Judgment:
1. The facts of the case, in brief, are that Notification No. 7/80, dated 27-2-1980 issued under Rule 8(1) of the Central Excise Rules, 1944 exempted artificial or synthetic resins and plastic materials specified in Column (2) of the Table appended to the Notification and manufactured from raw naphtha or any chemical derived therefrom on which the appropriate amount of Central Excise duty had already been paid from so much of the duty of excise leviable thereon as was in excess of the duty of excise specified in Column (3) of the said Table.
In Column (2) of the Table, against Serial Nos. 3 and 4, Phenol formaldehyde moulding powder and Urea formaldehyde moulding powder were specified. M/s. Indian Plastics Limited, appellants in the first appeal, are the manufacturers of Phenol Formaldehyde moulding powder (hereinafter referred to as P.F. moulding powder) and Urea formaldehyde moulding powder (hereinafter referred to as U.F. Moulding Powder).
2. Superintendent of Central Excise, Range VI of Division "R", Bombay-1, issued a show cause notice No. 15(IPL)R-VI/81/983, dated 26-9-1981, to M/s. Indian Plastics Limited, Bombay demanding the differential duty amounting to Rs. 42,11,434.79 on the grounds that :- (i) he Urea Technical Grade received by M/s. Indian Plastics Ltd. from M/s. Rashtriya Chemicals and Fertilizers Ltd. for use in the manufacture of U.F. Moulding Powder was not derived from raw naptha to claim concessional rate of duty under Notification No. 7/80, dated 27-2-1980, but was manufactured partly from associated gas and partly from Raw Naptha, by Rashtriya Chemicals and Fertilizers Ltd.; (ii) in the manufacture of U.F. Moulding Powder, other ingredients, such as, Hexamine, Sodium Sulphate etc., were also used which were not derived directly or indirectly from Raw Naptha. Therefore, the concessional rates prescribed under Notification No. 7/80, dated 27-2-1980 were not admissible; and (iii) the Assistant Collector of Central Excise, Bombay Division "R", had relied upon the clarification issued in para 2 of the Trade Notice No. 164(MP)/plastic/(7) 1981 issued by the Central Excise Collectorate, Bombay-I.3. Against the order of the Assistant Collector, the. Collector of Central Excise, Bombay-I filed an application under Section 35E(4) of the Central Excises and Salt Act, 1944 before the Collector of Central Excise (Appeals), Bombay. The said application was disposed of by the Collector (Appeals) as an appeal by the impugned order. The Collector (Appeals) allowed the appeal filed before him, but restricted the demand for duty to a period of six months prior to the date of issue of show cause notice. Against the order of the Collector (Appeals), M/s.
Indian Plastics Limited has filed appeal No. E/986/87-C. The Collector of Central Excise, Bombay-II 'has filed appeal No. E/1935/87-C against that portion of the Collector (Appeals)'s order which has restricted the duty demand to a period of six months. Both the appeals are disposed of by this common order as they arise out of the same Order-in-Appeal. The grounds of the application under Section 35E(4) of the Central Excises and Salt Act, 1944 filed before the Collector of Central Excise (Appeals), Bombay were as follows :- "The origin of urea technical grade received by M/s. Indian Plastic Ltd., could not be traced to Raw Naptha to claim concessional rate of Excise duty for U.F. Moulding powder manufactured by them using urea technical grade received from M/s. Rashtriya Chemicals and Fertilizers. The facts as enquired were that technical grade urea have been manufactured by M/s. Rashtriya Chemicals and Fertilizers Ltd., by reacting ammonia and carbon dioxide in an autoclave.
Ammonia and carbon dioxide are produced in Ammonia plant from both raw naptha and associated gas. The ammonia so manufactured is stored in a single storage tank and as such it cannot be distinguished whether the same was manufactured from raw naptha or from associated gas. M/s. Rashtriya Chemicals and Fertilizers Ltd., receive raw naptha on which concessional rate of duty was paid under Chapter X procedure for use in the manufacture of fertilizers. The quantity of raw naptha, diverted for non-fertilizer purpose, is to discharge the duty at appropriate rate. For computing the quantity of Raw Naptha diverted for manufacture of non-fertilizer products, M/s. Rashtriya Chemicals and Fertilizers Ltd. first work out the total consumption of ammonia in this regard and apportion it to raw naptha and associated gas on pro rate basis. It is, therefore, clear that total non-fertilizer products including Urea Technical Grade, manufactured are not manufactured from ammonia derived from raw naptha.
Therefore, the technical grade urea, cannot be considered to have been made from naptha solely and exclusively.
In view of the position explained above, M/s. Indian Plastics. Ltd., Bombay-67 were not entitled for claim concessional rate of Central Excise duty under Notification No. 7/80, dated 27-2-1980. Therefore, the demand issued by the Superintendent of Central Excise, Range VI, Division "R", Bombay-I, vide his No. 15A/IPL/R-VI/ 81/983, dated 26-9-1981, for differential duty of Rs. 42,11,434.79 to M/s. Indian Plastics Ltd., Bombay-67 appears to be correct and sustainable and is liable to be confirmed.
