1. All the above appeals pertain to-M/s. Paramount Sinters Private Limited, Nagpur. They are all clubbed together for the purpose of hearing and disposal as the question for determination in all the appeals is identical. The Cross appeal of the Revenue is also heard and disposed of by this order.
2. Appeal No. 1051 and 1052/86-C arise from a common appeal disposed of by the Collector of Central Excise, Bombay against the two orders-in-original dated 6-2-1985 passed by the Assistant Collector of Central Excise, Chanderpur confirming the demands made in the two show cause notices dated 29-9-1984 and 28-4-1985 respectively for the period from 1-11-1983 to 31-3-1984 and 1-4-1984 to 31-8-1984.
3. The appellants are alleged to have removed from their factory a quantity of 3937.270 M.T. of Manganese Ore Sinters valued at Rs. 41,53,728.40 P. without payment of duty amounting to Rs. 4,15,372.84 P.for the period 7-4-1984 to 31-8-1984 and a quantity of 5251.030 M.T. of manganese ore sinters valued at Rs. 50,94,087.90 P. without payment of duty amounting to Rs. 5,09,408.79 P. for the period 1-11-1983 to 31-3-1984. The lower authorities have held that manganese ore sinters are manufactured by the appellants and that it is a new product having distinct name, character and use and classified the same under Tariff Item 68 and demanded duty of Central Excise. The appellants are seriously contesting the finding of the Revenue and they have, taken a stand that there is no manufacture of a new product with distinct name, character or use and that manganese ore sinters are not dutiable products.
4. Appeal Nos. 605 and 606/85-C relate to the period from 24-4-1981 to 2-2-1983 covered in the show cause notices dated 7-4-1983 and amended on 8-8-1983 alleging contravention of Rules 174, 173B, 173C, 173F and 173G and evasion of duty of Rs. 1.1, 48, 019.11 P; another demand for the period 1-6-1983 to 31-10-1983 covered by show cause notice dated 10-10-1984 alleging contravention of Rules 9, 52A, 173D, 173C, 173F and 1.73G and allegation of evasion of duty amounting to Rs. 3,88,202.99 P.Both these appeals E/605/85-C and 606/85-C are against the order-in-original No. 6/84 passed by the Collector of Central Excise, Nagpur classifyingthe product Manganese sinters under Tariff Item 68 of erstwhile tariff and demanding duty as stated above.
5. Appeal No. E/1370/88-C is against the order-in-appeal dated 19-2-1988 passed by the Collector of Central Excise (Appeals) Bombay confirming the order-in-original dated 25-2-1986 passed by the Assistant Collector of Central Excise, Chandrapur. By a show cause notice dated 29-8-1985, the Assistant Collector of Central Excise called upon the appellants to explain as to why their product "Manganese sinter" should not be classified under Tariff Item 68 and duty demanded thereon. The Appellants had filed Classification list No.14/83 under protest with a forwarding letter dated 11-6-1983 prior to the issue of show cause notice and de novo proceedings.
6. Appeal No. 3149/88-C is against the order-in-original dated 27-6-1985 passed by the Collector of Central Excise, Nagpur confirming the duty demand of Rs. 1,81,216.56 P. made under show cause notice dated 6-2-1985 for the period 3-2-1983 to 31-5-1985 invoking Section 11A(1) of the Act alleging contravention of various provisions of Rules 174,173B, 173C, 173F, 173G and 52A of Central Excise Rules, 1944 for manufacturing and clearing manganese ore sinters falling under Tariff Item 68 weighing 4092.370 M.T. valued at Rs. 38,87,213.10 P. without obtaining prior Central Excise " licence as required under Rule 174 of Central Excise Rules.
7. Appeal No. 243/88-C is against the order-in-appeal dated 28-10-1987 passed by Collector of Central Excise (Appeals) Bombay confirming the order-in-origirial dated 7-3-1986 passed by the Assistant Collector of Central Excise, Chanderpur Division, confirming the demand for Rs. 36,282.89 P. on manganese ore sinters falling under Tariff Item 68 cleared for the period 1-9-1984 to 29-9-1984.
