Judgment:
1. The captioned appeal is directed against the order dated 20th April, 1995 passed by the Collector, Central Excise, Chandigarh. The learned Collector, in his order, had held : "23. Having regard to the facts and circumstances of the case, 1 confirm the demand of Central Excise duty amounting to Rs. 66,00,106/- as BED and Rs. 6,47,459/- as SED against the notice under Section 11A of CESA, 1944 by invoking the extended period under proviso to the aforesaid Section 24.1 also impose a personal penalty of Rs. 15,00,000/- on the notice under Rule 173Q of the Central Excise Rules, 1944.
25. This order is issued without, prejudice to any other action for which the notice may be liable under the Central Excises and Salt Act, 1944 or any other law for the time being in force." 2. The facts of the case, in brief, are that the appellants are engaged in the manufacture of Decorative Laminated Sheets. Intelligence was collected by the Central Excise authorities that the appellants were evading payment of Central Excise duty on the goods manufactured by them. On 25-8-1994, Shri N. Ganguli, Technical Director of the appellants' firm, in his statement, stated that the appellants are manufacturing paper based decorative laminated sheets; that the material used in the manufacture of paper based decorative laminated sheets were kraft paper, base paper, barrier paper, tissue paper, BOPP Film, Malamine, Formaldehide, Phenol etc.; that the stages involved in the manufacture are as under : Shri Ganguli also stated that the appellants' company had started production of excisable goods during the years 1991-92 but had taken Central Excise Registration during August, 1992 when they were likely to exceed the exemption limit from the licensing control; that their unit was a small scale unit; that first classification list was filed on 28-8-1992; that this Classification List was followed by other Classification Lists effective from 28-2-1993, 1-3-1994, 1-4-1993 and 1-4-1994; that all the Classification Lists except the one effective from 1-4-1994 have been approved by the department. Scrutiny of the Classification Lists revealed that the appellants had declared the description of the goods as paper based (bonded) decorative laminated sheets and claimed classification thereof under Tariff sub-heading 4823.90 and also claimed that the effective rate of duty on these goods was the rate prescribed under Notification No. 135/89-C.E., dated 12-5-1989. The department alleged that the appellant claimed classification of goods under Chapter sub-heading 4823.90 that the description required that paper based (bonded) decorative laminated sheets are goods consisting of sheets of paper coated with plastics compressed together in one or more operations; that this information was not furnished by the appellants and therefore, the appellants were not eligible to the benefit of Notification Nos. 135/89-C.E. and 20/94-C.E. Accordingly a show cause notice was issued on 23-9-1994 to the appellants asking them to explain as to why duty amounting to Rs. 72,47,565/- for the period 1-4-1992 to 5-8-1994 should not be demanded from them and why penalty should not be imposed on them as the benefit of Notification Nos. 135/89-C.E., and 20/94-C.E. was not applicable to the goods manufactured by them. It was also alleged in the show cause notice that the appellants had suppressed the vital facts deliberately with the intention to evade payment of duty and therefore, longer period beyond six months was invoked in terms of the proviso to Section 11A of CESA, 1944. It was also alleged that the appellants had suppressed the facts of manufacture of plastic materials namely, phenol formaldehide resol and malamine formaldehide resol classifiable under Chapter Heading 39.09; that this was deliberately done by the appellants as it was not disclosed anywhere in the Classification Lists filed by them. In reply to the show cause notice, the appellants submitted that phenol formaldehide resol and malamine formaldehide resol cannot be termed as plastic inasmuch as they are unstable formulations and have shelf life of six hours only and are not capable of being marketed and are not goods. In support of their contention, they cited the Hon'ble Supreme Court's decisions in the case of DCM and South Bihar Sugar Mills Ltd. The appellants also submitted that the Tribunal in the case of Bakelite Hylam Ltd. reported in 1990 (46) E.L.T. 552 had held that the two formulations are not liable to excise duty as they are not capable of being marketed. The appellants also contended that the Apex Court in the case of M/s. Bhor Industries Ltd. reported in 1989 (40) E.L.T. 280 had held that an article is not liable to excise duty merely because of its specification in the tariff schedule unless it is a goods known in the market. It was contended by the appellants that two formulations are not goods, therefore, the question of their classification under Chapter 39 does not arise. They referred to Chapter Note 1 of Chapter 39 and contended that since the above two formulations are not capable of being formed by moulding, casting, extruding, rolling or other processes into shapes which are retained on the removal