Customs, Excise and Gold Tribunal - Delhi
Collector Of C. Ex. vs Keti Chemicals on 2 July, 1999
Equivalent citations: 1999(113)ELT689(TRI-DEL)
ORDER V.K. Agrawal, Member (T)
1. These three appeals have been referred to this Larger Bench vide Misc. Order No. 37/99-C on the following points :-
"Whether Spent Sulphuric Acid (Dilute Sulphuric Acid) was a product distinct from Sulphuric Acid classifiable under Heading 28.07 and was required to be classified as excisable product under Heading 38.23? Consequently, whether the Modvat credit was rightly claimable in such cases where input is Sulphuric Acid and Spent Sulphuric Acid is a By-product of the process involved?
OR Sulphuric Acid and Dilute Sulphuric Acid were essentially the same products classifiable as such under 28.07 and in the process in which the later is simply generated from the former it is required to be considered as unmanufactured product; and consequently no duty is leviable and no question of Modvat arises."
2. The facts leading to the above reference are, in brief, that the appellants were engaged in the manufacture of Acid Slury and Detergent Powder and one of the raw materials used by them is Sulphuric Acid classifiable under sub-heading 2807.00 of the Schedule to the Central Excise Tariff Act. They have opted for availing of the Modvat credit of the duty paid on the inputs under Rule 57A of the Central Excise Rules. During the process of manufacture, the LAB is Sulphonated by a strong Sulphuric Acid which result in the manufacture of Acid Slury which in turn is used in the manufacture of Detergent Powder. In this process of manufacture, Spent Sulphuric Acid is also obtained. The Collector (Appeals) under the order dated 31-12-1990 held that Spent Sulphuric Acid cannot be regarded as Sulphuric Acid as it contains a much lower percentage of H2SO4 i.e. 40 to 60% whereas Sulphuric Acid must contain H2SO4 between 77 to 100%; the Modvat credit is not to be reversed in respect of Spent Sulphuric Acid since the input Sulphuric Acid is not cleared as such from the factory of the appellants; that Spent Sulphuric Acid emerges only as by-product/waste during the manufacture of Acid Slury and as per the provisions of Rule 57D of the Central Excise Rules, Modvat credit cannot be denied simply on the ground that Spent Sulphuric Acid contains certain percentage of Sulphuric Acid in diluted form. The Collector (Appeals) also held that the Spent Sulphuric Acid is a chemical compound which is an excisable commodity classifiable under Heading 38.23 of the Central Excise Tariff chargeable to duty at appropriate rate read with exemption notification, if any.
3. Leading the arguments on behalf of the Revenue, Shri K. Srivastava, learned SDR, and Shri Tilak, learned DR, submitted that Spent Sulphuric Acid is Sulphuric Acid in diluted form and falls under Heading 28.07 of the Central Excise Tariff; that as per test report the product contains 51-60% Sulphuric Acid and as such there is a predominance of Sulphuric Acid in the product; that by virtue of Note l(a) and (b) to Chapter 28 of the CETA, Sulphuric Acid with impurities or dissolved in water would be covered under Chapter 28 of the Tariff. He further submitted that as per Note l(a) to Chapter 38, separate chemically defined elements or compounds are not covered under Chapter 38; that separate chemical elements and separate chemical compounds are covered by Chapter 28 of the Tariff. He relied upon the decision in the case of Commissioner of Sales Tax v. Agarwal & Co. - 1983 (12) E.L.T. 116 (Bom.) in which it was held that in a fiscal legislation a general term used for describing any commodity covers that commodity in all its forms and varieties. He further mentioned that in Mangalore Chemical & Fertilizer Ltd. v. C.C.E. - 1998 (98) E.L.T. 490, it was held that Carbon Dioxide is classifiable under Item 14H of erstwhile Central Excise Tariff, irrespective of percentage of purity. He also relied upon the decision in the case of C.C.E. v. Aureola Chemicals - 1998 (103) E.L.T. 105 (Tribunal) in which it was held that the process as a result of which Spent Sulphuric Acid arises is a process not amounting to manufacture and contended that no new product emerges as a result of manufacture and Spent Sulphuric Acid is, therefore, nothing but Sulphuric Acid in diluted form. He emphasised that Heading 28.07 refers to Sulphuric Acid and Anhydrides thereof; Oleum. It does not exclude any Sulphuric Acid which is available in different concentrates. In support of his contention reliance was placed by him on the decision of the Supreme Court in the case of Indian Tool Manufacturer v. Asstt. Collector of Central Excise - 1994 (74) E.L.T. 12 (S.C.) wherein it was held that "if there is a general heading for the purpose of levy of excise duty, then every variety of goods falling under that general heading will have to be tested under that heading." The first proposition from the Revenue, therefore, was that clearance of Spent Sulphuric Acid amounts to clearance of inputs as such in terms of Rule 57F(1)(ii) of the Central Excise Rules, and therefore, is chargeable to Central Excise duty which should not be less than the amount of credit allowed in respect of such input.
