Customs, Excise and Gold Tribunal - Delhi
Andhra Sugars Ltd. vs Collector Of Central Excise on 27 February, 1991
Equivalent citations: 1991ECR40(TRI.-DELHI), 1991(55)ELT262(TRI-DEL)
ORDER
G. Sankaran, President
1. Being aggrieved with the Order-in-Appeal No. 11/87 (G)(D) dated 3-2-1987 passed by the Collector of Central Excise (Appeals), Madras, M/s. Andhra Sugars Ltd. have filed the instant appeal.
2. The facts of the case, briefly stated, are that M/s. Andhra Sugars Ltd. were engaged in the manufacture of Aspirin. For this purpose they used to bring into their factory excise duty paid Acetic Anhydride, falling under Item 14AAA of the First Schedule to the Central Excises and Salt Act, 1944 (the said Schedule being hereinafter referred to as "the Schedule"), as a raw material. The manufacturing process is essentially to react Acetic Anhydride with Salicylic Acid resulting in production of Aspirin (falling under Item 68 of the Schedule) and Acetic Acid. The reaction could be represented as follows:
Salicylic Acid + Acetic Anhydride = Acetyl Salicylic Acid (Aspirin) 4 + Acetic Acid [The chemical formula for Acetic Anhydride is (CH3CO)2° and that for Acetic Acid (CHa COOH)]. The resultant products are separated by a further chemical process. The appellants had paid duty on the Acetic Acid which was one of the resultant products in the above reaction. Later on, they filed two claims for refund of the duty paid on Acetic Acid during the periods from 1-8-1985 to 2-11-1985 and 3-11-1985 to 10-3-1986. The claims were made on the ground that the duty had already been paid on the 'input' Acetic Anhydride, that there was basically no difference between Acetic Anhydride and Acetic Acid in that the latter was the product of addition of a molecule of water to two molecules of the former resulting in two molecules of the latter and that they would not be separately chargeable to duty since both figured under the same Tariff Item 14AAA in the Schedule. It was further contended that Acetic Acid was a by-product in the manufacture of Aspirin. The Asstt. Collector of Central Excise issued a notice to the appellants on 5-2-1986 asking them to show cause why the claims should not be dismissed for the reasons set out therein. After considering the reply to the notice and hearing them in person, the Asstt. Collector passed an order on 26-5-1986 allowing the refund claim. The Assistant Collector noted in his order that both the Anhydride and the Acid belonged to the same family and had similar properties and were classified under the same item in the Schedule. The Asstt. Collector, therefore, concluded that no duty was liable to be charged and Acetic Acid. The Additional Collector of Central Excise, Guntur, called for and examined the records of the proceedings leading to the Assistant Collector's order for the purpose of satisfying himself as to the legality or propriety of the order passed. He was of the opinion that the Asstt. Collector had erred in passing the aforesaid order in that the appellants' Acetic Acid which emerged as a by-product in the manufacture of Aspirin was entirely different from Acetic Anhydride and enumerated as a separate sub-item of Item 14AAA of the Schedule. The Acid was separately liable to be charged to duty and the grant of refund of the duty paid on the Acid was not proper and correct. He accordingly directed the Asstt. Collector to apply to the Collector of Central Excise (Appeals) to set aside the Assistant Collector's order and order recovery of the amount refunded. The Additional Collector passed this order in purported exercise of his powers under Section 35E(2) of the Central Excises & Salt Act, 1944 (hereinafter called 'the Act'). The Asstt. Collector accordingly filed an application before the Collector (Appeals) which was disposed of by the latter by the order which is challenged in the proceedings before the Tribunal. In this order, the Collector (Appeals) held that the Additional Collector was competent to exercise the powers of the Collector and direct the Asstt. Collector to file the aforesaid application before the Collector (Appeals). As regards the dutiability of Acetic Acid he held that it was enumerated separately from Acetic Anhydride in the tariff entry. As regards the claim of the present appellants for the benefit of Central Excise Rule 56A, the Collector (Appeals) held that this was a new point and could not be agitated before him though their right to make a claim would not be affected. Finally, the Collector (Appeals) directed the present appellants to pay back the amounts obtained by them as refund in terms of the Asstt. Collector's order.
3. We have heard Shri K. Narasimhan, Advocate, for the appellants and Shri L. Narasimha Murthy, DR, for the respondent-Collector.
