Custom, Excise & Service Tax Tribunal
Lalit Bhandari vs Cce Nagpur on 22 April, 2019
IN THE CUSTOMS, EXCISE AND SERVICE TAX APPELLATE
TRIBUNAL, WEST ZONAL BENCH AT MUMBAI
APPEAL NO. E/1737 & 1738/2010
(Arising out of Order-in-Original No. 66/2010/C dated 15.06.2010
passed by the Commissioner of Central Excise (Appeals), Nagpur.)
M/s Maharashtra Metal Powders Ltd. Appellant
Lalit Bhandari
Vs.
Commissioner of Central Excise Respondent
& Customs, Nagpur Appearance:
Shri Rajesh Ostwal, Advocate for Appellant Shri Ajay Kumar, Additional Commissioner (AR) for Respondent CORAM:
HON'BLE DR. SUVENDU KUMAR PATI, MEMBER (JUDICIAL) HON'BLE SHRI P. ANJANI KUMAR, MEMBER (TECHNICAL) Date of Hearing: 25.10.2018 Date of Decision: 22.04.2019 ORDER NO. A/85767-85768/2019 Per: P. Anjani Kumar:
This appeal is directed against the OIO passed by Commissioner of Central Excise, Nagpur
2. Briefly stated the facts of the case are that M/s. Nagpur Pulverizes and Minerals Private Limited E/1737 & 1738/2010 2 (incorporated in 1974) was taken over by M/s. Maharashtra Metal Powders Limited, with effect from 12.3.2009. Name was changed to N.P.M. Industries (the appellants). The appellants are engaged in processing of Manganese Ore, procured from Manganese Ore India Limited (MOIL, Nagpur). The processes involved were that 'Manganese ore is heated in a coal fired furnace till it becomes red hot; the material is quenched with water and taken out from the furnace for sun drying; it is pulverized to a fine powder and packed in bags for sale'.
2.1. Revenue initiated an investigation in November 2009 and issued a show cause notice alleging that the activity undertaken by the Appellants amounts to manufacture; the addition of water converts the Manganese Dioxide (MNO2) into Manganese Oxide (MNO); there is a change in the chemical structure; Manganese Oxide no longer remains as ore but becomes a different commodity namely Manganese Oxide classifiable under Chapter Heading 28209000. The appellants paid an amount of Rs.30, 92,313/-.
3. The appellant submits that vide their letter dated September 12, 2002, they sought a clarification from the E/1737 & 1738/2010 3 Central Excise department regarding the excisability of the Manganese Oxide obtained by them. Department, vide letter dated 22nd October 2002, clarified that the Manganese Oxide remains as ore and hence non-excisable and there was no need for obtain registration.
3.1. The appellant submits that the show cause notice alleges that there is a specific mis-statement in appellant's letter dated 12.9.2002 to the effect that in the process of refining, there is no physical addition of any chemical; MnO is obtained by a chemical reduction process; the appellants claimed exemption under Notification No.6/2002 with an intention to evade payment of duty and that longer period of limitation under proviso to Section 11A(1) is applicable.
3.2. The appellant submits that the show cause notice is based on incorrect appreciation of facts and the legal position and is liable to be dropped in its entirety.HSN explanatory note states that ore would remain ore even after reduction process is carried out. As per HSN (reproduced in para 8.5 of the show cause notice) "Processes to which products of headings 26.01 to 26.17 may have been submitted include physical, physico-
E/1737 & 1738/2010 4 chemical or chemical operations provided they are normal to the preparation of the ore for extraction of metal. With the exception of changes resulting from calcinations, roasting or firing, such operations must not alter the chemical composition of the basic compound which furnishes the desired metal.
