Customs, Excise and Gold Tribunal - Delhi
Electric Lamp Manufacturers India Ltd. vs Collector Of C. Ex. on 5 September, 1990
Equivalent citations: 1991(31)ECC163, 1991(51)ELT619(TRI-DEL)
ORDER K.S. Venkataramani, Member (T)
1. All these appeals raise a common question of facts and law pertaining to the same assessee, hence they are taken up and disposed of by this common order.
2. The appellants in Appeal No. E/2161/87;C have sought for setting aside the order-in-original passed by the Collector of Central Excise, Calcutta in his Order (Original) No. 225(15A)86-Collr. 25/87 dated 22-5-1987 by which the demand raised by the department against the appellant by Show Cause Notice dated 27-8-1986 for contravention of provisions of Section 6 of the Central Excises and Salt Act, 1944 (hereinafter referred to as the Act) read with Rules 9(1), 174,173B, 173C, 173F, 173G, 9,49,52A, 53 and 54 of Central Excise Rules, 1944 (hereinafter referred to as the Rules) was confirmed for six months and were directed to pay duty at the appropriate rate under Chapter 32.14 from 23-2-1986 to 1-4-1986 (inclusive) of the new Central Excise Tariff and penalty of Rs. 40,000/- was imposed under Rule 173Q of the Rules.
3. The appellants in Appeal No. E/3490/89-C have sought for setting aside the order-in-appeal No. 183/Cal.I/89 dated 31-7-1989 passed by the Collector of Central Excise, Calcutta-I who has confirmed the order-in-original No. 85(21)AC/Cal.E/88 dated 16-6-1988 passed by the Assistant Collector of Central Excise, Calcutta 'E' Division classifying Resin Cement (Capping cement) under Heading No. 32.14 of Central Excise Tariff Act, 1985 and duty demand of Rs. 1,57,918.20 for the period March, 1987 to March, 1988 was confirmed.
4. The Revenue in Appeal No. E/1273/89-C, Appeal No. E/1274/89-C and E/1275/89-C have sought for setting aside the order-in-appeal No. 65-67/Cal.I/88 dated 25-2-1988 passed by the Collector of Central Excise (Appeals) Calcutta by which he allowed three appeals of assessee by setting aside the order-in-original No. 85(28)AC/Cal.E/87 dated 6-11-1987 passed by the Assistant Collector of Central Excise, Calcutta 'E' Division, Calcutta. The Assistant Collector of Central Excise in his order-in-original dated 6-11-1987 had confirmed three Show Cause Notices proposing recovery of Rs. 22,913.06; Rs. 1,29,392.30 and Rs. 82,511.22 by which duty demand was confirmed on Capping Cement (Resin Cement) falling under sub-heading 3214.00 manufactured and captively consumed by the assessee inasmuch as using the capping cement for bonding the caps and shells of electric bulbs, flourescent tubes without observing the Central Excise formalities for the period covering June, 1986, July to November, 1986 and December, 1986 to February, 1987.
The common facts of these appeals are that the appellants are manufacturers of electric lamps and flourescent lighting tubes. The electric lamps are of glass and at the ends, there are metal caps. These caps effectively seal the lamp. The assessee has submitted that this lamp capping is a part of integrated process of lamp manufacture. They use a mixture for the purpose of holding the lamp caps on to the bulbs/glass shells. The said mixture is made out of several bought out items. The percentage in weight of different items used for making the said mixture are said to be as follows :-
% weight G.L.S. T.L. Shellac: 3.3 5.7 Novalac: 2.6 3.3 Hexamine: 0.4 0.4 Ethanol: 6.0 6.8 Butanol: 0.5 -
Silicon Resin: 0.2 0.8 Marble Powder: 77.7 78.0 Chalk Powder: 9.4 - Malachite Green Pigment 0.02 0.009 Calophony: - 1.4
The assessee has stated that the aforesaid materials are mixed physically in a mixing machine and the total mixing requires only one hour. The said mixture is in paste form and its shelf life is between 24 to 48 hours. They have further stated that the mixture of few bought out items does not change chemical composition of the individual ingredients of the mixture. It is the case of the assessee that the said mixture has no use unless further treatment of heat is applied. The said mixture has no market and the same cannot be described as goods. The assessee have further submitted that the mixing of different bought out items also does not amount to manufacture within the meaning of Central Excises and Salt Act and Rules framed thereunder.
