Customs, Excise and Gold Tribunal - Mumbai
Indian Petrochemicals Corpn. Ltd. vs Commr. Of C. Ex. on 6 April, 1998
Equivalent citations: 1998(103)ELT665(TRI-MUMBAI)
ORDER
K.S. Venkataramani, Vice President
1. This appeal is directed against the order dated 24-3-1995 passed by the Commissioner of Central Excise & Customs, Vadodara. The appellants are manufacturers of acrylic synthetic staple fibre tow falling under sub-heading 5501.30 of the Central Excise Tariff Act and acrylic staple fibre was also their final product falling under the same sub-heading. The Central Excise Preventive officers visited the appellants' factory on 27-10-1993 and studied the manufacturing process. It was found that acrylonitrile and methyle acrylate were polymerised and thereafter the polymer forced under high pressure through pack filter media and extruded through spinnerate, and the thread lines emerging from spinnorates pass over the finish rolls and then collected in the form spun rope, which is pulled by rollers and taken to draw machines, where it is first drawn and then crimped, and the crimped tow is collected and finally sent to cutter for producing staple fibre which is finally packed in bales. The department was of the view that in the continuous process the tow arises as an intermediate product in the course of manufacture of acrylic fibre. Heading 5501 of the CETA covers tow as well as staple fibre. They are also commercially distinct products. It was found by the officers that the appellants had not accounted for the production at tow stage but had recorded the production at the fibre stage and had cleared the product tow in the guise of waste on payment of lower rate of duty. Certain investigations were conducted to ascertain the end use of the product cleared as waste by the appellants, during the course of which, statements of various customers who had purchased the waste product from the appellants were recorded. These customers inter alia stated that they have received acrylic fibre waste from the appellants under Central Excise Gate Pass 1 and invoices from which they had manufactured knitted pile fabric/ acrylic yarn by subjecting it to the process of garnetting and then top was manufactured out of the said waste which was used in manufacturing acrylic yarn and the yarn so produced was sold in market to acrylic shoddy blanket manufacturers. Some of them have sold the waste received from the appellants to manufacturers of shoddy yarn. Therefore, the department took the view that in the guise of waste the appellants had cleared tow which is the product arising till the production of fibre stage at the lower rate of duty. Proceedings were initiated by issue of show cause notice alleging mis-declaration on the part of the appellants of the product as waste thereby leading to short payment of duty amounting to Rs. 7,20,37,378/- through wilful mis-statement and suppression of facts during the period 1-8-1989 to 31-1-1994; Rs. 1,27,34,356/- for the period February 1994 to July 1994; Rs. 45,23,856/- for the period August, 1994 to October, 1994. After considering their reply to the show cause notice, the Commissioner of Central Excise, Vadodara passed the impugned order confirming the demands under the show cause notices as above under Section 11A of the Central Excises Act. He also imposed a penalty of Rs. 10 lakhs on the appellants.
2. Shri Lakshmikumaran, the ld. Counsel for the appellants submitted that the Chapter Notes to Chapter 55 CETA do not define waste. The ld. Counsel referred to the process of manufacture and submitted that during the process of manufacture of acrylic simple, fibre/waste is generated at different stages and the waste falls into two categories known as salable waste and non-salable waste. The salable waste consists of floor sweepings generated in the polymer section; undrawn tow waste (UDT) which is the stage prior to the drawing operations carried out in the course of manufacture of fibre; un-crimped wet tow waste which occurs at stretching machine and first drier outlet; crimped wet tow waste at crimper outlet, and crimped dried tow waste which arises at the 2nd drier outlet. The appellants are clearing all these wastes as acrylic waste fibre at the rate applicable to such waste. It was submitted that the Commissioner has relied upon the end use of the product cleared as waste by the appellants as given in the statement of the various customers. But the ld. Counsel referred to the statements which are all to the effect that the customers had subjected these product to certain process such as garnetting, combing, carding and gilling and the resultant fibre is of inferior quality fit for shoddy yarn manufacture. Thus, it is seen that fibres could be produced out of waste and in such an event it cannot be alleged that the waste used for the manufacture of fibres can be treated as fibre itself. The ld. Counsel also relied upon the Board's clarification F. No. 55/11/89-CX. I, dated 18-12-1989 on the subject of classification of waste of synthetic staple fibre and nature of waste. The Board has clarified that waste arising during crimping/texturising or drawing could be considered as waste and this could be identified by visual observation or by drawing samples and testing. It was also stated therein that tow, not conforming to the definition in Chapter Note 1 to Chapter 55 has to be treated as waste of synthetic or artificial tow as the case may be. The ld. Counsel submitted that no test was conducted by the department from this angle in this case. No samples were drawn from the waste to say that it is fibre or waste to apply the criterion given by the Board. The ld. Counsel also relied upon the Tribunal judgement in the case of M/s. Swadeshi Polytex Ltd. v. CCE, Meerut [Final Order Nos. 736 to 738/96-B, dated 12-12-1996], where the Tribunal has recognised that the emergence of waste is a known phenomenon during the manufacture of synthetic filaments and tow. In the same decision, the Tribunal also observed that the fact that some of the waste could be disentengled and used in the place of fibres, was acknowledged vide Notification 43/80-C.E., dated 24-4-1980 which exempted waste used in the manufacture of man-made fibres. The ld. Counsel also relied upon the decision of the Tribunal to argue that the appellant unit when they were under the physical control of the department for clearance, cannot be charged with suppression of facts for invoking the longer period under Section 11A of the Central Excises Act. The ld. Counsel further referred to an adjudication in their own case made earlier by the Commissioner vide order dated 23-6-1988 relating to a similar demand. The Commissioner in that case has held that the demand has to be confined only to the normal six months period. Therefore, on the same issue in the present adjudication order, the Commissioner cannot invoke the longer period. The earlier order is pending in appeal before the Tribunal.
