waste) be not liable to be reversed for claiming the Modvat Credit; the Tribunal was not justified in overlooking the provisions of Rule 57D while holding that there is no question of reversal of any amount of Modvat Credit?
(2) Whether there cannot be 100% ratio of the input of raw material and the manufactured quantity of the goods namely HDPE bags/fabric product and the Tribunal was not justified in holding that in view of the Chapter Note on Plastic and Articles under Chapter 39, there could not be any process loss by overlooking the fact that the said chapter is applicable to the goods falling under heading 39.01 to 39.14 whereas the final product of the appellant falls under Chapter 39.23 and 39.26 respectively to whom the said Chapter Note does not apply.
(3) In case the aforesaid questions are answered in favour of the Appellant, then whether the penalty should be proportionately reduced.'
The brief facts of the case are that assessee's company was engaged in the manufacturing of HDPE/PP bags and fabrics falling under Chapter-39 of the Central Excise Tariff Act, 1985. On 19.03.1999, a team of Central Excise Officers visited the factory premises of the appellant-assessee. After physical checking of stock of finished excisable products namely H.D.P.E./P/P fabrics, H.D.P.E./P.P Cement Bags and H.D.P.E./PP Wastage, the excess stocks of 3899.8 Kg. of fabrics, 37739 cement bags and 1550 Kg. of wastage was detected and seized on the spot for which a demand cum show cause notice was issued to the party separately. The authorities concerned has demanded the excise duty of Rs. 52,25,447/- with the equal amount of penalty for a period of August,1997 to August, 1999 against the appellant's company and imposed the penalty against the other appellants as per the details mentioned in the relevant orders. All the orders were confirmed not only by the first appellate authority but also by the Tribunal. Still being aggrieved, the appellants have filed the present appeals. With this background, Sri Bharatji Agrawal, learned Senior counsel assisted by Sri Piyush Agrawal, learned counsel for the appellants at the strength of written note submitted that the job work was done between 21st April, 1999 to 26th August, 1999, while the period in dispute is August, 1997 to 31st August, 1999 and August 2001 when the appellant has done its own manufacture also. He further submitted that the Tribunal has held that the appellant had been availing the benefit of MODVAT credit, and they have reversed the amount of MODVAT credit due to handling and process loss. The Tribunal committed an error of law that no handling/process loss could occur while dealing with the raw material by the appellant for job work from its supplier. No reason has been given. It is also a submission of the learned counsel that the Tribunal was not justified in disallowing MODVAT credit under Rule 57-D of Excise Rules. Plastic and articles thereto are covered by Chapter 39.23 by overlooking the fact that Chapter Heading 39.23 covers Articles for the conveyance or packaging of goods and Chapter Heading 39.23, 10.90 covers sacks and bags. Chapter Heading 39.15 covers wastage also which are subject to the duty at 16%. The raw materials of the appellant's company are plastic granules, polymers etc. which are used in the manufacture of HDPE bags. Hence, there has to be process loss under Rule 57-D. Therefore, the credit of duty on input cannot be reversed on the ground that part of the input is contained the wastage, which as a general phenomena is to be considered and allowed, and the details of such wastage having been given in Ground No.1 of the memorandum of appeal, but the same has not been considered by the Tribunal.
It is also a submission of the learned counsel for the assessee-appellant that appellants were maintaining the account books in the regular course and also maintained all the records. The show cause notices were issued to the appellant on the ground that the production shown by the appellants in RG-1 register are not proportionate to the raw materials issued and the production shown inasmuch as the production shown is lower than the raw materials issued which gives a suspicion for suppression of actual production. One Sri S.V. Giri was looking after the excise matters, he was out of the factory when the raid was conducted so entries could not be entered in RG-1 in the morning as he had gone to the Central Excise office located at 35km. away from the factory premises.
Learned counsel submitted that the work in progress was totally ignored while arriving at the finding of suppressed production/clandestine removal. This aspect was ignored by the authorities. For the purpose, he relied on the ratio laid down in the following cases:-
(1) CCE Vs. HMM Ltd., 1995(76) ELT-497 (SC);
(2) Pushpam Pharmaceuticals Ltd. Vs. CCE, Bombay 1997 (78) ELT-401(SC);
(3) CCE Vs. Malleable Iron & Steel Castings, 1998 (100) ELT-8 (SC); and
(4) Cosmic Dye Chem, 1995 (785) ELT-721 (SC).
According to the learned counsel for the appellant-assessee, the burden lies on the department to prove that the goods were removed in a clandestine manner. No details were furnished pertaining to the transportation of the goods from the factory premises, so, the allegations are imaginary, frivolous and whimsical having no justification in law. If the department cannot be guided by facts and evidence, it cannot jump to conclusions by making assumption and presumptions. No evidence or proof to substantiate the allegation was ever submitted by the department. Lastly, he made a request to set-aside the impugned orders.
