Nirlon Limited vs Mumbai V

[Arising out of Order-in-Appeal No: SB(100)100/M-V/2010 dated 06/09/2010 passed by the Commissioner of Central Excise (Appeals), Mumbai Zone  I.]

For approval and signature:

Honble Shri M V Ravindran, 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? : No 2. Whether it should be released under Rule 27 of CESTAT (Procedure) Rules, 1982 for publication in any authoritative report or not? : No 3. Whether Their Lordships wish to see the fair copy of the Order? : Seen 4. Whether Order is to be circulated to the Departmental authorities? : Yes

APPEAL NOS: E/1800/2010

Nirlon Limited

Appellant versus

Commissioner of Central Excise

Mumbai  V

Respondent

APPEAL NOS: E/2059/2010

Commissioner of Central Excise

Mumbai  V

Appellant versus

Nirlon Limited

Respondent

Appearance:

Ms. Padmavati Patil, Advocate for the assessee-appellant

Shri N.N. Prabhudesai, Superintendent (AR) for Revenue

CORAM:

Honble Shri M V Ravindran, Member (Judicial)

Date of hearing: 29/10/2015 Date of decision: 29/10/2015

ORDER NO: ____________________________

When appeal No. E/1800/2010 was called out, it was informed by the learned Departmental Representative that Revenue is also in appeal against the very same impugned order-in-appeal being appeal No. E/2059/2010, therefore, I called for the said appeal from the Registry and on perusal of the same I find submission to be correct, accordingly I take up both the appeals for disposal.

2. These two appeals, filed by appellant-assessee as well as Revenue are against Order-in-Appeal No: SB(100)100/M-V/2010 dated 06/09/2010 passed by the Commissioner of Central Excise (Appeals), Mumbai Zone  I.

3. The appellant-assessee is aggrieved by the order to the extent that it reverses the order-in-original which granted relief to them while Revenue has filed the appeal on the ground that the first appellate authority has not quantified the demand, interest thereof and penalty on setting aside the order-in-original.

4. The relevant facts which arise for consideration are during the period 2003-04 and 2004-05 the appellant-assessee under commercial invoices were clearing the items such as impure dowtherm diphyl; old and damaged PTA scrap, wash water  50% concentration of lactum, old and used sludge oil; old and used all types of oil, spin finish oil and old assorted bearings. During the course of audit in February 2005, it was noticed by the audit team that the appellant has not discharged any duty liability on these items which were cleared from the factory premises of the appellant-assessee. Show cause notice dated 29/05/2008 was issued to the appellant demanding duty on these items. The appellant-assessee contested the show cause notice on merits as well as on limitation. The adjudicating authority, after considering the submissions made and relying upon the judgment of the Tribunal in appellants own case in respect of some other items, dropped the proceedings initiated by the show cause notice. Aggrieved by such an order, Revenue preferred an appeal before the first appellate authority, who has reversed the order-in-original.

5. The learned counsel for the appellant-assessee draw my attention to the show cause notice and the reply filed by them. It is her submission that, in the same audit objection, another waste product which arose during the manufacture of the nylon yarn i.e., waste MEG and TEG was also mentioned and duty liability was proposed to be fastened on them. She would submit that the Tribunal, by an order No. A/697-698/08 dated 23/07/2008 dismissed the appeal filed by Revenue. She would also draw my attention to the fact that there is no contention of Revenue that these items are not scrap as show cause notice itself indicate the entire items as scrap. She would rely upon the following judgments for the proposition that waste/scrap even if they are marketable, are not liable to duty unless they are manufactured.

(i) Grasim Industries Ltd. vs. Union of India 2011 (273) ELT 10 (SC);

(ii) Commissioner of Central Excise & Customs vs. Dhakad Metals Pvt. Ltd. 2010 (257) ELT 535 (Guj.);

(iii) Union of India vs. DSCL Sugar Ltd. 2015-TIOL-240-SC-CX.

6. The learned Departmental Representative, on the other hand, would draw my attention to the annexure to the show cause notice wherein the list of items on which duty liability has been worked out and submits that the goods which were cleared were containing cellulose and these products arise during the course of manufacture of the final product by the appellant-assessee. He would also draw my attention to the value and duty liability worked out by the department and submits that these goods are fetching some value in the market and the argument of non-discharge of duty liability was correctly rejected by the first appellate authority against the assessee. It is his further submission that he would rely upon the judgment of the Honble apex Court in the case of Bharat Petroleum Corporation Ltd 1995 (77) ELT 790 for the proposition that if distinct products which has arisen during the course of manufacture of final products and has commercial identity and is sold from time- to-time, then duty liability arises.

