Customs, Excise and Gold Tribunal - Delhi
Collector Of Customs vs Jg. Glass Ltd. on 27 May, 1988
Equivalent citations: 1989(19)ECC176, 1988(18)ECR294(TRI.-DELHI), 1988(37)ELT248(TRI-DEL)
ORDER P.C. Jain, Member (T)
1. Short question involved in all these six appeals is interpretation of Rule 173-H. Brief facts of the case are as follows :-
The respondent company at Rishikesh manufactures glass and glass-wares and their major production consists of vials which are supplied by them to M/s. IDPL Rishikesh, manufacturer of drugs and medicines. M/s. IDPL insist on a very high standard of quality and goods despatched to them which are found by them below standard for packing their medicines are not accepted by them and this necessitated return of duty paid goods to the respondent company's factory. At the request of the respondent company vide their letter dated 22/30.4.1976 addressed to the Collector of Customs and Central Excise, Sar-vodaya Nagar, Kanpur, permission was granted to the respondent company that subject to the condition and procedure outlined in Rule 173-H of Central Excise Rules, 1944 and Collector's Notification No. 5-CE/70. dated 7.3.1970 to bring the defective duty paid vials rejected by M/s. IDPL and take out equivalent number of vials without payment of duty in terms of Rule 173-H. In order to appreciate the controversy in the proper perspective it is appropriate to extract at this stage some of the relevant portions from the respondent company's letter dated 22/30.4.1976 :-
"To summarise the position we wish to submit as under :-
(1) Upto December 1975, we have made glass vials only and our entire production has been supplied to the Antibiotics Plant of the IDPL This plant is a wholly owned unit of the Govt. of India.
(2) As per the terms of our contract, Central Excise and any other Government levies are to be borne by them.
(3) We are supplying vials, duly packed in cardboard boxes, - each box containing 1000 X 7.5 cc vials. 15 c.c. vials are packed in cardboard boxes containing 800 Nos.
(4) The Antibiotics Plant of the Indian Drugs & Pharmaceuticals Ltd. Virbhadra-Rishikesh, when using these vials (for packing life saving drugs), tear the cardboard boxes and feed the vial into their automatic machines. At this stage If they find that any vials do not conform to their specifications, the same are rejected.
(5) As per the Excise Rules, an excisable commodity if rejected after payment of excise duty and after it has been cleared from the premises of manufacturer, is to be returned in the original packing to the manufacturer, who can then re-make it and supply it once again without payment of excise duty, by following the procedure laid down in the Excise Rules.
(6) As explained above, it is not possible for the IDPL to return the rejected glass vials in the original packing, as it is torn at the time vials are fed into their automatic machines. Prom a packing box containing 1000 vials, only a few vials are rejected; and this rejection is noticed only after the packing boxes are opened.
(7) Uptil now rejected vials have been returned by the IDPL, duly packed in gunny bags. However, in case your department insists, the maximum that the Antibiotics Plant can do is to return the rejected glass vials, duly packed in boxes, similar to the ones in which we supply vials to them. They cannot return the rejected vials in original packing.
(8) Rejected vials are not our raw material.
(9) The only method of re-making rejected glass vials is by remelting the same and repeating the process as in the case of making fresh vials.
REQUEST: In view of the foregoing we have to request as under :-
(1) kindly permit us to take from IDPL vials rejected by them during 100% inspection, duly packed in gunny bags, - the number of vials thus returned to be calculated on weight basis as indicated above.
(2) Kindly permit us to replace these vials without paying excise duty, after we have re-made the same, as indicated above.
(3) In case this is not acceptable, kindly permit us to claim refund of excise duty on the rejected vials, which we have taken back (and replaced) from the Antibiotics Plants of the Indian Drugs & Pharmaceuticals Ltd., and for which we had given information to your department in form D-3 required under the rules."
