Customs, Excise and Gold Tribunal - Delhi
Vidarbha Ceramics (P) Ltd. vs Collector Of C.E. on 16 May, 1988
Equivalent citations: 1988(36)ELT508(TRI-DEL)
ORDER D.C. Mandal, Member (T)
1. The facts of the case are that the appellants were purchasing fireclay in lumps from the mines and after powdering it in machine and filled in bags were selling the same in the market. They filed a classification list No. 30/81, effective from 1-4-1981. In the said classification list under the caption "Particulars of other goods produced or manufactured and intended to be removed by the Assesses," the appellants mentioned the following "Fireclay being a produce of mines, and since it is not manufactured by us, is non-excisable."
While approving the classification list the Range Superintendent held on 15-4-1981 that "Fireclay falls under Tariff Item 68 of the Central Excise Tariff and the rate of duty shall be 8% ad valorem". Against this approval order, the appellants made representation dated 15-5-1981 to the Collector of Central Excise, Nagpur challenging the classification made by the Superintendent of Central Excise under Item 68 of the Tariff. The Collector of Central Excise, vide his Order-in-Review 9/81, dated 1-8-1981 passed under Section 35A(2) of the Central Excises and Salt Act, 1944, set aside the order of the Superintendent of Central Excise and held that the fireclay in powder form would not fall under Tariff Item 68 and would, not be chargeable to Central Excise duty. The classification list No. 30/81 effective from 1 -4-1981 was modified by him accordingly. The records relating to the order of the Collector was examined by the Central Board of Excise and Customs, New Delhi under Section 35A of the Central Excises and Salt Act and, after issuing necessary show cause notice to the appellants and considering their reply, the Board passed Order-in-revision No. 64/R/83, dated 2-9-1983 which has been challenged by the appellants before us in the present appeal.
2. By the impugned order-in-revision, the Central Board of Excise and Customs has set aside order of the Collector of Central Excise, Nagpur and has held that fireclay powder is liable to duty under Item 68 of the Central Excise Tariff and has directed the appellants to pay Central Excise duty at the appropriate rate on the fireclay powder produced by them. In paragraphs 7 and 8 of the impugned order the Board has observed as follows :-
"7. It is, therefore, obvious that the fireclay in lumps which is mined is a hard mass and in its natural state is unable to take up water and become plastic but such hard mass of fireclay in lumps after grinding is capable of taking up water and become plastic. Thus hard mass of fireclay in natural state cannot be used as raw material in the manufacture of fireclay for refractory mortar but it is only when such hard mass of fireclay in its natural state is subjected to fine grinding that the same is capable of taking of water and become plastic. In fact, the plasticity of the ground fireclay clearly distinguishes such ground fireclay from hard mass of fireclay which is mined and as such the process of grinding of such hard masses of fireclay results in a new product with a new characteristics and consequently, is a manufacturing process covered by Section 2(1) of the Central Excises and Salt Act, 1944.
8. So far as the question of fireclay being a produce of the mine is concerned, since it is mined and hence exempt from duty under Item No. 68 of the Central Excise Tariff there is no dispute about the same. Fireclay in lumps is no doubt a produce of mine but when such fireclay in lumps after extracting from mine is brought to the factory of the Noticee for the purpose of grinding, such process of grinding cannot be termed as a process pertaining to the mining operation and covered by the Mining Act. In fact, as per IS-195-1963, such fireclay in powder form unless specified otherwise shall be supplied in gunny bags each containing 50 Kgs. Which the Noticee is following. In other words since the grinding of the fireclay lumps into powder has been carried out in a factory and a new and different tradeable goods having different characteristics and uses had come into existence, it has to be held that there was a "manufacture" of goods and further, the exemption under Notification No. 46/81 -C.E., dated 1-3-1981 (as amended) will not be applicable to such goods which fall under Item No. 68 of the Central Excise Tariff."
In arriving at the above conclusion, the Central Board of Excise and Customs has relied on the following extracts from page 28 of Industrial Ceramics by Felix Singer (1979 Reprint):-
"The use of this term has unfortunately become increasingly wide and thereby loose by its application. Strictly it should be applied only to refractory clays and shales which occur in hard masses that do not in their natural state take up water and become plastic, but on fine grinding will do so."
