Customs, Excise and Gold Tribunal - Delhi
New Polymer Industries vs Collector Of Central Excise on 6 February, 1990
Equivalent citations: 1990(30)ECR77(TRI.-DELHI), 1991(52)ELT145(TRI-DEL)
ORDER Ms. Jyoti Balasundaram, Member (J)
1. The above appeal arises out of the order of the Collector of Customs and Central Excise, Baroda dated 30th May 1985.
a) imposing duty of Rs. 1,56,487.28 on phenolic moulding compound (Powder) weighing 64921 kgs illicitly manufactured and removed by the appellants without payment of duty between the period 15-5-1983 to 20-12-1983 and also duty of Rs.72,406.69 on 24850 Kgs of phenolic moulding compound (Powder) illicitly manufactured and cleared during the period .18-8-1983 to 18-12-1983.
b) confiscating phenolic moulding compound (Powder weighing 500 kgs valued at Rs.7500/- seized from their possession on 21-12-1983 with an option to redeem the same on payment of a fine of Rs. 2500/-.
c) imposing a penalty of Rs. 10,000/-
2. The facts of the case are as follows:-
During the course of a surprise visit by CE (Preventive) Officers to the factory premises of the appellants on 21-12-1983, it was found that their unit was engaged in the manufacture of "Phenolic Moulding Compound (Powder)" with the aid of power as a final finished product under Tariff Item 15 A(i) of the I Schedule to the CESA 1944. It was also noticed that the unit was firstly manufacturing "Phenolic resins" also falling under the same tariff item utilised for captive consumption for the manufacture of phenolic moulding compound (Powder). The Dept. found that the unit had manufactured and cleared phenolic moulding compound (Powder) valued at Rs. 9.8 lakhs during the period from 15-5-1983 to 21-12-1983 in the financial year 1983-84 without payment of any excise duty in excess of exemption limit of Rs.7.5 lakhs as per the terms of Notification 83/83 CE dated 1-3-1983 and that the unit had not obtained a CE licence on crossing the Rs. 6 lakhs limit. It was also found that no declaration had been filed under Notn 2/81 dated 17-1-1981. The Dept. further noticed removal of 64,921 kgs of phenolic moulding compound (Powder) during the period 15-5-1983 to 20-12-1983 without payment of duty and removal of 24,850 kgs of phenolic moulding compound (Powder) valued at approximately Rs. 4.6 lakhs from 18-8-1983 to 18-12-1983 describing the goods as "reprocessed blend of resins."
3. A show cause notice dated 16-6-1984 was issued to the appellants, charging them for contravention of the provisions of Rules 43 and 174 read with Section 6 of the Central Excise Salt Act 1944, Rule 173 F read with Rule 9 (i), Rule 173 B, 1.73C, 173G(2) read with Rule 52 (A) and 173 G (4) read with 53 and 226, CE Rules and calling upon them to show cause against imposition of penalty, confiscation of phenolic moulding compound (Powder) and phenolic resin and recovery of duty on phenolic moulding compound (Powder). In their reply of 15-10-1984, the appellants denied the charges against them.
4. The impugned order was passed holding
a) that the unit was required to discharge duty liability on phenolic moulding compound (Powder) at the material time under T.I. 15 A (i) as their final finished product was nothing but 'phenolic resin' in modified form
b) that the unit was not entitled to any exemption under Notn 83/83 dated 1-3-1983 during the financial year 1983-1984 with respect to the manufacture of phenolic moulding compound (Powder) on account of its non-compliance with the provisions of the Notn. in not filing the requisite declaration under para 3 (a)
c) that the value of phenolic moulding compound (Powder) was required to be taken into account under Section 4 of the CESA 1944 for the purpose of payment of duty (as the unit was required to discharge its duty liability on phenolic moulding compound (Powder)
d) that duty is liable on 24850 kgs of phenolic moulding compound (Powder) misdescribed as "reprocessed blend of resins" as it has not been conclusively established that this quantity forms part of the 64921 kgs admittedly cleared by the appellants
e) that there has been wilful mis-statement and suppression of facts on the part of the appellants justifying invoking of the extended period of limitation (by not giving notice of manufacture of phenolic moulding compound (Powder) and not filing the declaration for availing of exemption)
f) that imposition of penalty is justified in view of suppression
g) that seizure of 500 kgs phenolic moulding compound (Powder) was proper as the unit was indulging in illicit manufacture of phenolic moulding compound (Powder) without CE licence and without accounting for its production.
