Customs, Excise and Gold Tribunal - Delhi
Tata Oil Mills Co. Ltd. vs Collector Of C. Ex. on 8 May, 1989
Equivalent citations: 1989(22)ECC152, 1991ECR435(TRI.-DELHI), 1989(43)ELT132(TRI-DEL)
ORDER
G. Sankaran, Senior Vice-President
1. The facts of the case, briefly stated, are that M/s. Tata Oil Mills Co. Ltd., Bombay (hereinafter referred to as the 'appellants') is a company engaged in the manufacture of soaps, detergents, cosmetics, oils etc. By a show cause notice dated 4-8-1982, the appellants were charged with contravention of several provisions of Central Excise Law inasmuch as they had manufactured and removed a quantity of 30,45,023 kgs. of Sulphur Trioxide ("SO3") during the period from April 1977 to March 1982 without payment of duty and observance of central excises formalities. It was further alleged that the appellants had suppressed material facts with intent to evade payment of duty totalling Rs. 4,54,433.44. They were called upon to show cause why the said amount of duty should not be recovered from them and why penalty should not be imposed on them. By their letter dated 17-9-82, the appellants denied the allegations. In the main, their submission was that what was formed at an intermediate stage in the continuous and integrated manufacture of organic surface active agents was not SO3 as is known in commercial or technical parlance but a mixture of air and SO3 in which the latter was present only to the extent of about 7%. Such an air-SO3 mixture was not known, or capable of being marketed, as SO3. Another submission was that in view of the judicial pronouncements in force at the material time, duty was not leviable on SO3 produced and captively consumed within the factory, assuming that what was produced was SO3 as known to the market. They sought to support their contentions by production of certain affidavits and technical authorities. In due course, the Assistant Collector of Central Excise, Bombay passed an order on 13-12-85 holding that the SO3 manufactured by the appellants was 'goods' within the meaning of Section 2(f) of the Central Excises and Salt Act, 1944 and that it attracted Central Excise duty under Item No. 14G of the First Schedule to the said Act (the Schedule is hereinafter referred to as the 'CET'). The appellants were directed to pay the aforesaid amount of duty but the Assistant Collector refrained from imposing any penalty on them.
9 other similar show cause notices were also issued to the appellants on similar grounds, the total amount of duty involved being Rs. 3,46,061.07 for the period April, 1982 to September, 1985. In due course, the Assistant Collector, by his order dated 13-1-86, confirmed these demands but refrained from imposing any penalty on the ap-pelants.
The above matters were pursued in appeal by the appellants and, by order dated 14-9-87, the Collector (Appeals) dismissed the appeals. It is this order that is challenged in the present two appeals.
2. We have heard Shri V.J. Taraporevala, Advocate, with Shri H.N. Vakil, Advocate, for the appellants and Shri Sundar Rajan, Departmental Representative, for the respondent-Collector and have perused the record.
3. Shri V J. Taraporevala, learned Counsel for the appellants urged two out of the three following issues before us :-
(a) Whether the impure SO3 contained in the gas mixture which is obtained during the course of the continuous and integrated process of manufacture of organic surface active agents, is technically SO3?
(b) Even assuming that the aforesaid question is answered in the affirmative, whether the impure SO3 contained in the gas mixture which is obtained during the course of the continuous and integrated process of manufacture of organic surface active agents is commercially known as Sulphur Trioxide?
(c) Whether the extended period of limitation under Section 11A of the Act is applicable in the facts and circumstances of the present case?
4. Shri Taraporevala submitted that the first point was not being urged in view of the fact that technical literature has not specifically stated that such impure SO3 cannot be considered technically as SO3.
5. As regards the question at (b) above, the Counsel submitted that it was the appellants' contention all along that the impure SO3 in the gas mixture was not capable of being marketed as SO3. In this connection, he referred to the affidavit of Shri Dhar-maraj Subramaniam, an executive of the appellant company. He also relied on certain judicial pronouncements in support of the contention that the product was not SO3 as known to the market.
