Judgment:
1. The above appeal arises out of the order of Collector of Central Excise, Coimbatore confirming the duty demand of Rs. 3,24,91,945.43 P.on Calcium-bi-Sulphite Solution prepared and captively consumed by the appellants in the course of manufacture of wood pulp during the period 1-3-1986 to 31-1-1990 and also imposing a penalty of Rs. 10,000/- on the appellants. The entire demand for duty is with reference to the extended period of limitation under Section 11-A of the Central Excises and Salt Act, 1944 which has been invoked on the ground that the appellants had suppressed the correct quantity of manufacture of the said item.
2. The facts of the case are that the appellant company is engaged inter alia in the manufacture of wood pulp, man-made staple fibre, man-made filament yarn and Sulphuric Acid. With the introduction of the amendment to the Central Excise Tariff w.e.f. 1-3-1986, the jurisdictional Superintendent of Central Excise wrote to the appellants on 18-7-1986, calling upon them to furnish details of clearance of Calcium-bi-Sulphite liquor from 1-3-1986 and to pay Excise duty thereupon and also directing them to include the above mentioned item in their Classification list.
3. By reply dated 25-7-1986, the appellants informed the Superintendent of Central Excise that they had not included Calcium-bi-Sulphite in the Classification lists filed by them as it was unstable product which could not be sold or marketed and therefore, was not excisable.
Thereafter, the Inspector of Central Excise attached to the factory of the appellants, called for details from the appellants with reference to Calcium-bi-Sulphite vide his letter dated 8-8-1986, to which the appellant replied on 9-8-1986 reiterating the contentions raised in their earlier reply of 25-7-1986. Notwithstanding this, a show cause notice dated 21-8-1986, was issued to the appellants proposing to recover duty on Calcium-bi-Sulphite manufactured during the period 1-3-1986 to 28-7-1986. The appellants replied thereto contending inter alia that Calcium-bi-Sulphite is unstable and not marketable and hence cannot be considered as 'goods' within the meaning of the Central Excises & Salt Act, 1944. For subsequent periods, show cause notices were issued demanding duty on the alleged quantity of 500 MT per day of Calcium-bi-Sulphite, the details of which are given below :- Date Period Reply----------------------------------------------------------- 4. In their replies to the show cause notices, the appellants had contested the excisabilify of Calcium-bi-Sulphite and also set out the process of production of Calcium-bi-Sulphite for use in the manufacture of wood pulp. At this stage, the Superintendent of Central Excise issued a corrigendum dated 12-2-1991 to the show cause notices stating that the daily production of cal-cium-bi-Sulphite should be taken as 812 MT per day and not at 500 MT per day as demanded - this was based upon two letters dated 20-2-1990 and 28-12-1990 written by the appellants. Therefore, the corrigendum wanted to enhance the quantum from 500 MT to 812 MT per day and consequently increase the duty demand proportionately. After the issue of the corrigendum, the Collector of Central Excise, Coimbatore issued a show cause notice dated 27-2-1991 setting out as follows - "(i) That in the course of manufacture of wood pulp, the appellants have manufactured Calcium-bi-Sulphite solution falling under Central Excise Tariff 2806.90 and the said Calcium-bi-Sulphite is captively used within the factory in the manufacture of wood pulp; (ii) that the appellant have not included this product in the Classification lists filed by them.
(iii) that the appellants have failed to maintain daily production record in respect of Calcium-bi-Sulphite solution.
(iv) that the appellants in their letter dated 20-2-1990 have declared the quantum of Calcium-bi-Sulphite @ 700 tonnes per day.
(v) that the appellants in another letter dated 28-12-1990 had stated that the production of Calcium-bi-Sulphite solution is 28,350 tons per month. Therefore, the appellants have suppressed the correct quantum of manufacture of Calcium-bi-Sulphite solution.
(vi) that on the above erroneous view the Collector demanded duty on the differential quantity between 500 tons/day and 812 tons/day." 5. The show cause notice proposed recovery of differential duty of Rs. 3,24,91,945.43 P. on the total differential quantity of 4,16,496 MT of Calcium-bi-Sulphite alleged to have been manufactured and captively consumed by the appellants. This show cause notice dated 27-2-1991 sought to cancel the corrigendum dated 12-2-1991 issued by the Superintendent.
6. The appellants replied to the notice once again reiterating that Calcium-bi-Sulphite solution cannot be treated as goods for the purpose of Central Excises & Salt Act, 1944 as it is an unstable solution and that once the temperature increases it decomposes and cannot be used.
The appellants also submitted that the solution cannot be stored in tanks since when the atmospheric temperature increases, the dissolved sulphite solution liberates inside the tank leading to the possibility, of explosion. The adjudicating authority passed the impugned order confirming the duty demand and also imposing a penalty of Rs. 10,000/- on the appellants. Hence this appeal.
