Indian Kanoon - Search engine for Indian Law

3. Annexure-1 to the show cause notice gives the break-up of the demand of Rs. 21,43,996.90. Firstly the show cause notice has alleged that the appellants had consumed a chemical called TDI to the tune of 42,500 Kgs. during the period in question and the show cause notice has assumed that out of this quantity of TDI the appellants should have manufactured 93,369.23 Kgs of polyurethene foam. (The formula conversion from TDI to polyurethene foam is that 65 Kgs of TDI would yield 142.8 Kgs of polyurethene foam. This has not been disputed by the appellants even during the hearing, before us). The show cause notice assumed that out of this 93,369.230 Kgs of polyurethene foam alleged to have been manufactured and cleared by the appellants, 90% should have been of "Deluxe commercial grade" and the remaining 10% should be waste.

5. The show cause notice also proposed to increase the assessable value of the Deluxe commercial grade polyurethene foam because, some of the customers had given huge deposits for which interest was not yet paid by the appellants, and this interest was, therefore, an element of the price and assessable value. Similarly the increase in the value of the waste and scrap was based on the statement of one of the customers namely Shri T.V. Mathews, Proprietor, Sky Foams.

6. The appellants replied to the show cause notice and also appeared before the Collector for personal hearing. Both in their written reply to the show cause notice as also written submissions filed before the Collector at the time of personal hearing, the appellants contended that they never consumed 42500 Kgs. of TDI. They repeatedly asked the Collector to give the basis for assuming the consumption of TDI as 42500 kgs. The Collector appears to have not given the basis for this figure of 42500 kgs. but in the order-in-original (para 30.1) he gave the details of the alleged utilisation of 42500 kgs. of TDI. These figures are taken from the raw material register-imported (seized as per Sl. No. 4 & 9 of the Annexure to the Mahazar). The appellants contended before us that this register was not supplied to the appellants and had they been given a copy of the same, the error which crept in the order regarding the consumption of TDI could have been avoided. They had now inspected the said register and during the hearing they explained the alleged discrepancy. According to the appellants during the period in question they consumed only 38750 kgs of TDI and not 42500 kgs as alleged in the show cause notice as also in the order-in-original. They showed us the entries made in the raw material register at page 355 of the paper book wherein out of 10500 kgs of TDI taken for consumption on 25-2-1986, the appellants had hypothecated a quantity, 1250 kgs and 2500 kgs of TDI were released from the bank on 21-3-1986 and 24-9-1986. These were explained by the Advocate of the appellants during the personal hearing before us and he took us through the photocopy of the register which was relied on by the Collector.

7. Apart from pleading before us on the basis of the seized documents, the appellants also moved an application for admission of additional evidence by way of a certificate dated 15-2-1989 given by the Indian Bank confirming the pledging of the 5500 kgs. of TDI and pressed it before us. The learned Departmental Representative opposed the admission of additional evidence and further submitted that the Department was not concerned from where the consumption of TDI was obtained and noted in the raw material register. The learned DR argued that the raw material register seized from the appellants' premises showed the total consumption of TDI was 42,500 kgs. and the Collector was right in assuming the said figures.

9. We have, as mentioned earlier, perused the Raw Material Register and also the Banks' certificate. Having done so, we are of the view that the Collector was wrong in assuming that the appellants had consumed 42500 kgs. of TDI during the relevant period and on the basis of the evidence before us we hold that the appellants had consumed only 38750 kgs. as contended by them.

10. Having come to the conclusion that the total consumption of TDI was only 38750 kgs., the total clearances of Polyurethene foam from the factory of the appellants cannot be, on the basis of the unquestioned formula, 93369.230 kgs but only 84,165 kgs. In fact, during this period, the appellants had, as submitted by them, actually obtained 84321 kgs of polyurethene foam as computed from the RG-1, still in the custody of the Central Excise Department. Accordingly, we hold that there has been no clandestine removal of any polyurethene foam without payment of excise duty or without the cover of any Excise Gate Pass. The charge of clandestine removal fails. We are fortified in this conclusion by the fact that as submitted by Shri Lakshmikumaran for the appellants, there is not even an allegation, either in the show cause notice or subsequently, that there was a higher consumption of another essential raw material namely polyether. It was argued before us and we are convinced, that to produce the higher quantity of polyurethene foam the appellants not only required higher consumption of TDI but also correspondingly higher consumption of polyether. Both the raw materials were being imported by the appellants and they were maintaining the proforma credit registers and Modvat credit registers for polyether and there is no allegation of excess consumption of polyether.