[Order per : P.G. Chacko, Member (J)]. - This appeal is against an order passed by the Commissioner of Central Excise in adjudication of a show cause notice which sought to make out a case of clandestine removal of excisable goods, against the appellants. In the impugned order, the adjudicating authority demanded duty amounting to Rs. 56,86,750/- on waste and scrap cleared from their factory at Coimbatore during the period November, 1993 to September, 1998. Another demand of duty was raised on finished goods to the extent of Rs. 77,79,456/-. Yet another demand of duty raised in the impugned order is on components of original equipments, removed from the appellants’ factory at Coimbatore (Unit No. 1) to their own factory at Gurgaon (Unit No. 2). This demand amounts to Rs. 42,66,759/-. All these demands are for the same period. The relevant show-cause notice was issued on 2-12-98 under the proviso to Section 11A(1) of the Central Excise Act. It alleged “wilful misdeclaration, suppression of facts and contravention of rules with intent to evade payment of duty” for the purpose of invoking the proviso. In the impugned order, ld. Commissioner justified the invocation of extended period of limitation by recording a finding of “suppression” in para 52 of the impugned order. He also imposed a penalty of over Rs. 1 crore on the assessee under Rule 173Q of the Central Excise Rules for the period November, 1993 to 28-9-1996 and another penalty of Rs. 40 lakhs under Section 11AC read with Rule 173Q for the period 29-9-96 to September, 1998.

2. We have examined the records and heard both sides. Ld. Sr. Counsel has chosen to address the penalty issue first. According to him, both the penalties are liable to be vacated in view of the fact that the entire amount of duty had been paid prior to issuance of the show cause notice. Ld. Sr. Counsel has relied on the Tribunal’s Larger Bench decision in C.C.E., Delhi v. M/s. Machino Montell (I) Ltd. [ (Tri. - LB), as also on the Tribunal’s decision in. M/s. Rashtriya Ispat Nigam Ltd. v. C.C.E. [ (Tri)]. It has also been pointed out that the Revenue’s appeal against the Tribunal’s decision in the case of Rashtriya Ispat Nigam Ltd. (supra) was dismissed by the Apex Court vide (S.C.). The view thus approved by the Apex Court is that, where duty was paid prior to the issuance of show cause notice, no penalty is imposable under Section 11AC or Rule 173Q.

3. Ld. Sr. Advocate has referred to the demands of duty in three categories. The demand of duty on waste and scrap is the first category wherein, he submits, the entire demand was based on computer print-out covering the period February, 1996 to September, 1998, which was generated from a personal computer of a junior officer of the appellant-company. The Statements of the said officer (Shri G. Sampath Kumar) were also relied on for raising this demand. But none of the statements of Shri Sampath Kumar offered any explanation or clarification of the relevant entries of the computer print-out. Certain references made by Shri Sampath Kumar were not to be found in the print-out. His personal computer had nothing to do with the normal activities of the Company. The statutory requirements for admitting a computer print-out in evidence were not fulfilled. The statements given by Shri Sampath Kumar were not accepted by the Company. No competent authority in the Company was confronted with anything contained in his statements or in the computer print-out. For these reasons, neither the computer print-out nor any statement of Shri Sampath Kumar provided any basis for demand of duty on waste and scrap. Ld. Sr. Counsel has made similar submissions with reference to the statements of Shri P. Eswaramurthy, [Dy. Manager (Stores) of the company] who agreed with the statements of Shri Sampath Kumar. ld. Counsel has further submitted that, in any case, the computer print-out or any statement made on the basis thereof could not be used for demanding duty for the period November, 1993 to January, 1996. In this connection, ld. Counsel has relied on the Tribunal’s decision in International Computer Ribbon Corporation v. C.C.E., Chennai []. It has also been contended that no positive evidence was available to show that the appellants had clandestinely cleared waste and scrap during the period of dispute.

4. The issues pertaining to demands of duty on components and finished goods have been addressed today by ld. Counsel, Shri S. Jaikumar. It is submitted that duty was correctly paid on the components cleared by Unit No. 1 to Unit No. 2, on the basis of assessable value arrived at by the ‘cost of production’ method under Rule 6(b)(ii) of the Valuation Rules. The Revenue also valued these goods under the same provision. The only objection raised by the Revenue is that certain overheads were not included in the assessable value. It is contextually pointed out that the assessee would not mind accepting this objection of the Revenue. Ld. Counsel, however, pleads strong case on limitation against the demand of duty on components. Referring to the findings recorded in para 52 of the impugned order, ld. Counsel submits that ld. Commissioner wrongly invoked the larger period of limitation by recording a finding which is beyond the scope of the show cause notice. It is also submitted that the assessee had no intention to evade payment of duty inasmuch as any duty paid by Unit No. 1 would be available as Modvat credit to Unit No. 2. Therefore, according to ld. Counsel, the demand of duty on components is time-barred.