5. The Inspector of Central Excise by his letter dated 11-1-1983 alleged that the assessees were manufacturing "capping cement" in their factory and called upon them to state as to whether the said mixture was declared to the Central Excise authorities. The assessee by their reply dated 10-2-1983 took the stand that the said mixture was not an excisable commodity and hence the filing of classification list did not arise. The Inspector by his letter dated 17-2-1983 sought from the assessee the manufacturing process of capping cement with its principal raw materials, which the assessee furnished it by their letter dated 29-3-1983. The assessee have contended that the department had dropped the issue and did not raise about the excisability of the said capping cement till the issue was raised again by the department by their letter dated 27-3-1986 by calling particulars from them, which they say, they furnished it by their letter dated 27-3-1986. However, the department was not satisfied with the contentions of non-excisability of the impugned product. The department drew samples and after the receipt of Test Report informed the assessee by letter dated 7-4-1986 that capping cement conforms to tariff description appearing in Tariff Item No. l5A(l) of Central Excise Tariff. Later, a Show Cause Notice dated 27-8-1986 was issued by the Collector of Central Excise Cal-cutta-I under the various provisions of the Act and Rules demanding duty for five years for the period covering September '81 to May '86 by invoking the proviso of Section 11A of the Act. The assessee submitted their reply by their letter dated 25-9-1986 setting out the above sequence of facts and contended that the impugned product was not goods, as it was not marketable and hence not dutiable and excisable. The Collector of Central Excise, Calcutta by his order-in-original dated 22-5-1987 confirmed the demand raised in the Show Cause Notice dated 27-8-1987 for six months and held the impugned product 'capping cement' to be marketable and dutiable. He rejected the various contentions of the assessee of the impugned product being non-excisable and non-dutiable on account of its short shelf life not being marketable. The Collector also rejected the contention of the appellant that the impugned product is not goods and no manufacture had taken place within the meaning and definition of Section 2(f) of the Act. The learned Collector had relied upon the Test Report obtained by the department but did not take into consideration the Test Report of National Test House, Alipore, placed by the assessee. The learned Collector also rejected the prayer of the assessee for alternate classification under Tariff Item 68 and exemption sought under Notification 118/75 amended by Notification 217/86. The learned Collector held the impugned goods classifiable under Chapter 32.14 and claim duty from 23-2-1986 to 1-4-1986 and imposed penalty of Rs. 40,000/- under Rule 173Q of the Rules.
6. The appeal of the assessee in E/3490/89-C pertain to confirmation of demand of Rs. 1,57,918.20 for the period March, 1987 to March, 1988 in respect of three Show Cause Notices issued on 18-8-1987, 4-1-1988 and 22-4-1988 in respect of the same impugned product.
7. The Revenue appeals in E/1273/89-C, E/1274/89-C and E/1275/89-C pertain to the order-in-appeal passed by the Collector of Central Excise (Appeals) Calcutta allowing the three appeals of assessee by which he set aside the order-in-original dated 6-11-1987 passed by the Assistant Collector of Central Excise, Calcutta 'E' Division who had confirmed the demand in three show cause notices for the period June, 1986 July to November, 1986 and December, 1986 to February, 1987 for duty sum of Rs. 22,913.06, Rs. 1,29,392.30 and Rs. 82,511.22 respectively. The learned Collector accepted the contentions of the assessee and held that the impugned product does not have any resinous or plastic properties and hence it could not be taken as resin cement and, therefore, not classifiable under Chapter 32. He also held that the product is not marketable and excisable relying upon the ruling of the Supreme Court's decision in Union Carbide case as reported in AIR 1986 SC 1097 = 1986 (24) ELT 109 (SC).