6. The question of dutiability of SO3 had come up before this Tribunal in a similar case - Appeal Nos. 2307/83-C and 1485/85-C - Dai-Ichi Karkaria Pvt. Ltd. v. Collector of Central Excise, Pune - disposed of by Order Nos. 199-200/86-C, dated 18-4-1986 - in which it was held that SO3 emerging at an intermediate stage in the manufacture of detergents was liable to duty under Item No. 14G, CET. However, Shri Taraporevala submitted that this decision could not be taken as a binding precedent in view of the admission on the appellants' part that SO3 was sold in the market. In the present instance, however, the air-SC3 mixture was not sold nor was it capable of being sold as SO3.
7. Though the learned Counsel made a number of submissions in regard to the point at (c) above, we do not consider it necessary to set them out and deal with them in the view which we propose to take in respect of the point at (b) above.
8. In his reply, the learned Departmental Representative stated that the Tribunal's decision in the Dai-Ichi Karkaria's case applied squarely to the facts of the present case. He also submitted that Item 14G covered 'all sorts' and, therefore, whether SO3 was marketable or not, it would be covered by the said entry. Since the goods were specified in the entry, the question whether there was "manufacture" was irrelevant. In this connection, he relied on certain judicial pronouncements.
9. We have considered the submissions of both sides and perused the record.
10. The process of manufacture as set out in the Assistant Collector's order, based on the appellants communication is as follows :-
"Roll Sulphur is melted in a tank and the molten sulphur is continuously pumped into a sulphur burner where the sulphur is burnt and converted into sulphur dioxide. This sulphur dioxide is passed through a converter where dry air is blown into the converter, to convert sulphur dioxide into sulphur trioxide, in presence of catalyst. Sulphur trioxide, thus obtained is passed through heat exchangers into reacting vessels where the gas meets a continuous stream of Alkyl Benzene, forming D.D.B.S. which is used in the manufacture of OSAA. The whole process is a continuous and a closed circuit one."
11. The crux of the dispute is as to whether Sulphur Trioxide (SO3) produced and captively consumed by the appellants in a continuous and integrated process of manufacture or organic surface active agents was liable to be charged to duty under Item 14G, CET. Item No. 14G, CET, as it stood at the material time, read as follows :-
''14G Nitric, Hydrochloric and Sulphuric acids (including fuming acids and anhydrides thereof), all sorts."
12. Admittedly, what we are concerned with in these appeals is not Sulphuric Acid. It is SO3 gas. To bring it within the ambit of Item 14G, CET, the Revenue has to establish that it is an anhydride of fuming sulphuric acid. The term 'Anhydride' has been defined at page 71 of the Tenth Edition of the reference work titled 'The Condensed Chemical Dictionary' Revised by Gessner G. Hawley as follows :-
"Anhydride. A chemical compound derived from an acid by elimination of a molecule of water. Thus sulfur trioxide, SO3, is the anhydride of sulfuric acid (H2SO4)."
SO3 thus is the anhydride of sulfuric acid. But this by itself does not solve the dispute before us. The question remains whether the SO3 gas produced by the appellants is sulfuric anhydride.
13. Shri Dharmaraj Subramaniam, Technical Officer of the appellant company, has, in his affidavit dated 17-9-82, stated that the air-SC3 gas mixture formed at an intermediate stage in the appellants' factory in the course of the continuous and integrated process of manufacture of synthetic detergents was of the following composition :-
(i) air-, 90 to 92% by volume;
(ii) SO3 - 5 to 7.5% by volume; balance consists of SO2, sulfuric acid mist, and impurities like ash and dust - 2 to 3% by volume.
It has been further averred that neither technically nor commercially the air-SO3 gas mixture of the above composition can be described as sulphur trioxide 0r sulfuric anhydride. Relying on certain authorities, the affidavit goes on to say that SO3, as known in commerce, must have a concentration of over 99%.
