Customs, Excise and Gold Tribunal - Delhi
Alps Industries Ltd. vs Commissioner Of Central Excise on 14 May, 2005
Equivalent citations: 2005(101)ECC56, 2005(185)ELT405(TRI-DEL)
ORDER V.K. Agrawal, Member (T)
1. The issue involved in this Appeal filed by M/s. Alps industries Ltd. is whether the benefit of Notification No.8/97-C E dated 1.3.97 is available to the excisable goods manufactured by them and cleared into Domestic tariff Area.
2. Shri L.P. Asthana, learned Advocate mentioned that the Appellants, a 100% Export Oriented Undertaking, manufacture cotton yearn fabrics, made ups etc. that in respect of Domestic Tariff Area clearances, they claimed benefit of Notification No. 8/97 which exempts the goods from payment of so much of the duty of excise as is in excess of an amount equal to the aggregate of the duties of excise leviable on like goods produced or manufactured in India, other than in a 100% Export Oriented Undertaking and Free Trade Zone, subject to the condition that the goods are produced or manufactured wholly from the raw material produced or manufactured in India; that the Appellants imported various consumable items, namely lefasol, indigo powder, PVA, discofix DBA, Ceraperm and resorcinol; that these items were mainly for sizing and for the purpose of dyeing yarn, fabrics or made-ups; that the Commissioner of Central Excise, under the impugned Order, has confirmed demand of duty for the period 1997-1998 to November 2001 after issuing the show cause notice dated 26.3.02 disallowing the benefit of Notification No.8/97. Learned Advocate submitted that the Government, by its Circular No.389/22/98-CX Dated 5.5.1998, has clarified that a 100% Export Oriented Undertaking is eligible for the benefit of Notification No.8/97-C E even if imported consumables are used since the Notification does not debar the use of imported consumables provided other conditions of the Notification are satisfied; that thus the Appellants were under the bonafide belief that the imported items are consumables and are covered by the Government Circular; that the said Circular was withdrawn only by another Circular dated 31.1.2002. and therefore, during the intervening period, they were entitled to the benefit of Notification; that the Joint Development Commissioner, NEPZ also, under letter dated 6.2.2001 addressed to the CCE, Meerut has requested the Department to look into the matter for removing the difficulties being faced by an EOU as the sizing and finishing chemicals used by them are consumables; that the Additional Textile Commissioner under Certificate dated 29.10.2001 has mentioned that the chemicals are substantially consumed during the manufacturing process and hence can be treated as consumables; that in another letter dated 14.6.2002, Additional Textile Commissioner has clarified that chemicals participate in or are required for a manufacturing process, to import functional properties to a textile product but do not significantly form part of the end product, and these chemicals are substantially consumed during the manufacturing process and hence will be deemed as consumables; that the Supreme Court in the case of Coastal Chemicals Ltd. v. CTO, Andhra Pradesh and Ors. (1999 (85) ECR, 825) has held that consumables refers only to materials which is utilised as inputs in the manufacturing process but is not identifiable in the final product because it has been consumed therein. Learned Advocate mentioned that as all the items in the present matter, have been consumed in the manufacture of finished products, they fall within the purview of term consumable; that in terms of EXIM Policy, consumables is any item required for manufacture but not forming a part of the end product whereas raw materials have been defined as any material needed for the manufacture of goods, whether or not they are substantially consumed during manufacture and whether or not they form a part of the end product. Learned Advocate, therefore, contended that the benefit of Notification No.8/97 is available to the products manufactured and cleared by them into Domestic Tariff Area as they have not used any material which is not produced or manufactured in India.
3. Learned Advocate also contended that the extended period of limitation is not invokable in the present matter. Since the department was aware from the very beginning as to what was being done by the Appellants, that the various consumable items imported by them were rewarehoused in Export Oriented Undertaking under the supervision of the Jurisdictional Central Excise Inspector and thereafter these were issued for production under the Supervision of the Department itself; that they had also claimed the benefit of Notification 8/97 in the Classification declaration filed by them with the Department; that moreover, the understanding of the Appellants of the Circular dated 5.5.98 was that they are eligible for the benefit of Notification even if imported consumables are used by them. He also mentioned that even Department was of view that all the items used by them are in the nature of consumables only; that this is evident from the letter dated 15.3.2002 of the Deputy Commissioner (Div) addressed to Deputy Commissioner (Prev); that in its report even the Range Superintendent has reported that all the items are consumables; That if the Departmental Officer themselves are of the view that these items are consumables; they can not be faulted for thinking and acting on the same lines. He relied upon the judgment in the case of Pushpam Pharmaceutical Company v. CCE, Bombay [1985 (78) ELT 401 (SC)] wherein it has been held that the expression 'suppression of facts' has been used in company of such strong words as fraud, collusion or willful default. In fact it is the mildest expression used in the proviso. Yet the surroundings in which it has been used it has to be construed strictly. It does not mean any omission. The act must be deliberate. In taxation, it can have only one meaning that the correct information was not disclosed deliberately to escape from payment of duty. Where facts are known to both the parties the omission by one to do what he might have done and not that he must have done, does not render it suppression. Reliance has also been placed on the decision in the case of CCE v. HMM Ltd. [1995 (76) ELT 497 (SC) and CCE Kanpur v. Prakash Gramodyog Samiti [2003 (157) ELT 580 (Tri)]. He also contended that in view of these facts, no penalty is also imposable on the Appellants as the issue involved is purely a question of interpretation; that for these reasons also no interest can be demanded from the Appellants under Section 11 AB of the Central Excise Act as there was no suppression of facts by the Appellants. Finally, the learned Advocate submitted that these chemicals imported by them were used in respect of only processed fabrics and therefore the question of demanding any duty does not arise in respect of unprocessed fabrics that if it is held by the Tribunal that the benefit of Notification is not available to them; the prices charged by them should be treated as cum duty price and the assessable value has to be determined after allowing the statutory deductions in terms of judgment of Supreme Court in the case of CCE v. Maruti Udyog Ltd. (2001 (141) ELT 3].
