Customs, Excise and Gold Tribunal - Delhi
Malwa Vanaspati And Chemical Company ... vs Collector Of Central Excise on 8 March, 1988
Equivalent citations: 1988(17)ECC175, 1988(18)ECR98(TRI.-DELHI), 1988(35)ELT693(TRI-DEL)
ORDER D.C. Mandal, Member (T)
1. The question to be decided in this appeal is whether the appellants used power or steam in the manufacture of soap in their factory and were entitled to the benefit of Notification No. 28/64-CE dated 1.3.64. The process of manufacture in the appellants' factory has been explained in paragraph 1.2 of the impugned order, which is reproduced below :
"1.2. On 14.9.82, the Central Excise Officers of Central Excise Hqrs. visited the Noticee's factory for checking of manufacturing process, stock and records. They observed that during the course of manufacture of Vanaspati from V.N.E. Oils, they first neutralise the oil by treating the same with alkali i.e. Caustic Soda, so that fatty matters (soapy matters) of the oil are removed in the form of Soap stocks which is classifiable under T.I. 68 of the C. Ex. Tariff. With the reaction of free fatty acids and alkali, a partial saponifi-cation to the tune of 10 to 15% takes place forming semi liquid soap in the soap stock. The soap stock is poured down in the tanks at the ground flour by the gravity itself. These tanks are equipped with steam pipe lines for heating the soap stock. From these tanks, the soap stock at 30% total fatty matters and 50% moisture pumped by 10 H.P. Gear pump to the soap pans situated at the first floor of the soap factory situated at 30 ft. height from the ground floor. Each soap pan is equipped with 3 steam pipe lines extending from the top to different heights inside the pan. The steam pipes are directly connected in soap pans from boiler. The steam pressure in all cases whenever steam is used is connected wi|th 40 lbs steam pressure. The soap pans are also equipped with one water pipe. The common salt about 2% is added to the boiling soap stock at 100°C in these soap pans. This process is called graining. Here the water gets separated from the bottom of the pan by virtue of its increased specific gravity. The boiling with steam is continued for complete saponification with excess of alkali already present during the course of refining. The addition of salt also during the course of graining helps in separation of three layers namely the neat soap at the top, some nigger in the middle and glycerol at the bottom of pan, according to their specific gravities. The glycerol is drained of, whereas the nigger which contains considerable amount of soap is further reprocessed with the next batch of soap stock which helps in faster saponi-fication and recovery of residual soap. The process of separation of these layers is called fitting. When the boiling is over, the neat soap (classified as boiled and hardened soap stock by the Noticee) containing 40% T.F.M. and 40% moisture is taken down in kadhais (Five in numbers) through the pipe line in gravity. The kadhais having capacity of 800 kgs. at the ground floor which are heated by the fire wood, the soap scrap, sodium silicate, mahua oil and perfumes etc. are added. These ingredients are mixed thoroughly so as to get the homogeneous soap mass. The soap mass which is taken out of kadhais contain about 50% T.F.M., 40% moisture and 10% silicate, free alkali and salt. The soap mass which in turn is clamped in frame for getting solidify in about 5 days. Thereafter the soap is deframed and block of soap are cut into standard sizes, stamped with brand name and made marketable."
2. The Department alleged that (i) the process of manufacture of soap of the appellants was carried on with the aid of the power in asmuch as the raw material was pumped from one Section to another Section of the factory with the aid of the power and (ii) steam was used in heating in the process of manufacture of soap.
Notification No. 28/64-CE exempted from central excise duty soap in or in relation to the manufacture of which no process was ordinarily carried on with the aid of power or of steam for heating. A show cause notice was issued to the appellants on 22.11.82 alleging that they appeared to have primafacie committed contravention of Rules 9(1), 52-A, 173-F, 173-G and 174 of the Central Excise Rules, 1944, inasmuch as they had not taken central excise license for the manufacture of soap and they had not determined and paid central excise duty and had removed the goods without payment of duty. They were asked to explain why penalty should not be imposed on them under Rules 9(2), 52-A, 173-Q, 226 and why duty amounting to Rs. 13,49,017.91 Paise should not be demanded under Rule 9(2) read with Section 11-A of the Central Excises and Salt Act, 1944. They were also asked to explain why the goods seized from them should not be confiscated under Rule 173-Q of the Central Excise Rules.
