1. M/s. Ralson (India) Ltd. (appellants in Appeal No. 419/2002), M/s Metro Tyres Ltd. (in Appeal No. 420/2002) and M/s Govind Rubber Ltd. (in Appeal No. 421 /2002) are engaged in the manufacture of tyres and tubes of rubber for Bicycles and Cycle Rickshaws. They manufacture 'compounded rubber' of heading No. 40.05 of the Central Excise Tariff Schedule and use the same captively in the manufacture of such tyres and tubes. Prior to 1.3.94, "compounded rubber" was wholly exempt from duty under Notification No. 152/87-CE dated 25.5.87. This notification was rescinded by Notification No. 64/94-CE dated 1.3.94 whereby the exemption stood withdrawn. However, the exemption was restored to compounded rubber by Notification No. 74/94-CE dated 28.3.94. In the result, for the brief period from 1.3.94 to 27.3.94, there was no exemption from duty in respect of compounded rubber. This is the period relevant to the dispute in these appeals.
2. As the appellants had not paid duty of excise on compounded rubber cleared for captive consumption for the above period (1.3.94 to 27.3.94), the Department issued show-cause notices to them. The notices were contested on numerous grounds. The Commissioner of Central Excise, in adjudication of the show-cause notice, passed order-in-original No.27-29/97 dated 27.10.97 confirming demands of duty of Rs. 46,97,428, Rs. 46,77,469 and Rs. 54,21,524 against M/s Ralson (India) Ltd., M/s Metro Tyres Ltd. and M/s Govind Rubber Ltd. respectively. The order of adjudication was challenged before this Tribunal by these appellants and the Tribunal, by order dated 26.11.99, remanded the matter for de-novo adjudication vide 2000 (36) RLT 64. The adjudicating authority, in the de-novo proceedings, again confirmed the demands of duly as above as per Order No. 86-88/CE/2001 dated 29.11.2001. The present appeals are against this order of the Commissioner. The so-called cross-objections filed by the Department are only in the nature of arguments against the grounds of these appeals as well as in support of the impugned order. These are not cross-objections contemplated under Sub-section (4) of Section 35-B of the Central Excise Act.
3. In the remand order passed by this Tribunal, there was a direction for draw of samples of compounded rubber from the three factories for analysis as also for giving the assessees a reasonable opportunity of being heard. Pursuant to the remand order, the assessees filed identical written submissions with the Commissioner, wherein they raised various contentions and cited judicial decisions in support thereof. They also relied on a certificate dated 1.12.97 of Dr. S.N.Chakravarty, Chairman, Indian Rubber Institute as also on certain circulars of the Central Board of Excise & Customs. Samples of compounded rubber were drawn from the factories of the appellants and sent for testing to the Central Revenue Control Laboratory (CRCL), which, after testing of the samples, issued identical reports in respect of the three assessees' samples. This report read as under: "The sample is in the form of cut piece of black coloured sheet; composed of compounded rubber. The compounded rubber consists of natural rubber, carbon black, inorganic fillers and other additives.
The sample on vulcanization satisfies the conditions laid down for rubber as given in Chapter 40, Note 4(a) of CET. Thus showing no signs of deterioration." After seeing the above report, the assessees wanted to cross-examine the Joint Director of CRCL as well as the three Superintendents of Central Excise who had drawn the samples. Though all the persons sought to be cross-examined were produced for the purpose, the assessees did not choose to cross-examine them. They wanted redraw and re-testing of samples. The plea of redraw of samples was turned down, but re-testing of the samples already drawn was permitted. Accordingly, CRCL conducted re-tests and issued reports on 6.7.2001. Again, the retest reports read identically except in respect of the percentage composition of the samples. The identical parts of the texts of the reports read as follows: "The sample is in the form of cut piece of black coloured sheet having somewhat uneven surfaces. It is compounded rubber composed essentially of natural and synthetic rubber together with carbon black, inorganic substances, additives and traces of sulphur compound.... Apparently no sing of deterioration could be observed." Upon the above retest reports, Shri R.K. Adhikari, Assistant Chemical Examiner, CRCL was cross-examined on behalf of the assessees. It was Shri Adhikari who had conducted the retests. After his cross-examination, additional written submissions were filed on behalf of the assessees wherein support was claimed from the oral evidence of the Assistant Chemical Examiner as also from technical literature on Carbon Black, one of the constituents found in the test samples. More case law was also cited. Subsequently, there was the final hearing in the case, followed by the impugned order.
