Customs, Excise and Gold Tribunal - Mumbai
Lupin Laboratories Ltd. vs Commissioner Of C. Ex. And Cus. on 7 January, 1999
Equivalent citations: 1999(110)ELT983(TRI-MUMBAI)
ORDER J.H. Joglekar, Member (T)
1. The appellant manufactures Pharmaceutical products one of them being Ethambutol Hydrochloride. The process of manufacture of this product involves reaction of DL-2 Amino Butanol with Tartaric acid and methanol. This produced D-2 Amino butanol Tar-taric (impure) as also L-2 Amino Butanol Tartaric (impure). Whereas the former was processed further to produce the end product, the latter substance was a by-product from which Calcium Tartaric could be recovered, the remaining product L-2 Amino Butanol being drawn away as a total waste product. The entire process of manufacture was given by the assessee to the department vide their letter dated 15-1-1987. On 27-4-1988, the assessee applied for permission to remove L-2 Amino Butanol Tartaric for recovery of Calcium tartarate to the factory of Yash Pharma under the provision of Rule 57F(2) of the Central Excise Rule, 1944. The process of manufacture was once again given in this application. The permission was given vide department's letter dated 3-5-1988. The assessee maintained regular accounts. The process continued until the permission was withdrawn by the department vide letter dated 31-5-1989. Against this withdrawal, the assessees filed an appeal which was allowed by the Commissioner (Appeals) vide order dated 8-9-1989 wherein direction were made for de novo consideration. Later, on 7-8-1990 show cause notice was issued. It was claimed that L-2 Amino Butanol Tartaric was a finished product which was removed by the assessee under the guise of semi-finished product without payment of duty. It is claimed that the fact of the product being a finished product was suppressed with intent to defraud. On this ground, duty foregone for a period from May 1988 to April 1989 was demanded and allegations were made that the assessee were liable for penalty. The Collector adjudicated the case, confirmed the demand and imposed a penalty of Rs. 6 lakhs on the assessee. He also confiscated the client's building etc. but ordered their release on payment of fine. The present appeal arise out of this order.
2. Shri C.S. Lodha, ld. Advocate stated that the said goods mere a waste product fit only for recovery of Tartaric Acid. Referring to the affidavits filed before the Collector he maintained that these goods had no industrial application and were never bought and sold in the market. He stated that the department had not drawn sample and tested the goods to ascertain their marketability. He stated that the Collector had not only rejected the affidavit but had also not discussed its chemistry and shown that the product could be considered an excisable goods falling under Chapter 29. He stated that the charge was not made in the show cause notice. He referred to the judgment of the Supreme Court in the case of Hindustan Ferodo Ltd. 1997 (89) E.L.T. 16 (S.C.) in which the court had observed that the appellate authority was not to make any substitution amounting to evidence. In the same judgment the Supreme Court had made observation on the failure of the Tribunal to consider the affidavit filed by the assessee. He maintained that the product L-2 Amino Butanol Tartaric had no commercial application and also that it was in an impure state. He submitted that marketability was an essential requirement for determining the dutiability of excisable goods. He submitted that even if the goods could pass muster on the technical qualities sufficiently to fall under a tariff item, in the absence of marketability being established, it could not be called excisable goods. In making this submission, he relied upon the following judgments: 1994 (74) E.L.T. 22 (S.C); 1991 (86) E.L.T. 447 (S.C), 1997 (92) E.L.T. 315 (S.C).
3. Arguing on the aspect of limitation, Shri Lodha stated that the entire process of manufacture had been shown to the department wherein the claim was made that L-2 Amino Butanol Tartaric was a product intermediate in nature and fit for recovery of tartaric acid. The department had sufficient time and opportunity of verifying the statement. This was not done. The permission was duly granted although later withdrawn the period covered in the show cause notice was the very same which was covered under the permission given by the department. Relying upon the Tribunal judgment in the case of Shree Bhagavati Tea Estates Ltd. - 1997 (92) E.L.T. 240, he claimed that even if the department has given the permission under a mistake the permission would continue to bind the department and the department cannot allege contravention by the assessee. He also referred to the finding of the Tribunal in the case of United Felts and Carpets -1996 (81) E.L.T. 609 in which an identical situation was covered. The department had given permission for operation under Rule 56B and had later claimed suppression etc. on part of the assessee during the same period. The Tribunal held that in such a situation, the extended period could not be invoked. The same was the ratio of the judgment reported in the case of Modern Mills Ltd. -1996 (82) E.L.T. 90 as well as in J.M.C. Industries -1991 (53) E.L.T. 321.
4. Shri S.V. Singh, the learned DR citing from the adjudication order strongly defended the Commissioners finding.
5. We have carefully considered the various submissions made and have seen the citations.
6. We have seen the correspondence leading to the permission given to the appellants under the provisions of Rule 57F(2). In this application, the product L-2 Amino Butanol Tartaric was shown to be semi-finished goods. The process chart as well as the process of manufacture were described. The department after due consideration permitted the assessee to avail of this procedure. For the same period in the show cause notice the allegation is made that this substance was not semi-finished but that it was a fully finished r. The show cause notice does not indicate the basis for this belief of the department. This has later on been done by the Commissioner in his order by discussing the chemistry.
6A. We have examined the submissions on the aspect of limitations and we find that the situation in the case before us is identical to those before the Tribunal in the case cited. It is expected that the department should verify the claim made by the assessee about the nature of a particular substance when granting permission. When the permission is granted it has to be assumed and accepted that the department is so satisfied on the claim by the assessee. Therefore, later the allegation cannot be made that assessee had made a misdeclaration or suppressed any fact. No independent investigation have been conducted by the department to show that the goods were not intermediate goods but that the goods were marketable. The assessee on the other hand had filed an affidavit from three dealers in which it was averred that the goods were never bought and sold in the market. Ld. Commissioner in his order has declined to place any reliance on this affidavit. He has also declined to place any reliance on the claim by the assessee that the impugned goods were an intermediate product. In doing so he has not relied upon any specific evidence to negate the evidence produced by the assessee. He has merely relied upon certain case laws. We observe that in every case the fact of marketability of a particular substance has to be examined afresh since it is a question of fact and cannot merely be established by referring to some case law which discusses some other substance in some other circumstance. We also find that the judgment of the Tribunal in the case of Hindustan Ferodo on which substantive reliance has been placed by the Commissioner, was later on set aside by the Supreme Court in their judgment reported in 1997 (89) E.L.T. 16. In this case the Supreme Court observed that in making the claim of establishing that the goods are classifiable under particular goods, the department has not produced any evidence and arbitrarily rejected the evidence produced by the assessee. The Supreme Court observed that the Tribunal were in error in examining the process manufactured and coming to a certain conclusion. We find that the same error has been made by the Commissioner in this order. The cited judgment of the Supreme Court therefore, applies fully to the facts of the case.
7. On examining the evidence, the correspondence and the Commissioner's order, we find that he has not established that L-2 Amino Butanol Tartaric was a finished product capable of being marketed. On this ground, the excisability and dutiability has not been established. We further find that in view of the facts on record, the charge of suppression does not sustain. Thus on both merits and on limitations, the appellants appeal is allowed and the impugned order is set aside. Consequential relief as per law.