Custom, Excise & Service Tax Tribunal
M/S Hindustan Gum & Chemicals Ltd vs Cce, Ahmedabad on 12 January, 2012
IN THE CUSTOMS, EXCISE & SERVICE TAX
APPELLATE TRIBUNAL
West Block No. 2, R.K. Puram, New Delhi 110 066.
Date of Hearing : 12.1.2012
Date of Pronouncement:
Coram:
Honble Ms. Archana Wadhwa, Member (Judicial)
Honble Shri Mathew John, Member (Technical)
1. Whether Press Reporter may be allowed to see the Order for publication as per Rule 27 of the CESTAT (Procedure) Rules, 1982?
2. Whether it would be released under Rule 27 of the CESTAT (Procedure) Rules, 1982 for publication in any authoritative report or not?
3. Whether their Whether their Lordships wish to see the fair copy of the order?
4. Whether order is to be circulated to the Department Authorities?
Excise Appeal No. 2478 of 2002
[Arising out of Order-in-Appeal No. Commr.(A)/462/AHD-II/2002 dated 18.6.2002 passed by the Commissioner of Central Excise & Customs (Appeals), Vadodara]
M/s Hindustan Gum & Chemicals Ltd. Appellant
Vs.
CCE, Ahmedabad Respondent
Excise Appeal No. 2883 of 2004
(Arising out of Order-in-Appeal No. 162 & 163/AKG/RTK/2004 dated 15.3.2004 passed by the Commissioner of Central Excise (Appeals), Delhi-II) CCE, Rohtak Appellant Vs. M/s Hindustan Gum & Chemicals Ltd. Respondent Excise Appeal No. 2167 of 2001 (Arising out of Order-in-Appeal No. Commr.(A)/061/Ahd-II/2001 dated 27.7.2001/1.7.2001 passed by the Commissioner of Central Excise Vadodara) M/s Saahil Organics Appellants Vs. CCE, Ahmedabad Respondent Appearance:
Appeared for Appellant : Shri A.R.M. Rao & Shri R.K. Hasija,
Advocates
Appeared for Respondent : Shri N. Pathak, A.R.
Coram:
Honble Ms. Archana Wadhwa, Member (Judicial)
Honble Shri Mathew John, Member (Technical)
Order No.dated.
Per Mathew John:
There are three appeals being decided in this proceeding. Appeal No. E/2478/2002 is an appeal filed by M/s Hindustan Gum and Chemicals Ltd, Ahmedabad. Appeal No.2883/2004 is an Appeal filed by Commissioner of Central Excise, Rohtak against Hindustan Gum and Chemicals, Bhiwani, Haryana. Appeal No. E/2167/2001 is an appeal filed by Saahil Organics, Ahmedabad. All the three appeal involves the issue whether the Treated Tamarind Kernel Powder produced by the assessees is excisable and if yes what is the classification of the product under Central Excise Tariff. M/s Hindustan Gum and Chemicals market the product under the name TPT-12. M/s Saahil Organics declared their product as textile gum in the classification list filed before Central Excise Authorities.
2. During the relevant time the excise procedure required the assessees to make a declaration of the products manufactured by them indicating the classification and rate of duty applicable and the M/s Hindustan Gum and Chemicals, Ahmedabad had declared the classification under 11.01 with nil rate of duty and the same was approved by the department. Later the department conducted some investigation and it appeared to them that the product is classifiable under Tariff heading 13.01 and excise duty is payable on such product. Accordingly Show Cause Notices were issued for changing the classification and demanding duty. Such demands were issued alleging suppression of facts and mis-declaration and consequently invoking the extended period of time of 5 years for issuing such demand.
3. The Show cause Notice was dropped in adjudication proceedings in the case of Hindustan Gum and Chemicals, Ahmedabad. On appeal filed by the department the Commissioner (Appeal) ordered classification under heading 13.01. When the assessees came in appeal before the Tribunal, the Tribunal ordered vide its order dated 30-10-2003 reported at 2004(163) ELT 196 (Tri-Del), that the product is classifiable under heading 11.01. This order which was challenged before the Supreme Court and which is remanded by the Apex Court for de-novo consideration of the matter.
4. In the case of Hindustan Gum and Chemicals Ltd Bhiwani the assessee paid duty under protest classifying the product under Heading 13.01. The adjudicating officer finalised classification under heading 13.01. On appeal the Commissioner (Appeal) relied on the decision of the Tribunal dated 31-10-03 (supra) and allowed assessees prayer of classification under heading 11.01. Revenue filed appeal against the order of the Commissioner (Appeal). The appeal was dismissed relying on the earlier decision dated 30.10.2003.