4. The learned Commissioner, in the impugned order, held the subject item to be excisable goods on three bases viz. the test reports of the CRCL, the specific coverage of compounded rubber in Chapter 40 of the Central Excise Tariff Schedule and the assessees' admission of transportation of the item. The decision of the Supreme Court in the case of AP. State Electricity Board v. Collector, 1994 (48) ECC 59 (SC) : 1994 (70) ELT 3 (SC) and some decisions of the Tribunal were also relied on to hold the goods to be marketable. It was held that the goods fulfilled the criteria of marketability with its distinct identity, shelf life and transportability. Support was also drawn from the fact that, for the periods both prior and subsequent to the period of dispute, compounded rubber was exempted from payment of duty of excise under notifications issued by the Central Government.
5. Heard both the sides. The submissions and arguments, put forward by Shri V. Lakshmikumaran, Advocate, and Shri R. Swaminathan, Consultant, for the appellants, can be summarized as follows: The Assistant Chemical Examiner, in his cross-examination, admitted that the re-test had been done on samples prepared by him and not on the samples drawn from the assessees' factories. The test samples were prepared in the laboratory by adding sulphur and other rubber chemicals which were not present in the samples drawn from the factories. The results of retest were not applicable to the goods in question and hence the Commissioner's decision based on the retest report was not sustainable. The compounded rubber manufactured by the appellants were not marketable, nor actually marketed. Each tyre company prepared its own compound, keeping in mind the process parameters, machinery employed, etc. Trade secrecy was also maintained in this respect by each tyre manufacturer. Consequently, the compounded rubber of one manufacturer was not suitable for another, whereby the question of marketability of the item was ruled out. The Department had not placed on record any evidence to show that the compounded rubber was marketable or marketed. The burden of establishing marketability was not discharged by the Revenue.
Relying on the Supreme Court's judgment in the case of Moti Laminates, 1995 (50) ECC 57 (SC) : 1995 (76) ELT 241 (SC), CBEC had clarified that binders/resins/glues used in the manufacture of Particle Boards were specifically developed and made by the manufacturer for captive consumption and not for external sale and such goods, produced and used captively, were not dutiable, if not marketable, notwithstanding the fact that the goods were covered by specific entry in the Central Excise Tariff Schedule. Again, in respect of odoriferous compound prepared and used captively in the manufacture of agarbathis, the Board held that such compounds, which were not sold out in the market by the manufacturer on account of trade secrecy, were not capable of being bought and sold in the market in the normal course of trade and, therefore, such compounds were not excisable. The ratio of this clarification of the Board could be made applicable to the compounded rubber prepared and captively used by the assessees in the manufacture of tyres and tubes. In Final Order No. 993-1005/99-C dated 16.11.99 in the appellants' own case, this Tribunal held that rubberized cotton tyre cord/fabric was not excisable as, according to affidavits and expert opinion, the goods were not marketable for want of shelf life and the Department could not show that the goods were marketed. The appeal filed by the Department against the said order of the Tribunal was dismissed by the Apex Court. This case law was not considered by the Commissioner in the instant case. Where the rubberized fabric itself had not shelf life, there was no question of its prior stage intermediate viz. compounded rubber being held to have any shelf life. The learned Counsel also relied on the decision of this Tribunal in CCE Chandigarh v. Asian Rubber and Plastic Industries, 2000 (123) ELT 760. It was submitted that the appeal filed by the Department against this decision was dismissed by the Supreme Court [2001 (134) ELT A-246]. Counsel also relied on Kirloskar Batteries Ltd. v. CCE, Bangalore, 2001 (133) ELT 158 and certain other decisions of this Tribunal.
