Customs, Excise and Gold Tribunal - Delhi
Das And Company vs Collector Of Central Excise on 4 September, 1997
Equivalent citations: 1998(102)ELT296(TRI-DEL)
ORDER S.K. Bhatnagar, Vice President and S.L. Peeran, Member (J)
1. This is an appeal against the order of Collector of Central Excise (Appeals), Bombay dated 28-3-1990.
2. Learned Counsel stated that the appellants are a licenced SSI unit, engaged in the manufacture of goods falling under Chapter 34. They filed a classification list effective from 1-4-1986 regarding various products declaring 'DASOL PV in Part III. This item is prepared out of polyvinyl alcohol powder purchased from market and diluted with water and is so produced without the aid of power. The classification list was approved by the Assistant Collector on 22-8-1986 with a remark 'subject to positive test result'. The assessees, in the meanwhile, had effected clearances without payment of duty as the process did not amount to manufacture.
3. The authorities drew samples on 27-10-1986. The appellants also filed RT-12 returns and the same were assessed.
4. It was their contention that in the past, prior to 28-2-1986, the item was considered as non-excisable as there was no chemical change in the input or output in view of clarification issued by the Government of India under letter No. MF (D.R. & I.) No. 93/1/78-CX-3, dated 24-10-1979.
5. The appellants were served with a show cause notice dated 28-10-1986 which was issued mainly on the basis of Chapter Note 6 of Chapter 39 wherein change from one primary form to another has been treated as a manufacturing process. It was also the Department's contention that the classification list having been approved provisionally subject to test, they were required to pay the duty demanded.
6. It was their main contention that the process adopted by them for preparation of DASOL P.V. does not amount to manufacture and in any case, as they were a small scale unit, they were entitled to exemption under Notification 175/86 as amended by 216/86 but this aspect had not been taken into consideration.
7. Therefore, it was their alternative submission that even if it was considered that a manufacturing process was involved, they would be entitled to the benefit of above notification.
8. It was also their contention that apart from Government of India's own clarification (supra), Chapter Note 3 also supports their contention and therefore, the A.C. has erred in interpreting Note 6. It was also their submission that the A.C. has further erred inasmuch as he has passed the order without awaiting the Chemical Examiner's report.
9. At the first appeal stage, the Collector set aside the order of the A.C. and the matter was remanded for de novo proceedings with directions to furnish the report accordingly which was supplied subsequently and reads as under:
"The sample is an aqueous (water) solution of synthetic resin polyvinyl alcohol."
10. The appellants contention was that conversion of polyvinyl alcohol into solution did not amount to manufacture and they rely inter alia, upon the Government of India's letter No. 93/1/78-Ex. 3, dated 13-11-1979 addressed to Indian Chemical Auxiliaries Manufacturers Association, Bombay and the point No. 4 of the Minutes of the Regional Advisory Committee meeting of Bombay-I Collectorate held on 16-7-1986.
11. It was also their contention that the notice to show cause was time-barred.
12. Their contentions were, however, not accepted and the Collector (Appeals) also confirmed the order, of the Assistant Collector. Hence, this appeal.
13. It was their main contention that no process of manufacture was involved and in any case, they cannot be denied the benefit of Notification No. 175/86 as amended.
14. It was also their submission that Chapter Note 6 has to be read alongwith Chapter Note 3 and the Government of India's clarifications referred to by them.
15. It was also their submission that in any eventuality, even the calculation relating to assessable value and therefore, the demand was incorrect as the authorities had not deducted the tax element from the price for calculating the assessable value.
16. Learned Departmental Representative drew attention to the impugned order-in-original and order-in-appeal and reiterated the Department's view-point.
17. He emphasised that in view of amended Chapter Note 6, conversion of one primary form to another also amounts to manufacture and therefore, in the present case, conversion of powder to solution form having taken place, the item is required to be treated as an excisable item and Chapter Note 3 does not help the appellants as the amendment to Note 6 is only clarificatory in nature vide Tribunal's order in the case of Collector of Central Excise, Bombay v. Bright Bros. Ltd. reported in 1996 (84) E.L.T. 83 (Tribunal).
