1. The facts of the case are that the appellants manufactured silicone emulsion out of duty-paid silicone oil. Prior to 28.2.1982 the same was classified under Item 68 of the Central Excise Tariff, but was fully exempted from duty under Notification No. 46/81-CE dated 1.3.1981. They had a stock of such emulsion on 28.2.1982, which was cleared after 28.12.1982. By virtue of Explanation II below Tariff Item 15A intro-duced w.e.f. 28.2.1982, silicone manufactured by chemical synthesis was classifiable under Tariff Item 15A(1). According to Explanation III emulsion form was also assessable under this Tariff Item. A question arose whether this stock of emulsion should pay duty under Tariff Item 15A(1) as it was cleared after 28.2.1982, or no duty was payable as the same enjoyed exemption from duty when it was manufactured. In the impugned order, the Collector of Central Excise (Appeals) has held as follows: Where liability to duty under Section 3 is established as housing existed at the time of manufacture, the actual rate of duty will be at the rate prevailing on the date of removal of the goods in terms of the relevant rules including Rule 9A of Central Excise Rules, 1944. This is quite consistent with the stand of the Department (appellants) in the instant case because if in terms of Section 3 the liability to duty as well as the rate of duty is held to be established once for all at the time of manufacture, the reference to the rate being the rate prevailing on the date of removal would be superfluous. In these circumstances I conclude that the appeal filed by the appellant is justified and therefore admitted. In the result, the impugned order dated 16.5.1984 passed by the Assistant Collector of Central Excise, Dn. IV, Ahmedabad is set aside being not maintainable in law and the appeal filed by the Department is admitted.
2. During the hearing before us, the learned advocate for the appellants has argued that: (i) Formulation of silicone emulsion from duty-paid silicone oil did not amount to manufacture as there was no chemical synthesis; (ii) Goods manufactured prior to 28.2.1982, but cleared after that date must be treated to be eligible for exemption under Notification No, 46/81-CE If this is so, there will be no duty liability on goods manufactured in 1981-82, but cleared in 1982-83. The (roods cleared in 1982-83 will be exempted under Notification No. 80/80-CE as the value of clearances will be less than Rs. 7.5 lakhs; and (iii) If the above is not accepted, then the duty as per Notification No. 80/80-CE will be as per calculation at page 20 of the appeal memo.
3. For the Revenue, Shri Chandrasekaran has argued that the preparation of the silicone emulsion amounted to manufacture as held by the Tribunal in the case of Hico Products Ltd. v. Collector of Central Excise, Bombay emulsion in question was excisable. He has relied on the Tribunal's decision (Tribunal) and Order No. 258/89-C 4. In the statement of facts given in the appeal memo the appellants have described the process of manufacture of their silicone emulsion as follows: We take silicone oil and add emulsifying agents (purchased from the market) which are non-ionic in nature in the required proportion ranging upto 2%. They are physically mixed. In the mixture, we add water at the ratio of approximately 3 parts of silicone oil and 7 parts of water and subject it to stirring till the dispersion of silicone oil into water is uniformly attained.
The above process of manufacture has not been disputed by the Department. The process does not indicate that there was chemical synthesis in the preparation of the appellants' silicone emulsion, 4A. Classification of similar silicone emulsion came for consideration before Five Member Bench of this Tribunal in the case of Collector of Central Excise, Bombay v. Auxichem the said case the respondents manufactured (i) silicone AU 331, (ii) auxichem 831 and (iii) silicone softener 662 which were classified under Central Excise Tariff Item 15AA before 28.2.1982. After the amendment of Tariff Item 15A in the Budget of 1982-83, the Department came to the view that as the said products were based on silicone they should be classified under Tariff Item 15A(1). A demand show cause notice was issued to the respondents in August, 1982 to recover duty on clearances made from 28.2.1982 to 31.7.1982. The Assistant Collector decided that the goods were classifiable under Tariff Item 15A(1) and he asked the assessee to pay the duty accordingly. The assessee appealed against that decision before the Collector of Central Excise (Appeals), Bombay, who set aside the decision of the Assistant Collector and held that the products were classifiable under Tariff Item 15AA. In the said case M/s. Auxichem mixed silicone oil with water and some emulsifying agents to produce the textile processing products.
In paragraph 9 of the said order, the Tribunal has observed that "only silicones that are assessable under Item 15A are the synthetic polymers, the first stage when the silicone product undiluted, unmixed silicone polymer, is produced by synthesis. Generally speaking the states in which silicone appears are fluids, resins and elastomers.