of the external influence and hence they are not plastics. It was also argued by the appellants that the two formulations are acquous solution of phenolic resins and cannot be considered as resins themselves, therefore, they cannot be considered as plastic. It was urged before the adjudicating authority that their final product falls within four corners of the exemption Notification Nos. 135/89-C.E., dated 12-5-1989 and 20/94-C.E., dated 1-3-1994. It was also argued that the appellants have been submitting their Classification Lists regularly and the Classification Lists were being approved by the proper officer unconditionally and therefore, the demand beyond six months is time barred. It was also contended by the appellants that their process was submitted to the department in detail showing raw materials used in the manufacture of their final product.
After careful consideration of all the submissions, the learned Adjudicating Authority confirmed the demand and also imposed a personal penalty of Rs. 15 lacs.
3. Shri S.K. Kohli, the learned Advocate appearing for the appellants submitted that in the process of manufacture employed by the appellants neither does any plastic come into existence nor any laminated sheets coated with plastic; that the appellants are eligible for exemption under the said notification; that insofar as the question of invocation of the extended period of limitation was concerned, the details of the manufacturing process including various contents and ingredients of the final product were within the knowledge of the department; that the monthly RT 12 returns have been approved and assessed by the department after due enquiry and scrutiny; that there was no suppression or concealment or misrepresentation of any kind, therefore, the extended period cannot be invoked.
4. Elaborating his submissions, the ld. Counsel submitted that the invocation of the longer period beyond six months was bad in law on the ground that for invoking the extended period of limitation, it is essential to establish fraud, collusion, concealment, suppression or the contravention of any provisions as well as the intention to do the same on the part of the assessees; that the burden of proof in this respect lies on the department and it is not for the assessees to establish the suppression etc.; that the factual position of the case is that the department had full or complete knowledge of the inputs utilised, the process employed and the final product manufactured by the appellants. It was argued by the learned Counsel that basis of the claim for exemption under the aforesaid notifications was within the knowledge of the department and the department had approved the Classification Lists for the period and also assessed the RT 12 returns. The ld. Counsel argued that had the department any objection to classification of goods and entitlement to the exemption then they should not have approved the Classification Lists and assessed finally the RT-12 returns; that there was no intention to evade payment of duty inasmuch as other manufacturers were enjoying the exemption and that Supreme Court had categorically held 'otherwise'. In support of his contentions, the ld. Counsel cited and relied upon the judgments in the case of Cosmic Dye Chemicals v. C.C.E., Bombay reported in 1995 (75) E.L.T. 721; Tamil Nadu Housing Board v. C.C.E., Madras reported in 1994 (55) E.L.T. 7 (SC); C.C.E. v. Chemphar Drugs and Liniments reported in 1989 (40) E.L.T. 276 (SC); Lubri-Chem Industries Limited v. C.C.E., BombayC.C.E. v.Muzzaffarnagar Steels reported in 1989 (44) E.L.T. 552 (Tribunal); Mattel Toys (India) Ltd. v. C.C.E. reported in 1992 (58) E.L.T. 218 (Tribunal) and Padmini Products v. C.C.E., Bangalore reported in 1989 (43) E.L.T. 195 (SC). On merits, the learned Counsel submitted that kraft paper and base paper, utilised by the appellants for manufacture of decorative laminated sheets is coated with phenol formaldehyde and melamine formaldehyde; that the said solutions are stage A resols; that the same are so unstable that they do not have a shelf life of more than six hours; that they are incapable of being dealt with in the market; that said goods are not goods at all. In support of his contention, the ld. Counsel cited and relied upon the Apex Court judgment in the case of Moti Laminates Pvt. Ltd. v. C.C.E., Ahmedabad reported in 1995 (76) E.L.T. 241 (S.C.). The ld. Counsel cited the findings of the learned Collector that the said solutions are marketable and hence goods which are classifiable as plastic under Chapter 39 of the tariff is in direct contravention of the Apex Court judgment and is thus bad in law. The ld. Counsel submitted that the formulations (phenol formaldehyde and melamine formaldehyde) used by them to coat and impregnate the paper and paper board are not covered under heading 'plastic' as provided under Chapter Note 1 of the Schedule to the Tariff Act. As the formulations are incapable of retaining the shapes once, the external influence is removed; that no test report from any research institute has been cited nor any opinion of expert has been obtained by the Revenue to support their contention that resol at stage one is plastic.
