Customs, Excise and Gold Tribunal - Delhi
Collector Of Central Excise vs Kamal Chemical Industries on 9 March, 1992
Equivalent citations: 1992(61)ELT682(TRI-DEL)
ORDER Jyoti Balasundaram, Member (J)
1. Two issues arise for determination in this appeal:
(i) whether acid slurry falling under TI 15AA manufactured by the respondents is eligible for duty exemption under SI. No. 2 of Notification No. 101/66 dated 17-6-1966.
(ii) whether the demand of duty for the period 1983-84 and 1984-85 raised in the show cause notice dated 10-1-1986 is barred by limitation.
2. The brief facts of the case are as follows :
The assessees are engaged in the manufacture of various items falling under T.I. 15AA and 68 of the Central Excise Tariff generally used in textile industry and other industries such as paper, pencils and cleaning products etc. The assessees claimed that certain products which were manufactured without the aid of power were exempt from payment of duty as per provisions of Notification No. 101/66 dated 17-6-1966 (S. No. 2). The assessees had also claimed that rest of their products were also exempt from payment of duty under various other notifications. On the surprise visit to the assessee's premises by the Assistant Collector, Central Excise on 13-7-1985, it was observed that there was no demarcation of area, plant or machinery between operations carried on with the aid of power and the so-called non-power used operations. The presence of a large number of power operated pumps installations and pipes in the factory indicated that the power was used in the manufacture of acid slurry also. On the basis of other investigation and screening of various files, inter-office correspondence and correspondence with other agencies such as Maharashtra State Electricity Board, it was observed that the assessees were using electric pumps for circulation of water through the jacket around the slurry sulphonation tank in their shed M.F. 1. The use of power in the acid slurry plant was also revealed in the process instructions for the manufacture of acid slurry written by Shri M.S. Marathe, Manager of the assessee's company. Even the photographs of premises taken on 13-7-1985 indicated the extensive use of power pumps and power connections all over the factory. Goods worth Rs. 2,14,145/- were seized on 23-7-1985. A show cause notice was issued to the assessees on 10-1-1986 demanding central excise duty of Rs. 2,84,139.73 for the year 1983-84 and 1984-85 and confiscation of land building, plant etc. under Rule 173Q(2)(b)(i). The assessees had claimed that the products manufactured by them were exempt from payment of duty under one or other notifications and that they had filed the required declarations. The assessees had argued that the sulphonator had to be packed with chunks of ice from the open cap of the jacket. The assessees had supplied the details of the ice purchased. They had argued that circulation of water in jackets was impossible.
3. The Collector in his order dated 1-5-1986 observed that the issue involved in this case is whether the acid slurry falling under Item No. 15AA manufactured by the assessees is eligible for duty free clearance under Section No. 2 of Notification No. 101/66 dated 17-6-1966. For the benefit under this Notification the goods falling thereunder have to satisfy the following conditions :
"in or in relation to the manufacture and packing of such surface active agents, no process is ordinarily carried on with the aid of power or of steam for heating."
From the technical opinion given by a scholar produced by the assessees and from the defence reply placed on record the Collector observed that the charge of circulation of cold water around the sulphonator inside the jacket was not substantiated. The Collector also accepted the assessee's plea that transfer of raw-materials before the manufacturing process started does not amount to use of power in or in relation to the manufacture of the goods. The Collector also upheld the assessees plea that no charge can be made by the Department for suppression of relevant information as the factory had been visited a number of times by the Central Excise Officers. In view of his above findings he dropped the case proceedings with consequential relief to the assessees. Hence this appeal by the Revenue.
4. We have heard Shri K.K. Bhatia, learned Jt. C.D.R. for the appellant and Shri Satish Kelkar, Partner for the respondents and perused the records.
5. For a proper appreciation of the dispute it is necessary to set out the process of manufacture of acid slurry:
Acid slurry is manufactured by using 2 basic materials namely:
1. Alkyl (soft)/dodecyl (hard) Benzene
2. Sulphuric acid alone or in combination with Oleum.
The said two raw materials need to be brought in contact and the same agitated and allowed to settle for separation into two phases, one of waste product called waste acid which is heavier and therefore, first separated out and the top lighter layer called the acid slurry separated subsequently. In order to prevent coagulation ice/water is added to reaction mixture.
In order to carry out the above manufacturing activity in Kamal Chemical the Sulphonators are charged with Alkyl Benzene manually through buckets or hand operated pump from the barrels and with acid/acids by way of manually opening the valve of dossage tank installed at a height above the sulphonator. (Here M/s. Kamal Chemicals illustrated the machinery used by them by a diagram.).
The contact of acid/acids with Alkyl Benzene raises the temperature as the reaction is exothermic in nature and there is a need to control the temperature of the reaction between 55°C to 60°C for maintaining quantity of the acid slurry. This control of temperature is achieved by a specially designed cooling system. It is an open type jacket to the sulphonator having an opening all around the sulphonator of about three inches between the outerwall of the sulphonator and the inner wall of the jacket. It is provided with only one outlet and an overflow valve. The jacket is so designed because the same is packed with chunks of ice from the open end of jacket by way of a 3 inches gap referred to above. The outlet is provided to allow discharge of water obtained by, melting of ice because of the raised temperature during reaction and the overflow valve avoids discharging of water from the end of the jacket."
