Customs, Excise and Gold Tribunal - Delhi
Hindustan Lever Ltd. vs Collector Of Central Excise on 28 February, 1990
Equivalent citations: 1990(29)ECC37, 1990(30)ECR180(TRI.-DELHI), 1990(49)ELT408(TRI-DEL)
ORDER G.A. Brahma Deva, Member (J)
1. These are two appeals filed by the appellants M/s. Hindustan Lever Limited, Bombay against the Orders-in-appeal Nos. PPM.45/B.1-29/86 dated 14-11-1986 and PPM-66/B.1-29/87 dated 9-11-1987 passed by the Collector of Central Excise (Appeals), Bombay. Since both the appeals involve common questions of fact and law, they are clubbed together and are being disposed of by this common order.
2. The facts of the case, in brief, are that the appellants are engaged in the manufacture of soaps, detergents, vanaspati, toilet preparations etc. The Organic Surface Active Agents (OSAA) manufactured by the appellants was classified under TI-15AA of the First Schedule to the Central Excises and Salt Act. For use in the manufacture of OSAA, the appellants require Sulphur-trioxide (SO3). Duty-paid oleum was purchased by the appellants. The oleum was heated as a result of which SO3 was generated and it was used in the manufacture of OSAA. Show Cause Notices were issued by the Department charging that the appellants had contravened the provisions of Central Excise law inasmuch as they had manufactured and removed SO3 classifiable under TI-14G of the Schedule and suppressed material facts with intent to evade payment of duty amounting to Rs. 59,19,180.32 for the period 1-4-1977 to 27-9-1984 in the first appeal and duty of Rs. 7,78,072.42 in the second appeal for the period 28-9-1984 to 28-3-1985. These Show Cause Notices were duly answered by the appellants who contended that since the appellants were located at a distance away from the factory of manufacture of SO3 it was not possible for the appellants to receive the gas through a pipe line. That was why they purchased oleum - a physical mixture of SO3 and Sulphuric Acid - which had already suffered tax at the hands of the manufacturer. The appellants only heated the oleum so as to obtain SO3. The Sulphuric acid only acted as a carrier for SO3 and SO3 was generated by mere heating. Neither SO3 was taxable as it had already suffered tax nor obtaining the product by heating oleum could be construed to be a manufacturing activity. It was submitted that SO3 obtained by the appellants in gaseous form was not known to the trade. In support of their submissions, the appellants filed a detailed flow chart showing the process of Sulphonation in the manufacture of OSAA and pointed out that the entire activity beginning from heating of oleum to sulphonation was done in one integrated plant and the entire process was continuous, uninterrupted and integrated. They also filed affidavits of technical persons in support of their submissions to show that SO3 obtained by the appellant was not excisable. Further, it was contended that Central Excise Rule 9(2) could not be invoked in the absence of clandestine removal.
3. The Assistant Collector negatived the contentions of the appellants holding that the product Sulphur Trioxide in gaseous form was excisable goods within the meaning of Section 2(f) of Central Excises and Salt Act, 1944 and that it attracted central excise duty under TI-14G of CET. However, he refrained from imposing any penalty on them. The orders passed by the Assistant Collector were challenged by the appellants before the Collector (Appeals) but without success. Hence these two appeals.
4. We have heard Shri C.S. Lodha and Shri S.K. Beri, learned Advocates for the appellants, and Shri A.S. Sunder Rajan, learned J.D.R., for the respondent.
5. Shri C.S. Lodha, learned counsel for the appellants, raised the following issues :-
(a) Whether the activity of heating of duty-paid oleum, a carrier for SO3, to obtain the contents from the Carrier (SO3) amounts to manufacturing activity.
(b) Whether SO3 in gaseous form contained in the gas mixture which is obtained during the course of continuous and integrated process of manufacture of Organic Surface Active Agents is commercially known as SO3?
(c) Whether duty of excise can be levied on an article admitted to be not marketable?
(d) Whether the extended period of limitation under Section 11A of the Act is applicable on the facts and in the circumstances of the case?
