1988(04)LCX0040

BEFORE THE CEGAT, SPECIAL BENCH ‘C’, NEW DELHI

S/Shri S.D. Jha, Vice-President (J) and D.C. Mandal, Member (T)

PUNJAB NATIONAL FERTILIZERS & CHEMICALS LTD.

Versus

COLLECTOR OF C. EX.

Order No. 351/88-C, dated 6-4-1988 in Appeal No. E/1403/87-C

Advocated By :  S/Shri Kapil Sibal, Senior Advocate, K.K. Lahiri, Advocate and N. Ramanathan, Consultant, for the Appellants.

Smt. J.K. Chander, J.D.R., for the Respondent.

[Order per : D.C. Mandal, Member (T)]. - By the impugned order the Collector of Central Excise and Customs, Chandigarh confirmed two demands for Central Excise duty of Rs. 34,57,955.21 on 8533.138 MT of Bicarbonate of Soda consumed captively during-the period from 1-12-1985 to 28-2-1986 and of Rs. 14,68,528.32 on 3733.099 MT of Bicarbonate of Soda captively consumed during the period from 1-3-1986 to 1-4-1986. The demand show cause notices were issued on 29-5-1986 and 26-9-1986 respectively. In the show cause notices, it was alleged that the appellants manufactured and consumed captively the aforesaid quantities of Bicarbonate of Soda without obtaining a Central Excise licence as required under Rule 174 of the Central Excise Rules, 1944 and without accounting for the same in RG1 register, without completing other Central Excise formalities and without payment of duty and contravened the provisions of Rules 9(1), 52A, 53, 173B, 173C, 173G, 173F and 174 read with Rule 226 ibid. The appellants were asked to explain why the aforesaid Central Excise duty should not be recovered from them under Rule 9(2) ibid and why penalty should not be imposed on them under Rules 9(2), 226 and 173Q of the Central Excise Rules. After considering the replies to the show cause notices and granting personal hearing to the appellants, the Collector of Central Excise held that the contravention’s indicated in the show cause notices were established and he confirmed the demands for duty under Rule 9(2) of the Central Excise Rules, 1944. He also imposed penalty of Rs. 1,000/- only on the appellants under Rules 9(2), 173Q and 226 ibid.

2. Collector of Central Excise held that Central Excise Tariff Item 14AA did not lay down the minimum purity to identify goods for the purpose of classification under that Tariff Item. The standard laid down by ISI would not be relevant for classification of Bicarbonate of Soda under the said Tariff Item. He held that what emerged in the process of manufacture of Soda Ash and Ammonium Chloride in their factory was Bicarbonate of Soda which was assessable under Item 14AA of the Central Excise Tariff. Collector also rejected the appellants’ contention that Sodium Bicarbonate manufactured by them was not saleable. He observed that no evidence had been led by the appellants to show that it was not saleable. He observed that according to the appellants’ claim they utilised Sodium Bicarbonate to make Soda Ash and therefore, it was reasonable to conclude that the product could be purchased by others in order to make soda ash.

3. Arguing for the appellants during the hearing before us, Shri Kapil Sibal, learned Advocate has stated that the appellants had L-4 licence for manufacture of Soda Ash and Ammonium Chloride (a fertilizer). The raw materials for the aforesaid products were Ammonia, Carbon dioxide and salt. In the manufacturing process, Sodium Bicarbonate of 71.40% emerged. The question was as to whether the said Sodium Bicarbonate was excisable or not. He has stated that the composition of Crude Sodium Bicarbonate mixture manufactured by the appellants had been given at page 68 of the Paper Book, which was as follows :-

He has argued that as per I.S.I, standard purity of Sodium Bicarbonate should be 99% for pure grade, 99.8% for analytical Reagent Grade and 99% for refined Grade. According to him, Bicarbonate of Soda as per Tariff Item 14AA should be of I.S.I. Standard purity. The impugned product is not manufactured by the appellants by refining Crude Sodium Bicarbonate obtained from filter in the Solvay process. This emerge as an intermediate product in the course of manufacture of Soda Ash and Ammonium Chloride. Sodium Bicarbonate of 71.4% purity, as obtained by them as-an intermediate product, has no market. Common parlance test should be followed to determine the classification of a product. In support of his arguments, the learned Advocate has relied on the following decisions :-

(i) 1978 ELT (J 121) - Delhi Cloth and General Mills Co. Ltd. and Another v. Joint Secretary, Government of India and Another.