5. Referring to the demand of duty on finished goods, ld. Counsel gives a brief account of the relevant facts. Where finished goods were found defective, the same were returned by the buyer for rectification of defect. If the defects were rectifiable, they would be rectified and the goods cleared to the same buyer without payment of duty. Where the defects were beyond repair, readymade finished goods from the store would be supplied to the buyer. These replacements were also done without payment of duty. Ld. Counsel submits that the adjudicating authority did not properly distinguish these two categories of clearances in the context of quantification of duty. If at all any duty was payable, it could be only in respect of the replacements. This liability to pay duty to the extent of Rs. l8,74,461/- has already been conceded before the Commissioner. As regards the rest of the demand on original equipments (finished goods), ld. Counsel submits that the Commissioner confirmed the demand on the erroneous basis that all these equipments were cleared by way of replacements. This was only an assumption, not supported by the relevant registers maintained by the appellants. It is also submitted that the demand of duty on the equipments is, by and large, based on a statement of Shri Lakshminarasimhan, Engineer (Service Station), who was in-charge of the Service Station (from where the equipments were cleared) only for a brief period of 9 months from January to September 1998. Shri Lakshminarasimhan stated that 90% of the clearances of original equipments (OEs) were replacements and the rest repairs. Without any corroboration of this statement, the adjudicating authority quantified the demand of duty on OEs assuming that 90% of the OE clearances were replacements. Ld. Counsel has also raised the plea of limitation against this demand.

6. It is also argued that if, at all, any part of the demand is found sustainable, the appellants are entitled to abatement of duty from sale price in respect of all categories of goods in terms of Section 4(4)(d)(ii) of the Central Excise Act. In this connection, reliance is placed on the Supreme Court’s decision in Maruti Udyog Limited v. C.C.E. [ (S.C.)].

7. It is submitted by ld. SDR that Shri Suryaprakash, Senior Officer (Marketing) and ‘Authorised Signatory for Central Excise purposes’ admitted replacements of finished goods having been made out of Service Station without payment of duty during the period of dispute. The statement of Shri Lakshminarasimhan regarding the quantum of such replacements was corroborated by Suryaprakash. According to ld. SDR, in view of such admission by the Company official, the demand of duty on the replacements cannot be validly contested on the ground of lack of evidence. It is pointed out by ld. SDR that Shri Suryaprakash admitted undervaluation of components also. On the limitation issue, the Commissioner’s findings are reiterated.

8. After giving careful consideration to the submissions, we find that, on the penalty issue, the appellants have a good case based on case law. It is an admitted fact in this case that the entire amount of duty demanded was paid prior to the issuance of show-cause notice. It has been held in the cases cited by ld. Sr. Advocate that, where duty was paid prior to the issuance of show-cause notice, no penalty was liable to be imposed on the assessee under Section 11AC or under Rule 173Q. Therefore, the penalties imposed in this case under the said provisions of law are liable to be vacated.

9. On the demand of duty on waste and scrap, again the appellants have made out a strong case on merits. The demand covering the period November, 1993 to September, 1998 is based on certain computer print-out relating to the period February, 1996 to September, 1998. These print-outs were generated from a personal computer of Shri G. Sampath Kumar, a junior officer of the Company, whose statements were also recorded by the department. Admittedly, whatever facts were stated by Shri Sampath Kumar, in his statements, were based on the entries contained in the computer print-outs. The statements of others, recorded in this case, did not disclose any additional fact. Therefore, apparently, what is contained in the computer print-out is the only basis of the demand of duty on waste and scrap. The question now arises as to whether these print-outs are admissible as evidence, in this case. Ld. Sr. Counsel has pointed out that the computer print-outs did not satisfy the statutory conditions. He has referred to the relevant provisions of Section 36B of the Central Excise Act which deals with admissibility of computer print-outs etc. as evidence and says that the statement contained in a computer print-out shall be deemed to be a document for the purposes of the Act and the rules made thereunder and shall be admissible as evidence of the contents of its original, if the conditions mentioned in sub-section (2) and other provisions of the Section are satisfied in relation to the statement and the computer in question. Sub-section (2) reads as under :-

“2. The conditions referred to in sub-section (1) in respect of the computer print-out shall be the following, namely :-

(a)     the computer print-out containing the statement was produced by the computer during the period over which the computer was used regularly to store or process information for the purposes of any activities regularly carried on over that period by the person having lawful control over the use of the computer;

(b) during the said period, there was regularly supplied to the computer in the ordinary course of the said activities, information of the kind contained in the statement of the kind from which the information so contained is derived;

(c)     throughout the material part of the said period, the computer was operation properly or, if not, then any respect in which it was not operating properly or was out of operation during that part of that period was not such as to affect the production of the document or the accuracy of the contents; and

(d) the information contained in the statement reproduced or is derived from information supplied to the computer in the ordinary course of the said activities.”

