Custom, Excise & Service Tax Tribunal
M/S Krap Chem P. Ltd vs Commissioner, Central Excise & Service ... on 28 August, 2015
In The Customs, Excise & Service Tax Appellate Tribunal
West Zonal Bench At Ahmedabad
Appeal No.E/196,197,1305-1308/2003
[Arising out of OIO No.24/MP/2002, dt.31.07.2002 passed by Commissioner, Central Excise & Service Tax, Daman and OIA No.50-53/2003/16-19/RJT/ Commr-A/Raj, dt.21.02.2003 and Commissioner (Appeals), Central Excise & Service Tax, Rajkot]
1. M/s Krap Chem P. Ltd.,
2. Shri R.P. Gupta,
3. M/s Ravi Gum Industries,
4. Shri Ramnikbhai N. Patel,
5. Shri Babulal K. Sakaria,
6. Shri Jivrajbhai Vamanjibhai Patel Appellants
Vs
Commissioner, Central Excise & Service Tax, Respondents
Daman, Rajkot Represented by:
For Appellant: Shri Gajendra Jain, Shri Jigar Shah, Shri Anand Nainawati, Ms. Dimple Gohil - Advocates For Respondent: Dr. J. Nagori, Authorised Representative For approval and signature:
Honble Mr. P.K. Das, Member (Judicial) Honble Mr. H.K. Thakur, Member (Technical) Honble Mr. P.M. Saleem, Member (Technical)
1. Whether Press Reporters may be allowed to see the No Order for publication as per Rule 27 of the CESTAT (Procedure) Rules, 1982?
2. Whether it should be released under Rule 27 of the Yes CESTAT (Procedure) Rules, 1982 for publication in any authoritative report or not?
3. Whether their Lordships wish to see the fair copy of Seen the order?
4. Whether order is to be circulated to the Departmental Yes authorities?
CORAM:
HONBLE MR. P.K. DAS, MEMBER (JUDICIAL) HONBLE MR. H.K. THAKUR, MEMBER (TECHNICAL) HONBLE MR. P.M. SALEEM, MEMBER (TECHNICAL) Date of Hearing/Decision:28.08.2015 Order No.A/11271-11276/2015, dt.28.08.2015 Per: P.K. Das This Larger Bench is constituted in terms of Order dt.01.05.2015 of the Honble Supreme Court in Civil Appeal Nos.1194-1195 of 2005 with Civil Appeal Nos.5659-5662 of 2008 in the case of Commissioner of Customs & Central Excise, Vs M/s Kraps Chem Pvt.Ltd. & Another. By the said Order, the Honble Supreme Court set aside the impugned orders passed by the Tribunal and remanded the case back to the Tribunal with the direction that the matter shall be decided by the Larger Bench.
2. The learned Authorised Representative on behalf of the Revenue raised a preliminary issue insofar as the Honble Supreme Court directed the Larger Bench to decide the conflict of opinion between two Division Benches of the Tribunal in the case of M/s Hindustan Gum & Chemicals Ltd Vs CCE, Ahmedabad-II [2004 (163) ELT 196 (Tri-Del)] in favour of the Assessee and M/s Dilip Gum Industries Vs CCE Rajkot [2004 (174) ELT 371 (Tri-Mum)] in favour of the Revenue. The learned Authorised Representative submits that in the case of M/s Hindustan Gums & Chemicals Ltd (supra), the Revenue filed appeal before Honble Supreme Court, and the matter was remanded to the Tribunal by the Honble Supreme Court, to decide afresh as reported in 2011 (272) ELT 326 (SC) (CCE Ahmedabad Vs M/s Hindustan Gum & Chemicals Ltd). It is submitted that the Tribunal already passed the order in de-novo proceedings as reported in [2012 (279) ELT 535 (Tri-Del)] (M/s Hindustan Gum & Chemicals Ltd Vs CCE Ahmedabad), (hereinafter referred to as Hindustan Gums & Chemicals Ltd 2012), in favour of the Revenue. Thus, there is no difference of opinion of co-ordinate Benches of the Tribunal and therefore, the matter may be transferred to the Division Bench to pass appropriate order.