3. In the grounds of appeal, the appellants have stated that the finding of the Central Board of Excise and Customs that the process of grinding of hard masses of fireclay results in a new product with a new characteristics is unfounded and without evidence. They have stated that In the revision show cause notice, vide paragraphs 3 and 4 thereof, the main point was as to whether fireclay and fireclay mortars are distinct and separate, but in the order-in-review the Board has held that the plasticity of the ground fireclay distinguishes such ground fireclay from hard mass of fireclay which is mined and as such the process of grinding of such hard masses of fireclay results in a new product with a new characteristics and consequently is a manufacturing process under Section 2(f) of the Central Excises and Salt Act, 1944. They have contended that since this new point about plasticity was not there in the show, cause notice issued by the Board, no material could be produced by them before the Central Board of Excise and Customs. They have argued that the mere process of crusing of the lump fireclay to convert It into powder cannot affect Its property Including that of plasticity. They have contended that fireclay lumps have the same plasticity as in the fireclay In powder form. In support of their contention they have produced a copy of letter dated 15-10-1983 given by the Director of Laxminarayan Institute of Technology, Nagpur University In which It has been stated that mere process of grinding applied to the lump fireclay to convert It into powder cannot affect Its property of plasticity or any other characteristics. He has opined that the fireclay lump has the same plasticity when that lump is converted into powder form. There is no distinction. The appellants have further stated that depending upon the order of the buyers, they have many times sold fireclay lumps or run of mine.
4. During the hearing before us Shri C.L. Beri, the learned Advocate for the appellants has reiterated the grounds made in the written appeal. He has stated that the grinding of lump fireclay Into powder form does not amount to manufacture and It also does not change the characteristics or plasticity of the fireclay. He has argued that since no manufacture under Section 2(f) of the Central Excises and Salt Act, 1944 is involved In the production of powder, no Central Excise duty is leviable under Item 68 of the Central Excise Tariff on the same powder. In support of his arguments he has relied upon the following decisions
(i) 1977 ELT (J199) (S.C.) in the case of Union of India and Ors. v. Delhi Cloth and General Mills Co. Ltd. and Ors..
(ii) 1983 ELT 1542 (S.C.) in the case of Mineral and Metals Trading Corporation of India v. Union of India and Ors..
(iii) 1983 ELT 2401 (Cegat) in the case of Gujarat Reclaim and Rubber Products Ltd., Ankleshwar v. Collector of Central Excise and Customs, Bombay.
(iv) 1983 (2) ETR 274 (Cegat) in the case of Lakhanpal National Ltd., Baroda v. Collector of Customs, Bombay.
(v) 1978 ELT (J30) in Re; Tiffin's Barytes, Asbestos and Paint Ltd., Cuddapah.
(vi) AIR 1981 S.C 1014 in the case of Chowgule and Co. Pvt. Ltd. and Anr. v. Union of India and Ors..
(vii) 1985 (20) ELT 257 (Mad.) in the case of Coromandal Prodorlte Pvt. Ltd. v. Government of India and Ors..
(viii) 1980 ELT 343 (S.C.) in the case of Deputy Commissioner, Sales Tax (Law), Board of Revenue (Taxes), Ernakulam v. PIO Food Packers.
(ix) 1980 ELT 696 (Bom.) In the case of Sandoz India Ltd. v. Union of India and Ors..
(x) 1983 ECR 391 -D (Cegat) In the case of Collector of Central Excise, Patna v. Pyrites, Phosphates and Chemicals Ltd.
(xi) Me. Nicol v. Pinch (1906) 2 K.B. 352.
(xii) 1983 ELT 1566 (S.C.) in the case of Dunlop India Ltd. and Madras Rubber Factory Ltd. v. Union of India and Ors.
(xiii) 1983 ECR 949 D (Cegat) in the case of Indian Explosives Ltd., Calcutta v. Collector of Customs, Calcutta/Bombay.