7. On behalf of the appellants Shri Anil Divan, Senior Advocate appearing along, with Shri Krishna Srinivasan, Advocate first contends that the demand is barred by limitation, in the absence of any suppression on the part of the Appellants regarding production of Calcium-bi-Sulphite Solution. In this connection he draws our attention to the letter dated 25-7-1986 (page 4 of the paper book) in which the appellants had written to the Assistant Collector of Central Excise, Coonoor Division that the reason for non-inclusion of Calcium-bi-Sulphite Solution in the classification list is that it is an unstable item, it is not marketable and it is only an intermediate product in the manufacture of wood pulp and rayon and polyester staple fibre in unfinished form and, therefore, not "goods" within the meaning of the CESA, 1944. He submits that the adjudicating authority has levelled the charge of suppression on the basis that the appellants did not supply the correct production figures so as to arrive at the correct quantity of duty involved. While the letters dated 20-2-1990 and 28-12-1990 (pages 51 and 63 of the paper book) would reveal that the quantum of daily production of Calcium-bi-Sulphite Solution exceeded the figure of 500 MTs per-day disclosed by the appellants to the Department - the learned Senior Counsel contends that there is nothing in these two letters to arrive at the conclusion that the appellants produced a higher quantity of Calcium-bi-Sulphite Solution per day for the entire period of dispute i.e. right from 1986 to 1990 and these letters cannot be construed as an admission by the appellants of production of higher quantity. In any event these two letters cannot form the basis for the computation of 812 MTs of production per day retrospectively in the show cause notice. In support of his argument that the extended period of limitation cannot be made available to the Department in such circumstances, he cites the decisions of the Hon'ble Supreme Court in the case of CCE v. Chemphar Drugs and Liniments reported in 1989 (40) E.L.T. 276 (SC), Padmini Products v. CCE reported in 1989 (43) E.L.T. 195, Punjab National Fertilizers reported in 1991 (54) E.L.T. 115 (T), Tamil Nadu Housing Board v. CCE reported in 1994 (74) E.L.T. 9 (SC), Cosmic Dye Chemical v. CCE, Bombay reported in 1995 (75) E.L.T. 721. The learned Sr. Counsel next contends that the proceedings initiated by the Collector with the issue of the show cause notice dated 27-2-1991 and culminating in the impugned order confirming the demand for differential duty are void ab initio for the reason that there has been no original assessment holding that Calcium-bi-Sulphite Solution is excisable. He further submits that the Collector was acting without jurisdiction in seeking to cancel the corrigendum dated 12-2-1991 issued by the Superintendent of Central Excise to the show cause notice issued by the Supdt. for the period 1-3-1986 to 31-1-1990, by issue of the present show cause notice dated 27-2-1991. On the question of marketability of the disputed item, the learned Sr. Counsel submits that the appellants had all along been stating that the Calcium-bi-Sulphite Solution was very unstable; if kept at normal temperature and pressure, the Sulphur Dioxide percentage in the Solution would get released into the atmosphere, thereby reducing the strength of solution; the reduction in its strength below the required degree would render the solution useless and hazardous -(prone to explosion), that it was neither sold nor purchased because of its instability. He draws our attention to the affidavit of Shri Kandaswamy, Chief Chemist of the Appellants. He submits that once the appellants had raised the plea of non-marketability of the item, the onus to establish marketability was shifted to the Department and this onus has not been discharged in the present case as the Collector has culled out a non-existent admission that the goods are marketable, and apart from this, there is no independent application of mind to determine the marketability of the item. In this context, inter alia he cites the decisions of the Hon'ble Supreme Court in the case of Bhor Industries reported in 1989 (40) E.L.T. 280 (SC), Ambalal Sarabhai 1989 (43) E.L.T. 214 (SC) and the decision of the Hon'ble Calcutta High Court in the case of Andaman Timber Industries reported in 1989 (43) E.L.T. 41. He also submits that the Collector has grossly erred in working out the value of the goods disregarding the value declared by the appellants as early as in 1987. Shri Divan also submits that the impugned order is illegal as the Collector has fixed the clearances at 812 MTs per day which is not the figure declared by the appellants in their letters of 20-2-1990 and 28-12-1990 but is based on some Accountant General's report. He, therefore, prays for setting aside of the impugned order.
