Per G.N. Srinivasan : This appeal has been filed against the decision of the Commissioner of Central Excise & Customs, Nagpur made in Order-in-Original No. 25-27/2000 dated 30.3.2000 whereunder he has disallowed the Modvat credit amount of Rs. 1,28,61,279/-, and ordered the assessee appellant to pay an amount equivalent to the credit so disallowed, if the credit has been utilised, or not utilised credit thus disallowed in terms of Rule 57 (I) (iii) of the Central Excise Rules. By the impugned order, the learned Commissioner had ordered payment of interest at the appropriate rate on Rs. 1,04,40,028/- in terms of Rule 57 (I) (5) of the Central Excise Rules and imposed a penalty of Rs. 1,04,40,028/- under Rule 57I (4) of the Central Excise Rules. He has also imposed a penalty of Rs. 25.00 lakhs on the assessee in respect of cases covered by Show Cause Notices dated 1.10.1999 and 19.11.1999.

2. The appellant is a company engaged in the manufacture of paper and paper boards and articles thereof falling under Chapter 48 of the Schedule to the CETA 1985. The assessee has several factories all over India, such as Ballarpur, Ashti, Sewa, Yamuna Nagar, and Chaudwar. The present appeal relate to Ballarpur unit of the assessee. It would appear that Ballarpur unit of the appellant manufactured different varieties of paper and paper board. For the manufacture of paper and paper board, "pulp" is required. Pulp is classifiable under Chapter Sub Heading 4701 and chargeable to nil rate of duty. The pulp is also manufactured in the assessees factory at Ballarpur and is captively consumed for the manufacture of paper and paper board. A small portion of this pulp is sent to its sister unit at Ashti. The period in dispute is September, 1996 to September, 1999. During the relevant period, the assessee was availing Modvat credit. As far as the manufacture of pulp is concerned, there is no impact vis-a-vis Modvat credit availed on the inputs, since the duty is paid only on the final product, namely paper and paper products. It is the case of the appellant that it was under the bona fide impression that the clearance of pulp to its sister unit at Ashti was governed by Rule 57CC of the Central Excise Rules which requires the manufacturer to pay an amount of 8% of the price of the exempted final product. Prior to introduction of Rule 57CC of the Central Excise Rules in the Central Excise Rules in 1996, the appellant was debiting proportionate Modvat credit on the inputs contained in the pulp cleared to its Ashti unit which was in accordance with the instructions issued by the CBEC and to which there was no objection to this procedure being followed by the assessee from the department. After introduction of Rule 57CC of the Central Excise Rules, the appellant filed a price declaration from 15.4.1997 to 26.12.1997. The price was claimed in terms of Rule 6 (b) (ii) of the Valuation Rules. The assessee states that 8% was paid on the basis of this value. The department issued three Show Cause Notices dated 24.5.1999, 1.10.1999 and 19.11.1999 for the period spreading from September, 1996 to September, 1999 demanding an amount of Rs. 2,28,88,866/-. The department's case as contained in the Show Cause Notice is as follows:

"3. As per Rule 6 (b) (i) of Valuation Rules, 1975, where the excisable goods are not sold by the assessee but are used or consumed by him or on his behalf in the production or manufacture of other articles, the value shall be based on the value of comparable goods produced or manufactured by the assessee or by any other assessee, provided that in determining the value under this sub-clause, the proper officer shall make such adjustments as appear to him reasonable, taking into consideration all relevant factors and, in particular, the difference, if any, in the material characteristics of the goods to be assessed and of the comparable goods; (ii) If the value cannot be determined under sub-clause (i), on the cost of production or manufactu