(1.) THE appellants are inter alia engaged in the manufacture of Reverse Osmosis, Membrane Loaded Water Treatment System, Filtration, Desalination Plants which were cleared by them both on payment of duty as well as under exemption at nil rate of duty for supply to Ministry of Defence under exemption Notification No. 64/95, dated 16 -3 -1995. It is the contention of the appellants that majority of the inputs which are used in the manufacture of goods cleared to Ministry of Defence without payment of duty were imported by the appellants without payment of customs duty based on the certificate issued by the Ministry of Defence and therefore the question of availing credit does not arise. During the course of visit by the Central Excise Officers, it was found that the appellants were not maintaining separate accounts for common inputs used in the manufacture of both dutiable as well as exempted final products. As per the statement recorded, it was admitted that no separate inventory of receipt of inputs was maintained for use in the manufacture of dutiable and exempted final products and that the inputs were matched according to the issue slips and stock verification was done with reference to record of receipt minus issues. Since no separate records were maintained for common inputs and certain shortages were also found in the stock of inputs, a show cause notice was issued to the appellants seeking to demand of duty @ 8% on the exempted final products amounting to Rs. 1,67,75,620/ - and Rs. 37,644/ - in respect of inputs found short. The show cause notice also sought to confiscate the inputs namely, Hydraulic Blue Disc valued at Rs. 29,512/ - as the same were found in excess of the recorded balance in statutory register. In the earlier round of proceeding, the matter went up to the Tribunal where the appellants took the stand that they have not taken the credit of duty paid on inputs which were used in the manufacture of exempted final products and in case of emergency where such inputs were used in the manufacture of exempted final products, the credit was reversed at the time of issue of inputs for use in the manufacture of exempted final products. The matter was therefore remanded by the Tribunal to the Commissioner directing him to give an opportunity of hearing to the appellants to establish that they have not taken credit on the inputs used in the manufacture of exempted final products and that where the credit was so taken, it was reversed at the time of issue for use in the manufacture of exempted final products with the help of documents.
(2.) THE above matter was re -adjudicated by the Commissioner, where the appellants produced all the issue slips relating to the inputs on which the credit was taken to establish that they have used the inputs in the manufacture of dutiable final products only and where such inputs were not used in the manufacture of dutiable final products, the credit so taken was thereafter reversed. The Commissioner, however, has expressed the doubt or the authenticity of the issue slips on two grounds. First that these issue slips were different from the one which were submitted earlier by the appellants during the course of investigation and second that the appellants have failed to give the inputs inward and outward ratio to establish the exact requirement of inputs used in each category of the final products so as to establish that the inputs shown to have been used in the manufacture of dutiable products have in fact not been diverted for use in the exempted products. The Commissioner has also stated that the appellants have failed to produce the records regarding receipt/purchase of inputs used in the manufacture of exempted final products. The Commissioner has however observed in his order that the issue slips produced by the appellants contained cross -reference to RG -23A Part -I entry and hence one view can be that they have established co -relation between the inputs and the issue slips and consequently, between the issue slips and final products but since he doubted the authenticity of issue slips, he therefore, rejected the appellants' contention and confirmed the duty demand of Rs. 1,37,67,929/ - @ 8% and also confirmed Rs. 43,261/ - in respect of inputs found short. He confiscated 747 Nos. of Hydraulic Blue Disc valued at Rs. 29,512/ - with option to redeem the same on payment of fine of Rs. 5,000/ -. A penalty of amount equivalent to duty of Rs. 1,38,11,190/ - was imposed under Section 11 AC of the Act. Another penalty of Rs. 5 lakhs was imposed on Shri Kamlesh Kumar Goel, Managing Director.
(3.) THE learned Advocate for the appellants submits that the Commissioner has clearly held that challans (issue slips) produced by them contained cross -reference to RG -23A Part -I and hence one view can be that they have established co -relation between the inputs and issue slips and consequently between the issue slips and final products. In view of this, once co -relation has been established, the Commissioner cannot reject their claim or the ground that the records with regard to purchase/receipt of inputs used in the manufacture of exempted final goods were not produced as there was no such direction from the CESTAT nor was there any such requirement as for the purpose of showing the use of inputs on which the credit was taken, scrutiny has to be limited to the records pertaining to inputs on which credit has been taken and not on the inputs on which the credit has not been taken. The Commissioner has disputed the genuineness of the issue slips on the ground that the serial numbers of these issue slips were different from the issue slips which were submitted by them during the course of hearing. Though it was explained to the Commissioner that the issue slips submitted earlier were meant for inputs issued for production of exempted goods only and not for dutiable goods but the Commissioner has rejected their plea without any valid ground. Certain discrepancies in 2 or 3 issue slips have been mentioned by the Commissioner which were not brought to their notice and though the Commissioner has accepted the possibility of there being clerical errors he has still chosen to discard these issue slips on the above grounds. The discrepancies were also explained as being of clerical errors as instead of the capacity of 300 litres, the capacity was mentioned a 30 litres which is verifiable from the invoice. In respect of other discrepancy regarding use of equal number of inputs even through the capacity of final products was different, they maintained that the requirement of inputs were the same even though the capacity were different because machines were meant for different purposes and inputs requirement was the same. In view of this, it was submitted that once the issue slips establish that the inputs on which the credit has been taken which have been used in the manufacture of dutiable products only, they cannot be asked to pay duty on exempted products @ 8%.