Custom, Excise & Service Tax Tribunal
Commissioner Of Central Excise vs Merck Specialities Pvt. Ltd on 28 March, 2014
IN THE CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL,WEST ZONAL BENCH AT MUMBAI COURT No. II APPEAL No.E/893 & 894/09 (Arising out of order-in-original No.Belapur/71-72/Belapur IV Dn./R-1/COMMR/WLH/2008-09 dated 31/03/2009 passed by the Commissioner of Central Excise, Belapur.) For approval and signature: Honble Mr. P.R. Chandrasekharan, Member (Technical) Honble Mr. Anil Choudhary, Member (Judicial) 1. Whether Press Reporters may be allowed to see :No the Order for publication as per Rule 27 of the CESTAT (Procedure) Rules, 1982? 2. Whether it should be released under Rule 27 of the :Yes CESTAT (Procedure) Rules, 1982 for publication in any authoritative report or not? 3. Whether Their Lordships wish to see the fair copy :Seen of the Order? 4. Whether Order is to be circulated to the Departmental :Yes authorities? ========================================
Commissioner of Central Excise, Appellant Belapur Vs. Merck Specialities Pvt. Ltd., Sunbel Alloys Company of India Ltd., Respondent Appearance:
Dr.B.S.Meena, Addl. Comm. (AR) for appellant Shri.Gajendra Jain, Advocate for respondent CORAM:
Honble Mr. P.R.Chandrasekharan, Member (Technical) Honble Mr.Anil Choudhary, Member (Judicial) Date of Hearing : 28/03/2014 Date of Decision : 28/03/2014 ORDER NO Per: P.R.Chandrasekharan
1. The appeal is directed against order-in-original No.Belapur/71-72/Belapur IV Dn./R-1/COMMR/WLH/2008-09 dated 31/03/2009 passed by the Commissioner of Central Excise, Belapur.
2. Vide the impugned order, the learned adjudicating authority has dropped the duty demand proposed under show-cause notices dated 08/02/2008 and 16/12/2008. Vide these show-cause notices, duty demands of Rs.2,34,81,983/- for the period January 2003 to November 2007 and Rs.3,87,575/- for the period December 2007 to September 2008 have been proposed. The ground alleged in the show-cause notices is that the activity of re-packing/re-labeling/re-fining of laboratory chemicals undertaken by the appellant in respect of Petroleum Benzine and Hexane for Chromatography Lichrosolv would amount to manufacture and the respondent was required to discharge excise duty liability on the activities undertaken by them. The adjudicating authority came to the conclusion that these activities did not result in manufacture of a new product and therefore, the said process undertaken does not amount to manufacture. Aggrieved of the same, the Revenue is before us.
3. In the appeal memorandum, it has been urged that on account of the processes undertaken, there is a change in the specification of the products and the products became fit for exclusive use in pharma, food or pesticide industry. Further, the product is marketed in a different name and form from the original input/raw materials, which they procured. The input raw material was described as Mintroleum PE 65-70 and were supplied in drum of 210 Ltrs. The products manufactured by the appellant are marketed as Hexane Fraction from Petroleum and Hexanes for Chromatography and were packed in packing of 500 Ml, 1.00 Ltr, 2.5 Ltr, etc. The products were packed under nitrogen and filtered with 0.2 MM filter. There was also a declaration that the products have been specially packed for the exclusive use of pharma, food or pesticides industry or for the purpose of servicing the said industries. Thus, a new product has emerged having a different name, character and use and therefore, the processes undertaken by the appellant amounted to manufacture.