14. In his affidavit dated 27-4-83, Shri V. V.R. Subrahmanyam, Professor of Oil Technology in the Bombay University Department of Chemical Technology, has stated that air-SO3 gas mixture containing less than 10% by volume of SO3 and also containing nitrogen, oxygen, carbon dioxide etc. cannot be termed as sulphuric anhydride under any norm. It is further stated that SO3, free from any other contaminant, is either a solid (alpha and beta forms) or a liquid boiling at 44.5°C (gamma form), which, on hydration, give sulphuric acid. (The affidavit also says that the above substance cannot be called sulphuric anhydrides and at best may be called anhydrous sulphuric acid. But this is against what the Condensed Chemical Dictionary has to say, as we have seen earlier.)
15. As against these affidavits, the Department has not brought on record any evidence to show that the air-SO3 gas mixture containing less than 10% of SO3 is marketable and known to the market as sulphuric anhydride. Nor do the deponents of these affidavits appear to have been cross-examined by the Department.
16. The Condensed Chemical Dictionary (referred to earlier has the following passage on sulfur trioxide at page 983 :
"Sulfur trioxide (sulfuric anhydride) SO3; (SC3)n. Properties : Exists in three solid modifications; alpha, m.p. 62°C; beta, m.p. 32.5°C; gama, m.p. 16.8°C. The alpha form appears to be the stable form but the solid transitions are commonly slow; a given sample may be a mixture of the various forms, and its m.p. not constant. The solids sublime easily. All three forms boil at 45°C."
"Containers : (stabilised, liquid) 750 It drums."
17. At page 767 of the Eleventh Edition of "Materials Hand Book" by George S. Brady and Henry R. Clauser, it is stated that sulphur trioxide or sulphuric anhydride, SO3, is the acid (sulphuric acid) minus water. It is a colourless liquid boiling at 46°C and forms sulphuric acid when mixed with water.
18. At page 191 of Volume 22 (Third Edition) of Kirk-Othmer's "Encyclopaedia of Chemical Technology", it is stated that sulphur trioxide at room temperature and atmospheric pressure is a colourless liquid that fumes in air. It is further stated that solid sulphur trioxide can exist in three trimorphic phases: alpha-, beta-, and gamma-SO3 with melting points of 62.3, 32.5 and 16.8OC, respectively. The alpha and beta forms melt to give liquid gamma SO3.
19. It is of relevance to note that Indian Standard IS : 7541 -1974 - "Specification for Stabilized Liquid Sulphur Trioxide" - stipulates that the material shall be a transparent liquid. It shall be colourless or have a brownish tinge free from suspended matter and visible impurities. The free SO3, per cent by mass, should be a minimum of 99.2.
20. It may be seen from the contents of the two affidavits and the technical authorities that sulphuric anhydride exists either as a liquid or as a solid. It is clear that the air-SO3 gas mixture containing less than 10% of SO3, produced by the appellants in the course of manufacture of synthetic detergents, is, according to the evidence led by the appellants which remains unrebutted by the Revenue, not known to commerce or technology as sulphuric anhydride i.e., the anhydride of fuming sulphuric acid.
21. In the case of Dai-Ichi Karkaria (supra), the process of manufacture was similar. The gas containing SO3, it was contended for the appellants, was full of impurity and was not known in the market as SO3. The Tribunal noted that SO3 did come into existence during the process of manufacture and that it was consumed in the manufacturing process. The counsel for the appellants had admitted that SO3 was sold in the market. The Tribunal held that, in the circumstances, the mere fact that it was not possible in the appellants' factory to take out SO3 for chemical examination or that they did not market the same, would not be a good reason to hold that SO3 did not come into existence or that it was not marketable. The facts of the present appeals are distinguishable. We have noted that the appellants have produced evidence in the shape of affidavits and technical authorities. Detailed arguments as in the present case do not seem to have been placed before the Tribunal. It is also seen that the Tribunal's decision would appear to have been influenced inter alia by the appellants' admission that SO3 was sold in the market. The question is not whether SO3 is sold in the market but whether the air-gas mixture containing less than 10% of SO3 is known in commerce as the anhydride of fuming sulphuric acid. In our opinion, reliance on the previous decision of the Tribunal is of no help to the Revenue.
