2001 (9) TMI 550 - AT - Central Excise

Summary

Issues Involved:
1. Alleged under-recording of raw material consumption and suppression of production.
2. Discrepancy in the statutory and private records.
3. Demand for differential duty and penalties.
4. Shortage of PVC resin and excess of PVC chemical and calcium carbonate.
5. Validity of evidence and methodology used by the Commissioner.

Issue-wise Detailed Analysis:

1. Alleged under-recording of raw material consumption and suppression of production:
The main charge against M/s. Super Pipes (P) Ltd. was that they consumed 60 kgs. of Forcol for every 100 kgs. of PVC resin, as opposed to 15 kgs. reflected in their statutory records. This allegation was based on private records maintained by an employee, Shri Sachin, for a period of seven days. The department claimed that the company under-recorded the consumption of Forcol by 45 kgs. per 100 kgs. of PVC resin, leading to suppressed production and evasion of Central Excise duty.

2. Discrepancy in the statutory and private records:
During inspections, the officers found no discrepancy in the finished stock but noted a shortage of 2429 kgs. of PVC resin and an excess of 3572 kgs. of PVC chemical and 64825 kgs. of calcium carbonate. The private records showed different ratios of raw material consumption compared to statutory records, leading to allegations of fabrication of records and suppression of production.

3. Demand for differential duty and penalties:
The Commissioner of Central Excise issued a show cause notice demanding a differential duty of Rs. 77,75,222/- for the period from 1994-95 to 1995-96, alleging suppression of production of 5,02,390 kgs. of PVC pipes. Penalties under various rules and sections were also proposed, including penalties on the Managing Director and the authorized signatory.

4. Shortage of PVC resin and excess of PVC chemical and calcium carbonate:
The party explained the discrepancies by stating that the raw materials were in the form of white powder, making it difficult to differentiate between them. They argued that the shortages and excesses were complementary and possibly due to counting errors. They also contended that misplaced bills could account for the excess calcium carbonate.

5. Validity of evidence and methodology used by the Commissioner:
The Commissioner based his findings on the private records and statements of Shri Sachin, without investigating the source of the alleged excess Forcol or its procurement. The Commissioner's approach was deemed irrational as it lacked evidence of how the additional raw material was procured, processed, and sold. The argument that 90-95% of production was supplied to government departments, which had stringent specifications, was not rebutted. The Commissioner's calculations were found to be based on surmises and conjectures, especially since the consumption of PVC chemical was not proportionately increased in the alleged excess production.

Conclusion:
The Tribunal found the Commissioner's order unsustainable except for confirming the duty of Rs. 21,331/- representing the Modvat credit on the 2429 kgs. of PVC resin found short, of which Rs. 20,464/- had already been paid by the appellants. The rest of the order, including the penalties, was set aside, and the appeals were allowed accordingly.