8. Replying to the arguments of the learned Sr. Counsel, Shri Sharad Bhansali, learned SDR submits on the aspect of time bar, that since the appellants had not maintained production records, the information as to the actual quantity of production was available only with them and non-disclosure of the same amounted to suppression. He submits that the appellants nowhere in their reply to the show cause notice rebutted the allegation of production of 812 MTs per day and, therefore, the adjudicating authority was correct in arriving at the production figures on the basis of the letters dated 20-2-1990 and 28-12-1990. He seeks to distinguish the judgment of the Supreme Court in the Chem-phar Drugs case supra by submitting that in that case, there was a bona fide belief on the part of the assessees that the goods were not liable to duty. He submits that Padmini Products case does not come to the aid of the appellants as in that case, there was a scope for doubt that the goods were not dutiable because of certain trade notices. Similarly, in the case of Punjab National Fertilizers, there was some controversy which resulted in the proceedings being dragged on, while in the present case there is no controversy that the disputed item is excisable. Regarding the confirmation of the differential duty demand, learned SDR submits that there is no illegality in adoption of this procedure. On the aspect of marketability, learned SDR refers to paragraph 14 of the adjudication order and submits that the solution is marketable if kept under regulated temperature and in durable containers, that according to the Condensed Chemical Dictionary by Gessner Hawley, it has several uses such as antichlor in bleaching textiles, paper pulp (dissolving lignin); preservative, bleaching sponges; hydroxylamine salts; germicide; disinfectant; that it is governed by shipping regulations, points to its marketability. He submits that on the basis of the technical literature, the solution is marketable and whether it is actually marketed or not is not relevant but it is capable of being marketed. He submits that captive consumption is not a criterion to determine that an item is not marketable and that the intermediate goods, if marketed, are also liable to duty. In support of his argument on marketability, he cites the decisions of the Tribunal in the case of Dunlop India reported in 1989 (41) E.L.T. 504 and CCE, Cochin v. Travancore Electro Chemical Industries reported in 1994 (74) E.L.T. 936 and the decision of the Hon'ble Supreme Court in the case of Plasmac Machine Manufacturing Co.
reported in 1990 (51) E.L.T. 161 (SC). In these circumstances, he strongly pleads that the impugned order may be upheld.9. In a brief rejoinder, learned Sr. counsel, Shri Anil Divan submits that during the period February and December 1990, Department accepted the figure of production as 500 MTs. per day and issued show cause notices on this basis and ultimately confirmed the demand in the present proceedings on the basis of 812 MTs production per day which is not the figure supplied by the appellants in either of the two above mentioned letters and the figure of 812 MTs per day appears to have been arrived at on the basis of calculations made by the Accountant General Tamil Nadu in his report dated 27-3-1990 (referred to in the Annexure to the show cause notice dated 30-7-1990 for the period 1-2-1990 to 30-6-1990) and, therefore, there is no substance in the allegation that the appellants suppressed the figures of actual production. On the aspect of marketability, learned Sr. Counsel submits that the dictionary is not to be relied upon as the final authority for any transport label. Lastly, he submits that beyond the non-existent admission by the appellants, the Collector had no material for arriving at the finding that the solution is marketable and such a finding cannot be sustained.
9A. We have heard both sides carefully and considered their submissions.
10. We propose to first record our finding on the applicability of extended period of limitation in this case. We find that on 18-7-1986 the Supdt. of Central Excise had written to the appellants calling upon them to file a classification list for Calcium-bi-Sulphite liquor and furnish details of clearances thereof for the period 1-3-1986 onwards and to pay excise duty immediately. The appellants replied to this letter on 25-7-1986 as follows : "Letter No. E/Ref/85-87, dated 25-7-1986 addressed to the Asst.
Collector of Central Excise, Coonoor Division, Coonoor Sub : Revised Classification list submitted for approval Ref: Sector office letter OG/No. 196/86, dated 24-7-1986 We are submitting herewith a revised classification list incorporating the latest changes for your kind approval.
We have not included in the classification list the following items since these are unstable items and cannot be sold as it is. To our knowledge there is no such sale of these items in the market. This is only an intermediate product in the manufacture of wood pulp and Rayon and PSF in unfinished form which cannot attract market.
These are prepared entirely for our captive consumption and these are not capable of being sold in the market and, therefore, cannot be described as goods for the purpose of Central Excises and Salt Act, 1944 : We also enclose herewith a copy of the recent Supreme Court Judgment in support of our stand and requiest you for an early approval of the classification list." Again on 9-8-1986 the appellants referred to their letter dated 25-7-1986 to the Supdt. and reiterated that Calcuim-bi-Sulphite Liquor did not come under excise purview at all. In the background of the above correspondence the first show cause notice for the period 1-3-1986 to 28-7-1986 was issued on 21-8-1986, while the second notice covering the period from 29-7-1986 to 26-1-1987 was issued on 27-1-1987. In reply to this notice, the appellants set out the process of production of Calcium-bi-Sulphite Solution, reiterating that it was not marketable and requested for dropping of the duty demand. This letter is reproduced below: "Letter dated 16-2-1987 from South India Viscose Ltd. to Asst.
Collector of Central Excise, Coonoor Division, Coonoor.