Ld. Sr. Counsel has argued that the above conditions were not fulfilled in respect of the computer print-out taken from the personal computer of Shri Sampath Kumar. It appears from the statement of Shri Sampath Kumar and the averments in the memorandum of appeal that it is an admitted fact that Shri Sampath Kumar was the person having lawful control over the use of the computer. The computer was not shown to have been used regularly to store or process information for the purposes of any activities regularly carried on by the company. It was also not shown that information of the kind contained in the computer print-out was regularly supplied by the Company to the personal computer of Shri Sampath Kumar in the ordinary course of activities. Again, it was not shown that, during the relevant period, the computer was operating in the above manner properly. The above provision also casts a burden on that party who wants to rely on the computer print-out, to show that the information contained in the print-out had been supplied to the computer in the ordinary course of business of the company. We find that none of these conditions was satisfied by the Revenue in this case. We have considered the Tribunal’s decision in International Computer Ribbon Corporation v. CCE, Chennai (supra). In that case, as in the instant case, computer print-outs were relied on by the adjudicating authority for recording a finding of clandestine manufacture and clearance of excisable goods. It was found by the Tribunal that the print-outs were neither authenticated nor recovered under Mahazar. It was also found that the assessee in that case had disowned the print-outs and was not even confronted with what was contained therein. The Tribunal rejected the print-outs and the Revenue’s finding of clandestine manufacture and clearance. We find a strong parallel between the instant case and the cited case. Nothing contained in the print-outs generated by Sampath Kumar’s PC can be admitted into evidence for non-fulfilment of the statutory conditions. It is also noteworthy that the computer print-outs pertained to the period February, 1996 to September, 1998 only but the information contained therein was used for a finding of clandestine removal of waste and scrap for earlier period also, which, in any case, was not permissible in law. In the result, we hold that the entire demand of duty on waste and scrap is liable to be set aside.

10. As regards the demand of duty on components removed from Unit No. 1 to Unit No. 2, we find that no valuation, issue survives. The challenge to this demand is on limitation only. The question whether this demand is time-barred will be considered by us later in this order.

11. Regarding the demand of duty on original equipments, we find that the entire demand is based on what is referred to as REP invoices. “REP” signifies two things for the assessee - “REPAIRS” and ‘REPLACEMENTS’. The Revenue has treated all these invoices as having been used for clearance of replacements. This does not seem to be correct in the facts and evidence of the case. The clearances in question are of two categories, one of which comprises the clearances of repaired equipments, in which case no duty is payable. The second category includes all replacements. Duty is liable to be paid on such clearances. This proposition is acceptable to the assessee. As a matter of fact, they have conceded duty liability of Rs. 18,74,461/- on admitted replacements. Shri Lakshminarasimhan stated that 90% of the original equipments were cleared by way of replacements. This statement was given by a person who was in-charge of the Service Station from where the subject clearances were made only for a brief period of 9 months (January to September, 1998). What was stated by Shri Lakshminarasmihan was not corroborated by anybody in charge of the Service Station for the period of dispute. No independent positive evidence of clandestine removal is also available in respect of the equipments. There is no rebuttal to the assessee’s case that the finding that 90% of the OE clearances were replacements is not supported by anything contained in the registers maintained in the Service Station. We do not find sufficient evidence to support the Commissioner’s finding that 90%, OE clearances were replacements attracting levy.

12. The appellants seem to have a good case on the limitation issue as well. Ld. Commissioner, in para 52 of his order, recorded a finding of suppression of “the fact” and misdeclaration of value in relation to clearances of components from Unit 1 to Unit 2. This finding is solely based on the assessee’s admission of undervaluation of the goods. But, unlike suppression, undervaluation does not seem to have an inbuilt element of mens rea, nor did the assessee concede that they had intent to evade payment of duty while excluding certain overheads from the assessable value of the goods. The facts and circumstances of the case would show that they had no intent to evade payment of duty on the components cleared from Unit 1 to Unit 2 inasmuch as any duty paid on the goods cleared from Unit No. 1 would have been available to Unit No. 2 as Modvat credit. The appellants’ plea of revenue neutrality raised in this appeal seems to be strong enough to resist the demand of duty on components for the extended period of limitation. Hence the plea of limitation in this case has to be accepted.

13. For the reasons recorded, we set aside the impugned order and allow this appeal with consequential relief, if any, to the appellants.