3. The defence against the above charges taken by the appellants before the Collector of Central Excise, Indore was that by his Order-in-Appeal No. Soap 1 of 1969 dated 28.4.1970, the Collector of Central Excise, Nagpur, set aside the Order No. C. No. V(915)30-3/68/3033 dated 13.3.69 in which the Assistant Collector held that soap manufactured in their factory could not be treated as exempted from duty and accordingly, he asked them to pay duty. Appellants contended that show cause notice could not be issued to them contrary to the said order dated 28.4.70 of the Collector. They also contended that they did not use power in the manufacture of soap, and hence, they were eligible to exemption under Notification No. 28/64-CE dated 1.3.64. They further contended that the demand for duty was barred by limitation.
4. By the impugned order the Collector of Central Excise, Indore has rejected their contentions. Regarding Collector, Nagpur's order dated 28.4.70, the Collector of Central Excise, Indore has held that the said order dated 28.4.70 was not speaking order and hence it was not binding. Secondly, he has held that in 1981 the appellants introduced definite, change in the manufacturing process which was not there in 1970. They started making boiled soap stock with steam and this boiled soap stock was never sold and it was, therefore, an integrated manufacturing process of soap. On merits of the case, the Collector has held that it is admitted fact that in the appellants' factory steam was used in boiling soap-stock and also power was used in transferring the soap-stock to the soap-stock pans. Steam was not only used at the initial stage in making soap-stock but steam was further used not merely in making soap-stock as such, but in further boiling it. This process of boiling was not meant to manufacture merely soap-stock but was primarily intended to hasten conversion of soap-stock to soap. Therefore, power was restricted not merely to making soap-stock (since soap-stock was already made at an earlier stage) but in actually helping to convert the soap-stock into soap. Since the boiled soap stock was never sold and was used only for conversion into soap in an integrated process, it could be held that steam had been used not merely for making soap-stock, but also converting soap-stock into soap. Collector has further observed that in addition to this, soap-stock was actually pumped from soap-stock tanks to soap-stock pans with the aid of power. This was an integral process in the manufacture of soap and it could not be denied that power] had been used by the appellants in the manufacture of soap. In coming to his findings, the Collector followed the decisions of this Tribunal in the case of Gujrat Dye Tex Case reported in 1983 ELT-2415 in which the Tribunal repelled the contention that pumping of raw material with the aid of P.D. Pumps did not constitute manufacture with the aid of power. Regarding limitation for demand of duty, the Collector has held that there was no suppression or wilful mis-declaration on the part of the appellants and hence, no penalty was to be imposed and he confirmed the demand for duty for six months for the period prior to the issue of the show cause notice. The Collector also refrained from confiscating the seized goods.
5. The contention of the appellants before us is on the same line as taken before the Collector of Central Excise, Indore. During the hearing before us, the learned Advocate for the appellants has stated that steam was used for keeping the liquid soap-stock in tank. Power was used for pumping liquid soap-stock for the manufacture of soap. Liquid soap-stock and soap were two different commodities falling under separate Tariff Items No. 68 and 15 respectively. Soap was manufactured by the appellants without the aid of the power and hence, benefit of exemption under Notifiction No. 28/64-CE dated 1.3.64 was admissible to them. The process of manufacture has been described in page-2 of the impugned order. There was no change in the plant, machinery and the process of manufacturing. The classification lists filed on 8.12.80, 12.9.83 and 20.9.83 were approved by the Department. The classification could not be re-opened contrary to the Collector's order dated 28.4.70, as there was no change in the process of manufacture. The learned advocate has further argued that Collector's order dated 28.4.70 was final and it was binding on the Subordinate Officers. Show cause notice could not, therefore, be issued against the appellants on 22.11.82 by the Assistant Collector of Central Excise, Indore. The order dated 28.4.70 being a quasi-judicial order could not be reviewed by the Collector and revise the earlier decision by the impugned order. The show cause notice issued by the Assistant Collector as well as impugned order of the Collector of Central Excise, Indore in pursuance to the said show cause notice were invalid, being contrary to the Appellate Order dated 28.4.70. In support of this contention, the learned Advocate has relied on the decisions reported in (i) 1986 (25) ELT-610 (Bom.), (ii) 1981 ELT-194 (Madras), (iii) 1983-ECR-1888-D (Cegat), (iv) 1987 (27) ELT-79 (Tribunal), (v) 1984 (18) ELT-172 (Bom.) and (vi) AIR 1972 SC 2466. The learned Advocate has further argued that there was a long standing practice of not charging duty on soap manufactured by the appellants and the practice could be changed prospectively only, as held by this Tribunal in its decision reported in 1985 (22) ELT-487 (Tribunal). On merits of the case, the learned Advocate has argued that no power was used by the appellants in the manufacture of soap. In support of his contention, he has relied on the decisions reported in (i) 1979-ELT-3-147 (Delhi), (ii) 1981 ELT-617 (Gujrat), (iii) 1986 (26) ELT-561 (Tribunal), (iv) 1987 (28) ELT-364 (Tribunal), (v) 1987 (30) ELT-541 (Tribunal) and (vi) 1987 (12) ECR-39 (Cegat). Learned Advocate has also stated that manufacture of soap starts after caustic soda is added and after this stage no steam or power was used.
