Customs, Excise and Gold Tribunal - Delhi
Dhrangadhra Chemical Works Ltd. vs Collector Of Central Excise on 15 February, 1988
Equivalent citations: 1988(16)ECC173, 1988(17)ECR416(TRI.-DELHI), 1988(34)ELT656(TRI-DEL)
ORDER D.C. Mandal, Member (T)
1. The main issue to be decided in this appeal is whether Liquid Chlorine and Dry Chlorine are comparable goods and whether assessable value determined for Liquid Chlorine, Under Section 4(1)(a) - Proviso (i) of Central Excises and Salt Act, 1944, should be applied to the Dry Chlorine captively consumed by the appellants in the same factory.
2. The facts of the case, in brief, are that the appellants are manufacturers of Caustic Soda. In the course of manufacturing Caustic Soda Chlorine Gas and Hydrogen Gas are obtained. A portion of the Chlorine gas is burnt with Hydrogen to obtain Hydrochloric Acid and the remaining portion is converted into Liquid Chlorine after drying and compressing and is stored as Liquid Chlorine. A part of Liquid Chlorine is sold as such in specially made cylinders and the balance is captively consumed in the manufacture of Trichloroethylene. The conversion of Liquid Chlorine into Dry Chlorine takes place in the Chlorine Plant itself before Dry Chlorine is cleared for captive consumption. Prior to 1.5.1980 central excise duty was payable on Chlorine Gas falling under Central Excise Tariff Item 14-H on the basis of Tariff Value and separate Tariff values were fixed for Liquid Chlorine and Dry Chlorine. With effect from 1.5.1980 Tariff Value was abolished and Chlorine became assessable on the basis of the value to be determined Under Section 4 of the Central Excises and Salt Act, 1944. The appellants filed a price list seeking approval of the assessable value of Rs. 281.72 per M.T. for Dry Chlorine effective from 1.5.1980. This value was worked out by the appellants on the basis of cost of manufacturing plus manufacturing profit. This price list was provisionally approved by the Assistant Collector of Central Excise after making a minor change in the assessable value by adding a higher margin of profit. Subsequently, after issuing a show cause notice and hearing the appellants, the Asstt. Collector of Central Excise, by his order dated 17.12.1982, fixed the assessable value of Dry Chlorine at Rs. 710 per M.T. with effect from 1.5.1980 and finalised the price-list for the period from 1.5.1980 to 31.3.1983 on that basis and demanded consequential differential duty. The assessable value at Rs. 710/- per M.T. was fixed under the Proviso (i) to Section 4(1)(a) of the Central Excises and Salt Act on the basis of the highest price charged from a class of buyers. The appellants challenged the order of the Asstt. Collector by filing appeal before the Collector of Central Excise (Appeals), but the said appeal was rejected.
3. The following arguments were canvassed before the Collector (Appeals) as it appears from the impugned order :-
(a) Appellants are captively consuming Dry Chlorine Gas and not Liquid Chlorine and, therefore, the assessable value determined for Liquid Chlorine would not be relevant for determining the assessable value of Dry Chlorine captively consumed. The observation of lower authority that Dry Chlorine and Liquid Chlorine are one and the same is erroneous especially when the Department had fixed different tariff values earlier for Liquid Chlorine and Dry Chlorine. Since Government fixed different ariff values for different forms of Chlorine, Liquid Chlorine and Dry Chlorine are not compalable goods;
(b) the assessable value of Dry Chlorine captively consumed should have been determined Under Rule 6(B)(ii) of the Central Excise (Valuation) Rules, 1975 and not Under Rule 6(b)(i) ibid, as has erroneously been done by lower authority;
(c) it was also not correct in law to determine the assessable value of captively consumed Dry Chlorine at the rate of Rs. 710/-per M.T., merely because Liquid Chlorine was sold at that price to a particular class of buyer under Part-II price-list, since this particular transaction was not representative transaction but was a freak sale;
(d) the assessable value, if at all, should have been determined on the basis of the average sale price or on the basis of the assessable value at which a major portion of the sales were effected i.e. @ Rs. 450/- per M.T. Lower authority must have determined the average of sale prices for each relevant year and not the highest price at which a small consignment of Liquid Chlorine was sold to a particular class of buyer."
4. Collector (Appeals) has held that duty liability of excisable goods arises Under Section 3 of the Central Excises and Salt Act, 1944 which stipulates that all excisable goods shall be liable to duty as and at the rates set forth in the First Schedule to the said Act. Item 14-H of the First Schedule to the Central Excises and Salt Act, 1944 covers Gases, and chlorine is specifically mentioned against sub-item (ii) of Item 14-H. He has also held that for the purpose of excise duty there is no distinction between Chlorine Gas in liquid form and Chlorine in Dry Gas form. Accordingly, he has held, when the assessable value of Chlorine Gas has been determined Under Section 4 of the Act, it is that approved assessable value which will govern all clearances from the place of production, whether such clearances are by way of removal for home consumption, or by way of removal for captive consumption. Collector (Appeals) has held that appellants' contention that the provisions of Rule 6(b)(ii) of the Central Excise (Valuation) Rules, 1975 would operate in their case, is without merit. He has also rejected the appellants' contention that the valuation Under Section 4 in respect of Liquid Chlorine Gas should have been fixed on the basis of average of the price charged from different classes of buyers. He has observed that adoption of the assessable value @ Rs. 710/- per M.T. based on the approved normal price for a particular class of buyers is correct in law and is sustainable on facts.