6. The use of power in the acid slurry plant is revealed from the Process Instructions for the manufacture of acid slurry, relevant extracts of which read as under :
(xii) Fill the compressor tank with air upto 100 pts pressure (xvi) Acid will start pumping from the acid egg to dossage tank inside the shed M.F. 1 (xvii) At the end of material pumping the acid line will vibrate. (xviii) Close valves of compressor and switch off.
The respondents admit that till November 1984 when tanks were at ground level, power was used for transferring acid from ground level to overhead tank. Subsequent to November 1984, acid tanks were raised from ground level to a height of about 25 feet and ice was regularly supplied for using the same in the sulphonator jacket. The use of power for handling of raw material i.e. for transferring acid from tankers to overhead tanks after November 1984 is not denied and is instead confirmed during the course of the respondents' arguments. It is also an admitted fact that in exceptional circumstances of non-availability of ice, the sulphonator jacket was filled by bucket manually and/or by pumping the water from the ground level water storage pond with the help of motor. The respondents' however contend that the use of compressor for (a) transferring acid from ground level prior to November 1984 and for (b) taking delivery of acid from supplier's motor lorry to storage tank at a height of 25 feet cannot be considered either a process of manufacture nor an activity incidental to the process of manufacture like charging of raw materials into the manufacturing plant i.e. the sulphonator. They further contend that the use of power in the extreme circumstances of non-availability of ice had no connection with any process in or in relation to manufacture of acid slurry as the cooling was achieved by water in jacket and circulation of the same was an impossibility. In view of the above, they submit that no process is ordinarily (emphasis supplied) carried on with the aid of power, in or in relation to the manufacture and packing of surface active agents and, therefore, the acid slurry manufactured by them is entitled to the benefit of Notification No. 101/66.
7. A similarly worded Notification i.e. Notification 179/77 was the subject matter of interpretation by the Hon'ble Supreme Court in the case of Collector of Central Excise v. Rajasthan Chemical Works -1991 (55) E.L.T. 444.
8. The respondents before the S.C. who were manufacturers of crude sodium sulphate, had the benefit of Notification 179/77 was denied to them as pumping of brine into the salt pans was carried on with the aid of power. The respondents contended that if the process carried on with the aid of power does not bring about any change in the raw material, it cannot be said that any process in or in relation to a manufacture of article has been carried on with the aid of power and, therefore, mere transfer of raw materials by the use of power cannot be considered as a process of manufacture. The Supreme Court held that "the transfer of raw material to the reacting vessel is a preliminary operation but it is a part of a continuous process but for which the manufacture would be impossible. The handling of the raw materials for the purpose of such transfer is then integrally connected with the process of manufacture. The handling for the purpose of transfer may be manual or mechanical but if the power is used for such operation, it cannot be denied that an activity has been carried out with the aid of power in the manufacturing process - The use of diesel pump sets to fill the pans with brine is an activity with the aid of power and that activity is in relation to the manufacture. It is not correct to say that the process of manufacture starts only when evaporation starts. The preliminary steps like pumping brine and filling the salt pans form integral part of the manufacturing process even though the change in the raw material commences only when evaporation takes place. The preliminary activity cannot be disintegrated from the rest of the operations in the whole process of manufacture (Para 17). The decision of the Gujarat High Court in Nirma Chemical Works and Ors. v. Union of India and Ors. reported in 1981 (8) E.L.T. 617 was over-ruled by the Supreme Court in paragraph 19 of the above judgment.
9. Applying the ratio of the Supreme Court decision in the case cited (supra) we hold that the acid slurry manufactured by the respondents is not eligible for the benefit of exemption from payment of duty in terms of Notification 101/66. The Collector's order on this aspect is hereby set aside.
10. Having dealt with the merits of the case we now turn to the question of limitation. The respondents contend that there has been no suppression of any facts; the Departmental officers had knowledge of the manufacturing process of acid slurry because of their frequent visits to their factory. The respondents had been filing details of clearances giving invoice nos. and date right from the commencement of the production in November/December 1982 till June 30,1985; at the instance of the Department the respondents had demarcated areas between operations carried on with the aid of power and those carried on without the aid of power; that they had filed requisite declarations along with schedules as well as exemption applications from time to time and, therefore, no suppression as to the use of power in the process of manufacture of acid slurry can be imputed to them. We find from the reply to the show cause notice dated 27-1-1986 that there was a lot of correspondence exchanged between the respondents and the Department and the respondents appeared to have filed invoices, declarations, etc. However, the Collector has merely relied upon visits of Departmental officers to the factory for a prolonged period to hold that no charge can be made for the suppression of relevant information. He does not appear to have considered the documentary evidence placed by the respondents in the form of enclosures to the reply to the show cause notice. In the case of Jaishri Engineering Company P. Ltd. v. Collector of Central Excise, reported in 1989 (40) E.L.T. 214 the Hon'ble Supreme Court has held that visits of officers of the Department to a factory is no reason for an assessee not to truly and properly describe the goods. In view of the summary finding of the Collelctor on time bar, we are not in a position to give any finding on this aspect and we remand the matter to the adjudicating authority for de novo adjudication on the issue of the demand being time barred in the light of the evidence produced by the respondents. The cross objection abates.
11. In the result we set aside the impugned order on merits and remand the time bar issue to the Collector of Central Excise. The appeal is disposed of in the above terms.