[Order per : Archana Wadhwa, Member (J)]. - Both the appeals are being disposed of by a common order as they arise out of the same impugned order passed by the authorities below. We have heard Shri P.M. Dave, learned Advocate for the appellants and Dr. M.K. Rajak, learned SDR for the Revenue.

2. As per the facts on record, the appellants are engaged in manufacturing of CTD/Plain Bars by using the steel plates on which they are availing the benefit of Modvat credit. Their factory was visited by the Central Excise officers on 12-8-97 who conducted various checks and verifications. No discrepancy was found in the physical stock of the final product vis-à-vis at the RG-1 register. However, the stock of the raw materials as recorded in RG-23A Part-I was found to be short than the physical stock by 298.000 MTs. Whereas the RG-23A Part-I recorded the stock of plat as 643.770 MTs, only 334.770 MTs was found to be physically available. Accordingly, a panchanama was drawn in the presence of the Panchas and statement of Shri Niraj Jaidev Arya was recorded, who attributed the shortages due to excess burning loss.

3. Further, in an ongoing enquiry against M/s. Patel Rolling Mills and M/s. Maruti Cement, during the search at their premises, a private diary was recovered. When questioned about certain entries of CTD/Plain Bars made in the said diary, Shri Manharlal Viradia revealed that same pertains to the bars obtained by them from M/s. Rutvi Steel & Alloys (the appellants herein), without payment of duty.

4. On the above basis, proceedings were initiated against the appellants by way of issuance of show cause notice proposing denial of Modvat credit of Rs. 4,69,350/- in respect of modvatable inputs found short than recorded balance and for confirmation of demand of duty of Rs. 1,21,290/- in respect of final product allegedly cleared without payment of duty. The notice also proposed penal action.

5. On adjudication, the additional Commissioner disallowed the credit as proposed and also imposed penalty of identical amount in terms of the provisions of Rule 57-I(4) of the erstwhile Rules. He also confirmed the demand of duty of Rs. 1,21,290/- on the findings of the clandestine removal along with imposition of penalties of identical amount under Section 11AC. In addition, he imposed further penalty of Rs. 4.50 lakhs under Rule 173Q of erstwhile Rules on the manufacturing unit along with imposition of penalty of Rs. 50,000/- on Shri Niraj Jaidev Arya, Director in terms of Rule 209A of the Central Excise Rules, 1944. The said order of the Additional Commissioner was upheld by the Commissioner (Appeals). Hence, the present appeal.

6. Dealing with the confirmation of demand of duty of Rs. 4,69,350/-, which stands confirmed on the shortages of the raw material, the stand canvassed before us by the learned Advocate is that the said shortages was not actual but pseudo inasmuch as it was not possible to weight the huge quantity of steel plates during the course of the day. It stand submitted that such weighment of steel plates was required to be done by carrying the same in trucks. Learned Advocate has drawn our attention to an affidavit filed by the Director as also an affidavit filed by Shri Bajrang Prabhudas on 8-9-2001 that the plates were not actually weighed.

The said two submissions raised by the appellants stand elaborately dealt with by the Commissioner. While dealing with the same, he found as under : -

“A thoughtful perusal of the Panchnama reveal that Steel Plates, aggregately weighing 345.770 MTs (found against recorded weight of 643.770 MTs) were weighed by using a weighbridge that is admittedly situated within the factory premises of the appellant. It is further evident that weighment slips bearing Nos. 38 to 61 were issued in the process. Thereafter, finished goods totally weighing 120.362 MTs were also weighed on the same weighbridge as can be seen from weighment slips bearing Nos. 62 to 68 issued to that effect. It is evident from the signatures of Shri Neeraj Jaidev Arya, Director, Shri Bajrang Parbhu Jat and Shri Dolatraj Haribhai, Panchas appended on the Panchnama that at the time when Panchnama was in the process of being drawn, they did not find anything objectionable. That the Panchnama was drawn to their satisfaction is also clear from a reading of the Panchnama.”

By referring to the statement of Shri Arya recorded on 12-5-97, he has further observed as under : -

“No deviation from the above version appears to have been preferred by Shri Arya, Director even when his further statement was recorded on  27-11-1997 (i.e. after lapse of six months). Once this is to be so, the said director cannot volte-face by filing an affidavit on 28-11-1997 and vouch that he does not concur with the Panchnama drawn on as early as 12-5-1997. The attempt that is being made to project his disenchantment with the liability arising out of the contents of Panchnama, by filing an affidavit after a lapse of more than six months and after his having made two voluntary depositions in form of oral evidences recorded by the department on 12-5-1997 and 27-11-1997 confessing the factum of shortage in the stock of inputs on 12-5-1997, can at best be termed as an afterthought only. That there is no plausible reason to explain the shortage is evident from another angle too. In his oral depositions, the shortfall is attributed to burning loss whereas affidavit filed thereafter declares that there was no shortfall at all. For obvious reasons, there cannot be two different and completely opposing explanations for one and the same event.