Ref: Show Cause Notice No. O.C. No. 275/87, dated 27-1-1987 by the Superintendent of Central Excise, Mettupalayam Further to the above mentioned show cause notice demanding payment of excise duty for the captively consumed quantity of Calcium-bi-Sulphite, we would like to inform you as follows :- This item is made by absorbing SO2 (Sulphur-Di-Oxide) in the CACOs (Calcium Carbonate Powder) with chilled water around 8 to 10 C; Once the temperature of it varies the SO2escapes and it cannot be used for our further process. Hence the material is not at all stable and cannot be sold. Only for our internal requirement we make it and immediately use it.
It cannot be transported either by containers or by pipe lines since it will lose its strength.
The matter was already discussed with the Collector of Central Excise, Coimbatore during the middle of 1986.
To become a goods : 1. it must be capable of being sold in the market and (2) "to become goods an article must be something which can ordinarily come to the market to be bought and sold. We are confident that this item, which can neither be sold nor have a name in the market, will not attract duty under Central Excise.
We are the only manufacturer of Rayon Grade wood pulp with Sulphide process in India and only after our representation to the Finance Ministry officials at New Delhi, the same was included under Heading No. 28 in the exemption Notification No. 378/86, dated 29-7-1986.
The Policy of the Govt. is to exempt wood pulp completely from Excise purview.
Further the Asst. Collector has already approved the classification list as submitted by us.
We request you to do the needful. We are also willing to appear for a personal hearing if the Asst. Collector so desires." The appellants have been consistently maintaining the same stand in the replies to the other show cause notices also. Now, turning to the letters dated 20-2-1990 and 28-12-1990 which have admittedly been sent after the impugned period and been relied upon by the Dept. as constituting the basis for the allegation of suppression of actual production, we find that there is nothing in these letters to justify applying the enhanced quantum retrospectively from 1-3-1986. These two letters were sent in response to the letters of the Supdt. dated 3-2-1990 and 13-12-1990. In the letter dated 20-2-1990, the appellants have informed the Department that the quantum of Calcium-bi-Sulphite solution produced and removed per day is about 700 MTs. In the letter dated 13-12-1990 issued by the Superintendent of Central Excise, the Department notes that the appellants have "recently" increased the quantum of production of wood pulp and there was a likelihood of consequent increase in production of Calcium-bi-Sulphite Solution and hence the Department called for exact figures of production and clearance thereof. In response to that letter the appellants replied on 28-12-1990 that the production of Calcium-bi-Sulphite Solution is 28350 Tonnes per 30 days (which works out to 945 MTs per day). There is nothing in these two letters to establish that this was the quantity of production for the entire period in dispute i.e. March 1986 to Jan.
1990 and the figures mentioned therein cannot be applied retrospectively.
10.1 In the case of C.C.E. v. Chemphar Drugs and Liniments, the Supreme Court has held that if the Department had full knowledge about the facts and manufacturer's action or inaction is based on their belief that they were required or not required to carry out such action or inaction, the period beyond six months cannot be made applicable. The Court has held that "something positive other than mere inaction or failure on the part of the manufacturer or producer or conscious or deliberate withholding of information when the manufacturer knew otherwise, is required before it is saddled with any liability beyond the period of six months". In the appeal before us, the appellants have been contending bona fide that the chemical is not excisable. Further there is no material to hold that throughout the relevant period the per day production of the disputed item was more than 500 MTs per day (which is the figure that the Department admits was supplied by the appellants). The two letters dated 20-2-1990 and 28-12-1990 as we have already held, cannot be interpreted to mean that the figures mentioned were the production figures for the entire period in dispute (which period ended in Jan. 1990). In this view of the matter, it cannot be said that there was any deliberate withholding of information by the appellants in order to invoke the longer period of limitation.Punjab National Fertilizers and Chemicals Ltd. v.C.C.E. reported in 1991 (54) E.L.T. 115, the Tribunal held that since all the facts regarding manufacture of sodium-bi-carbonate arising at the intermediate stage in the process of manufacture of soda-ash was known to the Department and only some information regarding quantity and value was not available, the Department should not have allowed the controversy to drag on and in such circumstances the extended period of limitation cannot be invoked by the Department. The Tribunal also held that impugned product i.e. the mixture of chemicals containing sodium-bi-carbonate arising at the intermediate stage is not liable to duty as sodium-bi-carbonate under T.I. 14AA. In the present appeal also the fact of presentation of Calcium-bi-Sulphite Solution was admittedly known to the Department in 1986 itself and the Department proceeded on the basis of production of 500 MTs per day and also issued half-yearly show cause notices which later has been taken at the higher figure of 812 MTs per day allegedly on the basis of the figures supplied subsequently by the appellants in their letters 20-2-1990 and 28-12-1990 which, as we have