1. This appeal is directed against the order -in-original dated 22-6-1988 passed by the Collector of Central Excise, Baroda. By this order, the Learned Collector has directed the appellants to pay the duty of excise at the appropriate leviable rate on 22 Kltrs of Solvent CLX received by them during the relevant period (August, 1981) under Rule 196 read with Sub-section (1) of Section 11A of the Central Excises & Salt Act, 1944. Further, the Learned Collector has ordered that the goods weighing 400 Ltrs. of GR. 17/98 and 15443 Ltrs of Solvent CLX (total 15843 Ltrs) valued at Rs. 54,336.00 seized in the case on 1-9-1981 are liable for confiscation under Rule 196 of the Central Excise Rules, 1944, as the goods have been provisionally released on their execution of B. 11 Bond with the cash security of Rs. 5,000/-and the same had not been produced in terms of B. 11 Bond executed by the assessee. Therefore, the Collector ordered them to pay a fine of Rs. 15,000/-towards the value of the seized goods released in terms of B. 11 Bond executed by them. The amount of Rs. 5,000/- deposited in cash as aforementioned has been appropriated against the fine of Rs. 15,000/-. The remaining amounts of Rs. 10,000/- has been demanded from them. The Learned Collector has also held that the goods contained in 24 barrels weighing 4260 Ltrs valued at Rs. 25,000/- seized on 24-11-1981 are also liable for confiscation under Rule 196 of Central Excise Rules, 1944 as the goods had been provisionally released on their execution of B. 11 Bond with Bank guarantee of Rs. 6,000/- and as the goods so released had not been produced by the assessee in terms of B. 11 Bond executed by them. Therefore, an amount of Rs. 6,000/- deposited in the form of Bank guarantee has been appropriated towards the value of the seized goods in terms of B. 11 Bond executed by them.
The appellants had earlier filed an appeal in terms of the earlier order-in-original. The Tribunal after careful examination of the grounds made out by the appellants had remanded the case for de novo consideration as per order-in-original No. 392/86-C, dated 15-7-1986.
On remand the Learned Collector has considered the pleas made by the appellants and after giving due opportunity of hearing has passed the impugned order.
2. The facts of the case are that the appellants were issued with a show cause Notice dated 18-2-1982 wherein it was alleged that the appellants were engaged in manufacture of chemicals and chemical formulations, out of the raw materials, namely, Solvent CIX procured by them from Indian Petro Chemicals, Baroda, at nil rate of duty under the provisions of Chapter X of the Central Excise Rules, 1944. It is stated that they were holding Central Excise Licence in form of L. 6 for the said purpose. The Solvent CIX was procured by them at nil rate of duty under Notification No. 276/67, dated 21-12-1967 with the declaration that the same would be used in the manufacture of chemicals and chemical formulation. The department on information raided the appellant's factory and found that they were not manufacturing chemicals and chemical formulations, out of Solvent CIX procured by them at nil rate of duty from Indian Petro Chemicals, Baroda.
Therefore, they were found to have wrongly availed the benefit of Notification No. 276/67, dated 21-12-1967 as amended. The stocks were verified and the impugned goods found therein were all seized. The samples were drawn from each of the products for chemical test analysis. After the receipt of the report from the Chemical Examiner, Baroda the goods valued at Rs. 59,336.00 were placed under seizure on 1-9-1981. The preventive officers also carried out follow-up action by which they detained 63 barrels/drums of such goods from the possession of M/s. Senior Road Lines of Bombay and belonging to the assessee. On receipt of chemical test report from Deputy Chief Chemist, Bombay and the samples drawn from the detained goods from 24 drums (out of 63 drums) valued at Rs. 25,000/, the same were placed under seizure on 24-11-1981 (39 drums/barrels were released), and the seized goods were subsequently released on provisional basis to the assessee on execution of B. 11 Bond. The officers further scrutinised the documents/records of the assessee's company and also recorded the statement of one Shri S.T. Reshamwala, Works Manager in the assessee factory and also the statement of Shri L.H. Porwal, Director of the factory. It was also found that they had mis-utilised the benefit of the said Notification by receiving 12,000 Ltrs. of the raw materials in excess. Therefore, they were issued with a show cause notice alleging violation of certain Central Excise Rules 1944 and calling upon them to show cause as to why penalty and confiscation of seized goods valued at Rs. 59,336.00/- and Rs. 25,000/- against recovery of duty on 337.500 Kltrs of Solvent CIX should not be recovered and as to why withdrawal of concession granted to them under Rule 196 of the Central Excise Rules, 1944 should not be done.
