Customs, Excise and Gold Tribunal - Delhi
Indian Organic Chemicals Ltd. vs Collector Of Central Excise on 7 March, 1986
Equivalent citations: 1986(7)ECR366(TRI.-DELHI), 1986(25)ELT282(TRI-DEL)
ORDER
G. Sankaran, Vice President
1. The captioned appeal was originally filed as a revision application before the Central Government which, under Section 35P of the Central Excises and Salt Act, 1944, has come as transferred proceedings to this Tribunal for disposal as if it were an appeal filed before it.
2. M/s. Indian Organic Chemicals Ltd., Manali, Madras, (hereinafter referred to as the Appellants), are manufacturers of Polyester Fibre and Tops falling under item No. 18 I of the First Schedule to the Central Excises and Salt Act, 1944 (CET for short). Apart from the normal course of manufacture of polyester fibre, they also manufacture polyester fibre and tops out of duty paid waste ("non-cellulosic wastes, all sorts" fall under item No. 18IV of the CET), by recycling the waste. The dispute in the present case is as to whether the wastes generated in the course of manufacture of polyester fibre/tops from duty paid wastes have to suffer duty again at the time of clerance. The appellant's contention was that since the waste which was used in the manufacture of polyester fibre/tops had suffered duty, the waste arising during the manufacture of fibre/tops from such duty paid waste was not liable to be charged to duty again since the input was waste and the output also was waste, after due process, the Assistant Collector of Central Excise, Madras, by his Order-in-Original dated 12-9-1980, held that duty should be charged at the appropriate rate on the waste arising during the course of manufacture of polyester fibre/tops out of duty paid waste. The matter was pursued in appeal but without success. In his Order-in-Appeal dated 8-4-1981, the Appellate Collector of Central Excise, Madras, upheld the Assistant Collector's finding that the duty paid waste used in the manufacture of fibre/tops had lost its identity because of admixture with other raw materials and that the waste arising during such manufacture was fresh waste. He further held that whether the fresh waste was chemically the same or not as the original duty paid waste was immaterial. Since the waste which arose in the course of manufacture was not exempted from Central Excise Duty, it did not matter that the original waste as well as the fresh waste both fell under the same item No. 18IV. In this view of the matter, the Appellate Collector rejected the appeal. It is this order which is now under challenge before us.
3. Dr. V. Gauri Shankar, learned counsel, appearing on behalf of the appellant, submitted that chemically the original waste and the resultant waste were the same and this was material and relevant for the present dispute. Both fell under the same tariff item No. 18IV and, therefore, the resultant waste was not liable to be charged to duty again, no matter what the processes were to which the original waste was subjected resulting in generation of the new waste. Nor did the fresh waste fall under any other item of the Central Excise Tariff. In this context, he referred to the note of Dr. L.R. Subbaraman, Deputy Manager, Research and Development, setting out the chemical and physical properties of the input waste and the output waste from which it could be seen that there was no difference between the two wastes. He also referred to the process of re-cycling of polymer waste as detailed in Dr. Subbaraman's note. Monoethylene Glycol (M.E.G.) was used as an assisting agent for depolymerisation of polymer waste. The polymer is converted into monomeric/pre-polymer stage by reaction with M.E.G. After certain other processes, repolymerisation takes place and the degree of polymerisation is brought to the same level as before. Thus chemically there was no difference between the original waste and the resultant waste.
4. Continuing, Dr. Gouri Shankar referred to the Assistant Collector's finding that M.E.G. formed part of the waste, This was factually wrong. M.E.G. was almost fully recovered in the process. Thus M.E.G. was not an additional raw material but only a cleansing agent.
5. Dr. Gouri Shankar then referred to the Madras High Court judgment in Indian Organic Chemicals Ltd. v. Union of India & Ors. 1983 ELT 34, wherein the Court held that even if the Petitioners had used MEG in the process of manufacture of polyester fibre/tops as an assisting agent, they could not be deprived of the benefit of exemption given to fibre and tops in terms of notification No. 37/38. The counsel also referred to the Tribunal's order in Collector of Central Excise, Aurangabad v. Anil Chemicals Pvt. Ltd. Aurangabad, 1985 (21) ELT 889, in which it was held that mere improving quality or purity did not amount to manufacture or creation of new and different goods. Even if there had been processing and manufacture, if the result is production of the same goods, even of a higher purity, then the manufacture/processing cannot have the effect of making the purer product liable by that fact alone to excise duty. Reliance was also placed on the Tribunal's decision in Kolhapur Steel Limited v. Collector of Central Excise, Pune, 1983 (2) ETR 692; wherein it was held that fresh melting scrap and the old scrap from which it is manufactured both fell under item 26 and, therefore, there has not been production of a 'new article satisfying the definition of "manufacture" in Section 2(f) of the Central Excises and Salt Act. Relying on the aforesaid decision, Dr. Gauri Shankar submitted that there was no justification to hold that the resultant waste was a new product liable to be charged to excise duty again under item 18 (IV).