8. Appearing for M/s. Electric Lamp Manufacturers (India) Ltd., the learned counsel Shri B. Gupta with S/Shri D. Mandal and I. Ghosh stated that capping cement, which is produced by a physical process of mixing ingredients cannot be said to have been 'manufactured' to attract the terms of definition under Section 2(f) of the Central Excises and Salt Act. The material is not goods because it is having a very short shelf life and is also not marketed. In this context, he relied upon the Supreme Court decision in the case of Collector of Central Excise, Baroda v. M/s. Ambalal Sarabhai Enterprises (P) Ltd. - AIR 1990 SC 59 = 1989 (43) ELT 214 (SC) where it was laid down that an article should be shown to be goods i.e. marketed in order to be considered an excisable goods; in their case, there is no such evidence. In the same Supreme Court decision, it was also held that material with the short shelf life will not be goods. The department has not held any enquiry regarding marketability of the goods, but on the other hand, the lower authorities have taken the erroneous view, according to the appellants, that marketability was not a criterion to-be applied for determining whether the goods are excisable. The learned counsel referred to the order of the Collector (Appeals) in their favour which is dated 9-12-1988 in which there is an observation that the goods are not marketable. The learned counsel urged that this decision of the Collector (Appeals) in the order dated 9-12-1988 accepting that the goods are not excisable should be upheld and the department's appeal should be dismissed. It was also urged by the learned counsel that the Test Report which M/s. Electric Lamp Manufacturers had obtained from the National Test House, Calcutta, clearly showed that the product is a simple mixture of ethyl alcohol and resin and having no property of moulding by casting, which is an essential characteristic of plastic. The Chemical Examiner's opinion relied upon by the department, the counsel argued, is incomplete because it does not give the composition of the product or whether these were polymerisation or polycondensation products, whereas the National Test House result clearly showed that the mixer was in a paste form and the sample did not show any property of moulding. It was urged that only a sample mixing of ingredient took place and no new product with distinct name, identity or character emerged. It was also urged that in any case, there was no ground for imposition of penalty on the appellants, which should be set aside.
9. Shri L. Narasimha Murthy, the learned Departmental Representative appearing for the department contended that the material has a commercial name i.e., capping cement and even in the Test Report by the National Test House gives characteristics to the product different from the raw materials used. The material also has a distinct use to which it is put, namely, to bind together the glass tubes and the metal lamp caps. The process involved, according to the learned DR, is not a simple physical mixture of raw material which is evident from the list of contents given in the Test Report of the National Test House. He further pointed out that the Heading 32.14 of the Central Excise Tariff Act, 1985 is specific and the Collector (Appeals) in his order dated 31-7-1989 which is against the assessee had held that the product is different from the ingredients used and has a distinct name, character and use and he has also held that merely because it has a short shelf life, that cannot by itself be a reason for not considering the material as excisable goods. He has also considered the matter in the light of Explanatory Note to Heading 32.14 to the Harmonised Commodity Description and Coding System and had found that the impugned product admittedly is composed of resinous metal mixed with other materials and is used for sealing of glass on heating and that it is, accordingly, covered under Heading 32.14 of Central Excise Tariff Act, 1985.
10. We have carefully considered the submissions made by the learned counsels and the learned Departmental Representative. The issue is whether the goods, namely, capping cement, would be an excisable product assessable under Tariff Item 15A of the erstwhile Central Excise Tariff and not Heading 32.14 of the Central Excise Tariff Act, 1985. Heading 32.14 reads as follows :-
"Glaziers' putty, grafting putty, resin cements, chalking compounds and other mastics; painters' fillings; non-refractory surfacing preparations for facades, indoor walls, floors, ceiling or the like, but excluding primers (Heading No. 32.08), varnishes (Heading No. 32.09)"
The duty liability under the old tariff has become merely of academic interest because the Collector of Central Excise, Calcutta in the impugned order dated 22-5-1987 has held that the demand for the period prior to 28-2-1986 is time barred. Therefore, the question remains about its excisability under the Central Excise Tariff Act, 1985, Heading 32.14. The main contention of the assessee M/s. Electric Lamp Manufacturers (India) Ltd. is that the capping cement is prepared by merely physical mixing of various materials, and that such material has a very short shelf life and is not marketable also. It is argued that the material is not excisable at all. We find that the use of the paste or mixture is that it is applied to the glass and inside circumference of the metal cap, and the glass part is inserted into the metal cap. This is then fed into a horizontally rotating circular ring and as the bulbs rotate, a flame from the side plays on the metal cap when the metal cap gets fixed to the tube light. Therefore, it is clear that the material, namely, capping cement helps in firmly joining the metal cap and the glass shell of the tube light together. The Tariff Heading 32.14 under Central Excise Tariff Act, 1985 is identically worded with the same heading in the Harmonised Commodity Description and Coding System. In such a situation, it will be reasonable to look to the Explanatory Note to the Heading in the HSN. It is stated therein that the products of this heading are preparations of widely differing composition which are essentially characterised by the uses to which they are put. It is further stated that these preparations are mainly used to stop, seal or chalk cracks and in certain cases, to bond or firmly join components together. They are distinguished from glues and other adhesives by which they are applied in thick coating or layers. In respect of resin cement, the Explanatory Note 32.14(1)(3) says that these consist of natural resins (shellac, damar, rosin) or plastics (alkyd resins, polyesters) intermixed and usually with the addition of other materials e.g. waxes, oils, bitumens, rubber, brick powder, lime, cements or any other mineral fillers. Therefore, the present material in question also is a pasty material which is applied to the metal cap and which binds the metal cap and the glass shell of the tube light firmly on heating. It is composed of several materials including resin and filler.
