Customs, Excise and Gold Tribunal - Delhi
Ojas Corporation vs Collector Of Central Excise on 17 December, 1987
Equivalent citations: 1988ECR643(TRI.-DELHI), 1988(35)ELT189(TRI-DEL)
ORDER V.P. Gulati, Member (T)
1. This is an appeal against the order of the Collector of Central Excise (Appeals) Bombay.
2. Brief facts of the case are that the appellants, manufactured laundry soap and among other forms of the same, they also manufactured soap chips. They were availing of benefit under Notification No. 28/64, dated 1.3.1964 as amended for the reason that they were not using power in the manufacture of the soap. They were however found to have manufactured soap chips with the aid of power and the Revenue raised a duty demand in respect of these chips. As seen from the record these chips were manufactured by the appellants out of side cuttings of tops, bottoms and waste of blocks of soap which they manufactured without the aid of power. It appears side cuttings etc. arose in the course of the cuttings of the blocks into soap in requisite sizes.
3. The learned advocate for the appellants pleaded that the soap manufactured by them was household laundry soap and the scrap and waste which arose in the process of manufacture and cuttings of the soap blocks were made into chips in another premises with the aid of power. He pleaded that the Tariff Item 15 covered household laundry soap under subitem 1 and 'Other Sorts' under subitem 2. He pleaded that the soap manufactured by them was without the aid of power and the scraps etc., which were converted into chips, did not bring into existence any new variety of soap and what was produced was again household laundry soap. He pleaded that the chips are to be for the same purpose as the other forms of soap manufactured by them and making of the soap into chips did not bring into existence any new commodity in their content also. He pleaded that the lower authorities had erroneously held that the making of the soap into chips brought into existence a new article. He referred to the findings of the Collector in para 3 of his order. Thesame for convenience of reference is reproduced as under :
"Various arguments made by the appellants have been duly considered. Under Tariff Item No. 15, duty is leviable on soap which is defined as "all varieties of the product known commercially as soap". Soap chips marketed by the appellants are known commercially as soaps and are also used as soaps. In my opinion, process of cutting of the soaps slabs etc., into chips with the aid of power is a process incidental or ancillary to the completion of manufacture of soap chips. In the circumstances, it is.incorrect to say that the appellants do not use power in the manufacture of the soap chips. Therefore, the soap chips so manufactured will not be entitled to exemption under Notification No. 28/64-C.E., dated 1.3.1964 as amended."
He pleaded the appellants had been charged with the clandestine removal of the goods. He stated that the departmental authorities themselves had issued a circular that the cuttings of the soap into chips with the aid of power did not amount to the use of power with reference to the manufacture of soap. In this regard he referred to the Trade Notice No. 107/76, dated 24.8.1976. He stated that the authorities themselves were not holding the use of power in the manufacture of chips as a process of manufacture in terms of Section 2(f) and that by Trade Notice issued in 1976, it was held by the departmental authorities that use of power in relation to manufacture of chips wouJd constitute a process of manufacture only in relation to the chips if the same were produced in an integrated unit and not otherwise. This Trade Circular cited No. 107/76, dated 24.8.1976 is stated to be reproduced in the Central Excise Tariff of India : 5th Edition by R.K. Jain, applicable on I. 4. 1979. The same for convenience of reference is reproduced below :
"Soap Chips : As regards soap manufactured without the aid of power in a factory and cutting the same into chips with the use of power in another factory would not constitute "manufacture" within the meaning of Section 2(f) of the Central Excises and Salt Act, 1944. However, cutting of soap into soap chips with the aid of power in an integrated factory will be deemed as manufacture with the aid of power even though no power would have been used up to the stage of production of bulk soap. Hence, soap chips so manufactured in an integrated factory would not be eligible to the concession under Notification No. 28/64-C.E., dated 1.8.1964. - Delhi Trade Notice No. 107/76, dated 24.8.1976."
The learned advocate also pleaded that the appellants had filed a declaration for the manufacture of soap and a demand could be raised only under Rule 10 as applicable then read with 173J and duty could not be demanded beyond a period of six months. He pleaded that Rule 10-A could not be invoked in their case. He stated that Rule 9 could also not be invoked in their case in view of the declaration filed by them. He pleaded that even the departmental authorities had clarified to the soap industry that cuttings of soap chura with the aid of electric machines would not require any Central Excise licence in case the soap was manufactured without the aid of power. He cited the letter of the Superintendent of Central Excise addressed to one of the units in this regard which is reproduced as under :
"Please refer to your letter dated 18.1.1965 addressed to this office on the above subject.