4. The learned Counsel for the appellants raised a preliminary objection to the maintainability of the proceedings before the Collector (Appeals). His contention was that the Additional Collector was not empowered to exercise the powers under Section 35E(2) of the Act. These powers could be exercised only by the Collector. However, the Counsel made it clear that in view of the Tribunal's previous decisions to the effect that an Additional Collector could exercise the power of a Collector, he would not be arguing the point. [The reference here appears to be to the Tribunal's decision in S. Kumar and Ors. v. Collector of Central Excise and Ors. -1983 (13) ELT 1057].
5. The Counsel then referred to the provisions of Sub-section (3) of Section 35A of the Act which reads as follows :-
"The Collector (Appeals) may, after making such further enquiry as may be necessary, pass such order as he thinks fit confirming, modifying or annulling the decision or order appealed against, or may refer the case back to the adjudicating authority with such directions as he may think fit for a fresh adjudication or decision, as the case may be, after taking additional evidence, if necessary:
Provided that an order enhancing any penalty or fine in lieu of confiscation or confiscating goods of greater value or reducing the amount of refund shall not be passed unless the appellant has been given a reasonable opportunity of showing cause against the proposed order:
Provided further that where the Collector (Appeals) is of opinion that any duty of excise has not been levied or paid or has been short-levied or short-paid or erroneously refunded, no order requiring the appellant to pay any duty not levied or paid, short-levied or short-paid or erroneously refunded shall be passed unless the appellant is given notice within the time-limit specified in Section 11A to show cause against the proposed order."
His submission was that no notice under Section 11A of the Act, as required by the second proviso (as applicable to the instant case), was served on the appellants within the time-limit specified. In the present instance, there could be no question of any extended time-limit on the ground of suppression of material facts etc. The notice received from the office of the Collector (Appeals) [page 22 of the appellants' paper book] merely forwarded to the present appellants a copy of the appeal (application) received from the Assistant Collector's office in pursuance of the directions given to the Assistant Collector by the Additional Collector and called upon them to submit a memo of cross-objections, if any, verified in the prescribed manner etc. This notice was received by the appellants on 7-11-1986. The exact date of the receipt of the refund amount was not available readily but it had to be a date between 26-5-1986, the date on which the Assistant Collector passed his order allowing the claim and 1-8-1986 when the Additional Collector made his order directing the Assistant Collector to file an application before the Collector (Appeals). This apart, the learned Counsel for the assessee submitted that the aforesaid notice could not be construed to be the notice envisaged in the second proviso to Sub-section (3) of Section 35A of the Act which required the Collector (Appeals) to form an opinion that certain duty of excise had been erroneously refunded. The notice disclosed no such opinion. Since the notice did not fulfil the mandatory requirements of law, the proceedings pursuant to the said notice, resulting in the order directing the appellants to refund the amount was also against the provisions of law.
6. Replying to the Counsel's submissions, the learned Departmental Representative submitted that the Collector (Appeals) had observed the principles of natural justice inasmuch as he had forwarded a copy of the Assistant Collector's application which inter alia requested the Collector (Appeals) to pass an order directing the appellants to refund the amount paid to them and offered the appellants an opportunity to file cross-objections, if any. The Collector (Appeals) also heard them in person. If the Collector (Appeals) had formed an opinion that the amount had been erroneously refunded that would have amounted to pre-judging the issue. On the facts and in the circumstances of the case, the notice issued by the office of the Collector (Appeals) should be deemed to have complied with the requirements of the second proviso to Sub-section (3) of Section 35A of the Act.
7. We propose to deal with these submissions first. The provisions of Sub-section (3) of Section 35A have been reproduced earlier. The second proviso very clearly requires that where the Collector (Appeals) is of opinion that any duty of excise has been erroneously refunded no order requiring the appellant to pay back the amount erroneously refunded shall be passed unless the appellant is given notice within the time-limit specified in Section 11A of the Act to show cause against the proposed order. The notice issued by the office of the Collector (Appeals) undoubtedly is not a notice as envisaged in the second proviso. It does not say that the Collector (Appeals) was of opinion that certain duty of excise had been erroneously refunded and did not call upon the noticee to show cause why an order should not be passed directing him to pay back the amount erroneously refunded. In the present case, however, the appellant before the Collector (Appeals) was the Assistant Collector of Central Excise and not Andhra Sugars Ltd., who were the respondents. Therefore, in terms, the second proviso does not seem to apply because it makes reference to the appellant and not to the respondent. However, in the instant case, the above provisions have to be read along with the provisions of Section 35E of the Act; Sub-section (4) thereof reads as follows :
"Where in pursuance of an order under Sub-section (1) or Sub-section (2) the adjudicating authority or the authorised officer makes an application to the Appellate Tribunal or the Collector (Appeals) within a period of three months from the date of communication of the order under Sub-section (1) or Sub-section (2) to the adjudicating authority, such application shall be heard by the Appellate Tribunal or the Collector (Appeals), as the case may be, as if such application were an appeal made against the decision or order of the adjudicating authority and the provisions of this Act regarding appeals, including the provisions of Sub-section (4) of Section 35B shall, so far as may be, apply to such application."
