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TMI Blog2007 (6) TMI 111X X X X Extracts X X X X X X X X Extracts X X X X ..... that the appellants did not reverse the Modvat/Cenvat credit availed by them on the packing material and the inputs contained in the flux which became waste due to process of defluxing carried out by them on the welding electrodes mentioned in the Annexure B to the show cause notice. The following demands were proposed in the show cause notice dated 2-2-2005 :- (1) an amount of Rs. 1,13,25,157/- on the finished goods, namely, welding electrodes manufactured and subsequently destroyed by them under the proviso to Section 1A(1) of Central Excise Act, 1944, (2). the interest under Section 11AB on the above amount, (3) the penalty under Section 11AC for evasion of duty mentioned in serial no. 1, (4) the demand of Rs. 16,70,480/- being Modvat credit irregularly availed as detailed in Annexure C to the show cause notice. (5) the penalty under Rule 13(2) of Cenvat Credit Rules, 2002 (6) the duty of Rs. 15,19,441/-on the intermediate goods namely flux as detailed in Annexure D to show cause notice under proviso to Section 11A(1). (7) the interest in respect of the above amount under Section 11AB in Serial No. 6, (8) the penalty under Section 11AC in respect of evasion of du ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he inputs used in the repacking including flux are reversed on monthly basis and in formed the Range Superintendent. (2) The contention of the department is that welding electrodes which are removed from the bonded store room for repacking were actually subjected to the reprocessing during which the said welding electrodes got destroyed. Therefore the appellants are liable to pay duty on the said welding electrodes. There is also an allegation of clandestine removal of flux mentioned in the Annexure D to the show cause notice. (3) There is no allegation of clandestine clearance of welding electrodes. All that the notice alleges is that the appellants issued welding electrodes in the bonded store room for repacking and that on the basis of records maintained by the appellants it is not ascertainable as to which of the electrodes were subjected to de-fluxing during repacking. Therefore the notice assumes that all the electrodes issued for repacking were defluxed, and hence they attract duty. The appellants have maintained proper records to ascertain the electrodes subjected to de-fluxing and have reversed Modvat credit involved in such de-fluxing under intimation to the Range Sup ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... odes which were withdrawn for packing but do not figure in the performance register were disposed off by de-fluxing. Factually the electrodes which do not require any reprocessing and passed for repacking by visual inspection are not required to be entered in performance register, hence they did not figure in performance register, but that does not mean that those were disposed of by de-fluxing. (13) The major quantity of the goods issued for repacking pertained to the lot which was received for only conversion of electrodes from numbers to Kgs., due to change m pattern of domestic sale during January, 2003, hence it was not required to be entered in performance register. (14) The Commissioner in para 16 of his order after admitting that the appellants had maintained records relating to the issue of material for repacking as the same was done after seeking permission from the range superintendent and after making relevant entries in their daily stock account, erred in observing that the investigation revealed that no records were maintained for correlating the goods removed for repacking and goods received thereafter. (15) When the show cause notice did not allege that manufa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any other process undertaken by .the appellants. He took us through Rule 143 of the erstwhile Central Excise Rules, 1944 and stated that the scope of permission granted under the said rule is limited to repacking for certain purposes and it would not amount to carrying out processes which amount to manufacture. He also pointed out that Rule 9 and 49 of the erstwhile Central Excise Rules and stated that when the finished goods are removed even inside the factory they are liable to duty. In the present case, the finished goods were removed for repacking and there is no proper account of their repacking and therefore the Commissioner was correct in demanding duty on those electrodes which were sent for repacking and got destroyed. He also pointed out that the duty demand is only in respect of welding electrodes which were sent for repacking but got destroyed and not for those which were actually repacked. He also justified the demand of duty on the fluxes which were not accounted for. He urged that the longer period is clearly admissible as the appellants suppressed the fact of undertaking processes of de-fluxing without informing the department. 7. We have gone through the recor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is extracted below:- "Rule 143. Owner's power to deal with the warehoused goods. - With the sanction of the proper officer and in accordance with such instructions as Commissioner may, from time to time, issue in writing in this behalf, any owner of goods lodged in the warehouse may sort, separate, pack and re-pack the goods and make such alteration therein as may be necessary for the preservation, sale or disposal thereof. After the goods have been so separated and repacked in such manner as may be ordered by the Commissioner, the proper officer may, at the owner's request, cause or permit any refuse or damaged goods remaining after such repacking to be destroyed subject to such limitations as the Commissioner may from time to time impose and re m the duty assessed thereon." 8. The Revenue's contention is that the appellants have gone beyond the scope of the above rule. In other words, Revenue feels that the- appellants could not have de-fluxed the defective electrodes to make a new electrodes. There is no allegation that the appellants had actually removed the finished products in the guise of repacking. When the appellants have noticed that the certain goods have to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n quantity of flux consumed as per ER-1 returns and the quantity consumed as per daily production plan. It has been assumed that the appellants had shown more consumption in the ER-1 returns than what has been actually shown in the daily production plan and therefore a conclusion has been arrived at that the differential quantity has been removed and it is liable to duty. There is no other evidence of any clandestine removal. The appellants have made it clear in their reply to the show cause notice that the quantity shown in the ER-1 returns is actually quantity of flux of manufactured and what is shown in the daily production plant is what is actually consumed and there will always be difference between the quantity manufactured and the quantity consumed. In our view, this explanation has to be accepted in the absence of any evidence- to show that the appellants had actually removed the flux clandestinely without payment of duty. In the circumstances, we set aside the demand of Rs. 15,19,441/- being the duty on the flux. Since the duty demand has been set aside, the demand of interest under Section 11AB of the Act is also set aside. There will not be any justification for impositi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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