4. The learned Additional Commissioner (AR) appearing for the Revenue reiterates the ground urged in the appeal memorandum and further submits that there are standards laid down for Food Grade Hexane vide BIS 3470-2002 and the product manufactured by the appellant conforms to the specifications prescribed therein. He also relies on the decision of this Tribunal in the case of Alok Enterprises Vs. CCE, Mumbai-II 2004 (178) ELT 550 (Tri-Mum) wherein this Tribunal held that the process of purification, filtration and packing of acid amounts to manufacture as a new commodity as commercially understood has came into existence and therefore, the ratio of the said decision would apply in the facts of the present case. The said decision of this Tribunal was challenged before the Honble High Court of Bombay [2010 (259) ELT 333 (Bom)] and the Honble Bombay High Court upheld the view taken by this Tribunal. The learned AR also relies on the Honble Apex Courts decision in the case of CCE, Bombay Vs. S.D .Fine Chemicals Pvt. Ltd. 1995 (77) ELT 49 (SC) wherein it was held that the definition of manufacture under Section 2 (f) of the Central Excise and Salt Act, 1944 is not confined to its natural meaning but is an expansive definition and includes not only processes which are incidental and ancillary to the completion of a manufactured product but also those processes as are specified in relation to any particular goods in the Section or Chapter Notes to the Tariff Schedule to Central Excise Tariff. The Honble Supreme Court further held that whether a process amounts to manufacture is a question of fact and one of the main tests is that after application of any particular process, the commodity is no longer regarded as the original commodity but is instead recognized as a distinct and new article. The ratio of these decisions would apply to the facts of the present case and therefore, the decision of the adjudicating authority holding that the processes do not amount to manufacture is incorrect in law.
4.1 The learned AR also points out that there is a substantial value addition achieved in the process and the value addition is approximately more than 200%. Considering these various factors, the impugned order needs to be set aside and the appeal allowed.
5. The learned Counsel for the respondent refuted the arguments of the Revenue. He submits that in most of the cases, the appellant had undertaken only repacking of the goods and no purification process was undertaken and mere repacking from bulk pack to retail pack would not amount to manufacture. He further argued that in respondents own case this matter had been examined earlier and the duty demands were dropped vide Order-in-appeal No.PCJ/536.BOM-III/94 dated 26/09/1994 and the said decision was upheld by this Tribunal vide final order No.995/98-C dated 12/10/1998. Therefore, the order of the lower appellate authority is sustainable in law. In any case, the department was well aware of the activity undertaken by the respondent and therefore, the question of invoking the extended period of time would not arise at all. He further submitted that if the activity undertaken by the respondent is held as manufacture and the respondent is liable to duty, then respondent would be eligible for the Modvat Credit of the duty paid on the input material and if such credit is allowed, the duty demand would come down substantially. It is also his contention that the raw materials procured by the respondent also satisfies the some of the specifications enumerated in the BIS standard. Therefore, it cannot be said that a new product has emerged. Accordingly, he pleads for upholding the impugned order and dismissing the appeal.
6. We have carefully considered the submissions made by both the sides.
6.1 As regards the contention of the respondent that they have been doing merely repacking and have not undertaken any reprocessing and they have stated the same in the reply to the show-cause notice, from the records, it is seen that this position is not correct. In 2001 in respect of a CERA audit objection, the appellant had informed the department that Hexane fraction is obtained from Petroleum Benzene and Polyethylene Glycol and these are solvents collected at specific distillation range from crude petroleum and treated further to remove certain impurities (i.e. treatments with acids or alkalis, with zinc chloride, with absorbent ethers etc. or by distillation) Their flash points are very much lower than lubricating oils and lubricating preparations. Similarly in their reply dated 15/10/2004 to the Superintendent of Excise Audit, the appellant had enclosed a flow chart of the activities undertaken by them. A perusal of the flow chart clearly shows that the Hexane raw materials and petroleum ether 60.80 are charged into a reactor and thereafter, concentrated sulphuric acid is added and stirred and the mixture is left for 4 to 5 hours under room temperature. After stirring is complete, the acid is drained and the absence of acid layer is checked. Thereafter