1. By the captioned appeal, the appellants have agitated the findings of the ld. Collector, Central Excise in his order-in-original. The main issues decided by the ld. Collector pertained to the availability of the benefit of Notification No. 8(9)/55-C.E., dated 31-12-1955 as amended by Notification No. 37/60-C.E., dated 12-3-1960 and 35/86-C.E., dated 10-2-1986 and held that Notifications were conditional and the conditions were not fulfilled by the appellants, therefore, the benefit under the Notifications was not admissible to the appellants, whether the appellants were manufacturer of Bituminised hessian/cotton cloth paratape and parafluxal and held that they were the manufacturer.
3. The third issue decided by the Collector was whether the extended period of 5 years under proviso to Section 11 A was applicable and held that it was applicable.
5. The facts of the case, in brief, are that the appellants are engaged in the processing of duty paid bitumen to various grade of Blown Bitumen and started production of blown bitumen in 1980. The appellants started production of bitumen (aqueous) emulsion in 1984 and manufactured bitumen according to ISI specification No. 3117.
6. The appellants entered into two separate agreement on 30-10-1981 with M/s. United Enterprises and M/s. Mahendra Harish Brothers for manufacture of bituminised hessian/cotton cloth. Under these agreements, the goods were to be manufactured under the supervision and on the basis of technical know-how provided by M/s. Indian Cable Co.
The agreements stipulated that the appellants shall not undertake manufacturing of the products covered by the agreements for any other party and will not sell the products ordered by the firms. It was also provided in the agreements that the appellants shall not engage in manufacturing and sale of goods covered under the agreements for any other party except in accordance with the agreements. It was also stipulated that the appellants shall not transfer sell and transfer his factory and the shareholders of the company shall not transfer stocks or effect any change in the management during pendency of the agreements and shareholders of the appellants' company will exercise voting rights to give effect to the provisions of agreements. The agreements also stipulated that the appellants shall cause the agreements to be adopted by the shareholders and directors of the company by obtaining their signatures on the agreements. A show cause notice was issued to the appellants on 25-1-1988 asking them to explain as to why duty should not demanded for the financial years 1983-84 to 1986-87. After considering the reply of the appellants and submissions made, the ld. Collector confirmed the demand of Rs. 7,85,177.20 and imposed a penalty of Rs. 2.0 lac. Against this decision, the appellants have come up in appeal before us.
7. Shri V. Sridharan, the ld. Advocate appearing for the appellants submitted that the ld. Collector has already dropped the demand for 1983-84, similarly, for the year 1986-87, the value of parafluxal, paratape bituminised mixture is not significant and are not challenged.
The ld. Counsel contended that following products are important from their point of view insofar as their classification and durability is concerned. The products are (a) bituminised hessian cloth/cotton cloth (b) bituminised aqueous emulsion. He submitted that insofar as dutiability of bituminised solution/emulsion is concerned, the appellants are not manufacturing bitumen but were purchasing the same from the market; that the process consists of dissolving bitumen in hot water in the presence of emulsifier content of which is less than 1%.
The ld. Counsel submitted that mere dissolving of bitumen in water in the presence of an emulsifier is not a process of manufacture, therefore, no duty is payable. In support of his contention, the ld.Counsel cited and relied upon the decision of this Tribunal in the case of Markfed Agro Chemicals reported in 1993 (68) E.L.T. 848 wherein this Tribunal had held that processing of concentrated pesticidal chemicals carried out through addition of inert/solvent and dispersing and stabilising agents resulting in their dilution does not amount to manufacture inasmuch as no new product having distinct name, character and use came into existence. The ld. Counsel also cited and relied upon the decision of the Hon'ble Madras High Court in the case of Coromandal Prodorite Pvt. Ltd. v. Union of India and ors. reported in 1985 (20) E.L.T. 257 in which it was held that synthetic resin in solid form mixed with alcohol to convert it into liquid form does not amount to manufacture because the end-product which came into existence is not a product different in character, nature and use. The ld. Counsel also cited and relied upon the decision in the case of Sandoz India Ltd. v.UOI and ors. reported in 1980 (6) E.L.T. 696 in which the Hon'ble Bombay High Court held that if a certain process merely changes the physical form of a substance without bringing any change in the chemical composition of resulting in any chemical reaction, then such a process cannot be equated with manufacture as it does not bring into existence a new product. The ld. Counsel also cited and relied upon the decision of this Tribunal in the case of Jyoti Laboratories v.Collector of Central Excise, Cochin reported in 1994 (72) E.L.T. 669 in which this Tribunal held that mixing and dissolving in hot water of acid dye, Ranipal and Ultra Marine Blue being a physical change is not manufacture.