3. On the other hand, the learned Advocates on behalf of the Appellants submit that in the said decisions, the Division Bench had not examined the law in proper manner and the Larger Bench should hear the appeals. It is also contended that the Honble Supreme Court directed the Larger Bench to decide the matter and therefore, it should not be sent back to Division Bench. On perusal of the order of Honble Supreme Court, we find that the Honble Supreme Court set aside the impugned orders and directed that the matter shall be decided by the Larger Bench within six months from that date. So, we proceed to decide the appeals as per direction of the Honble Supreme Court.
4. The relevant portion of the Order dt.01.05.2015 of the Honble Supreme Court is reproduced below:-
It is argued by Mr. Radha Krishnan, learned Senior Counsel appearing for the Appellants that it was pointed out before the Tribunal that in the case of Dilip Gum Industries Vs CCE, Rajkot (Order No.A/772-773/WAB/2004/C-II), dt.01.09.2004, the Tribunal held that Guar Gum is classifiable under Heading 1301.10. The Tribunal further noted that in another judgment given by the another Bench of the Tribunal viz. Hindustan Gum & Chemicals Ltd Vs CCE Ahmedabad-II [2004 (91) ECC 289] where the case is concerned Tamarind Kernal Powder (a kind of gum only), it was held to be classified under Chapter 11 as the product of milling industry and not a gum fall under Heading 13.01. Submission of Mr.K. Radhakrishnan is that in the aforesaid situation, the Tribunal should have referred the matter to the larger Bench for consideration. Instead, the Tribunal chose to follow the decision in Hindustan Gum & Chemicals Ltd, holding at the same time that the order in Dilip Gum Industries does not come as a binding precedent, which according to the learned Senior Counsel was impermissible.
We are inclined to agree with the aforesaid submission of learned Senior Counsel. After finding a conflict of opinion rendered by two coordinate Benches in the aforesaid two cases, the only course of action open for the Tribunal was to refer the matter to the Larger Bench to resolve this conflict. It may also be recorded that against the judgment of the Tribunal in Hindustan Gum & Chemicals Ltd, the Department had filed an appeal in this Court and this Court has referred the matter back to the Tribunal observing that some of the aspects have not been properly dealt with by the Tribunal. The said judgment remanding the case back to the Tribunal is reported as Commissioner of Central Excise, Ahmedabad Vs Hindustan Gum & Chemicals Ltd 2011 (272) ELT 326 (SC).
We, thus, set aside the impugned order and remit the case back to the Tribunal. We also direct that the matter shall be hard by a Larger Bench. We may record that in the impugned order, the Tribunal has held that the aforesaid process constitutes manufacture. Since in the case of Hindustan Gum & Chemicals Ltd, this issue was left open to be decided by the Tribunal, the Larger Bench of the Tribunal can take a fresh look into this issue in the instant case as well.
Having regard to the fact that the matter is quite old, we direct the Larger Bench of the Tribunal to decide the matter within six months from today.
5. A common issue is involved in these appeals and therefore, all are taken up for hearing together for disposal. The relevant facts in the case of M/s Kraps Chem P. Ltd (in short M/s Kraps), in brief, are that they purchased the Guar Dal Flour/Powder and Tamrind Kernal Powder (TKP) from outside. The said materials were mixed in a blender and sold as Guar Dal Powder/Flour. M/s Kraps had been filing declarations in terms of notification issued under Rule 174 of the erstwhile Central Excise Rules, 1944 with the Department from the Financial Year 1997-98 onwards, declaring that the product sold by them as Guar Dal Powder. On 29.06.2000, a team of Central Excise Officers visited the premises of M/s Kraps. The said officers were of the opinion that M/s Kraps was engaged in the manufacture of Guar Dal Powder, known as Guar Gum, classifiable under Sub Heading No.1301.10 of the Schedule to the Central Excise Tariff Act, 1985 (in short the CETA) and liable to pay duty and they cleared the goods without obtaining Central Excise registration for manufacture and clearance of the same. The officers also recorded the statements of Shri R.P. Gupta, Managing Director of M/s Kraps on different dates. The Central Excise Officers also seized the goods on the reasonable belief that the same were excisable goods.
5.1 A show cause notice dt.19.12.2000 was issued by the Commissioner of Customs & Central Excise, Surat-II, proposing that the goods should be classified under Heading No.1301.10 of CETA, demand of duty of Rs.92,53,196.00 alongwith interest and to impose penalty, for the period 1997-98 to June 2000. It has also proposed to confiscate the seized goods under Rule 173Q(1) of erstwhile Central Excise Rules, 1944.