Ph value of the material is checked till it reaches 7 or sodium carbonate washing is done so as to reach the Ph value of S7. After removal of the acid, the material is treated with AQ sodium carbonate to remove 100% acid. Similarly in the letter dated 31/01/2008, the manufacturing process of petroleum benzene 60-80GR and Hexanes chromatography grade is described. It is stated that raw material, namely, hexane fraction from petroleum is charged in to a reactor, treated with acid and aqueous Sodium Carbonate solution is added to remove the acid. The material is checked for neutral PH-7. Thereafter the material is send for quality analysis in semi finished condition and after getting the analytical report, the material is filtered and packed in consumable pack of 1 Ltr. glass bottle. After packing, the filled bottles are then pasted with product labels and then sent to shipper ready for dispatch. From these letters on record, it is clear that the appellant has undertaken certain manufacturing processes, testing, re-packing into smaller bottles, pasting labels of the manufacturer and so on. The labels also specifically indicate the use and the product is also declared as Hexane chromatography, hexane fraction from petroleum and so on. In the label for the input raw material, the product is merely declared as Petroleum Benzine 65/70. There is no indication as to the usage for specific industry or otherwise. It is also observed that BIS 3470 2002 lays down specifications for hexane, food grade, the parameters of which are satisfied by the products marketed by the appellant. Therefore, we have to conclude that a new product has emerged, having a distinct character, name and use after the various processes undertaken by the appellant and therefore, these processes undertaken by the appellant amounts to manufacture as defined in Section 2 (f) of the Central Excise & Salt Act, 1944. The criteria of manufacture is whether after the process is undertaken, a new product having a distinct name, character or use has emerged or not. If a new product emerges, then the process would amount to manufacture. The decision of the Honble apex Court in the case of Pio Food Packers [1980 (6) ELT 343 (SC) and Empire Industries Ltd. [1985 (20) ELT 179 (SC) support these views. The ratio of the decision of this Tribunal in the case of Alok Enterprises affirmed by the Honble Bombay High Court also would apply to the facts of the present case. Therefore, in the present case also, we are of the considered view that the appellant has undertaken the activity of manufacture. We also note that the value addition which the appellant has achieved on account of these processes is of order of 200% which is substantial. If the activity undertaken by the appellant is merely repacking, we do not understand how a value addition of 200% could be achieved. Therefore, the argument of the appellant that they had undertaken only re-packing is without any basis and merits rejection.
6.2 The next question is whether the invocation of extended period of limitation for confirmation of duty demand is sustainable in law or not. From the records, it is seen that the department was aware of the various activities undertaken by the appellant. If that be so, the department cannot plead that the appellant had suppressed any fact with respect to the activities undertaken by them and the department should have taken action well within the normal period of limitation. Hence, invocation of the extended period of limitation for confirmation of duty cannot be upheld in the present case. Therefore, duty demand in the present case is sustainable only for the normal period of limitation. While the demand raised in the show-cause notice dated 16/12/2008 is within the normal period of time, in respect of show-cause notice dated 08/02/2008 only the demand for the period from January 2007 to November 2007 would be within normal period of limitation and duty liability for this period has to be worked out by the adjudicating authority while re-computing the demand. The appellant also would be eligible for the benefit of Cenvat Credit of the duty paid on the inputs and input services used in the manufacture of the finished products on which the duty demand is confirmed. This also would have to be worked out on the basis of documentary evidence to be submitted by the respondent.
7. In view of the above, we remand the matter back to the adjudicating authority for re-computation of the duty demand within the normal period as mentioned above and also for allowing Cenvat Credit of the duty paid on the raw materials, subject to submission of documentary evidences. Thereafter, the revised demand will have to be computed. Needless to say that the appellant would be liable to pay interest on re-computed duty demand. In he facts of the case imposition of penalty is not warranted. Thus, the appeal is allowed by way of remand in the above term.
(Dictated in Court) (Anil Choudhary) Member (Judicial) (P.R. Chandrasekharan) Member (Technical) pj 1 2