Customs, Excise and Gold Tribunal - Delhi
Ambalal Sarabhai Enterprises (P) Ltd. vs Collector Of Central Excise on 2 November, 1987
Equivalent citations: 1988(15)ECC20, 1987(13)ECR1248(TRI.-DELHI), 1988(33)ELT117(TRI-DEL)
ORDER V.T. Raghavachari, Member (T)
1. The appellants M/s. Ambalal Sarabhai Enterprises Ltd. manufacture Sorbitol falling under Item 68 CET. Following a visit of the factory premises by the Central Excise officers on 26-2-1985, notice dated 22-4-1985 was issued to them. This was on the basis that the appellants manufacture, and captively consume, starch hydrolysate but had failed to take out a licence with reference to the said manufacture of starch hydrolysate and had been removing the same without payment of duty and without observing the necessary central excise formalities. The Department was of the view that the said starch hydrolysate was glucose and, therefore, fell under Item 1E CET which covered glucose in whatever form including liquid glucose. The appellants replied contending that starch hydrolysate was not "goods" since the same was not marketable and, therefore, no excise duty would be payable on the same. They further contended that the proposed adjudication by the Collector following the above said notice would be without jurisdiction in view of the words in Section 11A of the Central Excises and Salt Act. They contended that starch hydrolysate is not glucose and that even if the same was liable for duty it would not be under Item 1E. According to them this starch hydrolysate was an intermediate product in the manufacture of Sorbitol and no duty could be demanded on the same.
2. Adjudication proceedings followed in which affidavits were filed on behalf of the appellants, witnesses for the Department were cross examined and the Collector also cross-examined the witnesses for the appellants. Thereafter under his order dated 6-12-1985 the Collector of Central Excise, Baroda rejected the contentions of the appellants. He held that starch hydrolysate was glucose and fell under Item 1E CET and that the appellants had suppressed the fact of manufacture thereof for consumption in the further manufacture of Sorbitol. Accordingly, he called upon them to pay excise duty amounting to Rs. 34,92,559.55 paise and imposed a penalty of Rs. 10 lakhs. It is against the said order that the present appeal has been filed.
3. We have heard Shri K.S. Nanavati, Advocate assisted by Shri K.M. Mehta, Shri Rajan Malhotra and Mrs. Nisha Bagchi, Advocates for the appellants and Shri V.M. Doiphode for the Department.
4. It is not in dispute that starch is hydrolysed by appellants and that the resultant starch hydrolysate is then utilised for manufacture of Sorbi.tol. One of the main contentions raised for the appellants is that this starch hydrolysate is wholly unstable since it would quickly ferment and lose its character in a couple of days and the same could not, therefore, either be stored or marketed. Thus, according to them, the starch hydrolysate was not a marketable product and would not, therefore, be goods on the manufacture of which excise duty could be demanded. As was held by the Supreme Court in the case of South Bihar Sugar Mills Ltd. [AIR 1968 SC 922] excise duty could be demanded only on production of goods, the same being what can ordinarily come to the market to be bought and sold and is known to the market. It was held in the said decision that duty is payable on the manufacture of such goods, the manufacture consisting in application of a process resulting in emergence of a new and different article having a distinctive name, character or use. Thus the Supreme Court held that in order to demand excise duty there must be application of a process to the raw material the result of the application of the process being the emergence of a new and different article; the said new and different article having a distinctive name, character or use and the said resultant product being goods in the sense of being marketable or marketed. This principle has been reiterated by the Supreme Court in its recent judgment in the case of Union Carbide India Ltd. v. Union of India and Ors., 1986 (24) ELT 169 (SC). In the present case the raw material is starch, the process applied is hydrolysis and the resultant product is starch hydrolysate. But the question is whether the resultant starch hydrolysate, though it may have a new name, character or use, would still be goods in the sense that it was marketable, whether actually marketed or not. The case for the appellants has throughout been that starch hydrolysate has never been marketed since it cannot be marketed in view of its highly unstable character resulting in fermentation even if kept for a day or two.