From these three primary silicones, a number of derived products like sealants, rings washers, adhesives, surface active preparations, encapsulation cements, etc. are obtained. Many of these preparations are in emulsions. All these emulsions have other materials, additives, emulsifiers etc. added to aid and help in the use of the preparations in the desired industrial application." In paragraph 10 of the Tribunal's order, it has been observed that "only an emulsion of a silicone such as silicone in its primary slate or one of its primary states, will be covered. A preparation containing silicone in emulsion for specific uses as in wetting, mould release, lubrication, will not be that emulsion; it is only an emulsion preparation used as wetting, mould release or lubricating preparation; otherwise all goods containing polymers or synthetic resins will have to be assessed under Item 15A. Thus paints, lubricants, adhesives. to name only a few, all contain varying amounts of synthetic polymers in mixtures or emulsions.
Silicones find uses even in medicines as antiflatulents. In all these preparations, mixtures, compounds, it is the synthetic polymers that give the products their active, distinctive qualities and properties." It has been held by the Tribunal that M/s. Auxichem's products cannot be assessed under Item 15A as they are not silicone, but only preparations of silicone. It has been held that the said preparations are properly classifiable under Item 15AA. In the present case of the appellants, the silicone emulsion is a preparation containing silicone.
Following the Larger Bench decision, we hold that this product was not classifiable under Tariff Item 15A(1).
5. The learned advocate has argued that no manufacture was involved in the preparation of silicone emulsion by physically mixing silicone oil with emulsifiers and water, and hence the same was not dutiable We are unable to accept this argument. Whether silicone emulsion was the result of a process falling within the definition of manufacture in terms of Section 2(f) of the Central Excises and Salt Act, 1944, was examined by this Tribunal in the case of Hico Products, Bombay v.Collector of Central Excise, Bombay the said case the Tribunal held that the process of preparation of the emulsion was not a simple one of mixing of ingredients, but one involving the use of a high shear blending device such as a colloidal mill or homogenizer. The Tribunal held that conversion of silicone oil into silicone emulsion after mixing with water and emulsifier amounted to manufacture within the mean ing of Section 2(f) of the Act. In the case of Brooke Bond India Ltd. v. Union of India and Ors. , not cited by either of the parties before us, the Hon'ble Andhra Pradesh High Court held that the process of mixing Chicory Powder with Coffee Powder constituted manufacture as defined in Section 2(f) of the Central Excises and Salt Act as it brought into existence a new and different article commercially known as "French Coffee". It was held therein that the "Coffee Chicory Mixture" was different from the two ingredients constituting the mixture and was liable to duty under Item 68 of the Central Excise Tariff. It was also held in that judgment that an article could be taxed once as a raw material and after it was manufactured and converted into different taxable goods, then it could be taxed again as another taxable item, and the two levies could not be treated to be on the same goods. In holding the above views, the Hon'ble High Court considered and followed the ratio of several judgments of the Hon'ble Supreme Court. In this connection, paragraph 64 of that judgment is reproduced below:In Anwarkhan Mehboob Co v. State of Bombay Supreme Court held that the conversion of raw tobacco into bidi pattis by removing stem and dust, which, in turn, was required for the manufacture of bidis, emerge into a commercially different commodity. In the case of Hajee Abdul Shukoor & Co. (1964) (15 STC 719) (S.C.), the tanning of raw hides and skins was held as a manufacturing process resulting in the production of different commercial commodities. In the case of Swasthik Tobacco Factory (17 STC 316) (S.C.), the Supreme Court held that the conversion of raw tobacco into chewing tobacco was a manufacturing process resulting in the production of a substantially different commercial commodity In the case of Ganesh Trading Company (32 STC 623) (S.C.) and also in the case of Raghurama Shetty (47 STC 369), the Supreme Court held that paddy and rice are two distinct commodities and that the milling of paddy involves a manufacturing process. In Devgun Iron and Steel Rolling Mills (12 STC 590), the Punjab High Court held that the process of steel rolling into rolled steel sections was the manufacturing process and the outcome is a different and new commodity. Similarly in the case of Devidas Gopal Krishnan (20 STC 430), the Supreme Court held that the iron scrap when converted into rolled steel, it is a manufacturing process, resulting in a new marketable commodity. In the cases of Chennakesavulu 47 STC 403, and Bapalal and Co. 49 STC 20 : 1981 ECR 279D, melting of old silver jewellery and making into new silver jewellery was held to be a manufacturing process producing a different commercial commodity. In the case of State of Punjab v. Chandulal AIR 1969 SC 1073, it was held by the Supreme Court that conversion of unginned cotton into ginned cotton by a mechanical process was a manufacturing process, resulting in the production of two distinct commercial goods. In the cases of Imperial Fertiliser (31 STC 390) and the State of Tamilnadu v. Rallis India Ltd. 34 STC 532, it was held by the High Court of Madras that the mixture of chemical fertilisers and the resultant product were different commercial commodities. In Pyarehl Malhotra's case (37 STC 319) (S.C.) : I983-ELT-1582, conversion of scrap iron ingots into rolled steel was held by the supreme Court to be a process of manufacture resulting in production of a different commodity. similarly in the case of Shaw Wallace (37 STC 523) (S.C.), the Supreme Court relying upon Imperial Fertiliser case held that the preparation of fertiliser mixture involved manufacturing process resulting in production of a new commodity different from the ingredients composed for the mixture. In the case of Metro Readywear Co. v. Collector of Customs 1978 II Excise Law Times, p. J 520, the Kerala High Court held that the ironing of stitched brassieres using electric iron to be a manufacturing process involving a transformation in the commercial identity of the article. In the case of Union of India v. Ramlal Mansukharai , the process of melting the metals and mixing them together was held by the Supreme Court as a manufacturing process, resulting in the production of a new commercial commodity.
