Custom, Excise & Service Tax Tribunal
Commissioner Of Central Excise, ... vs M/S. Kesoram Rayon on 5 June, 2014
CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL
EAST ZONAL BENCH: KOLKATA
EXCISE APPEAL NO.E/A/600/2007
(ARISING OUT OF ORDER-IN-ORIGINAL NO.122-136/COMMISSIONER/CE/KOL-IV/2007 DATED 22.08.2007 PASSED BY COMMISSIONER OF CENTRAL EXCISE, KOLKATA-IV)
FOR APPROVAL AND SIGNATURES OF
DR. D.M.MISRA, HONBLE JUDICIAL MEMBER
DR. I.P.LAL, HONBLE TECHNICAL MEMBER
1. Whether Press Reporters may be allowed to see :
the Order for publication as per Rule 27 of the
CESTAT (Procedure) Rules, 1982?
2. Whether it should be released under Rule 27 of the :
CESTAT (Procedure) Rules, 1982 for publication
in any authoritative report or not ?
3. Whether Their Lordships wish to see the fair copy :
of the Order?
4. Whether Order is to be circulated to the Departmental :
Authorities?
COMMISSIONER OF CENTRAL EXCISE, KOLKATA-IV
APPELLANT COMMISSIONER
VERSUS
M/S. KESORAM RAYON
(A DIVISION OF KESORAM INDUSTRIES LTD.)
...RESPONDENT (S)
APPEARANCE:
SHRI S.MISRA, A.R.(Addl. Commr.) FOR THE REVENUE.
DR. SAMIR CHARKABORTY, ADVOCATE FOR THE RESPONDENT(S);
CORAM:
DR. D.M.MISRA, HONBLE JUDICIAL MEMBER DR. I.P.LAL, HONBLE TECHNICAL MEMBER Date of Hearing & Decision: 05.06.2014 ORDER NOFO/A/75450/2014 Per Dr. D.M.Misra:
This is an Appeal filed by the Revenue against the Order-in-Original No. 122-136/Commissioner/CE/KOL-IV/2007 dated 22.08.2007.
2. Briefly stated the facts of the case are that the Respondent are engaged in the manufacture of Viscose Rayon Filament Yarn falling under Chapter Sub-Heading 5403.32, Cellophane Films falling under Chapter Sub-Heading 3920.21, Surphuric Acid falling under Chapter Sub-Heading 2807.00 of Central Excise Tariff Act, 1985. Around fifteen periodical show cause notices were issued to the Respondent for the period from 01.08.1998 to 31.01.2006, alleging non-payment of Central Excise Duty on the Sulphuric Acid consumed captively, and also cleared without payment of duty against exemption Notification No.06/2002-CE dated 01.03.2002.The ld. Commissioner, after detailed discussion of the manufacturing process and the stage at which Sulphuric Acid emerges and its further utilization in the manufacture of Sulpuric Acid, concluded that the demand is not sustainable, as the Sulphuric Acid in the Circulation Tank, is not exigible to duty being not excisable goods and consequently dropped the demands. Aggrieved by the said Order, the Revenue is in appeal.
3. Assailing the Order-in-Original, the Department has contended in their Grounds of Appeal, that Sulphuric Acid (98% to 99% purity) which comes into existence in the Circulation Tank, was consumed by the Respondent, in the manufacture of finished goods i.e., Sulphuric Acid, which is later stored in the storage tank and removed within the factory for further manufacture of their dutiable finished goods and also cleared without payment of duty, availing exemption under Notification No.6/2002-CE dated 01.03.2002 to Fertilizer Units, following Chapter-X Procedure. It is their contention that since such goods (Sulphuric Acid) are known by a specific name and its removal thereof, i.e. a part being cleared for specific purposes, being undisputed, therefore, Sulphuric Acid obtained at an intermediate stage, cannot be held to be non-excisable. Further, it was contended that the mere fact that the goods are not marketed, does not mean that the same are not excisable goods. In support, they have referred to the judgment of the Honble Supreme Court in Andhra Pradesh State Electricity Board vs. Collector, 1994(70)ELT 3(SC). It is also argued that in the present case, since the goods with a specific name having specific property, characteristics, come into existence, and is capable of being sold; therefore, the said intermediate product ought to be held as excisable goods under Central Excise Act, 1944.
