Customs, Excise and Gold Tribunal - Delhi
I.D.L. Chemicals Ltd. vs Collector Of Central Excise on 29 June, 1993
Equivalent citations: 1993(68)ELT589(TRI-DEL)
ORDER P.K. Kapoor, Member (T)
1. The appellants are engaged in the manufacture of explosives falling under Tariff Item 68 of the erstwhile Central Excise Tariff. They were procuring Ammonium Nitrate melt required for the manufacture of explosive from the steel plant of M/s. SAIL at Rourkela on payment of duty. On the duty paid Ammonium Nitrate melt received by them they were availing proforma credit under Rule 56A. The RT-12 returns filed by the appellants showed that during the period November, 1982 to May, 1985 out of a quantity of 1098.710 MTs of Ammonium Nitrate Flakes manufactured out of Ammonium Nitrate melt, the appellants had dispatched 457.100 MTs of Ammonium Nitrate Flakes after payment of duty to their factory at Hyderabad. Since the remaining quantity of Ammonium Nitrate Flakes was neither shown in the RG-1 nor reflected in RT-12 returns filed by the appellants, the Department felt that 641.610 MTs of Ammonium Nitrate Flakes had been clandestinely removed without payment of duty. The appellants were, therefore, served with a show cause notice dated 19-11-1987 alleging that they had evaded duty amounting to Rs. 2,22,089.72 on 641.610 MTs of Ammonium Nitrate Flakes valued at Rs. 23,99,541.75 during the period from November, 1982 to May, 1985 without properly accounting for the goods. They were, therefore, asked to show cause as to why duty should not be recovered on the goods in question, under Rule 9(2) read with Section 11A of the Central Excises and Salt Act, 1944 and why penalty should not be imposed on them.
2. The appellants denied the allegations in the show cause notice. They contended that conversion of Ammonium Nitrate Melt into Flakes did not amount to manufacture and in any case the disputed quantity of 641.610 MTs of Ammonium Nitrate Flakes had to be deemed as exempted from duty in terms of Notification No. 118/75 since the same had been used captively for the manufacture of explosives. They claimed that the goods had not been entered in RG-1 since they were under the impression that goods which were exempted under Notification No. 118/75 were not required to be accounted in RG-1. They denied that there was any suppression and claimed that the entire quantity of Ammonium Nitrate melt received was received in the manufacture of Ammonium Nitrate Flakes and the final product was fully accounted for in their private records which were in the custody of the Department. They further contended that the classification list showing consumption of Ammonium Nitrate in their factory in terms of Notification No. 118/75 having been approved and their factory being under 'Physical Control' there could be no allegation of suppression and accordingly the demand issued beyond the normal period of limitation was time barred. However, the Collector rejected all the submissions made by the appellants and held that 641.610 MTs of Ammonium Nitrate Flakes had been cleared by the appellants clandestinely and confirmed the demand for duty amounting to Rs. 2,22,089.72 under Rule 9(2) of the Central Excise Rules, 1944 read with Section 11A of the Central Excise and Salt Act, 1944. He also imposed a penalty of Rs. 1,00,000/- on the appellants and Rule 173Q of the Central Excise Rules, 1944.
3. On behalf of the appellants the learned advocate Shri S.N. Sinha Mahapatra appeared before us. He stated that since 1984 the appellants had been receiving duty paid Ammonium Nitrate Melt from the Steel Plants of SAIL at Rourkela for conversion in Ammonium Nitrate Flakes. He contended that the conversion of Melt in Flakes does not result in Ammonium Nitrate being converted into a new product since the process involves only removal of moisture. He stated that under these circumstances the product 'Ammonium Nitrate Flakes' was not dutiable. He, however, admitted that a part of the total production of Ammonium Nitrate Flakes in the appellants factory was being sent after payment of duty to their plant in Hyderabad. He added that the remaining part of the production of Ammonium Nitrate was utilized captively in their plant at Rourkela for their production of explosives. He contended that in terms of Notification No. 118/75 no duty was attracted on such goods utilized in their factory. He pointed out that the fact that the appellants were using their entire production of 'Ammonium Nitrate Flakes' for captive consumption in their own factories at Rourkela and Hyderabad was known to the Department. He added that since their factory under Physical Control there could be no allegation of any clandestine removal. He stated that the fact that they were not entering in RG-1 and RT-12 the quantity of Ammonium Nitrate Flakes used captively in their factory in terms of Notification No. 118/75 was known to the Department. He claimed that the entire quantity of such goods were accounted for in the appellants own records which had not been referred to by the Collector even though the appellants had repeatedly requested that they should be permitted to account for the disputed goods with reference to their own records. He stated that the goods were declared as exempted in terms of Notification No. 118/75 in the classification lists filed from time to time which were duly approved. He stated that the case against the appellants had been made by the Department entirely on the basis of certain figures in the appellants' private records but they had deliberately chosen not to refer to the figures in these records relating to the quantity of the disputed goods used for captive consumption. He contended that the demand confirmed by invoking the extended period had to be held as time barred since their factory was under 'Physical Control' and the accounting procedures followed by them were known to the Department for a number of years. He stated that similar proceedings initiated by the Department in 1984 were dropped and since then the appellants' private records were being considered as sufficient by the Department. On these grounds he pleaded that the impugned order may be set aside.