(ii) 1986 (024) ELT 169 (S. C.) - Union Carbide India Ltd. v. Union of India and Others.

(iii) 1987 (031) ELT 623 - Shakti Insulated Wires Pvt. Ltd. and Another v. Union of India and Others.

(iv) 1987 (031) ELT 671 - Brammer V. Link Belting India Ltd. and Another v. C.L Nangia, Appellate Collector of Central Excise, Bombay and Others.

4. Arguing for the respondent, Smt. Chander has stated that Sodium Bicarbonate consumed during the period 1-12-1985 to 28-2-1986 was covered by Item 14AA of the First Schedule to the Central Excises and Salt Act, 1944 and the same product consumed during the period from 1-3-1986 to 1-4-1986 was covered by Heading 2805.30 of the Schedule to the Central Excise Tariff Act, 1985. Tariff Item 14AA covers chemicals. It is, therefore, to be seen whether Sodium Bicarbonate produced by the appellants is chemical. Heading 2805.30 of the Schedule to Central Excise Tariff Act, 1985 read with Note 2(a) of Chapter 28 of the Schedule clearly covers Sodium Bicarbonate in impure form. For the purpose of classification under Tariff Item 14AA and Heading 2805.30 purity is immaterial. It is to be seen whether Sodium Bicarbonate is produced. If the product is Sodium Bicarbonate, it is clearly covered by the aforesaid Tariff Items prior to and from 1-3-1986 respectively. As regards the process of manufacture, Smt. Chander has stated that crude Sodium Bicarbonate can be refined to get refined Sodium Bicarbonate. In this context, she has drawn our attention to page 934 of Condensed Chemical Dictionary by Gessner G. Hawley. She has also drawn our attention to Chapter Note 2(a) of Chapter 28 of the Schedule to Central Excise Tariff Act, 1985, according to which the Headings of Chapter 28 apply to separate chemical elements and separate chemically defined compounds, whether or not containing impurity. She has argued that I.S.I, specification cannot determine Tariff Classification. Once the product falls within the description of a Tariff Item, then the marketability does not play any role in the classification. In support of her arguments, she has relied on the decisions reported in 1978 ELT (J 713), 1978 ELT (J 336), 1985 (21) ELT 3 (S.C.), 1979 ELT (J 65), 1987 (027) ELT 292 (Tribunal) and Tribunal’s decision contained in Order Nos. 199-200/86-C, dated 18-4-1986

