S.P Bharucha, J.— The appellant manufactures liquid paraffin I.P It is the case of the appellant that the said liquid paraffin is packed in drums which are labelled. The labels bear the appellant's monogram “Lubri-Chem”. The said liquid paraffin is supplied to pharmaceutical industries. The pharmaceutical industries use the said liquid paraffin as an intermediate in the manufacture of drugs. The said liquid paraffin was classified for the purposes of payment of excise duty under TI 68 and, as a drug intermediate, cleared without payment of excise duty by reason of an exemption notification.
2. On 6-8-1981, the Superintendent of Central Excise issued to the appellants a notice which stated that they had manufactured and cleared the said liquid paraffin, which fell under TI 8, without payment of excise duty thereon. For the period 1-2-1981 to 31-7-1981 they were required to show cause why duty in the sum of Rs 30,677.04 should not be recovered from them and why penalty should not be imposed upon them. An identical notice was issued on the same day for the period 19-6-1980 to 31-1-1981; the amount claimed thereunder was Rs 84,836.35. The appellant showed cause. An order was made by the Assistant Collector of Central Excise on 2-12-1981, wherein he held that the demands in both notices were in order and he confirmed the same. He did not, however, impose any penalty. He came to his conclusion on the ground that there was no denying the fact that the said liquid paraffin was a mineral oil and it became a medicine only after it was marketed or labelled as such. He relied upon the opinion of the Deputy Chief Chemist who, on analysis of the said liquid paraffin, had found that it was in the form of a colourless liquid having flashpoint above 76 degrees Fahrenheit. It had a flame height of more than 10 mm but less than 18 mm. The tariff description under Item 8 as Refined Diesel Oil was that any mineral oil which had its flashing point at or above 76 degrees Fahrenheit and a flame height of 10 mm or more but less than 18 mm fell under TI 8. Accordingly, the said liquid paraffin was correctly classifiable under TI 8. The Assistant Collector, therefore, rejected the appellant's contention that the liquid paraffin was classifiable under TI 68. He held that the appellants had filed a wrong declaration and had suppressed the facts wilfully.
3. On 3-9-1982, the Assistant Collector of Central Excise passed an order which recorded that the appellants had claimed in classification lists filed by them that the said liquid paraffin was classifiable under TI 68 and, under a notification dated 1-3-1975, was exempt from payment of excise duty. The appellant had been heard. When their representative was questioned about the labelling of the said liquid paraffin, it had become known that the said liquid paraffin was packed in drums which bore a label showing the monogram of the assessee. This indicated the proprietary nexus of the appellant with the said liquid paraffin. The Assistant Collector, therefore, ordered that a demand should issue against the appellant for short recoveries of excise duty, after classifying the said liquid paraffin under TI 14-E.
4. The appellant filed appeals against the said orders dated 2-12-1981 and 3-9-1982 before the Collector of Central Excise. The Collector (Appeals) by his order dated 17-3-1983 held that TI 8 gave a self-contained definition of the products falling thereunder. The product manufactured by the assessee had, on test, been found to satisfy such specifications, which fact had not been denied. In view thereof, the product was classifiable first under TI 8. After the first stage of manufacture the product was packed, labelled and sold for pharmaceutical purposes. On the appellant's own admission, the product was of pharmacopoeia grade. The product was sold in a drum bearing the appellant's monogram. During the personal hearing it was claimed that the product did not bear any proprietary name, but this denial had not been substantiated and was not sufficient to disprove the specific observation of the Assistant Collector that the labelling or marketing on the drum bore the monogram of the assessee showing the proprietary nexus of the assessee with the product. As packing amounted to manufacture so far as TI 14-E was concerned, the product was liable to pay further duty under TI 14-E after packing and labelling, in addition to duty under TI 8 before such packing or labelling. As the appellant had misdeclared the product as a drug intermediate falling under TI 68 and had suppressed the fact that a product satisfying the specifications of TI 8 came into being first and further that the same was marketed under the monogram of the assessee, the longer period of 5 years would be available for effecting short recoveries both under TI 8 as well as under TI 14-E. The appeals were, accordingly, rejected.