8. Opposing the contentions of the ld. Counsel, the ld. SDR Shri A.K.Madan submitted that the appellants were procuring bitumen; that bitumen by itself was not capable of being used. He submitted that the appellants relied on IS : 3117-1965 stating that they manufacture bitumen emulsion for roads; that the emulsifying agent in the; proportion in which it is present in the bitumen shall not have any deleterious effect upon the properties of bitumen; that emulsified bitumen was entirely a different product; that the use and application of emulsified bitumen are different from bitumen; that the ratio of the judgments cited and relied upon by the appellants is not applicable to the facts of the present case inasmuch as a distinct new product of distinct name, character and use got generated and therefore, the conversion of bitumen into bitumen aqueous emulsion is a process of manufacture. The ld. Counsel as an alternative plea had submitted that in case the process of conversion of bitumen into bitumen emulsion is considered as a process of manufacture, then bitumen emulsion is exempt under Notification No. 8(9)/55-C.E., dated 31-12-1955 as amended by Notification No. 37/60-C.E., dated 12-3-1960. On the question that whether this claim of exemption can be made now subsequent to the removal of the goods, the ld. Counsel submitted that exemption can be claimed subsequent to removal of the goods and in support of this contention, he cited and relied the judgment of this Tribunal in the case of Maruti Udyog Ltd. v. C.C.E., New Delhi reported in 1994 (73) E.L.T. 401 wherein this Tribunal had held that the benefit of exemption notification can be claimed even after clearance. The ld. SDR opposed this contention and submitted that the claim for exemption should be made before clearance of the goods and reiterated the findings of the ld. Collector, Central Excise on this issue. The ld. Counsel also submitted that the main objection of the department was that though the exemption was admissible to aqueous emulsion of bitumen, however, the conditions of Notification granting this exemption were not fulfilled and therefore, the exemption was not admissible to the appellants. The ld. counsel contended that Notification dated 13-12-1955 stipulated that along with the application for removal of the goods, a declaration shall be filed by the asses-see. He submitted that the assessees were working under the S.R.P. therefore, the condition regarding declaration mentioned in the Notification was not capable of fulfilment. He submitted that it was a settled law that law does not require fulfilment of conditions which are incapable of fulfilment. In support of this contention, the ld. Counsel cited and relied upon the decision of the Apex Court in the case of Raj Kumar reported in AIR 1987 (SC) 2195. The ld. Counsel also referred to Extract of Maxwell on the Interpretation of Statutes 12th Edition by P. St. J. Langan reading as "Enactments which impose duties upon conditions are, when these are not construed as conditions precedent to the exercise of a jurisdiction, subject to the maxim, lex non cogit ad impossibilia. They are understood as dispensing with the performance of what is described when performance of it is impossible." He submitted that this doctrine was followed by the Tribunal in the case reported in 1987 (29) E.L.T. 275 (Tribunal). The ld. Counsel also submitted that this Tribunal in the case reported in 1991 (53) E.L.T. 195 held that filing of declaration is only procedural and non-filing of declaration cannot be a ground [for] denial of exemption; that this ratio was further followed by the Tribunal in their Final Order Nos. 358 & 359/94-D, dated 4-8-1994. The ld. Counsel also submitted that there is a catena of judgments of this Tribunal holding that substantive benefit of a notification cannot be denied for non-fulfilment of procedural conditions. It was also contended by the ld. Counsel that the ld. Collector in his order-in-original has held that since the licence was not obtained therefore, exemption is not available. He submitted that this finding of the ld. Collector was erroneous. In support of this contention, he cited and relied upon the decisions of this Tribunal in the case reported in 1984 (17) E.L.T. 127 : 1988 (39) E.L.T. 123 : 1992 (62) E.L.T. 745.
9. On the above issues, the contentions of the department was that the Notification No. 8(9)/55-C.E., dated 13-12-1955 was a conditional notification; that the conditions clearly stipulated certain requirements and that unless the requirements were met, the benefit of notification was not available. The ld. SDR submitted that in the instant case, the appellants did not claim the benefit of notification by filing a Classification List or declaration and therefore, the benefit was not available to the appellants. He submitted that in the case law cited and relied upon by the appellants, the facts were different and therefore, the ratio cannot be followed as the facts were different.
