Customs, Excise and Gold Tribunal - Delhi
Synthetics And Chemicals Ltd. vs Collector Of Central Excise on 19 September, 1991
Equivalent citations: 1991ECR392(TRI.-DELHI), 1992(57)ELT480(TRI-DEL)
ORDER K.S. Venkataramani, Member (T)
1. Appeal No. 2354/85-C is directed against the adjudication order passed by the Collector of Central Excise, Kanpur dated 22-7-1985 in which he demanded duty of Rs. 2,33,338.87 on Acetaldehyde manufactured and removed by the appellants, herein, during the period 16-3-1978 to 30-9-1980 under Rule 9(2) of Central Excise Rules, 1944 and in which he also imposed a personal penalty of Rs. 2 lakh on the appellants, herein. The other three appeals are directed against the orders of the Collector of Customs & Central Excise (Appeals), New Delhi dated 30-9-1985 (Appeals Nos. 134 & 135/86-C) and Appellate order dated 22-6-1987. In the orders passed by the Collectors (Appeals), the question involved is one of valuation of the Acetaldehyde for the purpose of assessment of duty under Section 4 of the Central Excises & Salt Act, 1944. This aspect is also one of the questions involved in the Collector's adjudication order referred to supra. Brief facts, relating to the Collector's adjudication order, are as follows :
2. Proceedings were initiated against the appellants on the basis of a show cause notice dated 16-3-1983 alleging that the appellants were engaged in the production of Acetaldehyde as a by-product, in their factory, which was classifiable under Item 68 CET and that the appellants had cleared the goods from their factory to different distilleries for mixing it up as denaturant in alcohol which was purchased back by the appellants from the distilleries. The show cause notice also alleged unauthorised removal of Central Excise goods without payment of duty and without following the regular procedure laid down under the Central Excise Tariff Act and Rules including failure to take out a Central Excise Licence and was also for seeking to impose penalty on the appellants. The amount of duty of a total of Rs. 7,76,769.60 was sought to be demanded between the period from 1-3-1975 to 30-9-1980. After considering the appellants' reply to the show cause notice, the Collector held that the goods were correctly classifiable under Item 68 CET and that the exemption claim by the appellants for captive consumption of such goods under Notification 118/75 cannot be extended to them and the Collector also decided that the assessable value of the goods under Section 4 of the Central Excises and Salt Act, 1944 should be determined under Rule 6(b) (i) of the Valuation Rules, 1975 and in this context, the Collector decided that the price charged by another unit, M/s. Somaya Organo India Ltd., Barabanki for Acetaldehyde can be adopted as the assessable value of the product manufactured by the appellants under Rule 6(b)(i) of the Valuation Rules, 1975. The Collector, however, held that even under Section 11A of the Central Excises & Salt Act, the period for demanding duty could not exceed beyond five years from the date of show cause notice and hence restricted the demand to a period of five years and passed the order demanding the duty and imposing penalty as above.
3. In the appeals arising out of the orders of the Collector (Appeals), the question is one regarding fixation of assessable value for captive consumption under Rule 6(b)(i) of Valuation Rules of Acetaldehyde. The Assistant Collector had initially assessed the goods provisionally and thereafter finalized the provisional assessment on the basis of value of Acetaldehyde manufactured by M/s. Somaiya Organo Ltd., Barabanki, U.P. in one case and on the basis of comparable goods manufactured by M/s. Vam Organo Chemical Ltd. in another case. In the two orders of the Collector (Appeals), both dated 30-9-1985, the Collector (Appeals) rejected the contention of the appellants before him that they were entitled to the exemption for goods falling under Item 68 CET used for captive consumption given under Notification 118/75, but the Collector (Appeals), on valuation, held that there was scope for giving suitable reduction by giving allowance for difference in purity of the Acetaldehyde produced by the appellants as compared with the product of the other manufacturers. He also rejected their contentions and held that the assessable value has to be fixed only under Rule 6(b)(i) of Valuation Rules on the basis of comparable goods and not under 6(b)(ii) which is a Rule for determining the assessable value in case of captive consumption on the basis of cost data furnished by the manufacturer and adding a percentage of profit which was claimed as the relevant rule by the appellants before the Collector (Appeals). In Appeal No. 2739/87-C, the Collector (Appeals) rejected the appellants' appeal before him for exemption under Notification No. 118/75 and for determination of value under Rule 6(b)(ii) instead of Rule 6(b)(i) of the Valuation Rules and also the contention that the products of other manufacturers were not really comparable with that of the appellants. The Collector (Appeals), in this case, held that the assessable value under Rule 6(b)(i) fixed by the Assistant Collector was correct and rejected the appeal.