It follows from the above that the application filed by the Assistant Collector was to be heard as an appeal by the Collector (Appeals) and the provisions relating to appeals [including the provisions of Sub-section (4) of Section 35B] applied, so far as may be, to such application.
8. The question is whether in a case such as the present one, where the asses-see is the respondent and not the appellant before him, the Collector (Appeals) may exercise the powers contained in the second proviso to Section 35A(3) of the Act. Since the proviso talks of notice to the appellant, it is, in terms, not applicable to the instant case. What, then, if at all, is the course open to the Collector (Appeals) if, in an application (appeal) filed by the Assistant Collector, he comes to the conclusion that duty has not been levied or paid or has been short-levied or short-paid or erroneously refunded? It should be noted that the administrative Collector has a period of one year from the date of the decision or order of the adjudicating authority to make an order directing such authority to apply to the Collector (Appeals) for determination of such points arising out of the decision or order as may be specified by him (the administrative Collector) in his order (sec sub-sections (2} and (3) of Section 35E of the Act]. Thereafter the ajdudicating authority has a period of three months from the date of communication of the administrative Collector's order to make an application to the Collector (Appeals) [see Sub-section (4) of Section 35E] and, according to the same subsection, the provisions of the Act regarding appeals shall, so far as may be, apply to such application (underling ours). Evidently, the Collector (Appeals) will not, save in exceptional cases, be in a position to issue a notice to the assessee (respondent) within the normal time-limit of six months from the "relevant date" specified in Section 11A. And, suppose, the relief claimed by the Assistant Collector in the application (appeal) filed in terms of Sub-section (4) of Section 35E is that the adjudication order granting refund should be set aside and the respondent should be directed to pay back the erroneous refund. The Collector (Appeals) is required under Section 35B(4) [by virtue of the provisions of Sub-section (4) of Section 35E] to give notice to the other party (i.e., the assessee) that an application (appeal) has been preferred. This notice has been given in the instant case. A copy of the Assistant Collector's application (appeal) containing the prayer that the Assistant Collector's order be set aside and the respondent be directed to pay back the refund, was enclosed to the notice and due opportunity was given to the respondent also of being heard. The Collector has observed all the statutory requirements laid down in this behalf. The provisions of Section 11 A, in our view, do not apply to the instant case. This is the way to harmonise the various relevant provisions we have referred to. Any other view would, in our opinion, defeat the course of justice. This may be readily appreciated if we assume that a notice under Section 11A within the prescribed time-limit is a pre-requisite. There is no explicit provision requiring the Collector (Appeals) to issue a Section 11A notice where the noticee happens to be the respondent. Indisputably, the Collector (Appeals) has the power to set aside the Assistant Collector's order directing refund. What then ? Surely, the consequential recovery of the erroneously refunded amount cannot again be the subject of another adjudication under Section 11A ? If this be so, the Collector's order, in the absence of any machinery to direct the respondent to pay back the erroneous refund, will remain an ineffective and infructuous order. Surely, law should not be interpreted in such a manner ? We see no merit in the Learned Counsel's contention in this regard.
9. We now turn to the dutiability of Acetic Acid. Item 14AAA of the Schedule reads as follows:
Organic Chemicals, the following, namely :-
(1) Acetic Acid 15% ad valorem (2) Acetic Anhydride 15% ad valorem
The first thing to be noted is that the Acid and Anhydride arc specifically and separately described in the Schedule under different sub-items of Item 14AAA. It is a settled position of law that once an article is described specifically in the Tariff Schedule, no question arises as to whether the process or processes resulting in the emergence of that article would constitute "manufacture" under Section 2(f) of the Act. However, it is also a settled proposition of law that an article does not become excisable merely because it finds an entry in the Tariff Schedule. It must be shown that it is a marketable article even though the manufacturer may not actually market it, [see Supreme Court's judgment in Bhor Industries Ltd. v. Collector of Central Excise -1989 (40) ELT 280 (SC)].