6. The DR Shri R.C. Sankhla submitted that it was an admitted fact that the subject items were compounded rubber falling under heading 40.05 of the CET Schedule. The chemical tests were conducted for determining the shelf life only. The test reports showed that there was no deterioration of the samples, which clearly indicated that the goods had shelf life. The DR referred to the Supreme Court's decision in Union of India v. Punjab Rubber and Allied Industries, 2000 (71) ECC 478 (SC) : 1999 (105) ELT 3 (SC) and pointed out that, in that case, the product in question was an intermediate product as in the instant case and the same was held to be marketable. The learned DR also sought to distinguish the decision in Kirloskar Batteries (supra). He also reiterated the findings recorded in the impugned order.
7. We have examined the submissions. "Compounded rubber, unvulcanised, in primary forms or in plates, sheets or strips" fell under Heading 40.05/Sub-Heading 4005.00 of the CET Schedule during the relevant period.
The appellants have not claimed that their intermediate product did not fit in this description. Both the test and re-test reports from CRCL have also certified samples of the goods to be "compounded rubber in the form of cut pieces of black-coloured sheets," to which extent the appellants have no serious objection to the reports. The dispute is whether the appellants' compounded rubber falling under Tariff Heading 40.05 was marketable so as to be exigible to duty of excise. For resolving this dispute, it has to be determined as to whether the compounded rubber had sufficient shelf life as also whether it was capable of being bought and sold in market. The tests and retests were conducted in CRCL to determine the composition and shelf life of the subject products. We have already reproduced both the (test and retest) reports. Both the reports say that the products are compounded rubber.
Both say that there was no apparent sign of deterioration in the samples. The Commissioner has relied on these reports to record a finding that the products had enough shelf life. We do not find any valid reason to interfere with this finding of the Commissioner for the following reasons: The appellants have no case that the first report of chemical analysis of the samples of compounded rubber drawn from the assessees' factories is not reliable, nor can they plead so. When the Joint Director of CRCL presented himself for cross-examination vis-a-vis the first report, the assessee chose not to cross-examine him, nor did they cross-examine the three Central Excise officers who had drawn the samples. Shri R.K. Adhikari, Assistant Chemical Examiner, CRCL, was cross-examined on behalf of the assessees. But this cross-examination was exclusively with reference to the retest of the samples and had nothing to do with the first test. Hence nothing contained in the oral evidence of Shri Adhikari would affect the authenticity and veracity of the first chemical report. The first chemical report on the samples of the products categorically held the goods to be compounded rubber showing no sign of deterioration. This result was affirmed by the retest report dated 6.7.2001, which too certified the goods to be compounded rubber with no apparent sign of deterioration. Therefore, we are of the view that the Commissioner has correctly relied on the test reports to hold that the products had enough shelf life to be considered as marketable goods.
Certain parts of the record of cross-examination of the Assistant Chemical Examiner (ACE) have been culled out by the counsel to show that the samples of retest were different from the samples drawn from the factories. The ACE's answer to question No. 12 was that he had performed the Elongation Test after vulcanization with sulphur and other rubber chemicals and that the test was positive for synthetic in terms of Chapter 40 of the CET Schedule. The Elongation Test referred to by the witness was the one laid down under Note 4(a) of Chapter 40 and the same required preparation of a vulcanized form of the given sample by adding the requisite amounts of sulphur and other rubber chemicals. The Elongation Test was to be performed on the sample so prepared from the sample drawn. Obviously, this is what the ACE meant, when he said 'Yes' to question No. 13 extracted below" "It seems that you have conducted the test of sample prepared by you and not on the sample drawn and sent to you. Is it correct?" Obviously," it seems" (in Question No. 13) meant to be witness as "it appears from your answer to the previous question" and "the test" (in Question No. 13) meant to him as the Elongation Test which he had just referred to in his reply to the previous question. It cannot be otherwise to any prudent man. Claiming support from the ACE's answer to Qn. No. 13, the appellants have strenuously pleaded in these appeals that the retests were not performed on the samples drawn from their factories. Their Counsel have also urged this plea before us. The answer to Qn. No. 13 has been plucked out of text and misread out of context to raise such a plea, which we reject for the reasons already stated. In this connection, it is also pertinent to note that the appellants have not controverted the introductory paragraph of the CRCL Director's letter dated 6.7.2001 communicating the retest results to the Deputy Commissioner of Central Excise, Ludhiana. That para had clearly indicated that the results reported were of analysis of the samples received in the CRCL under cover of the Deputy Commissinor's letter dated 2.3.2001. It's authenticity and veracity have not been put to scrutiny, nor even questioned, in this case. The retest results showed traces of sulphur The ACE deposed that the sulphur content was less than 0 1 % only The appellants have, again in their bid to show that the compounded rubber samples drawn from their premises did not contain sulphur and that the retests were not done on the correct samples, pleaded that the traces of sulphur found on retest were on account of carbon black and not due to any addition of sulphur by them.