Relying upon the ratio decided in these cases and applying the test laid down therein and on a consideration of all the facts and circumstances of the case, we hold that the process adopted by the appellants of roasting and grinding coffee seeds and Chicory roots by the mechanical process involving consumption of powder and then mixing the powders thus obtained from coffee and chicory by mechanical process involving consumption of power constitute the process of manufacture as defined in Section 2(f) of the Central Excises and Salt Act, 1944 and further hold that the product thus obtained known as Coffee-Chicory Blend" and otherwise known as "French Coffee" in the business market is a distinct commercial commodity falls under Item 68 of the First Schedule and hence liable to levy of excise duty in the manner taxed by the Department. We further hold that the blend or mixture called "French Coffee" differs in identity from the two ingredients constituting the mixture. The new product commercially known as "French Coffee" is undoubtedly an article different in characteristic, use, colour, odour and flavour from pure coffee powder.
In the present case before us, silicone emulsion is the result of manufacturing process which has produced a new product having distinct name, character and use different from the ingredients constituting it.
Silicone emulsion is, therefore, an excisable product.
6. The appellants' silicone emulsion was classified under Tariff Item 68 prior to 28.2.1982. In the case of Auxichem v. Collector of Central Excise Bombay III (supra), the Tribunal held that the silicone emulsions of M/s. Auxichem were appropriately classifiable under Item 15AA of the Central Excise Tariff. In paragraph 17 of the order, the Tribunal held in that case as follows: For the reasons I have set out above, I rule that M/s. Auxichem's products we have been discussing cannot be assessed under Item 15A as they are not silicones, but only preparations of silicones. And as they are used in textile processing, it is evident that their nature is most akin to surface active preparations, wetting agents, softeners, and so on. For these products, there is only one appropriate item in the Central Excise Tariff: Item 15AA, which covers, with other products, surface active preparations, softeners, wetting agents etc.
The exact properties of the emulsion in the present case and their uses are not available before us. Neither party has furnished necessary materials required to decide whether the product should appropriately fall under Tariff Item 15AA or it should be classified under Tariff Item 68 as done prior to 28.2.1982. We cannot, therefore, go into this aspect and hence we remand this issue to the Assistant Collector of Central Excise having jurisdiction on the appellants to decide after giving opportunity of personal hearing to the appellants to defend their case. If the benefit of any exemption notification is admissible, the same should also be allowed to the appellants.
