C.C.E. Indore vs M/S. Aureola Chemicals Ltd

[Arising out of Order-In-Appeal No. IND-I/12-13/03 dated: 22.01.2004 passed by Commissioner of Central Excise Indore]

For approval and signature:

Hon'ble Mr. Rakesh Kumar, Member (Technical)

Hon'ble Mr. S.K. Mohanty, Member (Judicial)

1 Whether Press Reporters may be allowed to see the Order for publication as per Rule 27 of the CESTAT (Procedure) Rules, 1982?

2 Whether it should be released under Rule 27 of the CESTAT (Procedure) Rules, 1982 for publication in any authoritative report or not?

3 Whether Their Lordships wish to see the fair copy of the Order?

4 Whether Order is to be circulated to the Departmental authorities?

C.C.E. INDORE Appellant

C.C.E. INDORE

M/s. Aureola Chemicals Ltd.

Vs.

M/s. Aureola Chemicals Ltd. Respondent

M/s. Aureola Chemicals Ltd.

C.C.E. INDORE

Appearance:

Mr. K.K. Anand, Advocate for the Appellants

Mr. Pramod Kumar Jain, DR for the Respondent

CORAM:

Hon'ble Mr. Rakesh Kumar, Member (Technical)

Hon'ble Mr. S.K. Mohanty, Member (Judicial)

Date of Hearing/decision.09.01.2015

FINAL ORDER NO. 50134-50136 /2015-Ex(Br)

Per Rakesh Kumar (for the Bench):

The facts giving rise to these appeals are in brief as under:

1.1 The Respondent in appeal no. E/2248/2004 and E/4609/2004 and appellant in the Appeal No. 571/2008 (hereinafter referred to as the Assessee), are manufacturers of Sulphonic Acid. The period of dispute in the appeal No. E/571/2008 is from February, 2003 to November, 2006, the period of dispute in the appeal No. E/2248/2004 is from 15.09.1997 to 31.03.1998 and the period of dispute in the appeal no. E/4609/2004 is from July, 2002 to January, 2003. During this period the Assessee, in terms of their job work agreement with M/s Hindustan Lever Ltd. (M/s. HLL) were manufacturing Sulphonic Acid on job work basis out of the Lineal Alkyl Benzene (LAB) supplied by M/s HLL free of charges. For processing of the LAB to make Sulphonic Acid, Sulphuric Acid is required, which was being procured by the Assessee on their own account. In course of manufacture of Sulphonic Acid from LAB by using concentrated Sulphuric Acid, spent Sulphuric Acid emerges which the Assessee were clearing on sale, on payment of duty. Accordingly, in the job charges being charged by the Assessee from M/s HLL for manufacturer of Sulphonic Acid on job work basis, the Assessee took into account only the net quantity of the Sulphuric Acid used in the job work and were charging an amount of Rs. 1600/- towards the cost of Sulphuric Acid.

Since, their conversion charges were Rs. 700/-, the total job charges being charged by the Assessee from M/s HLL were Rs. 2300/- per MT. The assessee were accordingly, paying duty on the cost of the LAB received from M/s. HLL plus the total job charges of Rs. 2300/- per MT. The department was of the view that since in the annexure enclosed with the job work agreement, they have given the details of the calculations of the processing charges wherein they have shown Rs. 380/- per MT as the cost of spent Sulphuric Acid which was being sold by them and since, the cost of spent Sulphuric Acid - Rs. 380/- per MT has not been included in the job charges, they have short paid the duty, as the job charges should also included the cost of spent Acid. It is on this basis that the duty demands of Rs. 10,72,447/- and Rs. 72,316/- were confirmed by the Original Adjudicating Authority for the period from 15.09.1997 to 31.03.1998 and July, 2002 to January, 2003. However, on appeals being filed to Commissioner (Appeals) against these orders of the Original Adjudicating Authority, these demands were set aside by the Commissioner (Appeals) vide Order in Appeal dated 22.01.2004 and 09.07.2004.