5. Shri Nanavati points out that in spite of such a specific plea having been taken no evidence has been produced by the Department that the said starch hydrolysate was ever marketed. As pointed out by him the witness, for the Department (Shri R.C. Shukla, Superintendent) had been specifically cross-examined on this aspect. Shri Shukla had admitted that he did not make any market enquiry as to whether starch hydrolysate was ever marketed by anybody and had not also enquired whether it was marketable. Shri Khandor had stated in his affidavit (in support of the case of the appellants) in paragraph 14 that starch which is completely hydrolysed would start fermenting and decomposing and at higher concentration it would start crystalizing out within two or three days. Thus while there is positive evidence on the side of the appellants that starch hydrolysate would not be marketable (as it is highly unstable) and is not marketed by anybody, the admission of the Superintendent establishes that no enquiry whatever was conducted for the Department as to whether starch hydrolysate was ever marketed by anybody. It is pointed out for the department that even according to the appellants they store starch hydrolysate in tanks before transporting it through pipes to the Sorbitol Plant. But according to the appellants this storage of starch hydrolysate was only for a period of few hours and was only as a step in the process of transfer thereof for the manufacture of Sorbitol.
6. Further, as pointed out by Shri Nanavati, if the Department is to charge duty on this starch hydrolysate as one form of glucose it would be the burden on the Department to establish that starch hydrolysate was not merely marketable but was being marketed as glucose in some form. This would be so since what is liable for duty under Item 1E is glucose in any form and, therefore, in order to demand duty under that Section the Department must establish that the product on which duty was being demanded was known to the market as glucose in one of its forms. As already stated, there is no such evidence since the Department has failed to produce any evidence whatever of the said product (starch hydrolysate) being marketed by anybody at any time, leave alone it being marketed as a form of glucose.
7. It is, therefore, clear that on the materials available the Department cannot be said to have discharged its burden of establishing that by applying the process of hydrolysis to starch for production of starch hydrolysate the appellants manufacture any excisable goods in the sense of goods known in the market and being marketed. In his order the Collector has observed that the product is known in the food industry as glucose syrup. He has quoted two passages from two text books in paragraph 27 of his order which mention that glucose syrup remains clear and fluid under normal storage conditions and that glucose syrups are available commercially for various purposes. The question would, therefore, be whether the Collector is correct in his conclusion that the product in issue (called starch hydrolysate by the appellants) is the same as the glucose syrup discussed in the extracts cited in paragraph 27 of the order of the Collector.
8. Shri Nanavati submits that the Collector was not correct in equating the product "glucose syrup" discussed in paragraph 27 of his orders with the product in issue i.e. starch hydrolysate. For this he relies on the affidavits of Shri Parekh and Shri Khandor and a comparative chart prepared and filed beofre us (based on these affidavits) regarding the properties of these products. We have attached a copy of that comparative chart as an annexure to this order. That chart establishes that the glucose syrup (referred to in para 27 of the Collector's order) is materially different from the starch hydrolysate in issue before us. Hence, we are of opinion that reliance on the part of the Collector on the extracts in para 27 of his order was not correct, it was not proper to conclude (on the basis of the above extracts) that the starch hydrolysate of the appellants is a stable product and could, therefore, be marketed.
