JUDGMENT

Manisha Batra, J.

The facts relevant for the purpose of disposal of the instant appeal are that the respondent-M/s Suraj Solvents & Vanaspati Industries was engaged in the manufacture of Vanaspati Ghee and Refined Vegetable Oil. These goods fell under Chapter 15 of the Schedule 1 to the Central Excise Tariff Act, 1985 (for short 'Act, 1985') and were exempted goods. During the course of the manufacture of these exempted goods, soap stock was produced which was captively consumed by the respondent in the manufacture of acid oil which was a dutiable product falling under sub-heading No.3823.00 of the 1st Schedule to the Act, 1985. An inquiry was initiated by the department and it was observed that the main raw material for carrying out the manufacturing process of the exempted goods was raw oil which was firstly treated in a neutralizer, with phosphoric acid and caustic lye. Two different products namely, neutral oil and soap stock emerged from that stage. Neutral oil was further used in the manufacture of exempted goods and soap stock was consumed in manufacture of acid oil, which was a dutiable product. The respondent had availed facility of modvat credit of duty paid on inputs used in the manufacture of acid oil. It had filed a declaration dated 10.02.1998 under the Rule 57-G of the erstwhile CENTRAL EXCISE RULES , 1944 (for short "Rules, 1944") with the department, wherein the final product was mentioned as acid oil and inputs have been mentioned as, i) caustic soda lye/flakes ii) sulphuric acid and iii) phosphoric acid. In that declaration, no mention was made of Vanaspati Ghee and Refined Oil. It was revealed that phosphoric acid and caustic lye have been used in the manufacture of exempted as well as dutiable goods because the manufacturing process was an integrated process, till it could be differentiated for exempted and dutiable goods. Accordingly, common inputs were used by the respondent in the manufacture of both an exempted as well as dutiable goods. The respondent had not maintained any separate inventory and accounts of the receipt and use of the inputs and had taken modvat credit of whole quantity of inputs in the manufacture of dutiable as well as exempted products though in pursuance of Rule 57CC (1) of the Rules, 1944, it was required to pay an amount equal to 8% of the price of the exempted goods, charged by it for sale of exempted goods at the time of their clearance from its factory. The respondent had also failed to declare to the department that the inputs on which the respondent intended to avail modvat credit would also be used in the manufacture of exempted goods and hence did not comply with sub- Rule 9 of Rule 57 CC(1) of the Rules, 1944.

2. It was further submitted that there was no mention of exempted goods also being final products and that the inputs on which the respondent would be availing modvat credit would also be used in the manufacture of exempted goods and thereby the respondent appeared to have suppressed the material facts from the knowledge of the department with the intent to avail the benefit of modvat credit of duty paid on inputs being used by it in the manufacture of both exempted and dutiable final products and with the intent to fraudulently evade payment of amount of 8% of the sale price of exempted final products. During the period from 10.02.1998 to 31.03.1999, the respondents had cle