G. Sankaran, Sr. Vice-President

1. This appeal is against Order-in-Original No. 25/88-C.E., dated 26-9-1988 passed by the Collector of Central Excise, Jaipur.

2. The facts of the case, briefly stated, are that M/s. Kharia Cement Works (hereinafter called the appellants), a division of M/s. Lohia Engineering Works Private Ltd., Kanpur, have a factory at Kanpur, manufacturing machines and a factory in Jodhpur District, manufacturing cement. Based on certain investigations, the Collector issued a show cause notice to the appellants alleging that since the aggregate value of clearances of all excisable goods (save for certain exclusions) manufactured and cleared by the factories at Kharia and Kanpur during the financial years 1984-85 and 1985-86 had exceeded the prescribed ceiling of Rs. 1.5 crores, they were not entitled to the benefit of duty exemption under Central Excise Notification No. 175/86, dated 1-3-1986. It was further alleged that since the Kanpur unit had, during 1987-88, availed itself of MOD-VAT credit of duty paid on inputs, the Kharia cement unit was not entitled to full exemption from duty on first clearances upto Rs. 15 lakhs under Clause (1)(a)(ii) of Notification No. 175/86. The Kharia unit could avail itself of only partial exemption on first clearances upto an aggregate value not exceeding Rs. 75 lakhs as per Clause (1)(a)(i) and (1)(b) of the said notification. It was alleged that the amount of duty thus evaded by the Kharia unit worked out to Rs. 38,469 during the period from 1-3-1986 to 24-3-1986, Rs. 9,38,301.20 during 1986-87 and Rs. 1,93,354.60 during 1987-88 (upto September 1987). In all, the duty in respect of the Kharia unit was Rs. 11,70,124.80 and that in respect of the Kanpur unit Rs. 6,73,070.16. The appellants deposited a total sum of Rs. 9,76,771/-in a number of instalments, some of them preceding the issue of the show cause notice and the others following it, but all prior to the date of the adjudication order.

3. On the issue whether entitlement to exemption under Notification No. 175/86 would depend on the aggregate value of clearances of all excisable goods from both the Kanpur and Kharia units, the Collector, in his adjudication order, noted that the appellants had not raised any dispute.

4. As regards the issue whether the Kharia unit was entitled to duty exemption on first clearances upto Rs. 15 lakhs though the Kanpur unit had availed itself of MOD-VAT credit during 1987-88, the appellants' contention was that the two units were distinct and separate. The fact that the Kanpur unit applied for and availed itself of MODVAT credit would not mean that the Kharia unit had also availed itself of MOD-VAT credit. Therefore, the Kharia unit could not be denied full duty exemption on its first clearances upto Rs. 15 lakhs. The Collector, however, noted that the real issue was whether the manufacturer having availed itself of MODVAT credit in respect of its Kanpur unit would be entitled to avail itself of full duty exemption on the first clearances of specified excisable goods upto Rs. 15 lakhs. Relying on Clause (a)(i) of para 1 of the Notification the Collector held that the Kharia unit was not entitled to the said full duty exemption.

5. Though the Collector held that the appellants had rendered themselves liable to penalty under Central Excise Rule 173Q inasmuch as they had suppressed the value of clearances of the Kanpur unit in their classification list, he noted that they had voluntarily deposited a major part of the duty. The said omission, according to the Collector, was not a deliberate and conscious intention to evade Central Excise duty but was attributable to an erroneous interpretation of the notification. Therefore, the Collector did not impose any penalty on the appellants but cautioned them to be more careful in future.

6. In the result, the Collector confirmed the demand for duty in the sum of Rs. 11,17,124.80 from the appellants under Rule 9(2) of the Central Excise Rules read