Collector of C. Ex. Vs. Aureola Chemicals (P) Ltd. - Court Judgment

Excerpt:
1. this is an appeal filed by the department against the order of collector of central excise (appeals), new delhi dated 24-9-1990.2. learned dr stated that in this case, the respondents are engaged in the manufacture of 'organic surface active agents' such as acid slurry and liquid detergents. they filed classification list with effect from 1-3-1987 and 1-4-1987 wherein they had mentioned the products 'spent sulphric acid' indicating chapter heading 2807.00 and seeking exemption under notification no. 170/65, dated 23-10-1965. the respondents filed another classification list with effect from 21-12-1987 but, changed their earlier stand as apparent from the remark that spent sulphuric acid was non-taxable either under chapter 34 or 28.3. they also explained the process of manufacture of their goods as follows :- "while manufacturing acid slurry (an organic surface active agent) they mix sulphuric acid or oleum to react with lab (linear alkyl benzene) an organic chemical." the department was not satisfied and a show cause notice was issued for classifying the item under heading 28.07 accordingly.4. the respondents had to add excess quantity of sulphuric acid because during the reaction, water molecules are produced which tend to stop reaction. the excess acid thus added remains in the mixture nevertheless it gets diluted by the water which the chemical reaction produces.5. it was the department's contention that the reaction between lab and sulphuric acid being partial, certain amount of sulphuric acid remains after the reaction as unreacted. this is nevertheless sulphuric acid, though in diluted form, it is bought and sold as sulphuric acid and has a ready market. it is, therefore, goods and is correctly chargeable to duty at the appropriate tariff item.6. learned counsel drew attention to the order-in-appeal pleading that it is clear from the process of manufacture that spent sulfuric acid is a by-product which is obtained when lab is sulphonated by strong sulphuric acid or oleum. when water is added to this mass, sulphuric acid layer is separated from the acid slurry and results in what is called as 'spent sulphuric acid'. this cannot be treated as regenerated sulphuric acid nor as an anhydrides of sulphuric acid. it is also not a manufactured product.7. it was also his submission that their contention is supported by the opinion of dr. b.d. khosla, reader in chemistry (retd.), university of delhi. hence, learned collector (appeals)' conclusion that spent sulphuric acid is not a manufactured product is correct.8. we have considered the above submissions. we observe that there is no doubt about it that heading 28.07 covers 'sulphuric acid and anhydrides thereof; oleum'. therefore, sulphuric acid as well as oleum are classifiable under heading 2807.00 but this, by itself, was not sufficient to classify the respondents' product under this heading. it has already been observed by hon'ble supreme court and by the tribunal (following the hon'ble supreme court's judgments) in a number of cases that merely an entry in the tariff was not sufficient to consider a product as an excisable commodity. such an entry, in my opinion, merely raises a rebuttable presumption and therefore, the onus to show that it was not an excisable product shifts on to the manufacturer or the assessee. in other words, in case there is a specific entry in the tariff regarding a product, is was for the assessee to show that it was not an excisable product in spite of the entry, particularly in view of section 2(d). in our opinion, to be considered as excisable, an item must satisfy two criterion and pass both the tests simultaneously namely, (1) in case of an item which is being considered or which is proposed to be considered as a manufactured product, the test that manufacture is involved must be satisfied (in the case of unmanufactured product, the situation is different) with reference to section 2(f), and (2) it must be shown in view of the nature of excise tax and section 2(d) that the material is "goods" as commonly known and understood in the trade and in accordance with hon'ble supreme court's judgment, the test of marketability is duly satisfied.9. since in this case, the sulphuric acid is specifically covered by name under heading 28.07, the department was justified in issuing the show cause notice. but, once the respondents had indicated the process of manufacture of organic surface active agents during which sulphuric acid was used and part of it remained unused, they had discharged their burden. here, the process itself indicates that sulphuric acid is not getting manufactured in the above process but it is merely the unused or unreacted sulphuric acid which is left over and called as spent sulphuric acid which is disposed of a as such, and once the test of manufacture is not passed, it becomes immaterial whether it is being bought and sold as such or not. to put it the other way round, heading 28.07 covers that sulphuric acid or oleum which is manufactured in the first instance and not that which has merely remained unused in a process, for there is no excise on use or non-use of a commodity which was otherwise excisable. in the present case, when sulphuric acid was initially purchased by the respondents for use in the process, they must have paid the excise duty in the normal course on the entire quantity to be utilised in the process. therefore, even otherwise, it would amount to charging duty twice on the unused left over portion of sulphuric acid. we, therefore, consider that the order of the collector (appeals) was correct and is required to be upheld. the department's appeal is, therefore, dismissed.

