Customs, Excise and Gold Tribunal - Delhi
Union Carbide (I) Ltd. vs Collector Of Central Excise on 27 May, 1987
Equivalent citations: 1987(13)ECC318, 1987(12)ECR975(TRI.-DELHI), 1987(31)ELT262(TRI-DEL)
ORDER
S.D. Jha, Vice-President (J)
1. The two questions for decision arising in this appeal are whether propylene obtained by the appellants who are holders of L-6 licence for start up their plant engaged in the manufacture of petrochemicals (polyethylene, olefine, chemicals and the like) was eligible to benefit of exemption from duty under notification No. 276/67, dated 21-12-1967 as- amended; and (2) whether appellants application for refund should be rejected because of preliminary objection raised by the respondent for the first time before the Tribunal that the appellants have no locus stand to file the application for refund and this could be done only by the manufacturers or producers of polypropylene i.e., National Organic Chemical Industries Ltd. (NOCIL).
2. The Assistant Collector of Central Excise by his order dated 3-1-1975 rejected the refund claim for Rs. 52,855.73 dated 24-7-1978 preferred by the appellants observing that he did not find any valid ground to entertain the appellants claim for refund of duty and it was accordingly rejected. The Collector of Central Excise (Appeals), Bombay by his order dated 29-7-1982, after referring to the appellants letter dated 18-4-1978 to the Assistant Collector of Central Excise and dated 24-7-1978 to the Collector of Central Excise, held that it cannot be stated that the appellants used the propylene in the manufacture of the specified goods so as to be eligible for the exemption contained in the Notification No. 276/67-CE. In the two letters (supra) the appellants had stated that they needed about 80 MT propylene to start up their plant on a very urgent basis. It appears that the appellants plant due to certain labour problems had not been working for a period of four months.
Before coming to merits of the appeal it is necessary to briefly set out the facts involved for proper appreciation. The appellants by their letter April 18, 1978 (Annexure A) addressed to the Assistant Collector of Central Excise intimated him of their need of about 80 MT of propylene to start up their plant on a very urgent basis. They requested the Assistant Collector to permit them to obtain propylene also without payment of duty including this product in their L-6 licence which was enclosed with the application. It appears that L-6 licence earlier permitted the appellants to obtain ethylene without payment of duty. Both ethylene and propylene fall under Tariff Item 11 A. The Assistant Collector of Central Excise, Bombay by his letter dated 20-4-1978 informed the appellants that starting up of the plant cannot be considered as use in the manufacture of items specified in the schedule to the Notification No. 276/67, dated 21-12-1967 as amended and request for permission to bring propylene under Chapter X Procedure therefore cannot be acceded to. However, the Assistant Collector permitted the appellants to bring the goods on payment of duty and represent the matter to the Collector of Central Excise, Bombay. He also intimated that the Superintendent of Central Excise in charge of the appellants factory was being directed to supervise the receipts of the material at the appellants factory (Annexure B). The appellants then addressed a letter dated 24-7-1978 to the Collector of Central Excise through the Assistant Collector of Central Excise. They referred to letter dated 20-4-1978 of the Assistant Collector asking them to represent the matter to the Collector of Central Excise, Bombay. They also filed a refund claim along with this letter. Another letter of even date was also addressed directly to the Collector of Central Excise to which the requisite statements claiming refund and having reference to the earlier letter of the Assistant Collector were attached. The Assistant Collector of Central Excise by his order dated 3-1-1979 (Annexure D) referred to the show cause notice calling upon the appellants to show cause why their application for refund be not rejected as propylene used for the starting up of their plant which was under lock out was not in the manufacture of any of the items specified in the schedule under Notification No. 276/67, dated 21-12-1967. Reference was made to a similar letter dated 27-11-1978. After stating that the appellants had not advanced any arguments in support of their claim for refund of duty and also not asked for personal hearing he proceeded to reject the claim as he found no valid ground to entertain the same. The appellants then filed as per their memo dated 22-4-1979 appeal to the Appellate Collector of Central Excise, Bombay. This led to Order-in-Appeal No. 1107/B-II-120/82, dated 29th July, 1982.