6.1. As regards the appeal filed by the department, he submits that the departments appeal be allowed and the assessees appeal be rejected.

7. I have considered the submissions made by both the sides. The issue for consideration is whether the items i.e. impure dowtherm diphyl; old and damaged PTA scrap, wash water  50% concentration of lactum, old and used sludge oil; old and used all types of oil, spin finish oil and old assorted bearings cleared from the factory premises of the assessee are liable to duty. It is on record that the items on which duty demands are made are arising during the course of manufacture of the final products for the period in question. It is also undisputed that the assessee-appellant is clearing the products on commercial invoices and gets some consideration for the said items. At the outset, on perusal of the items which are cleared from the factory premises, description as per the annexure to the show cause notices, it may be seen that they are either used, old or damaged wash water, old and used sludge oil and old assorted bearings. The description itself would indicate that these products are not manufactured nor they are associate product and therefore cannot be said to be distinct products as contended by the learned Departmental Representative. There is nothing on record to indicate that these items, which were sought to be considered as distinct product, were being manufactured in the appellants factory premises. Secondly, I find, arising out of the very same audit objection, another show cause notice was issued demanding duty on the used/waste MEG/TEG that arises during the course of manufacture in the factory premises of the appellant and the said demand was set aside by the first appellate authority; Revenues appeal before the Tribunal in appeal No. E/1523/2003, was rejected by an order dated 23/07/2008 (wherein I was one of the Member) holding that these items (used MEG) is not a manufactured product for demand of duty. In the case in hand, undoubtedly there is nothing on record to show that these products, which arise during the process of manufacture, are manufactured products. I find strong force in the contention raised by the learned counsel that the issue seems to be covered by the judgment of the Honble apex Court in the case of Grasim Industries Ltd. (supra) wherein, in paragraph 8 of the judgment the issue has been laid down. With respect, the same is reproduced:

8) The goods have to satisfy the test of being produced or manufactured in India. It is settled law that excise duty is a duty levied on manufacture of goods. Unless goods are manufactured in India, they cannot be subjected to payment of excise duty. Simply because a particular item is mentioned in the First Schedule, it cannot become exigible to excise duty. [See Hyderabad Industries Ltd. v. Union of India, (1995) 5 SC 338, Moti Laminates (P) Ltd. v. CCE, (1995) 3 SCC 23, CCE v. Wimco Ltd., (2007) 8 SCC 412] Therefore, both on authority and on principle, for being excisable to excise duty, goods must satisfy the test of being produced or manufactured in India. In our opinion, the charging Section 3 of the Act comes into play only when the goods are excisable goods under Section 2(d) of the Act falling under any of the tariff entry in the Schedule to the Tariff Act and are manufactured goods in the terms of Section 2(f) of the Act. Therefore, the conditions contemplated under Section 2(d) and Section 2(f) has to be satisfied conjunctively in order to entail imposition of excise duty under Section 3 of the Act. The manufacture in terms of Section 2(f) includes any process incidental or ancillary to the completion of the manufactured product. This `any process' can be a process in manufacture or process in relation to manufacture of the end product, which involves bringing some kind of change to the raw material at various stages by different operations. The process in manufacture must have the effect of bringing change or transformation in the raw material and this should also lead to creation of any new or distinct and excisable product. The process in relation to manufacture means a process which is so integrally connected to the manufacturing of the end product without which, the manufacture of the end product would be impossible or commercially inexpedient. This Court has in several decisions starting from Tungabhadra Industries v. CTO, AIR 1961 SC 412, Union of India v. Delhi Cloth & General Mills Co. Ltd., AIR 1963 SC 791, South Bihar Sugar Mills Ltd. v. Union of India, AIR 1968 SC 922 and in line of other decisions has explained the meaning of the word `manufacture' thus:

"14. The Act charges duty on manufacture of goods. The word `manufacture' implies a change but every change in the raw material is not manufacture. There must be such a transformation that a new and different article must emerge having a distinctive name, character or use."