What is of more relevance than actual filing of affidavit retracting ones earlier version is the time span within which such retraction is preferred. Normally, for any retraction to make a mark, it is necessary that it is preferred at the earliest or at the first available opportunity. Again, mere disowning something that is already a part of long drawn investigation process without advancing any cogent explanation of the circumstance, which gave rise to such adverse evidence would not be acceptable. It has to be specifically placed on record the circumstances under which such evidences be it a Panchnama, a statement et al where recorded.

The affidavit filed by Shri Neeraj Arya after a gap of more than six months does not make any mention of the extraneous situation that compelled him to sign the Panchnama as well as more than one statements confirming the shortage of inputs in question. Considering that his stature is that of no less than a Director, the plea taken by him that he signed the Panchnama as well as the statement merely because the officers asked him to do so, is completely unacceptable particularly when no compulsion to do so is brought on record.

I have also given a conscientious look at the affidavit filed by both the Panchas. Both appear to have been filed on 8-9-2001 i.e. after a span of more than four years. Again, neither of the Panchas appears to have make any effort to explain the circumstances under which they placed their signatures on the Panchnama dated 12-5-1997. Interestingly, both similarly - worded affidavits seem to convey that it was only after Shri Neeraj Arya read out the Panchnama before them and that too after a period of over four years that they came to terms with its contents.

Panchnama is a document essentially to be authored by Panchas themselves. The Panchas are expected to narrate the nuances of various happenings that take place before them in a voluntary and unbiased manner. And once they are found to have discharged the task of narrating the Panchnama in a voluntary manner (emphasize supplied), they would in my view become functus officio so to say in that regard.”

7. As seen from the above the weighbridges were installed in the appellant’s factory and weighment slips were issued by the officers who visited the factory. As rightly discussed by the Commissioner (Appeals), the statements of Shri Arya were recorded on two different dates, one at the time of visiting and the other after lapse of six months. No different stand was taken by Shri Arya in the second statement recorded on 27-11-97. If the panchnama was not correctly drawn, Shri Arya could have taken the immediate action by filing retraction and could not have deposed the same very facts in a subsequent statement recorded after a period of six months. Further, in view of the fact that the language used in the affidavit of Panchas after a period of four years is only indicative to the fact that the same were at the instance of the appellant and did not explain the circumstances under which they were made to sign the papers. The said two affidavits stand rightly rejected by the lower authority as an afterthought.

8. The question, which now arise is whether the appellant is liable to reverse the Modvat credit availed on the raw materials found short during physical verification. The Modvat scheme is a piece of beneficial legislation granting benefit to the assessee. As such, the assessee are required to fulfil the condition and adhere to all the procedural aspect for availing credit. We note that the stand initially taken by Shri Arya in his statement that the shortages were on account of excess burning loss more than 5%, claimed by them cannot be appreciated inasmuch as such burning loss occurs after the raw material stand issued from RG-23A Part-I. As such, even if the burning loss was more than the availed burning loss, the same would not have resulted in shortages of the raw materials as against the entries in RG-23A Part-I. It is to be kept in mind that the shortages of raw materials has been found in respect of physical stock available vis-à-vis the entries made in the RG-23A Part-I. The burning loss would have occurred only after the materials are issued and shown to have been issued from the RG-23A Part-I. We also note that the said shortages are not negligible but to the extent of 45% of the recorded raw materials. As it is the appellants, who are claiming the benefit of Modvat credit, the onus to show that the same is being claimed in respect of the full quantum of raw materials received by them and utilized in manufacture of the final product is upon them. They are duty bound to show full accountal of the raw material, in respect of which they have availed the credit. Appellants having not explained such shortages, we are of the view that the duty in respect of the same is required to be confirmed along with penalty of identical amount. We hold accordingly.

8. As regards the confirmation of demand of duty of Rs. 1,21,290/-, we find that the same stands confirmed on the findings of the clandestine removal, which in turn are based upon the sole statement of Shri Manharlal Viradia of M/s. Patel Rolling Mills and M/s. Maruti Cement. There is no other evidence on record establishing any clandestine removal. The final products were found to be tallying with the recorded balance in RG-23A Part-I at the time of visit of the officers. It does not require the support of precedent decisions to hold that the charges of clandestine removal are required to be established by production of sufficient and positive evidence leading to inevitable conclusion and the same cannot be upheld on the basis of the entries made in a diary recovered from the third party’s premises and the statement of the authorized representative of that party. We are, accordingly, of the view that the findings of clandestine removal are unsustainable. We accordingly set aside the demand of duty of Rs. 1,21,290/- along with penalty of identical amount imposed under Section 11AC.

9. Inasmuch as the Modvat credit stands rejected along with penalty to the extent of 100%, we do not find any justification for imposition of separate penalty of Rs. 4.50 lakhs in terms of Rule 173Q and of Rs. 50,000/- on the Director in terms of Rule 209A. The same is accordingly set aside.

10. Both the appeals are disposed of in above terms.

(Pronounced in Court on 1-7-2009)