1999 (5) TMI 127 - AT - Central Excise

Issues Involved:
1. Misuse of Chapter X provisions of Central Excise Rules, 1944.
2. Non-maintenance of records and non-production of relevant documents.
3. Verification and assessment of actual use of inputs in manufacturing.
4. Validity of the show cause notice and the evidence used.
5. Principles of natural justice and proper adjudication.

Issue-wise Detailed Analysis:

1. Misuse of Chapter X Provisions of Central Excise Rules, 1944:
The appellant was engaged in manufacturing diesel engines and centrifugal water pumps, which were exempt from excise duty during the period from 1-12-1991 to 16-6-1993. They procured non-duty paid inputs under Chapter X provisions. Based on intelligence reports, it was alleged that they misused these provisions by showing excess issue of inputs in records and disposing of them improperly. Physical verification conducted on 16-6-1993 revealed discrepancies in the stock of non-duty paid inputs and finished goods.

2. Non-maintenance of Records and Non-production of Relevant Documents:
The appellant failed to maintain records for exempted products and did not produce relevant documents despite repeated summons and reminders. The officers seized available records and found that the appellant was not maintaining true accounts of inputs and finished goods. Statements from factory representatives indicated that records were maintained based on verbal orders from a partner, and required documents were not produced during the investigation.

3. Verification and Assessment of Actual Use of Inputs in Manufacturing:
On 16-8-1996, officers, along with a Chartered Engineer, conducted an examination of goods and dismantled samples to verify the actual use of inputs in manufacturing. The Chartered Engineer's report detailed the components used in various models of diesel engines and water pumps. Based on this, the officers calculated the actual consumption of inputs and found discrepancies in the recorded and actual use of inputs, leading to a demand for duty amounting to Rs. 23,41,823.00.

4. Validity of the Show Cause Notice and the Evidence Used:
The appellant contested the show cause notice, arguing that it was based on unreliable and hypothetical data. They claimed that the officers' assumptions about the types of products manufactured during the relevant period were incorrect and that the figures were purely imaginary. The appellant cited the Supreme Court's judgment in Oudh Sugar Mills Ltd. v. Union of India, emphasizing that show cause notices should be based on specific data and not on unwarranted assumptions.

5. Principles of Natural Justice and Proper Adjudication:
The appellant argued that the adjudicating authority violated principles of natural justice by not considering the evidence they provided. They submitted various documents, including details of inputs used, internal audit reports, and technical specifications of products, which the adjudicating authority ignored. The Tribunal agreed with the appellant, noting that the adjudicating authority must consider all evidence and make proper inquiries before reaching a conclusion.

Conclusion:
The Tribunal found that the adjudicating authority failed to consider the evidence provided by the appellant and relied on assumptions without proper verification. The matter was remanded for re-adjudication, with directions to the adjudicating officer to complete the proceedings within three months and issue a fresh order. If the order is not issued within the specified time, the pre-deposit made by the appellant would be refunded, and the bank guarantee discharged.

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