5. We have heard Shri B.B. Gujral, learned Advocate for the appellant and Shri S. Chakravorty, JDR for the respondent.
6. The counsel for the appellant submits that the appellants are registered small scale units manufacturing Phenolic Resin and Phenolic Moulding (Powder) both falling under Tariff Item 15A(1) of the erstwhile Central Excise Tariff. The production commenced on 15-5-83 and as the value of the financial production was less that 7.5 lakhs the unit was totally exempt under Notification under 83/83 dated 1-3-1983. He submits that 24196 kgs of Phenolic Resin valued at Rs. 477852 was cleared to the bonded store room and subsequently cleared for captive consumption of Phenolic Moulding (Powder) of a total quantity of 64921 kgs valued at Rs. 993570. The unit was exempted from licensing control under Notification 2/81 CE dated 17-1-1981. The unit was paying nil rate of duty (appropriate duty) as it never reached the duty paying stage. The appellant believed that, having paid duty on Phenolic Resin, they need not discharge duty liability on phenolic moulding (Powder).
7. Shri Gujral submits that the concession under Notification 83/83 has been denied to the appellants on the ground that they had not filed the declaration as required under paragraph 3 (a) of the aforesaid notification. He contends that the appellants have filed the copy of the declaration on 20-3-1983 and even if such declaration had not been filed, there was still 3 months left till the end of the financial year and declaration could have been filed at any time upto 31-3-1984.
8. Regarding the clearance of 24850 kgs of Phenolic Moulding (Powder) valued at Rs. 4,59,725, he submits that this quantity forms part of the total quantity of phenolic moulding (Powder) of 64921 kgs cleared from the factory upto 21-12-1983. Regarding this allegation that the incorrect value of Rs. 4 to 5 per kg indicated instead of the correct value of Rs. 15 per kg and misdescription of phenolic moulding (Powder) as reprocessed blend of resins, the appellants would submit that this was only done for the purpose of Octroi and this quantity was only sent to the appellants' office in Bombay. This quantity of Phenolic Moulding (Powder) was sold to consumers only at the proper price and under proper description, and this would be borne out by delivery challans submitted by the appellants before the lower authority, and also by the evidence of the transport contractors.
9. According to Shri B.B. Gujral clause 44 of the Finance Bill 1984 which inserts clause (ix) to Section 2 (f) of the Central Excises and Salt Act 1944, including the process of conversion of Phenolic Resin to Phenolic Moulding (Powder) as a process of manufacture, came into force with effect from 11-5-1984. Shri Gujral places before us certain clarifications dated 6-10-1982,7-5-1983 and 10-5-1983 which clarify that Phenolic Moulding (Powder) is nothing but Phenolic Resin in modified form. He submits that these clarifications are in the nature of contemporaneous expositia which however have been rejected by the Collector. He relies upon the decision reported in 1989 (40) ELT 266 (State of Tamilnadu v Mahi Traders) in support of the proposition that clarifications are a interpretative guide to the tariff. He contends that once the Department itself has clarified that Phenolic Moulding (Powder) is only Phenolic Resin in modified form, the department cannot subsequently change its stand and hold that the process of conversion of Phenolic Resin to Phenolic Moulding (Powder) amounts to manufacture.