3. The assessee filed their reply contending that they had obtained L.
6 Licence and after permission had procured the impugned goods as per the Notification and accordingly they used Solvent CIX in the manufacture of special purpose Solvent and thinners by distillation/chemical treatment and/or blending, and that they had been submitting the particulars of such use to the concerned officers along with regular returns. They had also stated that the goods produced by them is special purpose Solvent and thinners falling under item No. 68 and that they were exempted as per Notification No. 105/80, dated 19-6-1980 from the payment of Central Excise duty as well as from licensing control. They had also referred to the several installed machinery for the manufacture of product G.R. 17/98 which is of a particular fraction having a specific boiling point, aromatic content, aniline point, residue on evaporation, specific gravity and a colourless highly refined solvent strictly meeting the number of stringent specifications given by customers; that the product is fairly comparable to shell-sol 'A' of Shell Chemical Co., and Aromosol 'N' of I.C.I. U.K. They have challenged the test report on the ground that no comments were given on chemical properties and end-use also that the results communicated were incomplete. They had also submitted that the laboratory at Baroda is not equipped with adequate apparatus for testing. They had stated that the end-use of their products and solvent CIX are entirely different; that their products are much costlier than solvent CIX and if the products were the same, the consumers should not have purchased their costlier products as against solvent CIX cheaper than their products. They had submitted that it is essential for the raw-material to have chemical reaction in the process of manufacture for the purpose of determination as to whether new product has emerged or not having distinct name, characteristics and use and that they deny the allegation that no chemical reaction or otherwise took place in the production of their special purpose solvents and thinners from solvent CIX, the uses of which according to them are entirely different. They also submitted that the demands were hit by limitation as the notice had not been issued within a period of 6 months from the relevant date.
They submitted that the facts were known to the department and hence there was no fraud, collusion or wilful misstatement or suppression of facts or violation of any of the provisions of the Central Excise Rules. They had also pleaded that the functional distillation is acknowledged as a process of manufacture so far as petroleum products are concerned and chemical formulation does not mean any addition of a chemical or a material. They had cited the examples of distilled water, printing ink, ultramarine blue and how it is produced and classified by the department in order to show that the solvent and the thinners were being classified as miscellaneous items and even in the commercial market, solvent and thinners were known as chemicals. As regards 12000 Ltrs. of solvent CIX received from the 1PCL, they submitted that the same had been entered twice, once on 31-3-1981 and again on 1-4-1981 and as such submissions of two sets of D-3 received for the same consignments does not arise and this was clarified by their Director in his statement. They had stated that the department did not produce any evidence on receipt of two consignments by them. The appellants had also filed affidavits of four persons in support of their contention that their product is rommercially different from Solvent CIX.4. The Learned Collector after careful consideration of the entire material and the submissions placed before her has held that the assessee had not carried out any chemical process on the solvent CIX and that they had not used the same in the manufacture of chemicals and chemical formulations. The Learned Collector has relied on the admissions made by the assessee that no other ingredient is added with the Solvent CEX. The Learned Collector has held after examining the process that the same is nothing but a process of purifica-ion of solvent CIX. In this regard the statement given by the Works Manager Shrii S.J. Reshamwala is also relied. The Learned Collector has held that [Garmasol] 17/98" (produced from Solvent CIX) cannot be termed as chemi-:als and chemical formulations. The Learned Collector has drawn support rom the affidavits of four persons filed by the assessee. The Learned Collector las observed from the statements made in the affidavits that it is clearly established that the product Garmasol 17/98 manufactured by them is nothing but special purpose solvent used in the manufacture of special stoving paints/varnishes. The Learned Collector has held that in the affidavits none of the persons had said that product in question i.e. "Garmasol 17/98" is a chemical or chemical formulation. The Learned Collector had also referred and drawn strength from the statements of the customers who had stated that they had purchased solvent CIX and not chemical or chemical formulation and the same had been used by them in the manufacture of chemicals, paints and varnishes etc. The Learned Collector has also referred to chemical test report which stated that the goods produced by the assessee satisfied the specification of mineral oil under the old Tariff Item 8 of the First Schedule to the Central Excises and Salt Act, 1944 (now Chapter/sub-heading 2707.90 of the Central Excise Tariff Act, 1985).
The chemical test report did not state the product as a chemical, but in fact, it is the product. GR. 17/98 is classifiable under Tariff Item 8 as "Refined diesel oil". Therefore, the Learned Collector has held that it is proved beyond any doubt that the assessee had not used the product solvent CIX procured under Chapter X procedure in the manufacture of chemical or chemical formulation as declared by them and as such they were not entitled for exemption from payment of duty under Notification No. 276/67, dated 21-12-1967 and hence held that the seized goods were liable for confiscation and also duty was recoverable. The Learned Collector had rejected the plea of time bar on the ground that they had in the application requested for grant of licence and obtained the same without payment of duty on the ground that they were to manufacture chemicals and chemical formulations.
