1. These appeals are against the orders of Collector of Central Excise, Hyderabad. The point involved in these appeals is classification of ANFO. This product is formed by mixing ammonium nitrate of explosive grade with small quantities of fuel oil and is used for the purpose of the blasting the rocks.
2. The learned Advocate for the appellants, Shri D.N. Mehta, stated that he is aware that this Tribunal in the order No. 103/88, has in the case of Kesoram Cement v. Collector of Central Excise, Hyderabad, held that ANFO was chargeable to duty under Chapter 36 of Central Excise Tariff. He pleaded that he had some fresh arguments to adduce and which were not put forth by the appellants in that case and also stated that in that case, the appellants were more anxious to get MODVAT under Rule 57A of Central Excise Rules. In the opening arguments, he drew our attention to the Write Up on ANFO submitted by the appellants. The said Write Up is annexed to this order as Annexure I.2A. He reiterated the plea which was taken note of in the case of Kesoram Cement referred to supra that the ANFO was obtained by mixing ammonium nitrate to the fuel oil and this being preparation obtained by simple mixture of two items, could not be considered as a manufacturing process as according to him, merely mixing of two items is not a process of manufacture. In this connection, he cited the case of State of Maharashtra v. The Central Provinces Manganese Ore Co. Ltd. (AIR 1977 S.C. 879). He pleaded that by mixing of the two items, no other product came into existence.
He pleaded that even if mixing was held to be process of manufacture, the product emerging by the process of mixing could not be considered as goods as the same was not in a marketable form. He pleaded that before the duty could be levied the test of marketability must be satisfied. He cited the case of The Union Carbide India Ltd. v. Union of India and Ors. 1986 (24) ELT 169 (S.C.). He pleaded that goods were produced on the site or in the factory for captive consumption and these were not sold in the market.
3. His next leg of argument is that the ANFO as such could not be considered as an explosive. In this connection, he drew our attention to the Section 4(d) of the Explosives Act and pointed out that the term 'explosive' as defined in this does not specifically mention ANFO under it. This definition for convenience of reference is reproduced below - "Explosive means gunpowder, nitroglycerine, nitroglycol guncotton, dinitro-toluence,tri-nitrotoluence, picric acid, di-nitro-phenol-tri-nitro-resorcinal (styphnic add) cyclo-trimethylene-tri-nitramine, penta-trythritol-tetranttrate, tetryl, nitro-guantdine lead azide, lead styphynate, fulminate of mercury or any other metal, diazo-dinitrophenol, coloured fires or any other substance whether a single chemical compound or a mixture of substance whether solid or liquid or gaseous used or manufactured with a view to produce a practical effect by explosion or pyrotechnic effect; and includes fogsignals, fireworks, fues, rockets, percussion caps, detonators, cartridges, ammunition of all descriptions and every adaptation or preparation of an explosive as defined in this clause." He pleaded that ANFO was not an explosive but only phlegmatising agent.
He was asked to explain the term. He stated that for the purpose of causing an explosion in the rock, a hole is dug and at the bottom of the hole, an explosive material with a detonator embedded in it is placed and this is topped by a layer of ANFO with a layer of sand on top of it and that when the detonator causes the explosion of the explosive at the bottom, the ANFO has the effect of dampening the explosion. It was pointed out to him that the Collector in his order has referred to the Condensed Chemical Dictionary published by Vansotan Renihold Co. and taken note of the fact that ANFO is described as highly explosive and also ammonium nitrate is described as explosive more deadly if mixed with oil. He cited no authority as to how the material could be treated as plagmetising agent as pleaded by him. He, however, pleaded that the dictionary meaning should not be adopted for the purpose of understanding the scope of the product and cited the case of The Tata Oil Mills Co. Ltd. v. Collector of Central Excise, Madras (1988 14 ECR 129) in this regard. He also pleaded that the appellants had been issued with a special license by the Chief Controller of Explosives. The License is for the manufacture of non-captype sensitive blasting explosive and this license was valid only for production of 100 kg. at a time. He drew our attention to the wording of the licence which is reproduced below for convenience of reference - "License is hereby granted to the General Manager, Singareni Collieries Co. Ltd., P.O. Godaveri Khani-505 209 Ramagundam Railway Station, Karimnagar, valid only for the manufacture of 100 kgs. at any one time, of non-capsensitive explosive consisting of ammonium nitrate or non-explosive mixture containing ammonium nitrate mixed or impregnated with mineral oil subject to the provisions of the Explosives Act, 1884 and the rules framed thereunder and the conditions on the back of this licence. The licence shall remain in force till the 31st day of March, 1981." His plea is that the licence is for the non-explosive mixture. He stated that inasmuch as, licence was issued for a non-explosive material by the Chief Controller of Explosives, there is no reason why the mixture should be considered as an explosive at all.