10. The clarification referred to by him act as promissory estoppel against the collection of duty.
11. The learned counsel cites a CATENA of decisions on promissory estoppel, namely, the following:-
(a) 1985 22 ELT 306 (Union of India v. Godfrey Philips);
(b) 1985 20 ELT 302 (Bengal Paper Mill Company v. Superintendent of Central Excise);
(c) 1980 ELT 639 (Modern Mills Ltd v. Union of India);
(d) 1983 ELT 484 (Shakti Sugar v. Union of India);
(e) 1981 ELT 870 (Ravindrd Hindustan Platinum v. Union of India).
12. Shri B.B. Gujral stated that the appellants cannot be charged with suppression of facts when the Government itself was in doubt as to whether the process of converting phenolic resin to Phenolic Moulding (Powder) amounted to a process of manufacture.
13. Shri B.B. Gujral next refers to Rules 9 and 49 of Central Excise Rules as amended in 1982 and submits that the appellants discharge the duty burden at resin stage and this resin has been captively consumed for the manufacture of Phenolic Moulding (Powder) and therefore no further duty is liable as the process of conversion of Phenolic Resin to Phenolic Moulding Powder) does not amount to manufacture.
14. Referring to the decision of this Tribunal in the case of Satyakam Rasayan Udyog (1989 14 ETR 676) in which the Tribunal has relied upon Explanation 3, he stated that this explanation is not authority for holding that resins and powders are different commodities and even though both are marketable that does not mean that they are distinct and different commercial commodities. According to appellants' counsel, the two products are recognised as the same in trade parlance and the department has not produced any evidence that they are two separate commodities. In support of his argument that no duty should be charged once again at the phenolic moulding (Powder) stage, he cites the decisions reported in (a) 1985 (20) ELT 202 (Collector of Customs and Central Excise v. Oriental Timber Industries (b) 1986 (23) ELT 217 (Swastik Packaging v. CCE Bombay) (c) 1988 (33) ELT 292 (Union of India v. Babubhai Nyalchand Mehta). Shri B.B. Gujral again reiterates that the demand for duty is barred by limitation and the extended period of 5 years under proviso to Sec 11 (A) of the CESA 1944 cannot be invoked in this case as there was no suppression or mis-declaration. The appellants had filed a declaration on 20/3/1983. Even though Phenolic Moulding (Powder) was not mentioned in that declaration, the appellants could have declared the fact of such manufacture at any time before the end of the financial year i.e 31-3-1984. The alternate argument of the counsel is that the appellants were under the bonafide impression that the process of conversion of Phenolic Resin to Phenolic Moulding (Powder) did not amount to manufacture in view of the clarification issued by the Government (referred to earlier in this order) and therefore did not mention phenolic moulding powder in such declaration.
15. Coming to the benefit to the exemption under Notification 83/83 which has been denied to Phenolic Resin also, counsel contends that this benefit should have been extended to the appellants as the value of clearances of Phenolic Resin was within the exemption limit. He cites the decision reported in 1989 (39) ELT 503 (UOI v. Suksha International) on the doctrine of interpretation of beneficial legislation.
16. Finally in referring to confiscation of in-process material of 500 Kgs phenolic moulding powder, he contends that this confiscation is not justified as there was no clandestine removal of this quantity warranting confiscation.
17. Shri S. Chakravorty, learned JDR at the very outset submits that the issue in dispute in this appeal, namely, whether the process of conversion of Phenolic Resin to Phenolic Moulding Powder amounts to manufacture, has already been decided by this Tribunal in the case of Satyakam Rasayan Udyog. Regarding the clarifications issued by Central Board of Excise and Customs dated 6-10-1982, 7-5-1983 and 10-5-1983 he submits that the ground raised by Shri Gujral that the clarifications operate as estoppel against the department, is a new ground taken for the first time only at this stage and this ground was not urged either before the adjudicating authority or in the grounds of appeal and therefore should not be allowed to be urged at this late stage. He further submits that if this ground is permitted to be raised before the Tribunal in the course of arguments, then he would submit that the circulars are in the nature of trade notices which have no statutory force and are not binding in nature. He relies upon the decision referred to in 1978 (2) ELT J-680 (UOI v. Elphinstone Spinning & Weaving Mills), 1981 (8) ELT 144 (Mechanical Packing Industries v C.L. Nangia) and 1979 (4) ELT J-606 (Assam Hard Boards Ltd. v. UOI) in support of his plea that trade notices and circulars do not have binding force, and cannot operate as estoppel against the department.
