Customs, Excise and Gold Tribunal - Mumbai
Gas Authority Of India Ltd. vs Commissioner Of Central Excise, Mumbai ... on 6 August, 2001
ORDER
J.H. Joglekar, Mumbai (T)
1. These two appeals have the same set of facts. The appellants are the same. These are being disposed of together by this common order.
2. The Gas Authority of India Ltd. (GAIL in short) are Public Sector Undertaking who have secured appropriate clearance from the Committee of Secretaries. GAIL purchased natural gas from ONGC. The natural gas is petroleum in gaseous form consisting predominately of hydrocarbon gases including propane and butane. GAIL separates from the natural gas propane and butane which put together become liquefied gas (LPG). The leftover gas is turned as lean gas. One of the first steps in the process was the passing of the natural gas through molecular sieves. Molecular sieves are microsporous structure composed of crystalline aluminosilicates or crystalline aluminophosphates. Sieves separate smaller molecules from larger molecules. Since they are capable of removing water molecules, such sieves are used for drying of gas. The appellant took credit of the duty paid on such sieves and utilised it for payment of duty on the final product ie, LPG. Lean gas was exempted from payment of duty under Notification No. 5/98.
3. A show cause notice was issued on 24.3.1999 by the Directorate General of Anti-Evasion to GAIL Vaghodia plant answerable to Commissioner (Adjudication), Mumbai. The allegation made in the show cause notice was that in terms of Rule 57CC, an amount of Rs. 18,38,00,262/- was liable to be confirmed being 8% of the sale price of the lean gas. Extended period was invoked claiming suppressio etc. The case was adjudicated by the Commissioner. He held that lean gas was a manufactured product different from the input natural gas. In doing so, she relied upon the Tribunal judgment reproduced in 1989(42) ELT 420. She denied the contention that molecular sieves are used for manufacture of LPG and not for lean gas. She also denied the benefit of Rule 57D. She held that lean gas was not a waste, refuse or by-product. She did not accept the invocation of extended period but confined herself to confirm the demand of duty of Rs. 8,91,25,602/-. In doing so, she referred to an earlier order passed by the Asstt. Commissioner, Gwalior giving the benefit of Rule 57D and held that no penalty was leviable on them.
4. Another show cause notice was issued by Superintendent of Cental Excise, Alibag Range on 1.4.1999 making similar allegations but confirming the demand to a period of six months. The Asstt. Commissioner held that lean gas also a final product and denied the benefit of Rule 57D confirming the demand of Rs. 6,46,39,470.74 and imposing penalty of Rs. One lakh on the assessee. The assessee then filed an appeal. The Commissioner (Appeals) referred to the Tribunal's earlier cited order holding that lean gas was "a final product". He denied the benefit of Rule 57D and upheld the lower order. Hence, the appeal.
5. Heard Shri V. Sridharan, advocate appearing along with Shri Nambirajan, advocate for the appellants and Shri R.K. Pardeshi, DR for the Revenue.
6. When a manufacturer sets out to create a product out of certain raw materials, he not only creates the product but also creates other goods which are refuse, waste or by-product. The classification of goods into final products, by-products, waste and refuse is mainly on commercial consideration and the plan of manufacture. The scheme of modvat credit acknowledges this. Rule 57D provides as follows:-
"Credit of duty not to be denied or varied in certain circumstances.- (1) Credit of specified duty shall not be denied or varied on the ground that part of the inputs is contained in any waste, refuse, or by-product arising during the manufacture of the final product, or that the inputs have become waste during the course of manufacture of the final product, whether or not such waste or refuse or by-product is exempt from the whole of the duty of exercise leviable thereon or chargeable to nil rate of duty or is not specified as a final product under rule 57A."
7. In both sets of proceedings, considerable space has been taken in proving that lean gas is a manufactured product. This is not denied by the appellants at all. The limited issue for consideration is whether it is the intended main product or it is the by-product. By-products are defined in the Chambers Dictionary as a product created incidentally in the process of making something else. Webster's Comprehensive Dictionary 96th Edition defines a by-product as any material or product contingent upon or incidental to a manufacturing process. An example given is of bagasse is a by-product in the making of cane sugar.
8. Shri Sridharan showed us the registration certificate given by the Central Excise Authorities, Vadodara to the appellants where LPG is shown as the main product and lean gas is shown as the by-product. The show cause notice issued by the Supdt. of Central Excise, in paragraph 3 says the following:
"However, it is found that Lean Gas, is a by-product after de manufacturing process of Natural gas to extract L.P.G."
Thus both the authorities involved in these appeal proceedings had certified in the initial stage that lean gas was a by-product of processing of natural gas. Shri Sridharan showed us a feasibility report of Vaghodia plant made in July, 1990 by M/s. Engineers India Ltd. In paragraph 3.1.8 of the project description LPG is shown as the product and lean gas as the by-product. Shri Sridharan tried to impress upon the Bench that the project report was formed much earlier than the commencement of the manufacturing process. He also showed us the valuation aspect. Whereas LPG was priced at Rs. 19.80 per 1000 SCM, lean gas commanded price of Rs. 3225.12 per SCM.
9. In the light of the admission made by both the authorities that lean gas is a by-product, it is not known why the adjudicating authority and the appellate authority consistently persisted in denying the very contention of the appellants.
10. In the cited judgment of the Tribunal in the case of Arti Drugs Ltd. vs. CCE [21001 (45) RLT 213], the appellants were manufacturing methyl nitro imidazole. In the manufacture thereof, a by-product viz. ammonium sulphate in impure form emerged which was cleared without payment of duty. The demand in terms of Rule 57CC was made on the ground that the ammonium sulphate was marketable. On this ground benefit of Rule 57D was denied. The Tribunal's findings were in favour of the assessee. The Tribunal held that dutiability of the by-product was not the issue but the issue was whether the product viz. ammonium sulphate was a by-product. The Tribunal found the answer in the affirmative, held that the benefit of Rule 57D was entitled and the demand in terms of Rule 57CC was set aside. We find that on identical facts, the ratio of this judgment will apply to the present proceedings.
11. On this ground, the appeals are allowed with consequential relief, as per law.
(Dictated in Court)