Oswal Oil Refinery Vs. Collector of Central Excise - Court Judgment

Excerpt:
1. this is an appeal filed against the order of additional collector of central excise, chandigarh dated nil.2. learned representative of the appellants stated that they are engaged in the manufacture of refined oils. for the purpose of refining of oils, steam is required. for the production of steam, the appellants had installed a lancashire boiler in their factory. a question has arisen whether steam so produced was liable to duty. it was their contention that their boiler operated without the aid of power in any form; hence, it was exempt.3. the appellants had vacant sheds which had been given to m/s. nahar spinning mills limited, ludhiana who carried out the process of washing of garments etc. for such washing, they needed steam.4. during december, 1985 to june, 1986, the appellants allowed m/s.nahar spinning mills limited to use steam produced out of the appellants' boiler and charged to them a sum of rs. 13,21,925/- being the sum total of cost of coal used in boiler and other relevant charges for the operation of the boiler, for the period during which they utilised the steam from appellants' boiler.5. it was his submission that the appellants in their own classification list had declared steam to be ah item produced for captive consumption but they supplied the some quantity to their tenants as well.6. the appellants while sending the voucher (being debit note oor/35/85-86, dated 30-6-1986) informed the supdt. that the steam produced by them was without aid of power and therefore, qualified for the exemption under notification no. 179/77, dated 18-6-1977 during the period from 1-12-1985 to 28-2-1986. it was further informed that though the steam was indeed dutiable during the period from 1-3-1986 to 13-3-1986, but was again exempted vide notification no. 195/86, dated 13-3-1986. it was also informed that in view of the central duty of excise (retrospective exemption) act, no duty was chargeable even for the period from 1-3-1986 to 13-3-1986.7. apart from making oral submissions, the appellants vide their letter no. ooru/89-c/62/839, dated 5-6-1989 also sent to the additional collector technical literature showing that the steam was produced without the aid of power.8. it was also his submission that another additional collector of customs and excise, chandigarh passed an order no. 35/d/90, dated 30-5-1991 without analysing the evidence produced by the appellants before his predecessor and without giving any other opportunity to the appellants to state their case before him.9. the tribunal set aside the order and remanded the matter to the additional collector for de novo adjudication after giving appellants due opportunity of being heard.10. it was his submission that at no time, the appellants were confronted with the letter bearing c. no. v(ch. 28)/21/253/87/228, dated 9-1-1991 referred to by the additional collector. he has thus negated the assessee's claim and has again confirmed the demand of rs. 67,202.70 under section 11a of the cesa, 1944.11. it was his submission that the impugned order has been passed against the principles of natural justice. according to learned additional collector, the a.c. has reported that id fan fitted with the boiler is operated with power and without this boiler cannot work. this particular additional evidence was never confronted to the appellants.in fact, the assessees do not know as to which boiler was inspected by the assistant collector and when. the assessees had added new 'thermax' boiler in 1988-89 in the operation of which, power is indeed being used. as a matter of fact, the appellants have not been able to decide as to what id fan actually is.12. learned additional collector has erred in law in invoking first proviso to section 11a without first giving a finding of any new fact.in the previous order, there was not even an iota of allusion to the fact that the appellants had resorted to any fraud, collusion or any wilful mis-statement or suppression of facts. however, in the present impugned order, the additional collector levied a serious charge of suppression of facts against the appellants. this new allegation which has been levied and sustained by the additional collector is not based on any fresh facts and is, therefore, not sustainable for invoking extended period of limitation under the proviso to section 11a of the cesa, 1944.13. it was their submission that there is no such item as id fan fitted in the boiler. the boiler from which the steam was supplied to the appellants' tenants m/s. nahar spinning mills ltd. was a simple lancashire boiler. in this boiler, the coal/rice husk is burnt. burning process is facilitated by the inflow of air without any mechanical or electrical fan. the outlet of the chimney of the boiler is usually 30/35 meters higher than the burning chamber of the boiler. when fuel in the burning chamber burns, the hot gases rapidly rise upwards towards the exit of the chimney making room for fresh oxygen carrying air to flow inward the burning chamber through air holes/ducts, thus providing necessary oxygen to the fuel to burn. in this process, power is neither required nor therefore, is used.14. it was his submission that water in the boiler is fed with the help of an injector valve. this injector valve uses steam jet to push water in the boiler. as defined and not controverted by learned additional collector, steam energy does not become power as there is no mechanical push or pull action undertaken by the steam. the incoming force of steam pushes no mechanical part like piston etc. but pushes water itself. the steam injector has no moving part. therefore, even the water feeding in the boiler is done without the aid of power. this ground has been taken as an abundant caution though not necessary.15. learned dr reiterated the view of the department as contained in the impugned order.16. we have considered the above submissions. we observe that the contentions of the learned representative of the appellants have a lot of force.17. it is true that steam produced without the aid of power was exempt under notification no. 179/77, dated 18-6-1977 during the period 1-12-1985 to 28-2-1986. it was, however, dutiable during the period 1-3-1986 to 13-3-1986 but was again exempt under notification no.196/86, dated 13-3-1986. the general duty of central excise retrospective exemption act was in force and it was for the department to show that steam was dutiable during the relevant period.18. since the exemption was a conditional one, the main question is as to whether the steam was being produced without the aid of power during the period in question. in this respect, the appellants have filed a photocopy of the diagram of the boiler said to have been used during the relevant period. a perusal thereof shows that it does not require electric power to run such a machine. learned representative is also correct in pointing out that it was not open to the additional collector to take into account a fresh piece of a document purported to an enquiry report after the hearing had been concluded without giving an opportunity to the appellants to controvert the same. therefore, the impugned order is also in violation of principles of natural justice.the case having already been remanded once by the tribunal on the grounds of violation of principles of natural justice, the departmental authorities should have been doubly careful and ensured that this time, the due process of law was followed.19. a question has arisen as to whether the word 'power' used in the notification refers to electric power or covers steam power also.learned representative of the appellants had thereupon referred to a series of notifications including 28/64, 51/67, 274/76,130/82 and 60/85 to show that wherever the government wanted to refer to steam power or steam for heating or both electric power and steam power, it has been explicitly so mentioned in the notifications and that the words repeatedly used are power, or steam, where one or both of them were required to be considered in this respect. we have perused these notifications and find that these submissions are correct. even otherwise, the question of steam power would arise only where steam, after generation, is used for doing some work and not in case of generation of steam by itself. in the present case, what was required to be shown was that electric power was used in production of steam and the department has not been able to substantiate its case in this regard.20. in the above circumstances, the impugned order cannot be upheld.even otherwise, there is nothing else in the records before us to substantiate the department's charge. in the above situation, the fact that the appellants did not inform the department regarding the supply of steam to another unit for sale loses significance but could have, at most, resulted in imposition of penalty but the duty in the above facts and circumstances could not be demanded. however, it is interesting to note that no penalty has been imposed.21. the department's case regarding levy of duty remains unsubstantiated. hence, the impugned order is set aside and the appeal is accepted.