18. The learned DR brings to our notice the decision reported in 1986 23 ELT 550 (General Industrial Society Ltd. v. CC Calcutta) in which this Tribunal has held that the Tribunal cannot be equated to a court of equity and he submits that the Doctrine of Promissory Estoppel cannot be administered by a Tribunal as it is not empowered to do so.
19. On the question of applicability of Notification 83/83 the learned DR contends that the benefit of this notification has been denied to the appellants due to absence of declaration by them. On the question of time bar, Shri S. Chakravorty argues that in this case there was suppression on the part of the appellants in as much as there was no mention of manufacture of phenolic moulding (Powder) in their letter dated 20/3/1983 and this suppression justified the invoking of the larger period of limitation of 5 years under proviso to Section 11A.
20. Coming to the issue of removal of 24850 Kgs of phenolic moulding (Powder) he refers to paragraph 6 of the impugned order where the Collector has examined the delivery challans produced by the appellants and after examination of the evidence in detail, come to the proper conclusion that this quantity was manufactured and removed in addition to the quantity of 64921 Kgs and does not form part of such quantity. On the question of illegal seizure of 500 Kgs of phenolic moulding powder the learned DR takes us through paragraph 19 of the impugned order in which the Collector has dealt with this aspect of the appeal.
21. In rejoinder Shri Gujral urges us to distinguish this case from the case of Satyakam Rasayan Udyog (supra) or in the alternate refer this appeal to a larger bench for decision.
22. On the issue of limitation, it is noted that the show cause notice has been issued on 16-6-1984 for recovery of duty on phenolic moulding compound (Powder) for the period from 15-5-1983 to 20-12-1983 or thereabouts and from 18-8-1983 to 18-12-1983 or thereabouts. The show cause notice has been issued under the proviso to subsection (i) of Section 11 A of the CESA 1944 i.e. invoking the extended period of limitation of 5 years.
23. The appellants contention is that there was no fraud or wilful mis-statement or suppression of facts on their part as they had filed a declaration with the Dept on 20-3-1983 regarding manufacture of "Phenolic Resin". The declaration has been filed in terms of para 3 (a) of Notification 83/83 dated 1-3-1983 which reads as follows:-
"Para-3: Where a manufacturer has not cleared any specified goods in the preceding financial year or has cleared any such goods for the first time on or after the Ist day of August, in the preceding financial year, the exemption contained in this Notification shall be applicable to such manufacturer"
"Para-3(a): If he files a declaration with the Asst. Collector of Central Excise that the aggregate value of clearances of all excisable goods by him or on his behalf for home consumption, from one or more factories, during the financial year is not likely to exceed rupees twenty five lakhs"
24. The declaration is as follows:-
"To The Assistant Collector of C. Ex.
Harish Appartment, Halar Rd.
Bulsar. (GUJARAT) Dear Sir, Sub: Notice of manufacture vide Rule 43 of CE Rules 1944.
We hereby give you a notice that we are going to manufacture Phenol formaldehyde Resins. Raw materials used are Phenol and Formaldehyde. These both the raw material are under T.I. 68 of C. Ex. Act, are either purchased from the open market or the manufacturing unit and are duty paid. We are manufacturing P.F. Resins first time and we have no other manufacturing units anywhere. Ours is a partnership unit. We are going to start our factory from dt 20-4-1983 (approx.) We have not cleared any excisable goods in previous year during 1982-83 as our factory is started new. Hence we may be granted the exemption of C. Ex. duty on Phenolic Resin cleared upto the limit of 7.5 lakhs and we will apply for L-4 licence when we will reach the exemption limit of 6 lakhs during the financial year 1983-84, vide Notification No. 83/83 dt 1-3-1983 and all procedure of S.R.P. will be followed by us.