Therefore, in the light of the Explanatory Note to the HSN as above, its classification under Heading 32.14-CETA, 1985 would appear to be maintainable. It has been contended that the Chemical Examiner's report should not have been relied upon and that the report of the National Test House should have been accepted. However, the Collector in the impugned order dated 22-5-1987 has given his reasons for not accepting this contention by saying that the National Test House report submitted by the Company does not indicate the type and composition of the resin in the samples. It states that it cannot be extruded. This finding shows that it is other than thermo-plastic type of resin i.e. it is thermosetting type which is required for making capping cement. Phenolic resin is one of the thermosetting types of synthetic resin/plastics, and it is this resin which provides the essential characteristic of bonding property to the capping cement and that the report of the Deputy Chief Chemist clearly showed that the goods are composed essentially of phenolic resin. However, we also observe that marketability of the goods has to be established by evidence so as to hold that the goods are excisable. This has clearly been laid down by the Supreme Court in the case of Collector of C. Ex. v. Ambalal Sarabhai Enterprises -1989 (43) ELT 214 cited and relied upon by M/s. Electric Lamp Manufacturers to contend that capping cement has a short shelf life and is not capable of being brought to the market for being bought and sold, and as such capping cement is not goods. In the adjudication orders of the Collector and the Asstt. Collector, this contention has been rejected by observing that mere non-marketability of the goods cannot make them non-excisable. In the Ambalal Sarabhai case (supra), the Supreme Court had referred in para 4 to its earlier decision in the case of Bhor Industries v. Collector of i C. Ex. -1989 (40) ELT 280 (SC) to say, "Marketability, therefore is an essential ingredient in order to be dutiable under the Schedule to Central Excise Tariff Act, 1985....
The Court further reiterated that it was the duty of the Revenue to adduce evidence or proof that the articles in question were goods". Further, in para 5 of that judgment, the Supreme Court observed, "There was also an admission by the Superintendent of the appellant that no enquiry whatsoever was conducted by the department as to whether starch hydrolysate was ever marketed by anybody". The ratio of the Supreme Court judgment will apply to the present case and hence there is need for the department to adduce evidence that capping cement is marketed or is capable of being marketed. Only then the demand for duty thereon will be valid. We have found that no such exercise has been done even in the order dated 25-2-1988 passed by the Collector of Central Excise (Appeals) (against which the department has appealed to the Tribunal) it has merely been observed, "It is also agreed that the product has no marketability". No details of the basis of this agreement are available on record, whereas the Collector (Appeals) in his order dated 31-7-1989 upholding the order of the Assistant Collector (by which M/s. Electric Lamp Manufacturers are aggrieved) states, "I also agree with the Asstt. Collector's views that mere non-marketability of the goods cannot make them non-excisable". We also hold that there is no justification for imposing personal penalty on M/s. ELM in the facts and circumstances of the case especially as the Collector of Central Excise in his adjudication order had found that there was no ground to allege suppression of facts by M/s. ELM, and the personal penalty on them is set aside. Therefore, in order that the department should properly discharge the burden cast on it to support the classification of capping cement with evidence of marketability, the impugned orders in all these appeals passed by the Collector of Central Excise, Calcutta and by the Collector (Appeals) are set aside and case is remanded to the Collector of Central Excise, Calcutta-I (in respect of Show Cause Notice dated 27-8-1986) and to the Assistant Collector of Central Excise, Calcutta 'E' Division in respect of Show Cause Notices issued by the Assistant Collector for de novo adjudication for seeking to establish the aspect of marketability of capping cement by evidence (to be put to M/s. ELM) in accordance with law and after affording an opportunity of hearing to M/s. ELM in the matter who may also lead such evidence as they possess in the matter.
We may also mention that the remand order as above to two authorities has become a legal necessity as the appeals emanate from two sources of adjudication viz. one by the Assistant Collector through the Collector (Appeals), and the other by Collector directly appealable to the Tribunal. However, it is expected that the two authorities will conduct the proceedings in the de novo adjudication with some degree of coordination. We, however, find that there is no justification for imposing personal penalty on M/s. ELM in the facts and circumstances of the case, and especially in the light of the finding of the Collector of Central Excise, Calcutta that there was no ground for invoking the longer period for demanding the duty alleging suppression of facts by the assessee. In the circumstances, the penalty on M/s. Electric Lamp Manufacturers is set aside. The appeals are disposed of in the above terms.