However, on investigation the said statement had been proved otherwise and therefore, the larger period was invokable.
5. We have heard Shri L.C. Porwal, Director for the appellants and Shri J.P. Singh, the Learned DR for the Revenue.
6. The representative appearing for the appellants submitted that the activity of manufacture is within the knowledge of the department and hence, larger period is not invokable. He also submitted that proviso to Rule 196 cannot be invoked for confiscation of the goods and for imposing penalty/fine. He submitted that there is no violation of any rules under Chapter X as they had utilised the goods obtained from IPCL for manufacturing of chemical or chemical formulations. He submitted that the process of distillation and/or blending, carried out by them in terms of declaration of AL-6 Application amounted to manufacture of special purpose solvent and that the same was classifiable as chemicals. He submitted that the department had admitted about the manufacture of special purpose solvent but they had not accepted the same to be classified as chemicals on the ground that as per definition the chemical must have a single molecular formula, molecular weight, and fixed boiling point or melting point. He submitted that the definition is not exhaustive enough to cover all chemicals. He submitted that there are many other chemicals also covered by Chapter 29 and Chapter 38 of the Central Excise Tariff. He submitted that the Chapter 29 and Chapter 38 which cover products are organic solvents and thinners.
7. The Learned DR submitted that there was no manufacturing process carried out by them to produce any new product as per L. 6 licence.
They had only carried out distillation and purification process which cannot be considered as a process resulting in a new product having distinct characteristic, use and name. The Learned Collector had considered all their pleas and had examined the entire evidence before passing the impugned order. There was no infirmity in the order and the same was required to be accepted. He also referred to the evidence on record and the affidavits filed by the assessee wherein it was clear that the goods were sold as solvent only. The product was a mixture of hydration power and it cannot to be called as product having a specific formula. There was improper declaration in L. 6 licence and therefore, the demand for larger period is invokable. He relied on the ruling rendered by the Tribunal in the case of Madras Petro-Chem Ltd. v.Collector of Central Excise as reported in 1991 (51) E.L.T. 395, wherein it has been held that paraffin does not have definite chemical formula and hence it cannot be classified as chemical compound. He also relied on the ruling rendered in the case of Paharpur Cooling Towers (P) Ltd. v. Collector of Central Excise as reported in 1988 (36) E.L.T.364, wherein it has been held that chemical treatment of chir scantlings and plywood scoutings does not result into a new product. He referred to the judgment rendered by Allahabad High Court in the case of H.T. Chemicals Laboratories v. The State of U.P. and Ors. as reported in 1972 (29) STC 148, wherein it has been held that distilled water is obtained by a process of distillation. There is no process of manufacture to bring into a new product.
8. We have considered the submissions made by both the sides and have perused the records. We are of the opinion that the process carried out by the appellants does not amount to manufacture and the product is not sold as a chemical or chemical formulation but only as a solvent. There is a clear mis-declaration on account of which larger period is invokable and that they are not entitled to the benefit of the Notification in question. Our finding is supported by detailed considered order passed by the Collector on the basis of admissions made by the party and on the basis of statements of the customer's affidavits relied by the party itself and also the chemical examiner's report. In view of these enormous evidence the order cannot be faulted.
There is no illegality or infirmity in the order. The Learned DR has rightly relied on several ratios. The judgment states that the same process of fraction distillation does not result into manufacture of new product.
9. In the case of Madras Petro-Chem Ltd. it has been held that a mixture of hydro-carbons with varying chemical structure cannot be considered as a separate chemically defined organic compound or as a single chemical substance with known chemical structure and therefore, the classification sought under Chapter 29 was rejected and the product was held to be classifiable under Sub-heading 2710.99 of Central Excise Tariff Act, 1985. In this case also admittedly there has been no manufacture resulting in a product with a known chemical formula. The assessee has clearly mis-declared the particulars to obtain licence in the form of L. 6. Therefore, the finding given by the Collector is not challengeable. There is no reason to differ from the same. The appellant's representative has taken an objection that confiscation and forfeiture of the security deposited under Rule 192 cannot be ordered under Rule 196. There is no substance in this plea as Rule 196 of Central Excise Rules, 1944 clearly lays down for levying duty in respect of excisable goods obtained under Rule 192 and not duly accounted for. It also lays down that the Collector may order forfeiture of security deposited under Rule 192 and may also confiscate the excisable goods, and all the goods manufactured form such goods in store of the factory. Therefore, there is no infirmity in the order.
There is no merit in the appeal and the same is rejected.