The Revenue filed appeals before the Tribunal and the Tribunal vide Final Order dated 31.05.2006 reported in 2006 (206) ELT-311 and final order No. 496/08 dated 17.07.2008 reversed the Commissioner (Appeals)s order. For the period from February, 2003 to November 2006, the total duty demand confirmed by the Original Adjudicating Authority is Rs. 32,65,724/- by a common Adjudication Order dated 20.12.2007 and on appeal being filed to Commissioner (Appeals) against this order, the Commissioner (Appeals) vide order in appeal dated 14.11.2007 upheld the order in original by following the Tribunal Judgment reported in 2006 (206) ELT 311. On appeal being filed to the Tribunal against this order, the Tribunal vide final order No. 554/08 dated 04.09.2008 dismissed the appeal.

1.2. The assessee filed appeals against the Tribunals order dated 31.05.2006 and also the subsequent orders dated 04.08.2008 and 17.07.2008 before the Apex Court. The Apex Court disposed of these appeals by a common order dated 13.04.2012 by which the Apex Court remanded the matters to the Tribunal for fresh adjudication on all the issues that had been raised before it, in accordance with the law. In this regard, para 7, 8 & 9 of the Apex Courts judgment are reproduced below:

7. We have bestowed our anxious consideration to the entire matter. Regard being had to the grounds urged in these appeals, in particular, the question of invocation of extended period of limitation, we are convinced that in the interest of justice, it is a fit case where the appellant deserves to be granted adequate opportunity to place before the Tribunal its view point on all the aspects of their case.

8. Resultantly, the appeals are allowed, the impugned orders are set aside and the matters are remitted back to the Tribunal for fresh adjudication on all the issues that had been raised before it in accordance with law. It goes without saying that both the sides would be free to urge all the grounds before the Tribunal as may be available to them in law.

9. The appeals stand disposed of in the above terms with no order as to costs.

1.3 Accordingly, in accordance with the above directions of the apex court, the appeals to be heard afresh.

2. Heard both the sides.

3. Shri Pramod Kumar, the Ld. Jt. CDR, defending the Tribunals order in these matters pleaded that the assessee were manufacturing Sulphonic Acid for M/s. HLL on job work basis out of the raw material - LAB supplied by them, that for the processing of LAB to make Sulphonic Acid, the Assessee were using their own Sulphuric Acid, that in this process some spent Sulphuric Acid arose which was being sold by them, that the assessee have wrongly excluded the sale price of the spent Sulphuric Acid from job charges which is not correct, that when the assessee have used a particular quantity of Sulphuric Acid, (1.1 MT) for making One MT of Sulphonic Acid, it is the entire cost of the Sulphuric Acid used, which must be included in the job charges, as the spent Sulphuric Acid had been retained by the Assessee instead of being return to the principal manufacturers, and that in view of this, the Tribunal has rightly upheld the confirmation of the duty demand against the assessee. He also pleaded that in the circumstances of the case, extended period under proviso to Section 11(A)(1) has been correctly invoked and penalty under section 11AC has been correctly imposed.

