Per G.R. Sharma:

By the impugned order Ld. Commissioner dropped proceedings initiated by issue of SCNs on 27.9.94, 31.9.95, 1.8.95, 31.8.95 and 30/31.1.96. Being aggrieved by this order, Revenue has filed the captioned appeal.

2. The facts of the case briefly stated are that the respondents herein are engaged in the manufacture of Colour Picture Tubes classifiable under Chapter Heading 8540.11. The respondents herein are selling Colour Picture Tubes to various manufacturers of colour TVs. The respondents offered a warranty on Colour Picture Tubes for one year from the date of clearances. Colour Picture Tubes are received by the respondents under warranty clause under Rule 57F (3) erstwhile Rule 57F (2) of Central Excise Rules, 44 for reprocessing/repairing. Broadly on receipt of the Colour Picture Tubes under the warranty clause, two processes were adopted; in cases where there were minor defects, they were removed in line, whereas in cases of major defects coloured picture tubes received under warranty clause are sent through salvage section where the damaged colour picture tubes were debonded losing their identity and few parts mainly panels and funnels, if found in order were recovered. These recovered parts alongwith fresh raw materials were used in the manufacture of fresh picture tubes which were cleared as a replacement under the cover of challans issued under the then Rule 57F (2). The Department alleged that the picture tubes were wrongly received under Rule 57F (2) as they were not fit for repair/reprocessing and that the respondents herein deliberately avoided their arrival under Rule 173H as the same provided for filing of D3 intimation and verification of the tubes after arrival. A SCN was issued to the respondents herein demanding Central Excise Duty of Rs. 4,23,04,300/- for the period Oct'89 to June'94 on the grounds that the respondents herein besides manufacturing Colour Picture Tubes are also undertaking the job work for their customers on defective Colour Picture Tubes received under warranty clause. It was also alleged that in certain cases even those Colour Picture Tubes are worked upon which are beyond warranty clause. It was also alleged that the respondents herein were not maintaining any record except case sheets so that the Department could not know the exact nature of activities. It was also alleged that even in the case sheets bifurcation of Colour Picture Tubes sent to finishing line or to salvage section were manipulated after the defective colour picture tubes are ready for despatch. For recovering the amount of duty Proviso to Section 11A was invoked alleging that there was wilful mis-statement and suppression of facts in-as-much no records were being maintained by the respondents with the intention to evade payment of Central Excise Duty. In reply to the SCN the assessee submitted that the Department was fully aware of the fact that the respondents' customers had sent defective Colour Picture Tubes either under gate passes issued in terms of Rule 57F (1) (ii) or under the challans issued in terms of Rule 57F (2). It was contended that on receipt of the defective Colour Picture Tubes in the factory, the damage was inspected and the damaged picture tubes were either sent to on line section for removal of minor defects or sent to the salvage Section for removing their major defects. After the receipt of the repaired Colour Picture Tubes, the same serial number as was originally assigned was given to the repaired Colour Picture Tubes. It was submitted that equal amount of Modvat credit on the inputs per defective Colour Picture Tubes had been debited irrespective of the fact whether such inputs had been used or not in repair. It was also submitted that what they had received from their customers were picture tubes and what they had ultimately sent to the customers were picture tubes and therefore, there was no new product in name character or use that came into existence, therefore, there was no