Full Judgment
2. The appellants were issued with a show cause notice dated 27-8-1992, which invoked the proviso to Section 11A(1) of the Central Excises and Salt Act, 1944 by raising a demand of Rs. 2,89,02,653 on the following intermediate products, which are said to have been produced by the assessee, while manufacturing insecticides/pesticides viz. Phosalene, Ethion and Phorate. The department has alleged that the following intermediate products are produced by them namely :- 3. The department's contention is that the insecticides/pesticides fall under Chapter sub-heading No. 3808.10 of Central Excise Tariff Act, 1985 and attract nil rate of duty. However, the intermediate products are classifiable under Chapter sub-heading No. 2942.00 and are chargeable to duty at 15% ad valorem (BED) upto February 1988 and at 15% ad valorem (BED) and SED 5% of BED from 1-3-1988 onwards. It has been stated that DFDTP was wholly exempted from 1-3-1988 under Notification No. 43/88, dated 1-3-1988 and goods falling within Chapter 29 when used in the manufacture of pesticides/insecticides (CMCB and Sodium Salt of DFDTP in this case) and were wholly exempted under Notification No. 33/91, dated 25-7-1991. However, it is stated in the show cause notice that the duty liability on the products for the period for 8/87 to 7/91 on the basis of data furnished by the assessees works out to Rs. 2,89,02,653 (BED Rs. 2,76,33,000.00 and SED Rs. 12,69,653.00).
4. The department has also alleged that the appellants by their letter dated 14-8-1992 admitted about the manufacture of the intermediate products which were consumed captively without payment of Central Excise duty; that the intermediate comes into existence in continuous manufacturing process in a crude form; that they were never stored in the plant except during break down; that there are no known buyers for these products and that as there was no necessity for them to obtain Central Excise licence they did not obtain the same. The department also alleged that since the fact of manufacture of these intermediate products was not notified to the department and the duty liability in respect of these intermediate products were not discharged before they were captively consumed and, therefore, they are said to have contravened various provisions of Central Excise Act and hence, the show cause notice dated 27-8-1992 was issued on the assessee invoking the proviso to Section 11A(1) asking them to show cause as to why the said duty should not be demanded and why penalty should not be imposed under Rule 173Q of Central Excise Rules, 1944.
5. The assessees in their letter dated 17-11-1992 are said to have admitted about the said intermediate products coming into existence during the course of manufacture. However, they had stated that they are not of standard grade and not chemically pure; that they have short shelf life and are not stored or preserved except during break down when they are allowed to remain in the reactors. It has also been pleaded that the said intermediate products are not known in the market and there are no buyers and, therefore, they cannot be treated as goods in the strict sense and hence they are not exigible. They have stated that there was no suppression of any facts especially of emergence of the intermediate products, as they had applied for L 6 licence wherein they had furnished the complete manufacturing process and flow chart; that the departmental officers had visited their factory from time to time in connection with checking of the procedures under Chapter X and that the departmental officials had never informed them about the exigibility of the product. They had also submitted that they did not have any motivation factor to evade duty and also they were under the bona fide belief that the intermediates were riot excisable, hence it was their plea that the extended period under Section 11A cannot be invoked.
6. Before the Learned Collector during the personal hearing, the appellants had relied on several judgments in their support and also a letter from Indian Institute of Chemical Technology and a certificate from Pesticides Association of India. The Learned Collector, however, did not agree with the contention. He has held that so long as the intermediate products in question become identifiable organic compound then they are required to be classified under Chapter Heading 29.42 and the duty liability is required to be discharged. He has held that the tariff heading does not specify that the product should be chemically pure or otherwise. He has further held that the evidence produced by the appellants did not eliminate the capability of being marketable despite its transient shelf life. He has rejected the evidence produced by the appellants and has held that the "evidence led at best establish that the intermediate products have a limited shelf [life]. No more no less". He has also rejected the plea of demands being time barred and, therefore, he has proceeded to confirm the duty invoking larger period and has also imposed the penalty in this case.
7. We have heard the Learned Advocate, Shri V. Sridharan for the appellants and the Learned JDR, Shri J.P. Singh for the Revenue 8. The Learned Advocate pointed out that the Learned Collector had completely ignored the approach suggested by the Hon'ble Supreme Court of India to be adopted to examine the question of marketability of an individual product. He strongly relied on the letter dated 29th January, 1993 given by the Indian Institute of Chemical Technology to the following effect:"T. Krishna Reddy Indian Institute of Chemical [Technology]"T. Krishna Reddy Indian Institute of Chemical EAD TechnologyPlanning Coordination & Liaison (Formerly Regional Research Laboratory)M/s. Voltas Limited 29 January, 1993IDA Phase IIKindly refer to your letter of January 22,1993. Please find below our technicalcomments for your query : stable. To our knowledge this particular Chemical is not listed in any standard chemical catalogs.
In general Phosphate and thiophosphate esters, to which Diethyl dithiophosphoric acid and its sodium salt belong to one of limited thermal stability and undergo highly exothermic self accelerating decomposition reaction on storage.