5.2 By the impugned order, the Adjudicating authority confirmed the classification of Guar Dal Powder as Guar Gum under sub-heading No.1301.10 of the CETA and also confirmed the demand of duty of Rs.92,53,196.00 alongwith interest and imposed penalty of equal amount and also confiscated the seized goods and imposed redemption fine of Rs.1 lakh. It has also imposed a penalty of Rs.10 lakhs upon Shri R.P. Gupta, Managing Director of M/s Kraps (Appellant No.2), under Rule 209A of the erstwhile Central Excise Rules, 1944.
5.3 The Appellants filed appeals before the Tribunal. By Final Order No.A/1658-1659/WZB/AHD/2004/C-I, dt.06.10.2004, the Tribunal held that the process carried out by M/s Kraps amounts to manufacture. The impugned goods Guar Dal Powder would be classifiable under Heading No.1101 of the Tariff, attracting Nil rate of duty and therefore, the demand of duty, confiscation, penalty ordered in the impugned order was set aside. Revenue filed appeals before the Honble Supreme Court. By Order dt.01.05.2015, the Honble Supreme Court set aside the order of the Tribunal and remanded the matter to the Tribunal to decide by a Larger Bench.
6. The facts of the case in the appeal of M/s Ravi Gum Industries (in short M/s Ravi Gums), and its partner & employees (Appellant Nos.3 to 6), in brief, are that M/s Ravi Gums was engaged in the manufacture of Guar Gum on job work basis, which was being used by textile processors. On 01.09.1999, the Central Excise Officers of Division-II, Rajkot visited the factory premises of M/s Ravi Gum and found that they were manufacturing the excisable goods Guar Gum without following the Central Excise Procedure. The statements of Shri Babulal Kanjibhai Sakaria, Manager, Shri Jibrajbhai Bhavanjibhai Patel, Partner, and Shri Ramnikbhai Narsinghbhai Patel, Accountant of M/s Ravi Gum were recorded.
6.1 A show cause notice dt.05.01.2002 was issued by the Deputy Commissioner of Central Excise, Division-II, Rajkot, proposing demand of duty of Rs.4,56,208.00 alongwith interest and to impose penalties on all the Appellant Nos.3 to 6, for the period 1997-98 to 1999-2000.
6.2 The Adjudicating authority confirmed the demand of duty alongwith interest and imposed penalty of equal amount of duty under Section 11AC of Central Excise Act, 1944 and also imposed a penalty of Rs.50,000.00 under Rule 173Q of erstwhile Central Excise Rules, 1944 on M/s Ravi Gums. It has also imposed penalties on other Appellants herein.
6.3 By the impugned order, the Commissioner (Appeals) upheld the Adjudication order, subject to penalty imposed under Rule 173Q of erstwhile Rules on M/s Ravi Gum was set aside and the penalties imposed on other Appellants were reduced.
6.4 M/s Ravi Gums and other Appellants filed appeals before the Tribunal. By Final Order No.A/2706-2709/WZB/AHD/2007, dt.12.10.2007, the Tribunal, following the Tribunals earlier decision in the case of M/s Kraps Chem P. Ltd (supra), set aside the impugned order, and allowed the appeals with consequential relief to all the Appellants. Revenue filed the appeals against the order of the Tribunal before the Honble Supreme Court. By Order dt.01.05.2015, the Honble Supreme Court set aside the Tribunals order and remanded the matter to the Tribunal as stated above.
7. The learned Advocates Shri Gajendra Jain, Shri Jigar Shah and Shri Anand Nainawati appearing on behalf of the M/s Kraps and its Directors submit that the demand of duty alongwith interest and penalty would not sustain, mainly on three counts. Firstly, the process undertaken by the Appellant would not amount to manufacture under Section 2(f) of the Central Excise Act, 1944. It is a mere mixing of Gaul Dal Flour/Powder and TKP (Tamarind Kernel Powder) without any chemical reaction and after processing Gaul Dal Flour would remain Guar Dal Flour/Powder. So, there is no change in character, use and identity.
7.1 Secondly, even if it would amount to manufacture, the product will be classified under Heading 1101 of the Tariff, at Nil rate of duty. It cannot be classified under Heading No.1301. The expression Gum as mentioned in Heading No.1301 would cover a plant exudates/extracts gum and not Gaul Dal Flour, which is seed gum.