10. The ld. Counsel for the appellants also raised an issue that the product correctly falls under Tariff Item No. 11(4) and that no further duty was leviable therein. This contention was not pressed by the ld.Counsel subsequently when it was pointed out by the Bench that this will create an entirely new case.
11. On the question of classification of bituminised hessian cloth/cotton cloth, the ld. Counsel submitted that as per the test report on representative sample/it was found that jute predominates by weight in the product, therefore, the product would fall under Tariff Item 22A as laid down by the Tribunal in the case of Dalmia Laminators - 1988 (33) E.L.T. 106 and contended that the product would be exempted under Notification No. 53/65 since these items attract specific rate of duty of Rs. 660/- PMT and since these are made from duty paid jute fabrics and the same is otherwise covered under Rule 56A, further duty is not required to be paid on bituminised hessian cloth; that the test memo on the product describes the product as wrought proof bituminised hessian; that Notification No. 53/65 covers wrought proof jute products from payment of so much of duty of excise leviable thereon as is in excess of the duty paid on unprocessed jute used in the manufacture of jute products. The ld. Counsel submitted that insofar as clearances during the year 1986-87 are concerned, Notification No. 53/65 as amended continues the benefit of exemption; that the said Notification refers to the said products falling under Chapters 53, 59 or 63. Since the product has been classified under Heading 59.09, therefore, it would be exempt for the year 1986-87. In respect of bituminised cotton cloth, the test report indicates that cotton does not predominate in weight and therefore, it was to be classified under Tariff Item 68. The ld. Counsel submitted that since bituminised hessian cloth was assessable to duty under Tariff Item 22A, the exemption for Tariff Item 68 goods, has to be reworked under Item 68 up to 30 lakhs for the years 1984-85 and 1985-86 up to 28-2-1986. He submitted that in 1986-87 in terms of Notification No. 175/86, exemption of clearances up to aggregate value of Rs. 15 lakhs was available to bituminised cotton cloth under Notification No. 53/65.
12. Replying to the question of classification of hessian cloth/cotton cloth bituminised, the ld. DR submitted that these issues have been gone into in detail by the ld. Collector in his order-in-original and he reiterates the findings of the ld. Collector in that order. The ld.DR also submitted that since duty was not paid during that period and the aggregate value of clearances was the criterion for determining the duty chargeable in terms of SSI Notification. The ld. DR also submitted that the ld. Collector in his order-in-original held that the value under Section 4 shall have to be determined and not processing charges alone but the intrinsic value that is the price at which the goods were sold for the first time.
13. The ld. Counsel urged that the appellants were merely job workers in respect of bituminised hessian cloth/cotton cloth wherein the entire raw materials were given by the customers; that having regard to terms and conditions, control and supervision exercised by the customers the appellants are not the manufacturer that the customer alone is the manufacturer. In support of this contention, the ld. Counsel referred to agreements and the affidavit of Shri Mazumdar. The ld. Counsel submitted that the contentions of the appellants are supported by the ratio of the decisions of this Tribunal in the cases reported in 1990 (50) E.L.T. 201 : 1991 (56) E.L.T. 690 : 1992 (57) E.L.T. 290.
14. In reply to the above contentions of the ld. Counsel, the ld. DR submitted that the ld. Collector has dealt with the arguments of the appellants in extensio in Para 17 of his order and that relying on the judgment of the Hon'ble Supreme Court in the case of UOI and ors. v.Cibatul Ltd. reported in 1985 (20) E.L.T. 179 observed that the goods produced with the buyers trade mark cannot be said to belong to the buyer and the sellers cannot be said to have manufactured the goods on behalf of the buyer. He submitted that in view of the Apex Court decision in the case of Cibatul Ltd. and subsequently in the case of Ujagar Prints, the job worker is the manufacturer.
15. On the question of valuation, the ld. Counsel for the appellants submitted that the department has taken sale-price of customer which is incorrect; that the valuation has to be adopted in accordance with the law laid down by the Supreme Court in the case of Ujagar Prints and the duty demand has to be reworked. The ld. Counsel submitted that the department has to consider the cost of materials + job charges. In support of this contention, the ld. Counsel cited and relied upon the judgment of this Tribunal in the case of C.C.E. v. Pharmasia reported in 1996 (63) ECR 380 (Tribunal). Replying to the contentions of the ld.Counsel, the ld. DR submitted that the value is to be determined under Section 4 for purpose of levy of duty. He submitted that in view of the Apex Court decision in the case of Ujagar Prints, the value is to be determined according to the directions of the Apex Court in the case of Ujagar Prints.