3. At the hearing of the appeal on 23-6-1986, Mrs. J.K. Chander, JDR representing the respondent raised what she called a preliminary objection on the ground that the appellants M/s. Union Carbide India Ltd. industrial users could not make this application for refund and this could be done only by the manufacturer of the product NOCIL. Arguments on this point were heard when Shri V. Lakshmt Kumaran, Advocate representing the appellants, inter alia, submitted that NOCIL had expressed their concurrence and had no objection in the appellants making this application for refund. The Bench felt that this document should be placed by the appellant on file and time was granted for the purpose. In obedience to this direction the appellants have placed on record a photostat copy of letter dated 3-7-1978 titled "No Objection Certificate" from NOCIL addressed to the Assistant Collector of Central Excise, Division 'M', Dadar. The letter reads :
"We do not have any objection if a refund is granted to M/s. Carbide Chemicals Company, Division of UNION CARBIDE INDIA Lf DM in respect of excise duty paid by us "Under Protest" on supplies of Propylene made by us to them between 21st April, 1978 to 29th April, 1978. We have supplied 71.100 SIT of Propylene as per the attached statement on payment of duty under protest at Rs. 50,338.80 (Basic Duty) and Rs. 2,516.93 (Special Duty)."
At the hearing dated 6-8-1986 Shri A.S. Sundar Rajan, 3DR who represented the respondent on that date was called upon by the Bench to find out whether there was any practice about industrial user making an application for refund on a no objection certificate by the 'manufacturer. He prayed for time to seek instructions on the point of the Board of Excise & Customs. Time was granted for the purpose till 22-9-1986. On 22-9-1986 Shri Sundar Rajan, JDR did not give any reply to the existence of any such practice in respect of which clarification was asked from him. He, however, persisted that in spite of no objection from NOCIL the appellants have no locus standi to present the claim for refund. On the request of Shri V. Sreedharan hearing was then adjourned.
4. Shri Sundar Rajan, learned 3DR submitted that it was open to the respondent Collector of Central Excise to support the order in his favour on fresh legal grounds not raised before the lower authorities and the Appellate, Tribunal has jurisdiction to permit the respondent to do so. He submitted that the locus standi of the appellants to make the present application for refund was a purely legal ground and this could be raised before the Appellate Tribunal even though it was not raised before the lower authorities earlier. For these submissions he relied on the following decisions: 1. Marolla & Sons v. Commissioner of Income-tax (1981) 129 ITR 475 (Allahabad High Court) and 2. Commissioner of Income-tax v. Hazarimal Nagji & Co. (1962) 46 ITR 1168 (Bombay High Court).
5. For the argument that only the manufacturer and not the industrial user holding L-6 Licence could make such an application for refund, he relied on the following decisions :
1. Union of India & Another v. Silchar Electric Supply Company Ltd. 1977 ELT 3 157 (Gauhati High Court).
2. Hindustan Fertilizer Corporation Ltd. v. Collector of Central Excise, Calcutta 1986 (24) ELT 32 (Tribunal).
6. Controverting Shri Sundar Rajan's submissions on this point Shri Lakshmikumaran, learned Advocate submitted that objection as to locus standi cannot be raised at the second appellate stage before the Tribunal. For this argument he relied on Order No. 1 Rule 13 C.P.C. He also relied on the following decisions :
1. Sri Ram Pasricha v. Jagannath & Ors. AIR 1976 Supreme Court 2335.
In this decision the Supreme Court held that plea as to non-joinder of parties should be taken at the earliest opportunity.
2. Lakhi Prasad Fogla v. Murlidhar Marwari and Ors. AIR 1973 Patna 250.
In this decision the Patna High Court regarding objection as to nonjoinder of parties held that objection not raised at the earliest opportunity before settlement of issues is deemingly waived.
3. Commissioner of Income-tax, Bombay City v. T.M. Bhumraddi and Anr. (Bombay High Court).
In this decision, the Bombay High Court on a Income-tax reference while holding that the Commissioner of Income-tax may ho doubt support the decision of the Appellate Asstt. Commissioner on any ground other than the one on which the Appellate Asstt. Commissioner based his decision. But such a ground must arise on the record of the assessment proceedings and must have been raised on behalf of the Department at same stage in the proceedings. No new ground may be raised for the first time before the Tribunal by the respondent.
