Standard Organics Ltd. v. Commissioner Of C. Ex., Hyderabad

[Order per : S.L. Peeran, Member (J)]. - This appeal arises from Order-in-Original No. 75/93, dated 21-4-93 passed by the Commissioner of Central Excise, Hyderabad confirming duty demand Rs. 2,99,968.48 under proviso to Section 11A of the Act and imposition of penalty of Rs 12,000/- under Rule 173Q of C.E. Rules. The appellants are manufacturers of bulk drugs Salbutamol Sulphate (besides other bulk drugs) classifiable under Heading 2907.90 of Schedule to the CETA, 1985 and the same was chargeable to duty at 5% adv. in terms of Notification No. 31/88, dated 1-3-88. During the period from 1-3-86 to 29-2-88, the said product was exempted under Notification No. 234/86, dated 3-4-86. However, the department through their investigating wing after visited made out a case against the appellants on the ground that an intermediate product (1.1 Dimethyl Ethyl) Amino methyl-4 Benezyloxy-1-3 Benzene Dimethenol emerged and the same was used in the final product already mentioned. The Revenue was of the opinion that this compound is known as a product in the market and capable of being bought and sold and hence they were required to pay duty as there was no exemption Notification and that the exemption Notification No. 217/86, dated 2-4-86 is applicable only if the final product is not exempted from whole of duty or charged to nil rate of duty. Hence, the proceedings were commenced and after recording the statements of several persons, the show-cause notice was issued to the appellants and demanding duty for the clearances made which were later confirmed. The appellant’s contention was that the intermediate product was not stable and it was an inprocess material and is not known in the trade as it is no shelf-life, nor capable of being marketable. They relied on Chemical Examiner's report, who himself had opined that it was not possible to say as to whether the intermediate product is stable or not. On that basis, they urged that when the experts opinion itself was in their favour and as there was no market enquiry made by the department and no evidence placed regarding its marketability, therefore, the item is not goods for excisability purposes. However, they also relied on several Judgments of Hon’ble Apex Court more particularly in the case of CCE v. Chemphor Drugs as reported in to argue that there was no suppression of facts and larger period was not invokable. Further reliance was made on Padmini Products v. CCE as reported in , wherein also the Hon’ble Apex Court had set aside the demands and held that there has to be a proof of intention to evade duty. However, the Commissioner did not accept the plea and held that the item is to be marketable as it was a stable product and also held that there was deliberate suppression of facts and not intimating to the department about the occurrence during the course of manufacture of exempted product and hence duty was confirmed.

2. Arguing for the appellants, the learned consultant Shri M. Chidananda Rao contended that the Revenue has not discharged its burden regarding the excisability of the product. The department was required to have been shown that the goods are stable in nature and are being capable of trade as an inprocess material for marketing purposes and as no such proof has been produced, hence the burden has not been discharged. He submits that the final product was exempted and reasonable & bona fide belief did arise that such goods were not excisable. Therefore, the Judgments of Hon’ble Apex Court ought to have been applied. He further relied on the Apex Court's Judgments subsequently delivered with regard to intention to evade duty must be proved as held in the case of HMM Ltd. and Tamil Nadu Housing Board v. CCE, Madras as reported in . With regard to marketability, he relied on the following judgments -

(a)     Bhor Industries v. CCE -

(b)     CCE v. Ambalal Sarabhai Enterprise - (S.C.)

(c)      Indian Cable Co. Ltd. v. CCE -

(d)     Moti Laminates P. Ltd. v. CCE, Ahmedabad -

(e)     Ion Exchange (I) Ltd. v. CCE -

(Tribunal) = 1999 (30) RLT 36 (CEGAT) wherein Diamino benzophenone (DABP) which was arising at intermediate stage was attempted to be levied duty which was not accepted by the Tribunal and even the benefit of larger period was given on the ground that the appellants held bona fide belief and the same was not dutiable in view of the item occurring in continuous process of bulk drugs. The learned counsel submits that these judgments should be applied to the facts of the case.