16. The ld. Counsel also submitted that the demand is time barred inasmuch as it has been the view of the department also at the material time that the supplier of raw material alone is the manufacturer; that this position is clarified by the Ministry of Finance's letter No.336/106/80-TRU, dated 14-5-1982; that it was a clear change in the stand and opinion of the department as to who would be treated as the manufacturer namely, whether the raw material supplier or the actual manufacturer. The ld. Counsel therefore, submitted that on this score itself, the demand is barred by time. The ld. Counsel also referred to the decision of the Apex Court in the case of Wallace Flour Mills reported in 1995 (78) E.L.T. 401 ruling that the demand of duty in case where one of the issue is whether exempted goods are excisable goods would not be covered by proviso to Section 11A of the Act.
17. Concluding his arguments, the ld. Counsel submitted that in support of the Appeal No. E/3973/89-C involving a penalty of Rs. 2,000/- and a small demand on seized goods since the amount of duty and penalty is small therefore, the same are not being pressed.
18. Heard the submissions of both sides, perused the case law and the evidence on record. The first point argued before us was that whether conversion of bitumen into bitumen aqueous emulsion amounts to manufacture. It has been stated in Para 2.2 at Page 5 of the appeal memo that "The appellants started production of Bitumen (aqueous) Emulsion falling under the then Tariff Item 14 in 1984 for which certain machineries/equipment namely one elevated platform, one bitumen melting tank, mixing vat for emulsification, high speed motor, shaft and propeller had to be installed in the factory. A lot of case law was cited by the ld. Counsel in support of his contentions that conversion of bitumen into (bitumen aqueous emulsion) did not amount to manufacture as it was only a change in physical form. We also observe that the test for manufacture is whether by application of any operation or process, a new product distinct in name, character and use comes into existence. In the instant case, the raw material was bitumen whereas the finished product is bitumen aqueous emulsion. We also observe that in IS : 3117-1965 while describing the scope of the specification it has been stated that this standard covers the physical and chemical requirements of grades of bitumen emulsion (anoinic type) for roads for which the raw material was bitumen of a particular standard and then their manufacturing process is given. Further different types of emulsified bitumen have been shown and their application has been illustrated. Though ISI specification cannot be a deciding factor for finding out whether the process of conversion of bitumen into bitumen aqueous emulsion is a process of manufacture but we can certainly take into consideration the technical inputs given in the ISI specification. We find that by the application of the process indicated above, a new product having a distinct character, name and vise comes into existence. In the instant case, the bitumen aqueous emulsion according to the statement of the appellants was used for surfacing and roofing. Having regard to these discussions, we find that case law cited and relied upon by the appellants is distinguishable and hold that the process of conversion of bitumen into bitumen emulsion is a process of manufacture.
19. Now the question is whether bitumen aqueous solution is eligible for the benefit of Notification No. 8(9)/55-C.E., dated 12-3-1955 as amended. The appellants argued that the above Notification is a conditional one but the conditions were satisfied by the evidence produced in the form of challans showing that the product conforms to IS : 3117-1965; that there was an agreement with the purchaser which showed that the product was meant for surfacing road as also was sold to contractors of buildings. It was therefore, argued for the appellants that there was a condition that at the time of filing the application of removal, the assessees shall file a declaration stating clearly that the product was meant for the purposes indicated in the Notification. As against this, the department contended that the conditions were not fulfilled and therefore, the benefit of exemption under this notification was not available to the appellants. We find that the Notification is a conditional one. We also observe that the evidence clearly points out that no declaration was furnished by the assessees at the time of clearances of the goods indicating that the goods were meant for the purposes indicated in the notification. We however, find that the goods were being sold to actual users who were using the product for surfacing the road. Use of the product for surfacing the road was supported by the fact that the goods conformed to the ISI specification meant for use of bitumen aqueous emulsion for surfacing the roads. We also observe that this ISI specification was being quoted in the challans accompanying the certificate showing that the test was conducted to conform to the ISI specification form of bitumen emulsion for roads. It was also argued that part of this bitumen aqueous emulsion was supplied for roofing. It was also argued that the product was used for filling crevice etc. in the roofing which was one of the purposes eligible for exemption under Notification dated 13-12-1955. However, the ld. Counsel could not produce any evidence in support of this contention.