6. On merits of the appellants claim Shri Lakshmikumaran, learned Advocate submitted that use of the input Propylene for starting up or trial run of the appellants plant would also be used in the manufacture of specified products in the notification. For this argument he relied on the following decisions :
1. Member, Board of Revenue, West Bengal v. Phelps & Co. (P) Ltd. (1972) 29 STC 101 (SC).
The case relates to Sales Tax (West Bengal) dealing with the interpretation of the expression used in the manufacture of goods under the Act. Hand gloves sold to dealers for the purpose of being used by their workers engaged in hot jobs or in handling corrosive substances were held eligible for exemption under the Act.
2. J.K. Cotton Spinning & Weaving Mills Co. Ltd. v. Sales Tax Officer Kanpur and Anr. (1965) 16 STC 563 (SC).
A decision interpreting the expression 'in the manufacture of goods' in-Section 8(3)(b) of Central Sales Tax Act, 1956. The decision held that-the expression "in the manufacture of goods" used in the section should normally encompass the entire process carried on by the dealer of converting raw materials into finished goods. Where any particular process is so integrally connected with the ultimate production of goods that, but for that process, manufacture or processing of goods would be commercially inexpedient, goods required in that process would fall within the expression "in the manufacture of goods".
3. Neyveli Lignite Corpn. Ltd., Tamilnadu v. Collector of Central Excise, Madras 1985 (19) ELT 617 (Trib.).
In this decision the Tribunal dealing with Notification' No. 147/74 exempting furnace oil intended for use as feedstock in the manufacture of fertilisers held that test and trial runs of the units of a complex fertilizer plant are essential stages of the manufacturing process and hence furnace oil used for such test and trial runs would fulfil the requirement of exemption under the notification. Shri V. Lakshmikumaran also relied on a decision of this Bench in Sundaram Fasteners Ltd. v. Collector of Central Excise, Madras (Order No. 574/86-C, dated 24-9-1986). In this decision the Tribunal agreeing with the appellants counsel with reference to Notification No. 167/79 which prescribed following Chapter X Procedure held that condition which was impossible to comply with because of action of Revenue should be taken to have been dispensed with so long as there has been substantial compliance with the requirement of Chapter X Procedure. On facts the Tribunal also held that procedural compliance with the requirement of law where goods had to be properly accounted for a particular and-use has to be held to be directory in nature. On the facts and circumstances of the case the Tribunal found that non-compliance with Chapter X Procedure in entirety does not vitiate the appellants claim. With these findings refund was granted to the appellants in the case.
7. Shri Sundar Rajan, learned JDR controverting Shri Lakshmikumaran's arguments on merits submitted that the appellants- held a L-6 Licence for obtaining Ethylene free of duty and not Propylene. According to him, Ethylene is raw material, for end product and Propylene is not. He submitted that the notification prescribed following Chapter X Procedure. The Chapter does not contemplate refund. It envisages movement of goods under physical control of the Department. He maintained that under Rule 11 of Central Excise Rules which was in force at the material time application for refund should be made only by the manufacturer NOCIL and not by the appellants.
8. Taking up first the objection as to locus standi of the appellants, it is to be remembered that neither the Assistant Collector of Customs nor the Collector (Appeals) rejected the appellants claim for refund on this ground. It was rejected on merits on the ground that use of input Propylene for starting up operation would not fulfil the requirement of the notification. We cannot also overlook the letter dated 3-7-1978 titled ''No Objection Certificate" from NOCIL addressed to the Assistant Collector which has already been reproduced above. We have already said above that the 3DR did not give any categorical reply to the query of the Bench whether there was any practice whereby on the authorisation of the manufacturer or producer an industrial user could make an application for refund. It appears to us that based on this no objection certificate the lower authorities treated the application for refund filed by the appellants as a proper application. The application for refund though made by the industrial user the appellants is, in fact, and in reality having regard to the abovesaid no objection certificate one on behalf of NOCIL and it cannot be thrown out on the belated objection taken before the Tribunal as to appellants locus standi to make this application for refund. This plea even if accepted is not going to serve any purpose because the letter addressed to the Asstt. Collector shows that duty was paid by NOCIL under protest and presumption would be that in such a case that no limitation of time would be applicable. It is not shown or suggested that right of NOCIL to claim refund of duty which was paid under protest has now been extinguished.