4. Alternatively, it has been submitted on behalf of the Revenue that the duty of excise is chargeable on Spent Sulphuric Acid as a waste product arising in the course of manufacture of final product under Rule 57F(4) of the Central Excise Rules. The rule creates a deeming fiction that such waste is deemed to be manufactured in the factory of the manufacturer availing Modvat credit. In the case of U.O.I. v. Jalyan Udyog Ltd. - 1993 (68) E.L.T. 9 (S.C.), Hon'ble Supreme Court held that where a fiction is created by a provision of law, the Court must give full effect to the fiction and as is often said it should not allow its imagination to be boggled by any other consideration. Fiction must be given its due play; there is to be no half way stop. The learned DR contended that it can, therefore, be not claimed that the Spent Sulphuric Acid as a waste was not manufactured in the factory of the manufacturer. He mentioned that similar view was taken by the Central Board of Excise & Customs vide Circular No. 3/92, dated 18-5-1992 issued under Section 37B of the Central Excise Act which is reported in 1992 (60) E.L.T. (T4). The Central Board of Excise & Customs ordered in that circular that Spent Acid must be cleared on payment of duty under Section 57F(4)(a) unless otherwise exempted from payment of duty. Learned DR also mentioned that provisions of Rule 57F(4) were interpreted by the Tribunal in the case of M.P. Udyog v. C.C.E., Kanpur -1999 (107) E.L.T. 309 (Tribunal) wherein it was held that duty is payable under Rule 57F(4) in respect of Spent Nickel catalyst which was obtained as a residue after the completion of the process of manufacture. He submitted that decision in M.P. Udyog is squarely applicable to the facts of the present case. Reliance was also placed on the decision in the case of Knit Foulds Ltd. v. C.C.E., Chandigarh -1997 (95) E.L.T. 517. Finally the learned DR submitted that Spent Sulphuric Acid is a processed waste having less concentration; that it is coming out of manufacturing process and it looses its originality as it cannot be used for original purpose; that it can be used as input for manufacturing fertilizers.
5. Shri Shiv Dass, and Shri M.P. Devnath, learned Advocates, intervened as the appeal filed by M/s. S.R.F., involving the same issue has been kept pending awaiting decision in these matters. They submitted that two issues arising for consideration by the Larger Bench are as under :-
(i) Whether the entire Modvat credit of the duty paid on Sulphuric Acid used in the manufacture of final product is admissible in the event of a By-product like Spent Sulphuric Acid emerges in the process of manufacture of the final product?
(ii) Whether Spent Sulphuric Acid is excisable product in its own right and is to be cleared on payment of duty?
6. Learned Advocate submitted that the Modvat credit is admissible on the entire quantity of Sulphuric Acid as the entire Sulphuric Acid has been used in the process of manufacture of the final product. He referred to the decision in the case of Varuna Sulphonator Pvt. Ltd. v. U.O.I. - 1993 (68) E.L.T. 42 (All.) in which it was held that "the Modvat scheme does not emphasise that during the manufacturing process, the entire duty paid input must be actually consumed, but the emphasis is on the use of the duty paid input in the manufacture of final product. The words 'used' and 'consumed' are not identical and synonymous." He further mentioned that this was also the view of the Tribunal in the case of Jaydee Agro Chemical (P) Ltd. v. C.C.E. -1996 (84) E.L.T. 354 in which it was held that disallowance or the reversal of Modvat credit in respect of Spent Sulphuric Acid under Rule 57F(1)(ii) is not justified. A similar view was held by the Tribunal in the case of C.C.E., New Delhi v. Sarchem Surfactants Pvt. Ltd. - 1996 (87) E.L.T. 105. He further mentioned that even the C.B.E.C. has issued Circular No. 11/92-CX. VIII, dated 18-5-1992 confirming the above position. He further mentioned that the admissibility of Modvat credit on Sulphuric Acid is not contingent on excisability or otherwise of the by-product; that availability of Modvat credit on entire quantity of Sulphuric Acid is independent of dutiability of Sulphuric Acid as the former depends on language of Rule 57A and the latter depends upon Section 3 of the Central Excise Act. The learned Counsel, further mentioned that this position is also evident from the provisions of Rule 57D(2) of the Central Excise Rules.
