UNION OF INDIA Vs. INFRASTRUCTURE LTD

JUDGEMENT

(1.) This Reference Petition under Section 35H(1) of the Central Excise Act, 1944 is at the instance of the department for requisition of reference on the following questions arising from the order of the CEGAT dated 21-12-2001 :

(2.) The respondent assessee M/s A. Infrastructure Limited is engaged in the manufacture of asbestos cement pipes and couplings. Under the exemption Notification No. 38/93-CE, dated 28-2-1993, goods falling under Chapter No. 68 of the Schedule to the Central Excise Tariff Act, in which not less than 25% by weight of fly ash was exempted from the whole of the duties of excise leviable therein. The exemption was subjected to maintenance of proper accounts as stipulated in the proviso to the said notification. As per the production record i.e. log book maintained by the production department, the assessee had issued a total number of 878 batches of raw material mix, comprising of cement, fly ash and asbestos during the period 26-1-95 to 31-8-95. Out of these, 814 batches had contained 1000 Kgs. of raw material and the remaining 64 batches had contained 850 Kgs. of raw material. Total production obtained out of these 878 batches comprising of total 868.4 MT raw material mix in terms of weight was 985.38 MT of asbestos cement pipes and couplings. For this, the total quantity of fly ash consumed was 232.555 MT. As per assessee letter dated 30-8-95, the irrecoverable loss of wastage arising during the manufacturing process varied between 3% to 8% of the total quantity of raw materials. Taking into consideration the minimum percentage of wastage i.e. 3%, the total quantity of fly ash consumed during the period from January, 1995 to August, 1995 came to 225.57 MT only. Thus, the total contents of fly ash in the finished goods in terms of percentage came to 22.89% only, which was much less than the 25%. Accordingly, a show cause notice dated 28-11-95 was issued to the assessee demanding a duty amount of Rs. 20,19,856/- on 30387.70 Meters of asbestos cement pipe and 1470 Nos. of coupling cleared by the assessee during May, 1995 to September, 1995 at nil rate of duty under the amended notification dated 28-2-93. The duty was confirmed by the adjudicating authority by order dated 27-11-1997. The authority also imposed a penalty of Rs. 5 lacs on the assessee under Rule 173Q of the Central Excise Rules, 1944. The assessee preferred an appeal before the CEGAT, which was remanded to the Commissioner with a direction to examine the issue afresh in the light of the Circular of the Board dated 10-8-99 and order of the CEGAT in the case of M/s Eternit Everest Ltd. V/s. CCE,2002 150 ELT 1151. The Commissioner expressed the view that everyday's production entry in the log book truly reflects the dry weight of pipes and couplings as well as the quantity of various raw materials used in the manufacture of the said items. Thus, in the opinion of the Commissioner, the log book sheet provides the percentage of fly ash used in the manufacture of pipes and couplings. The Commissioner noted that in the log book, the dry weight of pipes and couplings are also mentioned. The Commissioner also took into account the exclusion of wastage of 3%. It was, thus, held that the assessee had used 232.555 MT of fly ash and produced 985.38 MT of finished product in dry condition as per the log book seized by the department in which percentage of fly ash used was 23.60%, which was below 25%. Hence, the goods cleared by the assessee i.e. 30387.70 Meters of asbestos cement pipes and 1470 Nos. of coupling during May, 1995 to September, 1995 were held to be liable to Central Excise Duty at the rate of 25% ad valorem and demand of Rs. 16,15,885/- was confirmed under Section 11A of the Central Excise Act, 1944. In the opinion of the CEGAT, at the stage of clearance, the pipes are dried. Pipes which are soaked in water or pipes which contained water, are not being cleared from the factory. Therefore, the water content which went in for setting the ash with cement can not be taken into consideration for finding out the percentage of the fly ash content. The pipe is required to be cured in water before it reaches to the marketable stage. While undergoing the curing process, some may crack, which has to be excluded from the finished goods. It was further held that the fly ash should be determined with reference to actual weight of the finished goods at the time of clearance and not by taking quantity of water issued at raw material stage used for manufacture of the product. The Tribunal also found that the RG-1 register shows the weight of the finished product available for clearance. From entries in RT-5 Returns raw material which went into production of that quantity of pipes mentioned in RG-1 are clear. The Tribunal further held that the percentage of fly ash is to be found out therefrom. Thus, the Tribunal expressed the view that the stand taken in the show cause notice that water content was also to be taken into consideration for arriving at 25% of fly ash content which went into production of asbestos cement pipes cannot be sustained. In view of the finding, the CEGAT set aside the order of the Commissioner.

(3.) We have heard Mr. V.K. Mathur, learned Additional Central Government Standing Counsel and Mr. Manish Shishodia for the respondent assessee. Inour view th Tribunalhas viewed th issue involved from anerroneous angle. The main question involved is that as to whether the stand taken by the Department in the show cause notice viz., in finding out the percentage of fly ash used in the manufacture of asbestos cement pipes and couplings, water content or water gain in the finished product is to be taken into consideration or not? It is of course true that the CEGAT has taken the quantity of asbestos cement pipes and couplings manufactured on the basis of RG-1 register and total quantity of fly ash used in the manufacture of the cement from RT-5 Returns submitted by the assessees to the Department without considering the actual percentage of fly ash used in the manufacturing of the finished product i.e. asbestos cement pipes and couplings. The CEGAT lost sight that the show cause notice was issued on the basis of the log book maintained by the assessee, wherein the quantity of raw material and quantity of dry weight of asbestos cement pipes and couplings have also been incorporated. The possibility of entries being manipulated in RG-1 register cannot be ruled out. The assessee can manipulate the register to keep the accounting of stock of finished product in such a way that the percentage of fly ash used in the manufacture of the same could remain above 25% in order to avail benefit of exemption Notification dated 28-2-1993. Thus, in our view, the CEGAT has taken the erroneous view of the matter, and the question involved requires consideration by the Court.