6. Shri C.S. Lodha submitted that, on mere heating, Sulphur Trioxide which was until then dissolved in Sulphuric Acid, gets released and is transferred through pipe line to the Sulphonator. Such activity of heating can neither be considered as manufacturing activity nor could the product SO3 obtained from the Carrier be considered as a distinct and separate product the Original SO3. He stated that his case is fully covered by the decision of this Tribunal in the case of Tata Oil Mills Co. Ltd. v. Collector of Central Excise [1989 (43) ELT 132], wherein it has been clearly held that Air-SO3 gas mixture which emerged as an intermediate product in the course of continuous integrated process of manufacture of Organic Surface Active Agents was not anhydride of fuming Sulphuric Acid falling for classification under Item No. 14-G of CET. He said that the product SO3 in the gaseous form was neither sold nor marketable, hence same cannot be considered as excisable goods. He said that the Assistant Collector has held that Sulphur Trioxide in gaseous form was excisable goods based on the ruling given by the Allahabad High Court in case of Union of India and Ors. v. Union Carbide India Ltd., (1978 (2) ELT J.I), but the same was reversed by the Hon'ble Supreme Court in the very case in Union Carbide India Ltd. v. Union of India and Ors. [1986 (24) ELT 169 (S.C.)]. He. drew our attention to the affidavits filed by technical persons wherein they have explained in detail about the nature, description and process of obtaining SO3 and stated that the commodity SO3 in gaseous form was neither known to trade nor was it available for use in gaseous form. In this connection, Shri Lodha submitted that these technical experts were not cross-examined by the Adjudicating Authority despite the specific offer made by the appellants. He contended that marketability is the main criterion to determine whether an article is excisable or not and the burden of proof is on the Revenue. In support of his contention, he cited the following decisions :-
1. Blwr Industries Ltd. v. Collector of Central Excise - [1989 (40) ELT 280]
2. Collector of Central Excise v. Ambalal Sarabhai Enterprises - [1989 (43) ELT 214]
3. Tech Invest (India) Pvt. Ltd. v. Collector of Central Excise, Meerut - [1990 (26) ECR 109] It was also argued by Shri Lodha that double taxation on the same commodity is not permissible. SO3 in oleum had suffered tax and same cannot be subjected to tax again as held by the Hon'ble Supreme Court in case of Allahi Venkateswarlu and Ors. v. Government of Andhra Pradesh and Ors. [1978 AIR-945 (SC)].
Further, it was contended by him that the extended period of limitation under Section 11A could not be invoked as entire facts were within knowledge of the Department and the goods were manufactured and used under the control of the authorities. Even with the amendment of Rules 9 & 49, only the normal period of limitation was applicable in the instant case, reliance being placed for his contention on the Supreme Court's decision in J.K. Spinning & Weaving Mills Ltd. and Anr. v. Union of India and Ors. [1987 (32) ELT 234 (S.C.)]. A new and distinct commodity was not brought into existence by the process. An in-process material or intermediate product, if not marketable, was not liable to duty as was held in case of Collector of Central Excise v. Amaratara Industries [1988 (37) ELT 152].