The physical or physico-chemical operations include crushing, grinding, magnetic separation, gravimetric separation, flotation, screening, grading agglomeration of powders (e.g., by sintering or pelleting) into grains, balls or briquettes (whether or not with the addition of small quantities of binders), drying calcinations, roasting to oxide, reduce or magnetise the ore, etc. (but not roasting for the purpose of sulphatingchlorinating etc.)." Show cause notice alleges that in the case of appellants there is change in chemical composition whereas, as per HSN, the permissible operations should not result in alteration of chemical composition of the basic compound. 3.3. The Appellants submit that the allegation of the show cause notice is misconceived. As per HSN products of headings 26.10 to 26.17 remain under same heading even if they are subjected to certain physical, physico-chemical or chemical operations, with the exception that these operations should not alter chemical composition of the basic compound. However, as per explanation to above, changes resulting from calcinations, roasting or firing are excluded from the exception. In other words, operations such as calcinations, roasting or firing even if they result in E/1737 & 1738/2010 5 alteration of chemical composition of the basic compound will not take products of headings 26.10 to 26.17 out of these headings. In the present case, the ore (MnO2) is subjected to reduction by roasting, firing, etc. whereby one oxygen atom is reduced to obtain MnO. As stated supra, this operation is perfectly permissible operation and will not take ore out of Chapter 26 and thus MnO is an ore eligible for exemption under Notification no. 6/2002-CE and hence the proposal to demand central excise duty is baseless. They relied upon following cases.
(i).Crane Betel Nut Powder works Vs CCE 2007(210) ELT 171(SC)
(ii). Kenzo International Vs CCE 2017(7) GSTL 325(T)
(iii). Hindalco Industries Ltd Vs CCE 2009(245) ELT 271 (T)
(iv). 20 Microns Ltd Vs CCE 2006(199) ELT 41 (T) 3.4. The Appellants submit that the notice is hit by limitation. The letter dated 12.9.2002 has to be read in its entirety and not in isolation. They had clearly stated that red hot ore is quenched with water. The fact that water was used was clearly mentioned in the letter. When the Appellants mentioned in their letter that no chemical was added, the Appellants meant that no chemical other than that mentioned in the letter was added. The Appellants did not mislead the central excise department. In any case, if E/1737 & 1738/2010 6 there was any doubt in the mind of the central excise department, it was always open to the department to call for further information from the Appellants. Hence, there is no suppression or mis-statement as alleged in the show cause notice. There is no material / evidence on record to suggest that the Appellants deliberately suppressed with an intention to evade payment of duty. The issue involved is purely interpretational and legal in nature. The Appellants have maintained regular books of accounts and all transactions are duly recorded The demand of in the present case is based only on the books of account and other records maintained by the Appellants. The Appellants had bona fide belief that they were not liable to pay central excise duty on MnO. There being no positive act on part of the Appellants to suppress any fact from the department and there being no evidence for such allegation, proposal to invoke extended period is not correct. Mere averment with no evidence to support such averment is not correct. They relied upon the following cases.
(i). Electrical Manufacturing Co. Vs CCE - 1989 (40) ELT 472 (T)
(ii). Hindustan Safety Glass Works Ltd. Vs CCE - 1993 (65) ELT 166 (All)
(iii). CCE VsManohar Glass Works - 1996 (83) ELT 163 (T)
(iv). NRC Ltd. Vs CCE - 2007 (5) STR 308 (T) E/1737 & 1738/2010 7
(v). Secretary, Town Hall Committee Vs Commissioner - 2007 (8) STR 170 (T).
(vi). BinlasSuplux Limited Vs CCE - 2007 (7) STR 561 (viii). Continental Foundation Vs CCE - 2007 (216) ELT 177 (SC)
(ix). Padmini Products Vs CCE - 1989 (43) ELT 195 (SC)
(x).CCE Vs. Chemphar Drugs - 1989 (40) ELT 276 (SC).
(xi). Jai Prakash Industries Limited Vs CCE - 2002 (146) ELT 481 (SC). 3.5. The Appellants submit lastly, that the customers of the Appellants are entitled to take credit of the excise duty paid by the Appellants on MnO. Hence, there was no financial incentive in evading duty, if any. Hence, the allegation of intention to evade payment of duty is misconceived. In view of submissions made supra, no penalty and interest is imposable on the Appellants. 3.6. Learned counsel for the appellants vide written submissions dated 2-11-2018 had reiterated above and further submitted that Show Cause Notice heavily relied upon wikepedia. However, Supreme Court held in CC Vs Acer India 2007(218) ELT 17 SC that wikepedia is an online encyclopedia and information which can be modified by any person and as such it is not reliable.
E/1737 & 1738/2010 8
4. Learned Authorised Representative for the department has reiterated the findings of OIO and submitted written submissions as follows.