7.2 Thirdly, the demand of duty alongwith interest for the extended period of limitation cannot be sustained, as they have filed declaration under Rule 174 of erstwhile Central Excise Rules, 1944. They acted on bonafide belief, as in the trade and parlance, Guar Dal Flour was treated as non-excisable goods, which is supported by the decision of the Tribunal and therefore, the demand of duty for the extended period of limitation and imposition of penalty cannot be sustained. The learned Advocate submitted written submissions alongwith case laws, during the course of hearing.
8. Ms.Dimple Gohil, learned Advocate appearing on behalf of M/s Ravi Gums and its Partner and employees, adopted the arguments of the learned Advocate Shri Gajendra Jain. She submits that the entire demand of duty is beyond the normal period of limitation. It is submitted that M/s Ravi Gums is a job worker and demand of duty alongwith interest and penalty on the job worker and its employees cannot be sustained. It is submitted that the Appellant is small job worker and acted on a bonafide belief as in the entire trade, the job work process was treated as non-excisable. She further submits that it is a case of dispute of manufacture and classification of goods and the extended period of limitation and penalty cannot be sustained.
9. The learned Authorised Representative on behalf of the Revenue submits that it is not a case of mere mixing of Gaul Dal Flour and TKP and the Appellant also added Glycol and Methonol for dispersion of powder in the blender, which is increasing the viscosity of the product for use in different industries. The process undertaken by the Appellant would amount to manufacture. The process undertaken by the Appellant, by adding various additives to change its viscosity and solubility as per the requirement of the user. Thus, there is a change of character, use and identity of the goods. The Chemical Examiner has also reported that the sample is in the form of white powder and it qualifies as Guar Gum. Further, the gum is clearly covered in the heading 13.01 of the CETA. There is no indication in Chapter 13 of CETA that a part of the gum would cover in Chapter 11. Furthermore, the Appellant had not disclosed in the declaration that they were using power and therefore, the extended period of limitation would be invoked. The Appellant had not taken any registration and imposition of penalty is warranted. The learned Authorised Representative also submitted written submission with compilation of case laws during the course of hearing.
10. After hearing both the sides and on perusal of the records, we find that the first issue is that whether the process undertaken by the Appellant would amount to manufacture. The learned Advocate submits that the Appellants had mixed Guar Dal Flour/Powder (75%), Guar Dal Powder/Saw Dust (5-10%) and TKP (10-15%) in a blender. There was no chemical reaction amongst the ingredients of the mixture. The product, after process, was sold as Guar Dal Powder. The Guar Dal Flour/Powder after the process remains Guar Dal Powder, and there is no change of character, use and identity of the goods. He strongly relied upon the various decisions of the Honble Supreme Court and Tribunal.
11. We find from the records that Shri R.P. Gupta, Managing Director of M/s Kraps in his various statements on different dates, deposed that they were procuring Guar Dal Powder of different particle sizes and blend into blender and packing 50 kgs pack. They are also using Glycol and Methonol for dispersion of powder from the sides of blender/mixture. The other additives like Guar Dal Dust/Saw Dust and TKP were added in required quantity. The blender was operated with the aid of power. It is stated that they had laboratory equipments such as Viscometer, Micro Balance, Stirrer, which were used for testing the quality of the material received from the Blenders, as it was agro product and quality of the raw material depends on many factors as field crop. Their main customers were Paper Industries, Agarbatti Industries and Explosive Industries. The viscometer was used in lab for measuring viscosity of Guar Dal Flour, which ranges from 0 to 5000 CPH, Stirrer was used for stirring of the samples while measuring viscosity, Electronic weighing machine for weighing sample and PH meter for measuring pH, which may be acidity, basic and neutral. The viscosity of the product subject to explosive industries ranges from 1500 to 2000 CPH, and of product supplied to Mosquito Coil Industries ranges from 1200 to 1400 CPH. It is stated that the difference in the viscosity of their product supplied to different industries and the viscosity depends upon the percentage of inputs used in the process of the product. It is further stated that when TKP used more, the viscosity of the product was less and when the TKP percentage less, the viscosity of the product was high. It contains binding property as per its natural inherent properties. But, its viscosity and solubility differs on the basis of other inputs used in the blender. In the impugned order, the Adjudicating authority reproduced the statement of Shri R.P. Gupta as under:-
On being asked about the grade of the product supplied to different industries like paper industry, mosquito repellant coils and explosive industries and the input used for such different grades of their products, Shri R.P. Gupta deposed that ratio of ingredients used in different grades of their finished products are as follows:-
(1) For Paper Industries:- They supplied Guar Dal Powder known as paper aid which contains Guar Dal flour of 100 Hp or 150 Mesh + TKP (Tamarind Seed Powder) 30% to 50% and Glyxol and Methanol about 1% and no other inputs were used for making of this grade of finished goods supplied to Paper Industries. They used to blend the whole inputs with the help of blender which was working with the aid of power for about 1 to 2 hours. Thereafter, they used to test the finished goods for checking of its viscosity and solubility with the help of Viscometer and such finished products were having Viscosity 800 to 1200 CPS and solubility in water tested. There was no criteria for the solubility percentage.
