Customs, Excise and Gold Tribunal - Delhi
Garware Paints Ltd. vs Collector Of Central Excise on 29 September, 1992
Equivalent citations: 1993(67)ELT953(TRI-DEL)
ORDER Jyoti Balasundaram, Member (J)
1. The issue involved in this case is whether the value of the catalyst (Med-622) has to be included or not, in the value of eomite air drying catalysed paints manufactured by the appellants.
2. We have heard Shri G.R. Divekar, learned Consultant for the appellants and Shri L.N. Murthy, DR for the respondent.
3. The appellants are manufacturers of paints and varnishes falling under TI14, synthetic resins falling under TI 15A and thinners falling under TI 68. They purchase from the open market phosphoric acid - paratoluene sul-phonic acid which form the catalyst in this case. The appellants' contention is that they do not manufacture catalyst and they only stir and repack the bought out catalyst and repack in plastic bottles and then place them in the cartons containing the paints. The appellants had prior to March 1981 declared the catalyst as falling under TI 68 the Assistant Collector had approved the classification list and duty was paid under TI 68 since December 1975. The appellants observed that no duty of excise was leviable on the catalyst since it is not manufactured by them. They filed a fresh classification list NES/2/80-81 dated 18-3-1983, with the Superintendent, Range VIII, Thane Division. The Assistant Collector vide his letter dated 21st August 1982 admitted that the catalyst is a bought out item and the question of classification does not arise. But he however, held that since the bottles of catalyst are packed in the same carton of paints, the price of catalyst ought to be included in the assessable value of the later product. On appeal, the Collector of Central Excise (Appeals) held that the appellants deliberately suppressed the information and therefore, extended period of limitation is available to the Department. Hence this appeal.
4. Shri Divekar, learned Consultant stated that the catalyst in question is a bought out item and the same are repacked and inserted into the cartons containing paints and, therefore, the value should not be included in the assessable value of the paints cleared by the appellants. The learned Consultant also submitted that the show cause notice does not allege about the inclusion of the catalyst in the assessable value but only states about the reclassification under TI 14-I(5). He, therefore, prayed that the appeal has to be allowed on this account itself, and the extended period of limitation cannot be applied to the facts of this case.
5. The learned DR reiterated the contents of the impugned orders.
6. We have considered the submissions of both sides. In view of the fact that the appellants only purchase from the market catalyst, no duty is leviable on the bought out items. The show cause notice also speaks about only reclassification of the product and not of inclusion of the value of catalyst in the assessable value as such we see no merit in the argument that catalyst's value has to be included in the assessable value. We, therefore, set aside the impugned order and allow the appeal with consequential relief to the appellants.
S.K. Bhatnagar, Vice President With due respect to Hon'ble Member Judicial my opinion and orders are as follows :
7. I observe that admittedly the Eomite Airdrying Catalysed Paint consists of two components, Base Paint and Catalyst (Med-622) in the declared ratio and the catalyst was an essential component of that product (which could not be used without it) and, in fact, it was required to be mixed with the paints to form the catalysed paint albeit just prior to use. Once a component was an essential one it was immaterial whether it was physically incorporated in base paint or kept separately for being mixed before use. In other words, the excisable product was the catalysed paint as a whole (including the base paint and the catalyst); and therefore for the purpose of Central Excise, such as classification and valuation etc., both components are to be taken together and treated as one single product. Further the fact that the catalyst was purchased from the market and was a bought out item does not make any difference to the situation because one of the components would always be purchased from the open market, if so required, and utilised for the manufacture of the final product for making it marketable or ready for use. Therefore, it was incorrect to claim separate classification and to assess them differently.
8. Hence, in so far as the merits of the case are concerned, I find that the order of the Collector (Appeals) is correct and is required to be upheld.
9. In so far as the question of time bar is concerned, it is observed that prior to March 1981 they had declared the catalyst as falling under Item 68 and the Assistant Collector had approved the classification. They had also declared Eomite Air drying Catalysed Paint and the same was classified by the Department under 14A(5). This contention is not being disputed or shown to be incorrect by the Department. In fact, if duty on catalyst was being separately charged with reference to a separate classification list, it is not clear as to how the prices would have remained undeclared or not brought to the notice of the Department. At the same time the documents which have been included in the paper book and brought to our notice only show classification list relating to the period prior to the period in question before us or subsequent to the period in question before us. Therefore, the position as it obtained during the relevant period is not clear and this aspect has not been fully or properly discussed in either the Order-in-Original or the Order-in-Appeal.
10. In so far as the question of language and the content of the show cause notice is concerned, I observe that it not only deals with the question of reclassification but also demands differential duty. In other words, on the whole it is apparently a notice of re-assessment including classification as well as valuation. This observation is fortified by the fact that there is an annexure to the show cause notice which refers to the quantity as well as value and shows the differential duty demanded. Hence the contention that valuation aspect could not be considered is not acceptable.
11. In view of the above discussion, I confirm the Order-in-Appeal in so far as it relates to the merits of the case but set it aside in so far as it relates to the time bar aspect and remand it to the Assistant Collector for re-examination with reference to the documents filed by the assessee in respect of the relevant period.
12. The appeal is disposed of accordingly.
In view of the difference of opinion between the Hon'ble Member Judicial and the Vice President, the case is submitted to the Hon'ble President for reference to a Third Member on the following points :-
(1) Whether, in the facts and circumstances of the case, the base paint and the catalyst which are cleared and sold together as a unit could still be considered as two distinct excisable items/commodities which are required to be classified and assessed separately or they together constitute a single excisable item and are required to be dealt with as such?