5. In the case of Saahil Organics, the assessment was initially made on provisional basis and later the Adjudicating Authority ordered classification under heading 13.01 and ordered finalization of a provisional assessment which was upheld by Commissioner (Appeal). The assesse filed this appeal before the Tribunal. This appeal also allowed following the order dated 30.10.2003.
6. Aggrieved by the orders of the Tribunal classifying the product under heading 11.01 Revenue filed appeal before the Honourable Supreme Court. The Honourable Supreme Court has remanded the matters to this Tribunal for denovo consideration vide its order dated 22-09-2011 in Civil Appeal Numbers 2974 0f 2004, 3420 of 2004 800 of 2007 and 2959 0f 2006. While remanding the matter the Honourable Apex Court had observed as under:
We have perused the orders passed by the CESTAT. The CESTAT in its order raised an issue whether TPT-12 is classifiable under Heading 1101.00 of the Schedule to the Central Excise Tariff Act as product of milling industry or under Heading 13.01 as claimed, as affirmed by the Commissioner (Appeals).
While answering the aforesaid issue, the CESTAT has merely relied upon the circulars/instructions issued by the board in F.No. 10/18/86-CX.I dated 14.8.86.
In our view, the CESTAT ought to have considered whether by the process of treatment the Tamarind Kernal Powder has undergone a change when TPT-12 is manufactured and sold as a marketable commodity. However, the CESTAT has not answered this issue. In our view, this is a primary issue which should have been considered and answered by the CESTAT.
The CESTAT is the last finding authority on the question of fact. Therefore, the matter requires to be remanded to the CESTAT for a fresh determination of the issue which it had raised for its consideration.
Accordingly, the Appeal is disposed of. The order passed by the CESTAT dated 30.10.2003 is set aside. The matter is remanded back to the CESTAT for consideration of the issue that was raised by it after affording a reasonable opportunity of hearing to both the parties. The parties are at liberty to produce such other relevant materials they so choose to produce before the CESTAT. The parties shall appear before the CESTAT on 21st of November, 2011. The CESTAT thereafter will decide the matter as earlier as possible at any rate within four months from today. All the contentions of both the parties are left open.
7. Pursuant to the order the parties were heard on 12-01-2002.
8. The assessees obtain Tamarind Kernel Powder and do chemical processes on it to make it suitable for use in textile printing as a thickener. There are minor variations in the manner in which the processes involved are recorded in the appeal filed by Hindustan Gum Chemicals and the appeal filed by Saahil Organics. But the starting material and the end product are recorded to be same in all the three appeals. During the hearing of the appeals, where both the parties were represented by the same Counsel, no arguments were raised to bring out that the processes done are different in each of the appeals. So we consider that the processes done to be the same in all the three appeals. The processes done as recorded in Appeal No. E/2478/2002 is as follows. Tamarind Kernel Powder is treated with the following namely,
(a) Water 10% approx.,
(b) Caustic Soda 20% approx.,
(c) Acetic Acid 1.5% approx..,
(d) EDTA (Ethylenediaminetetraacetic acid) 1 kg per batch.
9. An exothermic reaction (giving out heat) takes place taking the temperature up to 60 degree Centigrade during a reaction time of about 4 to 5 hours. Then the reacted mass is taken to micro pulverizer and the pulverized material is then conveyed pneumatically to a cyclone which separates air and powder. The powder is sieved through 40 mesh screens to get minimum 60% of particles of size of (-) 200. After this penta 1% (approx.) is added which acts as a preservative/stabilizer. Then the material is packed for marketing. These processes make TKP soluble in cold water and suitable for use in Textile Printing as a thickener.
10. We have to firstly examine the issue whether there is a manufacturing process involved in making TPT-12. The Counsel for the Appellants submits that after the processes the product remains Tamarind Kernel Powder only. There is a slight change in its solubility in water in as much as after treatment the product is soluble in cold water. His contention is that this change does not result in emergence of a new product and hence no manufacturing process is involved. He relies on the following decisions of the Apex Court in Support of his argument;
(a) Thungabhadra Industries Ltd Vs. CTO AIR 1961 SC 412 This matter was in respect of sales tax liability on hydrogenated groundnut oil under The Madras General Sales Tax Turnover and Assessment Rules 1939. This levy at that time was not a value added tax giving relief of tax paid on earlier stages. But there were provisions in the Rules to ensure that this levy on groundnut, ground nut oil and cake was only at one stage. There was no provision in the Rules to deal specifically with hydrogenated groundnut oil. The dispute was basically whether the sales tax had to be paid for a second time when groundnut oil was hydrogenated. The Apex Court decided that there is no need to pay the tax again.