5. We have considered the records of the case, the arguments of both sides and the judgments relied upon by the learned Advocate and the learned J.D.R. The main arguments of the appellants are that Sodium Bicarbonate which emerge in the process of manufacturing Soda Ash and Ammonium Chloride is of the purity of 71.40% to 74% whereas as per I.S.I. Standard the purity of Bicarbonate of Soda should be atleast 99% and as such, their product is not covered by Tariff Item 14AA of the Central Excise Tariff and Heading 2805.30 of the Schedule to the Central Excise Tariff Act, 1985. According to them, the goods of the I.S.I. Standard only should be classified under the above Tariff Entry. They have also contended that Sodium Bicarbonate manufactured by them is not marketable and is not sold by them and hence, the same is not liable to pay Central Excise duty. In support of their contentions, a few judgments have been relied upon as mentioned in paragraph 3 (Supra). The arguments of the learned J.D.R. for the Respondent-Collector are that I.S.I. specification is not relevant for determining Tariff classification for the purpose of Central Excise duty. Central Excise duty is a duty on manufacture and not on sale. Marketability is not relevant for charging Central Excise duty. She has also argued that classification of a product under Central Excise Tariff Item 14AA is not dependent on the purity of the goods. So long as the product falls within the Tariff description, it is classifiable under that Tariff Entry irrespective of the purity of the goods. So far as the classification under New Central Excise Tariff Act, 1985 is concerned, she has drawn our attention to Chapter Note 2(a) in Chapter 28 of the Central Excise Tariff Act, 1985 and the Tariff Heading 2805.30 and has argued that this Tariff Heading is specific for Sodium Bicarbonate and according to Chapter Note 2(a) Sodium Bicarbonate in impure form will also fall under this Heading. She has relied upon a number of judgments in support of her arguments. One of the judgments relied upon by her is the Supreme Court decision in the case of Indian Aluminium Cable Limited v. Union of India and Others, reported in 1985(05)LCX0012 Eq 1985 (021) ELT 0003 (S.C.), in which it was held by the Hon’ble Supreme Court that “Specifications issued by the Indian Standard Institution are for ensuring quality control and have nothing to do with the class to which the goods belong in a Tariff Schedule”. In the case of South Bihar Sugar Mills Ltd. and Another v. Union of India and Others, Reported in 1978 ELT (J 336), the Hon’ble Supreme Court held that duty of Excise is on manufacture and not on sale and, therefore, the mere fact that a product is not actually sold would not make any difference in determining excisability of product. In the case of Binny Limited, Madras v. Superintendent, Central Excise, Guindy and Others, reported in 1979 ELT (J 65), it was held by the Hon’ble Madras High Court that “the fact that (00i) the product was derived at an intermediate stage, or (ii) its purity content will not be the same as another form of the product obtained by further processing, will not change matters in any way so far as excise liability is concerned”. In the said case the petitioners, in the course of the manufacture of textile fabrics, produced an intermediary product, viz., Sodium Bichromate liquor which was used for captive consumption. Sodium Bichromate liquor was eventually used for the production of other derivatives known as basic chromium sulphate liquor, basic chrometan, Sodium Bichromate crystals, chrome oxide green, and chromic acid. Sodium Bichromate liquor was not sold or marketed by the petitioner, but was only used for captive consumption, viz., for conversion to basic chromium sulphate liquor for mineral khaki dyeing and for manufacture of basic chrometan for sale as well as conversion to Sodium Bichromate crystal as necessary for the manufacture of crome oxide green. Under Tariff Item 14AA(1) bichromates of potassium or sodium were liable to excise duty at the rate of 10 per cent ad valorem. Hon’ble High Court observed that not only sodium bichromate crystals, but also sodium bichromate liquor would attract Central Excise duty under Tariff Item 14AA(1). It was also observed by the Hon’ble High Court that as pointed out by the Supreme Court in Union of India v. Delhi Cloth and General Mills -1977 ELT (J 177), if, from raw materials, a new substance by the application of process is obtained with the aid of power and that product will constitute an item of excisable goods as enumerated in the tariff item, then it will clearly attract excise levy. The views of this Tribunal on the question of excisability with reference to marketability of the product are reflected in earlier decisions contained in Order Nos. 199-200/86-C, dated 18-4-1986 in the case of M/s. Dai-ichi Karkaria Private Ltd. v. Collector of Central Excise, Pune and in the decision reported in 1987 (27) ELT 292 (Tribunal) in the case of Kores India Limited v. Collector of Central Excise, Bombay. In the-case of M/s. Dai-ichi Karkaria Private Limited, the facts were that the appellants - M/s. Dai-ichi Karkaria Private Limited manufactured detergent products falling under Tariff Item 15AA of the Central Excise Tariff. Sulphonation was a part of the process to make detergent products. The process involved in the manufacture of detergent products was burning of sulphur with air which brought into existence, at an intermediate stage, Sulphur Dioxide (SO₂). That gas passed over some catalysts in the continuous and uninterrupted process and the said gas contained Sulphur Trioxide (SO₃). The appellants removed SO₃ without payment of duty. A show cause notice was, therefore, issued demanding duty over a period of time. The Additional Collector, who adjudicated the case, imposed a penalty of Rs. 1,000/- on the said appellants and demanded duty on sulphur trioxide. The matter came up in appeal before this Tribunal. The appellants submitted that Sulphur Trioxide (SO₃) was only an intermediate product in continuous process and there was no removal of the gas under Central Excise Law and, therefore, there could be no levy of excise duty on the same. It was also submitted that SO₃ as produced was full of impurity and was not known in the market as Sulphur Trioxide. It was held by this Tribunal in that case that Sulphur Trioxide (SO₃) came into existence and the fact that the appellant did not market the product could not be a good reason to hold that SO₃ did not come into existence or that it was not marketable. It was also held that the Central Excise Law did not exempt intermediate products from duty of excise. Under Section 3 of the Central Excises and Salt Act, Central Excise duty was leviable on manufacture. The amendments of Rules 9 and 49 of the Central Excise Rules, 1944 were made retrospective under Section 51 of the Finance Act, 1982. Therefore, SO₃ manufactured and consumed by the appellants in the said case was chargeable to Central Excise duty. In the decision reported in 1987 (27) ELT 292 (Tribunal), this Tribunal held that the taxable event for Central Excise was the manufacture of excisable goods and the moment there was a transformation into a new commodity, commercially known as a distinct and separate commodity having its own character, use and name, manufacture took place and liability to duty was attracted. In that case it was also held that the appellants’ argument that the stencil skin was not bought or sold in the market place was immaterial as it was not a general consumption item but a highly specialized one.