4. Advancing the case of the Revenue, the ld. AR for the Department submits that Sulphuric Acid (98% to 99% purity) in the Circulation Tank is capable of being marketed and hence ought to be considered as excisable goods, and consequently, is liable to excise duty when cleared out of factory without payment of duty, availing benefit of exemption either under Notification No.5/99-CE dated 28.02.99 or under Notification No.6/2002-CE dated 01.03.2002, as the case may be, observing Chapter X Procedure for its use in the fertilizer units/plants. In support, he has referred to the judgment of the Honble Supreme Court in the case of Medley Pharmaceuticals Ltd. vs. CCE & Cus., Daman 2011(263) ELT 641(SC).
5. The ld. Advocate, Dr. Samir Chakraborty appearing for the Respondent, submits that the ld. Adjudicating Authority, after detailed discussion on the process of manufacture, has categorically held that Sulphuric Acid (98% to 99% purity), which comes into existence in the Circulation Tank, i.e. at an intermediate stage, cannot be chargeable to duty, as there was no manufacture of any other Sulphuric Acid in a marketable condition. In support, he has referred to the judgment of the Honble Supreme Court, viz.,i) CCE vs. Ambalal Sarabhai Enterprise,1989(43)ELT 214(SC); ii) CCE vs. United Phosphorous Ltd., 2000(117)ELT 529; iii) Bhor Industries vs. CCE, 1989(40) ELT 280(SC; and iv) Moti Laminates Pvt. Ltd., 1995(76) ELT 241(SC). Distinguishing the judgment of Medley Pharmaceuticals Ltd. (supra), the ld. Advocate submits that the principle laid down in the said case, is not applicable to the facts of the present case, as there was no evidence disclosed by the Revenue to prove that the Sulphuric Acid at the intermediate stage in the Circulation Tank, were being sold, as it is, or in any manner, unlike the product, namely, physicians sample, dealt in the Medleys case (supra).
6. Heard both sides and perused the records.
6.1. The ld. Adjudicating Authority has formulated the issues as follows:- (At page 26, para 11(i)&(ii) of the Order-in-Original).
11. The points to be decided in the case are as to whether -
(i) the assessee is liable to pay Central Excise duty on the quantity of Sulphuric Acid (98% concentration) manufactured by the assessee in the intermediate stage. On the face of the allegation that the same were used again at the intermediate stage for their final production of the same Sulphuric Acid which were in turn used captively without payment of duty on availing exemption under Notification No. 22/96-CE dated 23.07.1996 for use in their spin-bath for manufacture of filament yarn/ Rayon and cellophane films.
(ii) the assessee is liable to pay excise duty on removal of Sulphuric Acid so manufactured by them availing exemptions under Notification No. 5/99-CE dated 2.02.1999, 6/2002-CE dated 01.03.2002 as amended on observance of Chapter X procedure for use in the fertilizer plants. 6.2. The ld. Commissioner at para 12 of the impugned Order elaborated in detail the process of manufacture, which reads as follows:-
12. The process adopted by the assessee for manufacture of Sulphuric acid is that the main raw material namely, Sulphur is burnt in a furnace by using dry atmospheric air. By such burning Sulphur Di-Oxide is obtained. It is then passed through catalyst beds in Converters so as to convert the same into Sulphur Tri-Oxide. These gases then pass through inter-Pass Absorption Tower (IPAT) and Final Absorption Tower (FAT). In the Circulation Tanks of the aforesaid Absorption Towers, intermediate Sulphuric Acid from earlier similar intermediate process already keeps circulating. When the gases from the converters are forced into the Absorption Towers, these are absorbed by the said pre-existing circulating intermediate Sulphuric Acid. As a result of the aforesaid, the gases get converted into liquid form and become a part of the pre-existing intermediate Sulphuric Acid in the tanks. The said gases keep on continuously increasing the concentration of circulating intermediate Sulphuric Acid in the Acid Circulation Tanks. Consequently and to keep the concentration to the required level, water is injected continuously. In the Acid Circulation Line, Acid Concentration Meter is installed which monitors and senses the acid strength and automatically adjusts the water addition rate. On attainment of the desired strength, the Sulphuric Acid is transferred, with the help of a valve, from Circulation Tank to the Final Storage Tank. Prior to removal to the Final Storage Tank the material is only at a continuous in-process stage. Sulphuric Acid at the plants of almost all other manufacturers is also manufactured in the same manner. It is only at the final stage that Sulphuric Acid of the required concentration is transferred to the Storage Tanks. The said circulating Acid is nothing else but an intermediate stage due to the acid continuously getting accumulated into Circulation Tanks from the production line. As stated above, the manufacturing process continues till the Sulphuric Acid, on attainment of the desired acid strength and concentration, gets transferred to the Final Storage Tank. 6.3. After recording the process of manufacture, the ld. Commissioner has analyzed the stage at which Sulphuric Acid (98%-99% purity) emerges and consequently, held that the Sulphuric Acid i.e. in the Circulation Tank before being transferred to the Storage Tank, cannot be chargeable to duty. At para 13 of the impugned Order, he has recorded the reasonings as follows:-