4. Countering the arguments Shri O.P. Arora, learned Senior Department Representative, submitted that the items imported by them have been used in the manufacture of their products which have been cleared into the Domestic Tariff Area and as such the benefit of Notification No.8/97 is not available to them; that the chemicals imported by them enhances the finishing utility and value of their products; that the word 'raw material' has been interpreted by the Supreme Court in the case of CCE v. Ballarpur Industries Ltd. (1989) (43) ELT 804 (SC) wherein it has been held that the "ingredients used in the Chemical Technology of Manufacture of any end product might comprise, amongst others, of those which may retain their dominant individual and character throughout the process and also in the end-product; those which, as a result of interaction with other chemicals of ingredients, might themselves undergo chemical or qualitative changes and in such altered form find themselves in the end product; those which, like catalytic agents, while influencing and accelerating the chemical reactions, however, may themselves remain uninfluenced and unaltered and remain independent of and outside the end-product and those, as here, which might be burnt-up or consumed in the chemical reactions." Learned Senior Departmental Representative mentioned that the question before the Supreme court was whether the ingredients of last mentioned clause qualifies themselves as and are eligible to be called "Raw Material" for the end-product; that the test laid down by the Supreme Court was that "the ingredients should be so essential for the chemical processes culminating in the emergence of desired end-product, that having regard to its importance and indispensability for the process, it could be said that its very consumption or burning-up is its quality and value as raw material", that the Supreme Court further held that "in such a case the relevant test is not its presence in the end product but the dependence of the end product for its essential presence at the delivery end of the process." Learned Senior Departmental representative therefore contended that as these chemicals imported by the appellants and used in the manufacture enhanced the utility and value of the product, these are raw-materials making the products eligible for the benefit of exemption under Notification No.8/97. He also relied upon the decision in the case of CCE Guntur v. Asia Peroxides Ltd. [2004 (168) ELT 201 (Tri)].
5. Regarding invokability of the extended period, time period for demanding the duty, learned S.D.R. submitted that the supervision and control over 100% Export Oriented Undertaking had been liberalized since July, 1998; that it has been circulated vide Board's Circular No.88/98 Cus dated 2.12.98, that the Board has amended the Manufacture and other Operations in Warehouse Regulation, 1966" by Notification No.44/98 Cus (NT) dated 2.7.98 to provide operational flexibility, ease the restriction and remove production difficulty being faced by Export Oriented Undertaking considering the changes in the environment of import control and tariff regime; that the provisions relating to fixing the days/hours of operation of the warehouse, the manufacture to be carried out under the physical supervision of the Customs Officer, locking of ware house premises, control over the issue and return of the imported goods had been deleted. Learned Senior Departmental Representative, therefore contended that the Department was not in the knowledge of the use of imported raw materials in the manufacture of goods removed into Domestic tariff Area. He also mentioned that in the classification declaration filed by the Applicants, they had not given the detailed description of the manufacturing process and as such it can not be claimed by them that that Department was aware of the use of the imported raw materials.
