Customs, Excise and Gold Tribunal Delhi Maruti Udyog Ltd. vs Commissioner Of Central Excise on 2 September, 1999 Equivalent citations: 2000ECR91(TRI.DELHI), 2000(115)ELT433(TRIDEL) ORDER G.R. Sharma, Member (T) 1. The Commissioner in the impugned order confirmed the demand collectively amounting to Rs. 1,65,77,1517 based on all the three issues, against the party under Section 11A(1) proviso of the Central Excise Act, 1944. He also imposed a penalty of Rs. 2 lakhs on M/s. Maruti Udyog Ltd. under Rule 173Q(1) of the Central Excise Rules, 1944 for taking and availing inadmissible Modvat credit of duty. 2. The facts of the case in brief are that the appellants are engaged in the manufacture of Motor Vehicles and Parts thereof. On the basis of an intelligence collected by the Central Excise Authorities that there is large scale pilferage of costly parts and 'perhaps whole cars' during the year 198788. The officers visited the factory premises of the appellants and during the course of scrutiny of records it was noticed that the appellants had been availing Modvat facility since 131986 on tyres, stereos and air conditioners. Investigations in the matter revealed that the appellants during the years 198687, 198788, 198889 and 198990 had shown more consumption of the above inputs than the quantity actually consumed in the vehicles produced during the year. It was estimated that the appellants had availed Modvat credit to the extent of Rs. 1,11,92,308/. Shri A.K. Jain, Manager (Finance) when asked to explain, he in his statement recorded on 1861990 stated that the difference has been worked out on the basis of the standard consumption i.e. at a rate of five tyres in each Maruti Vehicle, one stero in each DLX Maruti vehicle and one air conditioner in each DLX Maruti vehicle and AC Maruti vehicle. Shri Jain stated that inputs damaged in the manufacturing had not been considered and that reversal of Modvat credit was not required if the inputs were damaged in the manufacturing process, it was stated by him that inputs were supplied by vendors; that the inspected quantity of the components was accounted for in their PCL; that the inputs damaged in the process of manufacture were transferred to rejection stores; that such items being unfit for use as inputs were not physically verified; that the inputs damaged in the process of manufacture were lying in the factory (rejection stores); that physical stock verification was carried out every year and the stock physically verified was adopted for their annual account. 3. The Department alleged that the appellant had intentionally availed inadmissible credit of Rs. 1,11,92,308 by snowing more consumption of inputs than the quantity actually consumed. It was also alleged that on physical verification there were shortages of inputs when compared with statutory records on which duty involved was Rs. 20,18,568/. It was also alleged that the appellants did not reverse Modvat credit on inputs which were not used in the manufacture of their final products; that they did not reverse the credit in respect of defective and unusable inputs shown as 'Line Rejection' and also in respect of the inputs cleared as P.S.U's (Parts for Special Uses). Duty involved on these inputs amounted to Rs. 39,04,455/. A SCN was accordingly issued to the appellants on 2631991 asking them to explain as to why an amount of Rs. 1,71,15,331 / should not be disallowed as Modvat credit and recovered from them under Rule 57I of the Central Excise Rules, 1944 read with Section 11A proviso of Central Excises & Salt Act, 1944. They were also asked to explain as to why the recovery should not be effected for period of five years instead of six months and why penalty should not be imposed. In reply to the SCN, the appellants submitted that after the introduction of Modvat from the year 1986 they have been filing the necessary declaration in terms of Rule 57G of Central Excise Rules, 1944. It was contended by them that as soon as the inputs are received a stores receipt voucher is prepared; that on a daily basis a computer statement is received by the Excise Section Incharge of Modavt, indicating the details of stores receipt voucher No., product description, product code, G.P. I No. quantity received etc. is shown in that statement; that credit is taken in R.G. 23A Pt. II and the inputs are taken on record in R.G. 23A Pt. I., 4. It was submitted by the appellants before the authorities below that in respect of the inputs found defective under Rule 57F(2) Procedure was followed; that necessary permissions for following this procedure has been obtained that whenever these rejected goods are sent to the supplier for repair and return, Challan under Rule 57F(2) is prepared; that after the goods are issued to the shop floor the noticee gets what is known as 'Line Rejection'; that these 'Line Rejections' are of two types; that the first type is known as line reject