ORDER

S. Muralidhar, J. This appeal under Section 35G of the Central Excise Act, 1944 ('CE Act') is directed against an order dated 22nd November, 2012 passed by the Customs Excise Service Tax Appellate Tribunal (`CESTAT') by the majority of 2:1.

2. By the order dated 22nd July, 2014 while admitting this appeal, the following substantial question of law was framed by this Court:

"Whether the decision of the Customs, Excise and Service Tax Appellate Tribunal upholding demand of Rs.58,54,825/- and confiscation of 24 air-conditioners along with duty and penalty demand of Rs.3,16,800/- is perverse and contrary to the facts on record?"

Background facts

3. The Appellant, a proprietory concern of which Mrs. Neera Khanna is the sole Proprietrix, was engaged in the manufacturing of air-conditioners. The Appellant is also stated to be engaged in the trading of compressors, water coolers, transformers etc. It was a small scale unit and registered as such with the Central Excise Department. It was exempted from payment of excise duty on that basis.

4. On 28th February, 1992, the officers of the Central Excise Department (hereafter 'Department') visited the factory premises of the Appellant. They found 36 air-conditioners (ACs) valued at Rs.7,92,000/-, 281 compressors valued at Rs.47,77,000/-, 4 deep freezers valued collectively at Rs.41,500/- and 4 fan motors collectively valued at Rs,1,600/-.

5. On the same day, the officers of the Department visited the residence of Mr. Pradeep Khanna, the husband of Mrs. Neera Khanna. He was the Proprietor of M/s Thermoking. The officers seized 24 ACs from the residence of Mr. Khanna.

6. According to the Appellant, immediately thereafter she appeared before the officers of the Department, produced the RG-1 Register and claimed that 36 ACs were duly accounted for therein. The Appellant states that on that very date the 36 ACs, 4 fan motors and 24 ACs seized were released provisionally on 13th April 1992, after the Appellant furnished a bond and bank guarantee.

The show cause notice

7. During the investigation statements were recorded by the officers of the Department of some of the persons who purportedly purchased ACs from the Appellant as well of the representatives of M/s. Sri Ram Refrigeration, Hyderabad ('SRR') and M/s. Kirloskar Brothers Ltd., Pune ('KBL'). The Department served the Appellant with a Show Cause Notice (SCN) dated 27th August, 1992 calling upon the Appellant to show cause why:

(a) 36 ACs valued at Rs.7,92,000/-, 4 deep freezers valued at Rs.41,500/- and four fan motors valued at Rs.1,600/- seized from their factory premises should not be confiscated under the provisions of Rule 173Q and 226 of Central Excise Rules, 1944 (CE Rules).

(b) Central excise duty amounting to Rs.3,16,800/- on 24 ACs cleared by them on 27th February 1992 without payment of central excise duty should not be demanded and recovered from the under provisions of Rule 9 (2) read with Section 11A of CE Act.

(c) Duty leviable on ACs amounting to Rs.58,44825/- as worked out in Annexures XXVIII for the period from 88-89 to 89-90 in addition to duty on 36 ACs amounting to Rs.3,53,640/- show in para 17(i) to 17(xx) should not be recovered under the provisions of Rule 9(1) read with Section 11A of the CE Act by invoking extended period upto 5 years on the grounds mentioned above.

(d) Duty amounting to Rs.12,80,542.50 as shown in para 13 of the SCN should not be recovered and benefit of concessional rate of duty under Central Excise Notification No.75/87 dated 1st March 1987 as amended should not be denied. (e) Penalty should not be imposed on them under Rule 9 (2), 173Q and 226 of the CE Rules.

8. It was, inter alia, stated in para 17 of the SCN that 3 ACs had been found installed in the houses of various persons, the details of which were listed out in sub-paras (i) to (xx). Further in para 18, it was stated as under:

"(i) M/s Flevel International removed 36 air-conditioners from its factory without follow