18. Learned Counsel stated in reply that the amendment has been introduced only subsequently with effect from 1-3-1988 and is prospective in character. Hence, the fact that no chemical change is involved is required to be taken into account with reference to the law as it stood during the relevant period.
19. In support of his contention, he would like to rely on the following case law:
(a) 1996 (64) ECR 531
(b) 1996 (14) RLT 297
(c) 1996 (82) E.L.T. 86
(d) AIR 1980 SC 251
(e) AIR 1957 SC 657
20. We have considered the above submissions. We observe that there is a lot of force in the arguments of the learned Counsel inasmuch as merely conversion of polyvinyl alcohol powder in a solution form does not result in coming into existence of a new product. It remains a synthetic resin before and a synthetic resin thereafter with the same name, character and use. After amendment, Chapter Note 6 reads as under :
"(a) In Heading Nos. 39.01 to 39.14, the expression "primary forms" applies only to the following forms:
(i) Liquids and pastes, including dispersions (emulsions and suspensions) and solutions;
(ii) Blocks of irregular shape, lumps, powders (including moulding powders), granules, flakes and similar bulk forms.
(B) Notwithstanding anything contained in Note 3 to this Chapter, Heading Nos. 39.01 to 39.14 shall also include primary forms obtained from conversion of another primary form, falling under the same heading, and such conversion shall amount to "manufacture"."
Thus, by legal fiction, the process of conversion from one primary form to another has been deemed to be manufacture. However, in my opinion, such conversion must result into a new commodity known to the market in order to consider it as excisable and classifiable under one of the headings of the Tariff.
21. Learned Counsel has also drawn attention to Chapter Note 3 of Chapter 39, the relevant portion of which reads as follows :
"Heading Nos. 39.01 to 39.11 apply only to goods of a kind produced by chemical synthesis" falling in the categories indicated therein which include Resins.
22. Learned Counsel has argued that in any case, the amendment in a fiscal statute could be considered as coming into operation only prospectively and could not be applied retrospectively, which is correct. At the same time, we have to see whether the amendment was only clarificatory in nature as pointed out by the learned SDR.
23. Learned DR has also rightly relied upon the Tribunal's order holding the amendment as only clarificatory in nature. However, with due respects, I am inclined to differ from the above interpretation of this amendment by the earlier Bench inasmuch as in my opinion, it is not clarificatory in nature. A deeming fiction which is introduced for the first time is obviously of such a nature that it could not be considered as clarificatory and has to be applied prospectively for the simple reason that before such a fictional consideration is introduced, nobody will be holding that belief in the normal course of trade and commerce in the industry. In other words, the very fact that the amendment in the nature of a deeming fiction was being introduced for the first time pre-supposes that no such provision was in existence earlier which required clarification or elaboration. Of course, it would be a different matter if it could be shown that a provision based on a legal fiction was already in existence and it was only being so elaborated or clarified. In my opinion, in the entire set of Chapter Notes relating to Chapter 39, there was no such clause of which this amendment could be considered as a clarification. On the contrary, Chapter Note 3 was already in existence and it stated that Heading No. 39.01 to 39.11 applied only to goods of a kind produced by chemical synthesis and falling in the specified categories indicated therein i.e. it excluded the goods which were not produced by chemical synthesis; and by this amendment, the bar of this exclusion was being lifted (by the use of the words "Notwithstanding anything contained in Note 3 to this Chapter") and what was excluded before was being thus included and such a change, in my opinion, would only be prospective. In view of this position, I hold that the process involved was not a process of manufacture and no new excisable commodity known to the market came into existence by the process of dissolving the polyvinyl alcohol powder into water.