7. The learned Advocate also submitted that Spent Sulphuric Acid is a by-product emerging in the Sulphonation reaction between Linear Alkyl Benzene (LAB), Concentrate Suphuric Acid and Oleum; that in this process Acid Slury is manufactured and water is set free; that by-product that emerges is Spent Sulphuric Acid that has a concentration between 50 to 70%; that Spent Sulphuric Acid evidently is not the same as the input i.e. Concentrate Sulphuric Acid but since it does contain certain quantity of Sulphuric Acid it fetches some value. They further submitted that the position of Spent Sulphuric Acid is similar to the position of dross & skimmings emerging in the manufacturing process of Aluminium products. The Supreme Court in the case of U.O.I. v. Indian Aluminium Co. - 1995 (77) E.L.T. 268 (S.C.), held that Aluminium dross and skimmings cannot be considered as liable to excise duty as these are nothing but waste or rubbish which are thrown up in the course of manufacture. The learned Advocate's contention is that what applies to waste like dross and skimming, the same would equally apply to by-product. They submitted that Spent Sulphuric Acid does not emerge as a result of the process of manufacture as nobody manufacture waste product. They relied upon the decision in the case of Aureola Chemicals (supra) in which the Tribunal held that unused or unreacted Sulphuric Acid which is left over is called Spent Sulphuric Acid in the manufacture of organic surface active agent and is not a manufactured product and once the test of manufacture is not passed it became immaterial whether it is bought and sold as such or not. Similarly, in Super Chemical Industries v. C.C.E., Meerut - 1998 (27) RLT 753 (Tribunal), the Tribunal held that Spent Sulphuric Acid is not a product emerging as a result of manufacture. The learned Advocate also mentioned that in the two decisions of the Tribunal where Sulphuric Acid was held to be classifiable under Chapter 28 of the Tariff, the Tribunal had no occasion to examine whether Spent Sulphuric Acid emerges as a result of process of manufacture; that in Nirma Chemical Works v. C.C.E. -1993 (63) E.L.T. 251 the main issue involved was whether Modvat credit was allowable on the process of manufacture. Having so held the Tribunal proceeded to observe that it cannot be said that Spent Sulphuric Acid cannot be considered as not a manufactured product. The Tribunal in that case held it to be a chemical product classifiable under Heading 38.23 of CETA. They contended that this decision was passed before the decision of the Supreme Court in Indian Aluminium Co., Moti Laminates and Hyderabad Industries cases. Regarding the second case holding Spent Sulphuric Acid classifiable under 38.23, the learned Advocate submitted that in DCW Ltd. v. C.C.E. - 1996 (81) E.L.T. 381, the Tribunal mainly proceeded on the ground that the appellants therein had agreed to pay duty on Spent Sulphuric Acid and as such it was a decision effectively based on concession made by the appellants. This aspect was specifically mentioned by the Tribunal in the case of Super Chemicals (supra). They emphasised that Spent Sulphuric Acid is not consciously manufactured by the manufacturer, and therefore, it cannot be called as an excisable goods. They also mentioned that provisions of Rule 57F(1)(ii) do not apply in this case since these provisions would apply only when the inputs in respect of which credit has been allowed is removed as such. It is accepted position that such Sulphuric Acid is not the same as the Concentrate Sulphuric Acid which was used in the manufacturing process. Reliance was placed on the decision in the case of LML Ltd. v. C.C.E., Kanpur -1997 (94) E.L.T. 273 (S.C.), wherein the off cuts of steel sheets were considered to be different from steel sheets. Finally they submitted that Rule 57F(4) deals with the clearance of wastes arising from the process of inputs and since Spent Sulphuric Acid is a by-product, it cannot be considered as a waste, and therefore, provisions of Rule 57F(4) are not applicable. Further, the waste can be subjected to duty only if found otherwise dutiable; that as it does not arise as a result of the manufacture, it is not excisable goods. The phrase 'as if manufactured' in Rule 57F(4)(a) does not introduce the concept of deeming manufacture because it should have been atleast manufactured at one place; that as emerging of Sulphuric Acid does not amount to manufacture the deeming provisions in Rule 57F(4)(a) also does not help the case of the Revenue. No duty is leviable on Spent Sulphuric Acid as it does not arise as a result of the process of manufacture.