6. Item 14AA of the First Schedule to the Central Excises and Salt Act, 1944 reads as follows:-

“14AA. INORGANIC CHEMICALS.

Heading 2805.30 of the Schedule to the Central Excise Tariff Act reads as under :-

"28.05 :- Salts and peroxy salts, of inorganic acids and metals.

2805.30 Bicarbonate of Soda."

Bicarbonate of Soda is specifically mentioned in both these Tariff Item/Heading. Chapter Note 2(a) of Chapter 28 of the Schedule to Central Excise Tariff Act, 1985 provides that except where the context otherwise requires, the Headings of this chapter apply to separate chemical elements and separate chemically defined compounds whether or not containing impurities. Therefore, Bicarbonate of Soda containing impurities is fully covered by Heading No. 2805.30. Although there is no such Note in respect of Central Excise Tariff Item 14AA, this Tariff Item specifically covers Bicarbonate of Soda. Therefore, once Bicarbonate of Soda is manufactured, it clearly falls within the description of these two Tariff Item and Heading, one relating to the period prior to 1 -3-1986 and the other for the period from 1-3-1986. In the present case, Bicarbonate of Soda is produced by the appellants in the course of manufacturing Soda Ash and Ammonium Chloride. Therefore, irrespective of purity of Sodium Bicarbonate manufactured by them, it is clearly covered by these Tariff Item and Heading for the purpose of Central Excise classification. Although the Indian Standard Institution Specification lays down the minimum purity of 99% for Bicarbonate of Soda, as held by the Hon’ble Supreme Court, the I.S.I. specification is not relevant for the purpose of classification for Central Excise duty. In these circumstances, although the purity of the Bicarbonate of Soda manufactured by the appellants is stated to be 71.40% to 74%, the same, nevertheless, is classifiable under these Tariff Item and Heading. The contention of the appellants that their product Sodium Bicarbonate is an intermediate product and is not marketable, does not help their case in the matter of classification and charging Central Excise duty. The facts of the present case are similar to the facts of the case reported in 1979 ELT (J 65) decided by Madras High Court and of the case decided by this Tribunal in Order Nos. 199-200/86-C, dated 18-4-1986. In those two cases, the impugned products were intermediate products and were not sold by the assessees, but were consumed captively. Therefore, having regard to the facts of the present case and the judgments of the Hon’ble Supreme Court in 1978 ELT (J 336) and 1985 (021) ELT 3 (S.C.), judgment of Madras High Court reported in 1979 ELT (J 65) and the decision of this Tribunal in Order Nos. 199-200/86-C, dated 18-4-1986 and the decision reported in 1987 (027) ELT 292 (Tribunal), we are of the view that Bicarbonate of Soda manufactured by the appellants in the course of manufacturing Soda Ash and Ammonium Chloride was excisable under Tariff Item 14AA prior to 1 -3-1986 and under Heading 2805.30 of the Schedule to the Central Excise Tariff Act, 1985 w.e.f. 1 -3-1986.