6. In reply, Shri K.C. Sachar, Senior Departmental Representative, refered to the Andhra Pradesh High Court decision in Standard Packagings v. Union of India & another, 1983 ELT 786, in which the Court held that bituminised water-proof paper was liable to duty under item 17(2) of the CET. Referring to the Central Excise Notification No. 37/78, Shri Sachar stated that the rationale of the existence of the notification was that there was manufacture resulting in fibres and tops out of waste. That is why it exempted fibres and tops. It cannot, therefore, be said that the waste which arose during the course of such manufacture of fibre and tops was not the product of a process of manufacture. Such waste was not exempted from duty. The appellant, Shri Sachar submitted, did not deny that the aforesaid process was a process of manufacture, their contention being that the resultant waste was not excisable. Referring to the chemical and physical properties of the original and resultant waste, he pointed out that in the matter of colour, lumpiness etc., the two had differences. The ratio of the Tribunal's decision in the Anil Chemicals Pvt. Ltd. case (supra) did not apply because the fact of manufacture was not in dispute in the present case.
7. In a short rejoinder, Dr. Gauri Shankar submitted that, in the nature of things, the physical characteristics of the resultant waste were not exactly identical to those of the original waste but these minor differences were insubstantial and of no consequence.
8. We have carefully considered the contentions of both sides. As seen from Dr. Subbaraman's note setting out the physical and chemical properties of polyester waste used as input for manufacturing fibre and polyester waste generated in the process of manufacturing fibre out of waste, that there is virtually no difference between the two types of wastes save in what appears to be an inconsequential feature, namely, colour (the original waste is white while the resultant waste is white to dull-white). We may, therefore, proceed on the basis that the two types of wastes are similar in their physical and chemical, characteristics. Dr. Gauri Shankar's contention is that in view of this position, the resultant waste which also falls under item 18, IV of the CET as the original waste, is not liable to be charged to duty again under that item. Also, there was no other item in the Tariff to cover the product. But a different picture emerges when we look at the technical note entitled "Use of MEG in recycling polymer waste" written by Dr. Subbaraman. The process of manufacture of resultant waste is described as follows :-
"The process for manufacturing polyester staple fibre by recycling hon-cellulosic polyester waste is a two stage process involving the following steps:
(1) Glycolysis : The waste polymer is convered into the monomeric stage/prepolymer stage by reaction with monoethylene glycol. In chemical parlance the polymer waste (PET) becomes BHET. The chemical reaction is :
(2) Repolymerisation ; - The polyester of average degree of polymerization (n-90) about 90 is thus brought into the monomeric stage and then all dirt is filtered off before repolymerising it to a textile grade polymer with n=90. In chemical parlance, BHET is again converted to PET (Polyethyleneterephthalate). The chemical reaction is -
It may be seen that the polyester polymer in the original waste which is polyethyleneterephthalate (PET) with an average degree of polymerisation of 90 is subjected to the process of glycolysis by reaction with MEG. The polymer is thereby converted or depolyrnerised into the monomer. After all the dirt is filtered off, the monomer is repolymerised into polyester polymer (PET) again, of the average degree of polymerisation 90. Thus there is a definite process of chemical reaction, viz., depolymerisation of the polymer into the monomer and re-polymerisation of the monomer into the polymer. It would only be proper, in the circumstances, to hold that there has been a process of manufacture through the original waste and the resultant (fibre and) waste have almost, identical physical and chemical properties.
9. A more or less similar issue came up before the Tribunal in Appeal Nb. ED(SB)(T) 1492/81-C - Nirlon Synthetic Fibre & Chemicals Ltd., Bombay v. d.C.E. Bombay - disposed of by Order No. 309/1983-C dated 12-10-1983. (This order was not cited before us by either side though the Bench recalled during the course of the hearing that an appeal with an issue more or less similar to the one in the present appeal had been disposed of by the Tribunal). In the Nirlon case, duty (excise in the case of the indigenous product and additional or countervailing, in the case of imported product) - paid, capro-lactum (a monomer having the chemical formula HN (CHJS CO) was converted into nylon (a polymer of the monomer caprolactum). In the course of the process, a certain amount of nylon waste arose. This waste was exigible to duty under item 18 IV CET but exempt from duty, by a Rule 8(1) notification, if used for "recovering caprolactum".... The process of recovery consisted of depolymerisation of the polymer into the monomer. The issue for determination was whether the said process was "manufacture" within the meaning of Section 2(f) of the Act and whether, even if there was "manufacture" of caprolactum from the nylon waste, was the resultant caprolactum dutiable considering that the original caprolactum from which nylon was made was duty-paid. One of the contentions for Nylon was that chemically, there was no difference between the virgin caprolactum and the recovered caprolactum. The Tribunal noted that there were separate entries in the CET for caprolactum (14 AA) and nylon waste (18 IV). Therefore, the recovery of caprolactum from nylon waste was "manufacture". For this, it relied on the Delhi High Court judgment in Hyderabad Asbestos Cement Products v. Union of India, 1980 ELT 735 to the effect that "when the legislature has treated an article as manufacture, the argument is not open that it is not a manufacture". It was further held by the Tribunal that the recovered caprolactum would be liable to duty under item 14AA.
