Customs, Excise and Gold Tribunal - Delhi
Jagatjit Industries Ltd. vs Commissioner Of Central Excise on 11 January, 2000
Equivalent citations: 2000(68)ECC338, 2000ECR226(TRI.-DELHI)
ORDER P.G. Chacko, Member (J)
1. The facts of this case are briefly stated below.
2. The appellants were manufacturing, inter-alia, Indian Made Foreign Liquor (IMFL), Denatured Spirit, Country Liquor etc. during the relevant period (August 1990 to June 1995). These products were not liable to Central Excise duty. The chief process involved in the manufacture of these liquors was fermentation of molasses. It was carried out thus--molasses was initially mixed with water to achieve the required dilution. It was then mixed with 'compressed yeast' purchased from the market, whereupon fermentation would start (fermentation is the chemical process of breaking down of cane sugar molecules into ethyl alcohol and carbondioxide molecules under the catalytic action of enzymes present in yeast). The liquid mixture containing alcohol in dilute solution, which resulted from complete fermentation of the molasses, was called 'wash'. The 'wash' so obtained was then subjected to distillation to get concentrated alcohol, which was subsequently processed suitably to get the spirit of desired flavour and degree.
After inspecting the processes carried out in the distillery of the appellants and after taking expert opinion on the nature of use of yeast in distilleries, the department issued show-cause notice to the appellants alleging that they were engaged in the manufacture/propagation of yeast, falling under sub-heading No. 2102.90 of the Schedule to the Central Excise Tariff Act, for captive consumption thereof in the manufacture of potable and non-potable ethyl alcohol and that, during the period from 1.8.90 to 30.6.95, they had so manufactured 3,06,909 Kgs. of such yeast valued at Rs. 1,99,49,085 involving Central Excise duty amounting to Rs. 29,61,035 and had removed the same for captive consumption without complying with any of the requirements under the Central Excise Act and the Central Excise Rules. The department asked the party to show cause why the aforesaid amount of Central Excise duty should not be recovered from them by invoking the extended period of limitation on the ground of suppression of facts under the proviso to Section 11A(1) of the Central Excise Act and also why penal action should not be taken against them under various provisions of Central Excise Rules. The appellants contested the proposed action of the department by way of their detailed reply to the show -cause notice. The dispute was adjudicated by the jurisdictional Commissioner of Central Excise, who confirmed the above demand of duty and imposed personal penalty of Rs. 15 lakhs on the appellants. Hence, the present appeal before the Tribunal.
3. We have carefully considered the impugned order and connected records. We have also gone through the relevant entries of the Central Excise Tariff as well as the relevant HSN Notes. Further, we have heard the learned Consultant Shri R. Swaminathan for the appellants and the learned JDR Shri V.M. Udhoji for the respondent-Revenue.
4. We observe that the Central Excise tariff Heading No. 21.02 covers "Yeast (active or inactive)", as is clear from the following full text of the Entry:-
Yeast (active or inactive); other single cell or Micro-organisms, dead (but not including Vaccines or Chapter 30); prepared baking powders.
2102.10--Put up in unit containers and ordinarily intended for sale.
2102.90-Others.
5. The relevant HSN notes on "yeasts" are as follows:-
(A) YEASTS The yeasts of this heading may be in the active or inactive state. Active yeasts generally provoke fermentation. They consist essentially of certain micro-organisms (almost exclusively of the genus Saccharomyces), which multiply during alcoholic fermentation. Yeasts may also be produced by partial or total prevention of fermentation, according to the aeration process.
The active yeasts include:
(1) ....
(2) ....
(3) Bakers' yeast, produced by the propagation under special conditions of specially cultured strains of yeast in a carbohydrate medium such as molasses. It is generally marketed in the form of pressed yellowish grey cakes (pressed yeast) which sometimes have an alcoholic odour. It is, however, also marketed in the dried form (usually in grains) or as liquid yeast.
(4) ....
(5) ....