noted, cannot be taken to mean that the higher production figure was applicable throughout the period in dispute.Tamil Nadu Housing Board v. CCE, Madras reported in 1994 (74) E.L.T. 9 (SC) has set out the circumstances in which the extended period of limitation can be invoked by the Department. The Court has held as under : "A bare reading of the proviso indicates that it is in nature of an exception to the principal clause. Therefore, its exercise is hedged on one hand with existence of such situations as have been visualised by the proviso by using such strong expression as fraud, collusion, etc. and on the other hand it should have been with intention to evade payment of duty. Both must concur to enable the Excise Officer to proceed under this proviso and invoke the exceptional power. Since the proviso extends the period of limitation from six months to five years, it has to be construed strictly. The initial burden is on the Department to prove that the situations visualised by the proviso existed. But once the Department is able to bring on record material to show that the appellant was guilty of any of those situations which are visualised by the Section, the burden shifts and then applicability of the proviso has to be construed liberally. When the law requires an intention to evade payment of duty then it is not mere failure to pay duty. It must be something more. That is, the assessee must be aware that the duty was leviable and it must deliberately avoid paying it. The word 'evade' in the context means defeating the provision of law of paying duty. It is made more stringent by use of the word 'intent'. In other words the assessee must deliberately avoid payment of duty which is payable in accordance with law."Cosmic Dye Chemical v.CCE, Bombay reported in 1995 (75) E.L.T. 721 (S.C.) viz. that the intent to evade duty must be proved for invoking the proviso to Section 11A(1) of the CESA, 1944.
10.4 Applying the ratio of the above decisions to the facts of this case in which the Department had all along been aware of the preparation and active consumption of Calcium-bi-Sulphite Solution and in which a dispute has been raised right from the beginning regarding excisability of the solution, the appellants cannot be held guilty of suppression or mis-statement so as to empower the invoking of the extended period of limitation. Accordingly, we hold that the entire demand is barred by limitation.
11. The next issue that requires consideration is whether the disputed item viz. Calcium-bi-Sulphite Solution can be considered as "goods" within the meaning of the CESA 1944, liable to excise duty. It is seen that Calcium-bi-Sulphite solution is prepared by the appellants in the manufacture of wood-pulp and captively consumed. The process of preparation of the Solution is as follows : "Sulphur-di-Oxide is absorbed in Calcium Carbonate powder with chilled water around 8 to 10 centigrade which is then passed into milk of lime which is used in the manufacture of wood pulp. The wood consists of cellulose and lignin, the latter soluable in boiling bisulphite solution. The Cellulose is left, and then used for making Rayon Grade Pulp." We find that at the very threshold of the controversy and as early as on 16-2-1987, the appellants had pointed out to the Department that Calcium-bi-Sulphite solution cannot be termed as goods. In support of this contention, it was stated that once the temperature of the solution prepared by them varies, Sulphur-di-oxide escapes and the solution cannot be used for further process. It was also pointed out that the material is not at all stable and cannot be sold and the same is made and immediately used for their internal requirements. It was also stated that the solution cannot be transported either by containers or by pipelines since it loses its strength. This stand taken by the appellants was supported by judgments of the Supreme Court. It is observed that the aforesaid contentions raised by the appellants that the goods are not marketable and are not capable of being bought and sold in the market, has been reiterated by them at every stage. In fact, in the proceedings culminating in the present appeal, they had raised the following contentions which are found at paragraphs 4.1 to 4.3 of the order of the Collector.
(i) the item Calcium-bi-Sulphite solution is an unstable one, cannot be nomenclatured as "goods" and cannot be sold in the market; (ii) it cannot be stored in tanks since whenever the atmospheric temperature increases, the dissolved SO2 liberates developing pressure inside the tank and there is a possibility of getting exploded; (iii) they prepare the solution and use it immediately without storing.
Thereafter, again at paragraphs 8.1 to 8.5 it has been stated as follows: (i) the Calcium-bi-Sulphite which they manufacture and captively consume is acidic and cannot be transported in conventional tankers; (ii) it has to be kept below 15C otherwise decomposition takes place; (iii) it is not marketable since its application is limited only to pulping technology; (iv) once the solution attains room temperature, unstable Calcium-bi-Sulphite decomposes; (v) the solution is not required by any manufacturer in the market and there is no market.
We also find that at the personal hearing, a detailed note prepared by the Chief Chemist of the appellants (who was also present at the hearing) with extracts of two Authorities on Inorganic Chemistry were placed before the adjudicating authority. The Chief Chemist at paragraphs 6 to 9 of the note has stated as follows : "Our enriched cooking liquor contains Calcium Bi-Sulphite and Sulphur-dioxide. Both of these are unstable compounds. When exposed it will lose SO2 and Calcium-bi-Sulphite will decompose into Calcium Sulphite and Calcium Sulphate.