(2) For Mosquito Coils and Explosive Industries:- Finished product supplied to Mosquito coils manufacturer and manufacturers of explosive item, the grade of their finished goods remains same. The ingredients used for making these products were Guar Dal Flour of 200 Meshm+ TKP about 5 to10% or Guar dust of 5 to 10% and when used both percentage remains same. On being asked, he deposed that except above inputs, no other raw material or chemicals were used for manufacture of finished product supplied to Mosquito coils and explosive industries. Further, he deposed that products supplied to explosive industries contains less TKP in compare to the product supplied to Mosquito coils industries. The Appellants had not disputed the statements of Shri R.P. Gupta, Managing Director of M/s Kraps at any point of time.
12. We find that the Appellants received the Guar Dal Powder which is derived from seed of Guar plant. The seed of Guar plant in powder form known as Guar Dal Powder, was received by the Appellant. The Appellant had undertaken a process of the said powder added with other product and TKP. It is also mixed with Methonol and Glycol in a minimum quantity. There is a chemical reaction during mixing of these items and the viscosity of the final product ranges from 0 to 5000 CPH as per requirement of end use of the product. The chemical reaction in the Blender is expressing the magnitude of internal friction in a fluid and there is a change of properties as per end use of the goods. Thus, there is a change of character of the impugned product. The Appellants received Guar Dal Powder and after due process, it was sold as Guar Dal Powder/Guar Gum. There is no dispute that the said product was known in trade as Guar Gum. So, there is a change of character, identity and use of the goods. Honble Supreme Court in the case of Union of India Vs Delhi Cloth & General Mills Co. Ltd 1977 (1) ELT (J199) (SC), held that the manufacture implies a change, but every change is not manufacture and yet every change of an article is to the result of treatment, labour and manipulation. But something more is necessary and there must be transformation; a new and different article must emerge having a distinctive name, character or use. The Honble Supreme Court, while dealing with the identical issue in the case of Hindustan Gums & Chemicals Ltd 2011 (272) ELT 336 (SC), directed the Tribunal to consider the process of manufacture and also sold as a marketable commodity. In the present case, we have already observed that the process undertaken by the Appellant, emerged having a distinct name Guar Gum. There is change of character of the goods of different properties as per viscosity used in various industries. So, in our considered view, the activities undertaken by the Appellant would amount to manufacture.
13. The Tribunal in the case of M/s Hindustan Gums & Chemicals Ltd 2012 (supra), while dealing with the product Treated Tamarind Kernal Powder produced by the Appellant held that the process undertaken by the Appellant would amount to manufacture. The relevant portion of the findings of the Tribunal in the case of M/s Hindustan Gums & Chemicals Ltd 2012 (supra) is reproduced below:-
13.?We have considered arguments on both sides. We find that the chemical process carried out gives the product a different molecular structure and makes it suitable for a different use. Any person wanting to use Tamarind Powder as thickener in textile industry will not buy and use such powder unless it is subjected to the processes that the appellants are carrying out. So prima facie the processes constitute a manufacturing process. We have also considered the decisions of the Apex Court cited by the Counsel. In para 10 above we have noted the facts, circumstances and law that resulted in the quoted decisions. In the case of Thungabhadra Industries the decision was not in the context of the meaning of manufacture in Central Excise Act. The decisions was only to the effect that considering the legal provisions for collection of sales tax prevailing then there was no case for collecting sales tax from hydrogenated groundnut oil made from duty paid oil. The case of Tikatar Industries also was a case of conversion of duty paid bitumen to another grade of bitumen and the question being decide was levy of excise duty for a second time and the decision itself was based on a circular from the Board which sought to avoid levy of duty on activities involving small value additions. In the case of Shyam Oil Cakes the nature of commodity had not changed substantially. Thus we find that the decisions quoted are not appropriate to the facts and context under consideration now. Further the context itself evolves with newer systems for levy of tax and there cannot be a rigid approach to the issue when the taxation system itself changes. In the facts of the case and the law applicable we are of the view that the processes amount to manufacture.