4. Shri K.K. Anand, Advocate, the Ld. Counsel for the assessee, pleaded that the assessee, while manufacturing Sulphonic Acid for M/s. HLL on job work basis, were receiving only the LAB free of charges from them and for processing of the LAB to make Sulphonic Acid, the Sulphuric Acid required for the purpose was their own, that as shown in the annexure III to the Job work agreement, which contains the calculation of the processing charges, the appellant have included, only the cost of net quantity of Sulphuric Acid in the job charges and have excluded the value of the spent Sulphuric Acid which arose in course of manufacture of Sulphonic Acid and which was sold out, that since, Sulphuric Acid had not been received by the assessee from M/s. HLL, there was no question of returning the spent Sulphuric Acid to the principal manufacturer or in the event of retention of the same adding the value of the retained spent acid in the job charges, that the Tribunals observation in para 3 of judgment reported in 2006 (206) ELT 311, that during the manufacture of Sulphonic Acid, if any waste or byproduct is diverted, then it has to go to M/s. HLL or it can clear it from the factory of job worker on payment of appropriate duty, is not correct for the reason that so far as the Sulphuric Acid is concerned, the same was not being received from M/s HLL but has been procured by the assessee on their own and belonged to the assessee, that when the assessee had procured the Sulphuric Acid on their own account for use in the job work, they would be required to include in the job charges only that much quantity of Sulphuric Acid which was used and, if any, spent acid arises, and is disposed of, the value of the spent acid is not required to be included in the job charges and that in view of this, the Commissioner (Appeals)s orders dated 22.01.2004 and 09.07.2004 are correct and the subsequent order dated 14.11.2007 of the Commissioner (Appeals) is not correct.

5. We have considered the submission from both the sides and perused the records. The undisputed facts are that the assessee during the period of dispute were manufacturing Sulphonic Acid for M/s HLL on job work basis out of the LAB received by them free of charges from M/s HLL. There is no dispute that for the purpose of manufacture of Sulphonic Acid, the Sulphuric Acid required, was being procured by the assessee on their own account. There is also no dispute about the fact that in respect of the Sulphonic Acid, manufactured by the assessee on job work basis for M/s. HLL, the duty liability was to be discharged in accordance with apex courts judgment in the case of Ujagar Prints and Others vs UOI reported in 1988 (38) ELT 535 and accordingly the duty was to be paid on the cost of the raw material (LAB) received from M/s HLL plus the assessees job charges which would consist of the cost of the raw materials used by the assessee which were of their own and their conversion charges. In our view, when the job charges consist of the conversion charges plus the cost of the raw material belonging to the job worker which were used by him, the cost of only that much quantity of raw material would be required to be included in the job charges which has actually been used.

On going through the calculation of the processing charges, annexed with the job work agreement, we find that this is what the assessee have done. The landed cost of 1.1 MT of Sulphuric Acid required for manufacture of 1.45MT of Sulphonic Acid (by treating one MT of LAB) is Rs. 1980/- and in the process 0.8 MT spent acid is generated, which was sold by the assessee for Rs. 380/-. The assessee, therefore, have treated the cost of the Sulphonic Acid used as Rs. 1980 minus Rs. 380, that is, Rs. 1600/- and accordingly, after adding the conversion charges of Rs. 700/- per MT have taken the job charges as Rs. 2300 per MT and it is on the basis of these job charges that the assessable value has been determined after adding the cost of LAB. We find no mistake in the practice adopted by the appellant. The observation of the Tribunal in para 3 of its judgment reported in 2006 (206) ELT 311 (Tri. Del) and also the plea of the Revenue would have been correct if, the assessee along with the LAB had also received Sulphuric Acid form HLL and only in that case, in the event of retention of the spent Sulphonic Acid and its sale by them, there would have been justification for adding the sale price of spent Sulphuric Acid in the job charges.

But this is not the case here, as there is no dispute that the Sulphuric Acid used for the processing, belongs to the assessee and not to the principal manufacturer. In view of this, we hold that while there is no infirmity in the orders in appeal dated 21.01.2004 and 09.07.2004 passed by the Commissioner (Appeals) and as such the Revenues appeal against these orders have to be dismissed, the order in appeal dated 14.11.2007 passed by the Commissioner (Appeals) is not correct and has to be set aside and as such the appeal filed by the assessee against his order has to be allowed.

7. Accordingly, while the Revenues appeal no. E/2248/2004 and E/4609/2004 are dismissed, the appeal No. E/571/2008 filed by the assessee is allowed.

(Dictated and pronounced in open court)

(Rakesh Kumar)

Member(Technical)

(S.K. Mohanty)

Member(Judicial)

Neha

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