4. Sh. S.L. Sethi, Ld. Counsel appearing for the appellants, submitted that in respect of the offence case adjudicated by the Collector of Central Excise, the appellants would argue that acetaldehyde is nothing but alcohol minus hydrogen. Its receipt and disposal is controlled by State Excise Authority. The acetaldehyde produced by them is not saleable, but was obtained as a consequence of legal requirement of denaturant alcohol. The acetaldehyde was required in the manufacture of synthetic rubber. He referred to the product catalogue of the appellants on synthetic rubber and pointed out the process of manufacture at their butadiene unit giving the process at step 1 indicating the emergence of acetaldehyde and hydrogen. The Ld. Counsel contended that there is no ground is all for the department to say that the appellants had suppressed the production of acetaldehyde and had clandestinely removed it because they had cleared the goods under gate passes of State Excise Department and before 1-10-1980. There was also a common belief, both on the part of the appellants and the departmental officers that acetaldehyde was non-excisable being a State Govt. subject and its captive use is exempted from duty. Another ground in favour of the appellants and against invoking the longer period for demanding duty, is that at an earlier instance, the same matter had been taken up by the Assistant Collector by a show cause notice issued on 5-8-1982 on identical grounds seeking to classify acetaldehyde under Item 68 CET and seeking to demand duty on the goods from March, 1975 to September, 1980. The show cause notice had also been replied to by the appellants on 31-8-1982; Subsequently, this show cause notice had been cancelled. It was followed by the show cause notice dated 16-3-1983. The Ld. Counsel, further, submitted that there was no clandestine operation, as manufacture of acetaldehyde was done openly. The Ld. Counsel, thereafter, relied upon the Supreme Court decision in the case of Collector of Central Excise v. Chemphar Drugs & Liniments reported in 1989 (40) ELT 276 (SC) wherein it has been held that when there was no deliberate withholding of information by the manufacturer, the longer period cannot be invoked. Since there was no clandestine removal, the Ld. Counsel urged that provisions of Rule 9(2) are not also attracted. The Ld. Counsel, further, submitted that if the appellants succeed on this aspect of limitation, they are not inclined to press their claim on merits. On the aspect of valuation for assessment purposes of acetaldehyde, the Ld. Counsel submitted that the product manufactured by them is unique as it is non-technical grade acetaldehyde and is captively consumed. The Departmental authorities had erred in applying Valuation Rule 6(b)(i). That Rule applies only in the case of availability of comparable goods. Here, according to the appellants, the goods with which their product was compared differed in purity to a great extent and, therefore, are not really comparable. Hence, the Departmental authorities should have determined assessable value on the basis of cost data as envisaged in Rule 6(b)(ii) of the Valuation Rules. The Ld. Counsel pointed out that the purity of the acetaldehyde, produced by the appellants, is only 80 - 85 per cent whereas the purity of the goods with which it was compared by the Department was 90 - 99 per cent. The Ld. Counsel urged that the goods of the other manufacturers are not qualitatively comparable and since the goods are used for captive consumption, the prices ought to have been determined on the basis of cost data only.
5. The Ld. D.R., Sh. Narasimha Murthy, pointed out that the goods are not consumed captively. The appellants had at no time intimated the Department regarding the clearance of the goods in dispute. He referred to the reasoning in this regard occurring in the Collector's adjudication order. Since there was removal of excisable goods without taking due licence from the place of manufacture and without payment of duty by suppression of facts, Rule 9(2) and the longer period for demanding duty were available to the Department. The Ld. D.R. cited and relied upon the case law reported in 1986 (26) ELT 169 (Tri.) in the case of Vishwakarma Steel Industries, Ahmedabad and Am. v. Collector of Central Excise, Ahmedabad to say that in the absence of intimation regarding removal of excisable goods, the Department was justified in invoking the longer period for demanding duty. It was also not tenable to say that there was bonafide belief on the part of the appellants that the goods were not dutiable and on the facts of the present case, the ratio of the Supreme Court decision in the case of Chemphar Drugs & Liniments (supra) is also inapplicable, as the facts are different, the appellants not having informed the Department in any of their documents regarding manufacture of acetaldehyde. On the aspect of valuation, Rule 6(b)(i) has rightly been applied and it does not require 100 per cent comparability. The Collector (Appeals) in the two cases, has already ordered that due adjustment should be made for the difference in purity. In reply, the Ld. Counsel reiterated that in respect of relevant rate of duty, Rule 9(a)(v) is not applicable and that the rate of duty applicable for the goods is that applicable at the relevant time.
6. We have carefully considered the submissions made by the Ld. Counsel and the Ld. D.R. Taking up the question whether there is sufficient evidence on record to show suppression of facts by the appellants to justify invoking longer period, it is seen that the appellants were already holders of L4 licence for C.E. The appellants' factory is also under control of State Excise Department and their clearances were being regulated by gate passes issued by the State Excise Officers. It is also stated that two Inspectors of Central Excise are posted to their factory. In their reply dated 18-3-1983 to the show cause notice, they have said as follows :
"It would not be out of place to mention that our factory was visited by the Collector, Deputy Collector, Assistant Collectors, Auditors, Superintendents, Deputy Chief Chemist and Chemical Examiner of Central Excise. Besides, two Inspectors of Central Excise are posted to our factory."
