Commissioner of Central Excise Vs. Asia Peroxides Ltd.

1. The issue arising for consideration in this appeal at the instance of the Revenue relates to the eligibility of the respondent to the benefit of exemption under Notification No. 8/97-C.E. dated 1-3-97 for Hydrogen Peroxide manufactured and cleared by the respondent to the DTA. The Notification exempts finished products, manufactured in a 100% EOU wholly from the raw materials produced or manufactured in India and allowed to be sold in India from so much of the duty of excise leviable thereon under Section 3 of the Central Excise Act, 1944 as is in excess of an amount equal to the duty of excise leviable under Section 3 of the Act on like goods produced or manufactured in India, other than in a 100% EOU.2. The assessee contended that the finished goods, namely Hydrogen Peroxide, removed by them from their EOU to the DTA, was manufactured wholly from the raw materials produced in India. The above contention was not accepted by the original authority. It was held that the respondent imported a number of other raw materials like (i) Methyl Cyclothyexyl Acetate (ii) Solvesso 150 (iii) Ethylanthrquinone (iv) Activated Alumina (v) Palladium Catalyst (vi) Sodium Acid Pyrophosphate (vii) Filter Elements (viii) Hydrogen Catalyst (ix) Dequest 2041 (x) Molecular Sieve (xi) Activated Carbon free of Customs duty under Notification No. 13/81-Cus. dated 9-2-81 and Notification No.53/97-Cus. dated 1-3-97 and that these goods are also used as raw materials, besides the indigenous raw materials, procured by them and therefore, the assessee is not entitled to exemption under Notification No. 8/97. Aggrieved by the above, the assessee filed appeal before the Commissioner (Appeals) who accepted the contention of the assessee that the above mentioned items are not raw materials but only consumables and therefore, the assessee cannot be denied the benefit of exemption under Notification No. 8/97. The above finding is under challenge before us by the Revenue.

3. According to the Revenue, the items which are imported by the assessee are raw materials and not consumables. The term 'raw material' has to be understood to apply to all those ingredients which are used in the manufacturing stream and which while contributing the manufacturing process loose their identity in the said process.

Reliance was placed by the learned DR on the decision of the Supreme Court in Collector v. Ballarpur Industries - 1989 (43) E.L.T. 804 (S.C.) and decision of this Tribunal in Commissioner of Central Excise & Customs, Indore v. Century Denim (EOU) - 2001 (129) E.L.T. 657 (T) and which was affirmed by the Supreme Court in 2001 (133) E.L.T. A86.

In Ballarpur Industries Ltd. Hon'ble Supreme Court held that since Sodium Sulphate is an essential chemical ingredient in the Chemistry of paper technology, it is to be treated as raw material by this reason alone irrespective of the fact that in the course of chemical reaction this ingredient is consumed and burnt and does not retain its identity in the end-product. After observing that expression 'raw material' is not a defined term, the Hon'ble Supreme Court laid down certain tests in order to identify the raw material as follows :- "The question in the present case is whether the ingredients of the last mentioned class qualify themselves as and are eligible to be called 'Raw Material' for the end-product. One of the valid tests, in our opinion, could be that the ingredient should be so essential for the chemical processes culminating in the emergence of the desired end-product, that having regard to its importance in and indispertsability for the process, it could be said that its very consumption on burning-up is its quality and value as raw material.

In such a case, the relevant test is not its presence in the end-product, but the dependence of the end-product for its essential presence at the delivery end of the process. The ingredient goes into the making of the end-product in the sense that without its absence the presence of the end-product, as such, is rendered impossible. This quality should coalesce with the requirement that its utilization is in the manufacturing process as distinct from the manufacturing apparatus." 4. In Commissioner of Central Excise & Customs, Indore v. Century Denim the Tribunal applied the tests enunciated by the Supreme Court, namely, whether it is an ingredient which goes into the making of the end-product in the sense that without its presence the end-product, as such, is rendered impossible and took the view that indigo pure dye, lycra and other important fixing agents utilised in the manufacture of denim fabrics are raw materials and not consumables.

5. The learned Counsel for the respondent contended that the decision of the Supreme Court in Collector v. Ballarpur Industries Ltd. has to be understood in the light of the notification considered in that case.

He also placed reliance on Board's Circular No. 389/22/98-CX., dated 5-5-98. Our attention was drawn to the definition of the term 'consumables' in Import-Export Policy which reads as follows :- "'Consumables' means any item which participates in or is required for a manufacturing process, but does not form a part of the end-product. Items which are substantially or totally consumed during a manufacturing process will be deemed to be consumables." 6. We are inclined to accept the contention raised on behalf of the Revenue. A reading of the decision of the Supreme Court in Collector v.Ballarpur Industries Ltd. would clearly show their Lordships were laying down general tests in order to distinguish raw materials from consumables. We are not able to accept the contention of the respondent that the decision has to be understood only with reference to the notification considered therein. The Board's circular dated 5-5-98 is also of no help to the assessee. In the above circular, what is mentioned is that even if imported consumables are used, the benefit of Notification No. 8/97 cannot be denied. In the present case, the contention taken by the Revenue which we are inclined to accept is that the imported materials used by the assessee in the manufacturing process are not consumables but raw material. The definition of the term 'consumables' from the Import-Export Policy also will not help the assessee in the light of the tests laid down by the Hon'ble Supreme Court in Collector v. Ballarpur Industries Ltd. 7. In view of the above, we set aside the order passed by the Commissioner (Appeals) and hold that the respondent is not entitled to the benefit of Notification No. 8/97. In the result, the appeals are allowed and the order passed by the original authority is restored.