1.1 The appellants herein obtained hydrogen gas through pipelines from Grasim Industries. They compressed the same filled in cylinders and cleared the same without payment of duty. The appellants had already paid duty on hydrogen gas received by them through pipelines from Grasim Industries. A question has arisen in the aforesaid facts and circumstances whether another duty liability on compressed hydrogen gas in cylinders devolves on the appellants herein or not.
2. Learned Advocate, Shri Shiv Dass for the appellants submits that no new commodity has arisen as a result of process undertaken by the appellants. The process undertaken can be briefly summed as compressing, drawing and filling of the hydrogen gas in cylinders. The various purposes of the aforesaid three processes before their clearance from the factory is set out in their reply dated April 1997 to the show cause notice :- The act of compressing of the hydrogen gas is undertaken only for the sole purpose of filling in more quantity of gas in cylinders.
The hydrogen gas as received from M/s. Grasim Industries through the pipe-line can be filled in a particular number of cylinders at the pressure at which it is received. For instance, if 100 cu.metres of hydrogen gas is received at a pressure of say 1 kg the said quantity can be filled in say 2127 cylinders. By the act of compression, the quantity of 100 cubic metres can be subjected to a pressure of 140 kg/cm and can be filled in 15 cylinders itself. In other words, in the remaining 2112 cylinders more quantity of gas can be filled in.
This, thus, enables the customers to get more quantity of gas in a lesser number of cylinders.
The purpose of drying is to remove the moisture because if the moisture goes inside the cylinder the inner wall of the cylinder become prone to rusting, thereby eroding the strength and increasing the chances of explosions. The gas is dried to avoid the above accidents.
It is plain that a customer would always prefer to receive the goods in cylinder form rather than in pipelines because of the simple fact that every customer would not be in a position to afford a pipeline to his factory. Further, the inflow through a pipeline would always be continuous whereas if the gas is purchased in the form of cylinders then the customer can make use of the gas to the required quantity. He can purchase as many number of cylinders he wants to and use those number of cylinders that are required for his manufacturing activity.
Learned Advocate further submits that what they obtained previously from Grasim Industries was hydrogen gas and what they ultimately sold was also hydrogen gas; merely the form of delivery has been changed i.e. hydrogen gas filled in cylinders. He also submits that TH 2804 and its sub-heading read as follows :-"28.04 Hydrogen, rare gases and other non-metals.
- Oxygen (including liquified or solidified gas) 2804.11 - Medicinal grade 2.1 Learned Advocate submits that there is no sub-heading regarding compressed hydrogen gas. Therefore, he submits that once the hydrogen gas in one form has been levied to duty, the question of levying duty on another form of hydrogen gas i.e. in the form of cylinders does not arise.
2.2 He further submits that in the course of adjudication proceedings along with the reply to the show cause notice an affidavit by the Manager, Shri Pankaj Mittal was given. It has been stated in the said affidavit that the hydrogen gas as received from Grasim Industries was capable of being used for hydrogenation in the manufacture of vanaspati. He submits that this evidence has not been rebutted by the adjudicating authority. The finding of the adjudicating authority holding the gas as a manufacture is as follows :- "14. It is an established position in law that Central Excise duty is payable only when process of manufacture is carried out. In the instant case the noticee were receiving Hydrogen Gas through pipe line from M/s. Grasim, and thereafter carrying out the process of drying and compressing to make the Gas fit for storage in Cylinders for subsequent sale. In fact, the noticee is liable to pay Central Excise duty. The process of drying and compressing are deemed to be process of manufacture. In the case of D.C.W. Ltd. v. Union of India - 1991 (56) E.L.T. 310, the Hon'ble High Court, Madras while deciding the case in favour of M/s. D.C.W. held that for marketing Nitrogen it is essential to carry out chilling, drying and liquidification before this can be conveniently stored and transported. Thus it has been held that the process of drying and chilling/liquidification of gas is necessary so as to store in cylinder are necessary for holding that the process of manufacture took place after Hydrogen was received at the site. In the instant case also the noticee was carrying out the process of drying and thereafter compressing the gas so as to store it in cylinders. Thus relying on the judgment of Hon'ble, it can be held that the process carried out by the Noticee amounts to process of manufacture and the noticee is liable to pay duty. The noticee's claim that what he was receiving from M/s. Grasim was Hydrogen and what he was selling was also Hydrogen is of non-consequence as the process carried out by the noticee are processes of manufacture and he is liable to pay duty at appropriate rates. It is a different matter whether that gas which was being received from M/s. Grasim was in such condition in which it could be subjected to Central Excise duty at suppliers end or not." 2.3 Learned Advocate submits that it has been held by the Apex Court in the case of C.C.E. v. Steel Strips Ltd. -1995 (77) E.L.T. 248 that it is the burden of the department to prove that a new commodity has come into existence and a manufacture has taken place before levying the new commodity to duty. It is also ruled by the Apex Court that this evidence has to be led out before the adjudicating authority in the first instance even when the adjudicating authority is a departmental officer. In this connection, he relies on paras 6 and 7 of the aforesaid judgment. For better appreciation of the learned Advocate's submission, we reproduce the same :- "6. It cannot be sufficient emphasised that when it is the case of the Excise Authorities that an article is the result of a process manufacture and it is commercially distinct and known as such, it is for the Excise Authorities to lay evidence in this behalf before the first adjudicating authority regardless of the fact that he is an officer of the Excise Department. There should ordinarily be no difficulty in establishing that the article is the result of a process of manufacture, in the event of difficulty, it would be open to the Excise Authorities to seek a direction requiring the assessee to set out in writing what it does to obtain the article. Too often, as our experience in the Court and in the High Courts, before the Tribunal was established, shows, lack of evidence has led to the failure of the case of the Excise Authorities and, consequently, to the loss of revenue to the State.