14. The learned Advocate on behalf of the Appellant placed several decisions of the Honble Supreme Court and the Tribunal as under:-
(a) Satnam Overseas Ltd Vs CCE 2015 (318) ELT 538 (SC) The issue involved in this case is whether addition of dehydrated vegetables and spices to raw rice in the name of Rice & Spice would amount to manufacture. The product i.e. Rice & Spice is combination of raw rice, dehydrated vegetables and certain spices and condiments mixed in pre-determined proportion and that blended together in a mixer for uniformity and the blended mixer is heated, if required, to sterilize the product. The mixed product is packed in pouches with Nitrogen flushing for a longer shelf life. It has been held that the rice remaining in raw form and to make it edible, it has to be cooked according to the instructions mentioned on the pouch. It did not amount to manufacture as there was no transformation into new commercially distinct commodity.
(b) Servo-Med Industries Pvt.Ltd Vs CCE 2015 (319) ELT 578 (SC) It has been held that that sterilization of syringes/needles would not amount to manufacture. Merely because un-sterilized syringes / needles were of no commercial use, without sterilization, it cannot be said sterilization made it commercially usable. It has been observed that to amount to manufacture, there must be a transformation by which new and different article emerges which has distinct name, character or use.
(c) CCE Vs Osnar Chemicals Pvt.Ltd. 2012 (276) ELT 162 (SC) It has been held that mixing polymer and additives to heated Bitumen resulting in emergence of Polymer Modified Bitumen (PMB) and Crumbled Rubber Modified Bitumen (CRMB) would not amount to manufacture. There was no change in characteristics or identity of Bitumen only its grade or quality was improved. The impugned process did not result in transformation of Bitumen into new product having different identity, characteristics and end use, which remains same.
(d) Laljee Godhoo & Co. Vs CCE 2001 (132) ELT 287 (T) It has been held that blending of gum Arabic and wheat flour in sigma mixers and then pouring of filtered water mixed asafetida resulting in lump or powder and no chemical change brought about in asafetida. There is no change in essential character of product and process does not amount to manufacture.
In the above cases, there was no change of character, use of identity of the goods. In the present case, it is already observed that the process undertaken by the Appellant, would change the character, identity and end use of the product. Thus, none of the case laws would be applicable in the present cases.
15. The next issue is whether the product in question would be classifiable under Sub Heading No.1101.00 of CETA as contended by the Appellant or Sub Heading No.1301.10 of CETA as held by the Adjudicating authority. We reproduce both the tariff headings below:-
Heading No. Sub Heading No. Description of goods Rate of duty (1) (2) (3) (4) 11.01 1101.00 Products of the milling industry, including flours, groats, meal and grains of cereals, and flour, meal of flakes of vegetables Nil 13.01 Lac; gums, resins and other vegetable saps and extracts 1301.10
- In or in relation to the manufacture of which any process is ordinarily carried on with the aid of power 8% 1301.90
- Other Nil
16. The learned Advocate submits that the term gum as mentioned in the Heading No.13.01 would cover plant exudates/extracts. It is submitted that botanical gums are divided into two parts, seed gum and plant exudates/extracts. The seed gums are divided into Guar Gum and locust bean gum. The plant exudates/extracts cover gum Arabic, gum ghatti, gum karaya, gum tragacanth and pectin. The Technical book Enclycopedia of Chemical Technology in which under the heading seed gums at Page 854, guar gum has been explained as under:-
Guar Gum (9000-30-0) is derived from the seed of the guar plant, Cyamopsis tetragenolobus, a pod-bearing nitrogen-fixing legume grown extensively in Pakistan, India, and on a commercial scale since 1946, in the south western United States. During processing, the seed coat is removed by heating and milling. The endosperm, comprising approximately 40% of the seed, is then separated from the germ by various milling processes. The final milled endosperm, which is commercial guar gum, has a typical analysis of crude fiber, 2.5%, moisture, 10-15%; protein, 5-6%; an ash 0.5-0.8%.