The cutting of soap chura with the aid of electric machine will not require any Central Excise Licence and it will not render the products so produced as dutiable inasmuch as the process of heating the soap pan with the aid of electric mechanism is not involved anywhere in the above process."
He stated that the soap industry was in touch with the Central Excise authorities in this matter as early as in 1965 and the office of the Assistant Collector, Central Excise, Ahmedabad had directed the Ahmedabad Soap Industry to consult the Deputy Superintendent of Central Excise MOR XIII, Ahmedabad. He cited the letter dated 3.12.1965 from the office of the Assistant in this regard which is reproduced as under :-
Sub :- Electric machinery for cutting Soap chura Question of dutiability and Licensing :
Please refer to your letter dated 7.9.1965.
2. You are requested to contact the Deputy Superintendent, Central Excise, MOR XIII, Ahmedabad, who will guide you in the matter suitably."
He pleaded that it was within the knowledge of the departmental authorities that the soap chips were being manufactured with the aid of power and the departmental authorities had all along held that no duty was chargeable in regard to the same so long as the soap, as such, was not manufactured with the aid of power. In support of his pleas he cited the following case law :
(1) 1986 (24) ELT 542 (Tribunal) in the case of Guardian Plasticote Ltd., Calcutta v. Collector of Central Excise, Calcutta and Ors.
(2) 1987 (28) ELT 364 (Tribunal) in the case of Adreena Industries v. Collector of Central Excise, Chandigarh (3) 1987 (28) ELT 56 (SC) in case of Standard Fireworks Industries Sivakasi and Ors. v. Collector of Central Excise, Madras (4) 1987 (30) ELT 541 (Tribunal) in the case of Fram & Co. v. Collector of Central Excise, Bombay (5) 1986 (23) ELT 217 (Tribunal) in case of Swastik Packaging, Bombay v. Collector of Central Excise, Bombay.
4. The learned 3DR for the Department, Shri L. C. Chakrabarti, stated that the soap chips produced by the appellants were a commodity different from the soap manufactured by the appellants without the aid of power . inasmuch i as these had a different description and had a different form. He pleaded that the use of power should be seen with reference to the product which is marketed by the appellants. He cited the case of Guardian Plasticote Ltd., Calcutta v. CCE, Calcutta and [1986 (24) ELT 542 (SC)], in support of his plea. He adopted the rationale of the order of the Collector (Appeals). He, however, pointed out that the soap chips manufactured by the appellants were in the same premises but in a different room and that it was not correct to say that the chips had been manufactured in a separate premises altogether.
5. It is not disputed that what is manufactured by the appellants is household and laundry soap and the chips manufactured by them also answer to same description. The question that arises for our considerationis as to when the manufacture of household and laundry soap can be taken to have been, completed for the purpose of benefit of Notification No. 28/64. It appears from the fact of the case on record that right upto the stage when the soap blocks are produced, no power is used nor is there any use of power in the cuttings of these soap blocks. The manufacture of soap involves various steps which includes the mixing of the various ingredients heating of mixture, setting of the mixture and formation of the same into blocks. After these blocks of soap have been formed these are cut to desired sizes. These processes, it appears from the record, are carried on without the aid of power. In this context therefore the only point to be examined is whether cutting of soap into chips can be taken to be incidental of ancillary to the manufacture of soap. The Larger Bench of the Tribunal in the case of Adreena Industries v. CCE : Chandigarh : 1987 (28) ELT 364 (Tribunal) examined the question of use of power in. relation to the manufacture of dyed yarn where the power was used for extraction of water or drying of the same. Tribunal examined the scope of the term 'incidental or ancillary process' as used in definition of 'manufacture' in Section 2(f) of the Central Excises & Salt Act and held as under :
"It was argued that Section 2(f) contemplated incidental or ancillary process to the completion of the manufactured product and that in this case the manufacture would be complete only af|er the yarn is dried and packed in small packets. There is a fallacy; in the argument. The term 'incidental' has been defined in the Oxford Dictionary as anything that occurs incidentally. In other words, it refers to an occasional or casual process. The word 'ancillary' has been defined as auxiliary. To be an ancillary process, it must be established that it is a subsidiary process. In other words,it must be established that unless these processes are pursued, the manufacture of the products would not be complete. Can we say that the Dyed Knitting Wool has not been manufactured merely because the yarn has not been dried or the water had not been extracted? The answer would be in the negative, because the manufacture of the yarn is complete before it is dried. The other activities cannot be called incidental or ancillary processes to the completion of the manufacture product. There is no proof that the manufacture of dyed yarn would not be complete without these processes. On the other hand, the appellants have used this extraction blowers during the particular season to accelertate the drying of the yarn which had already been manufactured."