6. Arguing for the respondent-Collector, learned 3.D.R. has stated that Shri Brij Gopal Daga, Vice-President of the Appellant-Company, in his statement, said that there was change in the process of manufacture in 1981. Shri M.P. Modak, Chemist in the soap Section of the appellants' factory also admitted the fact of use of power and steam. The classification could, therefore, be reopened by the Department. Further, the classification list filed by the appellants at Annexure - N in the Paper Book shows that it was not approved by the Proper Officer. A remark 'seen' has only been written on the classification list. It is not a verified and approved classification list and hence, no conclusion can be drawn on that basis. Boiling of soap stock in soap pans is a part of manufacturing process. The power was used for transporting raw materials and steam was used for heating raw material. She has argued that the benefit of exemption notification was not, therefore, available to the appellants. She has distinguished the facts in some of the decisions relied upon by the learned advocate. Regarding the plea of long standing practice, she has stated that this plea is not acceptable as there was change in the manufacturing process of soap since 1981. So, demand for duty upto 6 months prior to the date of show caue notice is sustainable.
7. We have gone through the case records and have considered the arguments. Regarding the first contention of the appellants that order dated 28.4.70 of the Collector of Central Excise, Nagpur was final and no show cause notice could be issued by the Assistant Collector of Central Excise contrary to that order, we find that Collector of Central Excise, Indore in the impugned order was justified in observing that the said Appellate order dated 28.4.70 was not speaking order. We reproduce below the contents of the said order ;
"Having regard to the facts and circumstances of the case and the grounds urged in the appeal as well as at the time of personal hearing, I, set aside the Order No. V(915)30-3/68/3033 dated 13.3.69 passed by Assistant Collector, Indore and admit the appeal. Consequential refund, if any, shall be allowed to the appellants."
In the impugned order the Collector of Central Excise has relied Upon several decisions in support of his finding that non-speaking order of the Collector of Central Excise, Nagpur was not binding. But, then, in our view, the said order should have been challenged before the higher forum. But this was not done. That, however, does not matter in any way in the facts and circumstances of the present case in as much as there was change in the process of manufacture since 1981. The Collector has explained the change which was brought in the process of manufactur-ing soap in the appellants' factory. We are of the view that because of this change in the process of manufacturing, the Department could re-open the issue. The learned advocate 'has relied on a few decisions in support of his .contention that the issue could not be reopened. We have gone through those decisions. In 1981 ELT 194(Mad.) in the case of Madras Fertilizers Limited v. Assistant Collector of Central Excise, Madras and Ors., it was held that if the question had been finally decided by the Central Government it was not open for the Assistant Collector to reopen the matter under Rule 10 or 173J and to raise any demand relating thereto at any stage subsequently. In the case of Nuchem Plastics Ltd., Faridabad V.. The Collector of Central Excise, Delhi, reported in 1983 ECR 1888D(Cegat), it was held by this Tribunal that a successor Assistant Collector could not reopen or revoke his predecessor's order. In the case of Ruby Mills and Anr. v. Union of India and Ors. reported in 1986(25) ELT 610 (Bom.), the Hon'ble Bombay High Court held that order of the Collector of Customs (Appeals) became final and was binding on every subordinate authority if no appeal was filed against the said order and got quashed. In the decision reported in 1984(18) ELT 172 (Bom.) in the case of Godrej and Boyce Manufacturing Co. Pvt. Ltd., Bombay and Anr. v. Union of India and Ors., it was held that a show cause notice was invalid if it was issued contrary to the appellate order which had become final. In the case of Sidheshwar Sahakari Sakhar Karkhana Ltd. v. Collector of Central Excise, Pune, reported in 1987(27) ELT-79 (Tribunal), it was held that Quasi-Judicial Authority was not competent to review its earlier order. The ratio of the earlier decisions can be applied only in cases having identical facts. The facts in the present case are not similar to the facts of the cases relied upon. In this case there was a change in the manufacturing process, and hence, there was no bar in reopening the issue decided by the