7. Shri Sunder Rajan, learned J.D.R., for the respondent, submitted that the appellants' case is not covered by the decision of this Tribunal in the case of Tata Oil Mills Co. Ltd., cited by the appellants' counsel. Some of the issues raised in this case were not raised in that case. Furthermore, the issue whether the impure SO3 contained in the gas mixture obtained during the course of the continuous and integrated process of manufacturing OSAA was commercially known as SO3 was not urged by the counsel for TOMCO since technical literature had not specifically stated that such impure SO3 could not be considered technically as SO3. There was no finding by the Tribunal on the specific admitted issue. The decision in the TOMCO case is neither binding nor applicable to the facts of this case as the ratio of the decision is contrary to the two earlier decisions of this Tribunal in the cases of Andhra Sugar Limited v. Collector of Central Excise [1989 (42) ELT 613 (T)] and Dai-Ichi Karkaria Pvt. Ltd. v. Collector of Central Excise, Pune (Order Nos. 199-200/86-C dated 18-4-1986). He submitted that Andhra Sugar's case, based on earlier decisions, is on all fours and is applicable to this case. Though the commodity SO3 as such was not sold by the appellants (as in TOMCO's case), in view of the fact that SO3 was different from oleum and emerged as a new commodity, as admitted in Tomco's case, it was liable to excise duty. In view of the fact that Sulphur Trioxide was manufactured by the appellants, it is classifiable under 14-G of Central Excise Tariff being anhydride of oleum, whether it is in solid, liquid or gaseous form. When once it emerged as a distinct article having a distinctive name, character and use, it is liable to excise duty following the ratio of the decisions in cases of South Bihar Sugar Mills Ltd. and Anr. v. Union of India (1978 (2) ELT J 366), J.K. Spinning & Weaving Mills Ltd. v. Union of India and Ors., [1987 (32) ELT P. 234] and Singareni Collieries Co. Ltd. v. Collector of Excise [1988 (37) ELT 361]. He contended that, even according to the version of the appellant, SO3 was bought and sold, which itself is a substantial proof to show that it was marketable. The fact that it might not have been transported as such was not due to impossibility but due to other statutory regulations and restrictions. He drew our attention to the Condensed Chemical Dictionary and explained that in view of the definition, meaning and description given for both the items, they are different commodities and cannot be used for the same purpose but used for different purposes. SO3 is different in name, character and use from the raw material. He stated that in view of this fact and this being an intermediate product which emerged in the result of process, the levy was justified by following the decision in Empire Industries Ltd. and Ors. v. Union of India [1985 (20) ELT 179], Collector of Central Excise, Bombay v. Nirlon Synthetic Fabrics & Chemicals Ltd., Bombay [1983 (14) ELT 2418], Collector of Customs & Central Excised and Anr. v. Oriental Timber Industries [1985 (20) ELT 202], Collector of Central Excise v. Ambalal Sarabhai Enterprises [1989 (43) ELT 214], Singareni Collieries Co. Ltd. v. Collector of Central Excise [1988 (37) ELT 361].
As regards double taxation, he stated that it is justified as long as that commodity is so taxable and the Tariff warrants it.
On the point of extended period of limitation under Section 11A, he submitted that this goes along with the merits of the case. In view of the fact that processing and emergence of a new article liable to excise duty was not disclosed to the Department and there was no scope for believing that goods were not liable to taxation, following the decision of Padmini Products v. Collector of Central Excise [1989 (43) ELT 193 (SC)], the extended period was justified.
8. In a rejoinder, Shri Lodha submitted that what was obtained in the process was SO3 in gaseous form and not anhydride of fuming Sulphuric Acid. Air-SO3 in the gaseous form was neither sold not marketed. In the gaseous form, it was not known to the market and never sold in India or abroad. SO3 was sold in liquid or solid forms. The burden is on the Department to prove marketability of commodity before classifying under the Tariff which has not been discharged in the present case. There is no positive evidence to show that SO3 was sold in the gas from but only a hypothesis. He urged that as SO3 was not marketable in the form of gas, following the ratio of the decision in case of Ambalal Sarabhai, this should be treated as not liable to excise duty. He submitted that the Tribunal's decision in the Andhra Sugar case cannot be relied on in view of the fact that the decision of the Supreme Court in case of Union Carbide Co. was subsequent and it was not before the Tribunal at that time.
9. We have given our anxious consideration to the arguments advanced on both the sides and perused the records. The facts are undisputed that the appellants have purchased oleum and by the process of heating the oleum, SO3 in the gaseous form was produced which was used in the manufacture of Organic Surface Active Agents (OSAA). The points to be decided in the present appeal are (i) whether the, process of heating is a manufacturing activity, (ii) whether the product SO3 obtained in the form of gas was different from oleum and (iii) whether the product in the form of Gas was marketable - Name, character, use and essential marketability of the product decides excisability.