Applying rationale of this decision to facts of this case it is seen that when the soap is manufactured in the form of blocks, the product that emerges is household and laundry soap and soap can be said to have come into existence at that stage. The process of cutting does not make it into anything other than soap. It will be relevant to examine the wording of the Notification No. 28/64. The same is reproduced below :
"Soap in or in relation to the manufacture of which no process has been carried on with the aid of power or of steam for heating and falling under this Item is exempt from whole of the duty of excise leviable thereon."
It is seen that the notification extends benefit to soap in or in relation to the manufacture of which no process has been carried on with the aid of power or steam. It would thus be seen that soap can be taken to have been manufactured without the aid of power unless it. can. be said that the cutting of soap is a process related to the manufacture of soap. Now the soap as such emerges in the form of blocks and upto that stage of manufacture no power is used in the appellants unit. The blocks as such as is clear from the departmental trade notice referred to supra can be cleared from the factory for further making them into chips. The soap blocks are recognised as soap in marketable form. As held by the Larger Bench of the Tribunal in the case referred to supra, in this case also the process of manufacture of soap has to be held to be complete when it emerges in the blocks form and it makes no difference for the purpose of the Notification No. 28/64 if chips are manufactured with the aid of power. We therefore hold that in case of manufacture of soap by the appellants no process can be said to have been carried out with the aid of power. We also observe 'that in the case of Fram & Co. v. CCE, Bombay : 1987 (30) ELT 541 (Trib.), the Bench of the Tribunal examined the eligibility of the manufacturers of aerated water in terms of Notification No. 293/77 where the manufacturer used power for chilling of water used for the manufacture of aerated water and held that the power could not be taken to have been used in the manufacture of aerated water as chilling of water with the aid of power in the manufacture of aerated water could not be a process incidental or ancillary to the manufacture of aerated water. In this context, the Tribunal has held as under :
"Hence we have to find out whether the use of power used for chilling of water upto a certain temperature would disqualify the appellants to the benefit of the exemption. It is significant to note that the notification specifies use of power in any process of such manufacture namely, manufacture of aerated waters. The chilling of water, it must be said, cannot be considered to be a process incidental or ancillary to the manufacture of aerated waters. The raw material namely water continues to be water despite the chilling. In a place where power is not available, there is no process of Chilling of water before the aerated water is manufactured. In other words, there is no evidence that aerated waters could not be manufactured without first chilling the water. If chilling of water is a primary prerequisite, then it may amount to a process of manufacture or an incidental or ancillary activity. The process of manufacture in respect of aerated waters does not commence when the temperature of the water is reduced. It is more for the purpose of easy absorption carbonation. There is no transformation of water by virtue of the process of chilling the same. It is not a different commodity known to the trade. The water continued to be in the same condition despite the activity of chilling of water. When there is no transformation, it cannot be said that the chilling of water is a process of manufacture. The Appellate Collector has laid emphasis that chilling of water at a certain temperature is a must. There is no technical support or other evidence to justify this finding. In our view mere chilling of water cannot be held as an intermediate stage before carbonation. The benefit of the exemption cannot be denied."
In the case before us also once the soap blocks have emerged any process carried out cannot be taken to be a process in the manufacture of soap. The Department has rellied on the judgment of the Larger Bench in the case of Guardian Plasticote Ltd. [1986 (24) ELT 542]. Facts of this case are distinguishable from the judgment in that case inasmuch as here no new product emerges as was the case in the judgment cited as what is cut into smaller sizes is soap and after cutting what is produced is also soap.
6. We observe that the departmental authorities also had earlier held that the making of the soap manufactured without the aid of power into chips with the aid of power would not render the soap chips liable to duty on account of use of power in the manufacture of chips. In the Trade Notice cited before us, the departmental authorities have taken the view that soap manufactured without the aid of power in a factory and cutting of the same into chips with the aid of power in another factory, would not constitute manufacture within the meaning of Section 2(f) of Central Excises & Salt Act. They have, however, stated in the same Trade Notice that in case the chips are produced in the same factoy where the soap is manufactured and power is used for making of the chips then the duty should be charged in respect of the chips cleared from such integrated factory. No reason has been given as to under what logic these chips making is not a process of manufacture when chipsmaking is done in a factory outside the factory of production of soap in block form while the same is held as a process of manufacture if the chip making is done in an integrated factory as set out above. We have held above that making of bulk soap into chips is not a process in relation to making of soap. In view of this we hold that the lower authority's order is not maintainable and we allow the appeal with consequential relief.