1998 (9) TMI 307 - AT - Central Excise

Summary

Issues Involved:
1. Validity of duty demand on kraft paper and printing and writing paper.
2. Compliance with Notification 191/80 and Notification 142/81.
3. Maintenance and accuracy of manufacturing records.
4. Application of the extended period of limitation.
5. Imposition of penalty and confiscation of seized kraft paper.
6. Adherence to principles of natural justice.

Detailed Analysis:

1. Validity of Duty Demand:
The appeal challenged the order confirming a duty demand of Rs. 16,97,020.88 on 3063068 Kgs. of paper cleared at nil rate of duty and Rs. 1,52,421.62 on 263513.40 Kgs. of seized kraft paper, with an option to redeem on payment of a fine of Rs. 3 lakhs, and imposing a penalty of Rs. 1 lakh. The demand was based on the finding that the paper did not contain 75% or more by weight of pulp made from bagasse as required by Notification 191/80 and Notification 142/81.

2. Compliance with Notification 191/80 and Notification 142/81:
The core issue was whether the paper met the requirement of containing 75% or more by weight of pulp made from bagasse. The department found that the appellants did not maintain proper records to substantiate compliance. The appellants argued that their process involved mixing bagasse pulp and gunny bags pulp in a 3:1 ratio, ensuring the required 75% bagasse pulp content. However, the department's investigation, including statements from various personnel and examination of records, indicated discrepancies and manipulation, leading to the conclusion that the paper did not meet the notification criteria.

3. Maintenance and Accuracy of Manufacturing Records:
The department found significant issues with the appellants' records, including incomplete entries and suspected fabrication. Statements from the Managing Director and other personnel indicated that no proper records were maintained. The department also found discrepancies in the raw material records and inconsistencies in the reported quantities of bagasse and jute. The appellants contended that their records were duly maintained and submitted, and any discrepancies were due to the inherent variability in raw material moisture content and recovery rates.

4. Application of the Extended Period of Limitation:
The department invoked the extended period of limitation, alleging that the appellants misrepresented the composition of their paper to avail the nil rate of duty. The appellants argued that there was no suppression or misrepresentation on their part, as all records were maintained and submitted to the authorities. The adjudicating authority upheld the use of the extended period, citing deliberate manipulation of records by the appellants.

5. Imposition of Penalty and Confiscation of Seized Kraft Paper:
The adjudicating authority imposed a penalty of Rs. 1 lakh and ordered confiscation of the seized kraft paper, with an option to redeem on payment of a fine of Rs. 3 lakhs. The appellants argued that the seizure and penalty were unjustified, as the kraft paper was duly accounted for in their records. The department maintained that the penalty and confiscation were warranted due to the contravention of relevant rules and manipulation of records.

6. Adherence to Principles of Natural Justice:
There was a significant difference of opinion among the tribunal members regarding the adherence to principles of natural justice. The Vice President argued that the principles of natural justice were not duly observed, as the appellants were not allowed to cross-examine the experts whose opinions were relied upon by the department. He recommended remanding the matter for reconsideration, allowing cross-examination, and a detailed order covering all points raised by the appellants. The Judicial Member, however, upheld the impugned order, rejecting the appeal.

Final Order:
In light of the majority view, the impugned order was set aside, and the matter was remanded to the jurisdictional Commissioner of Central Excise for reconsideration. The Commissioner was directed to pass a detailed order after allowing the appellants an opportunity to cross-examine the experts and recording findings on why the assessments were reopened and the extent of record manipulation.