4. His next plea was that the Tribunal in their decision in Kesoram Cement Order No. 103/88 relied on the CCCN Harmonised Code Nomenclature for assessment under the Central Excise Tariff and no reliance could be placed on this nomenclature for interpreting entries in Central Excise Tariff. He pleaded that the judgment of the Tribunal in the Kesoram Cement was not binding on this Bench being a decision by Two-Member Bench.
5. The learned Departmental Representative for the Department stated that the matter stood concluded with the judgment of the Tribunal in Order No. 103/88 and he generally reiterated the arguments in the impugned order of the Collector.
6. We observe that this Tribunal after taking into consideration the pleas made in the case of Kesoram Cement v. Collector of Central Excise, Hyderabad, has held that ANFO is a prepared explosive falling under Chapter 36 of the Central Excise Tariff and therefore, leviable to duty under that heading. The learned advocate for the appellants in the present case, has advanced among his arguments, some additional arguments which were not advanced in the case of Kesoram Cement. We, therefore, feel it necessary to deal with the matter in the light of the pleas made in the present case in detail. The points that fall for consideration are - (1) whether the ANFO can be taken to be the result of a process of manufacture? (2) whether ANFO can be considered as goods for the purpose of Central Excise levy? 7. We observe that it is seen from the order of the lower authorities and also from (the order of the) Tribunal Order No. 103/88 that ANFO is produced by mixing ammonium nitrate of explosive grade with small proportion of fuel oil. By mixing the two, a new product going by the description ANFO results. In trade parlance also, this product is described by this name. ANFO is used for blasting purposes. In this connection, the findings of the Tribunal in the order referred to supra are reproduced below for convenience of reference - "We observe that it is not disputed that the appellants use the explosive grade ammonium nitrate prills and mix these with small quantities of fuel oil to produce a mixture which serves the purpose of blasting the rocks. No doubt, the process of manufacture is a simple one. It is, however, seen from the order of the lower authority who has cited from the Condensed Chemical Dictionary, 9th Edition published by Van Nostrand Reinhold Company revised by Gessner G. Hawley - the prills are described as under - Prill - small round or accular aggregates of a material usually a fertilizer, that are artificially prepared. In the explosives field prills - and - oil consists of 94% coarse porous ammonium nitrate prills and 6% fuel oil....
It is seen prills are porous. The oil obviously is absorbed in the porous prills to some extent thus changing that character of the ammonium nitrate as an explosive. It appears that the use of the ammonium nitrate is a mixture with fuel is a standard procedure used for blasting purposes. As mentioned by the learned Departmental Representative, ANFO though being a simple mixture is recognised as a product apart from ammonium nitrate and is considered as a prepared explosive as evidenced by the Explanatory notes to the Harmonised Coding System of Customs Cooperation Council. Since prepared explosives are specifically covered under the Tariff, irrespective of the fact that the ANFO is prepared by a simple mixture of prills and the oil, it has to be considered for the purpose of the Tariff as an item falling under Chapter 36 as it answers to the specific description of prepared explosives for the purpose of Central Excise levy." 8. It is seen that ANFO in the Condensed Chemical Dictionary by Gessner G. Hawley has been described as a high explosive prepared out of ammonium nitrate and the term "explosive" as cited by Collector in his order in the same Dictionary has been defined as set out as under - "Explosive, High, a chemical compound usually containing nitrogen that detonates as a result of shock or heat... consists of 94% ammonium nitrate prills and 6% full oil (ANFO)." The same in the 10th Edition of the same dictionary has been described as under - "A chemical compound, usually containing nitrogen that detonates as a result of shock or heat (see detonation) dynamite was the most widely used explosive for blasting and other industrial purposes until 1955, when it was largely replaced by prills and oil and slurry types. The former consists of 94% ammonium nitrate prills and 6% fuel oil (ANFO). Slurry blasting agents (SBA) are based on thickened or gelatinized ammonium nitrate slurries sensitized with TNT other solid explosives, or aluminium. An unusual type of explosive is represented by acetylides or copper and silver which are examples of commercially used explosives that contain neither oxygen nor nitrogen.