3. Shri S.V. Singh, the ld. DR referred to the Board's clarification cited by the ld. Counsel and argued that even according to that clarification, if it is not of uniform length, the material should be considered as waste. The ld. DR then referred to certain test reports of the samples drawn from the appellants' factory to say that the samples tested according to the report were of uniform length. Therefore, going by these test results, there is no indication that the material is waste. The ld. DR thereafter referred to the various customers statements in the show cause notice which indicate that the material purchased from the appellant as waste has been directly used for manufacture of yarn. This is an indication that it was fibre of prime quality and not waste.
4. We have carefully considered the submissions. The question is, whether the goods cleared as waste by the appellants could be considered as tow at which higher duty has to be paid. Chapter Note 1 to Chapter 55 says that :-
"For the purposes of Heading Nos. 55.01 and 55.02, synthetic filament tow and artificial filament tow apply only to tow, consisting of parallel filaments of a uniform length equal to the length of the two, meeting the following specifications :-
(a) Length of two exceeding 2 metres;
(b) Twist less than 5 turns per metre.
(c) Measuring per filament less than 60 deniers; and
(d) Total measurement of two more than 18,000 deniers.
In addition, in the case if synthetic filament tow; the tow must be drawn that is to say, be incapable of being stretched by more than 100% of its length."
From this, it would be seen that drawn tow can be classified under Chapter 55.01 and Chapter 55.02. From this itself, it can be concluded that undrawn waste emerging prior to the drawing process cannot be covered under these headings. Further, the clarification given by the Board referred to above, has referred to the HSN explanatory note to Chapter 54 and has clarified that the substances produced by polymerisation are either melted or dissolved in a suitable solvent and then extruded through spinnerates into air or into a suitable coagulating bath there they solidify on cooling to form filament. At this stage, the Board observed that, their properties are normally inadequate to use in subsequent textile process and they must undergo a drawing process to orient the molecules in the direction of the filament. Thus, drawing is essential before or during the filaments are crimped/texturised and then cut into staple fibres. The Board clarified that during these processes waste may arise which are also covered under Central Excise Tariff Heading 55.03, and any fibre damaged during crimping/texturising or drawing could be a waste, according to this clarification. The Board further stated in the clarification that these can be identified either by visual observation or by drawing samples and testing. In the present case, there is no material to show that such samples were drawn and tested during the period relevant to this case. No test reports are on record. The department's case is based on the statements of customers who purchased the product as waste cleared by the appellants. However, a perusal of these statements does not indicate that the materials as received from the appellants by the customers were used for manufacture of yarn straightaway. The statements of the customers which were all narrated in the show cause notice, were of the fact that the material sold as waste received by the customer has not been straightaway put to the manufacture of prime quality yarn. The customers also described the goods as various types of waste in their statements UDI waste, CDT waste etc. and this is in consonance with the clarification of the Board which inter alia stated that any fibre damaged during crimping/texturising or drawing could be a waste, and, in the same context, the reliance placed by the appellants on the Tribunal decision in M/s. Swadeshi Polytex Ltd. also becomes relevant. In that case also the adjudicating authority had held that even substandard fibre would remain fibre as such though of sub-standard quality. The Tribunal observed that fibre waste was a commodity known in the market and could be put to several uses and the fact that some of the waste could be disentengled and could be used in the place of fibres, the Tribunal found, was acknowledged by Notification No. 43/80 which exempted waste used in the manufacture of man-made fibres. In this Notification, exemption is granted provided that such fibres and tops are manufactured exclusively out of waste falling under sub-heading 54.01 or 5401.20 or Heading 55.03 of CETA and that such fibres and tops ire manufactured from such waste by process like garnet-ting, combing, carding and gilling which do not involve any recyling of any such waste. As we have seen above, in the present case, from the waste materials sold, the customers have after process of carding, cleaning, garnet-ting and gilling, produced fibres. But that will not support the department's case that the goods as cleared were staple fibre or tow covered under Heading 55.02 in view of the above circumstances. Moreover, the Commissioner's reliance for supporting the charge that tow has been cleared in the garb of waste, is based only on the customers' statement and when we have seen that the customers' statement does not bring out the fact of the nature of the product cleared being prime quality fibre, then there is no other ground which would support the department's case. The Department has not identified the material as waste by drawing samples and testing as instructed by the Board in its clarifications referred to above. Reference to some of the test reports indicating uniform length of the material so as to support the argument that it is tow and not waste, also fails in the face of the statements of the customers, and these test reports further have not been shown to be of the period relevant to this case. Further, some of the statements of the customers indicated that they have received the material in entangled mass packed in bags (not baled) which would also go to support the case of the appellant that it was only waste material that was cleared. The customers statement further indicated that only process of garnetting, carding, gilling etc. was undertaken on the material purchased from the appellants and it was not recycled and the customers have also indicated that it was used for shoddy yarn manufacture. In these circumstances, it has to be held that the appellants have established their case that what they have cleared was only waste as covered by Heading 55.03 CETA and not tow. In this view of the matter, since, on merits, the appellants have succeeded, we do not feel called upon to pronounce on the arguments relating to limitation. However, it may be mentioned that even on this aspect, the appellants case gets supported by the Tribunal decision in the case of M/s. Swadeshi Polytex Lid. and also by the facts that on similar issue in a previous adjudication order, the Commissioner has held that longer period under Section 11A cannot be invoked. Appeal is accordingly, allowed.