Thanking you, Yours faithfully for NEW POLYMER INDUSTRIES M.P. Sheth Partner (Mrs M.P. Sheth)"
25. The adjudicating authority has wrongly disregarded the declaration and concluded that the unit has attempted to create evidence to the effect that a declaration had been filed under Rule 43 of the CE Rules. He has come to the conclusion that there was no declaration due to two different dates of declaration being quoted in the first reply to the show cause notice and in the additional reply to the show cause notice and also because the appellants have not produced any evidence to substantiate, that their letter dt 20-3-1983 admittedly sent under postal certificate, was received by the Assistant Collector. He has also held that there is no cogent evidence as to the filing of a declaration and has instead relied on a statement of Shri Narendra Rathi dt 27-2-1983 that no intimation or information was supplied to the Dept. regarding manufacture of "phenolic resin" and that no declaration was filed.
26. We find that a declaration was given by the appellants on 20-3-83 (which is, alleged to have been sent under ceritificate of posting).
The Collector has held in para 17 of the impugned order that there has been suppression of facts and misdeclaration of their products by the appellants, in as much as they suppressed the material fact of manufacture of phenolic moulding compound (Powder) in the declaration of 20-3-1983. Therefore, the Dept. itself has admitted the receipt of this letter.
27. The appellants' argument regarding non-mention of phenolic moulding compound (powder) in the above mentioned declaration is two-fold.
1) they were under the bona fide impression that they were not required to declare phenolic moulding compound as phenolic moulding compound was nothing but a modified form of phenolic resin (manufacture of which had been declared)
2) in the alternative they initially manufactured only phenolic resin and only later on converted it into phenolic moulding compound by addition of fillers etc. and that there was still time till the end of the financial year to declare the fact of conversion of phenolic moulding compound if it was required to be declared as no time-limit for such declaration was stipulated in Notification 83/83, and the process of conversion of phenolic resin to phenolic moulding compound was not a process of manufacture as clarified by Board's instructions.
28. We find great force in the arguments of the appellants that there has been no suppression of facts or misdeclaration so as to justify the invoking of the proviso to sub-section (1) of Sec 11-A. The Govt had been issuing clarifications from time to time on the question of duty liability of phenolic moulding compound made from phenolic resins. The letter dt 6-10-1982 issued by the Govt of India was as follows:-
"All Collectors of Central Excise Subject: Phenolic moulding powders made from phenolic resins - Duty liability of Sir, I am directed to refer to the Board's letter of even number, dated 5-5-82 wherein it has been clarified in consultation with the Chief Chemist that phenolic moulding powder phenolic resins by the addition of fillers etc involves physical process of mixing and where the duty has already been paid on the phenolic resin, no further duty will be payable on the phenolic moulding powder.
2. The aforesaid instructions have been reviewed in the light of the enclosed order No. 270 of 1982 dated 20-4-82 passed by the Govt. of India as Revision Authority on the revision application of M/s. Western Bengal Coal Fields Ltd. It has been held in the aforesaid order that the phenol formaldehyde moulding powder which is obtained by chemical reaction of phenolic resin with fillers and other additives for making them fit for a particular use does not cease to be a phenolic resin. It has also been held by the Govt. of India that such chemically modified phenolic resin (moulding powder) is eligible for assessment of duty at concessional rate prescribed for phenolic resins under Notification No. 122/71-C.E., dated 1-6-1971.
3. While the Chief Chemist had opined that the process of making moulding powder is physical and the resultant product remains phenolic resin in the form of moulding powder. Revision authority has held that the process involves a chemical reaction and the resultant product (i.e. phenolic moulding powder) does not cease to be a phenolic resin. Whether the modification is considered physical or chemical, the fact which is established beyond doubt is that the phenolic moulding powder is nothing but phenolic resin in a modified form.
4. Since phenolic resin includes phenolic moulding powders also the further modification of such phenolic resins by fillers, additives etc. whether in the factory in which resins are made or elsewhere, does not amount to 'manufacture' no further duty of excise can be levied on such modified phenolic resin, that is to say, phenolic moulding powder if the appropriate duty has already been paid on the phenolic resins under Item 15 A (1) read with any Notification(s) in force.