High explosives vary greatly in their shock sensitivity; most sensitive are mercury fulminate and nitroglycerin, while TNT and ammonium nitrate are comparatively difficult to detonate, requiring the use of blasting caps or similar activating device. For further information, refer to Institute of Makers of Explosives, 420 Lexington Ave New York." 9. It is thus seen that ammonium nitrate acquires the character of high explosive by mixture with fuel oil. ANFO, it is seen, is prepared specifically for a specific use for blasting the rocks. The ammonium nitrate and fuel oil alone by themselves cannot perform the function that the mixture of the two does. It is thus seen that ANFO though it is prepared by a simple process of mixture of ammonium nitrate and fuel oil, it is a distinct product having its own name, character and use.
Inasmuch as, process of mixing has resulted in a product which has its own distinctive name, character and use the mixing of the two products has to be held to be a process of manufacture resulting in the emergence of a new commodity. The Hon'ble Supreme Court in the case of Union of India and Ors. v. Delhi Cloth and General Mills Co. Ltd. and Ors.
"Manufacture implies a change, but every change is not manufacture and yet every change of an article is the result of treatment, labour and manipulation. But something more is necessary and there must be transformation; a new and different article must emerge having a distinctive name, character or use." Following the ratio of the judgment of the Hon'ble Supreme Court, we hold that ANFO is the result of a process of manufacture.
10. The next point for consideration is whether ANFO can be considered as goods for the purpose of Central Excise levy. The contention of the appellants in this regard is that ANFO is produced by the appellants for their own use and is not marketed by them and no evidence has been produced by the Department that the same is actually marketed. We observe that it is not the case of the appellants that the ANFO is produced in the hole or the cavity in which the mixture is exploded.
The appellants conceded that the same was produced at a different place. ANFO, we observe, is manufactured for a particular need and is used as a standard product for blasting, mining etc.
11. We find ANFO finds a separate mention in the Chemical dictionary.
As observed by us in our Order No. 103/88, the item also finds a mention in the Harmonised Coding System of CCCN under the heading "Prepared Explosives". All this goes to show that technically as also internationally ANFO is considered as a commodity apart. Inasmuch as ANFO find a specific mention in the CCCN, it goes to show that internationally it is recognised as a commodity which is imported and exported as such. It is not the case of the appellants that ANFO cannot be marketed and is not capable of being brought to the market. In the absence of evidence of marketing, it does not mean that the goods are not capable of being marketed. In view of what we have discussed above, it has to be held that the ANFO is capable of being marketed. This view is in accordance with the decision of the Hon'ble High Court of Delhi in the case of J.K. Synthetics Ltd. v. Collector of Customs, Delhi 1985 (21) ELT 410 (Delhi) holding in the case of Polymer chips manufactured that the moment of manufacture takes place, the excise duty is immediately attracted and that once it is held that polymer chips are manufactured and covered under the entry plastics, there would be no escape from the conclusion that excise duty will be immediately attracted inspite of the fact whether polymer chips are actually brought to the market to be bought and sold. In view of this, we hold that irrespective of the fact whether ANFO is actually marketed or not, the duty will be leviable. The appellants plea that the Tribunal in the case of Kesoram Cement should not have relied on the Harmonised Coding system cannot be accepted in the context of the case the reliance placed is only to show that the goods were recognised as a separate commodity internationally and that the goods can be considered as marketable as mentioned above.