On the other hand, Sri R.C. Shukla, learned counsel for the department-respondent justified the impugned orders. He submitted that the appellants have been availing the benefit of MODVAT Credit and they never reversed any amount out of MODVAT Credit due to handling and process loss. They never informed the department about the losses. Moreover, no handling loss could occur while dealing raw materials received by the appellants for job works from the suppliers.
Regarding the process loss, the stand of the appellants is not legally tenable as the weight of the final product plus weight of wastage has to be equal to the total weight of input utilised in the manufacture of final products. From the details of the job work furnished by the appellants, it is evident that total raw materials received by them was equal to the total materials dispatched by them. So the computation shown by the appellants is not correct. The learned counsel for the department further submitted that the Hon'ble Apex Court in the case of Collector of Customs, Madras Vs. D. Bhoorman, 1983 (13) ELT 1546, had observed that the burden can be discharged by the department by bringing on record all the facts and circumstances from which calculation drawn to prove that there had been clandestine removal of the goods from the factory premises. On the date of raid (28.07.1998), 5993.06 kg. Fabrics and 1103 fertilizer bags were found in excess. Similarly, on 17.08.1998, 5000 fertilizer bags were found in excess of recorded balance, again on 19.03.1999 excess stock of 3899.8 kg. fabrics, 37739 cement bags and 1550 kg of wastage were found. These facts are enough to reflect the misleading working of the appellants.
It is also a submission of the learned counsel for the department that the assessee has removed the finished goods from the factory without payment of the duty. Regarding the weight of the item, he submitted that the methods adopted by the department was not faulty. The department has taken into the bale weighment charts. The average weighment was done by the officers on the actual basis and not on hypothetical basis on purchase order etc. The average weight of fertilizer bags are 110.64 gms. and cement bags of 68.67 gms. arrived at by the officers could not be in any manner said to be incorrect or faulty, especially when the method was not disputed at the time of weightment.
We heard both the parties at length and gone through the materials available on record. From the record, it appears that during the period of 21.04.1999 to 26.08.1999, the appellants did job work of 1,29,430 kgs. of inputs used for the manufacture of fabric, bags and wastage for a particular period. The total weight of input used must be equal to the weight of finished product manufactured including wastage and that there is no process loss. The most vital evidence in the instant case is the job work done by the party for different customers from time to time. For example, raw material received from 21.4.99 to 26.8.99 is equal to 129430 kgs. and total material dispatched is equal to 129430 kg. It means the total weight of fabric/bags manufactured plus wastage will be equal to the total weight of inputs used for manufacturing.
Regarding the weighment of bags, it appears that the department has adopted the best possible method i.e. bale weighment charts which means that the average weighment was done on the actual basis and not with hypothetical basis on purchase order etc. From the record, it also appears that the appellants claimed to have consumed 11,134 kgs. of fabrics for packing purposes but their claim had been rightly not accepted by the adjudicating authority.
They never informed about this fact to the department, even no entry in this regard was made by them in the statutory records. They also did not pay the duty/reverse the Modvat Credit for this purpose. In fact, they wanted to take advantage on their own fault by not maintaining the record for captive consumption properly. Their record showed that they had no balance of fabrics after 13.8.1998. Whatever fabrics was manufactured till 13.8.1998, they consumed the same in the manufacture of cement/fertilizers bags, during the period 1.8.1998 to 13.8.1998. Similarly, on 17.08.1998, 5000 fertilizer bags were found in excess of the recorded balance and again on 19.3.1999, excess stock of 3899.8 kgs. fabric, 37,739 cement bags and 1,550 kgs. Of wastage were found. This circumstance is enough to adversely reflect on the working of the appellants.
From the above, it appears that the appellant has manufactured and removed the goods without payment of duty as per the
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details given in the order of authorities below. The circumstances goes long way coupled with other materials are sufficient to prove that there had been unaccounted production and removal of the goods in clandestine manner by the appellant during the period in question without payment of duty. When it is so, then we find no reason to interfere with the impugned order passed by the Tribunal. Hence, the same is hereby sustained alongwith the reasons mentioned therein. The answer to substantial questions of law is in favour of the department and against the assessee appellant. Regarding the remaining appeals pertaining to the penalties, it appears that all the persons were involved alongwith the appellant's company in the illegal activity of clandestine production and removal of the goods without payment of duty. Therefore, they had rightly penalized under Rule-209A of the Central Excise Rules. For the reasons mentioned in the order of the authorities below, we find no reasons to interfere with the impugned orders. Hence, the same are hereby sustained alongwith the reasons mentioned therein. In the result, all the appeals filed by the assessee-appellants are hereby dismissed.