5. The appellant carried the matter to the Customs, Excise and Gold (Control) Appellate Tribunal. By its order dated 2-9-1983, which is the order under challenge before us, the Tribunal dismissed the appeals. It referred briefly to the facts and arguments. It then observed that there could be little doubt that the assessment under TI 8 was correct and it did not need to spend much time on this. The main dispute, it said, was the assessment of the packed liquid paraffin under TI 14-E. In this behalf, the Tribunal agreed with the contention of counsel for the Excise authorities that the use of a name on the drums so that the drums and their contents could be connected to a particular person as the proprietor who manufactured or marketed the medicine was sufficient to class the goods as patent and proprietary medicine. As regards the time-bar, the appellants had made no declaration that the said liquid paraffin was sold in labelled drums. They had claimed that the said liquid paraffin was a drug intermediate, which was assessable free of duty under TI 68. The appellants had not reported that a TI 8 product was obtained. The appellants had, therefore, failed to make a complete and true declaration and the longer time of 5 years was, therefore, correctly applied. The Tribunal, accordingly, found itself unable to interfere with the decision of the appellate authority and rejected the appeals.
6. Let us clear the ground. In Collector of Central Excise v. Chemphar Drugs and Liniments (1989) 2 SCC 127, (1989) 40 ELT 276, this Court has held that in order to make the demand for excise duty sustainable beyond a period of six months and up to a period of five years, under the proviso to Section 11-A of the Central Excises and Salt Act (earlier Rule 10 of the Rules made under the said Act), it has to be established that the excise duty had not been levied or paid or short-levied or short-paid, or erroneously refunded by reasons of either fraud or collusion or wilful misstatement or suppression of facts or contravention of any provision of the Act or the Rules with intent to evade payment. Something more positive than mere inaction or failure on the part of the assessee or conscious or deliberate withholding of information when the assessee knew otherwise was required before the assessee could be saddled with any liability beyond the period of six months. Very fairly, Mr M. Chandrasekharan, learned Additional Solicitor General, appearing for the Excise authorities, did not contend that the appellant had been guilty of any fraud or collusion or wilful misstatement or suppression of facts with intent to evade the payment of excise duty. The demand for payment of excise duty for the period 19-6-1980 to 31-1-1981 in the sum of Rs 84,836.35 upon 1,93,056 litres made on 6-8-1981 must, therefore, fall.
7. Now, it will be remembered that both notices dated 6-8-1981 were issued by the Assistant Collector upon the basis that the appellant had cleared the said liquid paraffin which fell under TI 8 without payment of excise duty. Upon these notices the Assistant Collector passed the order dated 2-12-1981, confirming the demands. On 3-9-1982 upon classification lists that were filed by the appellants, the Assistant Collector came to the conclusion that classification of the said liquid paraffin under TI 68 was inadmissible and that the said liquid paraffin, since it was marketed in drums showing the monogram of the assessee, should properly be classified under TI 14-E. Accordingly, he directed demand notices to issue for short recoveries, after classifying the said liquid paraffin under TI 14-E. This contemplated that the said liquid paraffin, instead of being classified under TI 68, as claimed by the assessee, or under TI 8, as earlier held by the Assistant Collector, should now be classified under TI 14-E. The appellant went up in appeal before the Collector (Appeals) against the order classifying the said liquid paraffin under TI 8 as also against the order classifying it under TI 14-E. The Collector (Appeals) upheld both classifications. He held that the said liquid paraffin on manufacture fell under TI 8 because all the specifications thereof were satisfied. He then stated:
“After the first stage of manufacture the product is packed and labelled and sold for pharmaceutical purposes …. As ‘packing’ amounts to manufacture so far as the Tariff Item 14-E is concerned, the product will be liable to pay the further duty under Tariff Item 14-E after packing and labelling, in addition to duty under Item 8(a) before such packing or labelling.”