5. On the question of imposition of penalty, the ld. Counsel submitted that essential ingredient is with the intention to commit contravention with a view to evade duty should be established; that for the imposition of penalty, the establishment of mens rea would certainly be an essential ingredient. In support of the contention, the ld. Counsel cited and relied upon the judgment of the Apex Court in the case of H.S.L. v. State of Orissa reported in 1978 (2) E.L.T. (J 159). Summing up his arguments, the ld. Counsel submitted that the department has no case either on merits or on limitation, therefore, there is no question of imposition of penalty. He, therefore, prayed for setting aside the impugned order and allowing the appeal.
6. Shri Sanjeev Sachdeva, the learned SDR submitted that the Tribunal in the case of C.C.E. v. jay Enterprises reported in 1987 (29) E.L.T.288 had held "We observe for phenol formaldehyde resin to be used for the laminated sheets, it is essential that 'A' stage resin should come into existence first and by application of necessary heat and pressure and the use of the required catalysts for further polymerisation the necessary B and C stages are reached in different operations. Thus, the 'A' stage manufacture of the phenolic formaldehyde resin, which is the case in the present proceedings marks a definite stage of manufacture of resin. Now when the product is required to be used in a particular process it has to acquire a certain capability for that use as otherwise the product will be worthless for the manufacturer. This means that the resol or phenol formaldehyde resin mixture as described by the lower authorities, has acquired a certain definite character as pointed out above. A lot of stress has been laid that the products manufactured are not marketable and not goods for the purpose of levy of duty by the learned Advocate for the respondents and he has cited case law in this regard. As pointed out above, the product manufactured has a definite character for a specific use and is technically recognized as resol. No where we find in the technical literature placed before us nor has any evidence been produced by the respondents that the product resol is unstable and not capable of storage even for a short time. What has been pleaded is that the product has a short shelf life. It is a well known fact that in the case of resins there are so many varieties and these have wide-ranging shelf lives ranging from a few days to a couple of months or even more. It has not been made out before us that the product is required to be taken into immediate use or otherwise it would be rendered useless or it will cease to be a resin. In fact, it has been pleaded that the product has a short shelf life and has been conceded by the ld. Advocate for the respondents that it can be kept for as long as 15 days. This would suggest that at that stage itself, it could be sold to a consumer or a buyer if he required the same. The laminates manufactured by respondents is not manufactured in a single stream operation and the resin mixture as stated earlier is manufactured in reaction vessels in batches. In the nature of things the goods have to be stored for some time before these are taken for next stage of manufacture...". The Tribunal further went on "We observe the Hon'ble High Court of Delhi in the case of J.K. Synthetics Ltd. v. C.C., Delhi - 1985 (21) E.L.T. 410 (Del.) have held in the case of polymer chips that moment the manufacture takes place, the excise duty is immediately attracted and that once it is held that polymer chips are manufactured and covered under the entry plastics, there would be no escape from the conclusion that the excise duty will be immediately attracted in spite of the fact whether polymer chips are actually brought to the market to be bought or sold. We have held that the product manufactured by respondents falls under 15A(1) and the fact that these are in the case of respondents not marketed or sold makes no difference for the purpose of levy of duty as held by the Hon'ble Courts. "The learned SDR submitted that similar view was taken by the Tribunal in the case of Flexoplast Abrasives (India) Ltd. v. C.C.E., Pune reported in 1988 (36) E.L.T.119. The ld. SDR submitted that in this case, the Tribunal held that phenol formaldehyde