10. In the Nirlon case, the process of "manufacture" may be briefly set out as Caprolactum -----------> Nylon (18 - IV CET) (duty paid) (polymerisation) (polymer) monomer | | (depolymerisation) (14AA, CET) | Caprolactum (14AA CET)
11. In the present case, the process of "manufacture" may be set out-briefly thus :-
Polyester Waste -----------> Monomer (Not 18-IV CET)
(polymer) (depolymerisation |
duty paid |
PET (polyethyleneterepthalate) |
(18-IV CET) |
| (polymerisation)
|
|
Polyester fibre (18-1, CET)
&
Polyester waste (polymer)
(18-IV, CET)
12. Though the sequence of reactions is different, the ratio of the decision in the Nirlon case clearly applies. In the present case too, there is undoubtedly "manufacture" within the meaning of Section 2(f) of the Act in that the original polyester polymer waste (chemical name : PET) is converted by the process of depolymerisation (undoubtedly, a chemical reaction) into the monomer and the latter is reconverted by polymerisation (again, indisputably, a chemical reaction) into the former (PET). It is of no consequence to, and does not detract from, the position that there has been "manufacture", that the original waste and the resultant waste have similar physical and chemical properties.
13. It may thus be seen that though the physical and chemical characteristics of the original input waste and the resultant waste are the same, the latter is not the same thing as the former in the sense it is not part of the original waste which remained unreacted and did not go through the reaction of depolymerisation and repolymerisation. In our opinion, there is a definite process of "manufacture" here within the meaning of Section 2(f) of the Act.
14. The above view would also gain support from the fact that there is no dispute that the polyester fibre and tops (item 18-1, CET) manufactured by re-cycling of duty-paid polyester waste (item 18-IV, GET) was excisable but was exempted during the material period in terms of Central Excise notification No. 279/77 dated 12-8-77 as amended by Notification No. 37/78 dated 1-3-78. If the process of manufacture of fibres and tops out of wastes is "manufacture" within the meaning of Section 2(f) of the Act, there is no good reason why wastes arising during such manufacture cannot be said to be the result of "manufacture", especially because there is no contention that the resultant waste is that part of the original waste which remains unreacted, the contention, in fact, being that the resultant waste is not dutiable for the reason it fell under the same tariff item as the original waste.
15. In the Indian Organic Chemicals Ltd. (supra) relied on by Dr. Gauri Shankar, though the notification which was considered by the Madras High Court was the same as in the present case, viz. notification No. 279/77, the issue was different. It was whether the use of DMT (a chemical) and MEG in the manufacture of fibre/tops from duty-paid waste would disentitle the petitioner from claiming the exemption under notification No. 279/77 as amended by notification No. 37/78. The court noted that the notification did not require that the fibre and tops should be manufactured exclusively out of duty-paid waste and that no other material should be used along with duty-paid waste. The court held that even if the petitioners had used MEG as an assisting agent, they could not be deprived of the benefit of the exemption under notification No. 37/78. The issue before us is different. It is not the dutiablility of the fibre and tops manufactured out of duty-paid waste but the dutiability of the waste arising during such manufacture. The Madras High Court judgment has, therefore, no application to the present case.
16. The next decision relied on by Dr. Gauri Shankar is that of this Tribunal in the Anil Chemicals (P) Ltd. (supra). Prilled ammonium nitrate (the goods in that case) is obtained by concentrated ammonium nitrate solution being sprayed downward in a large tower where the droplets are cooled by upward flow of air to form spherical prills which are collected at the bottom of the tower. The surface of the prills is coated with 2.5 to 3% of activated clay or a diatomacecus earth conditioner. The Tribunal held that concentrating a product would not, by that fact alone, result in production of a different product. The result was only a product of higher purity and the former product was not liable to duty. We fail to see how this decision is of assistance to the appellant. Unlike in the prilled ammonium nitrate case, in the case before us, the polyester polymer present in the original waste is depolymerised into its monomer constituent and then re-polymerised into polyester polymer resulting inter alia in the resultant waste. The facts and circumstances are vastly different and the cited decision has no application.
17. The last decision cited by Dr. Gauri Shankar is again of the Tribunal in the Kolhapur Steel Ltd. case 1983 (2) ETR 692. The Tribunal held that scrap arising during the manufacture of steel ingots from duty-paid steel scrap would not be dutiable and that no manufacture as envisaged in Section 2(f) of the Act took place. Melting of steel scrap, casting the molten scrap into ingots resulting 'in the generation of some steel scrap - these are essentially physical processes resulting in change of form. There is no chemical conversion or change, not at any rate, of the nature encountered in the depolymerisation and polymerisation reactions in the case before us. We do not think that this decision too has any application to the present case.
18. Summing up, we are of the opinion that the subject polyester waste generated in the manufacture, by the appellant, of polyester fibre and tops from duty-paid polyester waste, was correctly held by the lower authorities to be dutiable under item No. 18-IV of the CET in the absence of any Notification exempting such waste. In the result, the impugned order is confirmed and the apeal is dismissed.