The Tribunal upheld the order of the Collector (Appeals). At no earlier point of time was the appellant intimated that he was being asked to pay excise duty on the said liquid paraffin at two stages; first, when it was manufactured and then when it was packed and labelled. The only controversy when the matter went to the Collector (Appeals) was whether the said liquid paraffin fell within TI 68 as the appellant urged or it fell under TI 8 as one Assistant Collector held or under TI 14-E as another Assistant Collector did. The entire demand upon the appellant, as imposed by the Collector (Appeals) and upheld by the Tribunal at the second stage under TI 14-E must, therefore, fall, very fairly. The learned Additional Solicitor General did not contend otherwise.
8. We are, therefore, required to answer this : Is the said liquid paraffin exigible to excise duty under TI 8, as urged by the learned Additional Solicitor General on behalf of the Excise authorities, or is it exigible under the residuary TI 68, as urged by Mr Salve, learned counsel for the appellant.
9. TI 8 read thus at the relevant time:
Item
Description of goods
Rate of duty
8.
Refined diesel oils and vaporising oil—
that is to say, any mineral oil (excluding mineral colza oil and turpentine substitute), which has its flashing point at or above seventy-six degrees of Fahrenheit's thermometer, and satisfies either of the following requirements—
(i) the oil has a flame height of ten millimetres or more but less than eighteen millimetres; or
(ii) the oil has a flame height of less than ten millimetres but has a viscosity of less than one hundred seconds by Redwood I Viscometer at one hundred degrees of Fahrenheit's thermometer, and contains less than one quarter of any one per cent, by weight of any bituminous substance.
(a) Refined diesel oils.
One thousand rupees per kilolitre at fifteen degrees of Centigrade thermometer.
(b) Vaporising oil.
Five hundred rupees per kilolitre at fifteen degrees of Centigrade thermometer.
Explanation I.— The expression ‘mineral oil’, ‘flashing point’ and ‘flame height’ have the meanings respectively assigned to them in Explanations I and II of Item No. 6 and in Explanation II to Item No. 7.
Explanation II.— This item does not include—
(a) base mineral oils (suitable for use in the manufacture of lubricating oils and greases) including mineral oils commonly known as transformer oil base stock or transformer oil feed stock; and
(b) lubricating oils including spindle oils, flush-ing oils and jute batching oils.
The Deputy Chief Chemist having opined that the said liquid paraffin had a flashing point above 76 degrees Fahrenheit and a flame height of more than 10 mm but less than 18 mm, the requirements of TI 8 were satisfied.
10. Mr Salve contended that since the said liquid paraffin was processed from spindle oil and spindle oil was expressly excluded from the purview of TI 8 by reason of clause (b) of Explanation II thereto, the said liquid paraffin fell outside TI 8. We are unable to accept this argument. Explanation II states that TI 8 does not include [in clause (b) thereof] lubricating oils, including spindle oils, flushing oils and jute batching oils. The exclusion, therefore, is of lubricating oils. Spindle oils are set out as one example of lubricating oils. It is, therefore, lubricating oils which fall outside the purview of TI 8. It is no ones case that the said liquid paraffin is a lubricating oil. The said liquid paraffin does not, therefore, fall outside TI 8 on this account. Mr Salve next contended that the said liquid paraffin was not a mineral oil and was thus outside the purview of TI 8. Spindle oil would be within the scope of TI 8 but for the exemption in favour of lubricating oils in Explanation II. This implies that spindle oil is a mineral oil for the purposes of TI 8. It is the case of the appellants that the said liquid paraffin is processed from spindle oil. The appellant's contention that the said liquid paraffin is not a mineral oil cannot, therefore, be accepted. It may also be pointed out that no evidence in support of this contention has been adduced; in other words, no evidence has been adduced to show that the said liquid paraffin has a chemical composition or derivation other than that mentioned in Explanation I of TI 8.
11. In the result, the order under appeal is confirmed only insofar as it upholds the imposition of excise duty in the sum of Rs 30,677.04 for the period 1-2-1981 to 31-7-1981. For the rest, the order under appeal is set aside, and the appeals allowed accordingly.
12. There shall be no order as to costs.