9. It is nobody's case that the subject goods are dextrose, mono-hydrate or anhydrous dextrose. The question, therefore, would be whether it is "glucose in whatever form including liquid glucose". According to the affidavits of Dr. Parekh, Prof, of Biochemistry, M.S. University of Baroda and Shri Khandor, a Food Technologist, as also evidenced by the technical literature on record, dextrose (synonymous with glucose) exists ¦n three forms; Alpha monohydrate, Alpha anhydrous, and beta forms. The melting points of these three forms are 80-85°C, 146°C. and 148°C. Evidently, at room temperatures, these three forms are solids. The present goods, being a viscous liquid, are not, therefore, any of the three forms of dextrose described above. The only question, therefore, to be considered is whether it is liquid glucose. Dr. Parekh in his affidavit has brought out the difference in characteristics between liquid glucose and starch hydrolysate of the appellants, the more striking differences being :
Liquid Glucose Starch Hydrolvsate % Dissolved solids 91.5 64.0 38.6 61.2 % Total reducing sugars expressed as dextrose % Total dextrose 30.9 56.7 Total dextrins 47.5 Nil Specific Rotation 128.6° + 65.0°
10. It has, therefore, been concluded by Dr. Parekh that starch hydrolysate of the appellants cannot be called commercial liquid glucose. The Chief Chemist's report shows that the sample tested was a light brown aqueous syrupy liquid consisting of 71.1% of reducing sugars expressed as dextrose by weight and that the sample was free from starch. Now, according to para 4.4 of the Indian Standards Specification IS 873-1974, the minimum requirement of total solids by mass is laid down as 80% for all grades of liquid glucose. In starch hydrolysate, as noted earlier, the percentage of dissolved solids present is 64.0. Thus the criterion laid down in the 1S Specification for liquid glucose (or glucose syrup -the two terms are being used synonymously by the Indian Standard Institution) is not satisfied. Further, the 1S Specification defines liquid glucose or glucose syrup as "a refined and concentrated non-crystallizable aqueous solution of d-glucose, maltose and other polymers of d-glucose, obtained by controlled hydrolysis of starch containing material". The United States Pharmacopeia XIX describes liquid glucose as a product obtained by the incomplete hydrolysis of starch, consisting chiefly of dextrose, dextrins, maltose and water. The case of the appellants is that their starch hydro-lysate is not the same thing as liquid glucose or glucose syrup. Some striking differences are noticeable. First, the appellants' product is stated to be the product of complete hydrolysis of starch, not partial hydrolysis as is the case with liquid glucose. Secondly, the subject produce does not contain dextrins whereas, according to U.S. Pharmacopeia and the "Condensed Chemical Dictionary" by Gessner G. Hawley, liquid glucose or glucose syrup contains dextrins. (In para 22 of his order, the Collector has also recorded that the goods are the product of complete hydrolysation (SIC) and contains no dextrin). In the circumstances, it cannot be said that the appellants' product is the same thing as liquid glucose or glucose syrup. The Collector describes the goods as being prima facie a concentrated solution of glucose containing 71.2% of glucose, as reported by the Chief Chemist. The Collector is not correct in his observations. He seems to have misread the Chief Chemist's report. What the report says is that the sample consisted of 71.1% of reducing sugars expressed as dextrose by weight, and not that the sample consisted of 71.1% of dextrose by weight. Be that as it may, the Collector concludes that the product being a solution of glucose in a substantial strength is covered by the Tariff Entry "Glucose in whatever form including liquid glucose". This is to say, glucose in the form of solution. But, as we have noted, glucose is known to exist in three forms: alpha monohydrate, alpha anhydrous and beta forms. These are solids at room temperature. The Tariff does not in terms recognise glucose in solution but liquid glucose. We have already seen that the subject product cannot be described as liquid glucose.
11. The learned Sr. D.R. has relied on certain passages from Kirk Othmer's "Encyclopaedia of Chemical Technology" which states that in solution, dextrose exists in the alpha and beta forms. This only means (as explained in the book) that when dextrose dissolves in water, its optical rotation diminishes gradually as a result of mutarotation until, after a prolonged time, an equilibrium value is reached. At this point, 62 % of the dextrose exists in the beta form. This is no evidence of the department's stand that the subject product is glucose in solution form as known to the market.
12.We, therefore, hold that the starch hydrolysate manufactured by the appellants is not, and never was, a marketable commodity, and hence, would not be goods on which excise duty could be charged. In this view, it is unnecessary to consider the other submissions raised on both sides.
13. The appeal is accordingly allowed and the order of the Collector is set aside.