22. On the other hand, the Supreme Court's judgment in the case of South Bihar Sugar Mills and Anr. v. Union of India and Anr. 1978 ELT J 336 is more to the point. In that case, the dispute was regarding carbon dioxide (CO2) present in a mixture of gases consisting of CO2 nitrogen, oxygen and small quantity of carbon monoxide generated by burning limestone coke in a lime kiln with a regulated amount of air. The gas thus produced was sucked by a pump through a pipe which connected the kiln with the inlet side of the pump. The gas entered the chamber of the pump and was then immediately compressed by means of the compression stroke of the pump. At this stage, the gas was forced into a narrower space and as a result of the compression stroke it acquired pressure exceeding the atmospheric pressure. The gas so compressed was let into the delivery pipe which connected the outlet side of the pump with the tank containing sugarcane juice and entered the sugarcane juice with the acquired pressure behind it. The CO2 contained in the mixture of gases ranged from 27 to 36.5%. In a related case of Tata Chemicals Ltd., also heard by the Supreme Court in the same proceedings, the mixture of gases contained about 60% of pure CO2 and was compressed to a pressure of 40 to 45 lbs per square inch. The question before the court was whether such a gas mixture fell for classification as "carbonic acid (carbon dioxide)" under Item No. 14H CET which read "compressed, liquefied or solidified gases". The manufacturers inter alia contended that the said mixture was neither sold nor was marketable nor known to the trade as CO2 and that excise duty being on goods, it could be charged only on goods known as CO2 in the trade and marketable as such. The Revenue's contentions, on the other hand, were that the mixture of gases was nothing but impure CO2, that the other gases which got mixed up were unavoidable on account of the processes employed, that the fact that in the process CO2 got mixed with other gases did not mean that CO2 which was intended to be and was in fact produced lost its characteristics as such, that the ISI specifications were not relevant being for cylindered CO2 bought and sold in the market as purer CO2 and that the CO2 produced by the manufacturers could be sold in the condition in which it was produced and used by the sugar mills and the factories manufacturing soda ash. After referring to technical literature and affidavits, the court observed that the evidence showed that commercial CO2 as brought to the market for being bought and sold had a minimum content of 99% CO2 and was either compressed and packed in steel cylinders or liquefied or solidified. It was held that the gas mixture in the cases before the court was known as kiln gas in the trade, not known to the market as CO2, not marketable unless CO2 was extracted out of it and this required an elaborate plant and compression in cylinders or liquedation or solidification.
23. In the matters before us, as we have seen, the appellants have produced affidavits in support of their contention that the air-SO3 mixture is not known in commerce as sulphuric anhydride. The Revenue has not controverted this evidence.
24. Shri Sunder Rajan, for the Revenue, has relied on the observations of the Supreme Court in Para 30 of its judgment in Empire Industries Ltd. and Ors. v. Union of India and Ors. 1985 (20) ELT 170 (SC) in support of his contention that there had been "manufacture" of SO3, it being different in name, character and use from the raw materials. In the said para, the Supreme Court has observed "the moment there is transformation into a new commodity commercially known as a distinct and separate commodity having its own character, use and name, whether be it the result of one process or several processes, 'manufacture' takes place and liability to duty is attracted". There is undoubtedly manufacture involved in the production of SO3. The question, however, before us is whether the result of manufacture, namely, air-SO3 gas mixture containing less than 10% SO3 is known and is marketable as anhydride of fuming sulphuric acid (SO3) in commerce. The evidence on record points to a negative answer. The Supreme Court's judgment cited by the learned DR does not assist the case of the Revenue.
25. Shri Sunder Rajan has contended that the expression "all sorts" appearing in Item No. 14G CET will take in SO3 whether marketable or not. This contention is not acceptable because it is settled law that unless a given article or substance is shown to be marketable, even if not actually marketed by the particular manufacturer, it cannot be subject to excise levy. This is because excise levy is on goods and goods must be something capable of being brought to the market to be bought and sold (see Supreme Court's judgment in the South Bihar Sugar Mills case (supra). What, then, is the meaning to be assigned to the expression "all sorts" appearing in Item No. 14G CET? We think the expression covers, for example, all sorts of hydrochloric and nitric acids, that is, whether they are in dilute or concentrated form. It cannot, in our opinion, be construed as the DR would have it.