12. The next point for consideration is whether ANFO could be considered as an explosive. The appellants plea is that ANFO is not at all an exploisive. For this purpose, the appellants have relied on the definition of the term 'Explosive' in the Explosives Act and the license given to them by the Chief Controller of Explosives. We observe that the license Issued to the appellants is for non cap sensitive explosive consisting of ammonium nitrate of a non-explosive mixture containing ammonium nitrate with mineral oil subject to the provisions of Indian Explosives Act, 1884. We observe that for the purpose of carrying out the purpose of the Explosives Act, various definitions have been given under the Explosives Act. So far as the term explosive is concerned, it covers certain items by a specific mention and also it carries a general definition of the term explosive and this covers products which are manufactured with a view to produce a practical effect by explosion and even the fire works are covered under the term explosives. The very fact that the appellants had to obtain a license to produce ANFO from the Chief Controller of Explosives shows that they were producing ANFO which was covered under the scope of the Explosives Act.
13. We observe that the appellants have been given the license to produce ANFO which is an explosive, as seen from the technical literature cited by the Revenue. The teamed Advocate plea that we should not go by the dictionary meaning is mis-conceived in the present case inasmuch as, for proper understanding of technical characteristics of a product of the type before us, we have to resort to the technical dictionary. We observe that reliance on the technical literature does not amount to reliance on the dictionary meaning as pleaded by the appellants. The reliance on a technical dictionary to understand the characteristics of a product cannot be denied to the Revenue for the simple reason that to understand the scope of technical or chemical materials, nothing can be more authentic than the technical dictionaries. We observe that the term prepared explosives are not defined in the Central Excise Tariff and therefore, the meaning of the same has to be taken from technical books or if it is available in the product literature. No product literature has been produced by the appellants. As earlier brought out the term ANFO has to be understood from its description as given in the Chemical Dictionary. In view of this, we hold that it is highly explosive. We find that the description Prepared Explosive figuring in the harmonised Coding System of CCCN, covers ANFO within its ambit. In the absence of any definition of the term prepared explosive in the tariff as also in the absence of any averment on the part of the appellants as to what should be considered as a prepared explosive, the harmonised coding system can be relied upon to understand the scope of this term as the same reflects as to how internationally the item is understood.
14. The appellants' plea that ANFO is a phlagmetising agent is not backed by any technical authority nor the learned Advocate for the appellants has given any authentic explanation as to what constitutes a phlagmetising agent.
15. In reply to the Departmental Representative's argument, the learned Advocate also took the plea of time bar and pleaded that the demand beyond a period of 6 months could not be raised. He pleaded that before 1 -3-1986, the product was not charged to duty and the appellants were under the bona fide belief and understanding that goods were not chargeable to excise duty and therefore, demand be not raised. We observe from the show cause notice that the demand has been raised under Rule 9(2) read with Section 11A(1) under Central Excises and Salt Act, 1944. We find that the Collector has alleged that the appellants have suppressed the facts regarding the manufacture of excisable goods.
We observe that the demand has been raised in respect of the clearances made from 1 -3-1986 to 31 -10-1986. The show cause notice was issued on 30th December, 1986. It does not appear that any demand was raised before 1-3-1986. The second show cause notice as seen from the record, is dated 17-3-1987 for the period from 1-3-1986 to 31-1-1987, It appears that item prepared explosive came to be introduced for the first time in the tariff with the introduction of new tariff and duty demand was raised in view of the inclusion of this item in the tariff.
16. The question in this context is whether the appellants manufactured the goods and used them for captive consumption without payment of duty on a bona fide belief regarding its excisability or there was any suppression of fact with the intention to evade payment of duty on their part. The Intention to evade payment of duty would be there if the appellants had a mala fide intention. It is observed that the appellants were carrying out their operations regularly in the open and it is quite possible that they were under the bona fide belief that their goods were not chargeable to duty.