Accordingly this appeal is being filed against the order-in-original passed by the Assistant Collector of Central Excise, Division "R", Bombay-I, vide letter No. V-15A( 15)6/81, dated 15-2-1982." 4. Shri Taleyarkhan, learned Advocate, has argued for M/s. Indian Plastics Limited during the hearing before us. The gists of his arguments are as follows :- (i) Assessee M/s. Indian Plastics Limited filed a classification list on 10-3-1980 claiming concessional rate of duty under Notification No. 7/80-C.E., dated 27-2-1980. The classification list was approved on 28-3-1980. A show cause notice was issued to the assessee on 26-9-1981 demanding differential duty on P.F. Moulding Powder and U.F. Moulding Powder cleared during the period from 27-2-1980 to 31-8-1981. The demand notice was withdrawn by the Assistant Collector of Central Excise following the Trade Notice issued by the Collector of Central Excise, Bombay; (ii) By their letter dated 29-9-1981 to the Superintendent of Central Excise (Copy of the letter has been filed in Annexure B to the appeal memorandum) enquired about the nature of enquiry which led to the issue of show cause notice. Superintendent of Central Excise sent a reply to M/s. Indian Plastics Limited vide his letter dated 20-11-1981. Alongwith the letter, extract of Audit Inspection Report No. CERA/CC-III/ Dv.VI/R-363/81-82, dated 1-9-1981 was enclosed. There is a reference to letter No. CEX/Fer./1/81, dated 9-7-1981 of the Accounts Officer of Rashtriya Chemicals and Fertilizers Limited in the said extract of Audit Inspection report.
Copy of the said letter dated 9-7-1981 of the Accounts Officer of Rashtriya Chemicals and Fertilizers Limited, was not supplied to the appellants and the said document has been kept back from the appellants; (iii) P.F. Moulding Powder was not the subject matter of appeal before the Collector (Appeals). The Department claimed relief on account of differential duty on U.F. Moulding Powder manufactured out of Technical Grade Urea received from M/s. Rashtriya Chemicals and Fertilizers Limited during the period 27-2-1980 to 31-8-1981 although the amount claimed was Rs. 42,11,434.79 Paise. No relief was claimed for differential tial duty on P.F. Moulding Powder. The differential duty on P.F. Moulding Powder amounted to Rs. 33,14,434.90 and differential duty of U.F. Moulding Powder was to the extent of Rs. 8,97,000.70 Paise only. As there was no appeal on account of P.F. Moulding Powder the demand for duty on .that account should fail; (iv) Collector (Appeals) has exceeded his jurisdiction by upholding the demand for differential duty on P.F. Moulding Powder as the same was not subject matter of appeal filed before him under Section 35E(4) of the Central Excises and Salt Act; (v) Collector (Appeals) has based his findings on surmises and presumptions. There ' is no evidence to hold that Technical Grade Urea manufactured by M/s. Rashtriya Chemicals and Fertilizers Limited and received by the appellants M/s. Indian Plastics Limited was not manufactured from raw naptha. On the other hand, in the letters dated 12-9-1980 and 15-6-1981 from the Superintendent of Central Excise, Rashtriya Chemicals and Fertilizers Range addressed to the Superintendent of Central Excise, Range V, Division 'R', it was clearly stated that Technical Grade Urea was manufactured from Ammonia obtained from Raw Naptha on which appropriate Excise duty was paid. The findings of the Collector (Appeals) was totally erroneous; (vi) Appeal No. E/1935/87-C filed by the Revenue is not sustain-able able as Collector (Appeals) correctly held that there was no allegation of suppression or mis-statement in the demand show cause notice and the time-limit of six months is applicable if any differential duty is at all recoverable from M/s. Indian Plastics Limited.
5. Shri Chakraborty, learned 3.D.R., appearing for the Department has reiterated the grounds of appeal in. Appeal No. E/1935/87-C and has stated that for the reasons given therein longer time-limit of five years is applicable to the demand for duty. In Appeal No. E/986/87-C, Shri Chakraborty has contradicted the arguments of the learned Advocate by reiterating the grounds of appeal filed under Section 35E(4) and the reasoning given by the Collector (Appeals) in support of his findings that differential duty was recoverable.
6. We have considered the records placed before us and the arguments of the parties. We observe that the impugned order of the Collector of Central Excise (Appeals), suffers from several infirmities on account of which the order deserves to be set aside and remanded back to him for de-novo examination and decision. First, we find that application filed before the Collector of Central Excise (Appeals) under Section 35E(4) of the Central Excises and Salt Act, deals with U.F. Moulding powder only and there is no reference at all to P.F. Moulding powder.