This plea and the technical literature (on carbon black) cited in support thereof are of no consequence in view of our findings already recorded. CM Blow's Rubber Technology and Manufacture (Second Edition) says, carbon blacks may contain very small amounts of sulphur depending upon the nature of the hydrocarbons used in their manufacture. Maurice Morton's Rubber Technology (Third Edition) says, sulphur in furnace blacks comes from the feedstock and varies with the sulphur content of the feedstock. What the cited literature says is that carbon black manufactured from some sources can contain traces of sulphur. The ACE's answer to some queries, in cross-examination, was also to the same effect. The appellants have not disclosed the source of manufacture of the carbon black used by them in the production of compounded rubber.
The carbon black-related pleadings and arguments have also to be rejected only.
The ACE explained to the satisfaction of any prudent man that the Elongation Test done on the samples in terms of Note 4(a) of Chapter 40 showed that the samples had not deteriorated. Despite the time gap of months between the first and second tests of the samples, no significant change was noticed on Elongation Test. Neither of the tests showed any deterioration The retest report coupled with the ACE's oral evidence have established that the compounded rubber samples drawn from the appellants for analysis had considerable shelf life for being handled under normal conditions.
Ralson's Deputy General Manager (Technical), in his affidavit, stated how they prepared compounded rubber. They used normal vulcanization sulphur and not insoluble sulphur, as also 'delayed action' retarder and not 'much delayed action' retarder, for preparing the compound. For prolonging shelf life of compounded rubber, insoluble sulphur and 'much delayed action' retarder had to be used in the compounding process.
Similar claims were made in the affidavits of the other two assessees also. No evidence, whether in the form of technical literature or by way of expert's opinion, was produced before the adjudicating authority to prove such claims. Dr. S.N. Chakravarthy's certificate dated 1.12.97, relied on by the assessees, was only a general opinion on the marketability of compounded rubber, expressed without reference to their products. Indeed, it contained no reference to shelf life at all.
A letter dated 17.10.97 of Dr. Chakravarthy addressed to Indian Tyre Manufacturers Association has also been relied on by the appellants.
This letter is on the shelf life and marketability of rubberized tyre cord fabric and not on that of compounded rubber.
8. On the question of marketability, it was argued that the compounded rubber was not marketable or marketed. Whether the goods were actually marketed is immaterial. What is to be found out is whether the goods were capable of being marketed as held by the Supreme Court and this Tribunal. It has been argued that each tyre-manufacturer has his own formula, process parameters, design of machinery etc. for manufacturing compounded rubber and that the goods so manufactured will not be suitable for any other tyre-manufacturer. Indian Rubber Institute Chairman's certificate has been relied on in this connection. The plea of trade secrecy has also been raised in this context. CBEC's circulars have been cited in this context. We are of the view that the results of the chemical tests conducted on the samples are enough to demolish these pleas. A comparison of the test results of the samples drawn from the factories of these three appellants shows no substantial variation in percentage composition. The argument is that each of these manufacturers has their own process parameters, design of machinery etc. for the manufacture of compounded rubber and that these are maintained as trade secret, They have, however, no case that the rest of the process of manufacture of tyres and tubes is also manufacturer-specific. They have also no case that the tyres and tubes manufactured by different manufacturers have different properties and different end-uses. It is a matter of common knowledge that the tyres and tubes manufactured by these manufacturers have comparable properties and a common end-use. In the circumstances, the plea that the compounded rubber manufactured by one tyre-manufacturer cannot be used by another appears to be an ipse dixit and cannot be accepted in the absence of evidence to the contrary. The IRI Chairman's certificate and the Board's circulars are no contra evidence. The certificate, which certifies that "such compounds are not marketed commercially", reasons that any two companies' compounds in fact vary widely. No evidence of this "fact" stated in Dr. Chakravarthy's certificate has been adduced by the assessees. On the other hand, the chemical test report showing hardly any wide variation in composition between the products of the three assessees is available on record. In any case, the above certificate issued without examination of, or reference to, the appellants' products does not advance the appellants' case. The Board's circulars on marketability of entirely different products such as resins, odoriferous compounds etc. are also not applicable to compounded rubber as the circulars are commodity-specific. Admittedly, some of these appellants has more than one manufacturing units.
