Customs, Excise and Gold Tribunal - Delhi
Vijay Adhesive Industries vs Collector Of Central Excise on 22 March, 1988
Equivalent citations: 1988(36)ELT185(TRI-DEL)
ORDER P.C. Jain, Member (T)
1. Brief facts of the case are as follows :-
On 22-7-1985, the Central Excise Officers visited the appellants' premises. They were found engaged in the manufacture of starch gum with the aid of power believed to fall under Central Excise Tariff Item 15C. On enquiry Shri R.H. Mehta, partner of the appellant firm stated in his written statement recorded on the spot that they had been manufacturing starch gum since the year 1973 and that the manufacture was of the two kinds i.e. one L.N. brand with the aid of power and the other HVS brand without the aid of power. They furnished sale figures from the year 1980-81 to 20-7-1985. He also stated that their main raw material was starch and the other raw materials were dextrine and borax. They had not obtained Central Excise licence for the manufacture of starch gum, nor had filed any declaration to that effect.
On a reasonable belief that the said starch gum falls under Tariff Item 15C of the Central Excise Tariff (as it then stood) and manufactured with the aid of power quantity of 2200 kgs. of starch gum lying with the appellants at the time of the visit (7 drums of HSV and 4 drums of LN brand) valued at Rs. 2,160/- were placed under seizure under Section 110 of the Customs Act read with Notification No. 68/83-C.E., dated 4-5-1963 under Section 12 of the Central Excises and Salt Act, W4.
A statement dated 22-7-1985 was also recorded on the spot from Shri R.H. Mehta apart from what is stated above (as spelt out in the seizure memo dated 22-7-1985 furnished by the Seizing Officer to the next superior officer), the statement gives further information as follows :-
"Our manufacturing process is as under :-
(1) We manufacture two types of gum, one is LN (pasting gum) with the aid of power. First we boil the water and then starch and borax is mixed in it. The water is boiled in the furnace with the aid of power.
(2) The other kind of gum is prepared in solution process after mixing starch in cold water. No process is carried with the aid of power.
Our sales for the following years from 1980-81 is as under :-
1980-81 - Rs. 10,33,379.14p 1981-82 - Rs. 9,80,574.79p 1982-83 - Rs. 12,09,748.10p 1983-84 - Rs. 13,02,704.10p 1984-85 - Rs. 16,17,831.15p 1-4-1985 to 20-7-1985 - Rs. 5,59,527.80p."
Show cause notice dated 16-1-1986 was, however, issued to the appellants alleging, inter alia, that Shri R.H. Mehta partner of the firm in his statement dated 22-7-1985 admitted that "power was being used in or in relation to manufacture of these modified form of starch in their premises."
In view of the foregoing facts and circumstances of contravention of provisions of Rules 174, 9, 52A, 53, 173B, 173C and 173G of Central Excise Rules, 1944 were alleged in the show cause notice. On adjudication the Collector of Central Excise, New Delhi held that the two products manufactured by the appellants fall under Tariff Item 15C and duty was accordingly leviable thereon. The appellants have suppressed their manufacturing activity from the department; therefore, duty was demand-able under Rule 9(2). The seized goods were liable to confiscation and they were accordingly confiscated. However; on payment of fine of Rs. 1,000/- in lieu of confiscation the goods were ordered to be released. Central Excise duty of Rs. 2,84,837.78 was demanded under Rule 9(2) of the Central Excise Rules. A penalty of Rs. 60,000/- was also imposed by the Collector under Rule 173Q.
2. The appellants' learned advocate has now urged that they are manufacturing the aforesaid two varieties of gums from duty paid starch. Since the products of the appellants have also been held to fall under Tariff Item 15C they cannot be charged to duty again because the duty has already been paid on the starch under the same Tariff Item 15C. For this proposition, the learned advocate draws attention to the Tariff Entry which is reproduced below :-
"Starch (including dextrine and other forms of modified starch) all sorts in or in relation to the manufacture of which any process is ordinarily carried on with the aid of power."
For this proposition, the learned advocate relies on 1983 ELT 1123 (Golden Paper Udyog (P) Ltd., Faridabad v. C.C.E. Delhi), 1985 (21) ELT 889 (Trib.) (C.C.E., Aurangabad v. Anil Chemicals Pvt. Ltd.).