8. Again in the case of Commissioner of Central Excise & Customs vs. Dhakad Metals Pvt. Ltd.(supra) the Honble High Court of Gujarat while upholding the judgment of the order of the Tribunal on similar issue held as under:

7.?Therefore the moot question would be whether the waste, i.e. Copper Sludge, which is the waste in the process of manufacture of zinc sulphate (Agricultural Grade) can be said to be a waste or not. Further, can it be said that it is a process of an article, and therefore, such Copper Sludge is a different article and not a waste. The process of manufacture admittedly is of zinc sulphate (Agricultural Grade) and it is not even the departments case that the ultimate aim of manufacture was manufacturing the Copper Sludge, but the manufacture was that of zinc sulphate (Agricultural Grade). It is in the process of such manufacture of zinc sulphate (Agricultural Grade) that the waste like Copper Sludge (Agricultural Grade) would arise and therefore the submissions made by learned counsel Mr. Oza on the aspect of manufacture or the process cannot be accepted especially when during the process of manufacture of Zinc Sulphate (Agricultural Grade) the Copper Sludge has emerged, which is not excisable article. Therefore, the submissions made by learned counsel Mr. R.J. Oza cannot be accepted.

9. Revenue was aggrieved by such an order of the Honble High Court and filed a Special Leave Petition before the Honble Apex Court and the same was dismissed as reported at 2010 (257) ELT A139 (SC)

10. Recently, the Honble Apex Court in the case of DSN Sugar Mills (supra) held that bagasse emerging as residue and waste of sugar because of deeming fiction introduced by explanation to Section 2(e) of Central Excise Act, 1994, is not applicable as such bagasse is not a product manufactured and will not fall under the definition of manufacture. The ratio is in paragraph Nos. 7 to 10 and the same is reproduced:

7.?As per the aforesaid explanation, goods would now include any article, material or substance capable of being bought or sold for consideration and as such goods shall be deemed to be marketable. Thus, it introduce the deeming fiction by which certain kind of goods are treated as marketable and thus excisable.

8.?However, before the aforesaid fiction is to be applied, it is necessary that the process should fall within the definition of manufacture as contained in Section 2(f) of the Act. The relevant portion of amended Section 2(f) reads as under:

Section 2(f) - manufacture includes any process -

(i) incidental or ancillary to be completion of a manufactured product;

(ii) which is specified in relation to any goods in the section or Chapter notes of [The First Schedule] to the Central Excise Tariff Act, 1985 (5 of 1986) as amounting to [manufacture; or]

(iii) which in relation to the goods specified in the Third Schedule, involves packing or repacking of such goods in a unit container or labelling or re-labelling of containers including the declaration or alteration of retail sale price on it or adoption of any other treatment on the goods to render the product marketable to the consumer;

and the word manufacture shall be construed accordingly and shall include not only a person who employs hired labour in the production or manufacture of excisable goods, but also any person who engages in their production of manufacture on his own account;

9.?The Revenue sought to cover the case under sub-clause (ii) as per which the process which is satisfied in relation to any goods in the Section or Chapter notices of the First Schedule to the Central Excise Tariff Act, 1985 would amount to manufacture. Here again, fiction is created by including those goods as amounting to manufacture in respect of which process is specified in the Section or Chapter notices of the First Schedule.

10.?In the present case it could not be pointed out as to whether any process in respect of Bagasse has been specified either in the Section or in the Chapter notice. In the absence thereof this deeming provision cannot be attracted. Otherwise, it is not in dispute that Bagasse is only an agricultural waste and residue, which itself is not the result of any process. Therefore, it cannot be treated as falling within the definition of Section 2(f) of the Act and the absence of manufacture, there cannot be any excise duty.

11. As regards the case law relied upon by the learned Departmental Representative, I find that the apex Court judgment in the case of Grasim Industries Ltd. (supra) has laid down the distinct factor. The distinct factor as has been laid down by the apex Court is applicable in the case in hand. The distinct factor has been recorded by the apex Court in the case of Grasim Industries Ltd. (supra) in paragraph 15. The ratio of Bharat Petroleum Corporation Ltd. (supra) there was a subsidiary product which is distinct and have commercial identity whereas, in the case in hand, it is not.

12. In view of the foregoing, I find that the impugned order is unsustainable and liable to be set aside. I do so. The impugned order is set aside and the assessees appeal is allowed and the appeal filed by Revenue is rejected.

(Dictated in Court)

(M V Ravindran) Member (Judicial) */as

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