7. The next question is whether the stock manufactured prior to 28.2.1982, but cleared after 28.2.1982 should be charged to duty at the rate prevailing at the time of manufacture or at the time of clearance from the factory. This question now stands settled by Supreme Court's latest judgment in the case of Wallace Flour Mills Company Ltd. v.Collector of Central Excise. Bombay This judgment was delivered by the Supreme Court in an appeal filed against this Tribunal decision . According to this judgment, the rate of duty prevailing on the date of clearance is relevant for charging the duty as provided in Rule 9A of the Central Excise Rules, 1944. In the said case, the Revenue contended that the goods forming the pre-budget stock were very much excisable goods and that for the purpose of collecting duty, date of manufacture was not material under the scheme of the Act even though the taxable event is the manufacture. It was, therefore, contended that at the time of manufacture of the goods in question, the goods were excisable goods and in view of Rule 9A of the Central Excise Rules, 1944, though the taxable event is the manufacture and production, the payment of duty is related to and postponed to the date of removal of articles from the manufactory. This Tribunal accepted the said contention. In paragraph 2 of the judgment, the Hon'ble Supreme Court observed as follows: We are of the opinion that the Tribunal was right. It is well settled by the scheme of the Act as clarified by several decisions that even though the taxable event is the manufacture or production of an excisable article, the duty can be levied and collected at a later stage for administrative convenience. The Scheme of the said Act read with the relevant rules framed under the Act particularly rule 9A of the said rules, reveals that the taxable event is the fact of manufacture or production of an excisable article, the payment of duty is related to the date of removal of such article from the factory. In that view of the matter, the Tribunal dismissed the appeal and rejected the assessee's contention.
In paragraphs 3 & 4 of the judgment, the Hon'ble Supreme Court then held, inter alia, the following: 3....Excise is a duty on manufacture or production. But the realisation of the duty may be postponed for administrative convenience to the date of removal of goods from the factory. Rule 9A of the said rules merely does that. That is the scheme of the Act. It does not, in our opinion, make removal be the taxable event.
The taxable event is the manufacture. But the liability to pay the duty is postponed till the time of removal under rule 9A of the said Rules. In this connection, reference may be made to the decision of the Karnataka High Court in Karnataka Cement Pipe Factory v. Supdt.
of Central Excise , where it was decided that the words 'as being subject to a duty of excise' appearing in Section 2(d) of the Act are only descriptive of the goods and not to the actual levy. "Excisable goods", it was held, do not become non-excisable goods merely by the reason of the exemption given under a notification This view was also taken by the Madras High Court in Tamil Nadu (Madras State) Handloom Weavers Co-operative Society Ltd. v. Assistant Collector of Central Excise 1978-ELT (J 57). On the basis of rule 9A of the said rules, the central excise authorities were within the competence to apply the rate prevailing on the date of removal. We are of the opinion that even though the taxable event is the manufacture or the production of an excisable article, the duty can be levied and collected at a later date for administrative convenience, 4. Having regard to the facts and the circumstances of this case and having regard to the scheme of the excise duty, we are of the opinion that the Tribunal was right and there are no grounds to assail the order of the Tribunal. In the aforesaid view of the matter, the appeal must fail and, accordingly, is dismissed. There will, however, be no order as to costs.
In the case of Maheshwari Mills Ltd, v. Union of India , Division Bench of Gujarat High Court also has held that it is well established by a number of decisions that even though the taxable event is the manufacture or production of an excisable article, the duty can be levied and collected at a later date for administrative convenience. In that case, Gujarat High Court considered the conflicting views recorded by different High Courts on the point and took the above view in the light of the scheme of Central Excises & Salt Act and the Rules framed thereunder, particularly Rule 9A thereof.
7A. In the present case, the goods were classified under Item 68 of the central Excise Tariff at the time of manufacture, but the same were fully exempted from the payment of duty under Notification No.46/81-CE. In view of the aforesaid judgments of the Hon'ble Supreme Court and Gujarat High Court, we hold that the stock of the goods manufactured prior to 28.2.1982, but cleared after 28.2.1982, should attract Central Excise duty at the rate prevailing on the dates of clearances of the same from the factory.
8. The Assistant Collector, in the order-in-original held that no duty was payable on the stock available with the appellants on 28.2.1982.
Based on this view the Assistant Collector examined the duty liability of the appellants with reference to notification No. 80/80-CE dated 19.6.1980 and held mat the value of clearances was within the exemption limit and no duty was payable. The Collector (Appeals) has not gone into this aspect. He has only decided that the stock of the goods manufactured prior to 28.2.1982 was chargeable to duty at the rate prevailing on the date of the removal of the same in terms of the relevant Rules including Rule 9A of the Central Excise Rules Since we have held that the silicone emulsion in question was not classifiable under Tariff Item 15A(1) after 28.2.1982 and we have remanded the issue of determining the correct classification to the Assistant Collector of Central Excise, he should also examine as to whether in the light of his re-decision the appellants were eligible to any duty free clearance of the goods under notification No. 80/80-CE during the period commencing from 1.3.1982. Duty liability of the appellants should be re-worked out accordingly. If it is found that any duty was payable by the appellants, the appellants, the demand for duty should be limited to a period of six months prior to the issue of the demand show cause notice as there is no evidence of suppression or misstatement of facts on the part of the appellants.