V.K. Agrawal, Member (T)

1. In this Appeal filed by the Revenue, the issue involved is whether the MODVAT credit was disallowable to M/s. Vam Organics & Chemical Ltd. on account of shortage in Molasses and clearance made under Rule 173 H of the Central Excise Rules, 1944.

2. Ms. Charul Baranwal, learned Senior Departmental Representative, submitted that the respondents manufactured organic chemicals and availed of MODVAT credit of the duty paid on inputs and during the course of checking of the factory premises of the respondents on 7.4.99, the Central Excise officers recovered a computerized sheet from the room of Shri M.L.N. Srinivas, Senior Vice President of the respondents which showed that there was shortage of 1,15,218 Qtl. of molasses stock as on 29.3.99; that the Senior Vice President in his statement dated 8.4.99, deposed that he did not exactly know the reason for the said shortage in the molasses account; that however, he debited the amount on account of shortage of molasses under protest. Learned Senior Departmental Representative emphasized that Shri M.L.N. Srinivas, Sr. Vice President, had not disputed the recovery of said computerized sheet from his office; that the said contained tank-wise position, dry dip, total dip, wet dip, quantity in Lt., Density kgs. per Lt. and total quantity; that the shortage of molasses had been found vis-a-vis book balance on 29.3.99 and as such Commissioner erred in allowing the MODVAT credit on the said quantity on the ground that the recovered sheet contained two notes to the effect that the density of three tanks was to be reconfirmed and there could have been some error in taking stock of molasses due to excessive foam: Learned Senior Departmental Representative contended that such a huge quantity found short cannot be placed in the category of some errors which was claimed to be on account of foam; that even if allowance is given for foam, the shortage is still very high; that under Section 36A of the Central Excise Act, a presumption can be drawn about the truth of the contents of the document seized from the custody or control of any person unless the contrary is proved; that the respondents have not proved anything contrary to the sheet recovered from the office premises of their Senior Vice President. She, further, submitted that the respondents also received duty paid goods back in their factory premises under the provisions of Rule 173 H of the Central Excise Rules, 1944 for the purpose of reprocessing/reconditioning; that during reprocessing of the duty paid goods, processing losses about 8% used to occur; that however, the respondents had been returning back the total quantity to their customers after reprocessing without payment of duty; that Shri Srinivas has accepted in his statement dated 8.4.99, that the respondents were in fact, after reprocessing, replacing goods with new ones; that as the respondents had replaced the goods, the benefit of Rule 173H would not be available to them; that in the Panchnama it was mentioned that there was processing loss during the reprocessing/reconditioning, which goes to show that there was loss in the quantity received back by the respondents.

3. On the other hand Shri M.P. Dev Nath, learned Advocate submitted that there was no loss during the reprocessing of the duty paid goods received back in the factory as the material was not reprocessed, but was only filtered to remove the foreign particles like rust, dust etc.; that they had never informed the Department about reprocessed loss of 8% that the Department has also not brought on record any material to show that there used to be 8% reprocessing loss; that accordingly the Commissioner has rightly dropped the demand on this count. He, further, submitted that on 7.4.99 when the officer visited their factory premises, they had actually verified the stock of material and were satisfied fully with the physical verification of stock; that the Department has solely relied on the paper slip recovered from the Senior Vice President without any corroboration; that there is no evidence to prove that the said paper contained the final statement of stock account of molasses as on 29.3.1999; that the utilization of the molasses within the factory, is directly under the control and supervision of State Excise Officer; that on 31.3.1999 Officer Incharge of State Excise has verified the physical stock of molasses and the same was found to be correct; that possibility of shortage of such a huge quantity of molasses does not stand to reason even by any stretch of imagination. The learned Advocate also mentioned that on 27.3.1999, the Assistant Commissioner (Enforcement) of State Excise Department has personally supervised the verification of physical stock of molasses and did not find any discrepancy.