9. As to the broad proposition in Silchar Electric Supply Co. Ltd. case (1977 ELT 3 157 Gauhati High Court) on which Shri Sundar Rajan has strongly relied it is sufficient to say that on the facts and circumstances set out above this ruling would not help the respondent. In that decision it does not appear that there was any such letter like letter dated 3-7-1978 in favour of the industrial user by the manufacturer. The other decision of the Tribunal Hindustan Fertilizer Corporation Ltd. (supra), we observe that in para 24 the decision recognises exceptions to the general rule laid down in the decision in the following words :
"...There can be a situation where the duty liability is transferred to a person other than the manufacturer. In that case both the liability to pay extra duty and the fight to receive refunds may be passed on. Thus, in the case of an assessee working under Chapter X procedure, Rule 196 provides for demand of duty from him on goods not duly accounted for. If any duty has been levied on an industrial consumer under this rule he would no doubt be entitled to claim refund thereof."
The present case would appear to fall under the exceptions set out in the decision. In the instant case the Assistant Collector rejected the appellants application for obtaining Propylene free of duty, as would be shown later, on an erroneous understanding that starting up of the plant could not be used as input in the specified commodities. Subsequent decision of the Tribunal which has already been cited above would show that this view of the Assistant Collector was wrong. In this background if the appellants claim for refund be rejected now on the ground that it has no locus standi to apply for"" the refund, the respondent Collector would virtually be permitted to take advantage of the wrong act of his own officer. This cannot be permitted to be done.
10. Though not cited by the parties, we have come across an unreported decision of the Supreme Court relating to refund in Civil Appeal No. 3530 (NM) of 1986 Parties Steel Strips Ltd. v. Assistant Collector of Customs, Bombay and Anr. decision dated September 30, 1986. This decision arose out of a decision dated 29-10-1985 of the Tribunal in Appeal No. 2089/83-B.2. The appellants M/s. Steel Strips Limited had purchased from M/s. Steel Authority of India steel $oils on high seas and had filed the Bill of Entry at the customs. They later applied for refund based on an ad hoc exemption order No. 26, dated 31-3-1983 issued by the Government of India. The Asstt. Collector and Appellate Collector rejected the claim for refund on the ground that the exemption order covered goods imported by M/s. Steel Authority of India whereas the importers were M/s. Steel Strips Ltd. The Tribunal held that a person who files the Bill of Entry must be regarded as a person who imports the goods. The law does not recognise any other person as the importer. It also held that M/s. Steel Authority of India could not be regarded as importers when they had nothing to do with the clearance of goods through customs. The Supreme Court however, having regard to the communication dated July 3, 1981 addressed by Steel Authority of India to the Assistant Collector of Customs, which is reproduced in the order of the Supreme Court and is in the following terms -
"The above consignment was imported by us under buffer scheme which is exempted payment of customs duty, auxiliary duty and additional duty as per ad hoc exemption order No. 177/80. We understand from our customer M/s. Steel Strips Ltd. to whom we sold the above consignment on high seas basis that they have by mistake paid the customs duty as per B/B enclosed. Since it is a genuine mistake on the part of the customer, we shall be thankful for your refunding the amount of duty either to us or directly to the customer M/s. Steel Strips Ltd., Chandigarh."
held that the import must be held to have been made by the Steel Authority of India and not by the appellants. The Court further held that the result would be that having regard to the buffer scheme the Steel Authority of India, real importers; would be entitled to exemption from payment of duty. The Court ordered refund to the appellant M/s. Steel Strips Ltd.
11. Keeping this decision of the Supreme Court in mind and considering the facts of the case cumulatively, in our view the appellants claim for refund cannot be thrown out on the ground that the appellants have no locus standi to make this claim for refund. We would therefore, answer the second point formulated above for determination in favour of the appellants and against the Revenue.