7. In support of his argument that no Central Excise duty is chargeable on the appellants’ product Bicarbonate of Soda, the learned Advocate has relied on four judgments, one of Supreme Court and three of High Courts. The case of Union Carbide India Limited v. Union of India and Others, reported in 1986 (024) ELT 169 (S.C.), related to aluminium cans. The appellants in that case manufactured aluminium cans which were captively consumed by them in the manufacture of flashlight and torches. Hon’ble Supreme Court held in that case that aluminium cans were not goods and did not attract Central Excise duty under Item 27 of the Central Excise Tariff. The said case is, however, clearly distinguishable from the case before us. In that case the Hon’ble Supreme Court held that cans had sharp uneven edges and in order to use them as a component in making flashlight cases, the cans had to undergo various processes such as trimming, threading and redrawing. After the cans were trimmed, threaded and redrawn, they were reeded, beaded and anodized or painted. It was at that point only that cans became a distinct and complete component capable of being used as flashlight case for housing battery cells and having a bulb fitted to the case. It was in those facts of the case that the Supreme Court held that cans on which duty was demanded were not “goods” to be liable to Central Excise duty under Tariff Item 27. In the present case before us, Bicarbonate of Soda came into existence within the Tariff description. It is a different matter that the entire quantity of Bicarbonate of Soda was consumed by them captively and the same was not sold in the market. That does not take away the product from the preview of Central Excise duty after the amendment of Rules 9 and 49 of the Central Excise Rules retrospectively by the Finance Act, 1982.

8. The decision of Delhi High Court reported in 1978 ELT (J 121) in the case of Delhi Cloth and General Mills Company Limited and Another v. Joint Secretary, Government of India and Another also does not help the case of the appellants. In the said case, Calcium carbide in naked form was produced and used in the manufacture of acetylene gas within the factory of manufacture. Hon’ble Delhi High Court held that the said calcium carbide was not “goods” because it did not attain the material form and purity as required by the Carbide of Calcium Rules, 1937 and hence, was not liable to excise duty under Item 14AA. The said decision is not applicable to the present case as the facts are different. The marketability of Calcium carbide was governed by Chapter III of the Carbide of Calcium Rules, 1937 made under Petroleum Act, 1934. Rule 20 of the Carbide of Calcium Act, 1937 required that Calcium Carbide must attain the requisite degree of purity before it could be rendered commercial or marketable. Calcium Carbide which did not attain the material form and composition required by the Carbide of Calcium Rules for marketability, was not marketable at all in view of the prohibition imposed by the Carbide of Calcium Rules. As the Calcium Carbide manufactured by the petitioners in that case did not satisfy the requirement of the said Rules, the Hon’ble High Court held that those were not Calcium Carbide as commercially known and hence not dutiable under Tariff Item 14AA. In the present case, there is no such requirement.

8A. The learned Advocate has relied upon two judgments of Bombay High Court. One is reported in 1987 (031) ELT 623 (Bom.) in the case of Shakti Insulated Wires Pvt. Ltd. and Another v. Union of India and Others. In the said case the question for consideration was whether heavy viscous liquid produced by the petitioners in an unfinished condition at an intermediary stage of manufacture of Varnish was resin or polyester resin for the purpose of Central Excise duty under Item 15A of the Central Excise Tariff. It was observed in that case that heavy viscous liquid was in unfinished condition. Expert opinion in that case revealed that heavy viscous liquid was not a product of commercial use and it was not marketable goods. In that context, it was held that the said viscous liquid could not be treated as resin or polyester resin for the purpose of classification under Tariff Item 15A of the Central Excise Tariff. In the other case decided by Bombay High Court, viz., case of Brammer V. Link Belting India Ltd. and Another, reported in 1987 (031) ELT 671 (Bom.), the question arose whether the petitioners manufactured ‘cotton fabrics rubberised’. In the course of manufacture of V. Link Belting, the petitioners utilised cotton fabrics, rubber compounds and volatile solvents as raw materials. This process of manufacture was an uninterrupted process which went through various stages of production. After application of the rubber compound the cotton fabric was cut into pieces and those pieces were placed one over the other as per requirement and thereafter they were vulcanised to form sheetings of maximum size of 18"/24". The said sheeting was not a commodity or article for use or consumption save and except as an article in the process of manufacture of V. Link Beltings and the same was distinct from “cotton fabrics rubberised”. It was observed that the distinction was not only in the process of manufacture but also in the character, marketability and use. On the basis of those facts it was held by the Hon’ble High Court that no Central Excise duty under Item 19 of the Central Excise Tariff was leviable on those cotton fabric sheets.

