Customs, Excise and Gold Tribunal - Delhi
Pattani Chemicals vs Collector Of Central Excise on 30 November, 1990
Equivalent citations: 1991ECR47(TRI.-DELHI), 1991(56)ELT253(TRI-DEL)
ORDER N.K. Bajpai, Member (T)
1. The question for consideration in this appeal is whether the goods manufactured by the appellants in their factory at Porbandar and described as 'Plaster of lime' should be classified as Ordinary Portland Cement liable to payment of duty under Item 23 of the erstwhile Central Excise Tariff. The appellants have been manufacturing these goods from 1979 onwards and have been availing full exemption under Tariff Item 68. They have also been filing their declaration every year from 1984 onwards. »
2. During preventive check on 25-4-1986 on the suspicion that they were manufacturing cement, a sample was drawn and sent to Chemical Examiner, Kandla for test. Certain documents were also seized and investigation was initiated. A show cause notice was issued on 5-1-1987 by the Collector demanding a duty of Rs. 6,57,509.25 on 3,486.45 mts. tons of goods manufactured and removed during the period from 8-1-1982 to 31-3-1986.
3. In his report dated 17-6-1986, the Chemical Examiner had opined as under:
"The sample is in the form of fine grey powder. It is Ordinary Portland Cement"
4. Not being satisfied with this report, the appellants requested for re-test by the Chief Chemist. Even before the report of the Chief Chemist was received, the show cause notice was issued. The main allegations in the show cause notice were that the price of the appellant's product was almost equal to the price of cement and the appellants were competing with other producers of cement; that their product was described as 'Sagol' "Super Grade Sagol' 'PCC Brand Sagol' 'PCC Grade Hydrolic Cement' etc. instead of 'Plaster of Lime' which is declared by them to the Central Excise Department. The further allegation was that the appellants had, in their declaration submitted to the Central Excise Authorities, mentioned the product as 'Plaster of Lime' suppressing the real fact with mala fide intention to evade the payment of Excise duty. While 'Plaster of Lime' was classifiable under Tariff Item 68 prior to 1-4-1986, 'Sagol' and 'Hydrolic Cement' were classifiable under Tariff Item 23 as cement.
5. The findings of the Chief Chemist as communicated to the appellants on 25-9-1987 were as under :-
"The sample is a grey coloured fine powder having hydraulic setting property. It conforms to the Chemical requirements for Ordinary Portland Cement as given in I.S. 269 -1975 entitled specification for ordinary and low heat portland cement but fails to meet the specification for loss on ignition which is not more than 5% as per I.S. 269 - 1975 while that obtained on the sample is 9.3%"
(Emphasis supplied).
6. A sample of the goods was also sent for test to the National Test House, Calcutta, who in their report dated 8-3-1989, reported as under:
"The sample has been tested as per specification No. IS-4032 - 1968 for method of Chemical Analysis of Hydraulic Cement representing Ordinary Portland Cement to specification No. I.S. 269 -1976 with the results noted below:
Results of Chemical Analysis
i) Description Grey fine powder % by mass
ii) Lime (as CaO) 58.45
iii) Soluble silica (as Sio2) 15.30
iv) Alumina (as A1203) 6.78
v) Iron Oxide (as Fe203) 3.39
vi) Magnesia (as MgO) 1.25
vii) Loss on ignition 9.96 (as against the specified max of 5.0)
viii) Sulphuric anhydride (as SO3) 2.44
ix) Insoluble residue 2.22
x) Ratio of percentage of Lime to percentage 1.07 of silica, alumina and iron oxide. (as against the specified max. of 1.02)
xi) Rate of percentage of alumina to that of 2.00 iron oxide.
REMARKS: In respect of chemical tests carried out the sample fails to meet the requirements of the above noted specification due to devia-
Son in respect of Loss on ignition, and Ratio of percentage of time to percentage of silica, alumina and iron oxide vide test Item Nos. (vii) and (x) reported above.
(Emphasis supplied).
7. After considering the reply of the appellants and their submissions during the hearing, the Collector passed an order confirming the demand of duty under Rule 9(2) on the ground that 3486.450MT of cement had been clandestinely removed without payment of duty during the period 8-1-1982 to 31-3-1986. He also imposed a penalty of Rs. 1.50 lacs on the appellants under Rule 173Q considering the magnitude of the evasion and the suppression of facts involved.
8. The main points urged in the appeal as well as during the arguments by Shri B.B. Gujral, the learned counsel for the appellants, are as under :
(a) Even If it is assumed that 'Plaster of Lime' which is also known as 'Sagol' fell under Item 23, the product is completely exempt from duty under Notifn. 5/70-C.E., dated 31-1-1970.
(b) The sale bills issued by the appellant during 1982 to 1986 clearly show that the description of goods therein was Plaster of Lime, Pozzolanic lime, FCC Hydraulic Cement, Sagol etc. which are all exempt from payment of duty. These bills did not show that Ordinary Portland Cement was delivered to any Customer.
(c) One grinding mill, one crusher and one pulverising machine are installed in the appellants' factory for the manufacture of their product 'Plaster of Lime'. These machines cannot manufacture Ordinary Portland Cement falling under Tariff Item 23 which has to fulfil the specifications of ISI-269 -1976 as indicated in MF(DR) Letter F. No. 1/5/70-CX. 4, dated 20-8-1970.