Judgment:
1. This is an appeal filed against the order of Additional Collector of Central Excise, Chandigarh dated nil.

2. Learned representative of the appellants stated that they are engaged in the manufacture of Refined Oils. For the purpose of refining of oils, steam is required. For the production of steam, the appellants had installed a Lancashire Boiler in their factory. A question has arisen whether steam so produced was liable to duty. It was their contention that their boiler operated without the aid of power in any form; hence, it was exempt.

3. The appellants had vacant sheds which had been given to M/s. Nahar Spinning Mills Limited, Ludhiana who carried out the process of washing of garments etc. For such washing, they needed steam.

4. During December, 1985 to June, 1986, the appellants allowed M/s.

Nahar Spinning Mills Limited to use steam produced out of the appellants' boiler and charged to them a sum of Rs. 13,21,925/- being the sum total of cost of coal used in boiler and other relevant charges for the operation of the boiler, for the period during which they utilised the steam from appellants' boiler.

5. It was his submission that the appellants in their own classification list had declared steam to be ah item produced for captive consumption but they supplied the some quantity to their tenants as well.

6. The appellants while sending the voucher (being debit note OOR/35/85-86, dated 30-6-1986) informed the Supdt. that the steam produced by them was without aid of power and therefore, qualified for the exemption under Notification No. 179/77, dated 18-6-1977 during the period from 1-12-1985 to 28-2-1986. It was further informed that though the steam was indeed dutiable during the period from 1-3-1986 to 13-3-1986, but was again exempted vide Notification No. 195/86, dated 13-3-1986. It was also informed that in view of the Central Duty of Excise (Retrospective Exemption) Act, no duty was chargeable even for the period from 1-3-1986 to 13-3-1986.

7. Apart from making oral submissions, the appellants vide their letter No. OORU/89-C/62/839, dated 5-6-1989 also sent to the Additional Collector technical literature showing that the steam was produced without the aid of power.

8. It was also his submission that another Additional Collector of Customs and Excise, Chandigarh passed an order No. 35/D/90, dated 30-5-1991 without analysing the evidence produced by the appellants before his predecessor and without giving any other opportunity to the appellants to state their case before him.

9. The Tribunal set aside the order and remanded the matter to the Additional Collector for de novo adjudication after giving appellants due opportunity of being heard.

10. It was his submission that at no time, the appellants were confronted with the letter bearing C. No. V(Ch. 28)/21/253/87/228, dated 9-1-1991 referred to by the Additional Collector. He has thus negated the assessee's claim and has again confirmed the demand of Rs. 67,202.70 under Section 11A of the CESA, 1944.

