Customs, Excise and Gold Tribunal - Delhi
Rotomould (India) Pvt. Ltd. vs Collector Of Central Excise on 18 May, 1998
Equivalent citations: 1998(60)ECC627, 1998ECR55(TRI.-DELHI), 1998(102)ELT270(TRI-DEL)
ORDER Jyoti Balasundaram, Member (J)
1. The appellants assail the order dated 22-10-1990 passed by the Collector of Central Excise, Baroda confirming the show cause notice dated 8-6-1988 invoking the extended period of limitation from 28-2-1986 to 2-2-1988 by demanding duty of Rs. 17,53,307.11 in respect of LDPE moulding powder obtained by pulverizing LDPE granules and imposing a penalty of Rs. 8 Lakhs.
2. Shri Kamal Trivedi, learned Counsel for the appellants submits that the following three main issues arise for consideraion:
(I) Whether the activity of pulverizing LDPE/HDPE granules to obtain smaller size particles/fine moulding powder amounts to manufacture in terms of Note 6 to Chapter 39 of the Central Excise Tariff Act, 1985 read with Section 2 (f)(ii) of the Act?
(II) Whether the extended period of limitation is available to the department?
(III) In the event of Issue No. I being decided against the appellants, whether they are entitled to Modvat credit against the payment of duty effected on the appellants final products viz. plastic moulded conatiners manufactured out of the plastic granules.?
3. Shri Kamal Trivedi, learned Counsel appearing along with Shri Uday Joshi, Advocate submits that the appellants are not contesting Issue No. I in view of the decisions of the Tribunal in the cases of:
(1) Collector of Central Excise, Bombay v. Bright Bros. Ltd. -1996 (84) E.L.T. 83;
(2) Sinter Plast Containers Co. v. Collector of Central Excise, Allahabad - 1996 (15) RLT 320.
holding that conversion of granules into powder form amounts to manufacture in terms of Note 6(b) of Chapter 39 and attracts duty liability. Since the appellants are not contesting this issue, following the ratio of the above decisions, we hold that the process adopted by the appellants of pulverizing plastic granules into plastic moulding powder is a process of manufacture and the moulding powder is an excisable commodity falling for classification under sub-heading 3901.10 of Central Excise Tariff Act, 1985. We now record our findings on Issue No. II and III.
(II) On a perusal of the record placed before us, we find that on 22-7-1989, the deparment issued a show cause notice demanding duty on moulding powder for the period 1-4-1984 to 31-3-1985 on the ground that the process of pulverizing plastic granules into moulding powder would amount to manufacture and that the moulding powder is classifiable under T.I. 15A(i) of the Schedule to the erstwhile Cental Excise Tariff before the powder is used for the purpose of manufacture of plastic water tanks falling under T.I. 68.
On 24-2-1986, the Range Superintendent directed the appellants to follow the licence procedure with effect from 2-4-1986, on the ground that process of conversion of granules into small size particles is nothing but change of product from one primary form to another, amounting to manufacture.
On 5-3-1986, the appellants replied explaining as to how the process of pulverizing is not a process of chemical synthesis and since it is only change in primary form as a result of chemical synthesis which is considered as manufacture in terms of Chapter Note 6 to Chapter 39, the appellants were not obliged to take out a Central Excise licence. The Range Superintendent wrote to the Divisional A.C. on 6-3-1986 seeking his opinion in the matter. In response to this, the Divisional AC wrote to the Range Superintendent on 12th March, 1986 informing him that conversion of LDPE granules into LDPE powder by pulverization may not be treated as a process of manufacture of a new article and if licensing is being insisted upon only for this reason, they may not do so.
The show cause notice dated 22-7-1985 was dropped by the Collector of Central Excise, Baroda vide his order dated 1st April, 1986 holding that the process of conversion adopted by the appellants brought about only a physical change which is not a process of manufacture. On 5th May, 1986, Superintendent (T), Baroda issued a letter to all the Assistant Collectors informing them of the receipt of a letter from M/s. Atom Plast of Bombay addressed to the All India Manufacturers Association, Bombay about the process of pulverization of granules to powder and stating that conversion of a primary form of plastic into another primary form would amount to manufacture only if the conversion was by the process of chemical synthesis. The Superintendent called upon the Assistant Collectors to report whether there was any similar case in their Division of pulverization of granules into powder form. In response to the above, the Range Superintendent replied on 16-5-1986 that one unit of the present appellant was receiving LDPE granules and converting them into small size particles. Thereafter, by letter dated 29-5-1986, the Divisional AC informed the Collector of Central Excise, Baroda that the unit of the appelllant company was engaged in the activity of pulverizing LDPE granules into moulding powder and that a case had been booked against the appellants by the Preventive staff which resulted in the issue of a show cause notice dated 22-7-1985 which was ultimately dropped by the Collector vide order dated 1-4-1986.
From the above exchange of correspondence, it is clear that the department was all along aware of the activity of pulverization undertaken by the department and there is no question of any fraud or wilful suppression of facts or wilful mis-statement with intent to evade payment of duty.