8. The main question arising for decision in all these appeals is whether the process undertaken by the appellants by which particles of manganese ore fines get stuck to each other physically so as to form lumps (or larger particles of manganese ore) can amount to manufacture so as to attract levy of excise duty? The appellants call these lumps by the name manganese ore sinters and the process undertaken by them as "sintering". They have claimed that in the process undertaken by them, no chemical change takes place whatsoever. Only the physical form is changed by which the fines are converted into large particles or lumps.
The lumps are put to the same use as the raw materials, that is, for the manufacture of Ferro Manganese Alloy. The character of the lump is also the same as that of the fines. The process is akin to sticking together of the candles. They have contended that this process cannot be said to be manufacture. They have further stated that the manganese ore lumps are being obtained in the premises which have been included by the Department itself in the ground plan of Maharashtra Electro Smelt Ltd. The manganese ore lumps are used within the factory of production and hence they have claimed exemption under Notification No.118/75 which they say, is applicable to all goods under Tariff Item 68 and captively consumed.
9. The appellants have further stated that M/s. Maharashtra Electro Smelt Limited, a subsidiary of Steel Authority of India Ltd., is engaged in the manufacture of Ferro Manganese Allovs from its ore i.e.
Manganese ore. Manganese ore is always available as a mixture of manganese minerals and iron minerals. Consequently the material obtained from it is always an alloy of ferro iron and manganese and is popularly known as Ferro manganese alloys. Manganese ore alongwith a suitable quantity of coke is put in an Electric Arc Furnace. The process of manufacture of the manganese alloy is such that it is necessary to ensure that the Electric furnace always remain porous. If very fine particles of ore are used, the arc furnace would get choked, thereby resulting in loss of furnace efficiency. Hence to avoid this operational difficulty, Manganese ore of size of 6 mm to 75 mm are used. The Manganese ore fines below 6 mm are screened out and supplied to the appellants who undertake the process of sintering by which the particles of manganese ore fine get stuck with each other physically so as to form lumps or larger particles of manganese ore. They have contended that no chemical reaction takes place whatsoever and that there is a change in the physical size. Their further case is that sintering of fine particles of manganese ores to form lumps does not bring into existence any new excisable product. They have further contended that the process of sintering is carried out by them pursuant to an agreement dated 10-6-1981 with M/s. Maharashtra Electro Smelt Ltd., who supply materials like manganese ore fines, coke breeze, water, compressed air, Electricity etc. for which no charges are collected from them. Further, the shed and building also belong to M/s.
Maharashtra Electro Smelt Ltd. They get only commission charges and that they have no right of ownership on the ores and-materials sintered by them.
10. In support of their contentions, the appellants have produced technical opinion of various experts. A summary of their evidence is given below - (1) In his certificate dated 5-7-1984, the Deputy Metallurgical Adviser of Mineral Development Board has certified that by the process of sintering fine particles of ore are agglomerated to the lump size for appropriate use in the furnace. There is no change in the property of the ore during sintering. The ore sinter can be used in the same manner as the parent ore. The agglomeration of fine particles is merely a convenience of size transformation.
(2) In a letter dated 15-10-1984, Dr. C.K. Gupta, Head Extractive Metallurgy Division of the Bhabha Atomic Research Centre has stated that the properties of sintered ore fines and parent ore fines are usually the same. He has further observed that no new product is created by sintering the ore fines.
(3) By his letter dated 14-6-1984, the Superintendent Officer (Ore Dressing) of the Department of Mines, has stated.that sintered ore fines and parent ore lumps have similar characteristic and composition and they can be utilised in similar manner as the ore lumps. No different new chemical product comes into existence because of the process of sintering.
(4) By letter dated 16-7-1984, M/s. M.N. Dastur & Co. (P) Ltd., Consulting Engineers, has stated that sintering of ore fines is a process of size enlargement. They further stated that no new product is created by the process. Further sintering does not change the properties of the parent ore.