10. The process of manufacture of Sulphur Trioxide from oleum as stated by the appellants as seen from the impugned order is as given below:-
"Oleum 65 is passed into a still which is heated at 250°C, the dissolved SO3 which comes out of the Oleum is diluted with air and then allowed to pass through the Sulphonator, where alkylate is first charged. All these operations take place in a closed vessel. The quantity of SO3 stripped out from Oleum approximately corresponds to the dissolved SO3 present in Oleum which is approximately 65% of the Oleum. The Sulphuric Acid or the acid slurry obtained as a result of Sulphonation is then neutralised with other ingredients like STPP etc. are added and then the slurry is spray dried to get the detergent powder.
It may be further mentioned here that Oleum or Fuming Sulphuric acid appears to be consisting of solution of Sulphur Trioxide in 100% Sulphuric acid. The strength of Oleum is designated as weight percentage of free Sulphur Trioxide i.e., 65% Oleum contains 65% Sulphur Trioxide and 20% Sulphuric Acid by weight."
Oleum has been defined as fuming Sulphuric acid at page 758 of the "Condensed Chemical Dictionary" 10th Edition, revised by Gassner G. Hawley; Sulphuric Acid, fuming, has been described as a solution of SO3 in Sulphuric Acid (P.983). Sulphur Trioxide as described in the "Condensed Chemical Dictionary" is set out at page 983 as under:-
"Sulphur Trioxide (Sulfuric anhydride) SO3; Properties: Exists in three solid modifications; alpha, m.p. 62°C, beta m.p. 32.5°C, gamma, 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. Derivation: Passing a mixture of SO2 and O2 over a heated catalyst such as platinum or vanadium pentoxide. See sulfuric acid. Hazard: Highly toxic; strong irritant to tissue. Oxidizing agent. Fire risk in contact with organic materials. An explosive increase in vapour pressure occurs when the alpha form melts. The anhydride combines with water, forming sulfuric acid and evolving heat. Containers. (Stabilised, liquid) 750-lb drums; tanks cars."
So far as Sulphur Trioxide is concerned, it is also described as Sulphurix anhydride. We can find this in the Encyclopedia of Chemical Technology: Vol.22 at page 215, Sulfur Trioxide has been described as under:-
"The anhydride of sulfuric acid, SO3, is a strong organic sulfonating and dehydrating agent which has some specialised uses (see Sulfonation and Sulfation). Its principal applications are in production of detergents and as a raw material for chlorosulfuric acid (qv) and 65% oleum."
It is an admitted fact that the product SO3 coming into existence as a result of heating oleum at a temperature of 250°C in a closed circuit is Sulphur Trioxide having purity of 100%. In view of the detailed description and characteristics of these two terms in the above technical literature, it is clear that these two articles are known by different names for different purposes. In the view we have taken, it may be reasonable to hold that the process of heating Oleum to obtain SO3 was a manufacturing activity and both oleum and sulphuric trioxide (SO3) are distinct and different articles. The ruling laid down by the Hon'ble Supreme Court in the case of South Bihar Sugar Mills Ltd., [1978 (2) ELT J-336 (SC)] and Singareni Collieries Co. Ltd. v. Collector of Central Excise (Supra) strengthens this view. The relevant portion of the Supreme Court's observation is reproduced as under:-
"Manufacture implies a change but every change in the new material is not a manufacture. There must be such a transformation that a new and different article must emerge having a distinctive name, character or use."
However, that does not settle the issue. The important point to be decided is about the marketability of the product to bring it under Excise Law for the purpose of levy of excise duty. The material which may be sufficient for the purpose of treating a process or some processes as constituting a manufacturing activity and for considering the starting product and the final product as two distinct and separate products may not be sufficient in itself for the purpose of coming to a conclusion about the marketability of the final product.
10A. 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 of Organic Surface Active Agents is commercially known as SO3. In other words, was it marketable as such and was liable to be charged to duty under Item 14-G of CET. Item No.l4-G, CET, as it stood at the material time, reads as follows:-
"14-G. Nitric, Hydrochloric and Sulphuric acids (including fuming acids and anhydrides thereof), all sorts."