8. We have considered the submissions of both the sides. We observe that the issue referred for our consideration is whether Spent Sulphuric Acid and Sulphuric Acid are the same products classifiable under Heading 28.07 and whether the Spent Sulphuric Acid is required to be considered as unmanufactured product on which no duty is leviable or spent sulphuric acid is a product distinct from sulphuric acid and is classifiable under Heading 38.23 and whether Modvat credit is claimable in such cases where spent sulphuric acid is a by-product/waste of the process involved. The Revenue has put two propositions. Their first proposition is that Spent Sulphuric Acid is nothing but Sulphuric Acid in diluted form and is classifiable under Heading 28.07 in view of the Note 1(a) & (b) to Chapter 28 of CETA. If this position is accepted the manufacturers have to pay duty, at the time of clearance of Spent Sulphuric Acid, equal to the amount of Modvat credit availed of by them. The second proposition of the Revenue is that if Sulphuric Acid and Spent Sulphuric Acid are not same products, it is a waste product, which should suffer duty under Heading 28.07 in view of the provisions of Rule 57F(4) of Central Excise Rules. Revenue has tried to distinguish the case of Aureola Chemicals (supra) by submitting that the Tribunal came to the conclusion that Sulphuric Acid is not a manufactured product, as it was unused or unreacted Sulphuric Acid. Secondly, while deciding the Aureola Chemical's case, the decision in the case of DCW Ltd. -1996 (81) E.L.T. 381 was not considered by the Tribunal. In DCW case it was held that Spent Sulphuric Acid finds a regular market with industrial users and as such it is goods and would not fall under the category of rubbish material thrown in the process of manufacture. Further, even in Super Chemical Industries case, supra, the Tribunal only observed that one of the considerations for holding Spent Sulphuric Acid as excisable goods was the appellants' agreeing to pay duty on it. It does not at all convey that DCW decision was a decision effectively based on a concession made by the appellants, as contended by the learned Advocate. As observed earlier the Tribunal in DCW case considered the process of manufacture, diluted character of the Spent Sulphuric Acid, its being sold as waste in Carbuoys and steel tanks to the industrial consumers on the basis of contract and after taking into consideration the decision of the Supreme Court in Indian Aluminium Company's case (supra), the Tribunal came to the conclusion that Spent Sulphuric Acid is' goods in its own right and duty has to be paid under Rule 57F(4). The decision in the case of Indian Tube Co. Ltd. v. C.C.E. -1988 (37) E.L.T. 418 (Tribunal) is not applicable as the facts are different. The waste pickle liquor, involved in that decision, was not marketable or saleable since the manufacturers were paying transport charges to deliver it free. The learned Advocates have also submitted that Spent Sulphuric Acid is a by-product which is obtained during the process of manufacture of Acid Slury. They have also referred to book namely Synthetic Detergents by A.S. Davidshon and B. Milwidsky, in which it is mentioned that Spent Sulphuric Acid comes out as a by-product. Once a product emerges as a by-product in the process of manufacture of another product it can certainly be not claimed that it has not emerged as a result of process of manufacture. According to Words and Phrases of Excise and Customs by S.B. Sarkar, Concise Science Dictionary defines 'By-product' as a Compound formed during a chemical reaction at the same time as a main product. According to Concise Oxford Dictionary, by-product is incidental or secondary product of manufacture, etc. Product includes not only what is manufactured with a particular commodity but also by-product thereof. According to Law Lexicon, compiled and Edited by Shri P. Ramanatha Aiyar, "By-product is secondary or additional product. It is constantly the case that the By-products of a complex industry are found to be the sole source of business profits." Spent Sulphuric Acid can also not be equated with dross and skimmings which are in the shape of ashes arising as a result of oxidation of metal; further as recorded in Indian Aluminium Co. 's case, supra, "they lack not only metal body but also metal strength, formability and character; such dross & skimmings are, therefore, distinct from scrap which is a metal of as good a quality as the prime metal from which it arises." In view of these facts and nature of dross and skimmings, the Supreme Court held that dross and skimmings are not goods. Nowhere the Supreme Court in the said judgment has held that by-product will not be considered as goods which cannot be subjected to levy of excise. The Tribunal also in Nirma Chemical Works case, supra, observed that spent sulphuric acid "is produced as a by-product in the form of waste/residue during the process of manufacture of Nitrobenzene and acid slury/detergent powder by Sulphonation. It is also sold and find use in the manufacture of fertilizers. Therefore, it cannot be said that it is not a manufactured product or goods." Once it is a by-product in the form of waste/residue it has to suffer duty of excise. Accordingly the duty is leviable on spent sulphuric acid.