(5) In letter dated 1.3-6-1984, Department of Metallurgical Engineering of the Visvesvaraya, Regional College of Engg., has stated that the properties of the parent ore do not undergo any change by sintering. Ore sinters and ore lumps are used in a similar manner. No new chemical product is produced when the ore fine is sintered.
(6) Similarly by a certificate dated 6-8-1984, the National Mineral Development Corporation Ltd. have stated that the process of sintering is similar to crushing and grinding wherein no new product is produced. The process only helps in conservation of mineral resources by utilising the fines.
11. The appellants have stated that the Departmental authorities in spite of drawing samples as early as 9-5-1983 and again on 27-4-1984, were not communicating the result of the Chemical examination of the samples. Therefore, the appellants sent their sealed samples to Indian Bureau of Mines, Department of Mines. Dr. S.P. Desh-pandey of the Indian Bureau of Mines vide his report dated 27-1-1986, has stated that sample drawn by the Central Excise officials on 27-4-1984 was opened and examined mincrologically. It was stated therein that the minerological composition of the sealed samples examined corresponded to manganese ore. The approximate percentage of manganese ore minerals plus iron ore mineral was stated as 65% to 70%, and the balance consisted of silicate ganguc minerals. Dr. Deshpandey who conducted minerological study of the samples, forwarded the same to Mr. S.N.Chattopadhaya who analysed it. In his report dated 5-2-1986, he gave the percentage composition of the constituents.
12. Shri V. Lakshmi Kumaran, learned Advocate for the appellants, placing reliance on these materials and also on the technical literature produced at the time of hearing, submitted that the process of sintering will not result in bringing any change in the manganese ore fines which are agglomerated into larger size only to facilitate the same for the purpose of re-utilisation by M/s. Maharashtra Electro Smelt Ltd. He relied on the definition of Sintering given in Kirk Othmer Encyclopedia of Chemical Technology, Third Edition, Volume 19, Page. 43, which is reproduced below - "Sintering can be defined as the bonding of particles in a mass of powder by molecular (or atomic) attraction in the solid state through the application of heat, which produces strengthening of the powder mass and normally results in densification due to material transport.
During the sintering treatment, which usually occurs below the melting point of the metal powder except for liquid-phase sintering of some powder mixtures, material transport takes place in the solid state which results in some changes of the properties of the compacted powder, as shown in Figure 4. With increasing temperature and time, the strength of the powder mass increases, electrical resistivity and porosity decrease, and density, therefore, increases. The grain structure also undergoes some changes, and recrystallization and grain growth occur. In order to avoid oxidation of the metal-powder mass during the high temperature treatment, either a neutral or a reducing atmosphere is provided.
The movement or transport of material during sintering is caused by surface diffusion, volume or lattice diffusion, grain boundary diffusion, evaporation and condensation, and plastic or viscous flow (29.31). Probably several of these mechanisms not simultaneously depending on the type of powder, its particle size and shape, and especially the temperature".
13. He has further relied upon the 'Size Enlargement' as appearing in Vol. 21, Page 77 which is reproduced below - "Size enlargement concerns those processes that bring together fine powders into larger masses in order to improve the powder properties. Usually, they produce relatively permanent entities in which the original particles can still be identified, but this is not always necessary, as demonstrated in the formation of amorphous agglomerates by the cooling of melts, or by the production of weak and transient 'instant' food agglomerates in which product strength need only be sufficient to withstand downstream handling, packaging and transportation.
Size enlargement methods have been known for hundreds of years. The roots of the processes can be traced to such ancient techniques as the formation of clay bricks and other building materials, the hammering of implements from sponge iron, the manufacture of various items from precious metal powder, and the preparation of solid molded forms of medicinal agents (1) Agglomeration by heating and roasting techniques became established as a practical operation during the 19th century with the necessity to beneficiate and process fine coals and ores. In this century use of size enlargement has grown rapidly for a number of reasons. The application of high analysis nitrogen fertilizers in intensive agriculture led to development of noncaking and granulated, rather than powdered, products (2). The lower quality of available iron are resulted in the need to upgrade the resources by grinding and rejection of the liberated impurities, followed by pelletization of the resulting fines into an acceptably coarse product (3) Environmental considerations have led to the recovery of many dusts and fine waste powders that can be recycled after size enlargement (4). In addition, modern high volume processing requires consistent feeds with good flow properties, requirements that for powders can often only be met through some form of agglomeration".