10. Now Acetic Anhydride and Acetic Acid are two distinct substances designated by separate and different chemical formulae. Acetic Acid is designated by the formula CH3 COOH and Acetic Anhydride by the formula (CH3CO)2 °. It is no doubt true that addition of a molecule of water (H2O) to two molecules of anhydride results in the emergence of two molecules of the acid. But, this, by itself, would not detract from the position that the two substances are distinct and different entities designated by distinct and different chemical formulae. It is not the appellant's case that Acetic Anhydride and Acetic Acid are not separately marketable as such or arc not being marketed as such. In fact, the record shows that the appellants had been clearing Acetic Acid on payment of duty (see annexure to the refund claim dated 29-4-1986 - page 5 of the appellants' paper book). It is also on record, as per the appellants' own admission, that they were bringing into the factory duty-paid Acetic Anhydride. No further argument is necessary, in our view, to show that Acetic Anhydride and Acetic Acid arc marketable.
The submission of the Learned Counsel for the appellants was that both Anhydride and Acid were one and the same and the change from Anhydride to Acid was done by addition of water. However, when it was pointed out to him that the acid and anhydride were separately specified under different sub-items of Item 14AAA of the Schedule, he fairly did not continue with this line of submission. The Departmental Representative, on his part, relied on the Supreme Court's judgment in Laminated Packings (P) Ltd. v. Collector of Central Excise, Guntur [1990 (30) ECC 36 (SC)]. In this judgment, the Supreme Court held that lamination of duty-paid kraft paper with polyethylene resulting in polyethylene laminated kraft paper constituted manufacture resulting in production of a distinct commodity liable to duty, the fact that the raw material, kraft paper, was duty-paid being irrelevant. The ratio of the said judgment would, in our opinion, support the Revenue's stand that the process by which acetic acid emerges as a by-product in the present case constitutes "manufacture" for the purpose of levy of excise duty and that acetic acid being different from acetic anhydride and further it being specified separately from anhydride would be liable to duty. In this view of the matter, we uphold the finding of the Collector (Appeals) that duty was liable to be paid on acetic acid.
11. The last submission of the Learned Counsel for the appellants was that the goods falling under Item 14AAA of the Schedule had been notified by Notification No. 28/85-C.E., dated 17-3-1985 for the purpose of benefit of proforma credit procedure provided in Rule 56A of the Central Excise Rules. This notification is reproduced at page N42 of Volume 19 of 1985 ELT. The period relevant to the present dispute, as noted earlier, runs from 1-8-1985 to 10-3-1986. Therefore, the benefit of the proforma credit of the duty paid on acetic anhydride towards payment of the duty chargeable on acetic acid would be available in terms of the said notification read with Rule 56A. The Counsel submitted that the question of raising the issue of Rule 56A did not arise before the Assistant Collector because the Assistant Collector had allowed the refund of the duty paid on acetic acid. Therefore, when the refund was sought to be recovered, this point was specifically argued before the Collector (Appeals) who, however, did not pronounce on the point. The Learned D.R. submitted that he would leave to the discretion of the Bench the issue of remand of the matter to the Assistant Collector for determining the eligibility for the benefit of Rule 56A.
12. We have considered the above submissions. The notification cited earlier permits the benefit of Rule 56A to goods falling within Item 14AAA of the Schedule. The question of availment of Rule 56A did not arise before the Asstt. Collector because he granted refund of the duty paid on acetic acid. The Collector (Appeals) before whom the point was raised did not choose to determine the point. In the circumstances, we have to direct the Asstt. Collector to consider the matter with reference to Rule 56A after giving due opportunity to the appellants. On the facts and in the circumstances of the instant case, it is made clear that the fact that the appellants could not, and did not, apply for the benefit of Rule 56A and follow the procedure prescribed therein would not, in itself, debar the appellants from the benefit of the said Rule 56A if the appellants are able to satisfy the Assistant Collector by production of contemporaneous records and such other evidence as the Assistant Collector may permit as to the quantum of eligibility for the benefit of proforma credit of the duty paid on Acetic Anhydride used in the manufacture of Acetic Acid. The appeal is disposed of with the above observations and directions.