5. Receipt of this letter may please be acknowledged.
Yours faithfully, Sd/-x xxx (Rajendra Prasad) Under Secretary to the Government of India."
29. Another instruction was issued on 7-5-1983 regarding conversion of urea/melamine/polyester resins into powders. This reads as follows:-
"Board's orders regarding conversion of urea/melamine/polyester resins into powders.
The Trade has represented that the process of making moulding powders from urea/melamine/polyester resins by the addition of fillers/additives would not constitute manufacture under Section 2(f) of the Central Excises and Salt Act. The matter has since been examined in consultation with the Chief Chemist, who has opined that the process of making urea/melamine/polyester, moulding powders by addition of fillers additives to the corresponding resins, is similar to that of making phenolic moulding powders. In view of the opinion of the Chief Chemist the ratio contained in Government of India Order Revision No. 270 of 1982 dated 26-1-82 copy of which was forwarded by Board's letter F. No. 93/2/82-CX. 3 dated 6-10-82, is fully applicable. Therefore, the instructions contained in Board's letter dated 6-10-82 referred to above may please be followed while finalising the classification and assessment of urea/melamine/polyester moulding powders when converted from corresponding resins by the addition of fillers/additives."
30. A further clarification was issued on 10-5-83 as follows:-
"Copy of Govt. of India, Ministry of Finance, New Delhi letter F. No. 93/2/82-CX-3 dt 10-5-83.
Sub: Moulding powder made from resins - Duty liability of I am directed to refer to the Board's letters of even number dt 6-10-82 and 7-5-83 wherein the position regarding duty liability of moulding powders under item 15A, as it stands at present, has been clarified when these are made from the corresponding resins by the addition of fillers/additives.
2. An issue has also been raised whether duty should be charged at the resin stage or at the moulding powder stage where the resin is manufactured/and captively consumed in the manufacture of moulding powders by the addition of fillers additives.
3. The issue has been examined and it is clarified that the Board had already issued detailed instructions vide letter No. 215/5/79-CX-6 dt 24-9-80. It has been clarified in para B-2 of the said instructions that "However, if in terms of Rule 9 the goods have been removed without payment of duty for being deposited in a store room or other place of storage, subsequent clearance from such store room or place of storage, will attract duty in terms of Rule 49, even if they are to be used for the manufacture of the same commodity inside the factory". However, where resin is manufactured and used captively for the manufacture of moulding powders by the addition of fillers/additives without the resin being deposited in the store room, duty shall have to be collected at the moulding powder stage.
Sd/-x xxx (Rajendra Prasad) Under Secretary to the G.O.I."
31. On reading the above clarifications, it is clear that the appellants had reasons to believe that the process of conversion of phenolic resins to phenolic moulding compound was not a process of manufacture and therefore did not mention it in their declaration of 20th March, 1983.
32. In the circumstances, we hold that there has been no suppression of facts or wilful misdeclaration on the part of the appellants. In the absence of suppression and misdeclaration, the longer period of limitation is not available to the Department. The demand for duty is time-barred and as a result, the demand is set aside.
33. Regarding the imposition of penalty, under Rule 173 Q (i) and Rule 210 of the Central Excise Rules, since we have held that the demand for duty is hit by limitation, the penalty cannot be sustained. Accordingly, we set aside the penalty imposed on the appellants.
34. We also set aside the seizure of 500 kgs of phenolic moulding compound as there was no clandestine removal of the same, in which case alone seizure is justified as has been held by the Andhra Pradesh High Court in the case of Southern Steel Ltd. (Hyderabad) v. Union of India and Others (1979 ELT J-402).
35. As the appellants are entitled to succeed on the aspect of limitation alone, we see no necessity to consider the other points on merits.
36. In the light of the foregoing discussion, we set aside the order dated 30-5-1985 in its entirety, and allow the appeal.