3. Learned DR, merely reiterates the findings given in the order impugned.

4. On a careful consideration of these submissions and on a perusal of the entire records and judgments cited above, we are of the considered opinion that the plea raised by the learned Consultant requires acceptance and the appeal has to be accepted. The reason being is that the final product which was bulk drugs namely Salbutamol Sulphate was falling under Heading 2907.90 of the Schedule and was exempted by Notification No. 234/86, dated 3-4-1986. During this manufacture, unstable solution came into existence which for the purpose of chemical identity was referred to as Benzyl (1-1 Dimethyl Ethyl) Amino Methyl-4-Benezyloxy - 1-3 Benzene Dimethenol. This was never removed nor it was marketed nor such product was available in the market for sale. The Chemical Examiner himself has not expressed an opinion as to whether the product impugned is stable or not. When the Chemical Examiner himself cannot express his opinion about the stability of the product and the Revenue has failed to produce any evidence to show such an intermediate composition arising during the manufacture of final product is known in the market in separate names and characteristics and marketed and sold and then, in such case, we have to view the matter in the light of the judgments of Hon’ble Supreme Court and other Tribunal judgments referred to above. The Revenue has failed to discharge its burden to show that the item in question is marketable and that it is goods. The matter has been gone into in great detail in the case of Tata Iron & Steel Co. Ltd. (supra) in respect of Crude Benzol, which has also occurred during the manufacture of benzene, benzol, oluene, toluol etc. and the Tribunal had examined the case in great length including the judgments of Hon’ble Supreme Court and noted that it was not the product which is marketed and cannot be held to be goods in the light of the judgment of Hon’ble Supreme Court rendered in the cases of Ambalal Sarabhai Enterprises, Moti Laminates, Bhor Industries (supra) and in the case of Union Carbide Ltd. as reported in and in the case of Andhra Pradesh State Electricity Board v. CCE, Hyderabad as reported in (S.C.) = 1994 (53) ECR 349 (SC). A similar examination was done by the Tribunal in a similar identical matter in the case of Jal P. Ltd. (supra) with regard to Diamino Benzophenone (DABP) and even after a detailed examination, the Tribunal accepted the plea that the department had not discharged its burden of marketability. Therefore, the crucial question of marketability is the test, which has to be applied in cases, where the department alleges that there occurred a product during the intermediate stage to be called as goods. In occurrence of any component or material which is not stable and not being capable of marketable then it cannot be held as goods as repeatedly held by the Hon’ble Supreme Court and the Tribunal in large number of judgments. In the present case no such evidence is available with regard to the stability and marketability of the product to come to a conclusion that during the manufacture of the final product Salbutamol Sulphate the inprocess material namely (1.1 Dimethyl Ethyl) Amino Methyl - 4 - Benezyloxy - 1-3 Benzene Dimethenol could be considered as goods at all. It is also not shown that the same goods were procured or sold for manufacture of the final product. In that view of the matter, the findings arrived at by the Hon’ble Supreme Court and also the Tribunal in the case of Tata Iron & Steel Co. Ltd. and Jal P. Ltd. (supra) would directly apply to the present case. Hence, we have to hold that the department has not discharged its burden to prove that the intermediate component to be held as goods and liable for duty. We have to accept the plea that when the main product was held to be exempted, therefore, the assessee could get a belief, that too a bona fide one, that any such unstabled components which arose during the manufacture of the final product would also be exempted. Therefore, the ratio laid down by the Hon’ble Supreme Court in the cases of Camphor Drugs, Padmini Products and Tamilnadu Housing Board could be applied to the facts of the present case and the department has not shown any material evidence that the appellants held deliberate intention to suppress the material facts for evading duty. In any case, the party had submitted the manufacturing process and it cannot be said the department did not have full knowledge about the process of manufacture of final product and consequence of any such intermediate components arising and the same could be considered as a product. Moreover, the departmental chemist himself had not been able to answer the question about the stability of the product impugned. In the absence of technical and chemical evidences or trade enquiries, the plea of the appellants both on merits and time bar is required to be accepted by allowing the appeal, with consequential relief, if any, as per law. Ordered accordingly.