2. To the aforesaid request the Superintendent of Central Excise Dehradun by his letter dated 30.12.1976 informed the respondent company that they may receive defective vials in gunny bags from M/s. IDPL. The weight of the vials and the gunny bag will determine the number of glass vials returned to them by M/s. IDPL. The condition regarding identity of goods received and those re-despatched after re-making has also been waived off. A few other conditions such as 24 hours notice regarding receipt of rejected vials from M/s. IDPL into the respondents' factory, storage of goods separately and all other collateral evidence to be made available to the Central Excise Officers etc. on demand were also imposed while allowing the benefit of Rule 173-H.
3. Notification No. 199/76 dated 26.6.1976 amended Rule 173-H which permitted retention or receipt of duty paid goods in the factory for the purpose of refining, reconditioning, repairing, remaking or subjected to any similar process in the factory in the following manner :-
"173H(2) - the goods retained in, or brought into, a factory... may, if not subjected to any process amounting to manufacture be removed from the factory... without payment of duty..." [Amendment underlined]
4. The department has now alleged that the process adopted by the respondent company is nothing but a process amounting to manufacture, since the respondent company has rejected vials as the raw material alongwith silica sand, soda ash and other materials. It has, therefore, been alleged that the respondent company is not entitled to the provisions of Rule 173H and therefore, it has wrongly cleared vials without payment of duty in different periods leading to the six show cause notices commencing from 29.4.1974 to 1.10.1982. Dates of show cause notices, the periods during which allegation of clearance of vials without payment of duty and the amount of duty against each of the aforesaid appeals is mentioned below:-
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Appeal No. Period Date of show Amount cause notice
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2266/83 29.4.1974 to 27.12.1978 10.7.1979 Rs. 3,18,834.24 2267/83 29.3.1979 to 28.6.1979 10.7.1979 Rs. 0,72,262.05 2268/83 12.5.1980 to 28.2.1982 8.4.1982 Rs. 1,78,223.00 2269/83 21.6.1982 to 1.10.1982 11.11.1982 Rs. 5,275.46 2270/83 24.10.1979 15.10.1982 Rs. 15,575.00 2271/83 28.1.1980 15.10.1982 Rs. 15,575.00
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The aforesaid demands were confirmed by the original authority namely, Assistant Collector of Central Excise, Saharanpur on the basis of the aforesaid allegations and also setting aside, the plea of time bar raised by the respondent company.
5. The Collector of Central Excise (Appeals) by a common order which is impugned now has held that the process of remaking vials in the instant case is nothing but a process of manufacture. He has, however, further held that since the permission to avail the facility under Rule 173H had been granted by the Central Excise Authorities (as set out earlier) it would be too harsh to demand duty on them particularly when the respondent company could avail themselves of the facility of refund of duty paid on vials which were subsequently rejected and returned to the respondents' factory under Rule 173-L. The Collector of Central Excise (Appeals) has also relied upon Notification 195/79 to bring out the intention of Government to the effect that articles of glass and glasswares or glass impoules for injectibles and glass vials for injectibles were made out of glass in any form on which the appropriate amount of duty had been paid. Such articles of glass and glassware, glass impoules and glass vials were exempt from payment of duty.
6. In view of the above findings of the Collector (Appeals) department has filed appeals to the Tribunal reiterating the contention/findings of the original authority as set out earlier. The appeal in addition refers to a 30% manufacturing loss in the raw material by way of broken/rejected vials fed into the furnace vis-a-vis output of finished goods out of such raw material. In other words, the contention is that the respondent company at best could clear only 70% of the rejected/broken vials received into the factory for the purpose of remaking etc. under Rule 173-H and therefore, an excess quantity to the extent of 30% was cleared by the respondent company without payment of duty.
7. Learned SDR Smt. Nisha Chaturvedi appearing for the appellant-Collector has reiterated the grounds of appeal set out above.
8. Learned advocate for the respondents Miss Indu Malhotra has now urged that the respondent company had been following the procedure under Rule 173-H after taking the permission of the department. The permission was given in December 1976 when the Rule 173-H had already been amended in June 1976. The department cannot, therefore, now turn back and demand duty on the goods cleared under the aforesaid permission; nor is there any allegation of suppression of fact or wilful mis-statement of facts in the six show cause notices. Three of the show cause notices, according to her, would, therefore, be completely time barred inasmuch as they have been issued after six months from clearance of such goods from the factory. Show cause notice dated 8.4.1982 in appeal No. 2268/83 would be substantially barred by time. The remaining two show cause notices dated 10.7.1979 and 11.11.1982 in appeal Nos. 2267/83 and 2269/83 would, according to her, however, be within time.
