1. This is an appeal filed by the assessee against an Order-in-Original dt. 5-2-1990 passed by the Additional Collector of Central Excise & Customs, Chandigarh.
2. The appellants are engaged in the manufacture of steel ingots. On 18-4-1989, during the course of physical verification of stock by the Central Excise Preventive Staff, Ludhiana, it was found that there was an excess stock of steel ingots weighing 10.094 M.T. valued at Rs. 77,723.80 involving Central Excise duty of Rs. 5,299.35 over and above the recorded balance in the R.G.-I register. The above excess stock was worked out on average base after taking into account the weight of 100 steel ingots which was agreed upon between the Director of the appellants' firm and visiting staff to ascertain the weight one steel ingot, the weight of 100 steel ingots may be got done at the weigh-bridge of Kalyan Agro Industries as there was no weighing arrangement in the factory. As a result, the average of one steel ingot came to be 85.4 Kgs. Therefore 118 steel ingots weighing 10.094 M.T.were found in excess. This excess of 10.094 M.T. was rightly admitted by the Director of the firm who was present at that time. The excess of goods were seized for further action under Central Excise law as the same was reasonably believed to have been kept unaccounted for clandestine removal. According to the Department the party has also availed MODVAT credit during the February and March 1989 on steel flats and cuttings falling under Chapter 7211.11 and 7226.91 of the Central Excise Tariff Act without declaring these inputs under Rule 57G. The Credit availed by the party on the above inputs amounting to Rs. 44,022.22 was found in contravention of the provisions of Rule 57G and 173 of the Central Excise Rules, 1944. Accordingly the show cause notice was issued. The show cause notice was duly answered stating that average weight will not give clear picture since difference was inevitable as reasonable tolerance has to be accepted and difference in this case is only 5.8% and further they availed MODVAT credit properly since the end cuttings are nothing but waste and scrap which was fit only for recovery of metal. The Additional Collector who adjudicated the proceedings confirmed the confiscation on the first charge by giving option to redeem the goods on payment of redemption fine of Rs. 10,000 (Rs. Ten thousand only) and disallowed MODVAT credit.
3. Sh. Kulvinder Singh learned Counsel for the appellants submitted that the Department was not right in arriving at the conclusion that there was shortage based upon average weight. The actual weighment of total stock lying in the premises would have been done since average weight can never represent actual weight and some difference is inevitable for average weight and fair and reasonable tolerance limit is to be taken into consideration and since it is only 9.1% of the record balance it can be treated as normal and within the reasonable limit of tolerance. As regards MODVAT credit he submitted that MODVAT credit cannot be denied since steel flats and cuttings are nothing but scrap and the same has been used in the manufacture of excisable goods and difference of opinion about headings of cuttings should not result in denial of MODVAT credit since certificate from the supplier indicates nature of the raw material.
4. Sh. B.D. Bhagat learned JDR for the Revenue submitted that the Department was right in denying the benefit since inputs as such has not been declared under 57D and actual weighment was neither possible nor practicable and that is why the Director of the appellants' Company who was present at that time agreed to average weight basis. If it was possible he would have insisted or would have facilitated for actual weighment of the goods lying in the factory.
5. I have considered the submissions made by both sides. I find that there was an excess stock of steel ingots weighing 10.094 M.T. which was not recorded in RG 1 register and the excess stock was worked out on average basis as this was agreed to by the Director of the appellants' company who was present at that time. Second charge was that they availed MODVAT credit in respect of steel flats and end cuttings without declaring as inputs. On going through the submissions and on a perusal of the records taking into account nature and the circumstances of the case particularly in view of the acceptance by the Director of the appellants' Company who was present at that time for average basis as actual weighment was not possible, I find that the Department was right in taking action in respect of the first charge.
But as regards MODVAT credit taking into consideration that they have declared it as scrap and there was dispute in respect of item as scrap or otherwise and non-mention of the very item is no bar to avail MODVAT credit since it has been used in the manufacture of the final product.
I find that the Tribunal is consistently taking the view that MODVAT credit should not be denied for technical lapses. Accordingly the party is entitled to take MODVAT credit in respect of the item which has been used in the manufacture of final product and in the facts and circumstances of the case, I find that redemption fine and penalty are excessive and accordingly both redemption fine and penalty are reduced to Rs. 5,000/- and Rs. 2,000/- respectively. Appeal is disposed of in the above terms.