14. The term Agglomeration is defined in W.K.V. Gale, The Iron and Steel Industry - A Dictionary of Terms, published by David and Charles, Newton Abbot at page 8 is as under - "Agglomeration - Collecting together into lump form of fine iron ores, dust, and other materials which could not otherwise be smelted, Sintering (qv) and pel-letizing or balling (qv) are the common processes used today." 14A. The term "Beneficiation of Iron Ores", Agglomeration processes, Sintering as explained in "The Making, Shaping and Treating of Steel, edited by Harold E. Mc Gannon, Ninth Edition, brought out by United States Steel is also relied upon. At page 214, Section 5, it is as under - "Introduction - The term 'beneficiation' in regard to iron ores encompasses all the methods, used to process ore to improve its chemical or physical characteristics in ways that will make it a more desirable feed for the blast furnace. Such methods include crushing, screwing, blending, grinding, concentrating, classifying and agglomerating. Because of the differences in structure and mineral content of ores from different deposits, beneficiation methods vary considerably".
"The blast furnace is a counter-current, gas-splid reactor in which the solid charge materials are moving downward while the hot reducing gases are flowing upward. The best possible contact between the solids and the reducing gas is obtained with a permeable burden which permits not only a high rate of gas flow but also a uniform gas flow with a minimum of channeling of the gas. The primary purpose of agglomeration is to improve burden permeability and gas-solid contact and thereby reduce blast-furnace coke rates and increase the rate of reduction. A secondary consideration is the lessening of the amount of the material blown out of the blast furnace into the gas-recovery system. Furthermore, in steel making furnaces, agglomerated materials, when they have the proper chemical composition, can substitute for lump ores used as charge and feed ores".
At page 219, there is a paragraph on 'Sintering' which is reproduced below - "Sintering has been referred to as the art of burning a fuel of extremely high ash content under controlled conditions. The flexibility of the process permits conversion of a variety of materials, including naturally fine ores and ore fines from screening operations, flue dust, ore concentrates and other iron-bearing materials of extremely small particle size into a granular, relatively coarse form that is well suited for use in the blast furnace".
15. Shri V. Lakshmi Kumaran has also relied on 'beneficiation' which term has been explained at page 738 of Encyclopedia of Chemical Technology, Third Edition, Vol. 13, which is reproduced below - "Beneficiation as it is applied to iron ores, means to improve the ore's chemical and/or physical properties. When the iron content of the ore is increased, the process generally is referred to as concentration when the physical structure is improved by making larger parlicles out of smaller particles, the process is referred to as agglomeration. Some ores can be concentrated simply by crushing, screening and washing. Other ores must be ground to very small particles before the iron oxides can be separated from the rest of the material. This separation normally is accomplished by magnetic drums (see magnetic separation) or by floatation (qv) Examples of the types that can be separated magnetically are the magnetite taconites from Minnesota. These ores contain from 25-30% iron as mined. They are ground to 75 pm (200 mesh) or finer and then are concentrated by magnetic separating drums. The final concentrate has ca 60-65% iron and 2-8% silica. Although these concentrates are of acceptable chemical quality, they must be agglomerated into a coarser form before they can be used in furnace. Agglomeration is one of the principle methods of physical beneficiation of iron ores.
Fine particles, whether in natural ores or in concentrates, are undesirable as blast furnace feed, the most desirable size for blast furnace feed being from 6-25 mm. Of the numerous methods available, sintering and pelleting are the most important.
In the Sintering process, mixture of iron ore fines or concentrates and coke fines is deposited on a traveling grate. The traveling grate is shaped like an endless loop of conveyor belt forming a shallow trough with small holes in the bottom. The bed of material on the grate first is ignited by passing under an ignition burner that is fired with natural gas and air and then, as the grate moves slowly toward the discharge end, air is pulled down through the bed.