He has explained that in 1983 ELT 1542 (S.C.), the Hon'ble Supreme Court held that separating Wolfram Ore from the rock to make It usable ore is a process of selective mining and is not a manufacturing process because the chemical structure of the ore remains the same. Unless the ore is roasted or treated with any chemical it cannot be classed as processed. In 1983 ELT 2401 (Cegat), this Tribunal held that old rubber crushed to powder did not amount to manufacture within the meaning of Section 2(f) of Central Excises and Salt Act, 1944. In 1983 (2) ETR 274, this Tribunal held that Manganese Dioxide did not cease to be ore merely because it had been converted into the form of powder and hence the powder was classifiable under Item 26 and not under Item 28 of the I.C.T. as it stood at the material time. In AIR-1981-SC-1014, the Hon'ble Supreme Court observed that the blending of different qualities of ore possessing different chemical and physical composition so as to produce ore of the contractual specifications could not be said to involve the process of manufacture, since the ore that was produced could not be regarded as a commercially new and distinct commodity from the ore of different specifications blended together. In 1985 (20) ELT 257 (Mad.), the Madras High Court held that Synthetic resin in solid form mixed with alcohol to convert it into liquid form did not amount to manufacture. The end product which was brought into existence by mixing the Synthetic resin with alcohol was not a product different in character, nature and use so as to be excisable under Item 15A of the Central Excise Tariff. In 1980/ELT 343 (S.C.), the Hon'ble Supreme Court considered the question as to whether conversion of pineapple fruit into pineapple slices for sale in sealed cans amounted to manufacture. It was held by the Hon'ble Supreme Court that although a degree of processing was involved in preparing pineapple slices from the original pineapple yet the commodity continued to possess its original identity, notwithstanding the removal of inedible portions, the slicing and thereafter canning it or adding sugar to preserve it and could not be said manufacture. In 1980 ELT 696 (Bombay), the Division Bench of Bombay High court has held that if a certain process merely changes the physical form of a substance without bringing any change in the chemical composition or resulting in any chemical reaction, then such a process cannot be equated with manufacture as it does not bring into existence a new product. In 1983 ECR 391-CH Cegat) it has been held by the Tribunal that crushing of tow grade pyrites for sale as agricultural grade pyrites is not manufacture. In Me. Nicol v. Pinch (1906) 2 K.B. 352, it was held that the conversion of commercially known "330-Saccharin" into "550-Saccharin" did not make the latter product different from the former although in the second product the strength of Saccharin was different from the first one. The learned advocate has further explained that in the case of Union of India and Ors. v. Delhi Cloth and General Mills Co, Ltd. and Ors., reported in 1977 ELT (J 199), the Hon'ble Supreme Court has held that the word 'manufacture' is generally understood to mean as bringing into existence a new substance and does not mean merely to produce some change in a substance. There must be a transformation, a new and different article must emerge having a distinctive name, character or use to constitute a process of manufacture. He has, therefore, argued that as the fireclay in powder form remains as fireclay and there was no change in the name, character or use, no process of manufacture within the meaning of Section 2(f) of Central Excises and Salt Act, 1944 is involved and hence the fireclay in powder form is not dutiable under Central Excise Tariff.
5. Regarding plasticity of fireclay, the learned advocate has argued that there is plasticity in the fireclay in lumps form as well as fireclay in powder form. Plasticity is a characteristic of fireclay. In this connection he has drawn our attention to paragraph 3.1 of the Indian Standard Specification 18-4589-1979 in which it has been stated that there shall be 3 grades of plastic clays, namely, grade 1, grade 2, and grade 3. In paragraph 4.1.1., it has been stated that the clays shall be plastic when wet and shall form a smooth suspension when dispersed in water. The learned advocate has drawn our attention to Harmonized Commodity Description and Coding System, Explanatory note in Chapter 25.08 in which it has been stated that the characteristic properties of the products falling under Heading 25.08 are plasticity. He has stated that fireclay appears at Sub-heading 2508.30 of Heading No. 25.08: He has, therefore, argued that all fireclay has plasticity. He has also drawn our attention to the opinion given by the Director of Laxminarayan Institute of Technology, Nagpur University in which he has opined that the grinding of lump fireclay to convert into powder cannot affect its property of plasticity or any other characteristics.