4. On behalf of the respondents the learned SDR Smt. Ananya ray stated that the appellants contention that conversion of 'Ammonium Nitrate Melt' into Ammonium Nitrate Flake' does not constitute manufacture within the meaning of Section 2(f) of the Act has to be rejected since the appellants had been paying duty on such goods cleared at Rourkela for being sent to their Hyderabad unit. She added that it was an admitted fact that in respect of the goods in question which were dutiable the appellants had failed to maintain RG-1 and other statutory records. She argued that under these circumstances the Collector's findings in regard to suppression and clandestine removal of unaccounted goods are sustainable. She pleaded for the rejection of the appeal.
5. We have examined the records of the case and considered the submission made on behalf of both sides. It is seen that the following are the points which have been raised by the appellants:
(i) The demand for duty on Ammonium Nitrate Flakes confirmed by the Collector was not sustainable since conversion of Ammonium Nitrate Melt into Flakes does not amount to manufacture within the meaning of Section 2(f) of Central Excises and Salt Act, 1944.
(ii) The confirmation of the demand by invoking the extended period on the ground of suppression and clandestine removal was illegal since the appellants' factory was under physical control and the goods in question were declared as exempted in terms of Notification No. 118/75 in the classification lists which were duly approved and also for the reason that the Ammonium Nitrate Flakes consumed captively were fully accounted for in the appellants' private records.
6. It is an admitted fact that a part of the Ammonium Nitrate Flakes produced out of the Ammonium Nitrate melt received from M/s. SAIL Ltd. was being cleared by the appellants on payment of duty for being sent to their Hyderabad unit. It is seen that duty was being paid by the appellants on Ammonium Nitrate Flakes cleared for being despatched to their Hyderabad unit in terms of the classification lists approved by the Department from time to time. In respect of Ammonium Nitrate melt received from M/s. SAIL the appellants were observing the procedure under Rule 56A. The final product namely Ammonium Nitrate Flakes emerging after processing of the Melt in the appellants' factory undeniably had different physical characteristics and commercial name. Under these circumstances we are inclined to agree with the Collector's finding that conversion of Ammonium Nitrate Melt into Ammonium Nitrate Flakes amounts to manufacture within the meaning of Section 2(f) of the Central Excises and Salt Act, 1944.
7. The second point to be examined is whether the extended period by the Collector for confirmation of the demand is sustainable. In this regard we find from the copy of the approved classification list effective from 1-3-1982 at page 42 of the paper book and also from the copies of the other classification lists at pages 47 and 50 of the paper book, that the appellants had been declaring Ammonium Nitrate Flakes meant for captive consumption as exempted under Notification No. 118/75. While denying the charge of clandestine removal the appellants have contended that the disputed quantity of 641.610 MTs of Ammonium Nitrate Flakes was used captively. They have also claimed that they had failed to include the quantity of Ammonium Nitrate Flakes meant for captive use in the RG-1 and RT-12 on account of the bona fide belief that goods which were exempted from duty in terms of Notification No. 118/75 and fully accounted for in their private records were not required to be entered in RG-1 and RT-12. The appellants have also stated that the case against them was made by the Department on the basis of the figures of total production of Ammonium Nitrate Flakes and the quantity of such goods despatched to their Hyderabad factory available in their private records but the adjudicating authority had not cared to refer to these records which were in his custody to verify the appellants' claim that the disposed quantity of 641.610 MTs of Ammonium Nitrate was also fully accounted for in these records as having been utilized captively.
8. In view of the above discussion and having regard to the appellants' claim that the quantity of Ammonium Nitrate Flakes used captively in terms of Notification No. 118/75 was not being entered in RG-1 and RT-12 on account of the detailed accounting of the entire production of Ammonium Nitrate Flakes in their private accounts, in the interest of justice we remand the matter to the adjudicating authority for de novo adjudication, in accordance with law. We direct that while re-adjudicating the case the appellants should be granted personal hearing and full opportunity to account for the disputed quantity of the goods with reference to their private records.
9. The appeal is, therefore, allowed by way of remand.