appellate authority much earlier than the change. For the same reason, we do not consider that the ratio laid down in the Supreme Court decision in AIR 1972 S.C. 2466 is applicable in the present case. We do not agree with the plea that long standing practice could be changed prospectively only. This plea could have some force if there was no change in the process of manufacture since 1981. Even otherwise, under Section 11-A of the Central Excises and Salt Act, demand for duty can be raised for a period of six months prior to the date of issue of notice. It was held by the Hon'ble Karnataka High Court in their decision reported in 1985(22) ELT-751 (Karnataka) in the case of Shyam Sunder U. Nichani v. Assistant Collector of Central Excise, Bangalore and Anr. that the classification list approved by the Assistant Collector could be reopened and reassessed under Section 11A of the Central Excises and Salt Act. We also find that classification list dated 1.3.83 does not indicate that the same was approved by the proper officer. Below the Memorandum of Approval only remark "seen" has been written by the Officer concerned. This is another reason for which demand could be raised by the Department for a period of six months under Section 11-A of the Act.
8. On merits of the case, the appellants have pleaded that heating the soap stock with steam and transferring the same with the aid of power would not disentitle them to the benefit of exemption Notification No. 28/64-CE as the above processes would not amount to use of power in the manufacture of soap. A few decisions have been relied upon by the learned advocate to support his contention. We have considered these decision. In the case of Nirma Chemical Works and Ors. v. Union of India and Ors. [1981 E.L.T. 617(Guj.)], it was held by the Hon'ble High Court of Gujrat that mere use of power in transferring raw material from the motor tank to storage tank cannot be said to be use of power in the process of manufacture of final product because it is not a process of manufacture. In the said case, two raw materials Alkyd benzene and sulphuric acid were of a hazardous nature and those raw materials were brought to the premises of the petitioners' factory by specially designed motor tankers which were also fitted with compressors for quick and easy delivery. For the purpose of storing the raw materials, the petitioners, in that case, had installed huge storage tanks of 300 to 900 tonnes appro-ximately above the ground. Alkyd benzene and sulphuric acid were delivered to the premises of the petitioners by those motor tankers. The compressors on the motor tankers were operated with the aid of power of the tankers themselves and those compressors were used for the purpose of transferring liquid alkyd benzene or liquid sulphuric acid from the motor tanker to the storage tank of the petitioners. Sulphuric acid or alkyd benzene transported by motor tankers was pumped into storage tanks of the said petitioners with the help of their own compressors fitted to the tankers. The use of power in the said case was, therefore, for transporting raw materials to the storage tank before such raw materials were put to use in the process of manufacturing. It was in that context that the Hon'ble Gujrat High Court held that use of power in transporting raw materials from motor tank to the storage tank could not be said to be use of power in the process of manufacturing the final product. In the present case before us the facts are not similar to the case decided by the Hon'ble Gujrat High Court. In the case of the appellants before us, the power was used for transferring the soap stock to the soap stock pans in the process of manufacturing soap. Steam was also used for heating soap stock in the process of manufacturing the soap. Appellants' case is, therefore, clearly distinguishable from the case decided by Hon'ble Gujrat High Court. In the case of Fargo Mantle Products (P) Ltd., Bombay v. Collector of Central Excise, Bombay, reported in 1986(26) E.L.T. 561 (Tribunal), the assessee used electric power for ironing the gas mantles, preceding their packing in a butter paper envelope. The Gas mantles even before ironing were ready for use as gas mantles and, infact, even after ironing they had to be fluffed out and the effect of ironing removed before they could be actually used as gas mantles. In these circumstances, this Tribunal held that ironing with the aid of power in that case was not a process in, or in relation to, manufacture of gas mantles. The facts of that case are, therefore, clearly distinguishable from the present case, in as much as in the case of the appellants before us, power was used in the course of manufacture of soap. Similarly, in the case of Adreena Industries V.. Collector