17. The learned Advocate for the appellants in reply also pleaded that in view of the facts and the pleas taken, It would be seen that the appellants were under a bona fide belief that their goods were not chargeable to duty and the question of demanding duty beyond six months would not arise and that the extended time limit could not be invoked.
He also pointed out that no duty had been demanded from the appellants for the period prior to 1-3-1986.
18. We observe that the learned Collector has demanded duty beyond 6 months for the reasons that the appellants had suppressed the fact of production of ANFO add contravened the rules in regard thereto with the intention to evade payment of duty. From the reading of the show cause notice, it is seen the suppression has been alleged against the appellants as they did not reveal to the Department the manufacture of these goods and that they had not obtained the necessary license for its manufacture and had not maintained the statutory accounts as required under the Central Excise laws.
19. The Collector neither in his show cause notice nor in his order has laid any basis that the appellants' non-compliance with the provisions of Central Excise law for manufacture and clearance of the goods and for not informing the authorities was with the intention to evade payment of duty and that the suppression of facts was also with the same intention. Now the term "evade" as set out in the Concise Oxford Dictionary, New 7th Edition, is as under - "Evade - escape from, avoid (attack pursuit designs, adversary, blow obstacle, etc.) avoid doing (duty etc.); answering (question); paying (taxdue) yielding to (argument etc.) defeat intention of (law etc. especially while complying with its letter); of (of thing) elude." "Intent - intention, purpose (with intent to defraud etc; with malicious, good etc. intent); to all and purposes, practically, virtually." 20. In the facts of this case that the Revenue has demanded duty w.e.f.
1 -3-1986 with effect from the date of the introduction of the new tariff under which the prepared explosives was listed as one of the items specifically as chargeable to Central Excise duty. The term prepared explosives as such has not been defined in the tariff. The question that arises the background of the pleas of the appellants Is whether the failure on the pat of the appellants to furnish information to the Central Excise authorities about the manufacture of ANFO and their failure to comply with the Central Excise formalities in regard to the goods can be taken to be an act done with the intent to evade payment of duty. The intent to evade payment of duty implies that the person had mala fide intention and thus suppressed the facts to evade payment of duty. There is nothing on record nor there is any finding by the Collector in his order that there was clandestine manufacture or removal of the ANFO or they were carrying out operations in a manner with a view to evade the detection of the same by the Central Excise officers. The appellants were functioning under Central Excise control and there is no allegation from the Revenue that they had not brought the production and use of ANFO on record in their own private records.
We observe that the legislation in its wisdom has set out the parameters for the purpose of invoking the longer time limit of five years. These parameters are set out in the proviso to Section 11 A(1).
The same is reproduced below for convenience of reference - "Provided that where any duty of excise has not been levied or paid or has been short-levied or short-paid or erroneously refunded by reason of fraud, collusion or any wilful mis-statement or suppression of facts, or contravention of any of the provisions of this Act or of the rules made thereunder with intent to evade payment of duty, by such person or his agent, the provisions of this sub-section shall have effect (as if for the words "Central Excise Officer", the words "Collector of Central Excise" and for the words "six months", the words "five years" were substituted)." In the context of the parameters above, it is obligatory on the part of the adjudicating authority to set out the circumstances which have led the authorities to there was intention to evade payment of duty. These circumstances will differ from case to case but it is obligatory on the part of the Collector to draw the inference from the facts of the case and he should record his findings that there was an intention on the part of the appellants to evade payment of duty by suppression of facts or wilful mis-statement etc. We find from the order-in-original that the Collector has not drawn any such inference in his order although the allegations in terms of the proviso were made in the show cause notice in this regard.
In view of this, we find in the present cases, in the absence of any such finding, the duty demand beyond a period of 6 months for the extended period cannot be invoked. We in view of the above, while upholding the levy of duty on ANFO in terms of the order of the Collector's order that the demand of duty be limited to a period of six months reckoned from the date of receipt of the show cause notice by the appellant.