As the coke fines burn in the bed, the heat that is generated sinters the small particles. At the discharge end of the machine, the sinter is crushed to remove extra large lumps, then is cooled, and finally screened. In some cases, limestone or dolomite fines are added to the sinter food to produce a self-fluxing sinter (see Lime and Limestone). In a modern integrated steel plant, most of the iron bearing dusts and slags are recycled by adding them to the sinter plant feed mix".
16. Shri Lakshmi Kumaran, learned Counsel for the appellants, arguing very strongly on these technical literature and on the basis of the evidence brought out before us above, submitted that the sintering of manganese ore into lumps will not result in a new product and therefore, the demand made by the Department for classifying the product under Item 68 is not justified. He has further submitted that Maharashtra Electro Smelt Ltd. was under the physical control of the Department and the fact that the appellants were carrying on their work in the shed, was well within the knowledge of the Department. Sh.
Lakshmi Kumaran put forward the following propositions - 1) The process of agglomeration of manganese ore into sintering does not amount to manufacture; 2) The appellants are not the manufacturers but only the Maharashtra Electro Smelt Ltd. 3) In any view of the matter, manganese ore sinters would be entitled for the total exemption under Notification No. 118/75 dated 30-4-1975 since the entire quantity of sinters have been used within the factory of production..
4) Duty if any paid, or payable on manganese ore sinters under Tariff Item 68 is available as set off/ proforma credit in terms of Notification No. 201/79 to Maharashtra Electro Smelt Ltd. who are clearing the ferro manganese on payment of duty under Tariff Item 6) No penalty is called for on the facts and circumstances of the case.
17. Shri S. Chakraborti, learned Departmental Representative, arguing for the Revenue, submitted that the process of sintering is to increase the grain size. The extract from the mine is in compact form. The process of sintering will increase the size of the particles. He further submitted that the raw material is in ore fines which are mixed with water and the end product results in lump form. There is change in the final product. They are having specific name, character and use. He relied upon the case of Union of India v. D.C.M. -1977 (1) ELT 119. The Departmental Representative further submitted that there is a change in the name, character and use because of the process of sintering. The raw materials which are in the form of ore fines have undergone a technology change by the process of sintering and agglomeration. The ore fine has a different character and use from that of agglomerated sinters. The uses of ore fine and the agglomerated sinters are different. Shri Chakraborti submitted that the process of sintering manganese ore fine into agglomerated sinters results in a new product which is classifiable under Tariff Item 68. He submitted that although there is no chemical change, yet there is a change in physical state which itself can be considered as manufacture. He relied on the citation in the case of Unique Beautycare Product P. Ltd. v. Collector of Central Excise -1988 (37) ELT 369. He submitted that the appellants had failed to file a classification list and follow the various provisions of the Excise Act. Thereby, they have suppressed the fact of production of sinters in the factory and hence, invoking Section 11A was justified. He further submitted that the manganese ore lumps are marketable and therefore, it satisfies the marketability test also.
Therefore, he has sought for upholding the orders passed by the authorities in all the appeals.
18. We have heard both the sides and carefully examined the entire material, evidence and technical literature produced by the appellants and reasoning given by the lower authorities in the impugned orders.