4. We have considered the submissions of both the sides. As far as 8% loss on account of reprocessing of duty paid goods is concerned, we find that nothing has been brought on record by the Revenue to show as to how this 8% loss has been arrived at. The Commissioner under the impugned Order has not confirmed the demand for want of any evidence on record to substantiate the figure of 8% as processing loss. We do not find any infirmity in the findings of the Commissioner as there is nothing on record to substantiate the charge of loss of 8% during the course of reprocessing of duty paid goods. The entire case of the Department in respect of shortage of molasses rests on paper slip recovered from the office premises of the Senior Vice President. The Commissioner has recorded the following finding in the impugned Order :

"21. On critical examination of the issue I find that:--

(i) Though the department have taken the above referred sheet of paper as relied upon document to charge shortage of 1,15,218 Qtls. of Molasses, there is no evidence on record to show as to who prepared this document and to whom was it communicated. This shortage was alleged considering the Book Balance was on 29.3.99 at 6.00 a.m. to be 8,44,069 Qtls. However, no effort was made to check whether the book balance mentioned in the paper was in accordance with that mentioned in RG 23 A-I on 29.3.99. I have seen the RG 23 A Pt. I and I find that the last closing balance mentioned on 29.2.99 at page 170 as 4,47,863 Qtls. and after that entries of receipts only have been made till 31.3.99. Neither any quantity has been shown issued to production during 1.3.99 to 31.3.99 nor any closing balance on any day has been shown in this register. In fact there are no ECC numbers mentioned for the last seven receipt entries. This register is incomplete for want of entries of issues and balances during entire month of March 2000. The last written page of the register i.e. page 188 does not bear the initials of the party, officers or witnesses. As the RG 23 A Pt. I does not contain entries of issue and closing balance after 29.2.99, the charge in the SCN that the credit of Rs. 57,60,900.00 was taken by adjusting RG 23 A Pt. I is not tenable. (ii) The panchanama dated 7/8.4.99 do not mention about stock taking of the molasses on 7/8.4.99, as such it is not on record as to what was the Physical Stock Position of molasses vis-a-vis the book balance i.e. RG 23 A Pt I balance and whether there was any shortage or excess in stock of molasses on 7/8.4.99. The party have strongly pleaded that the visiting officers conducted stock taking of molasses but did not put it on record as there was no variation. They have even submitted affidavit of Shri S.L. Garg, General Manager, Distillery, of Vam Organic Chemicals Ltd. to this effect.

(iii) No effort was made to investigate as to how this quantity 1,15,218 Qtls. was disposed of in the manner other than that provided under Rule 57F, as alleged in the SCN. The RG 23 A Pt. I does not show any issue for production or clearance of the molasses as such during 1.3.99 to 31.3.99. The notice, too, does not cite any instance of disposal of molasses. There is no evidence on record to show that M/s. VOCL were disposing molasses in a manner other than that provided under Rule 57 F.

(iv) I find force in partys argument that the Sale, Purchase, Transportation, distribution, storage and usage of Molasses is fully under the control of State Excise department and with such strict control there cannot be such huge shortage in stock. It is also important to note that the authorities of State Excise conducted stocktaking on 27.3.99 and 31.3.99 and did not find any variation in the stock.

(v) There is no evidence to suggest that details of stocks as mentioned in "Sheet of Paper" were prepared by the internal Audit deptt. of the party with intention to enable the party to get the records corrected in view of the forthcoming inspection by State Excise Authorities.

(vi) In view of the above discussion and in the light of case laws quoted by the party, I am constrained to conclude that charge of shortage of 1,15,218 Qtls. of Molasses and their disposal in manner other than that provided in Rule 57F does not stand."

5. In the Appeal filed by the Revenue the finding of the Commissioner has not been rebutted with any material/evidence except relying upon the statement of Shri M.L.N. Srinivas. We observe that Shri Srinivas, in his statement, has only mentioned that he did not know the reasons for shortage and he agreed to accept the shortage of molasses under protest and debit the duty amount. This cannot be the sole basis of proving that there was shortage in the quantity of molasses. The Appellants have contended that the Central Excise officer had conducted the stock verification of the molasses on the date of their visit. There is no rebuttal of this submission by the Revenue even in the Appeal preferred before us. Even if the officer had not taken the physical verification at the time of their visit, it was expected by them to check the physical stock the moment they recovered the paper slip showing the shortage of molasses. The figure in paper slip has not been corroborated by any material or evidence. The respondents have also brought on record the verification of molasses stock done by the State Excise Authorities. Accordingly, the Revenue has not proved the shortage of molasses. We, therefore reject the Appeal filed by the Revenue.