6. The department's case is that, during the process of fermentation, yeast multiplied or propagated itself, which according to them, amounted to 'manufacture of yeast.' Relying on the above HSN Notes, the department has treated 'wash' as Bakers' yeast. For the purpose of determining the quantity of yeast "manufactured" by the appellants, the department has relied on the opinion of M/s Kothari Fermentation and Biochem Ltd. as contained in the latter's report dated 27.1.94, wherein it had been opined, inter-alia, that under normal conditions, 2.5 Kgs. of 'compressed yeast' could produce 1000 litres of alcohol. The sale price of Bakers' yeast manufactured and cleared by M/s Kothari Fermentation and Biochem Ltd. themselves was adopted by the department for the purpose of determining the assessable value of the yeast "manufactured" by the appellants.
7. The aforesaid expert opinion of M/s Kothari Fermentation and Biochem Ltd. was relied on by the department in the show-cause notice issued to the appellants, and the latter, in their reply to the show-cause notice, requested for an opportunity to cross-examine the expert who had furnished the above opinion. They had, further, disputed the marketability of the yeast in question. The learned Consultant for the appellants submits that the Commissioner of Central Excise has passed the impugned order without permitting them to cross-examine the expert and without arriving at a definite finding on the question whether the yeast was marketable or not. To substantiate these arguments, the learned Consultant has invited our attention to paras 27 and 28 of the impugned order. The said para 27 and the relevant portion of para 28 are extracted below:
27. Yeast if marketed in unit quantity is classifiable undoubted under CET sub heading 2102.10. But when it is not marketed in unit quantity; when it is consumed captively as such--can it be treated with the definition of goods and can it be classified within the category of "others" as per CET sub-heading 2102.90? The noticee in reply to SCN has said that it is not covered within the definition of "goods" as it is not marketed and has no shelf-life and they have placed reliance in this regard on various Court judgments cited supra. But I find that there is difference in the facts of the cited cases with this case as in this case there is a residuary heading covered in the category of "other" under CET sub-heading 2102.90 where the earlier sub-heading covers all categories of yeast marketed in unit quantity. Since this product is not marketed in unit quantity and is covered within the definition of yeast I find that the product would be appropriately and safely covered under CET sub-heading 2102.90 and would be chargeable to duty at the rate existing at the material time.
28. Regarding the qualification of yeast produced and its calculation on the basis of opinion given by M/s Kothari Fermentation and Bio-Chem Ltd., Sikandrabad that under normal condition 2.5 Kgs. of compressed yeast could produce 1000 Ltrs. of alcohol, the noticees have challenged this expert opinion on the ground that the qualification of the "expert" has not been given neither his signature is legible. The noticees have also requested to cross-examine the expert. However, I find that the noticees have given the figures themselves that 11,74,30,208 Ltrs of Ethyl Alcohol (pure) was produced during the period 1.8.90 to 30.6.95 and 53,33,862 Ltrs. of Ethyl Alcohol (impure) during the period 1.8.90 to 28.2.94. The Ethyl Alcohol being dutiable w.e.f. 1.3.94 under sub-heading 2204.00 of the schedule the same has not been taken into account for the calculation of the yeast propagated. The noticees have not also countered that no yeast has been propagated by them. They have only disputed that the yeast produced by them has got no shelf-life and is not marketable and, therefore, not covered within the definition of goods and not chargeable to duty. All these arguments of the noticees have already been taken into account in para 27 of this order....