Admittedly, what we are concerned with in these appeals is not Sulphuric acid but it is only SO3 gas. To bring it within the ambit of Item 14-G of Central Excise Tariff, the Revenue has to establish that it is not only an anhydride of fuming sulphuric acid but also that it was marketable as such. The Revenue has proceeded to levy excise duty based on the manufacturing activity and on the Tariff Advice No. 43/80 issued by the Board. On the other hand, the appellants have adduced evidence by filing affidavits from technical experts to prove that what they have produced is air-SO3 gas mixture and it cannot be termed as Sulphuric anhydride and in the gaseous form was not known to trade.
As against these affidavits the Department has not brought on record any evidence to show that the air-SO3 gas mixture is marketable and known to the market as Sulphuric anhydride. Nor have the deponents of the affidavits been cross-examined by the Department in spite of their specific offer for cross-examination. It may be seen from the contents of the three affidavits and the technical authorities that Sulphuric Anhydride exists either as a liquid or as a solid. It is clear that SO3 gas-air mixture i.e., SO3 produced by the appellants in the course of manufacture of OSAA is, according to the evidence led by appellants, which remains unrebutted by the Revenue, not known to commerce or technology as Sulphuric anhydride, i.e., the anhydride of fuming sulphuric acid. The same is the case also with pure SO3 gas, assuming, as the D.R. contends, that this is the stage at which the Department seeks to levy excise duty. In this context the decisions in 1989 (43) ELT 132 (Tribunal) (Supra) are relevant.
11. In Andhra Sugar's case [1989 (42) ELT 613], the Tribunal has proceeded to classify Sulphuric trioxide under Tariff Item 14-G on the ground that 'it was not mentioned that Sulphuric trioxide as such is not Sulphuric anhydride and what applies to solid and liquid applies to gas form also and further there was no evidence to show that SO3 was not known in trade as anhydride'. With great respect we are unable to agree with the view taken by the Tribunal in that case because, for the purpose of levy of excise duty it should be specified in positive terms under a particular Tariff Item (or it must result from a proper construction of the Tariff entry). There is neither intendment nor equity in a taxing statute. Nothing is implied. Neither can we insert anything nor can we delete, but it should be construed and interpreted strictly as per the wordings used under the particular Statute. There is no room for assumptions and presumptions. Further, the burden lies on the Department to prove that goods were marketable and liable for duty under a specified tariff entry, as held by the Supreme Court in cases of Bhor Industries Ltd. v. Collector of Central Excise [1989 (40) ELT 280] and Collector of Central Excise v. Ambalal Sarabhai Enterprises [1989 (43) ELT 214]. Further, the Hon'ble Supreme Court has taken the view in case of intermediate goods that if they were neither sold nor marketable, such products were not liable for excise duty in case of Union Carbide India Ltd. v. Union of India and Ors. and the same was followed by this Tribunal in case of Collector of Central Excise v. Amaratara Industries [1988 (37) ELT 152]. In the specific context of SO3 gas, we are inclined to follow the later decision of the Tribunal in the Tata Oil Mills Company Ltd. case, (Supra) in which arguments were addressed, and considered, in much greater detail. It has been noted therein that SO3 (Sulphuric anhydride) exists in three solid modifications and in liquid form. SO3 gas or SO3 gas-air mixture is not known as Sulphuric anhydride i.e., the anhydride of fuming Sulphuric acid.
12. In the light of the foregoing discussion, we are of the opinion that the air-SO3 gas mixture (or pure SO3 gas) 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 (OSAA) was not marketable and as such, was not classifiable under Item No. 14-G of Central Excise Tariff for the purpose of levy of excise duty.
13. In the view we have taken, we do not consider it necessary to go into the issue of extended period of limitation under Section 11-A of the Act.
14. In the result, we set aside the impugned orders and both the appeals are allowed with consequential relief to the appellants.