4.1. The appellants procure Manganese ore from the mines of M/S MOIL and crush in a Pulverizer. If the Manganese (Mn) content was less than 40%, it is washed with water and then heated up to 800 degree centigrade; manganese ores are converted into manganese oxide lumps which are powdered and packed into the bags of 50 kg for sale. This item manganese Oxide (MnO) is formed only on chemical reaction between water and manganese ore in controlled atmosphere at the temperature of 100 degree centigrade. Thus the MnO produced/manufactured is the new distinct, identifiable and marketable product, totally different from manganese ore, classifiable under specific CETH 28209000 emerges. Therefore, the process amounts to manufacture.
4.2. The chemical reactions required to produce manganese oxide, as given in Wikipedia, are as follows.
(i) MnO can be prepared by the reduction of any higher E/1737 & 1738/2010 9 oxide with hydrogen MnO2+H2 --- MnO +H 2 0
(ii) commercially it is prepared by reduction of MnO2 with hydrogen, CO or Methane MnO2 + CO --MnO +CO2
(iii) MnO can he prepared by heating MnCo 3 in vacuum MnCo3-----------Mn0 + CO3 4.3. In terms of Explanatory notes to harmonized system of nomenclature the ore are classified under Chapter 26 of CETH'85. Heading 26.01 to 26.17 are limited to metallic ores and concentrates which:
(a). Ores are of mineralogical species, actually used in the metallurgical industry for the extraction of the metals of section XIV OR XV of mercury or of the metal of heading 28.44, even if they are intended for non-
metallurgical purposes, and ( b ) . H a v e n o t b e e n s u b m i t te d to processes not normal to the metallurgical industries. The term "ores" applies to metalliferous minerals associated with the substance in which they occur with which they are extracted from the mine; it also applies to native metals in their gangue (e.g. Metalliferous sands). Ores are seldom marketed before "preparation" for E/1737 & 1738/2010 10 subsequent metallurgical operations. The most important preparatory processes are those aimed at concentrating at ores.
So ores shall be subject to such operations or chemical process which eliminate unwanted matter (e.g. dissolution) or by chemical reaction which manufacture totally a new distinct product having specific entry in the CETH.
4.4. In this respect it is mentioned that water (H 2 O) is a polar inorganic compound having both acid and produces H+ and OH ions by self-ionization. It is a good solvent so called as universal solvent and the most studied compound. So when the water is heated with manganese at the temperature of 8000 Centigrade it reacts with the manganese present in the ore and forms a complete new product MnO i.e. Manganese Oxide rightly classifiable under CETH 28209000.Accordingly the appellants are manufacturing MnO (CTH 28209000) from manganese ore (CHAPTER 26) so the MnO cannot claim the benefit of notification no 6/2002 CE dated 22.10.02 (Sl. No.
21).
E/1737 & 1738/2010 11 4.5. It is a settled matter as per Mukesh Kumar Agarwal& Co Vs State of M.P. [Citation 2004 (178) ELT 3 SC] that in such cases the issue be decided on the basis of technical opinion instead of any general opinion. On the basis of the above facts the appeal may be dismissed.
5. Heard both sides and perused the records of the case. Brief issues that require consideration in the instant case are (i).Whether the processes undertaken by appellants on the Manganese Ore amounts to manufacture and (ii). Whether the show cause Notice is time barred. Addressing the issue No.1 we find that the appellants procure Manganese Ore from mines of MOIL and undertake the following processes. 'Manganese ore is heated in a coal fired furnace till it becomes red hot; the material is quenched with water and taken out from the furnace for sun drying; it is pulverized to a fine powder and packed in bags for sale'. The appellants contend that the process is a simple process and is not one of those by virtue of which the product is taken beyond the Chapter 26. The appellants argued that the physical or physico-chemical operations include crushing, grinding, magnetic separation, gravimetric separation, flotation, screening, grading agglomeration of E/1737 & 1738/2010 12 powders (e.g., by sintering or pelleting) into grains, balls or briquettes (whether or not with the addition of small quantities of binders), drying calcinations, roasting to oxide, reduce or magnetise the ore, etc. (but not roasting for the purpose of sulphating chlorinating etc.)." 5.1. We find that a reference at this stage to the relevant chapter notes of Chapter 26.Chapter Note 2 to Chapter 26 specifies that "For the purposes of headings 26.01 to 26.17, the term "ores" means minerals of mineralogical species actually used in the metallurgical industry for the extraction of mercury, of the metals of heading 28.44 or of the metals of Section XIV or XV, even if they are intended for non- metallurgical purposes. Headings 26.01 to 26.17 do not, however, include minerals which have been submitted to processes not normal to the metallurgical industry". 5.2. Relevant HSN Notes are as below Headings 26.01 to 26.17 are limited to metallic ores and concentrates which:
(A). Are of mineralogical species actually used in the metallurgical industry for the extraction of the metals of Section XIV or XV, of mercury or of the metals of heading 28.44, even if they are intended for non-metallurgical purposes, and (B). Have not been submitted to processes not normal to the E/1737 & 1738/2010 13 metallurgical industry.