Against Item No. 6 in Form E.A. 2 relief claimed in the application was recovery of differential duty amounting to Rs. 42,11,434.79 Paise on U.F. moulding powder manufactured out of Technical Grade Urea received from M/s. Rashtriya Chemicals and Fertilizers Ltd. during the period 27-2-1980 to 31-8-1981. There is no reference to P.F. Moulding powder against this item, as well as in the rest of the application although the amount of relief claimed was shown as Rs. 42,11,434.79 Raise. .On this point, the findings of the Collector (Appeals) are as follows :- "A careful reading of the EA2 application and the authorisation of the Collector, Central Excise clearly shows that it covers both.
U.F. Moulding Powder and P.F. Moulding Powder. Both these are derived from Technical Grade Urea. The contention is that the technical grade urea cannot be considered to have been made from raw naptha. This plea has no basis and is therefore not accepted." On going through the application in form EA2, we do not find any reference to P.F. Moulding powder. The authorisation of the Collector of Central Excise referred to in the above extract has not been placed before us for appreciation of the findings of the Collector. The Collector has also not spelt out the particular portion in EA2 application which deals with P.F. moulding powder. While giving his findings on this point, the Collector (Appeals) should have discussed in details the particular portion of EA2 application and also the authorisation of the Collecot of Central Excise, to -bring out clearly that the application was, infact, in respect of P.F. moulding powder and U.F. moulding powder. As he has not done so, the matter is required to be examined afresh, with 'reference to the particular documents, for giving clear findings discussing the details by the Collector of Central Excise (Appeals), Bombay. Secondly, in his findings at internal pages 6 and 7 of the Order-in-appeal (pages 51 and 52 of the Paper Book filed by M/s. Indian Plastics Limited), the Collector of Central Excise (Appeals) has clearly stated that "the Respondents had produced two letters dated 12th September, 1980 and 15-6-1981 from the Superintendent of Central Excise, Rashtriya Chemicals and Fertilizers Ltd. Range addressed to Superintendent of Central Excise, Range V, Division 'R', wherein it was clearly held that Technical Grade urea is exclusively manufactured from Ammonia obtained from raw naptha as the main raw materials on which appropriate excise duty was paid. The question of using associated gas in the manufacture of Ammonia appears to have started subsequently". The Collector (Appeals) has not given any finding as to ho,v in the face of the above observations he could hold that Ammonia was prepared from both Raw Naptha and associated gas.
He should have given detailed reasons for his conclusion as the question of admissibility of the partial exemption under Notification No. 7/80-C.E., was the main issue in this appeal. Copies of the letters dated 12-9-1980 and 15-6-1981 referred to by the Collector (Appeals) in his Order-in-appeal have not been placed before us by either of the parties herein. As a result, we ourselves are not in a position to go into this aspect of the case and consequently, we have to remand the matter to the Collector of Central Excise (Appeals) for de-novo decision after giving full justification, vis-a-vis aforesaid letters, for the conclusion to be arrived at. Thirdly, the allegation of the appellants that letter No. CEX/Fer/1/81, dated 9-7-1981 of the Accounts Officer of Rashtriya Chemicals and Fertilizers Limited, was not forwarded to the appellants M/s. Indian Plastics Limited, is also to be met. We find from the enclosure to letter No. 15A/IPL/R-VI/81/1218, dated 20-11-1981 from the Superintendent of Central Excise, Range-VI, Division 'R' to M/s. Indian Plastics Limited, Bombay that the said letter dated 9-7-1981 is referred to in the extract from the Audit Inspection Report dated 1-9-1981. It was argued by the learned Advocate before us that the case was started by the Department on the basis of the said Audit objection, although, as held by the Tribunal in the case of Swastik Tin Works v. Collector of Central Excise, Kanpur reported in 1986 (25) ELT 198 (Tribunal), show cause notice issued merely on the basis of Audit objection without any independent investigation was liable to be quashed. Therefore, a copy of the letter dated 9-7-1981 of the said Accounts Officer should' be made available to the appellants M/s. Indian Plastics Limited to enable them to rebut the allegation.
7. So far as the Department's appeal No. E/1935/87-C, is concerned, we find from the impugned order that Collector has clearly held that there was no allegation of suppression or mis-statement in the show cause notice issued by the Department and hence, the demand for duty should be restricted to a period of six months prior to the date of issue of show cause notice. In the grounds of appeal filed by the Revenue it has been stated that it was alleged in the concluding para of the Annexure to the, show cause notice that the assessee had filed wrong declaration for getting their classification list approved. Neither party herein filed before us a copy of the show cause notice. As the appeal filed by teh Revenue is on the limitation point only, it was necessary for them to substantiate the ground of their appeal by producing necessary documents. They have not done so, nor have they produced a copy of the show cause notice with its annexure at the time of hearing before us.
In the circumstances, we are not in a position to examine the grounds of their appeal. Since we remand the matter to the Collector of Central Excise (Appeals), Bombay, he should examine this point as well and give a finding after giving' necessary opportunity to both the parties to substantiate their respective claims.
8. In view of the above discussions, we set aside the impugned order and remand the matters to the Collector of Central Excise (Appeals), Bombay for de-novo examination of the case in the light of our above observations and after giving necessary opportunity of personal hearing to the parties. De-novo proceedings should be completed within a period of four months from the date of receipt of this order.