6. We have considered the submissions of both the sides. Notification No.8/97 C E provides exemption from payment of duty in respect of goods manufactured by 100% Export Oriented Undertaking and removed to Domestic tariff Area subject to the condition that the finished products are manufactured "wholly from the raw materials produced or manufactured in India." It is an admitted fact that the Appellants had imported chemicals which were used by them in the manufacture of their products. The contention of the Appellants that these chemicals are consumables and not raw materials is not well-founded in view of the judgment of the Supreme Court in the case of CCE v. Ballarpur Industries Ltd., [1989 (43) ELT 804 (SC)]. The Apex Court has considered therein as to whether the ingredients which might be burnt up or consumed in the chemical reactions qualify as and are eligible to be called "Raw-Materials" for the end product. The Supreme Court has held that the relevant test is not its presence in the end product, but the dependence of the end product for its essential presence at the delivery end of the process. Applying this test, the Supreme Court decided that Sodium Sulphate was used in the manufacture of paper as "Raw-Material". similarly in the present matter the use of chemicals imported by the appellants was as raw materials as the finishing utility and value of the end product was dependent on the use of these chemicals. It is also worth mentioning that in Ballarpur's case, the Supreme Court observed that their observation in the case of Deputy Commissioner of Sales Tax v. Thomas Stemphen & Co. Ltd., 1988 (34) ELT 412 (S.C.) do not lend themselves to the understanding that for something to qualify itself as "Raw-material" it must, necessarily and in all cases go into, and be found, in the end product. The judgment in the case of Coastal Chemicals Ltd., relied upon by the learned Advocate, is not applicable to the facts of the present matter. The expression "consumable" was used in Andhra Pradesh General Sales Tax Act, 1957 along with words namely 'raw material', 'component part', 'sub-assembly part' and 'intermediate part' and the Supreme Court in view of such a provision has held therein that the word 'consumables' in the said Act refers only to material which is utilised as an input in the manufacturing process but is not identifiable in the final product by reason of the fact that it has got consumed therein. In the present matter only words "raw materials" have been used in Notification No.8/97 and as per decision in Coastal Chemicals Ltd. Itself consumables "would fall within the broader scope of the words 'raw material'." This Tribunal, in the case of CCE & Cus, Indore v. Century Denim (Export Oriented Undertaking), 2001 (129) ELT 657 (T) has disallowed the benefit of Notification No.8/97-C.E. as the 100% Export Oriented Undertaking used imported indigo perse dye, fixing agents etc. in the manufacture of denim fabrics holding that "without their presence the finished product would not have came into existence." The Tribunal has also considered the Circular dated 5.5.98 and has held that "In view of the decision of the Apex Court referred to supra, we are not in a position to treat the materials with which we are concerned as consumables. Since the materials with which we are concerned in these appeals are as per the test laid down by the Apex Court raw materials, they can not be termed as consumables' falling within the preview of the Central Board of Excise & Customs Circular. The said circular can not be treated as one varying the test accepted by the Apex Court." This decision of the Tribunal has been affirmed by the Supreme Court as reported in 2001 (133) ELT A-86. The Appellants have also not brought any material to show that the imported chemicals Were used in the manufacture of unprocessed fabrics. Accordingly, we hold that the benefit of Notification No.8/97-C E is not available to the goods manufactured and cleared by the Appellants into Domestic Tariff Area.
6. The submissions made by the learned Advocate regarding non-invocability of the larger period of limitation are well founded. It is not disputed by Revenue that the Appellants were regularly filing 173B declaration claiming benefit of Notification No.8/97. Further in view of the Board's Circular dated 5.5.1998, they were under the bonafide belief that the imported items were consumables and the benefit of Notification is available to them. It seems that the Department was also not clear about the correct interpretation of the words "raw materials" used in Notification No. 8/97. This is apparent from the correspondence exchanged between the Commissionerate and the C.B.E.C. The Board under letter F.No. 314/12/2001 FTT dated 3.9.2001 advised the Commissioner to take note of the judgment in Ballarpur Industries case. The finding of the Commissioner that the ingredient of Proviso to Section 11A of the Central Excise Act "is not what was in the notice of the Department but it is what was the suppression or wilful misstatement on the part of the assessee" is against the judgment of the Supreme Court in the case of Pushpam Pharmaceuticals Company, supra, wherein the Apex Court has held that "where facts are known to both the parties, the omission by one to do what he might have done and not that he must have done, does not render it suppression." Accordingly, the extended period of limitation is not invocable in the present matter. We, therefore, uphold the demand of duty only for the normal period specified in Section 11A (1) of the Central Excise Act. The price has to be treated as cum duty price in view of the judgment of the Supreme Court in the case of Maruti Udyog Ltd. supra. The jurisdictional Adjudicating Authority has to recompute the duty amount which will be payable by the Appellants. Penalty is not imposable in the present matter as the issue involved was one of the interpretation. We, therefore, set aside the penalty imposed on the Appellants. As we have held that there was no suppression of facts, interest under Section 11 AB of the Central Excise Act is not chargeable prior to 11.5.2001 as the interest was demandable at that time under Section 11 AB only when duty of excise has been short paid, etc. by reason of fraud, collusion or any wilful mis-statement or suppression of facts. The interest is however, chargeable under Section 11 AB with effect from 12.5.2001 after substitution of Section 11 AB (1) by the Finance Act 2001 since the interest is now chargeable if duty has been short paid, etc. without any reference of fraud etc.
7. The Appeal is disposed of in this manner.