The learned DR's contention that the appellants had suppressed the fact that they were converting granules into powder and deliberately misdeclaring that they were reducing granules to small size particles, requires to be rejected in view of the fact that the appellants, activity of conversion of granules into moulding powder by the process of pulverization was well within the knowledge of the department, as seen from the earlier adjudication order dated 1-4-1986, even though this order was passed in the context of the Central Excise Tariff, as it stood prior to 1-3-1986 (wherein the department was of the view that the moulding powder was an excisable commodity falling under TI 15A(i).) The full knowledge of the department about the activity undertaken by the appellants coupled with the existence of a doubt within the department itself as to whether the process of pulverizing amounted to manufacture within the meaning of note 6 to Chapter 39 of the CETA, 1985 (in view of the fact that no chemical sysnthesis was involved and only a physical process of pulverization was involved) negates the charge of misdeclaration/suppression with intent to evade payment of duty. We therefore, hold that the ingredients of the proviso to Section 11A of CESA, 1944 are not attracted so as to enable the department to invoke the extended period of limitation. Therefore, the demand for the period beyond 6 months from the date of issue of show cause notice i.e. 28-2-1986 to 8-12-1987 is barred by limitation and duty payable only for the period from 8-12-1987 to 2-2-1988 being the period within the normal period of limitation.
III. As regards the plea of grant of Modvat credit, the matter is remitted to the Commissioner of Central Excise, Baroda for determining this issue in the light of the legal position as reflected in the orders of the Tribunal including the Larger Bench decision in the case of Dai-Ichi Karkaria reported in 1996 (81) E.L.T. 676. The Commissioner of Central Excise shall hear the appellants and pass appropriate orders in accordance with law.
The appeal is disposed of in the above terms.
S.K. Bhatnagar, Vice President
4. I observe that one of the main issues involved in this case is whether the activity of pulverizing LDPE/HDPE granules to obtain smaller size particles/fine moulding powder amounts to manufacture. In this connection, our attention has been drawn to Note 6 of Chapter 39 of the Tariff and Section 2(f) of the Central Excise Act. In my opinion, while Chapter Note 6(b) undoubtedly mentions that "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'" and apparently, therefore, the Tribunal has held in the case of Collector of Central Excise, Bombay v. Bright Bros. Ltd. reported in 1996 (84) E.L.T. 83 (Tribunal) that "conversion of granules into powder, another primary form amounts to manufacture and covered by Chapter Note 6(b) of Chapter 39 and the similar view has been taken in the case of Sinter Plast Containers v. Collector of Central Excise, Ahmedabad reported in 1996 (15) RLT 320 (CEGAT-C) in respect of polyethylene moulding powder-conversion of granules into powder and addition of certain chemicals amounts to manufacture in view of Chapter Note 6 of Chapter 39 of CETA, 1985.
5. However, insofar as the question of excisability is concerned, in my opinion, one more aspect was required to be seen, in view of the various Hon'ble Sureme Court's judgments as to whether as a result of such deemed manufacture, a new commodity known to the market emerges in order to treat the product as an excisable item. This aspect, however, does not seem to have attracted the attention in the aforesaid cases and has not been urged in the present case as well. On the contrary, The appellants have not pressed this point relating to excisability. Therefore, I do not propose to go further on this point but, I am still recording the above position as we are bound by Hon'ble Supreme Court's judgments and there are already a catena of orders on this aspect that emergence of a new marketable commodity was essential to hold a product excisable.
6. Insofar as the question of time bar is concerned, since the appellants had taken up the stand as early as March, 1986 and communicated their views to the department that in their opinion, the process of pulverisation is not a process of manufacture and the department had at that time conceded this point that pulverising does not result in manufacture of a new article and licencing may not be insisted upon and the show cause notice dated 22-7-1985 was dropped by the Collector of Central Excise, Baroda vide order dated 1-4-1986, therefore the extended period of time was not available to the department. In fact, if the department had subsequently changed its view, that was a different matter and the proper course of action was to file an appeal against Collector's order rather than book a case against the appellants.
7. Since the appellants had correctly declared the fact that they were reducing granules to smaller sizes of particles, there was neither suppression nor mis-statement of facts and in fact, there was every reason to entertain a bona fide belief in view of the details of the exchange of correspondence and the earlier order of the Tribunal holding the field at that time that they were right in their view. Therefore, the demand for the period beyond the normal period of limitation was time barred.
8. Further, the department could not eat the cake and have it too. It can deny the Modvat only if it sticks to its original position that no process of manufacture was involved in the aforesaid conversion; Moreover, in any case, once the raw material was LDPE granules or LDPE powder and the finished products were plastic moulded containers manufactured out of such raw material, then the appellants were obviously entitled to Modvat with reference to the duty, if any, paid on such granules or powder and therefore, in case they were in a position to show substantive compliance with the Modvat procedure, the benefit was required to be extended to them. The Departmental Officers were, however, entitled to verify the facts and satisfy themselves on this score.
9. I, therefore, agree that the matter was required to be remanded and the Commissioner was required to grant them a hearing and to allow them to produce such material as may be required for purposes of re-determining the duty, if any due, and the Modvat benefit to which they may be found eligible.
10. It is ordered accordingly, as already announced in the open Court.