8. The learned Consultant has submitted that though the learned Commissioner stated that the arguments of the appellants had been taken into account in para 27 of the order, he did not, in fact, consider their contentions as raised in the reply to the show-cause notice, which is clear from the text of para 27 ibid. The learned advocate has submitted that for the goods "yeast" to be excisable, there were two tests to be answered namely--(1) whether there was 'manufacture' of yeast in the process of fermentation carried out in the appellants' distillery & (2) whether such yeast was marketable or not. The learned Consultant has relied on the decisions of the Hon'ble Supreme Court in the cases of (1) Moti Laminates , Hyderabad Industries Ltd. v. Union of India , and (3) Union of India v. Delhi Cloth Mills , in support of his argument that it was always open to the appellants to prove that, even though yeast was excisable goods by virture of its mention in the Schedule to the Central Excise Tariff Act, the said goods could not be subjected to duty as they were not "manufactured" by them and, if at all manufactured, the same were not marketed or capable of being marketed. Reiterating the grounds of the present appeal relating to the appellants' process of manufacture and also to the question of marketability of yeast, the learned Consultant submits that the appellants have never manufactured yeast in the sense of the term 'manufacture' under Section 2(f) of the Central Excise Act, at any stage of the fermentation process and that if, at all the yeast were to be held to have been manufactured, the said goods have never been marketable on account of the very short shelf-life of yeast. He further submits that the learned Commissioner has not reached a definite finding as to whether the goods in question were marketable or not. He has also pointed out that the burden was on the part of the department to establish that the goods were, in fact, marketable but they have not succeeded in discharging this burden of proof. In this regard, the learned Consultant has drawn support from the decision of the Apex Court in the case of Hindustan Ferodo Ltd. v. CCE, Bombay reported in 1997 (89) ELT 16 (SC). The learned Consultant finally submits that, in the absence of a finding on the question of marketability of the product, the goods in question cannot be held to be excisable and, therefore, the impugned order confirming the duty demand on yeast cannot be sustained in law. He has also submitted that the impugned order is also vitiated by the fact that the adjudicating authority did not permit the appellants to cross-examine the author of the expert opinion relied upon by the department for initiating the proceedings in question. The learned Consultant, therefore, prays for setting aside the impugned order of the Commissioner and allowing the appeal.
9. The learned JDR has reiterated the observations and findings of the lower authority as contained in the impugned order and has particularly submitted that the issue of marketability of yeast was duly considered by the Commissioner. He has also relied on the relevant tariff entry and HSN Notes to argue that the goods in question were liable to be subjected to Central Excise duty during the relevant period.
10. We have carefully considered the rival submissions. We observe that the department has heavily relied on the expert opinion dated 27.1.94 taken by the department from M/s Kothari Fermentation and Biochem Ltd not only for the purpose of holding the goods in question to be excisable but also for the purpose of determining the quantity of the goods alleged to have been manufactured by the appellants during the disputed period. It is further observed that the department has determined the assessable value of the goods on the basis of certain invoices issued by the very same agency, namely, M/s Kothari Fermentation and Biochem Ltd. in connection with sale of their product (Bakers' yeast). It is also an undisputed fact that the appellants had desired to cross-examine the person who had given the expert opinion. The request for such cross-examination was, however, turned down by the lower authority without stating any cogent reasons therefor. It is also evident from the impugned order that the lower authority has not arrived at a definite finding on the question whether the goods were marketable or not. Without such a finding, the question of excisability of the goods cannot be conclusively determined. We would respectfully rely on the decisions of the Hon'ble Supreme Court cited by the learned Consultant in this regard.
11. Having regard to the totality of facts and circumstances of the case and to the fact that the impugned order cannot be sustained in law for want of necessary finding on the vital question of marketability of the yeast and for negation of opportunity to the party of cross-examination of the expert, we hold the view that this is a fit case for remand to the lower authority for de-novo adjudication. Accordingly, we set aside the impugned order and allow the appeal by way of remand, directing the learned Commissioner of Central Excise to adjudicate the matter de-novo, after affording reasonable opportunity to the appellants to cross-examine the person (representing M/s Kothari Fermentation and Biochem Ltd.) who had given the expert opinion dated 27.1.94 relied upon in the department's show cause notice as well as in the impugned order, and after affording an opportunity of hearing to the party. The lower authority shall duly consider the test of 'manufacture' and that of 'marketability' laid down by the Apex Court and shall record its findings on the question whether there was any 'manufacture' of yeast in the fermentation of molasses and on the question whether such yeast was 'marketable' or not. The lower authority shall pass final speaking order of adjudication as expeditiously as possible.
12. The appeal is allowed by way of remand as above.