7. Failure to lay the requisite evidence cannot be made up by reference to authoritative publications unless the Excise Authorities inform the assessee that they propose to rely on the same before the adjudicating authority it is then open to the assessee to establish that it does not obtain the article by the means referred to in the publication or indeed, that the publication is not authoritative. In the decision of matters relating to excise, technical knowledge plays a part. It is for that reason that the Tribunal has a Technical Member. Technical evidence and authoritative publications must, therefore, be placed in the first instance before the adjudicating authority and the Tribunal. They have the requisite technical expertise to evaluate the same.
Technical publications cannot usually be cited for the first time at the Bar of this Court." 2.4 Further, relying on Apex Court judgment in the case of U.O.I. v.J.G. Glass -1998 (97) E.L.T. 5 (S.C.) Para 16 - he submits that two tests had been laid down. These two tests are that a new commodity has commercially come into existence and secondly the commodity prior to undertaking of the process by the assessee concerned the article was not liable to be used on any commercial use. He submits that in the face of the affidavit of the Manager, as mentioned above and there being no contrary evidence placed by the Revenue it has to be found that hydrogen gas received through pipeline is also liable to be used for the purpose of hydrogenation. Therefore, he submits that on the basis of Ruling in the case of J.G. Class no new commodity has come into existence involving manufacture in the eyes of Central Excise law and therefore no further duty liability arises in this case. In view of the foregoing submissions, learned Advocate prays for allowing the appeals.
3. Opposing the contention, learned JDR, Shri Sanjeev Srivastava submits that it is not correct to say that hydrogen gas in pipeline can be commercially used. The only commercial use, according to him, is by filling the gas into cylinders and then only it is commercially used.
He further submits that it is not merely compressing of the gas but the assessee is also undertaking drying of the gas. Therefore, it is a new commodity which came into existence from impure hydrogen gas to pure commercial gas. Regarding the affidavit filed by the Manager, Shri Pankaj Mittal, Shri Sanjeev Srivastava, learned JDR submits that hydrogenation can take place only at 405 kPa which in layman's language can be put as more than 4 atomospheric pressure. For this proposition, learned JDR relies on Kirk-Othmers "Encyclopedia of Chemical Technology" which is reproduced as follows :- "Hydrogenation and Catalyst - The working material is catalystically reduced to the hydroguinone form in the hydrogenator. The reduction is carried out at slightly elevated hydrogen partial pressure and below 100C, with most patent examples citing temperatures in the 40-50C range. The degree of hydrogenation (conversion of quinone to hydroquinone) is ordinarily limited to about 50% to minimize secondary reactions, but conversions greater than 80% have been cited (93).
The hydrogenation rate is maintained constant by the periodic addition or exchange of the hydrogenation catalyst, or by controlled variation of the hydrogen partial pressure (94). The rate, however, is not affected by hydrogen pressures greater than 405 kPa (4 atm).
Reduced hydrogen partial pressures limiting reduction of the anthraquinone. The hydrogenation rate is increased by the addition of ammonia, water-soluble amines, or ammonium salts to the working solution; degradation of the working material is decreased by addition of insoluble particulate inorganic alkaline reagents (95).
The agglomeration of slurry catalysts caused by water separation in the hydrogenator can be prevented by operating the hydrogenator at a temperature higher than that in the extractor." Learned JDR further relies on the following judgments of the various Courts :-Henna Export Corporation v. C.C.E. -1993 (67) E.L.T. 907 (Para 5)Hawkins Cookers Ltd. v. C.C.E., Chandigarh - 1997 (96) E.L.T. 507 (Paras 3 & 4).
Learned JDR further submits that in view of the aforesaid technical literature relied upon by him, the matter if considered may be remanded to the adjudicating authority to give a finding whether the affidavit of Shri Pankaj Mittal is acceptable or not.
4. We have carefully considered the pleas advanced from both sides. We observe that the appellants herein received hydrogen gas. They cleared hydrogen gas in cylinders after compressing the same. We also observe that the appellants in the course of reply to the show cause notice had given a very clear affidavit that hydrogen gas as received by them is usable for the purpose of hydrogenation in the course of manufacture of vanaspati. That evidence has not been rebutted by the adjudicating authority. Reliance placed by the learned JDR, Shri Sanjeev Srivastava that the hydrogen gas received through pipeline is of a far lower pressure than that usable for hydrogenation purposes, apart from the fact is not borne out by any evidence, but we also note that this literature now relied upon by the learned JDR cannot be relied upon at this stage in view of the ruling of the Apex Court in C.C.E. v. Steel Strips reported in supra relied upon by the learned Advocate for the appellants. In this connection, we also note that the Tariff Heading 28.04 does not make any distinction between compressed hydrogen gas and other hydrogen gas as now made in the Tariff during the relevant period and in that view also we cannot agree with the finding of the adjudicating authority that new commodity has come into existence by merely filling of hydrogen gas into cylinders. Consequently, we set aside the impugned order and allow the appeals with consequential relief to the appellants.