The main question that arises for our consideration is whether the process by which manganese ore fines which are produced by the appellants from Maharashtra Electro Smelt Ltd. are converted into sinters or agglomerated lumps of bigger is a process of manufacture or not? (2) If so, are the appellants liable to pay duty or M/s. Maharashtra Electro Smelt Ltd.? (3) Can the benefit of Notification No. 118/78 and Notification No. 201/79 be extended? From a careful reading of the process of manufacture and the definitions of the relevant terms which have been submitted before us and extracted in the preceding paragraphs which appear in Kirk Othmer's Encyclopedia as well as in the book, "Iron and Steel Industries", a "Dictionary of Terms" as well as a reading of the extracts from "The Making, Shaping and Treating of Steel", it is clear that manganese ore fines are, by a process of physical change, involving agglomerating process like sintering., concentrated into a granular, relatively coarse form. In the various technical literature produced by the appellants, there is uniform opinion given by the experts that no chemical change takes place when the manganese ore fines are converted into manganese ore sinter by agglomeration processes. It is well settled that every process is not a process of manufacture unless the process results in a product which is substantially different in name, character and use. In the instant case, it has been established by the appellants with the evidence on record that manganese ore fines are not different from sintered ones. The purpose of carrying out the process of agglomeration is to enable the manganese ore fines to be more efficiently utilised in the production of ferro-manganese alloys. It has been brought out that fine particles of ore would choke the arc furnaces. In order to make manganese ore fines into a usable commodity, the appellants are converting the physical form, by a process of agglomeration and sintering of fine particles into usable lumps. This process has not resulted in any new product. The use of the manganese ore fine and manganese ore sinter is the same.In Collector of Central Excise, Aurangabad v. Anil Chemicals Pvt.
Ltd., Aurangabad -1985 (21) ELT 889, it has been held that "Authoritative technical texts do not differentiate ammonium nitrate from prilled ammonium nitrate except to point out that the latter is obtained by the prilling process. In spite of its form of spherical prills which generally results in higher content, prilled ammonium nitrate is no different from the ammonium nitrate that went into the prilling process. It would be easy to say that prilling results in a higher concentration and amounts to manufacture but it is difficult to see why this would be so. Mere concentrating a product will not by that fact alone produce a different product. It may perhaps be said that there has been processing and a manufacture but if the result is in the production of the same goods, even of a higher purity, then the manufacture/processing cannot have the effect of making the purer product liable by that fact alone to excise duty. A manufacture under the Central Excises and Salt Act is required to be a manufacture that creates 'excisable goods'".
20. In Punjab Industries v. Collector of Central Excise - 1989 (43) ELT 314 (Tribunal), it has been held that - "In the present appeal the coal is converted into coal briquettes.
The only other element that is used is molasses as a binding agent.
The coal powder is turned into coal briquettes for more convenient use of coal powder. Both coal powder and coal briquettes have the same use. We do not agree with the learned JDR that coal powder cannot be burnt. The character of coal remains the same. The name is slightly different but in view of the remaining circumstances, it is immaterial. The character of both coal and coal briquettes is the same. The case law cited by the appellants and examined by us has uniformly laid down a ratio that in such a case it can't be held that there is a manufacture.
In our opinion, the Allahabad High Court judgment in Khanna Coke Industries (supra) comes to the aid of the appellants and strengthens our view notwithstanding that the question before the High Court was whether the expression "Coke in all its forms" covers coke products.
While deciding the matter in the petition filed, the Allahabad High Court held, inter alia as follows - "The allegation that coke briquettes is meant for domestic kitchen consumption is not denied in the counter affidavit. The coke briquettes therefore manufactured by mechanical pressing is used for the same purpose as coke. The contents of coke briquettes namely moisture, volatile matters, ash and carbon are the same as in any other coke. The mere change in shape by mechanical pressing does not change the commodity. It remains the same.
In Webster's Third New International Dictionary Form has been defined as the shape and structure of something as distinguished from the material of which it is composed".
"Mere change of shape or structure in the raw material does not result in production of a new commodity. And even if it is so the entry is wide enough to cover in its fold commodities which remain the same despite change in shape. Coke briquettes thus being only a preparation of coke dust are covered by the expression coke in all its form".
21. The Tribunal has relied on other rulings before coming to the conclusion as in paras 14 to 15 in Punjab Industries case (supra).
Applying the ratio in both the citations cited supra, we are of the view that the process of agglomeration of manganese ore fine into lumps will not result in a new excisable product and therefore, the demand raised is not sustainable. In view of our finding that there is no new product emerging from manganese ore fine, it is not necessary for us to go into the other question of applicability of Notification No. 118/75 and Notification No. 217/79 and also with regard to time-bar raised by the appellants.
22. The various contentions raised by the Revenue and the reasoning are not sustainable; therefore, the Cross appeal is also rejected.