Per S.S. Sekhon : The appellant is a production unit under the Ministry of Railways, Government of India, was set up to manufacture wheel, axle and wheel sets for supply and captive consumption use in various organizations of the Indian Railways System. The appellants, also catered to the need of some private parties including meeting export orders, which was slightly less than 2% of the total output. The price of such goods sold to private parties was decided by the Ministry.

2. Consequent to the eligibility of modvat facility granted, the appellants opted for the same w.e.f. 1.7.95 for the supplies made to private parties. The goods supplied to the Indian Railways system were exempted vide Notfn. No. 62/95-CE dtd. 16.3.95 as amended. Whenever goods were supplied to the Indian Railways, duty on inputs utilized for manufacture of such wheel, axle and wheel sets was worked out and based on norms prepared, the amounts were reversed. However, when supplies were effected to private parties, credit to the extent based on the said norms was availed and the balance amount paid from PLA of the duties which were paid on supplies made to such private parties. The input credits availed during the initial stage in respect of each of the items cleared to Indian Railways were based on the following norms:-

"(i) Wheel Rs. 605/- as modvat credit based on the norms

(ii) Axle Rs. 2,007/- as modvat credit based on the norms

(iii) Wheel sets Rs. 3,230/- as modvat credit based on the norms"

By following the above procedure, the appellant benefited to the extent of modvat credit mentioned when goods were supplied to private parties. Consequent to the introduction of Rule 57CC w.e.f. 1.9.96, the appellant was required to reverse 'an amount' equivalent to 8% of the price, of the exempted goods, cleared to Indian Railways.

3. The audit party of the Central Excise Department pointed out certain defects during the course of audit of the records of the appellant and based on their observation, a show Cause Notice dtd. 5.7.2000 for the period 1.9.96 to 31.3.99 was issued by the Commissioner as to why:

"(i) The assessable value goods supplied to Indian Railways by adopting a lesser value should not be determined in terms of sec. 4 of Central Excise Act, 1944, read with Rule 6 (b) (i) (ii) of the Central Excise Valuation Rules, 1975 for the period upto 30.6.2000 and under Rule 8 of Valuation Rules, 2000 for the period from 1.7.2000 to 31.3.2001 for the purpose of determining liability for payment of 8% amount under erstwhile Rule 57CC of Central Excise Rules, 1944 and Rule 57D of Central Excise Rules, 1944.

(ii) The differential duty of Rs. 9,22,83,577/- on account of under valuation should not be recovered under proviso to Sec. 11A of the Central Excise Act, 1944.

(iii) penalty should not be imposed equivalent to the amount should not be imposed under the provisions of Sec. 11AC.

(iv) Penalty should not be imposed under the provisions of Rule 173 Q and 226 of Central Excise Rules, 1944.

(v) Interest should not be charged and recovered under Sec. 11AB of the Central Excise Act, 1944."

4. The Commissioner vide the order impugned, after considering the replies and findings that there was suppression of facts with intent to evade payment of duty as alleged in the notice and other five subsequent notices, passed the following order:-

"(i) the assessable value of the goods supplied to Indian railways should be re-determined in terms of Sec. 4 of CEA, 1944 read with rules 6 (b) (i) and (ii) of the Central Excise (valuation) Rules, 1975/Rules 8 9 of Central Excise (Valuation)(Determination of price of Excisable Goods) Rules, 2000 for the purposes of determining duty liability under the erstwhile Rule 57CC/57AD (2) of CER, 1944.

(ii) I confirm the differential duty of Rs. 9,22,83,577/- (Rs. Nine crores twenty two lakhs eighty three thousand five hundred and seventy seven only) for the period 1.9.96 to 31.3.99 under the proviso to the erstwhile Rule 57I (ii)/57AH (i) of