We are unable to agree with the contention of the learned advocate for the appellants. Tariff Entry as re-produced above, clearly indicates that starch all sorts including dextrine and other forms of' modified starch are grouped together and made liable to duty. Test report clearly indicates that the product manufactured by the appellants is a modified starch inasmuch as borax has been added as a modifying agent which modifies the viscous property of starch and, therefore, the product though commercially named by the appellants as gums are clearly modified starches and would, therefore, be covered by the tariff description of 15C. Since modified starches are specifically mentioned within the Tariff Entry there can be no dispute that these are liable to Excise duty even if they are made from starch. The case law relied upon by the learned advocate in mentioned supra does not have any bearing now in view of the larger Bench judgment in the case of Guardian Plasticote Ltd. v. C.C.E., Calcutta 1986 (24) ELT 542. This judgment of larger Bench by the majority view upholds that if a new product having different name, character and use is manufactured it would be liable to duty under the same item/sub-item of the Tariff if the Tariff Entry uses the expression 'all sorts' as was the case in respect of Tariff Item 17 before the larger Bench. The judgment is based on the Supreme Court's decision in the case of Empire Industries v. Union of India 1985 (20) ELT 179 (S.C.). The other judgment of the Tribunal namely 1985 (21) ELT 889 (Tribunal) relied upon by the learned advocate has no relevance at all to the facts of this case. Therein the question involved was whether the prilled ammonium nitrate was a new product or not. In view of this, we have no hesitation in holding that the two products would fall under Item 15C if these are otherwise manufactured with the aid of power.
The other incidental point raised by the learned counsel with regard to the classification is that these are articles of starch or products of starch and the Tariff Item 15C does not cover articles of starch as is referred to in several other items specifically. We need not go into this contention of the learned advocate in view of our finding above that what the appellants produced is modified starch and is, therefore, clearly covered by the description of Item 15C.
3. Next contention of the learned advocate is that only one of the products manufactured by them is with the aid of power and the other is without the aid of power. It is specifically mentioned so by the Seizing Officer in his seizure report and in the statement dated 22-7-1985 of Shri R.H. Merita, partner of the appellants firm. These have already been extracted above in the facts of the case. Therefore, the learned advocate urges that the allegation in the show cause notice which has been upheld in the order-in-original that both the products are manufactured with the aid of power is totally erroneous on facts. On this aspect, the learned JDR draws attention to the finding of the adjudicating authority in the impugned order which states as follows :-
"To my question, it was admitted that the power was used by the manufacturer in the present case also in operating the stirrer. At the time of the visit of the officers only pasting gum was found to be used. Since the stirrer was available it is rather unbelievable that the manufacturer would have limited the use of the stirrer only for one item and not for the other. I, therefore, hold that, just like the other similar manufacturer of the same products, the present manufacturer also must have been using the power for operating the stirrer.
[Emphasis supplied].
4. Learned advocate for the appellants in contending against the aforesaid finding of the adjudicating authority has urged that the learned Collector appears to have mixed up the two cases, one of another party and the other of the appellants. The other party might be using a stirrer operated with the aid of power. There is no mention of stirrer either in the seizure report or in the statement of Shri R.H. Mehta or even in the show cause notice. The contemporaneous evidence available in the form of seizure report and the statement of Shri R.H. Mehta clearly shows that only in respect of one of the products (L.N. brand) Power is being used.
5. We have carefully gone through the evidence on record. We agree with the contention of the learned advocate in this respect. The contemporaneous evidence on this question is the seizure memo dated 22-7-1985 and the statement of the same date of Shri R.H. Mehta, a partner of the appellant firm. Both these evidences clearly, indicate that that power was being used only in respect of one of the products. Therefore, the product which was being manufactured without the aid of power i.e. HVS brand, does not fall within the Tariff description of Item 15C. It would, however, fall under Tariff Item 68 but would be fully exempted from duty under Notification 179/77 which exempts all goods falling under Tariff Item 68 from payment of duty if manufactured without the aid of power. Duty liability, if any, should be modified taking into account the clearances of L.N. brand of gum manufactured by the appellant firm in the relevant period. We are not sure whether the data of clearances of the pasting gum (L.N. brand) given by the appellants for the period 1980-81 to 1984-85 is correct and is within the exemption limit. For this purpose, alone i.e. for determining the duty liability the matter is remanded to the adjudicating authority, namely the Collector of Central Excise, Delhi. The appellants admit, even on the basis of their own data, that they cleared pasting gum (manufactured with the aid of power) during 1984-85 to the extent of Rs. 7,06,835.80 which is in excess of 80% of the exemption limit of Rs. 7.5 lakhs. Therefore, they were required to take out a central excise licence. Even in respect of earlier years when according to their own statement they were manufacturing goods with the aid of power, they were required to make a declaration for getting an exemption from the licensing control. To that extent, therefore, the appellants have contravened the Rule 174 read with Rule 173Q. Accordingly, a penalty of Rs. 1,000/- (Rupees one thousand only) on the appellants would meet the ends of justice for that contravention. Since they were required to take out a licence, the goods under seizure are also liable to confiscation. We do not interfere, therefore, with the confiscation and imposition of fine of Rs. 1,000/- (Rupees one thousand only) in lieu thereof ordered by the adjudicating authority.
6. We, however, make it clear that the Collector would be competent to impose a suitable penalty, having regard to the quantum of duty evaded for determination of which the case is being remanded to Collector as mentioned above.
7. The appeal is disposed of in the above terms.