I.J. Rao, Member (T)

1. The Collector in the order impugned before us demanded duty of Rupees 12.58 lakhs from the appellants (for the period from May 1985 to December 1986) confiscated four bundles of sheets, with an option for redemption, imposed a penalty of Rs. one lakh and confiscated the land, building and machinery with an option for redemption on payment of a fine of Rs. 20,000/-. The facts in brief resulting in the said order of the Collector are as under:

2. M/s. Lili Foam Pvt. Ltd. is a small-scale unit engaged in the manufacture of polyurethene foam. The appellant company commenced production some time in May 1985 though originally set up in May 1984. A team of Central Excise Officers visited the premises of M/s. Lili Foam Industries on 8-12-1986. Certain quantities of foam was found in excess of what was recorded in RG-1. The said quantities were seized by the visiting Officers. Also, certain accounts and documents were seized under a Mahazar on the same day. Statements were recorded from Shri G.H. Doshi, Managing Director on 8-12-1986 and also from some workers of the factory. Statements were also recorded from some of the customers. Based on the statements recorded from Shri G.H. Doshi, workers and the customers and also on the basis of the documents seized, the Central Excise Department issued a show cause notice to the appellants dated 12-5-1987 in which it was proposed to demand a duty of Rs. 21,43,996.90 paise under Rule 9(2) of the Central Excise Rules read with Section 11A of the Central Excises and Salt Act (Act for short) for the period May 1984 to December 1986.536.5 Kg of polyurethene foam seized from the appellants premises was also proposed to be confiscated and imposition of penalty on the appellants and confiscation of land, building, plant, machinery, etc. were also threatened.

3. Annexure-1 to the show cause notice gives the break-up of the demand of Rs. 21,43,996.90. Firstly the show cause notice has alleged that the appellants had consumed a chemical called TDI to the tune of 42,500 Kgs. during the period in question and the show cause notice has assumed that out of this quantity of TDI the appellants should have manufactured 93,369.23 Kgs of polyurethene foam. (The formula conversion from TDI to polyurethene foam is that 65 Kgs of TDI would yield 142.8 Kgs of polyurethene foam. This has not been disputed by the appellants even during the hearing, before us). The show cause notice assumed that out of this 93,369.230 Kgs of polyurethene foam alleged to have been manufactured and cleared by the appellants, 90% should have been of "Deluxe commercial grade" and the remaining 10% should be waste.

4. The show cause notice further assumed the value of Rs. 1.52 per millimeter of the Deluxe Commercial grade as against 1.40 per millimetre declared by the appellants in the price list, and estimated that duty should have been paid by the appellants Rs. 51,09,164.10. The value of the waste and scrap was assumed to be Rs. 14/- per kg as against Rs. 6 per kg declared by the appellants in the price list. After deducting the actual duty paid by the appellants during this period, the show cause notice proposed to demand a differential duty of Rs. 21,43,996.90.

5. The show cause notice also proposed to increase the assessable value of the Deluxe commercial grade polyurethene foam because, some of the customers had given huge deposits for which interest was not yet paid by the appellants, and this interest was, therefore, an element of the price and assessable value. Similarly the increase in the value of the waste and scrap was based on the statement of one of the customers namely Shri T.V. Mathews, Proprietor, Sky Foams.

6. The appellants replied to the show cause notice and also appeared before the Collector for personal hearing. Both in their written reply to the show cause notice as also written submissions filed before the Collector at the time of personal hearing, the appellants contended that they never con