9. The next question to be considered is regarding classification of spent sulphuric acid. The rival Headings are 28.07 and 38.23 which read as under :-
28.07 2807.00 sulphuric acid and anhydrides thereof; Oleum.
38.23 3823.00 Prepared binders for foundry moulds or cores;chemical products and preparations of the chemical and allied industries (including those consisting of mixtures of natural products), not elsewhere specified or included; residual products of the chemi-
cal or allied industries not elsewhere specified or included."
10. The Tribunal in Nirma Chemical Works case, supra, classified the impugned product under Heading 38.23 on the ground that, according to Explanatory Notes of HSN, commercial sulphuric acid contains between 77-100% H2SO4 and the impugned product contains 51% to 60% of sulphuric acid and it does not have the characteristics and properties of sulphuric acid as mentioned in Explanatory Notes of HSN. The Note l(a) & (b) to Chapter 28 of the Tariff were not brought to the notice of the Tribunal in Nirma Chemical's case. According to these Notes "except where the context otherwise requires, the headings of Chapter 28 apply to separate chemically defined compounds, whether or not containing impurities; and the products dissolved in water." It has not been contended that spent sulphuric acid is not a separate chemically defined compound or separate chemical element. Further the Heading 28.07 does not give any indication by itself or by any Note to Section/Chapter of the Tariff that sulphuric acid of only a particular range of concentration is covered by the Heading. The Explanatory Notes of HSN merely states that commercial sulphuric acid contains between 77 and 100% H2SO4; that Notes nowhere mentions that sulphuric acid containing less than 77% H2SO4 will not be regarded as sulphuric acid. It does not flow from the Explanatory Notes that sulphuric acids of other concentrations are not covered by Heading 28.07. According to Concise Encyclopaedia of Chemical Technology by Kirk-Othemer, sulphuric acid is by far the largest volume chemical commodity produced and is sold or used commercially in a number of different concentrations including 78 wt% (60° Be), 93 wt% (65.7° Be), 96 wt% (66° Be), 98-99 wt% 100 wt%. Moreover, Note l(a) to Chapter 38 of the Central Excise Tariff excludes the separate chemically defined elements or compounds from the said Chapter. In view of this, the spent sulphuric acid will be classifiable under Heading 28.07 of the Schedule to the Central Excise Tariff Act, 1985.
11. The last issue to be declared is about the availability of Modvat credit. It is not the case of the Revenue that sulphuric acid has been used in or in relation to manufacture of the final goods. As the sulphuric acid has been put to use, the manufacturers are eligible to avail of Modvat credit of the duty paid on the entire quantity of sulphuric acid so used. This was the view of the Allahabad High Court in the case of Varuna Sulphonators Pvt. Ltd. - 1993 (68) E.L.T. 42. It was held by the High Court as under :-
"When the entire quantity of sulphuric acid was subjected to the manufacturing process, it cannot be said that the same was not used for the manufacture of final product, simply because due to water being added, a layer is created which separates the spent sulphuric acid from the final product. Once the duty paid input is physically involved in the manufacturing process, that can be said to have been used despite the fact that the same is not fully assimilated in the final product. Hundred per cent absorption or assimilation of the duty paid input in the final product is not a sine quo non of Modvat credit, but to take benefit of Modvat Scheme, the petitioner is required simply to establish that the input was used in the manufacture of the final product."
12. The reference stands disposed of in the above terms. The appeals may now be placed before the Bench concerned for passing appropriate orders.