The letter issued by the Pesticides Association of India is also relied by the counsel which is reproduced hereinbelow:- Pesticides Association of India is the main representative association of pesticides industry in India. It represents most of the technical grade pesticides manufacturers including those manufacturing organo phosphoric pesticides. To the best of our knowledge the following products have not been traded and have not been sold in the market by the organo phosphatic technical grade pesticide manufacturers :- In fact as per the information we have from organo phosphatic technical grade pesticides manufacturers most of the above materials have limited shelf life and are neither traded nor sold.The letter issued by P.R.K. Agencies dated 1-4-1992 which is reproduced hereinbelow:- We are dealers in various pesticides for many leading Companies. We have been selling formulators from these companies and in our years of business we have not come across the product CHLORO-CHLORO-BEN-ZEXAZOLONE as a formulant product for direct consumption by the farmers.
9. Referring to these materials, the Learned Advocate submitted that the intermediate product was not known in the market and it did not [have] a shelf life. He also submitted that other demands raised by the other collectorates had been dropped. In this context, he relied on the judgment rendered in the case of Moti Laminators Pvt. Ltd. v. Collector of Central Excise as reported in 1995 (76) E.L.T. 241. He submitted that the appellants were under the genuine and the bona fide belief that the larger period was not invokable. He also relied on the ruling rendered in the case of TISCO v. Collector of Central Excise, as reported in 1995 (76) E.L.T. 602.
10. The Learned DR submitted that so long as the intermediate products are identifiable and they were organic compound and had the capability of marketability then they are other goods and are required to discharge the duty. In this context, he relied on the ruling rendered in the case of Collector of Central Excise v. Travancore Electro Chemical Industries Ltd. as reported in 1994 (74) E.L.T. 936. He also pointed out to the technical literature at pages 146 to 147 of the paper book which suggests the shelf life of the intermediate products.
Referring to the opinion given by the Indian Institute of Chemical Technology, the Learned DR submitted that the opinion merely stated that the goods were sensitive to moisture. Therefore, he submitted that this opinion does not say that it is not marketable. He submitted that there are several such products, which have such features, yet [they are] sold in a particular packing and also have special storage system to prevent exposure to moisture like in the case of Silver iodide or films. He also assailed the opinion given by the Pesticides Association of India. The Learned DR relied on the judgments in the cases :Dunlop India Ltd. and Anr. v. Collector of Central Excise - 1989 (41) E.L.T. 504 ii. Warden & Co. (India) Pvt. Ltd. v Collector of Central Excise - 1995 (70) E.L.T. 3Shalimar Paints Ltd. v. Collector of Central Excise - 1994 (70) E.L.T. 567 11. As regards the time bar, the Learned DR submitted that the appellants had not furnished the classification list and also had not given the details. Therefore, the larger period was invokable. In this context, the Learned DR relied on the judgments rendered in the following cases : i. Shantilal v. Collector of Central Excise -1990 (46) E.L.T. 355 (Tribunal)Jaypee Rewa Cement v. Collector of Central Excise - 1994 (50) ECR 210 12. Countering the arguments, the Learned Advocate submitted that mere fact that these items are mentioned in chemistry book is not sufficient to hold that the products are known in the market. He submitted that the burden of marketability was on the Revenue and the Revenue had miserably failed to prove and discharge its burden on marketability. He also submitted that mere mention of the name of the goods in the tariff schedule is not sufficient to discharge the burden of marketability.
Therefore, he submitted that the question of shelf life is required to be gone into by the department and the impugned order was required to be set aside.
13. We have carefully considered the submissions made by both the sides and have perused the records. We notice that the appellants have produced enormous evidence besides the opinion of two experts as well as letters from the dealers. We notice that the Learned Collector has not applied his mind on the evidence produced by the appellants. The department has not placed any evidence on the basis of which it could be said that the goods are marketable. The mere mention in the tariff schedule is not a ground for confirming the duty as has been held by the Hon'ble Supreme Court in the case of Bhor Industries v. Collector of Central Excise, as reported in 1989 (40) E.L.T. 280. Therefore, the department was required to have shown that these goods are having shelf life and they were marketable or [had] capacity of marketability. The Learned DR has taken one good point about these goods being mentioned in the chemistry books and about its capability of marketability.
However, this point was required to have been gone into in great detail and discussed by the Learned Collector. We notice that the Learned Collector has cursorily dealt with this point and has not examined the evidence placed by the appellants in this case. The plea of time bar has also not [been] gone into in great detail as was required. We find that the impugned orders suffers from infirmity and non-application of mind and hence is required to be set aside. Therefore, we set aside the impugned order and remand the matter to original authority for de novo adjudication. The pleas raised by the appellants including the plea that the other collectorates have dropped the proceedings in respect of the said products. The same is required to be examined. The Collector will consider the evidence produced by the appellants and pass a detailed order as per law. In case the department wishes to produce any evidence, the same should be put to the appellants and the appellants should be given an opportunity to counter the same, well before the date of personal hearing. The appeal is disposed of in the above terms.