[Order per : T.K. Jayaraman, Member (T)]. - These appeals have been filed against the Order-in-Original No. 08/2007, dated 27-4-2007 passed by the Commissioner of Central Excise, Bangalore-II Commissionerate.
2. Shri Willingdon Christian, the learned Advocate, appeared on behalf of the appellants and Shri K. Sambi Reddi, the learned JDR, represented the Department.
3. We heard both sides.
4. The issue involved is the excisability of the product ‘Polymer Modified Bitumen’. The appellants entered into an agreement with M/s. Afcons Infrastructure Limited. In terms of the Agreement, M/s. Afcons would supply bitumen and certain additives. The appellants would produce Polymer Modified Bitumen to enhance the quality of the bitumen, which is used in laying down the road or in the road construction. The point at issue is whether the process carried out by the appellants amounts to manufacture. Revenue proceeded against the appellants on the ground that the process carried out by them indeed amounted to manufacture. Actually, this process was carried out at the site. After issuing Show Cause Notice, the proceedings were taken up and the learned Adjudicating Authority, in the impugned order, had held that the process carried out by the appellants amounted to manufacture. He has given several reasoning. He has stated that the Polymer Modified Bitumen is entirely different from the base bitumen. The process enhances the quality. Not only that, the Base Bitumen is classifiable under one heading and the Polymer Modified Bitumen would be classified under a different heading in the Central Excise Tariff. He has also referred to the fact that the appellant, in their Bombay factory, were paying Central Excise duty on the said goods and there was no reason why they should not pay the duty here. The appellants had stated that the three Central Excise Commissioners had given a decision in their favour. They had also cited Board’s Circular as per which, modification of Asphalt mixture would not amount to manufacture. They have also stated that the item Polymer Modified Bitumen is not marketable because it has to be always kept in the hot condition and then used. So, they have raised the question of marketability also. They have also relied on the opinion of the retired Chief Chemist, Dr. Badhri Prasad where he has opined that the addition of certain polymers only enhances the properties and, therefore, the same would not amount to manufacture. The Commissioner has not accepted the opinion of the retired Chief Chemist. Moreover, the Commissioner has also not accepted the decisions of the three other Commissioners who have held that the process does not amount to manufacture.
4.1 The learned Advocate pointed out that the appellants already paid the Service Tax in respect of this process under the category of ‘Business Auxiliary Services’ and, therefore, they are not liable to pay any Central Excise Duty, as the process does not amount to manufacture. In any case, they said that the longer period cannot be invoked because there is a difference of opinion, it is a question of interpretation and they were under the bona fide belief that they would not be liable to Central Excise Duty when the process carried out by them at the site does not amount to manufacture. Hence, it was strongly contended that the longer period cannot be invoked.
4.2 The learned JDR reiterated the impugned order.
5. We have carefully gone through the records of the case and the various submissions made by the appellants and also the Revenue. We find that in this case, the raw material is Bitumen Grade 80/100 and the disputed product is Polymer Modified Bitumen. It is stated that there is a mechanical mixing of insignificant dose of polymer (about 1%) and the new product is also known as Bitumen only. We find that the mixing of polymer with duty paid bitumen has indeed changed its quality. But, as per the retired Chief Chemist’s opinion, no chemical change has taken place in this. It should also be seen that the Board has issued a Circular No. F. 88/1/87-CX.3, dated 16-6-1987 to the effect that slight modification of the grade or qualify of bitumen by air blowing in duty paid ‘straight grade’ bitumen to obtain improved ‘air-blown grade’ bitumen is not liable to any further duty of excise. The same analogy should be applied here. Further, the point that the appellants pay Service Tax on the process is also very relevant. It is not proper on the Department to levy Service Tax and Excise Duty on the same process simultaneously. Once the appellant pays Service Tax on the said process and the Department has not objected to it, then there is no question of treating the process as amounting to manufacture and levying the same to the Central Excise duty. The appellants have given elaborate details as to why the bitumen is modified by addition of polymer. They have also relied on a very large number of case-laws. The Supreme Court, in the case of Tungabadhra Industries Ltd. v. Commercial Tax Officer reported in AIR 1961 SC 412 has held that the molecular change caused to ground nut oil by hydrogenation did not result into that oil ceasing to be groundnut oil. In the case of CCE v. Jayant Oil Mills Pvt. Ltd. - , the Tribunal has held that the process of lowering of castor oil did not debar from such its character and property that it is no longer vegetable oil. Further, the appellant have relied on the following case-laws :
(a) XI Telecom Ltd. v. Superintendent of C. Ex - (A.P.)