resin is an intermediate product used as adhesive and that manufacturing process reaching ''A' stage of resin and condensation occurring and that since the goods answered to the description of the resin, therefore, they are assessable under TI 15A(1) of the Central Excise Tariff. The Tribunal in that case further held that phenolic formaldehyde resin being an intermediate product falls under TI 15A(1) even if not marketed; that the goods can be deemed marketable for Central Excise levy even though captively consumed. The ld. SDR distinguished the case of M/s. Bakelite Hylam Ltd. that the facts in the two cases are different inasmuch as the assessee in the case of Bakelite Hylam Ltd. was manufacturing three grades of resol and was paying duty on one of the grades whereas in the present case only one grade of formulation is being manufactured. The ld. SDR submitted that having regard to the decision of the Tribunal in the above two cases on merits, the department has fully established the case and therefore, the demand of duty is justified.
7. On the question of limitation, the ld. SDR submitted that in the classification lists, there was no mention that two formulations were coming into existence at the intermediate stage. In that case he submitted that there was suppression and since there was suppression with the intention to evade payment of duty he therefore, submitted that a longer period has justifiably been invoked for confirming the demand.
8. On the question of levy of penalty, the ld. SDR submitted that penalty was imposable inasmuch as there was suppression and evasion of duty.
9. Heard the submissions of both sides. We find that the case has been argued both on merits as well as on limitation.
10. Insofar as merits of the case are concerned, the appellants have relied upon the judgment of the Apex Court in the case of Moti Laminates, supra, we find that the judgment in Moti Laminates' case does not squarely cover the facts of the present case before us. We find that similar situation was dealt with by the Tribunal in the case of C.C.E. v. Jay Enterprises, supra cited by the learned SDR. In these two cases, both the aspects namely, excisability and marketability were considered in detail by the Tribunal. The detailed observation of the Tribunal in the case of C.C.E., Ahmedabad v. Jay Enterprises has already been reproduced in the preceding paragraph. For the sake of clarity of the detailed observation of the Tribunal on the two aspects namely, excisability and marketability are available in Paras 6 and 7.
These two paras are reproduced below: "6. The ld. SDR in reply pleaded that for the purpose of levy of duty it was not necessary that the goods should be marketed and that so long as the goods falling under a particular tariff entry are manufactured and notwithstanding the fact that these are captively consumed, the duty has to be charged thereon. In case of MRF Limited, v. UOI and Ors. - 1985 (22) E.L.T. 5, he pointed out, in the case of manufactured rubberised cord warp sheets, the Hon'ble Bombay High Court has held that though admittedly the rubberised cord warp sheets are not put in the market, nevertheless, this is not the relevant consideration for the purpose for not making them liable to payment of duty. He pointed out, the Hon'ble Court has held that since the excise duty is on manufacture of goods and not on the sale thereof and that the fact of a substance produced by the manufacture at an intermediary stage and not put in the market would not make any difference to the chargeability of the substance to excise duty if it is covered by an item of Central Excise Tariff. He further stated that the Tribunal has held the same view in the case of ILAC Limited, Bombay v. C.C.E. - 1985 (20) E.L.T. 5. He amplified that the goods are manufactured in batch process and that the manufacture of resols is the first stage of the resin and this stage of manufacture is over with the formation of the resols. The resol or resin manufactured is taken into use separately for the manufacture of laminated sheets. He pleaded that the fact that the goods have been described as self-reacting mixture does not mean that resol had not come into existence and once resol had been formed, notwithstanding the fact that these were not marketed, these are chargeable to duty.