Since it is acidic it cannot be transported in conventional tankers. It has to be kept below 15 C, otherwise decomposition will take place at higher temperature resulting in pressurising the container due to liberation of SO2 gas and finally the container may rupture.
It has no commercial value and application since it is a contaminated very dilute solution specifically manufactured to suit our captive consumption only. It can be manufactured at very high concentration and purity like sulphuric acid but it will not suit for our specific^mrpose namely pulping technology. From the enclosed Chemical market price list taken from "Chemical Weekly" and "Chemical Product Finder" it can be seen that it is not marketed since its application is limited only to pulping technology and all the mills produce their own cooking liquor at source itself since it is unstable and could not be transported. The very name "Sulphite Pulping Cooking Liquor" stands for its specificity and its limited use in cooking wood for pulping. South India Viscose is the only Unit in India producing Rayon Grade pulp via Sulphite Pulping technology based on Calcium base." The first Annexure to the said note is an extract from General and Inorganic Chemistry for University Students by J.R. Partington and at page 757 of the said Text, the Author has observed as follows : "Calcium Sulphite is formed as a white precipitate by passing Sulphur-dioxide into a fairly large volume of a lime water, or by mixing solutions of Sodium Sulphite and Calcium Chloride. It dissolves in Sulphurous Acid forming, calcium hydrogen Sulphite (Bisulphite). This is prepared by passing Sul-phur-di-oxide in excess milk of lime; it is used in sterilising beer casks and in the manufacture of Wood Pulp. Wood consists of cellulose and lignin, the later soluble in boiling bisulphite solution. The Cellulose is left and is used for making paper. On standing exposed to air calcium-bi-sulphite solution deposits crystals of CaSo4 2H2O." 11.1 The appellant also relied on Textbook of Inorganic Chemistry by Ladli Mohan Mitra (Fifty-third edition) wherein it has been stated the SO2 dissolves in water possibly forming the Acid H2SO3, Sulphurous acid. The Acid has never been isolated and is known only in aqueous solution. It is weak and unstable; that, like "Sulphurous Acid, Sulphites and Bi-sulphites also take up Oxygen from the air and are oxidized into Sulphates".
11.2 In the above background of objections and materials put forth by the appellants that Calcium-bi-Sulphite solution is not "Goods" liable to excise duty, we find that the Collector in the impugned order has dealt with these objections in a perfunctory manner. At paragraph 14 of the order the Collector has held as follows : "In the instant case it has been reported by the party that Calcium-bi-Sulphite solution is marketable if it is kept under 15 C and in durable containers. The party also said that there is no ready market available but the fact that the goods in the instant case are marketable (though not actually marketed) cannot be ruled out as admitted by the party. Therefore, applying the ratio of the judgment in M/s.-Bhor Industries case it is held that the goods are liable to discharge duty at the appropriate time." 11.3 Vehemently assailing the aforesaid findings of the Collector, the learned Sr. Counsel for the appellants contended that there was never any admission as observed by the Collector. It was urged by him that the Collector has arrived at this erroneous conclusion which is not based on any material. We find that there is considerable force in the contention of the learned Senior Counsel, as no such admission as appears to have been made by the appellants and on the contrary it is very clear that the appellants have been contending right from the commencement of the dispute that the goods are not marketable and, therefore, not excisable.
11.4 Having held that there has been no admission, we now proceed to examine the issue on merits. The appellants have produced enough material to show that the solution prepared by them is not excisable, whereas the Department has not rebutted the evidences produced by them.
The Department has failed to discharge the onus cast on it to prove marketability. Not a single instance of sale of the goods has been brought on record nor has it been shown that the subject goods are capable of being marketed. Appart from coming to the erroneous conclusion that if the goods are stored at 15C and transported in durable containers, they would be marketable, the Department has not produced any material. Even this erroneous negative conclusion appears to have been culled out from the stand taken by the appellant that the goods have to be kept below 15C and cannot be transported in conventional tankers. The stand taken by the appellants in this regard was a positive stand against marketability and did not suggest that the goods were otherwise transportable if maintained at a regulated temperature and in durable containers.
11.5 The learned Sr. Departmental Representative supporting the Collector's finding referred to Condensed Chemical Dictionary Tenth Edition by Gessner G. Hawley and drew our attention to the entry Calcium Hydrogen Sulphite and contended that since it mentioned "Shipping Regulations (Rail, Air) Corrosive label", it implied that the goods are transportable and, therefore, marketable. The learned SDR also referred to its multifarious uses such as Antichlor in bleaching textiles, paper pulp (dissolving lignin); preservative; bleaching sponges; hydroxylamine salts; germicide; disinfectant. The learned Sr.