12. Taking up next the first point, whether Propylene obtained by the appellants from NOCIL for starting up operations of their plant would be eligible for exemption under Notification No. 276/67, it is necessary at this stage briefly to refer to the material portion of the notification. The notification is reproduced in the Statement of Facts, para 2 of the Memo of Appeal. Under the notification, Central Government in exercise Of powers conferred by Rule 8(1) of the Central Excise Rules, 1944 exempts excisable goods falling under Item 6 to 11A of the First Schedule to the Central Excises and Salt Act, 1944 produced in any premises (other than the premises wherein refining of crude petroleum or shale or blending of non-duty paid petroleum products is carried on) declared under Sub-rule (2) of rule 140 of the Central Excise Rules, 194i4 to be a refinery and utilised in the-mode set out in Clauses (a), (b) and (c) of the notification. There is also a proviso dealing with industrial fuel but the same does not concern us. The material condition for the present appeal is condition (c) which is reproduced below :
"(c) cleared to another factory outside the refinery in accordance with the procedure set out in Chapter X of the Central Excise Rules, 1944 for use in the manufacture of any of the commodities specified in the Schedule hereto annexed otherwise than as fuel, from the whole of the duty of excise leviable thereon under Section 3 of the Central Excises & Salt Act, 1944."
The Schedule appended to the notification lists 12 items and there is no dispute that 'chemicals' manufactured by the appellants is one of the specified commodities in the Schedule under serial No. 3. There is also no dispute that Propylene falls under Item 11 A.
13. Shri Sundar Rajan no doubt attempted to argue that Propylene is not required by the appellants for use in the manufacture of their end product 'chemicals' but only Ethylene is required, but we observe that lower authorities rejected the appellants claim not principally on this ground but on the ground that use of Propylene for starting up operations of the appellants plant would not constitute use in the manufacture of any of the commodities specified in the Schedule otherwise than as fuel.
14. In the- above connection we take note of the decision in M/s. 3.K. Cotton Spinning & Weaving Mills Co. Ltd. v. Sales Tax Officer, Kanpur and Anr. (1965) 16 STC 563 (SQ. In this case -the Supreme Court dealing with the expression "in the manufacture of goods" used in Section 8(3)(b) of Central Sales' tax Act, 1956 made certain observation's which have been reproduced at page 7 of this order with reference to the said decision. This apart, Tribunal in M/s. Neyveli Lignite Corpn. Ltd. case (1985 ECR 323 Cegat) dealing with Notification No. 147/74 held that test and trial runs of the units of a complex fertilizer plant are essential stages of the manufacturing process and furnace oil used for such test and trial runs would fulfil the requirement of exemption under the notification. it is not disputed that but for starting up operations of the plant for which Propylene was a must* the appellants could not have obtained the specified product chemicals. This apart, condition (c) reproduced above is also clear that exemption is available for use otherwise than as fuel. It is nobody's case that Propylene obtained by the appellants from NOCIL was for use as fuel. The Bench was told that this was for cooling up the plant before it commenced production. Taking the ratio of the Supreme Court decision and the Tribunal decision cited above there would appear no reason to deny to the appellants the benefit of exemption in respect of Propylene. Shri Sundar Rajan has also argued that under the scheme there is no concept of refund to the industrial user. We have in a way dealt with this point dealing with the question of locus stand! where we have said that in substance the present claim for refund must be held to have been made by the appellants for the manufacturer NOCIL.
15. Shri Sundar Rajan lastly submitted that exemption under the notification is available only when procedure set out in Chapter X of Central Excise Rules, 1944 being followed. We have already referred to the correspondence between the parties above from which it is seen that the Assistant Collector while rejecting the appellants request for obtaining Propylene free of duty also intimated that the Superintendent of Central Excise in charge of the appellants factory was being directed to supervise the receipts of the material at the appellants factory. At the hearing Bench was informed that this supervision had, in fact, been done.
This apart, the Tribunal in M/s. Sundaram Fasteners Ltd. case (supra) to which reference has already been made held that procedural compliance with the requirement of law where goods had to be properly accounted for a particular end-use has to be held to be directory in nature and in the facts and circumstances the non-compliance with Chapter X Procedure in entirety does not vitiate the appellants claim. In that case also as in the present case it had become difficult for the appellant claimants to follow Chapter X Procedure and they had to go in for the refund procedure. The Tribunal agreeing with the appellants argument in that case held condition which was impossible to comply with because of action of Revenue should be taken to have been dispensed with so long as there has been substantial compliance with the requirement of Chapter X Procedure on facts. Keeping the aforesaid in mind and the fact that it is not shown or suggested that Propylene is not duly accounted for or it has not been used for starting up as claimed by the appellants, there would appear no reason to reject the appellants claim for refund. The same must be accepted.
16. As a result of aforesaid discussion we set aside the impugned order, accept the appellants claim for refund and allow the appeal.