6. Arguing for the Revenue, Shri Sacchar, learned JDR has stated that the Supreme Court judgment reported in 1983 ELT 1542 (S.C.) is not relevant to the present case. He has drawn our attention to the decision of this Tribunal in the case at Associated Soap Stone Distributing Co. Pvt. Ltd. v. Collector of Central Excise, Indore, reported in 1985 (22) ELT 109 (Tribunal) in which, following the decision of Supreme Court in the case of Empire Industries Ltd reported in 1985 (20) ELT 179 (S.C.), this Tribunal held that grinding/crushing of Soap Stone lumps Into Soap stone powder is- manufacture within the meaning of Section 2(f) of Central Excises and Salt Act, 1944. He has argued that following the above decision it should be held that grinding of lump fireclay into powder is a process of manufacture and should attract duty under Item 68 of the Central Excise Tariff as held by the Central Board of Excise and Customs, New Delhi in their order-in-review.
7. We have considered the records of the case and the arguments of the learned advocate and learned JDR. The learned advocate has cited a number of decisions in support of Ms argument that the grinding of fireclay in lumps to convert it into powder is not a manufacture within the meaning of Section 2(f) of the Central Excises and Salt Act, 1944. The ratio of those decisions have been indicated in paragraph 4 ante. Shri Sacchar has heavily relied on the decision of this Tribunal reported in 1985 (22) ELT 109, in the case of Associated Soapstone Distributing Company Pvt. Ltd. v. Collector of Central Excise, Indore. In the said case, as it appears from paragraph 2 of the decision, the appellants produced soap stone powder by grinding soap stone lumps in an electric grinder and thereafter undertaking some further processes. The soap stone powder so obtained was used as a filler in the manufacture of paper, soap, rubber etc. Finely ground soap stone powder was also used as the base for manufacturing talcum powder which is a cosmetic. The appellants were reportedly supplying their soap stone powder to paper mills and soap manufacturers. The Tribunal observed that 'The same process may result in a new and different product in the case of one commodity but not so in the case of another commodity. The case of each commodity, therefore, stands on its own individual circumstances". Considering the facts and materials of that case, the Tribunal held that the name, character and use of soap stone lumps and soap stone powder were not the same; they were two distinct products by the test laid down by the Hon'ble Supreme Court in the case of Empire Industries Limited -1985 (20) ELT 179 (S.C.). In the circumstances, the Tribunal held in that case that the grinlng of soap stone into soap stone powder was "manufacture" within the meaning of Section 2(f) of Central Excises and Salt Act, 1944 and duty was payable-on the soap stone powder under Item 68 of the Central Excise Tariff. Whether grinding of fireclay lumps Into fireclay powder in the present case would amount to manufacture, would depend on the fact whether, following the test laid down by the Supreme court in the judgment reported in 1985 (20) ELT 179 (S.C.), a new product with distinct characteristic and use corpes Into existence. The name of the fireclay does not change after grinding of the lumps fireclay. The Board has relied on an extract from page 28 of Industrial Ceramics by Felix Singer (1979 Reprint) and has held that the grinding of hard mass of fireclay results in a new product, since after grinding, the fireclay acquires "plasticity whereas the hard mass of fireclay does not have the plasticity. The appellants have, on the other hand, produced an opinion from the Director of Laxminarayan Institute of Technology, Nagpur University in which he has opined that fireclay lumps has the same plasticity as the fireclay in powder form and that conversion of lump fireclay into powder cannot affect Its property of plasticity. This certificate was not, however, before the Central Board of Excise and Customs. This certificate was not produced before the lower authorities. The appellants have stated that the certificate could not be produced before the Central Board of Excise and Customs, as the question of plasticity was not raised in the review show cause notice. In the circumstances,, we consider it necessary that the authorities below should consider both the evidence, as mentioned above and re-decide the matter. Accordingly, we remand the matter to the Assistant Collector of Central Excise having jurisdiction over the appellants' factory to examine the matter de-novo after considering both the aforesaid evidences and take a decision as to whether after the grinding of lump fireclay, powder fireclay becomes a new product having distinct characteristic and use so as to constitute a "manufactured product" liable to Central Excise duty.
8. The impugned order, is therefore, set aside and the appeal is allowed by remand.