Counsel appearing for the appellants in reply contended that the Dictionary was of no assistance to the Department a$ the authors had themselves cautioned the usage of the Dictionary by qualifying the contents at page IX which reads as follows: "In view of the frequent and numerous changes in labelling specifications, the designations "Rail" and "Air" are used in the Shipping Regulations entry, rather than the initials of the agencies (DOT and IATA), to avoid the impression that such regulations are currently definitive. It should not be assumed that any given label specification in this book is ipso facto the latest ruling of either agency. For this reason this Dictionary is not to be cited as a final authority for any transportation label. All manufacturers and shippers should obtain the official revised tariffs on a regular basis to ensure proper compliance, not only in respect to labelling but to the many other shipping specifications for hazardous materials contained therein." Further the learned Sr. Counsel also pointed out that the mere mention of the method of transportation would not prove marketability. It was further pointed out that the Dictionary was an American Dictionary on which reliance cannot be placed to test marketability under Indian conditions.Union Carbide-India Ltd. v. Union of India and Ors. reported in 1986 (24) E.L.T. 169 (SC) has held that the expression "goods manufactured or produced" must refer to articles which are capable of being sold to a consumer. To become goods an article must be something which can ordinarily come to the market to be bought and sold.In Bhor Industries Ltd. v. Collector of Central Excise reported in 1989 (40) E.L.T. 280 (SC), the Supreme Court has held as follows : "taxable event in the case of duties of excise is the manufacture of goods and the duty is not directly on the goods but on the manufacture thereof. Therefore, the essential ingredient is that there should be manufacture of goods, goods being articles which are known to those who are dealing in the market having their identity as such. Section 3 of the Act enjoins that these shall be levied and collected in such manner as may be prescribed, duties of excise, on all excisable goods other than salt which are produced or 'manufactured' in India. 'Excisable goods' under Section 2(d) of the Act means goods specified in the Schedule to the Central Excise Tariff Act, 1985 as being subject to a duty of excise and includes salt. Therefore, it is necessary, in a case like this, to find out whether there are goods, that is to say, articles known in the market as separate distinct identifiable commodities and whether the tariff duty levied would be as specified in the Schedule. Simply because a certain article falls within the Schedule it would not be dutiable under excise law if the said article is not 'goods' known to the market. Marketability, therefore, is an essential ingredient in order to be dutiable under the Schedule to Central Excise Tariff Act, 1985." Thereafter in paragraph 11, the Court held that it was the duty of the Revenue to adduce evidence or proof that the articles in question were goods.
12.3 The Supreme Court in CCE v. Ambalal Sarabhai Enterprises reported in 1989 (43) E.L.T. 214 (SC) has held that if the Department was to charge excise duty on articles and such levy is disputed by the assessee on the ground that the goods were not marketable, the burden is on the Department to prove that the goods are either marketed or marketable and if no evidence is adduced by the Department in spite of opportunities and the assessee has adduced positive evidence in this regard, the order favourable to the assessee cannot be considered to be incorrect. In paragraphs 6 and 7, the court, while dealing with the facts of the said case, held that since Starch Hydrolysate is highly unstable and quickly fragmented and loses its character in a couple of days, it is highly improbable that it was capable of being marketed and in the absence of any evidence to the contrary, they are not goods, hence not liable to duty. Storage of Starch Hydrolysate and its transfer by pipe line is immaterial. Again in paragraphs 4,5 and 6, the Court held that goods with unstable character can be theoretically marketable if there was a market of such transient type of articles, but one has to take a practical view on the basis of available evidence. In this case the appellants have shown that the item Calcium-bi-Sulphite Solution cannot be transported in conventional tankers and the solution needs to be kept at a regulated temperature and this cannot be held against the assessees, in the absence of proof of marketability or evidence that the item is capable of being marketed.
12.4 The appellants also placed reliance on the judgment of Calcutta High Court in the case of Andaman Timber Industries Ltd. v. CCE reported in 1989 (43) E.L.T. 41 wherein the Court held that the UF/PF solution prepared by the petitioner in the said case in the manufacture of plywood which has no shelf life was not marketable and, therefore, could not be termed as goods.
12.5 The Supreme Court had occasion to consider the entire case law on the subject in the recent judgment of Moti Laminates P. Ltd. v. CCE, Ahmedabad, 1995 (7) RLT 1 and has held that, although the duty of excise is on manufacture or production of goods but entire concept of bringing out new commodity, etc. is linked to its marketability. After setting out the entire case law on the subject, the Court held at paragraph 11 that "even assuming that such solution lasts for 15 days as found by the Tribunal that would not help the Department unless it is further found that it was a produce which was marketable or capable of being marketed". No such finding has been arrived at in this case which would preclude the Dept. from levying duty on the goods.Krishna International v. Collector of Central Excise, Meerut reported in 1994 (71) E.L.T. 694 has held that the burden of proving that the product is marketable and that they are goods, is on the Department and held that in this case there is no evidence to show that these eight parts have been marketed by the appellants. Even if they emerge in the intermediate stage the Department has to show that the product emerging at that stage is independent goods which are marketable and duty is imposable thereon.