9. In view of the above discussions, the judgments relied upon by the learned Advocate are not applicable to the facts of the present case. In the case before us, Bicarbonate of Soda did emerge. Bicarbonate of Soda is specifically mentioned in the Tariff Entry. The purity of the product is not material for classification under Central Excise Tariff Item 14AA. Chapter Note 2(a) of Chapter 28 of the Schedule to the Central Excise Tariff Act, 1985 specifically mentions that the Headings of the said Chapter apply to the goods irrespective of purity. It is argued by the appellants that Sodium Bicarbonate produced by them was not marketable and the entire product was consumed captively. Sodium Bicarbonate as such is marketable. The argument that the product of the appellants is not of standard purity and hence not marketable cannot be accepted. This view finds support from Supreme Court decision in Delhi Cloth and General Mills Co. Ltd. case [1978 ELT (J 121)] (Supra). In Delhi Cloth and General Mills Company Limited’s case, the Hon’ble Supreme Court observed that “This would mean that the substance produced by the petitioner is sub-standard judged from the Indian Standards/Institution specifications. This would, however, not necessarily make it unmarketable. The marketability would itself depend on the degree by which the product falls below the standard. It is not possible to lay down a hard and fast line as to when a sub-standard product becomes marketable and when it falls below the line of marketability. For instance, a car may be marketable even if it is not painted or it may not have a roof, but it may not be marketable if it has no engine or no brakes. Since the substance in the form of cakes cut to required sizes is usable by the petitioner in its acetylene gas plant, it would also be usable by someone else for the generation of acetylene gas. It would then be saleable as being useful for that purpose”. The goods captively consumed is also chargeable to duty in view of the amendment of Rules 9 and 49 of the Central Excise Rules, 1944, by the Finance Act, 1982. In these circumstances, we hold that Bicarbonate of Soda manufactured by the appellants was chargeable to Central Excise duty under Item 14AA of Central Excise Tariff prior to 1-3-1986 and is subject to Central Excise duty under Heading 2805.30 of the Schedule to the Central Excise Tariff Act, 1985 w.e.f. 1-3-1986. The lower authority has demanded the duty under Rule 9(2) and has imposed penalty under Rules 9(2), 226 and 173Q of the Central Excise Rules. We observe from the letter dated 29-11-1984 from the Inspector, Central Excise vide copy at page 40 of the paper book, letters dated 29-3-1985 and 17-4-1985 of the Superintendent of Central Excise vide copies at pages 43 and 48 of the paper book respectively, all addressed to the appellants, copies marked as Annexure-C to the appeal Memorandum, that the appellants were informed that Sodium Bicarbonate manufactured by them was liable to Central Excise duty under Tariff Item 14AA(1) of the Central Excise Tariff and they were asked to obtain Central Excise licence, file classification list and observe other Central Excise requirements. The appellants neither took Central Excise licence nor observed other Central Excise requirements including payment of duty. They have, therefore, deliberately contravened the provisions of law to evade payment of duty as indicated in the show cause notices and the impugned order. Demanding duty under Rule 9(2) of the Central Excise Rules and imposition of penalty under Rules 9(2), 173Q and 226 of the Central Excise Rules, are, therefore, according to the provisions of law and are justified in the facts and circumstances of the case.

10. In the light of the aforesaid discussions, we uphold the impugned order and dismiss the appeal.

Equivalent 1988 (37) ELT 155 (Tribunal)