20. Having regard to the above facts and discussions, we hold that insofar as bitumen aqueous emulsion cleared for surfacing is concerned, it is covered for exemption under Notification No. 8(9)/55-C.E., dated 13-12-1955 and shall be eligible to that benefit. However, insofar as bitumen aqueous emulsion for roofing is concerned, the appellants have not been able to make out a case in their favour, therefore, the clearances taken for the purpose of roofing shall not be eligible for the benefit of Notification No. 8(9)/55-C.E., dated 13-12-1955.
21. Insofar as filing of declaration along with the application of removal as provided under Rule 52 of the Central Excise Rules, 1944 is concerned, we find that the appellants were not working under the physical control and the commodity was covered by Self Removal Procedure and therefore, there was no question of filing any application for removal as contemplated in Rule 52 of the Central Excise Rules, 1944.
22. The second point that was argued before us was that since bituminised hessian cloth /cotton cloth were manufactured for and on behalf of M/s. United Enterprises and M/s. Mahendra Harish Bros. and therefore, the appellants were not the manufacturers but M/s. Mahendra Harish Bros. and M/s. United Enterprises were the manufacturers. In support of this contention, it was argued that raw material was supplied by M/s. Mahendra Harish Bros. and M/s. United Enterprises; that the appellants were only charging processing charges; that the suppliers of raw materials were exercising effective supervision and control over the manufacturing activity; that there were agreements with the suppliers of raw materials; that in the agreements, the appellants allowed supervision over the manufacturing activity, allowed inspection of the book accounts and control over the management; that all these [indicated] that the goods were being manufactured for and on behalf of M/s. Mahendra Harish Bros. and M/s. United Enterprises and therefore, in accordance with the law as then understood M/s. Mahendra Harish Bros. and M/s. United Enterprises were the manufacturers of goods and duty, if any, should have been demanded from them.
23. We find that the suppliers of raw materials do not become manufacture. in support of this contention, the Collector has relied upon the judgment of the Apex Court in the case of M/s. Cibatul India Ltd. We also find that the Apex Court in the case of Ujagar Prints Ltd. reported in 1988 (38) E.L.T. 535 held that job worker is a manufacturer. In the instant case, we find that no doubt the control and supervision was being exercised over the production of goods by the supplier of raw material and that the two units supplying the raw material were independent units and the appellants are also independent units; that the appellants were charging only the job charges. We also find that there was no financial over-flow from one unit to the other, therefore, the appellants were the manufacturer and were liable to pay duty.
24. Insofar as valuation of the goods is concerned, we agree with the contention of the ld. Counsel for the appellants that it should be in accordance with the law laid down by the Supreme Court in Ujagar Prints Ltd. 25. On the question of demand being time barred, we find that it was the understanding of the law during the material time that supplier of raw material alone is the manufacturer. It was argued that the Apex Court in the case of Pushpam Pharmaceuticals reported in 1995 (78) E.L.T. 401 had held that for demand relating to period prior to Wallace Flour Mills' case, the extended period of limitation of 5 years is inapplicable because non-declaration of value of clearances of exempted goods does not amount to suppression of facts in view of the conflicting decisions and in the absence of any rule under which the manufacturer is required to disclose the turnover of the exempted goods. The ld. Counsel argued that in view of this ruling of the Apex Court, the demand was hit by limitation.
26. On careful consideration of the case-law cited and relied upon by the ld. Counsel, we agree with this contention that the demand is hit by limitation. We have already held that bitumen aqueous emulsion is covered by the Exemption Notification and also that the supplier of raw material was considered the manufacturer and therefore, the question of enforcing the demand in this case does not arise as the entire demand is time barred as it is beyond a period of six months.
27. On the question of imposition of penalty, we find that since on merits alone major part of the demand is not enforceable and further the demand is held to be time barred, we set aside that part of the impugned order which imposes penalty.
28. Having regard to the above discussions, we hold that (a) conversion of bitumen into bitumen emulsion amounts to manufacture (b) exemption under Notification No. 8(9)/55-C.E., dated 13-12-1955 shall be admissible to the appellants on bitumen aqueous emulsion cleared for roads surfacing (c) the appellants are the manufacturer of bituminised hessian cloth/cotton cloth (d) the valuation of the goods shall be as per law laid down in Ujagar Prints case (e) the demand are hit by limitation as they are beyond 6 months (f) the penalty is set aside.
29. In the result, the impugned order is modified to the extent stated above and the appeal along with the Misc. Application No.E/550/Misc./96-C are disposed of accordingly.