24. In view of the above position, it is not necessary to refer to the other case law cited by both the sides and the impugned order is required to be set aside and the appeal accepted.
25. However, as the above opinion is different from the one expressed by earlier Benches of the Tribunal, the matter is required to be referred to a Larger Bench to resolve the difference of opinion.
26. The matter is, therefore, submitted to Hon'ble President to refer to such a Bench to consider the following point:
1. Whether amendment to Chapter Note 6 with effect from 1-3-1988 was only clarificatory in nature or it was prospective (and not retrospective) in application.
2. Whether dissolving of polyvinyl alcohol powder in water amounted to a process of manufacture resulting in production of a new excisable commodity known to the market during the relevant period.
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(S.K. Bhatnagar) Vice President Jyoti Balasundaram, Member (J) 26A. I have perused the order recorded by learned Vice President. According to me, the issue as to whether conversion of Polyvinyl Alcohol into solution amounts to manufacture, has been decided by the Tribunal's order in the case of Collector of Central Excise, Bombay v. Bright Brothers Ltd. reported in 1996 (84) E.L.T. 83 (Tribunal) wherein it has been held that, in view of Note 6 to Chapter 39 of the Schedule to the Central Excise Tariff Act, 1985, conversion of one primary form viz. granules into another primary form viz. powder shall amount to manufacture. This order of the Tribunal has been followed in the case of Sinter Plast Container v. Collector of Central Excise reported in 1996 (66) ECR 531. Therefore, in my view, the impugned order requires to be upheld and the assessee's appeal merits rejection, and the necessity to refer the matter to a Larger Bench, does not arise.
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(Jyoti Balasundaram) Member (J) Dated: 15-9-1997 26B. In view of the difference of opinion between Hon'ble Member (Judicial) and the Vice President, the matter is submitted to Hon'ble President for referring it to a Third Member on the following point:
"Whether the appeal was required to be considered in the light of observations and findings of the Vice President and referred to a Larger Bench or the appeal was required to be rejected and there was no need to refer the matter to a Larger Bench."
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(Jyoti Balasundaram) (S.K. Bhatnagar)
Member (J) Vice President
Dated : 22-10-1997 Dated : 29-10-1997
S.L. Peeran, Member (J) agreeing with Vice President
27. I have heard Shri R. Sudhinder, the learned Advocate for the assessee. None appeared for the Revenue despite Court Master informing the concerned DR. Hence, the matter after hearing was reserved for orders.
28. It was submitted that Note 6 of the Chapter 39 does not have retrospective effect but only has effect of prospective nature. In support of this contention several Supreme Court judgments were cited as in the case of Reliance Jute Inds. v. Commissioner of Income Tax , AIR 1980 SC 256, A V Fernady v. State of Kerala AIR 1957 SC 657 at page 662 & 663. It was also argued that their pleas raised during the time of argument and in the cross-objections pertaining to the eligibility to SSI exemption Modvat credit and other aspects have not been considered in the case of Bright and Brothers. It was also stated that the order of Hon'ble Vice President to propose the matter to Larger Bench is a correct one. There is no finding on all issues by Hon'ble Member (J).
29. On a careful consideration of the matter, I am inclined to agree with the order proposed by Hon'ble Vice President for referring the matter to the Larger Bench, as Member (J) has not dealt with other reliefs prayed by parties.
The file to be placed before the original bench for passing a majority order.
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(S.L. Peeran) Member (J) FINAL ORDER
30. In view of the majority opinion, the matter is submitted to Hon'ble President for reference to a Larger Bench on the following point:
"Whether amendment to Chapter Note 6 was only clarificatory in nature or it was prospective (and not retrospective in application) and consequentially whether the impugned order was required to be upheld and the assessees' appeal required to be rejected or the impugned order is required to be set aside and the appeal accepted."
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(Jyoti Balasundaram) (S.K. Bhatnagar)
Member (J) Vice President
Dated : 23-3-1998 Dated: 20-3-1998