(b) CCE Vs. Tikatar Industries.-2006 (202) ELT 215 SC.
In this case the issue was whether conversion of straight grade bitumen into blown grade bitumen amounts to manufacture of a new product. This issue also related to a period when Modvat scheme was still not applicable to petroleum products. The Tribunal, relying on a Circular issued by the Board ruled that no duty will be chargeable if blown grade bitumen is made from duty paid straight grade bitumen. This decision of the Tribunal was upheld by the Honorable Apex Court.
(c) Shyam Oil Cake Ltd Vs. CCE (2005) 1 SCC 264.
In this case the question was whether there is a fresh duty liability when an assessee purchased duty paid vegetable oil and subjected such oil to certain processes for the purpose of refining it. The Honble Court had held that no new product had come into existence by the process of refining.
11. Relying on the above decisions the Counsel argues that the processing done by the Appellants also does not result in any new product in as much as after processing the goods continue to be Tamarind Kernel Powder. He argues that hydrogenation of oil involves a chemical process resulting in alteration of chemical structure, similarly purification of groundnut oil involves treatment with alkali or acid; that if such processes are held to be not manufacture, then the processes done by them on Tamarind Kernel Powder also cannot amount to manufacture.
12. The Ld authorized Representative Revenue argues that the product become usable in Textile Industry only after the processes done by the Appellants. He points out due to the processed value of the product is increased from Rs.16.50 per kg. to about Rs. 44 per Kg. This is not a case where the product has been taxed earlier and where any heavy liability to tax arises because of duty to be paid at different stages of the same product. He points out that the product is made by in an exothermic reaction when treated with alkali. The exothermic nature of the reaction itself indicates the permanent change that happens in the molecules of the substance. Thus it is obvious that a new product emerges. The product becomes suitable for industrial use. He points out that there is no evidence of raw Tamarind Kernel Powder being used in Textile Industry and it is only a theoretical argument raised by the Appellants. He also points out that the product is marketed with a new name namely TPT-12. Thus all the characteristics of a manufacturing process namely, a permanent change in characteristic, a new use, a new name are satisfied in the case of the process of making TPT-12 and therefore the processes should be considered to be amounting to manufacture.
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. In the second matter of classification the arguments of the Counsel for appellants were as follows.
14.1 Heading 13.01 of Central Excise Tariff covers Lac; gums, resins and other vegetable saps and extracts. As per HSN Explanatory Notes, the items covered under Heading 13.01 are as under:-
(a) Lac which is a resinous substance produced on several kinds of tropical trees by an insect.
(b) Natural gums, resins, gum resins and oleoresins which are vegetable secretions which may solidify on contact with air.
14.2 The appellants argue that since there was no entry corresponding to Mucilages and thickeners, whether or not modified, derived from vegetable products, the TPT-12 was not classifiable under Heading 13.01 of Central Excise Tariff Act and it was appropriately classifiable under Heading 11.01 only. Chapter 13 of the Central Excise Tariff was not aligned with HSN so as to cover derived vegetable products like mucilages and thickeners, whether or not modified to which the impugned goods belong.
14.3 He further argues that the gums specified under Heading 13.01 are natural secretions from trees and vegetables; that even assuming Heading 13.01 of Central Excise Tariff Act does cover gums and not only natural gums, yet such preparations as per HSN fall under Mucilages and thickeners, whether or not modified, derived from vegetable products; that Heading 13.01 covers gums and not a product such as TPT-12 in question; that TKP is not a gum; that the relevant portion of the HSN Explanatory Notes reads as under:
The natural gums, resins, gum resins and oleoresins covered by this heading may be crude, washed, purified, bleached, crushed or powdered. They are, however, excluded from this Heading when they have been subjected to processes such as treatment with water under pressure, treatment with mineral acids or heat-treatment; for example: gums and gum resins rendered water soluble by treatment with water under pressure (Heading 13.02), gums rendered soluble by treatment with sulphuric acid (Heading 35.06), and resins which have been heat-treated to make them soluble in drying oils (Heading 38.06).