17. It is submitted that on reading the tariff description of heading 1301 of the CETA covers Lac, gum, resin and other vegetable saps and extracts. The meaning of the term resin, saps, and extracts would cover only plant exudates/extracts. So, the word gum appearing in Heading No.1301 would cover only gums, which are in the nature of plant exudates and extracts. It is supported by the principle of interpretation known as Noscitus a Sociis. The Honble Supreme Court in the case of Pardeep Agarbatti, Ludhiana Vs State of Punjab & Others 1997 (8) SCC-511 applied the principle of Noscitus a Sociis for the purpose of interpretation of taxing entry. We find that the maxim of Noscitus a Sociis would apply where a word or phrase can not be construed as it stood, and it is to be judged in the light of its surrounding words. In the present case, we are unable to accept the submissions of the learned Advocate for the reason that Heading No.1101 covers the products of Milling Industries, including flour, groats, meal, grains of cereals and flour, meal or flakes of vegetables. On the other hand, Heading No.1301 categorically covers gum. In our considered view, the description of Heading No.1301 does not distinguish between seed gum and plant exudates/extracts. The classification of goods would not depend upon varieties of goods, unless it is mentioned specifically in the Heading. So, the said maxim cannot apply in this case.
18. Sub-Heading No.1301.10 of HSN is not aligned with sub-heading No.1301.10 of Central Excise Tariff Act, 1985. But, Note (c) of sub-heading No.13.02 of HSN has a persuasive value, in the present case, as under:-
(C) Agar-agar and other mucilages and thickeners, whether or not modified, derived from vegetable products.
... ... ... ... ... ... ... ...
The most important are:
(1) Agar-agar (agar) obtained by extraction from certain marine algae found mainly in the Indian and Pacific Oceans, and usually presented in the form of dried fibres, flakes, powder or in a gelatinous form obtained by treatment with acids. It is commercially known as gelose and also as Japanese vegetable gelatin (or moss) or Alga Spinosa.
(2) Endosperm flour or locust beans (Ceratonia siliqua) or guar seeds (Cyamopsis phosalioides or Cyamopsis tetragonoloba). These flours are included in this heading, whether or not modified by chemical treatment in order to improve or stabilize their mucilalgenous properties (viscosity, solubility, etc.)
19. Chapter 13 of HSN included the goods, modified by chemical treatment in order to improve their properties (viscosity, solubility etc). A chemical treatment is a process in which substances interact causing chemical or physical changes and such processed material would cover under Chapter 13 of HSN. It is already stated above that in present case, the Guar Dal Flour/Powder was modified by chemical reaction in order to improve their properties as per end use of the product in various industries. So, it is rightly covered under Chapter 13 of the CETA. The Learned Advocate strongly relied upon CBEC Circular F. No. 10/18/86-CX, -I dated 14.08.1986, where it has been clarified that Tamarind Seed Powder or TKP would be correctly classifiable under Sub Heading No. 1101.90 of CETA. It is seen that the said circular was issued in the context of Tamarind Seed Powder, which is different for processed TKP and the said circular would not apply in this case. The Tribunal in the case of Hindustan Gum & Chemicals Ltd 2012 (supra) held as under:-
19.?Between the two Headings 13.01 is more suitable than 11.01 for the reason that a product made through chemical process like the one cannot be considered to be akin to other products mentioned in 11.01 where no manufacturing process is involved. On the other Heading 13.01 mentions gums which is a description which will cover the product better. The Appellants are relying on the entries in Heading 13.01 of the HSN which mentions natural gums to argue that the impugned product will fall outside the scope of Heading 13.01 of Central Excise Tariff. The word Natural occurring in 13.01 of HSN is conspicuous by its absence in Heading 13.01 of the Central Excise Tariff.
20.?Let us now examine the matter with reference to HSN notes. As per HSN notes. Tamarind kernel powder is mentioned in the notes under Heading 11.06 and Heading 13.02 of HSN is reproduced below.
Note (C) under Heading 11.06 (C)?Flour, meal and powder of the products of Chapter 8. The principal fruits or nuts of Chapter 8 which are made into flours, meals or powders are chestnuts, almonds, dates, bananas, coconuts and tamarinds.
