Per Archana Wadhwa :

The appellants are a public sector undertaking engaged in the business of refining of crude petroleum and marketing of various petroleum products thereof. They have an installation at Budge Budge Unit I, West Bengal and are holding-appropriate registration under Central Excise Rules for warehousingand manufacturing excisable goods falling under chapter 27 34 of the schedule to the Central Excise Tariff Act, 1985.

2. The appellants are engaged in manufacturing different grades of lubricating oils and greases (sub heading 2710.90), obtaining base oils under bond meant for use as inputs on which they took modvat credit of duty paid at the time of clearances from their bonded storage tanks located within the manufacturing premises.

3. A show cause notice dt. 15.5.98 was issued by the respondent on the alleged ground that there was loss of inputs to the order of 14% to 16% of the tank discharge quantity. The loss at various intermediate stages starting from tank discharge through pipeline upto Reaction Kettle and attributed to various factors viz., spillage, pipeline losses, handling losses, evaporation losses, etc. and finally the loss at the finished product stage, none of which have taken part during the course of manufacture of final product nor any physical existence was available in the waste/refuse/by-product. Hence, as per the show cause notice the benefit of Rule 57D was not available to appellant in respect of loss of inputs issued for manufacture. Since modvat credit was taken on the whole quantity of base oil issued for manufacture, the show cause notice was issued proposing to recover excess credit towards loss of inputs under Rule 57A read with Rule 571 (l)(ii).

4. During adjudication the appellants contended that the basis on which the notice proposed to deny the modvat credit by adopting 14-15% wastage in respect of base oil have not been disclosed to them. Based upon their records, the appellants contended that the quantity of base oil issued for manufacture during the period Apri1 1995 to March 1998 was to the tune of 20,755 KL.s as compared to the figure of 22,400 KL.s mentioned in the show cause notice. As such the wastage would come to only 0.90% which was reasonable in their type of industry. As such they agitated that the loss calculated in the show cause notice @ 15% was arbitrary and not in consonance with the records maintained by them. It was also their contention that the loss of base oil is attributable to various factors, which start with the issuance of the base oil up to the finished product stage, which situation is covered by Rule 57D. They also contended that the show cause notice in question was barred by limitation.

5. The Commissioner of Central Excise, Calcutta-I however, did not find favour with the submission made by the appellant and vide his impugned order confirmed the demand of duty of Rs. 43,68,000/- by rejecting the modvat credit irregularly availed by the appellants on the oil equivalent to the oil lost and also imposed penalty of an identical amount under the provision of Rule 571 (4) along with confirmation of interest under the provision of Rule 571 (5).

6. We have heard Dr. Debi Pal, Id. sr. adv. appearing for the appellant. It has been strongly argued that the Revenue has denied the benefit of the modvat credit by adopting high percentage of wastage of base oil on adhoc basis and no reasons or grounds for adopting such a high percentage of waste have been disclosed. On the other hand the appellants have given the statement based upon their records, which Statement has been rejected lightly by the adjudicating authority by observing that no evidential proof has been given by the appellants. Dr. Pal submits that the statement given to the adjudicating authority was based upon the records maintained by them and if the adjudicating authority was entertaining any doubt, he should have called for-the records. It has been clarified that the initial discharge figure