(b) Punjab Wireless Systems Ltd. v. CCE - (T)
(c) Siechem v. CCE - 1999 (80) ECR 795 (T)
(d) Dalmia Inds. Ltd. v. CCE - (T) = 1999 (32) RLT 772 (CEGAT)
(e) Commissioner of Sales Tax v. Trinity Products - 1975 (35) STC 502 (Bom.)
(f) CCE v. Ashok Leyland Ltd. - 1997 (73) ECR 130 (T)
(g) Bajaj Auto Ltd. v. CCE - 2000 (39) RLT 1003 (CEGAT)
(h) T.I. Diamond Chain Ltd. v. CCE - (T) = 2000 (90) ECR 192 (T)
(i) Calcutta Tramways Co. Ltd. v. CCE - (T)
(j) CCE v. Sabhyata Plastics Ltd. - (T); (S.C.)
(k) Deputy Commr. of Sales Tax v. Pio Food Packers - 1980 E.L.T. 343 (S.C.)
(l) Sterling Foods v. State of Karnataka - (S.C.)
(m) Union of India v. J.G. Glass Inds. Ltd. - (S.C.) = 1997 (23) RLT 768 (S.C.)
(n) CCE v. Anil Chemical (P) Ltd. - (T)
(o) CCE v. Bakul Aromatics & Chemicals Ltd. - (T)
(p) S.D. Fine Chemical P. Ltd. v. CCE - (T)
(q) CCE v. Jayant Oil Mills - (T)
(r) Tungabhadra Inds. Ltd. v. Commr. Sales Tax - AIR 1961 S.C. 412
(s) Moti Laminates P. Ltd. v. CCE - (S.C.)
(t) CCE v. Jayant Oil Mills P. Ltd. - (S.C.)
(u) CCE v. Tikitar Inds. and Tiki Felt Inds. v. CCE - (T) = 2000 (39) RLT 796 (CEGAT)
(v) S.T.P. Ltd. v. CCE - (T)
(w) Amar Bitumen & Allied Products P. Ltd. v. CCE - (T) = 2005 (67) RLT 711 (CESTAT)
(x) National Tar Products v. CCE - (T) = 2000 (37) RLT 804 (CEGAT)
(y) CCE v. Tikitar Inds. - (S.C.)
(z) CCE v. Amar Bitumen & Allied Products Ltd. - (S.C.)
5.1 The argument of the Commissioner is that the Tariff classification of the Bitumen and Polymer Modified Bitumen are different. But, that is not important. What is important is whether the process carried out by the appellants amounts to manufacture and the opinion of the retired Chief Chemist cannot be just ignored. The most important question to be considered is the marketability. It has been stated by the appellants that the Modified Bitumen, when processed in the hot mix plant, is not marketable and it is required and meant for immediate use for road construction at site. It is not a marketable product, which is manufactured in the factory for storage and/or for sale from such factory. They have also stated that Polymer Modified Bitumen can be stored from 15 days to a month only in hot condition at 160°C in a hot tank with constant stirring. Otherwise the polymer and bitumen will get separated and it will not be a Polymer Modified Bitumen anymore. It is for these reasons, they have stated that they have never been processing Polymer Modified Bitumen in their factory and it is always processed at the site for it can be used immediately in the hot mix operation. In these circumstances, Polymer Modified Bitumen cannot be bought and sold in the market since it would be fit for use only when it remains in molten condition and at a temperature around 160°C. It cannot be stored unless it is kept in continuous agitated state at 160°C to avoid separation of Polymer and Bitumen. This point has not been appreciated by the learned Commissioner. In these circumstances, we are of the view that the impugned product is not excisable. The process carried out by the appellant does amount to manufacture. Hence, the demand of duty is not correct. Also, we are of the view that there is no justification in invoking the longer period especially when three Commissioners have held that the product cannot be charged to duty. In these circumstances, there is no justification for demand of duty and there is no justification for imposition of any penalties. Hence, the impugned order has no merit. We set aside the same and allow the appeals with consequential relief.
(Pronounced in open Court on 25-9-2008)