Looking to the fact that the factory had been visited not only by the officers of the department, but also by the audit parties and chemical examiners and Dy. Chief Chemist, lends credence to their claim that there was bona fide belief on their part and, perhaps, that of the Department that the goods were not excisable. In such circumstances, the ratio of the Supreme Court decision in the case of Padmini Products v. C.C.E. reported in 1989 (43) ELT 195 where the Supreme Court had followed the Chemphar Drugs & Liniments will apply. In the present case, the fact that the acetaldehyde was under the regulations of State Excise Department gave a scope for the appellants in their belief that it was probably not subject to Central Excise duty. The removals were, admittedly, taking place on State Excise gate passes and admittedly there were two Inspectors of the Central Excise Department posted to the appellants' factory. They have already been issued Central Excise licence for other products. In such circumstances, the observation of the Supreme Court in the case of Padmini Products may be borne in mind "Failure to pay duty or take out a licence is not necessarily due to fraud or collusion or wilful mis-statement or suppression of facts or contravention of any provision of the Act. Suppression of facts is not failure to disclose the legal consequences of a certain provision...mere failure or negligence on the part of the producer or manufacturer either not to take out a licence in case where there was scope for doubt as to whether licence was required to be taken out or where there was scope for doubt whether goods were dutiable or not would attract Section 11A of the Act." The circumstances of the present case do indicate that the non-disclosure to the Central Excise Department of the manufacture of acetaldehyde cannot be attributed to a deliberate and intentional withholding of information by the appellants. In such circumstances and in this view of the matter, there is a lot of force in the plea of the appellants that the longer period for invoking the demand for duty is not available to the Department and is accepted. The demand for duty, as contained in the Collector's adjudication order (supra), is, therefore, to be confined to six months from the date of issue of show cause notice. In view of this finding, and as the appellants have submitted before us that their case on other aspects, on merits, relating to the adjudication order, is not pressed and we, accordingly, refrain from determining other points arising out of the adjudication order of the Collector of Central Excise, Kanpur. However, in the light of the view we have taken regarding the limitation aspect, there will be ground for leniency in respect of penalty imposed on the appellants by the Collector in his order which is, accordingly, reduced to Rs. 25,000/-. On the aspects of the valuation of the goods for Central Excise purposes under Section 4 of the Central Excises & Salt Act, 1944, the contention of the appellants that exemption under Notification 118/75, eligible to the product, is not well-founded because that notification applies to those cases of captive consumption of the material in the same factory, but in the present case acetaldehyde is, admittedly, not used in the manufacture of other articles in the factory. On the other hand, these are cleared to other distilleries on sale. Therefore, clearly, the conditions for exemption for captive consumption under Notification 118/75 are not satisfied. As regards the claim of the appellants that what is applicable in their case is Rule 6(b)(ii) of Valuation Rules for determination of value on the basis of-cost data, provisions of Rule 6(b)(i) of Central Excise Valuation Rules, is to determine assessable value on the basis of value of comparable goods produced or manufactured by the same assessee or by any other assessee after making reasonable and necessary adjustment of all relevant factors in particular, the difference in the material characteristics of the goods to be assessed and the comparable goods. In the present case, the appellants, themselves, have referred to the products of the other manufacturers as being comparable in the proceedings before the Collector of Central Excise. Consequently, the fact that the products of the other manufacturers were having much higher purity, does not, by itself, form a ground for taking the matter out of Rule 6(b)(i) altogether because that rule provides for reasonable and necessary adjustment to be made in respect of relevant factors in particular difference in material characteristics which would include purity of the goods. The Collector (Appeals) in the two orders, both dated 30-9-1985, has correctly held that Rule 6(b) (i) of the Valuation Rules was only applicable and has correctly directed that suitable adjustment arising out of the difference in purity of the appellants' product with the comparable goods of other manufacturers should be made and the assessable value should be suitably determined reducing the assessable value. The same principle is also to be applied in determining the value of the goods as held in the Collector's adjudication order that is to say the value, as decided by the Collector in his adjudication order, should be suitably reduced, if so called for, giving margin to the difference in purity between the goods manufactured by the appellants and the compared produces of other manufacturers. In the Collector (Appeal's) order dated 22-6-1987, the Collector (Appeals) had taken the same reasoning, which as it has been found above, is well-founded and in that order, the Collector (Appeals) has found that suitable reduction in assessable value has already been given and the Collector (Appeals) has observed therein that comparable products have been identified and the price had been worked out on the basis of the purity of the appellants' product and correspondingly reduced vis-a-vis the product of the other two companies and on this ground, he held that there was no reason to interfere with the Assistant Collector's order. This order of the Collector (Appeals) needs no modification and is, therefore, correct in law. In the result, it is held on valuation that there is no need to interfere with the three orders passed by the Collector (Appeals) with which we are now concerned, and in the case of the valuation aspect, arising out of the adjudication order of the Collector of Central Excise, Kanpur, (E/Appeal No. 2354/85-C), it is directed that suitable reduction, arising out of difference in purity between the appellants' product and the compared products, if not already given, in working out the assessable value, should now be granted and the assessable value re-determined, if need be, in terms of Rule 6(b)(i) which does provide for such adjustments. The appeals are disposed of in the above terms.