The appellants in this case manufactured detergent powder and took modvat on various inputs. One of the inputs was Sulphonic acid. The manufacture was done on ajob contract basis where the inputs were supplied by the principal manufacturer namely Stephen Chemicals Ltd. The principal manufacturer had laid down the standard of consumption of inputs as raw-materials used in every unit of production. During two months namely May, 1991 and December, 1991, the consumption of sulphonic acid was substantially in excess of the limits laid down by the principal manufacturer. They therefore, recovered a sum of Rs. 1,13,455/- from the job workers. Somewhere in April, 1992, the jurisdictional officer in a visit to the factory located this communication. A Show Cause notice dated 11.4.94 was issued to the appellants seeking recovery or reversal of modvat credit amounting to Rs. 72,114/-on the ground of non-utilisation of the sulphonic acid during the month of May, 1991, acknowledging appropriation of a sum of Rs. 74,471/- already reversed by the appellants towards a similar non-accountal of such sulphonic acid during the month of December, 1991 and seeking imposition of penalty upon the appellant. After hearing the appellants, the Collector confirmed the demands and imposed a penalty of Rs. 5,000/- giving rise to this appeal.

2. Shri P.K. Mittal advocate appeared for the appellant and Shri Y.R. Kilaniya, JDR appeared for the revenue.

3. Ld. advocate argued that the show cause notice does not give any ground on which the contravention of rule 57A and 57F is alleged. Ld. Collector in his order has not given any ground for his belief that the impugned raw material was not used for the manufacture of the goods. He further claimed that the assessee had not suppressed any facts so as to render them 1iable to any penalty. On the same grounds he argued that the invocation of larger period was also not warranted.

4. Ld. advocate claimed that loss of raw material during the processing and manufacture of final goods was a normal phenomenon. In all the period the loss was within limits. The extra-ordinary loss occurred because of mal-functioning in the machinery coupled with human errors. He referred to the affidavit of Shri Jawaharlal Moondra in this connection.

5. Ld. advocate submitted that the law provides for loss of waste and scrap arising during the process of manufacture. He cited a number of judgments the ratio of which was that the modvat credit contained in the waste and scrap could not be denied. Referring to the judgment of Allahabad High Court in the case of Varuna Sulphonators P. Ltd. Vs. Union of India (1993 (68) ELT 42 (All), ld. advocate claimed that the meaning of the words "used" and "consumed" was analyzed in para 5 thereof. He submitted that the word "used" was synonymous to the word "consumed" and the definition of the word "consumed" would include loss by evaporation also. The other judgments relied upon were:-

1 . CCE, Bangalore Vs. Eros Pharma (P) Ltd., 1994 (73) ELT 72 (Tri).

2. CCE, Bangalore Vs. Vijaya Rubber Works, 1994 (73) ELT 75 (Tri).

3. CCE Vs. Mexon Industries Limited, 1994 (72) ELT 483 (Tri).

Ld. advocate stressed that the last named judgments laysdown that the extent of loss was not material at that time.

6. Shri Y.R. Kilaniya, ld. JDR arguing for the revenue claimed that all the judgments referred to and relied upon related to physical waste and did not cover the situation where the inputs were lost by spillage. He referred to the statement dated 25.12.93 of Shri R.C. Kohli, an official of the principal manufacturer. In this statement, it has been stated that barring the two incidents, on no other occasion any amount was recovered from the job workers on account of waste and spillage or leakage. Ld. JDR also referred to a statement of Shri R.S. Soni, Internal Auditor of the appellant company made on the same date in which the deponent has claimed in another case of spillage of sulphonic acid, they had reversed the m