7. Shri D.N. Mehta, the ld. Advocate by way of clarification added that the Supreme Court has not given a go by to the marketability criteria. He pleaded that at no stage it was brought to the notice of the respondents that their product was resol." 11. We also find under the new Central Excise Tariff, the product can merit classification under sub-heading 39.09 in view of Note 3(e) of Chapter 39.
12. We also observe that once it is established that paper is coated with certain resols which have the essential characterstics of meriting classification under Chapter 39 and which according to Note 1 of Chapter 39 are to be called plastics. For the sake of clarity, Note 1 of Chapter 39 is reproduced below : "1. Throughout this Schedule, the expression plastics means those materials of Heading Nos. 39.01 to 39.14 which are or have been capable, either at the moment of polymerisation or at some subsequent stage, of being formed under external influence (usually heat and pressure, if necessary with a solvent or plastiser) by moulding, casting, extruding, rolling or other process into shapes which are retained on the removal of the external influence.
Throughout this Schedule, any reference to 'plastics' also includes vulcanised fibre. The expression, however, does not apply to materials regarded as textile materials of Section XI." "3. Heading Nos. 39.01 to 39.11 apply only to goods of a kind produced by chemical synthesis, falling in the following categories :- (a) Liquid synthetic polyolefins of which less than 60 per cent by volume distils at 300C, after conversion to 1,013 milibars when a reduced pressure distillation method is used (Heading Nos. 39.01 to 39.02); (b) Resins, not highly polymerised of the coumarone, indene type(Heading No. 39.11); (c) Other synthetic polymers with an average of at least 5 monomer units; We have also gone through the Apex Court's decision in the case of Muti Laminates. Here in the instant case, we are not concerned with the classification of resols, what we are concerned is whether the product manufactured by the appellants consists of sheets of paper impregnated or coated with plastics and compressed together in one or more operations.
13. We find that in the mixing plant phenol and formaldehyde are mixed, similarly melamine and formaldehyde are mixed and resols are obtained.
We also observe that the resols are taken to coating plant. Various types of papers are coated here with these resols. These coated papers are then passed through hot drying chamber when they get dried, these coated and dried papers are cut into required sizes and then compressed in hydrolic press.
14. Now, reading the process of manufacture with the Chapter Note 1 and Chapter Note 3, we find that the admitted position is that the resols are produced, we also observe that resols are classifiable under Chapter 39, we also find that the paper is coated with resols and then dried and processed further.
15. Having regard to the process of manufacture and the Chapter Notes, we find that the paper is plastic coated and hold accordingly. In this view of the matter, we hold that the demand for Central Excise duty is legal and sustainable in law and on facts; but shall be limited to six months as held in the following paragraph.
16. On the question of limitation, we find that the classification lists were approved for the period upto 31-3-1994. We also find that RT-12 returns were assessed for the period unconditionally. We also find that the process of manufacture of the product was sent to the department. Thus there was no suppression or wilful mis-statement. We therefore, hold that the extended period beyond six months is not justified in the circumstances of the case. Therefore, the demand is confirmed for normal period of limitation and that extended period was not available to the department.
17. Insofar as the question of imposition of penalty is concerned, we find that there was an evasion of duty and since there was evasion of duty, penalty is justified. Having regard to the facts and circumstances of the case, we find that penalty is excessive and therefore, is reduced to Rs. 1 lac (rupees one lac only).
18. But for the above modifications, the impugned order is upheld and the appeal is disposed of accordingly. Operative part of the order was pronounced in the Open Court.