Judgment:
1. This is an appeal filed by the Department against the order of Collector of Central Excise (Appeals), New Delhi dated 24-9-1990.

2. Learned DR stated that in this case, the respondents are engaged in the manufacture of 'Organic Surface Active Agents' such as Acid Slurry and Liquid Detergents. They filed classification list with effect from 1-3-1987 and 1-4-1987 wherein they had mentioned the products 'Spent Sulphric Acid' indicating Chapter Heading 2807.00 and seeking exemption under Notification No. 170/65, dated 23-10-1965. The respondents filed another classification list with effect from 21-12-1987 but, changed their earlier stand as apparent from the remark that Spent Sulphuric Acid was non-taxable either under Chapter 34 or 28.

3. They also explained the process of manufacture of their goods as follows :- "While manufacturing acid slurry (an organic surface active agent) they mix sulphuric acid or oleum to react with LAB (Linear Alkyl Benzene) an organic chemical." The Department was not satisfied and a show cause notice was issued for classifying the item under Heading 28.07 accordingly.

4. The respondents had to add excess quantity of sulphuric acid because during the reaction, water molecules are produced which tend to stop reaction. The excess acid thus added remains in the mixture nevertheless it gets diluted by the water which the chemical reaction produces.

5. It was the Department's contention that the reaction between LAB and Sulphuric Acid being partial, certain amount of sulphuric acid remains after the reaction as unreacted. This is nevertheless sulphuric acid, though in diluted form, it is bought and sold as sulphuric acid and has a ready market. It is, therefore, goods and is correctly chargeable to duty at the appropriate tariff item.

6. Learned Counsel drew attention to the order-in-appeal pleading that it is clear from the process of manufacture that Spent Sulfuric Acid is a by-product which is obtained when LAB is sulphonated by strong sulphuric acid or oleum. When water is added to this mass, sulphuric acid layer is separated from the acid slurry and results in what is called as 'spent sulphuric acid'. This cannot be treated as regenerated sulphuric acid nor as an anhydrides of sulphuric acid. It is also not a manufactured product.

7. It was also his submission that their contention is supported by the opinion of Dr. B.D. Khosla, Reader in Chemistry (Retd.), University of Delhi. Hence, learned Collector (Appeals)' conclusion that spent sulphuric acid is not a manufactured product is correct.

8. We have considered the above submissions. We observe that there is no doubt about it that Heading 28.07 covers 'Sulphuric Acid and Anhydrides thereof; Oleum'. Therefore, sulphuric acid as well as oleum are classifiable under Heading 2807.00 but this, by itself, was not sufficient to classify the respondents' product under this heading. It has already been observed by Hon'ble Supreme Court and by the Tribunal (following the Hon'ble Supreme Court's judgments) in a number of cases that merely an entry in the tariff was not sufficient to consider a product as an excisable commodity. Such an entry, in my opinion, merely raises a rebuttable presumption and therefore, the onus to show that it was not an excisable product shifts on to the manufacturer or the assessee. In other words, in case there is a specific entry in the tariff regarding a product, is was for the assessee to show that it was not an excisable product in spite of the entry, particularly in view of Section 2(d). In our opinion, to be considered as excisable, an item must satisfy two criterion and pass both the tests simultaneously namely, (1) in case of an item which is being considered or which is proposed to be considered as a manufactured product, the test that manufacture is involved must be satisfied (in the case of unmanufactured product, the situation is different) with reference to Section 2(f), and (2) it must be shown in view of the nature of excise tax and Section 2(d) that the material is "goods" as commonly known and understood in the trade and in accordance with Hon'ble Supreme Court's judgment, the test of marketability is duly satisfied.

9. Since in this case, the sulphuric acid is specifically covered by name under Heading 28.07, the Department was justified in issuing the show cause notice. But, once the respondents had indicated the process of manufacture of Organic Surface Active Agents during which sulphuric acid was used and part of it remained unused, they had discharged their burden. Here, the process itself indicates that sulphuric acid is not getting manufactured in the above process but it is merely the unused or unreacted sulphuric acid which is left over and called as Spent Sulphuric Acid which is disposed of a as such, and once the test of manufacture is not passed, it becomes immaterial whether it is being bought and sold as such or not. To put it the other way round, Heading 28.07 covers that sulphuric acid or oleum which is manufactured in the first instance and not that which has merely remained unused in a process, for there is no excise on use or non-use of a commodity which was otherwise excisable. In the present case, when sulphuric acid was initially purchased by the respondents for use in the process, they must have paid the excise duty in the normal course on the entire quantity to be utilised in the process. Therefore, even otherwise, it would amount to charging duty twice on the unused left over portion of sulphuric acid. We, therefore, consider that the order of the Collector (Appeals) was correct and is required to be upheld. The Department's appeal is, therefore, dismissed.