26. Nor does the Tribunal's decision in the case of ION Exchange v. CCE, Baroda 1988 (35) ELT 498, cited by the DR, support the Revenue's case. The goods in that case were copolymer beads made from divinyl benzene and styrene. The question was whether they would fell under Item No. 15A(ii) CET. The Tribunal, following the Supreme Court's judgment in Dunlop India Ltd. and Madras Rubber Factory v. Union of India and Ors. 1983 (13) ELT 1566 (SC), wherein the court held "but, ones an article is classified and put up in a distinct entry, the basis of classification is not open to question", held that the divinyl benzene copolymer beads answered to the description in the tariff entry. The Tribunal did not, therefore, consider any enquiry as to the marketability of the copolymer beads, their being goods having resinous or plastic character unnecessary. In the instant case, as we have noted, the air-SC"3 gas mixture is not known as, and is not, sulphuric anhydride.
27. Another authority relied on by Shri Sunder Rajan in support of the contention that the purity of a substance is not a relevant consideration in determining its classification under the CET is this Tribunal's decision in Punjab National Fertilizers and Chemicals Ltd. v. CCE 1988 (37) ELT 155. The goods were bicarbonate of soda of the purity of 71.4% to 74%. According to the ISI standard, the purity should be at least 99%. The assessees' contention was that, therefore, the goods were not covered by Item No. 14AA of the CET ("bicarbonate of soda") or Heading No. 2805.30 of the Schedule to the Central Excise Tariff Act, 1985 ("bicarbonate of soda"). We note from the Tribunal's order in the case cited that insofar as classification under Heading No. 2805.30 of the Schedule to the Central Excise Tariff Act, 1985 was concerned, it was noted that the statutory Chapter Note 2(a) to Chapter 28 of the Schedule specifically provided inter alia that except where the context otherwise required, the headings of that Chapter applied to separate chemically defined compounds whether or not containing impurities. The finding of the Tribunal that the impure sodium bicarbonate was classifiable under this heading is of no assistance to the Revenue in the instant case before us in the absence of any such statutory note. As far as the classification of sodium bicarbonate under Item No. 14AA CET was concerned, the Tribunal noted that the entry specifically covered sodium bicarbonate. Therefore, irrespective of its purity, ones the sodium bicarbonate is manufactured from raw materials, it attracted duty under the said entry though the ISI had laid down a minimum purity standard of 99%. This finding also, in our view does not assist the case of the Revenue for the reason that the question involved in the instant case is not whether impure SO3 is SO3. There is no denying that it is SO3. The question, however, is whether such impure SO3 is known and is marketable in commerce as anhydride of fuming sulphuric acid. As we have noted, the evidence on record points to a negative conclusion whereas the Revenue has not placed any evidence pointing to a positive answer.
28. In the Tribunal's decision just referred to, there is a reference to, and reliance on, the Madras High Court's judgment in Binny Ltd., Madras v. Superintendent, Central Excise, Guindy and Ors. ] 979 ELT J 65. In that case, the question was whether sodium bichromate liquor was classifiable under Item No. 14AA which inter alia specified bichromate of sodium. The contention of the petitioner that only sodium bichromate crystals, and not sodium bichromate liquor, would fell under the said item was rejected by the High Court. The basis for this decision was that the tariff entry did not say sodium bichromate crystals but only sodium bichromate. Since sodium bichromate liquor was one form of sodium bichromate, the court held that the petitioner could not be heard to say that the liquor would not attract excise levy. The other reason was that there was evidence to show that sodium bichromate liquor had been offered for sale in that form itself by the petitioner; the Department had produced bills evidencing sale of bichromate liquor. In that instant case, there is no evidence of sale of the air-SO3 gas mixture. As already stated, what is subject to excise levy is not SO3 but the anhydride of fuming sulphuric acid and there is no evidence to show that the goods in the present case are known or marketable in commerce as such.