11. It was his submission that the impugned order has been passed against the principles of natural justice. According to learned Additional Collector, the A.C. has reported that ID Fan fitted with the boiler is operated with power and without this boiler cannot work. This particular additional evidence was never confronted to the appellants.

In fact, the assessees do not know as to which boiler was inspected by the Assistant Collector and when. The assessees had added new 'Thermax' Boiler in 1988-89 in the operation of which, power is indeed being used. As a matter of fact, the appellants have not been able to decide as to what ID Fan Actually is.

12. Learned Additional Collector has erred in law in invoking first proviso to Section 11A without first giving a finding of any new fact.

In the previous order, there was not even an IOTA of allusion to the fact that the appellants had resorted to any fraud, collusion or any wilful mis-statement or suppression of facts. However, in the present impugned order, the Additional Collector levied a serious charge of suppression of facts against the appellants. This new allegation which has been levied and sustained by the Additional Collector is not based on any fresh facts and is, therefore, not sustainable for invoking extended period of limitation under the proviso to Section 11A of the CESA, 1944.

13. It was their submission that there is no such item as ID Fan fitted in the boiler. The boiler from which the steam was supplied to the appellants' tenants M/s. Nahar Spinning Mills Ltd. was a simple Lancashire Boiler. In this Boiler, the coal/rice husk is burnt. Burning process is facilitated by the inflow of air without any mechanical or electrical fan. The outlet of the chimney of the boiler is usually 30/35 meters higher than the burning chamber of the boiler. When fuel in the burning chamber burns, the hot gases rapidly rise upwards towards the exit of the chimney making room for fresh oxygen carrying air to flow inward the burning chamber through air holes/ducts, thus providing necessary oxygen to the fuel to burn. In this process, power is neither required nor therefore, is used.

14. It was his submission that water in the boiler is fed with the help of an injector valve. This injector valve uses steam jet to push water in the boiler. As defined and not controverted by learned Additional Collector, steam energy does not become power as there is no mechanical push or pull action undertaken by the steam. The incoming force of steam pushes no mechanical part like piston etc. but pushes water itself. The steam injector has no moving part. Therefore, even the water feeding in the boiler is done without the aid of power. This ground has been taken as an abundant caution though not necessary.

15. Learned DR reiterated the view of the Department as contained in the impugned order.

16. We have considered the above submissions. We observe that the contentions of the learned representative of the appellants have a lot of force.

17. It is true that steam produced without the aid of power was exempt under Notification No. 179/77, dated 18-6-1977 during the period 1-12-1985 to 28-2-1986. It was, however, dutiable during the period 1-3-1986 to 13-3-1986 but was again exempt under Notification No.196/86, dated 13-3-1986. The General Duty of Central Excise Retrospective Exemption Act was in force and it was for the Department to show that steam was dutiable during the relevant period.

18. Since the exemption was a conditional one, the main question is as to whether the steam was being produced without the aid of power during the period in question. In this respect, the appellants have filed a photocopy of the diagram of the boiler said to have been used during the relevant period. A perusal thereof shows that it does not require electric power to run such a machine. Learned representative is also correct in pointing out that it was not open to the Additional Collector to take into account a fresh piece of a document purported to an enquiry report after the hearing had been concluded without giving an opportunity to the appellants to controvert the same. Therefore, the impugned order is also in violation of principles of natural justice.

The case having already been remanded once by the Tribunal on the grounds of violation of principles of natural justice, the departmental authorities should have been doubly careful and ensured that this time, the due process of law was followed.

19. A question has arisen as to whether the word 'power' used in the notification refers to electric power or covers steam power also.

Learned representative of the appellants had thereupon referred to a series of notifications including 28/64, 51/67, 274/76,130/82 and 60/85 to show that wherever the Government wanted to refer to steam power or steam for heating or both electric power and steam power, it has been explicitly so mentioned in the notifications and that the words repeatedly used are power, or steam, where one or both of them were required to be considered in this respect. We have perused these notifications and find that these submissions are correct. Even otherwise, the question of steam power would arise only where steam, after generation, is used for doing some work and not in case of generation of steam by itself. In the present case, what was required to be shown was that electric power was used in production of steam and the Department has not been able to substantiate its case in this regard.

20. In the above circumstances, the impugned order cannot be upheld.Even otherwise, there is nothing else in the records before us to substantiate the Department's charge. In the above situation, the fact that the appellants did not inform the Department regarding the supply of steam to another unit for sale loses significance but could have, at most, resulted in imposition of penalty but the duty in the above facts and circumstances could not be demanded. However, it is interesting to note that no penalty has been imposed.

21. The Department's case regarding levy of duty remains unsubstantiated. Hence, the impugned order is set aside and the appeal is accepted.