The heading also includes flour meal and powder of peel of fruits.
However the heading does not cover tamarind powder in packings for retail sale for prophylactic or therapeutic purposes (Heading 30.04) Note C (5) under Heading 13.02 Cotyledon flour of tamarind seeds (Tamarindus indica). These flours are included in this heading even if modified by heat or chemical treatment.
21.?It is clear that the note under Heading 13.02 covers the impugned goods more appropriately than that under Heading 11.06. Further the Rules of Interpretation of the Tariff mandates that if a product appears to be classifiable under more than one heading the heading coming last in the sequence should be adopted. The Appellants argue that the Headings in Central Excise Tariff were not aligned to those in HSN during the relevant time and hence the notes cannot be relied upon. The position at the relevant time was that the Central Excise Tariff was aligned to HSN Tariff at Chapter level for the initial chapters and at Heading level for later chapters starting from Chapter 25 onwards. In the early chapters of Excise Tariff there were some deviation from entries in HSN for the reason like that live animals of Chapter 1 of HSN could not attract excise duty. Further the early chapters of the Tariff covers animal products and vegetable products most of which cannot be considered to be manufactured items and the government did not want to levy excise duty on most such items. So the elaborate entries in HSN were compressed into fewer entries in Central Excise Tariff. In this scheme there is no evidence demonstrating that the products covered in one chapter of HSN were taken to any other chapter in Central Excise Tariff. Against this background there is no merit in the argument of the Appellants.
22.?Further there is an inconsistency in the argument of the appellants when they argue that the Central Excise Tariff Headings at the relevant time were not aligned to HSN Headings but still relies on HSN notes for understanding the scope of Heading 13.01. The proper way to understand the entries is that Heading 13.01 of the Central Excise Tariff compressed both Headings 13.01 and 13.02 of HSN. Going by this approach the Revenues argument that the product was covered under Heading 13.01 of the Excise Tariff has more merit.
20. We find force in the submissions of the learned Advocate that the extended period of limitation cannot be invoked. It is seen from the records that the Appellant filed declaration under Rule 174 of erstwhile Rules from the year 1997-98. The Appellant had specifically mentioned the description of the goods as Guar Dal Powder, with the process of manufacture by the Declaration dt.29.09.1997. The learned Authorised Representative on behalf of the Revenue submits that the Appellant had not disclosed that the process was undertaken with the aid of power. On perusal of the Declaration, we find that the Appellant had given the process carried out by them and the blender is switched on, implied the use of power, as under:-
The blender is switched on, guar dal powder stored in raw material godown is weighed and put in the ribbon blender with the help of material handling equipment. When blender is filled with required quantity, additives are added to prepare the guar dal powder as per consumer needs, the finished guar powder is drawn and tested in lab, and then packed in 50 Kgl. HDPE bags and finally dispatched to customer.
21. In any event, there were contrary decisions of the co-ordinate Benches of the Tribunal on this issue. The learned Advocate submits that the Appellant acted on a bonafide belief and the goods were treated as non-excisable in the entire trade and parlance. It is noticed that the appellants own case, the Tribunal in earlier occasion, observed that the impugned goods are NIL rate of duty under Chapter 11 of CETA. So, the ingredients in proviso to Section 11 A (1) of Central Excise Act, 1944 cannot be involved. Considering the overall facts and circumstances of the case, we are of the view that the extended period of limitation cannot be invoked. In the case of M/s Ravi Gum Industries, the Appellant is a job worker. As the matter is related to interpretation of manufacturing and classification of the goods, imposition of penalty on the Appellants cannot be sustained.
22. In view of the above discussion, we hold that the process undertaken by the Appellants of Guar Dal Powder/Gum would amount to manufacture and classifiable under Heading No.1301 of the Schedule to the Central Excise Tariff Act, 1985. The impugned orders to the extent the demand of duty alongwith interest for the extended period of limitation and penalties imposed on the Appellants are set aside. The appeals of M/s. Kraps Chemical Pvt. Ltd. and M/s. Ravi Gum Industries are disposed of in the above terms and the other appeals are allowed.
(Operative portion of the order pronounced in Court) (P.K. Das) Member (Judicial) (H.K. Thakur) Member (Technical) (P.M. Saleem) Member (Technical) cbb 19