This burden has not been discharged by the Department. It is for the Department to have shown that in Trade and commercial parlance "they are goods with the name, character and use of audio cassette housing".
After having held as above, the Tribunal came to the conclusion that duty was not leviable as the Department had failed to discharge the onus cast on them.
12.7 In the case of TISCO v, CCE, Jamshedpur reported in 1995 (7) RLT 121 (to which one of us was a party) the Tribunal has held that marketability is an essential ingredient to determine dutiability.
There was a difference of opinion between the Members constituting the Original Bench as to whether marketability of molten iron is essential in determining its dutiability under the CESA1944 red with CETA 1985.
The matter was referred to the Third Member, Shri P.K. Kapoor, Lerned Member (Technical) who relied upon on several judgments of the Tribunal and of the Supreme Court to hold that merely because a certain article falls within the Schedule to the CETA 1985, it would still not be dutiable under the Excise Law if it is not "goods" known to the market.
He negatived the contention of the learned SDR that the principle of marketability as an essential ingredient would not apply in respect of articles which are specifically covered by any entry in the Tariff Schedule and the majority view which considered that the marketability of item is essential for determining its dutiability under the CESA and CETA. This decision would apply on all fours to the facts of this case as the solution does not specifically find a place in the Tariff and is sought to be classified under the residuary entry 2806.90 which reads as "others".
12.8 The case law cited by the learned SDR is distinguishable on facts.
In the case of Dunlop India reported in 1989 (41) E.L.T. 504, the Tribunal found on the basis of evidence on record that the item in dispute viz. resorcinol formal de-hyde aqueous solution prepared by the appellants therein was nothing but resorcinol resin which served the same purpose as that of pre-condensed resorcinol resin available in the market (emphasis supplied). The Tribunal upheld the finding of the adjudicating authority that the disputed item was the resin falling under T.I. 15A, following its earlier decision of the Tribunal in the case of C.C.E., Ahmedabad v. Jai Enterprises reported in 1987 (29) E.L.T. 288 (which judgment has since been over-ruled by the Hon'ble Supreme Court in the case of Moti Laminates P.Ltd. and Ors. v. C.C.E., Ahmedabad reported in 1995 (7) RLT 1 SC wherein the Court held that since the test of marketability applies even to those goods which are mentioned in Tariff Item, the intermediate resin being not marketable or capable of being marketed, would not be exigible to duty. In the present appeal there is no material on record to show that Calcium-bi-Sulphite solution is marketable or capable of being marketed. Hence, the Dunlop India judgment will not advance the case of the Department.CCE, Cochin v. Travancore Electro Chemical Industries Ltd. reported in 1994 (74) E.L.T. 936 (which was decided only upon hearing the DR and in the absence of reporesentation by the respondents), the Tribunal was called upon to determine the excisability and classification of Acetylene gas produced by the appellants and consumed captively in their plant for manufacture of Acetylene Black. The Tribunal found that the technical literature showed that such Acetylene is capable of being transported and marketed and is actually so transported and marketed for industrial application and other uses and that such material was sufficient to show that Acetylene gas produced by the respondents satisfied the test of marketability. In the appeal before us, however, the Department has not put forth any material to establish the marketability of the disputed item.
13. Having regard to the aforesaid legal position laid down by the Apex Court and High Courts and on a consideration of the facts and circumstances of the case, we find that each of the contentions raised by the appellants supported by evidence to substantiate their plea that the goods are not marketable have been dealt with in the aforesaid judgments and answered in favour of the assessee. It may also be relevant to point out that this is not a case where the goods fall under any specific entry of the Schedule to the Central Excise Tariff.
The Department has sought to classify the goods under Tariff Entry 2806.90 which is residuary and reads as "others". The appellants having produced material and evidene to show that the Calcium-bi-Sulphite Solution prepared by them is not "goods" and the Department not having produced an iota of evidence to the contrary, the Department has failed to discharge the onus cast upon it. We are, therefore, of the considered opinion that the Calcium-bi-Sulphite Solution prepared and captively consumed by the appellants in the manufacture of Wood Pulp cannot be termed as "goods" attracting excise duty.
14. Having held that the claim is barred by limitation and that Calcium-bi-Sulphite solution prepared by the appellants is not "goods" exigible to duty, we do not consider it necessary to deal with the other contentions raised by the appellants referred to in para 7 above.
(b) the Calcium-bi-Sulphite Solution prepared and captively consumed by the appellants in the manufacture of Wood Pulp is not "goods" exigible to duty.