29. It may also be noted that the Delhi High Court in Delhi Cloth and General Mills Co. Ltd. and Anr. v. Joint Secretary, Government of India and Anr. 1978 ELT (J 121) has, with reference to the petitioner's contention that the calcium carbide produced by them did not conform to Indian Standards Institutions specifications and that, therefore, they were not marketable goods, observed that the fact that the substance produced by the petitioner was sub-standard judged from the ISI specifications would not necessarily make the substance unmarketable. The marketability would depend on the degree by which the product falls below the standard. The court further observed that it was not possible to lay down a hard and fast line as to when a sub-standard product would become marketable and when it falls below the line of marketability. It was further observed that in the absence of actual evidence, it could, however, not be said if the substance manufactured by the petitioner could be called in its material and economic sense calcium carbide and whether it was saleable as such. In the instant case before us, as we have already noted, the ISI specification is for stabilised liquid sulphur trioxide and it stipulates a minimum of 99% SO3. The goods with which we are concerned is an air-SO3 gas mixture containing less than 10% SO3. It has not been shown by the Revenue that this product is saleable, though the appellants may not have sold it, as anhydride of fuming sulphuric acid.
30. Another decision relied upon by the DR is the Bombay High Court's judgement in MRF Ltd. v. Union of India and Ors. 1985 (22) ELT 5 (Bom.). The question in that case was whether rubberised tyre cord warp sheets fell under Item No. 16A(2) or 191(B) or 22 CET. The contention of the petitioner was that the substance had a limited shelf life of up to 6 weeks, it was sticky and had to be carefully handled and it did not constitute a new manufactured product for the purpose of excise levy. The Bombay High Court, however, rejected this contention. It noted that the material before it was not sufficient to enable the court to arrive at a clear finding that the rubberised tyre cord warp sheets was not a complete product after the rubberisation was done. The court also noted that the petitioners themselves had stated that though the shelf life of the product was limited, in an emergency the sheets were sent to other factories belonging to the petitioners for the purpose of manufacture of tyres. Impliedly the petitioners had, the court observed, admitted that the goods could be manufactured in an independent factory and thereafter utilised in a different factory provided this was done within a period of 6 weeks. Therefore, the sheets constituted an independent and complete product when they were used in the manufacture of tyres. It was in this background that though rubberised tyre cord warp sheets were not put in the market, the court observed that that was not a relevant consideration for determining their liability to excise duty. In the instant case, the Department has not shown that the air-SO3 gas mixture is removed or removable to another factory as anhydride of fuming sulphuric acid. The judgment in the MRF case is not applicable.
31. Yet another decision relied upon by the DR is Order Nos. 26 and 27/89-C, dated 12-1-1989 in appeals Nos. ED (SB)1643 and 1722/84-C Dunlop India Ltd. and MRF Ltd. v. CCE, Madras. The question in those appeals was whether a mixutre of formaldehyde and caustic soda and resorcinol was resol resin and as such was liable to duty under Item No. 15A GET during the relevant period. The Department's contention was that the said mixture resulted in A stage resin known as resol which fell under Item No. 15A GET. Dealing with the contentions of both sides, the Tribunal observed that there was enough authoritative material to show that resorcinol formaldehyde aqueous solution resulted in formation of A stage resin (resol) which was nothing but resorcinol resin. The Tribunal further found that the marketability of the product could not be doubted. It was in this context that the Tribunal observed that it was immaterial whether the product was actually marketed or not for the purpose of levy of excise duty. In the instant case, the marketability of the product has not been established. This decision is also of no help to the Revenue.
32. In the light of the foregoing discussion, we are of the opinion that the air -SO3 gas mixture which emerged as an intermediate product in the appellants' factory in the course of a continuous integrated process of manufacture of organic surface active agents was not anhydride of fuming sulphuric acid falling for classification under Item No. 14G CET. In the result, we set aside the impugned order and allow the appeal with consequential relief to the appellants.
33. In view of the above finding, we do not consider it necessary to discuss and give our findings on the submissions made by both sides on the other related issue of limitation.