5. The present appeal before us is against the said Order-in-appeal passed by the Collector (Appeals). Similar contentions as raised before the Collector (Appeals), have been put forth by the appellants in the written Memorandum of Appeal as well as through their Counsel Shri K. Narasimhan at the time of hearing before us. Shri Narasimhan, while arguing for the appellants, has particularly stated that the duty to be charged on Dry Chlorine should not be on the value of Liquid Chlorine, but it should be charged on the value of Dry Chlorine which has been captively consumed within the factory. The assessable value of Dry Chlorine should be determined Under Rule 6(b)(ii) of the Central Excise (Valuation) Rules, 1975 read with Section 4(1)(b) of the Central Excises and Salt Act, 1944, as the Liquid Chlorine and Dry Chlorine are not comparable goods. That these are not comparable goods is also borne out by the fact that separate Tariff Values were fixed for the same during the period prior to 1.5.1980. He has stated that what is comparable goods is laid down in paragraph 20 of the judgment of Madhya Pradesh High Court in the case of M/s. Gwalior Rayon Mfg. (Wvg.) Co. v. Union of India and Ors, reported in 1982 ELT 844 (M.P.). In support of his contention that the duty on Dry Chlorine should be charged on the assessable value determined for Dry Chlorine, Shri Narsimhan has relied on the decision of this Tribunal in the case of M/s. Alkali and Chemical Corporation of India Limited v. Collector of Central Excise, West Bengal, reported in 1987 (31). E.L.T. 589 (Tri.)
6. Arguing for the Respondent Collector Shri L. C. Chakraborty, J.D.R. has stated that by converting Liquid Chlorine into Dry Chlorine Gas, no new product comes into existence, for the purpose of Tariff Item 14-H of the Central Excise Tariff. For the purpose of Central Excise duty both are the same commodity. According to him, when Liquid Chlorine has been sold, it means that Chlorine Gas has been sold. The process of evaporation has no consequence. Therefore, the value of Liquid Chlorine is applicable to the Dry Chlorine Gas for captive consumption.
7. We have considered that records of the case and the contentions of both sides. Item 14-H of the First Schedule to the Central Excises and Salt Act, 1944 covers the gases including liquified or solidified gases. Chlorine is mentioned against sub-item (ii) of the said Tariff Item for the purpose of Tariff classification. Therefore, Chlorine gas, whether liquid or Dry, falls under the same Tariff Heading. This does not, however, mean that Liquid Chlorine and Dry Chlorine are comparable goods or that assessable value determined for Liquid Chlorine Under Section 4(l)(a) of the Central Excises and Salt Act, 1944 is applicable to the Dry Chlorine also. We are unable to accept the finding of the Collector of Central Excise (Appeals) that there is no distinction between Liquid Chlorine and Dry Chlorine Gas for the purpose of valuation for Central Excise duty. Had there been no distinction between the two, there could be no justification for fixing separate Tariff Values for Liquid Chlorine and Dry Chlorine prior to 1.5.1980. In our considered view, Dry Chlorine and Liquid Chlorine are not comparable goods for the purpose of valuation for central excise duty. In the impugned order, the Collector (Appeals) has stated that Liquid Chlorine gets converted into Dry Chlorine Gas in the evaporator, which is a part of the Chlorine Plant. This conversion takes places before Dry Chlorine is removed for captive consumption in the manufacture of Trichloroethylene. According to the "Explanation" below Rules 9 and 49 of the Central Excise Rules, 1944, excisable goods manufactured in any place captively consumed for the manufacture of any other commodity, whether in a continuous process or otherwise, shall be deemed to have been removed from such place immediately before such consumption or utilisation. Further, in paragraphs 6 & 7 of this Tribunal's decision reported in 1983 ECR 659-D (CEGAT), on which reliance has been placed by the Learned Advocate for the appellants, this Tribunal held as follows :-
"Para 6 : When Liquid Chlorine changes into dry gaseous Chlorine a new product or goods do not come into existence; the goods remain the same. Only the form or state is changed. At the time dry Chlorine in gaseous form is removed through pipe lines for consumption in factory it is gaseous form and as the Notification itself fixes different tariff values for this form it would be just and appropriate that for such Chlorine the value so fixed is employed for determination of duty. Any other interpretation would make the Notification nugatory and meaningless. On the facts and circumstances obtaining in the case, we do not agree with the lower authorities that identical product could not have different values. As for the Chlorine in liquid form sold in the market and removed in liquid form, its assessable value should be fixed as in the case of Chlorine in liquid form.