The term "ores" applies to metalliferous minerals associated with the substances in which they occur and with which they are extracted from the mine; it also applies to native metals in their gangue (e.g., metalliferous sands). Ores are seldom marketed before "preparation" for subsequent metallurgical operations, The most- important- preparatory processes are those aimed at concentrating the ores. For the purposes of headings 26.01 to 26.17, the term "concentrates" applies to ores which have had part or all of the foreign matter removed by special treatments, either because such foreign matter might hamper subsequent metallurgical operations or with a view to economical transport. Processes to which products of headings 26.01 to 26.17 may have been submitted include physical, physico-chemical or chemical operations provided they are normal to the preparation of the ores for the extraction of metal. With the exception of changes resulting from calcination, roasting or firing (with or without agglomeration), such operations must not alter the chemical composition of the basic compound which furnishes the desired metal.
The Physical or physico-chemical operations include crushing, grinding, magnetic separation, gravimetric E/1737 & 1738/2010 14 separation, flotation, screening, grading, agglomeration of powders (e.g., by sintering or pelleting) into grains, balls or briquettes (whether or not with the addition of small quantities of binders) drying, calcination, roasting to oxidise, reduce or magnetise the ore, etc. (but not roasting for purposes of sulphating, chloridating, etc.). The chemical processes are aimed at eliminating the unwanted matter (e.g., dissolution).
Concentrates of ores obtained by treatments, other than calcining or roasting, which alter the chemical composition or crystallographic structure of the basic ore are excluded (generally Chapter 28). Also excluded are more or less pure products obtained by repeated physical changes (fractional crystallisation, sublimation, etc.), even if there has been no change in the chemical composition of the basic ore. Concentrates of ores obtained by treatments, other than calcining or roasting, which alter the chemical composition or crystallographic structure of the basic ore are excluded (generally Chapter 28). Also excluded are more or less pure products obtained by repeated physical changes (fractional crystallisation, sublimation, etc.), even if there has been no change in the chemical composition of the basic ore.
E/1737 & 1738/2010 15 5.3. A plain reading of the Section note gives to understand that for items to fall under headings 2601 to 2617 they need to be minerals and should not have undergone processes which are not normal to metallurgical industry. The show cause notice accepts that fact that the appellants procure the ores from the mines of Manganese Ore India Ltd at Dongri Buzurg, Tumsar etc. Therefore, the origin of the ore is not disputed. It is to be seen now whether the processes under taken by the appellant are not normal to metallurgical industry. The appellants are burning the ore with coal/firewood and are pouring water at high temperatures. The Physical or Physico-Chemical processes are listed in the explanatory notes to HSN. We find, as per HSN notes to Chapter 26, that the Physical or physico- chemical operations include crushing, grinding, magnetic separation, gravimetric separation, flotation, screening, grading, agglomeration of powders (e.g., by sintering or pelleting) into grains, balls or briquettes (whether or not with the addition of small quantities of binders) drying, calcination, roasting to oxidise, reduce or magnetise the ore, etc(but not roasting for purposes of sulphating, chloridating, etc). The processes undertaken by the appellants understandably are crushing, roasting and calcination. The E/1737 & 1738/2010 16 moot point is to see whether these processes are excluded so as to take the mineral out of the scope of Chapter 26. Process of roasting, roasting to oxidise etc. undertaken by the appellants are not agreeably for sulphating, chloridating, etc. The simple processes undertaken by the appellants prima facie appear to be cleaning or concentrating ore. Moreover, the HSN Notes specify that Concentrates of ores obtained by treatments, other than calcining or roasting, which alter the chemical composition or crystallographic structure of the basic ore are excluded (generally Chapter 28). Also excluded are more or less pure products obtained by repeated physical changes (fractional crystallisation, sublimation, etc), even if there has been no change in the chemical composition of the basic ore. As per these notes concentrates obtained by treatments other than calcinating and roasting which alter the crystallographic structure of the basic ore are excluded. The processes undertaken by the appellant are not other than roasting. 5.4 The order in original alleged that the Appellants are adding an inert chemical i.e. "H2O" and is manufacturing Manganese Dioxide from Manganese Ore by way of reduction. In support of their claim the revenue relied upon Wikipedia. Interestingly, the same Wikipedia mentions Manganese Oxide to be a chemical E/1737 & 1738/2010 17 compound with formula 'MnO' and that it occurs in nature as rare mineral Manganese site. However it is not forthcoming either from the show cause notice or from the OIO whether any expert opinion has been obtained to ascertain.