She has further urged that no fresh material is used by the respondent company In re-making the rejected/broken vials received from M/s. IDPL but the Collector (Appeals) has found that no doubt no other material is fed alongwith the rejected vials Into the furnace "but the making of glass vials is a continuous process and when these rejected vials are fed into the furnace it already holds raw material which is mixed with silica sand, soda ash etc. and the raw material fed into the furnace after the rejected vials are fed Into it is also mixed with other ingredients. In other words, in view of the continuing process of manufacture it is not possible to identify and segregate as to which of the glass vials have been manufactured out of the rejected glass vials". Learned advocate has further submitted that there is no other process of re-making the rejected glass vials as permitted under Sub-rule (1) of Rule 173-H. Accordingly, she submits that under Rule 173-H has been correctly availed of by the respondents. If this method is not followed the provisions of Rule 173-H would become nugatory insofar as removal of defect In such glass vials is concerned. This cannot be the intention of the rule making authorities.
9. We have carefully considered the pleas advanced on both sides. We agree with the Collector (Appeals) that the process adopted by the respondent company in making the glass vials out of duty paid rejected/broken glass vials is nothing but a process of manufacture but at the same time we find substantial force in the learned advocate's plea for the respondents that there is no other way of removing the defect in the duty paid rejected glass vials and if the permission is not granted In this case rule Itself would become inapplicable to the commodity of glass vials which would not be the Intention of the rule making authority. We observe that there is an ambiguity in Rule 173-H Itself Insofar as it allows in Sub-rule (1) retention or receipt of duty paid goods which "need to be re-made" and yet in Sub-rule (2) it allows clearance of such goods from the factory or warehouse without payment of duty after subjecting them, inter alia, to the process of re-making, refining, reconditioning etc. provided such process does not amount to manufacture. The word "manufacture" means (Chambers Twentieth Century Dictionary)" to make, originally by hand, now usually, by machinery and on a large scale: to fabricate, concoct: to produce unintelligently in quantity". In other words, the term "remaking" necessarily means the manufacture of the same product from the duty paid goods. Ambiguity, therefore, lies In the fact that what has been permitted in Sub-rule (1) of Rule 173-H has been disallowed by Sub-rule (2) thereof. Yet the rule is general In character and does not limit Itself to any specific commodities; nor is there any enabling power with any authority to limit the said rule to any specific commodity. Now It is a well settled principle of law that if there to any ambiguity in any statutory provisions the benefit thereof should be extended to the subject. Relying on this principle we hold that the benefit of Rule 173-H cannot be denied to the respondent company. In this view, therefore, the demands of duty against the respondent company are not sustainable.
As regards the manufacturing loss to the. extent of 30% referred to in the appeals filed by the appellant-Collector, learned advocate for the respondent company has drawn attention to sub-para 3 of para B of their letter dated 22/30.4.1976 wherein they clearly stated that "sub-para 3 - when glass Is melted there is no loss of weight when a vial weighing 13.87 gms. is melted, we get 13.87 gms. of glass, which quantity is required for making a vial once again". In view of this dear fact given by the respondent as early as April 1976 and not rebutted by the department while allowing the respondent company to avail of the benefit of the procedure under Rule 173-H vide Superintendent's letter dated 30.12.1976, we fan to understand on what basis the department has now contended that there is a loss of 30%. This Is a mere assertion on the part of the department without any supporting data or evidence.
10. We also find substantial force in the contention of the learned advocate for the respondent company that substantial portion of the demands would be time barred because no allegation or suppression of fact has been alleged in the show cause notices and that the company had been working with the approval of the department under the procedure of Rule 173-H. The original authority's finding and the contention of the appellant-Collector that the respondent company mis-stated the process of manufacture is untenable in view of the detailed letter dated 22/30.4.1976 of the respondent company mentioned supra.
11. In view of our discussion and findings above, the appeals are dismissed.