(2) Whether in view of the fact that one of the component (catalyst) is purchased from the market no duty is leviable with reference to this component and its value is to be excluded for assessment purposes?
(3) Whether in the facts and circumstances of the case the impugned order was required to be upheld on merits but remanded for reconsideration for time bar aspect (as proposed by the Vice-President) or the order was required to be set aside and the appeal was required to be allowed with consequential relief [as proposed by the Hon'ble Member (Judicial)]?
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(S.K. Bhatnagar) (Jyoti Balasundaram)
20-1-1992 Vice President Member (J)
The points of difference are referred to Shri P.C. Jain, Member (T). Take action as usual and fix a date.
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(Harish Chander) 22-1-1992 P.C. Jain, Member (J)
13. Following points of difference between the two Members of C Bench has arisen for my opinion :
(1) Whether the base paint and the catalyst are two distinct excisable items/commodities which are required to be classified and assessed separately or they together constitute a single excisable item and are required to be dealt with as such?
(2) Whether in view of the fact that one of the component (catalyst) is purchased from the market no duty is leviable with reference to this component and its value is to be excluded for assessment purposes?
(3) Whether in the facts and circumstances of the case the impugned order was required to be upheld on merits but remanded for reconsideration for time bar aspect (as proposed by the Vice President) or the order was required to be set aside and the appeal was required to be allowed with consequential relief [as proposed by the Hon'ble Member (Judicial)].
Brief facts as mentioned in the impugned order of the lower appellate authority leading to the aforesaid controversy are given below :
The appellant purchased catalyst from the market and it is supplied in a separate container alongwith the paint manufactured by him. The two products packed separately in the same container is sold by the appellant under the nomenclature "Eomite Airdrying Catalysed Grey Paint". Catalyst has to be mixed up with the paint to form the catalysed paint just prior to its use. The catalyst cannot be sold after mixing with the paint on account of technological considerations that the shelf life of the catalysed paint after mixing of the catalyst is too short. It is for this reason that the catalyst is supplied in a separate container in the same packing as the paint. The consumer mixes the two immediately before the use.
14. The question therefore before me is whether the product as sold by the appellant is a separate commodity or two commodities sold together as has been formulated as the first question by the two Members.
15. After hearing the ld. JDR Shri L.N. Murthy for the Revenue on behalf of the respondents, since the appellants by their letter dated 2-3-1992 had requested for a decision on merits on the basis of submissions before the two Members of the C Bench, I am of the view that the two products packed together namely the paint and the catalyst do not bring into existence any new commodity although it might be sold by the appellant packed in a single container and under the nomenclature Eomite Airdrying Paint. The said product in my view comes into existence only when the catalyst is mixed with the paint immediately before its use. The very technological consideration pointed out by the lower appellate authority, in my view detracts from the product being a different one, from the two constituents thereof. Accordingly I am of the view that no manufacture of any new product comes into existence merely by packing together two different commodities. A product comes into existence, as mentioned above, only when they are mixed together immediately before their use. This is done only by the consumer and not by the appellant as it is sold and removed from the factory. Hence in my view no separate duty liability arises in packing the products as has been done by the appellant and I am inclined to agree with the ld. Judicial Member on this issue.
16. I am fortified in my view by Tribunal's judgment in the case of C.C.E. v. Kalinga Paints & Chemical Industries [1989 (44) E.L.T. 548 (Tri.)]. In that case the respondent was manufacturing aluminium medium and cleared the same on payment of duty under tariff item 14 CET relating to paints. After clearance the respondents therein packed the same alongwith aluminium paste in common cartons outside the factory. The aluminium paste was duty paid and procured from outside. The two products were packed separately and put in common carton. It was marketed as aluminium paste. The respondents paid duty only on the aluminium medium manufactured by them and cleared the same from their factory. The Asstt. Collector demanded duty from the respondents on the products marketed as aluminium paint. The lower appellate authority in that case observed as follows :
"When the fact that the Aluminium Paste is packed with Aluminium Paint in a separate tin container and later on put in a double container and sold as Aluminium Paint and these operations are carried out in a duty paid store room of the appellant is not disputed, the demand of duty in this case is not justified. The appellants have already submitted enough evidence that they were allowed to receive the duty paid aluminium paint from outsider and despatched it alongwith a paste from their duty paid store room. For goods cleared from duty paid store room the question of demand for duty does not arise. I, therefore allow the appeal on this point. The question of time bar need not be gone into."
17. After examining the contentions, the Tribunal held that in their view the process of putting together the two types of commodities i.e. aluminium medium and aluminium paste separately packed but in the same container could not be held as manufacture in terms of Section 2(f) of the Central Excises & Salt Act, 1944. It was therefore, held that the Collector (Appeals) was right in holding that inasmuch as the respondents before the Tribunal manufactured only aluminium medium and duty was liable to be paid on that product only.
18. Material facts in the present case are essentially the same as in this case although there might be some difference in details i.e. in the case of Kalinga Paints supra packing of the two separate products was done outside the factory whereas packing of the two products is done within the factory but this in my view is not material to the question whether the process undertaken by the appellant is a process of manufacture or not. Hence I am of the view that no separate duty is leviable after adding the value of the bought out item i.e. the catalyst, as held by the lower authorities.
19. On question No. 3 before me, I agree with the ld. Judicial Member that the impugned order was required to be set aside and the appeal was required to be allowed with consequential relief to the appellants. This being the position on merits, in my view I need not go into the question of time bar as held by the ld. Vice President.
20. In view of the majority opinion, the impugned order is set aside and the appeal is allowed with consequential relief to the appellants.