13. As evident from the manufacturing process of Sulphuric Acid adopted by the assessee, it reveals that M/s Kesoram Rayon used a well recognized process, technically, known as double contact method for manufacture of Sulphuric acid. In this process the Sulphuric Acid is made within a closed chamber circuit in their manufacturing process where concentrated Sulphuric Acid having 98-99% strength from the circulating tank is used at an intermediate stage i.e. absorbing towers from the manufacture of Sulphuric Acid of 98-99% strength by absorption of Sulphur tri-oxide, producing Oleum and subsequently diluting with water or dilute Sulphuric acid thereby regenerating 98-99% Sulphuric acid for storage and recirculating to the system i.e. absorbing tower for the production of Oleum, concentrated Sulphuric Acid (98-99% strength) again in the form of cycle and the same cycle goes on continuously. Thus the circulation tank is not the final stage of storage of Sulphuric Acid. It is a part of the total plant in the manufacturing process. After completion of the manufacturing process on attainment of finality by the Double contract process in the manufacturing tank (including the circulation tank) the Sulphuric Acid so manufactured is removed with the help of a valve to the final storage tank from where no portion of Sulphuric Acid is used in the manufacturing system. From the storage tank Sulphuric Acid is cleared for use in fertilizer manufacturing units and is also captively consumed for manufacture of filament yarn and cellophane. The Sulphuric Acid contained in the storage tank was not used at an intermediate stage. Rather Sulphuric Acid contained in the circulation tank is used at an intermediate stage for making Sulphuric Acid (98-99% strength) by absorption of sulphur tri-oxide producing oleum which, in turn, on dilution with water or dilute Sulphuric Acid, regenerates Sulphuric Acid of 98-99%. Thus, that Sulphuric Acid which is not coming out of the plant is being automatically circulated for regeneration and further production of Sulphuric Acid in the closed chamber circuit. The circulation tank is not final stage of storage of Sulphuric Acid and it is a part of the total plant in the manufacturing process. The reported storage of any material in the circulating tank is in the nature of transient in - process material and not "goods" for Central Excise purposes. After completion of the manufacturing process on attaining of finality by double contact process in the manufacturing tank (including the circulation tank) the Sulphuric Acid so manufactured is removed with the help of a valve to the final storage tank from where no portion of Sulphuric Acid is used in the manufacturing system.
In view of the above, until the Sulphuric Acid finally manufactured comes out after attaining its required strength, the Sulphuric Acid utilized in the manufacturing system in the double contact (double absorption) process in a continuous process is neither segregated nor its quantity is ascertainable In fact, it is not a marketable commodity and hence not excisable. 6.4. We find that in recording the conclusion that Sulphuric Acid in the Circulation Tank, is not liable to duty, the adjudicating Commissioner has reasoned that there was manufacture of one product only, namely, Sulphuric Acid at the final stage, and also observed that the proposal to recover duty at two different stages - one at the intermediate stage, and thereafter, at the final stage, is incorrect, as there was no manufacture of any new excisable commodity at the intermediate stage, which is in the Circulation Tank and used repeatedly in the manufacture of Sulphuric Acid only. He also observed that Sulphuric Acid remains Sulphuric Acid at both intermediate and final stages, thereby, falling under the same Chapter Sub-Heading. We do not see any infirmity in the said observation.
7. Further, we agree with the contention of the ld. Advocate for the Respondent that the decision of the Honble Supreme Court in the case of Medley Pharmaceuticals case (supra) is not applicable to the facts of the present case. In the said case, the Honble Supreme Court was confronted with the question whether the physicians samples which were not sold in the market, satisfy the test of marketability or otherwise. This is not the issue before us in the present case. On the other hand, the issue is relating to levy of excise of duty on the intermediate product, hence, the judgments of Honble Supreme Court in Ambalal Sarabhai Enterprise, United Phosphorous, Bhor Industries and Moti Laminates (supra), are squarely applicable to the facts of the present case, which support the Order of the adjudicating authority In view of the above findings, we do not see any reason to interfere with the Order of the ld. Adjudicating Authority. Consequently, we uphold the said Order and reject the Revenues Appeal.
(Operative part of the Order pronounced in the court on 05.06.14)
SD/-11.08.14 SD/-08.08.14
(I.P.LAL) (D.M.MISRA)
MEMBER(TECHNICAL) MEMBER(JUDICIAL)
DUTTA/
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E/A/600/2007
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