Manufacture of compounded rubber in one unit of a manufacturer and transportation thereof to another unit of the same manufacturer for use in the manufacture of tyres and tubes are admitted facts in this case.
The evidence gathered by the Department would suffice to show that the product had long shelf life and was capable of being bought and sold in the market. The assessees have not succeeded in rebutting it.
9. Coming to case law, we note that decisions on excisability of rubberized cotton fabric have been relied on by both the sides. In the present appellants' own case, the Tribunal held that the shelf life of rubberised fabric which came into existence as an intermediate product and was used in the manufacture of tyres was too short for the item to be brought into the market for being sold and bought vide Final Order No. 993-1005/99. The shelf life was found to be in the range of 3-4 hours to 24 hours according to the manufacturers' affidavits and the opinion of Dr. S.N. Chakravarthy. Again, according to these affidavits and opinion, it was held that the intermediate product was not marketable. It was also found that the department had not proved that the product had actually been marketed. On this basis, the product was held to be non-excisable. As rubberized fabric and compounded rubber are admittedly two different intermediates in the process of manufacture of tyres and tubes of rubber, there is no claim in the instant case that the question of marketability of compounded rubber is covered by the above Final Order. The question then is whether the ratio of the above Final Order can be followed in this case. Our answer is in the negative. The crucial evidence of chemical test reports coupled with the oral evidence of the Assistant Chemical Examiner and the assessees' admission of transportation and transportability of the product in question clearly distinguish the instant case from the case of rubberized fabric dealt with in Final Order No. 993-1005/99. They would also serve to disprove a proposition raised by the Counsel in this case, learned Counsel have argued that, where the later stage intermediate (in this case, rubberized fabric) has been held to have short shelf life, there is no question of the prior stage intermediate (in this case, compounded rubber) being considered to have longer shelf life. According to this proposition, 'X' cannot be stabler than 'Y' in the chemical conversion: We regret to say that we have not been able to accept the proposition as no law of chemistry in support thereof has been shown to us. What stands established in this case is that compounded rubber (X) produced by the appellants had much longer shelf life and was even transported to another unit for conversion to the final products through the less stable intermediate viz. rubberized fabric (Y) which had shelf life of only a few hours.
In the case of Asian Rubber & Plastic Industries (supra), this Tribunal set aside the order of the lower appellate authority and restored that of the original authority on the ground that the latter's finding that rubberized fabric (friction cloth) arising at an intermediate stage of manufacture of TR belting, V-belts and Conveyor belts was marketable had not been challenged by the Revenue. In Punjab Rubber & Allied Industries (supra), the High Court had held that friction cloth was not excisable. The Supreme Court accepted the department's plea of marketability of the intermediate product and set aside the High Court's order. In Kirloskar Batteries (supra), the question was whether irregular sheets of compounded rubber were exigible to duty. The Tribunal held the item to be non-excisable after noting that the Collector (adjudicating authority) had not recorded any finding that the item was marketable. What emerges from all these and other decisions cited by the Counsel is that it is not the mere coverage of intermediate product under specific Tariff heading or the mere factum of its having a long shelf life but its marketability that determines its exigibility to duty of excise. The compounded rubber intermediates of the present appellants have passed this test inasmuch as it has been found by the lower authority on the basis of evidence that the goods are capable of being transported to, and sold in, the 'market' conceptualized in the case of A.P. State Electricity Board (supra).
10. Having found that the compounded rubber in question had enough shelf life and was marketable and in view of the specific tariff entry coverage of the goods, we hold the product to be excisable and affirm the demand of duty on the clearance of this product, effected by the appellants during the period of dispute. The impugned order is upheld and these appeals are rejected.