(d) The goods in question did not conform to the prescribed ISI specifications so far as loss on ignition, and ratio of percentage of lime to percentage of silica, alumina and iron oxide is concerned.
(e) That the Chemical Examiner's findings were not conclusive and the department should have waited till the result of test by the Chief Chemist became available;
(f) That at best the result of test could only be used prospectively and no demands for the past period on the basis of the result of a sample drawn on 25-4-1986 could be raised on the presumption that what was manufactured in the past was Ordinary Portland Cement;
(g) That the hydraulic testing and compressive strength of the goods in question had not been tested at all;
(h) That the rejection by the Collector of the defence arguments that the goods must conform to the ISI specifications is not justified.
9. Shri Gujral placed reliance on the following decisions for the purpose of his contention that the Chemical report has only prospective application.
(a) Kiran Spinning Bombay v. Collector of Central Excise, Bombay -1988 (33) ELT 137.
(b) Standard Woollen Mills v. CCE, Chandigarh -1987 (28) ELT 417.
(c) In Re: Howrah Enterprises, Howrah order by CBEC -1982 (10) ELT 420.
(d) In Re: National Textile Corporation -1982 (10) ELT 639 (GOI)
(e) In Re: Aggarwal Mills Works, Rewari 1982 (10) ELT 689 (GOI)
10. About the relevance of ISI specifications, Shri Gujral placed reliance on the following judgments:
(a) Collector of Central Excise, Kanpur v. Krishna Carbon Paper Co. - 1988 (37) ELT 480 (SC)
(b) A.V. Jains v. Union of India and Ors. - 1987 (29) ELT 872 (BOM)
11. On the question of interpretation of Tariff Schedule and the requirement of construing not in the scientific or technical sense but as commodities are understood in commercial parlance, Shri Gujral placed reliance on Purbachal International and Anr. - 1985 (21) ELT 673 (Cal)
12. Summing up Shri Gujral stated that when the nature of goods is examined in the light of test results of the Chief Chemist and the National Test House, it would be clear that the goods in question were not Ordinary Portland Cement but 'Sagol' or 'Plaster of Lime' which were exempt from duty. Moreover, since no demand could be raised for the past period, on the basis of test conducted in 1986, the demand was illegal ab initio.
13. Shri L. Narasimha Murthy, the learned JDR contested Shri Gujral's claim about the retrospective applicability of the test report and stated that if it can be proved that the period is the same and there is no big variation, the test report would apply. He also stated that the appellants had not fully declared their manufacturing process and the goods were variously described. Shri Murthy suggested that the matter may be remanded back to the Collector for fresh adjudication. He also claimed that the ISI specifications could not be made the criteria for determining whether the goods were cement or otherwise.
14. We have carefully considered the arguments of both sides. In order to fall under Tariff Item 23, the goods had to conform to the description mentioned in the item. There is an ISI specification to which they have to conform in order to be bought and sold as Portland Cement. The appellants have referred to Ministry of Finance letter F.No. 1/5/70-CX. 4, dt. 20-8-1970 in the appeal to contend that Ordinary Portland Cement had to conform to ISI 269-1976. This letter as reproduced in Cen Cus Central Excise Tariff (1985-86) at page 11/443 is as under:
"Cement - Differences in characteristics of Sagol and Ordinary Portland Cement. The Board is advised that the specification for Ordinary Portland Cement is available in the Indian Standards Specifications IS-269-1967 and that the characteristics of 'Sagol' especially the compressive strength at the end of 168 hours is far too below the minimum laid down for Ordinary Portland Cement in IS269-1967. In the circumstances, the exemption to Sagol is not applicable to Ordinary Portland Cement"
15. There is no doubt from the report of the Chief Chemist as well as that of the National Test House that the goods under dispute did not, on re-test, comply with the requirements of the ISI specifications in respect of important qualities like ignition loss and ratio of percentage of lime to silica. Hydraulic testing and compressive strength were not tested. It also appears from the letter of the Ministry of Finance itself that the compressive strength of 'Sagol' was far below the minimum laid down for Ordinary Portland Cement in the ISI specification. The appellants have drawn conclusions from the Ministry's letter that Ordinary Portland had to conform to the ISI specification in order to fall under Tariff Item 23. They have also placed reliance on Krishna Carbon Company's case in support of the view that Ordinary Portland Cement had to conform to ISI specification. For a commodity like cement qualities like compressive strength are important and there is no conclusive finding that the goods in question were subjected to test and found to conform to the prescribed standard. The fact that the goods were differently described in different documents cannot be interpreted to mean that they were Ordinary Portland Cement.
16. We agree with Shri Gujral on the basis of the authorities cited by him that the result of test could have only prospective application. No presumption can be made on this point.
17. No allegation of suppression or mala fides was made in the show cause notice and the Collector could not therefore have recorded a finding to that effect. Since the tests do not establish that the goods in question were Ordinary Portland Cement, the basic charge itself fails. The appeal is allowed and the order of the Collector is set aside.
The operative portion of the order was pronounced in the open Court.