Customs, Excise and Gold Tribunal - Delhi
Seth Liladhar Biyani And Sons vs Commissioner Of C. Ex. on 12 October, 2000
Equivalent citations: 2001(75)ECC192, 2001(129)ELT423(TRI-DEL)
ORDER V.K. Agrawal, Member (T)
1. The issue involved in this appeal, filed by M/s. Seth Liladhar Biyani & Sons is whether the process of purification undertaken by them amounts to manufacture and whether re-find saltpeter is classifiable under Heading 25.05 of the Schedule to the Central Excise Tariff Act, as alternatively claimed by the Appellant or under Heading 28.34, as upheld by the Commissioner (Appeals) under the impugned Order.
2. Shri V. Lakshmikumaran, ld. Advocate, submitted that the Appellants obtain saltpetre from mines which contains 89% Potassium Nitrate and impurities including other salts; that the mined material is dissolved in water at 100°C when Potassium Nitrate dissolves fully giving rise to a saturated solution thereof which is removed to a wooden tank and left to evaporate when saltpetre containing 94% Potassium Nitrate settles as white crystals; that thus the Appellant is engaged in the purification of saltpetre by the Crystallisation process carried out on the saltpetre obtained by mining; that the process of purification does not amount to manufacture and the product remains saltpetre after the purification process; that the fact that excavated saltpetre is not used directly without purification for fireworks does not mean that the two are different goods having different uses; that the Potassium Nitrate is the ingredient in the saltpetre which makes it a suitable material for fireworks and Potassium Nitrate to the extent of 89% is present even in the naturally occurring saltpetre; that purification makes the material more suitable for fireworks but it does not mean that the mined saltpetre does not have the required properties; that purification done by way of distillation/recrystallisation does not amount to manufacture as no new Chemical commodities come into existence as held by the Tribunal in S.D. Fine Chem (Pvt) Ltd. v. CCE -1997 (91) E.L.T. 610 (T); that the appeal filed by the Revenue was dismissed by the Supreme Court on 20-11-1995 in C.A. No. 2532/92 [1995 (77) E.L.T. 49 (S.C.)].
3. The learned Counsel, further, submitted, that in Section 6(a) of the Central Excise Act, saltpetre is specifically referred to separate from goods specified in the Schedule to the Central Excise Tariff Act which clearly points to saltpetre not being covered in the Tariff since, had it been so, there was no necessity to mention it separately that amendment of Section 6 in 1992 by which the words "or of saltpetre or of any specified component parts or ingredients of such goods, or of specified containers of such goods" were deleted does not make any different that if saltpetre was a specified goods included in the Schedule; it would not have been separately mentioned; that this shows that saltpetre is not excisable and as there is no change in the Schedule from 1992 the position has not been altered; that Notification No. 62/57 dated 27-7-1957 was issued by the Government providing that no licence shall be required for the manufacture and refining of saltpetre; that Section 3 of the Central Excise Act provides for levy and collection of duties on excisable goods at the rates set forth in the Schedule to the Central Excise Tariff Act and as the impugned goods is not covered by the said Schedule, excise duty cannot be levied and collected; that by Finance Act, 1996, Salt has been removed from the Act as it is now called only "Central Excise Act" instead of "Central Excises & Salt Act;" that saltpetre by name is not mentioned in the Central Excise Tariff and as such is not chargeable to duty. The ld. Counsel also mentioned that the finding in the Impugned Order that the refined saltpetre goes out of the purview of Chapter 25 in view of Note 2 to Chapter 25 and further it gets included in Chapter 28 on account of Note l(a) of that Chapter is erroneous; that Note l(a) to Chapter 28 does not have the effect of taking in a non-manufactured mineral product; that Heading 28.34 covers nitrates but nitrates which are manufactured in the Central Excise sense, that thus the mined saltpetre subjected to purification by crystallisation is not classifiable under Heading 28.34 because crystallisation has been specifically mentioned as an excluding factor; that it is incorrect to suggest saltpetre should be classified in Chapter 28 when no manufacture is involved in purification only because it is excluded from Chapter 25; that this view is supported by the decision of the Apex Court in the case of C.C.E. v. Nuchem Industries Pvt. Ltd., 1998 (99) E.L.T. 197 (S.C), wherein it was held that quick lime and Hydrated Lime were not exigible, the conclusion being based upon Note 2 to Chapter 25; that the Supreme Court observed that it was not in dispute that quick lime and hydrated lime were obtained by calcination and apparently, therefore, they would fall outside the scope of Chapter 25. The ld. Advocate contended that the present matter is on even stronger ground since while crystallisation is one of the processses of concentration which takes the goods outside the purview of Chapter 25 but the said process has only concentrated the Potassium nitrate content of saltpetre and not brought about any other chemical or structural change; that the impugned product is already in crystal form and as such the process undertaken by them is not crystallisation; that the Appellant is not changing the structure of the impugned product and as such it will be covered by Note 2 to Chapter 25. In support he referred to the test report dated 28-11-1996 of the Chemical Examiner regarding crude saltpeter, according to which "Sample in the form of off white crystalline powder essentially composed of Potassium Nitrate Potassium Nitrate content = 89.4%" and the test report regarding Refined Saltpetre reads as follows "Sample is in the form of white crystalline powder, essentially composed of Potassium Nitrate. Potassium Nitrate Content = 94.7%."
4. Finally the ld. Counsel submitted that in view of provisions of Section 6, the Appellants had a bonafide belief that saltpetre was not specified in the Schedule to the Central Excise Tariff Act; that further their belief that activity of purifying and refining the excavated saltpetre does not constitute manufacture was vindicated by the decision in Nuchem Plastics case, supra; that accordingly extended time limit under Section 11A(1) of the Central Excise Act is not invokable; that as duty demand itself does not survive, the question of remanding the matter for requantification and imposition of penalty cannot at all arise.