of Central Excise, Chandigarh, reported in 1987(28) ELT-364 (Tribunal), this Tribunal held that mechanical equipments used for hydro-extraction or drying the dyed yarn did not constitute a process of manufacture. In that case, the manufacture of dyed yarn was complete without extraction of water or drying the same. The manufacture of soap in the appellants' factory was not complete before the soap stock was transferred to the soap stock pans in the course of manufacture. The case of Adreena Industries is, therefore, distinguishable from the present case. In the case of Fram & Company v. Collector of Central Excise, Bombay, reported in 1987(30) E.L.T. 54l (Tribunal), this Tribunal held that chilling of water was not a process of manufacture and hence, use of power for chilling water did not disqualify the assessee to the benefit of exemption granted under Notification No. 293/77-CE. That case is also distinguishable from the case before us as transferring soap stock to the soap stock pans with the aid of power was a part of integrated process of manufacture of soap. In the decision of this Tribunal reported in 1987(12) ECR-39 (Cegat SRB) in the case of Collector of Central Excise, Bangalore v. Ashok Chem Dyes (P) Ltd., 1987(29) ELT 568 (Tribunal) this Tribunal held that use of power merely to transfer water and raw material to storage tank could not be said to be use of power in the manufacture of the final product because it was not a process of manufacture. This case is also distinguishable from the case before us. In the case reported in 1979 E.L.T. 3-147(Delhi), i.e. the case of Jain Soap Mills, New Delhi v. Union of India And Ors., the Hon'ble Delhi High Court in paragraph 9 & 10 observed as follows :-
"9. For the purpose of deciding whether the - notification of 24th April, 1962 applied to the petitioners, I think it is immaterial whether soapstock be regarded as a 'raw material' for soap or as an'inter-mediate' product. On its plain words, the notification is concerned only with the processes carried on by the manufacturer who produced the soap sought to be charged with duty. The soap referred to is that 'cleared for home consumption by any manufacturer. Anterior processes, by which the ingredients of that soap were manufactured by other manufacturers, are beyond the ken of the ' notification. Hence, one must confine one's attention to the activities of the manufacturer in whose hands the soap is subjected to duty.
10. There is no warrant in the words of the notification for injecting into it any wider or deeper consideration of the question whether power or steam have been used in the process of manufacturing the soap. A somewhat similar attempt to introduce extraneous ideas in applying a notification exempting aluminium products from duty under the Act, was castigated by the Supreme Court in an unreported case entitled Aluminium Corporation of India Ltd. v. Union of India and Ors., decided on 22nd August, 1975 [1978 E.L.T. (J. 452)]. The futility of the view canvassed on behalf of the excise authorities is at once apparent when it is remembered that many, if not most, of the other ingredients of soap are also prepared by the use of power of steam: for exemple alkalis. On their view there would be no kind of soap which would be covered by any of the notifications, or, indeed, even by sub-item II of item 15 of the First Schedule to the Act. In the extreme, it could possibly be argued that even water used in the manufacture of soap had itself been produced by the use of some power or steam. That demonstrated the absurd results which would follow; if the view of the excise authorities were accepted. Thus, in my opinion, on its proper interpretation the petitioners were entitled to the benefit of the lower rate of duty prescribed by the notification of 24th April, 1962."
Thus, the decisions cited by the learned advocate do not help the case of the appellants.
9. From the facts of the present case, we observe that both steam and power were used in the integrated process of manufacture of soap. The Collector of Central Excise, Indore was, therefore, correct, on facts and in law, to hold that benefit of exemption notification No. 28/64-CE dated 1.3.64 was not admissible to the appellants in respect of soap manu-factured in their factory. The duty was, therefore, payable by the appllants.
10. The Collector has restricted the demand for duty to a period of six months prior to the issue of show casue notice under Section 11-A of the Central Excises and Salt Act, 1944 read with Rule 9(2) of the Central Excise Rules. The part of his decision is also sustainable in law.
11. In the light of the above discussions, we do not find any infirmity in the impugned order, we, therefore, uphold the same and dismiss the appeal.