14.4 The Counsel relies on Circular F. No. 10/18/86-CX.I, dated 14-8-86, issued by CBEC, wherein it has been clarified as under :
Heading No. 11.01 of the new tariff covers products of the milling industry including flours, groats, meal and grains of cereals, and flour, meal or flakes of vegetables. It is seen that under the HSN, sub-heading 1106.30 covers flour, meal and powder of the products of Chapter 8 of HSN (viz., edible fruits and nuts peels of fruits, etc.). HSN Explanatory Notes which amplify the scope of the aforesaid sub-heading 1106.30 specify that powders, meal or flours of nuts or fruits of almonds, dates, bananas, coconuts and tamarind are covered by the sub-heading. The notes also state that the heading does not cover tamarind powder in packings for retail sale for prophylactic or therapeutic purposes (Heading 30.04). It is seen that while the broad Chapter Heading for Chapter 11 of HSN as well as Chapter 11 of the Central Excise Tariff is common viz., products of the milling industry, malt, starches, insulin, wheat gluten there is no specific entry under Chapter 11 of the Central Excise Tariff covering flour, meal and powder of products of Chapter 8 corresponding to sub-heading No. 1106.30 of HSN. Ministry therefore, observe that tamarind seed powder could be regarded as a product of the milling industry in terms of the broad heading under Chapter 11 of the Central Excise Tariff. In the absence of a specific entry corresponding to sub-heading 1106.30 of the HSN, the product under consideration would appear to be correctly classifiable under the residuary sub-heading 1101.90 of Central Excise Tariff. Ministry accordingly is of the view that except for tamarind powder which is in packings for retail sale for prophylactic or therapeutic purposes (classifiable under Chapter 30), tamarind seed powder or TKP would be correctly classifiable under sub-heading 1101.90 of the new Central Excise Tariff.
15. The learned Senior Departmental Representative, further argues that the impugned product was no more a product of milling industry warranting classification under Heading 11.01 of the Tariff; that TPK purchased by the appellant was a product of milling industry; that the said TPK was put to chemical process by the Appellants which brought into existence a new product known as printing gum and as such it was no more a product of milling industry and squarely fell under Heading 13.01 which applies to all types of gums. He also mentioned that Boards Circular No. 5/86, dated 14-8-86 was not applicable to the impugned product and the clarification would apply to only unprocessed Tamarind Kernel Powder.
16. Revenue has relied upon the HSN Explanatory Notes below Heading 13.02 of the HSN according to which cotyledon flour of tamarind seeds are included in Heading 13.02 even if modified by heat or chemical treatment.
17. We have considered arguments on both sides.
18. Firstly we would like to examine the matter with reference to the entries in Central Excise Tariff. The rival Tariff Headings read as under:
11.01 Products of Milling Industry including flours, groats, meal, grain of cereals and flour, meal of flakes of vegetables.
13.01 Lac; Gums, resins and other vegetable saps and extracts.
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 as re-produced 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.
23. We also note that in the clarification dated 14-08-86 issued by CBEC, there is no mention about Tamarind Powder subjected to the impugned processes. There is a mention about tamarind powder in packings for retail sale for prophylactic or therapeutic purposes (classifiable under Chapter 30). So it is very obvious that at the time of issue of the clarification Board had considered only raw tamarind powder and tamarind powder processed to make it suitable for prophylactic or therapeutic purposes and not the impugned goods.
24. Now we have to examine the contention of M/s Hindustan Gum and Chemicals, Ahmedabad that in their case the extended period of 5 years cannot be invoked for demanding duty. We note that the matter relates to a period where the system of filing of classification list in advance and seeking its approval by the department was in vogue and the officers of the department were expected to visit factories and conduct necessary verification for approval of classification list and even other-wise. In such a context and against the background facts and clarification issued by the Board as stated above we see no reason to allege suppression or mis-declaration on the part of the assessee. So demand can be sustained for the normal period of limitation prescribed in section 11A at the time of issue of notice. In the case of Bhiwani unit extended period of 5 years is not invoked. In the case of Saahil organics the assessments were being made on provisional basis. Here also the question of applicability of extended period does not arise.
25. There are also prayers that the duty liability has to be reworked considering the price realized as cum-duty price. There is also a prayer for allowing Modvat credit for duty paid on inputs. In the facts and circumstances of the case we see merit in these prayers and we allow the same. The Revised duty liability is to be worked out by the adjudicating authority.
26. To sum up it is held that the impugned goods are manufactured goods and its classification was under sub-Heading 1301.10 of the Central Excise tariff. However demands invoking the extended period of time limit is not maintainable. Further the prayer for granting benefit of cum-duty realization and benefit of Modvat credit of duty paid on inputs also are allowed.
(Pronounced on____________________) (Archana Wadhwa) Member (Judicial) (Mathew John) Member (Technical) RM