5. Countering the arguments, Dr. D.K. Verma, ld. SDR, submitted that it is not in dispute that the saltpetre obtained from mines is subjected to the process of purification and after the process undertaken by the Appellant, the impugned product settles as white Crystals; that thus in the process undertaken by them crystallisation definitely takes place; that the Chief Chemist also in Test Report dated 22-10-1998 has clearly mentioned that the crude saltpetre is purified by the process of crystallisation to give refined saltpetre; that Note 2 to Chapter 25 excludes 'Crystallisation' process from the purview of Heading Nos. 25.01, 25.03 and 25.05 and accordingly the impugned product goes outside the purview of Chapter 25. He further, submitted that the process undertaken by the Appellant amounts to manufacture as it results in the emergence of a new product known in the commercial trade as refined saltpetre or potassium nitrate having different characteristics and use; that the refined saltpetre finds uses in the manufacture of fireworks, gun powder, matches and metallurgical fluxes; that as per findings in the impugned Orr ders in Chemicals, where purity is an essential factor having a bearing on the end use of product it can certainly be said that the purification results in bringing into existence a new commodity having a distinct name, character and use different from raw materials used in its purification. He placed reliance on the decision in the case of Subhraj & Co. v. C.C.E., 1996 (88) E.L.T. 311 (S.C.) wherein the Apex Court held that the breaking and crushing of animal bones by a mechanical device called disintegrator amounted to manufacture. Reliance was also placed on the decision in the case of Brakes India v. Superintendent Central Excise, 1998 (101) E.L.T. 241 (S.C.) . The ld. SDR finally mentioned that as the Appellants never got themselves registered with the Department, they had suppressed the vital facts of manufacture and clearance of excisable goods and accordingly extended period of limitation is invokable in the present matter. In reply, the ld. Counsel mentioned that even in S.D. Fine Chem case, supra, the products after purification were for selected and specialised uses such as analytical testing in laboratories etc. He also distinguished both the decision referred to by the ld. SDR.
6. We have considered the submissions of both the sides. Under Section 3 of the Central Excise Act, duty of excise shall be levied and collected on all excisable goods, which are produced or manufactured in India. In the leading judgment in the case of Union of India v. Delhi Cloth & General Mills, 1977 (1) E.L.T. (J199) (S.C.), the Apex Court held that "The word" "manufactured" used as a verb is generally understood to mean "bringing into existence a new substance", and does not mean merely "to produce some change in a substance" however minor in consequence the charge may be". The Supreme Court referred to the following passage quoted in Permanent Edition of Words & Phrases from an American judgment -
"Manufacture implies a change, but every change is not manufacture and yet every change of an article is the result of treatment, labour and manipulation; a new and different article must emerge having a distinctive name, character or use."
7. It is, therefore, apparent that for being charged to duty of excise, it is required that goods are produced or manufactured and manufacture will be complete only if a new and different article emerges having a distinctive name, character or use. In U.O.I, v.J.G. Glass Industries Ltd., 1998 (97) E.L.T. 5 (S.C.), the Supreme Court laid down a two-fold test "for deciding whether the process is that of "manufacture". First, whether by the said process a different commercial commodity comes into existence or whether the identity of the original commodity ceases to exist; secondly, whether the commodity which was already in existence will serve no purpose but for the said process. In other words, whether the commodity, which was already in existence will be of no commercial use but for the said process. "In the present matter it is evident from two test reports that excavated saltpetre contained Potassium nitrate 89.4% and after process of purification undertaken by the Appellant, the content of Potassium nitrate came to be 94.7%. In both the forms, i.e. before purification and after purification according to Chief Chemist, saltpetre was in the form of crystalline powder essentially composed of Potassium Nitrate. No evidence has been brought on record by the Revenue that crude saltpetre which composed of 89.4% potassium nitrate could not be used for the purposes the refined saltpetre was put to. Thus the second test as laid down by the Apex Court in J.G. Glass case, supra, has not been satisfied i.e. whether the saltpetre as obtained from mines will serve no purpose but for the said process. The ld. Advocate for the Appellants has emphatically contended that purification process undertaken by the Appellant does not constitute manufacture as no new commodity comes into existence. He has placed reliance on the decision in S.D. Fine Chemicals case, supra. In that case the Appellants were undertaking purification of bought out chemicals by way of distillation/recrystallisation. It was held by the Tribunal that process of purification does not amount to manufacture as there was no change in the name of the product, no new ingredients had been added and the name and character of the product continued to be the same. The Tribunal held "In the present case, admittedly only the grade of the Chemical gets change and hence the test of manufacture as laid down by the Hon'ble Supreme Court in the case cited (supra) is not satisfied as purification of a chemical to obtain another grade of the same chemical, particularly when the purification is marginal, cannot be said to result in a totally new chemical commodity." The appeal filed by the Revenue against the decision has been dismissed by the Supreme Court.
8. The ratio of the decision in S.D. Fine Chemical case applies squarely to the present matter before us. The name and character of saltpetre remain the same after the process of purification undertaken by the Appellants. The ld. Advocate for the Appellants has distinguished the decisions in two cases relied upon by the ld. SDR and Commissioner (Appeals) in the impugned Order. In Subharaj & Co. case raw animal bones, were broken and crushed in disintegrator and bone meal was obtained to be used principally as a fertilisers a new product had emerged. In Brakes India case brake lining blanks could not be used for motor vehicles without holes and trimming and chamferring. We, therefore, hold that the process undertaken by the Appellant does not amount to manufacture. We thus allow the appeal without going into the other submissions made on behalf of the Appellant.