(i). Whether the processes undertaken by the Appellants are not common to metallurgy in refining the ore or extraction?
(ii). Who are the buyers of said manganese oxide and what is it used for further. In order to ascertain whether the metallurgical process still are remain to make the said MnO usable. The learned Authorised Representative from the Department sought to rely upon the case of Mukesh Kumar (Supra) wherein it was held that such case issues be decided on the basis of technical opinion instead of any general opinion. However the department has proceeded to decide the case only on the basis of general opinion supported by only Wikipedia. As submitted by Learned Counsel of the Appellants Supreme Court held, in Acer India (Supra), that Wikipedia is an online encyclopedia and the opinion which can be modified by any person and as such it is not reliable. The department could have approached any technical person for opinion on the subject before coming to a conclusion. It appears that even the samples of the impugned product have not been drawn and tested to confirm whether the product would be eligible to be called MnO, so that it is eligible to be classified E/1737 & 1738/2010 18 under chapter 28 of C. Ex. Tariff Act. It is seen that revenue had simply gone by the process undertaken by the Appellant in their factory and have come to the conclusion on the basis of Wikipedia. The allegation made by revenue is of serious nature and in such a case, a commensurate homework is expected to be done by the department to substantiate their allegation. Coming to a conclusion simply on the basis of the submission of the Appellant and holding that the water which is poured on hot Manganese Ore forms the complete new product, i.e. MnO classifiable under CETH 28209000, appears to be weak. We find that Hon. Supreme Court in the case Wimco Ltd. 2007 (217) ELT3 (SC) observed that merely because there is a tariff entry it does not become excisable unless manufacture is involved. Therefore in this case the department requires to prove that there is an act of manufacture and as a result of that a new product has come into existence. Therefore, we find that the issue requires to go back to the adjudicating authority to go into the issue in the entirety and to come to a conclusion as to whether the process undertaken by the Appellants are not normal to metallurgy so as to exclude the impugned item from the scope of chapter 26 and also to ascertain whether as a result of such process a new product technically and commercially identifiable and usable product which is entirely different from the ore has emerged. If E/1737 & 1738/2010 19 need be adjudicating authority shall obtain opinion of an expert in the field.
5.5. Coming to the issue of limitation, it has been argument of the Appellants that as early as Sept. 2, 2002 they have informed the department that they make Manganese oxide which is manufactured by heating and cooling process only and in the entire process no chemical either organic or inorganic is used. The Appellants have also informed that the ore is heated in a coal fire furnace and when it becomes red hot the material is quenched with water and taken out from the furnace. The department vide their letter dated 22nd October 2002 have clarified to the Appellant that the Manganese Dioxide ad Manganese Oxide mentioned in the Appellant letter are classifiable under heading 2602 of CETA 1985 and that they are exempted by virtue of notification 6/2002 C. Ex. Dtd. 01.03.2002. Having clarified in with manner issuing a Supreme Court Notice dated 28.01.2010 alleging suppression of fact is not acceptable. The department sought to invoke extended period stating that the appellants suppressed the fact that they are adding an inert chemical i.e. H2O. This is a long drawn and spurious argument, hence not acceptable we hold that extendable period is not invocable in this case.
E/1737 & 1738/2010 20
6. In view of the above the appeal is allowed by way of remand to ascertain if the processes undertaken by the appellants are those which take the impugned products out of the scope of Chapter 26 of CETA, 1985. However the demand shall be restricted to normal period only.
(Pronounced in court on 22.04.2019)
(Dr. Suvendu Kumar Pati) P. Anjani Kumar
Member (Judicial) Member (Technical)
Prasad