Para 7 : We are fortified in the above view by the Explanation to Rule 49 of the Central Excise Rules (which explanation, by virtue of Section 51 of the Finance Act, 1982,. was applicable at the material time), according to which excisable goods which are. consumed or utilised in a factory for the manufacture of any other commodity shall be deemed to have been removed from such factory immediately before such consumption or utilisation. There is no doubt that in the present case, the Chlorine was in the form of a gas immediately before its utilisation, that is, at the point of time at which it should be deemed to have been removed from the factory. Clearly, the tariff value has to be related to this point of time and consequently it sould be the tariff value applicable to the goods in form they were in at that time, namely, gas."
8. In the above mentioned reported case, this Tribunal did not agree with the lower authority that identical product could not have different value. The Tribunal also held that Tariff values fixed by the Notification for Dry Chlorine Gas and Liquid Chlorine Gas should be. applied for assessable value of respective forms of gases. In the aforesaid case also, Dry Chlorine Gas was utilised for captive consumption. Fortified by Explanation (ii) below Rule 49 of the Central Excise Rules, the Tribunal held in that case that Chlorine was in the form of Gas immediately before its utilization and at that point of time it should be deemed to have been removed from the factory. Consequently, the Tariff Value applicable to Dry Chlorine Gas should be applied to the Dry Chlorine utilized for captive consumption. Similar circumstances exist in the present case. Immediately before the Chlorine was utilized for captive consumption in the manufacture of Trichloroethylene it was in gaseous form. Value for the purpose of assessment should, therefore, relate to the value applicable to such gaseous form of Chlorine. There was no clearance for home consumption of Dry Chlorine or Chlorine in gaseous, form from the factory of the appellants. No value Under Section 4(l)(a) of the Central Excises and Salt Act was determined for dry Chlorine. Section 4(l)(b) of the Act ibid provides that where the normal price of the goods is not ascertainable for the reason that such goods are not sold or for any other reason, value for charging central excise duty should be deemed to be the nearest ascertainable equivalent thereof determined in such manner as may be prescribed. For this purpose, in exercise of the powers conferred by Section 37 of the Central Excises and Salt Act, 1944, the Government made the Central Excise (Valuation) Rules, 1975. According to Rule 6(b) of the said Rule where the excisable goods are not sold by the assessee but are used or consumed by him or on his behalf in the production or manufacture of other articles, the value shall be based :-
(i) on the value of the comparable goods produced or manufactured by the assessee or by any other assessee ;
provided that in determining the value under this Sub-clause the proper officer shall make such adjustments as appear to him reasonable, taking into consideration all relevant factors and, in particular, the difference, if any, in the material characteristics of the goods to be assessed and of the comparable goods;
(ii) if the value cannot be determined under Sub-clause (i), on the cost of production or manufacture, including profits, if any, which the assessee would have normally earned on the sale of such goods.
According to the above provisions of the Valuation Rules, where the excisable goods are not sold by the assessee, but the entire quantity of such goods is captively consumed for manufacturing other articles, then the value of the goods should be based on the value of comparable goods manufactured by the assessee or any other assessee and if the value cannot be determined in this manner, then the value shall be based on the cost of production or manufacturing including the profits, if any, which the assessee would have normally earned on the sale of such goods. In the present case, we have held earlier in this order that Liquid Chlorine manufactured by the appellants is not comparable with Dry Chlorine consumed captively. It has not been argued before us either of the parties that such Dry Chlorine was manufactured by any other assessee during the relevant period and if so, what was the assessable value thereof for the purpose of central excise duty. As a result, Clause (i) of Rule 6(b) of the Central Excise (Valuation) Rules, 1975 cannot be applied to determine the value of the Dry Chlorine utilized by the appellants captively in the manufacture of Tri-chloroethylene. Consequently, the value of the aforesaid Dry Chlorine should be determined under Clause (ii) of Sub-rule (b) of Rule 6 of the said Valuation Rules. Clause (ii) provides for determination of the assessable value on the basis of the cost of production or manufacture including profits, if any, which the assessee would have normally earned on the sale of such goods. In the circumstances, the assessable value of the Dry Chlorine of the appellants before us should be determined on that basis under Clause (ii) of Sub-rule (b) of Rule 6 of the said Valuation Rules.
9. In the light of the above discussions, the orders of the lower authorities fixing value of Dry Chlorine at Rs. 710/- per M.T. are required to be set aside. We order accordingly. In view of the above findings, the question as to whether the value Under Section 4(1)(a) for the Liquid Chlorine should be the highest value charged from a class of buyers becomes irrelevant in this case and hence the same does not require any finding from us.
10. The impugned order is set aside and appeal allowed. The Assistant Collector of Central Excise should re-determine the assessable value of Dry Chlorine captively consumed Under Rule 6(b)(ii) of the Central Excise (Valuation) Rules, 1975 read with Section 4(l)(b) of the Central Excises and Salt Act, 1944, after affording the opportunity of producing materials by the appellants and opportunity of personal hearing to them, for this purpose.