ORDER
S.L. Peeran, Member (J)
1. The appellants are aggrieved with the order-in-appeal passed by Collector (Appeals) dated 16-2-1993.
2. By this order the Learned Collector (Appeals) confirmed the Assistant Collector’s order-in-original, whereby three demands of Rs. 56,315/-, Rs. 63,820/- and Rs. 57,793/- against three Bill of Entries has been confirmed, by denying the exemption of additional duty and S.E.D. under Notification No. 19/88-C.E. as amended by Notification No. 27/91-C.E. By these three Bill of Entries the appellants had imported “Zinc Dross (Ball-Milled)” approx. 25% pebbles. The importer had sought classification under Customs Tariff under Chapter sub-heading 2620.19 along with benefit of Notification No. 34/90, dated 20-3-1990 as amended by Notification No. 233/90, dated 3-8-1990 at the rate of 20% ad valorem (basic Customs Duty) plus auxiliary duty at the rate of 40% as per Notification No. 108/91, dated 25-7-1991. The goods were duly examined and assessed as above and allowed clearance. However, the department had issued show cause notices dated 20th, 21st December, 1991 under Section 28 of the Customs Act, 1962 raising demands in respect of C.V. duty at the rate of 10% CVD + 10% SED in respect of the said Bill of Entries. This was resisted by the importer on the ground that no Notifications or any other specific levying clause of this duty had been quoted in the said notification to enable them to interpret and reply to the same. They had also stated that earlier no such duty has been imposed in respect of said goods. They had stated that in the absence of any specific levying clauses, they have inferred that such charged demand has been issued in the face of interpretation of Notification No. 143/91-Cus., dated 1-11-1991 were under Additional Customs Duty on the goods falling under Chapter 26 of the First Schedule to the Customs Tariff Act, 1975 has been exempted. They have stated that this notification had been issued on 1-11-1991, and, therefore, it has to be interpreted that earlier to this date i.e. 1-11-1991 the Additional Customs Duty was chargeable on these goods falling under Chapter 26 of the Customs, or Central Excise Tariff Act and, therefore, these must be the cause for issue of the said short levied demand. On the premise of such understanding, the importer had stated in their reply, that the additional customs duty i.e. CVD is in lieu of equivalent to Central Excise Duty chargeable on the similar goods if manufactured in India. They have stated that in their case the goods falling under Chapter 26 of Central Excise Tariff were totally exempt from the Central Excise duty and as such they were not liable to pay the duty, as demanded by the department. They also stated that as per Notification No. 19/88-C.E., dated 1-3-1988 the goods falling under Chapter 26 were exempted from Excise duty provided no Modvat on the inputs used in them had been availed. They have stated that this proviso was only applicable in case the goods were manufactured in India and the Modvat availed on the inputs/raw materials used in them. Therefore, they have pleaded that in the face of this inference, the goods in question having been imported, there was no question of Modvat on their inputs/raw materials and, therefore, the short levy demand was without valid authority of law.
3. The ld. Assistant Collector after due adjudication rejected their plea on the ground that the Additional duty plus SED is not exempted under any of the Notification. The Notification No. 19/88-C.E. as amended by Notification No. 27/91 is applicable only to those goods where no credit of duty paid on inputs used for manufacture of such goods has been taken under Rule 56A or 57A of Central Excise Rules, 1944. The said Notification is applicable only to those goods which are of Indian origin and as the present goods are imported, the applicability of notification does not arise.
4. The Ld. Collector confirmed the Assistant Collector’s finding and has applied the ratio of Bombay High Court’s judgment rendered in the case of Ashoka Traders as reported in 1987 (32) E.L.T. 262.
5. Arguing for the appellants, the ld. Advocate, Shri V. Lakshmi Kumaran submitted that the importer had not taken any credit on the inputs used in the manufacture of the imported product and, therefore, they were entitled to the benefit of the Notification in question. He submitted that the ratio of Ashoka Traders is inapplicable to the facts of the present case. He submitted that the issue is covered by the ruling rendered by the Hon’ble Supreme Court in the case of Thermax Private Limited v. Collector of Customs as reported in 1992 (62) E.L.T. 352. He submitted that the Madras High Court has also followed the ratio of the Hon’ble Supreme Court’s ruling in the case of Mysore Petro Chemicals Ltd. v. Assistant Collector of Central Excise as reported in 1994 (73) E.L.T. 33. There is also a judgment of Bombay High Court in the case of Century Enka Ltd. and Ors. v. Union of India & Two Others as reported in 1982 (10) E.L.T. 64 and another in the case of Collector of Customs v. Hindustan Electrographite Ltd. as reported in 1993 (65) E.L.T. 46 (Tri.). The Tribunal’s Larger Bench judgment in the case of Collector of Customs v. Carborundum Universal as reported in 1988 (34) E.L.T. 300 is also applicable to the facts of the case.
6. Replying to the arguments of the ld. advocate, Shri V.C. Bhartiya, the ld. JDR submitted that the ratio of the Supreme Court’s judgment rendered in the case of Thermax Private Limited and the observations made particularly in para 13 applies to the Revenue. He also submitted that the Notification in question is only for Indian manufacturers and it cannot be made applicable to the imported goods. He has relied on the ruling rendered by Bombay High Court in the case of Paragon Textile Mills (P) Ltd. v. Union of India as reported in 1990 (56) E.L.T. 335 (Bom.). He submitted that if the terms of the Notifications are not strictly applied then the very notification would become otiose.
7. We have heard both the sides and have considered the submissions made by them. The only question that has to be decided in this appeal is as to whether the benefit of the Notification exempting CVD + SED can be denied to the importer on the ground that the proviso to the Notification No. 19/88-C.E., dated 1-3-1988 has not been satisfied in the present case.
8. The Notification No. 19/88-C.E., dated 1-3-1988 as amended by Notification No. 27/91, dated 25-7-1991 is reproduced herein below :
“Exemption to goods falling under Chapter 26 : In exercise of the powers conferred by Sub-rule (1) of rule 8 of the Central Excise Rules, 1944, the Central Government hereby exempts goods falling within Chapter 26 of the Schedule to the Central Excise Tariff Act, 1985 (5 of 1986), from the whole of the duty of excise leviable thereon which is specified in the said Schedule.
Provided that no credit of duty paid on the inputs, used in the manufacture of said goods, has been taken under rule 56 or rule 57A of the Central Excise Rules, 1944.
(Notification No. 19/88-C.E., dated 1-3-1988 as amended by Notification No. 27/91-C.E., dated 25-7-1991.)”
The proviso to this notification states that the exemption is available to the goods falling under Chapter 26 of the Schedule to the Central Excise Tariff Act, 1985 from the whole of the duty of Excise provided that no credit of duty paid on the inputs used in manufacture of the said goods has been taken under the relevant rules. It is the contention of the importer that since the goods have been imported, the question of taking credit of duty in respect of inputs vised in the manufacture of said goods does not arise and, therefore, this proviso to the notification cannot be made applicable in respect of imported goods. It is also submitted that on this premise, the benefit of the Notification cannot be denied, otherwise there will be disparity between the rate of duty in respect of imported goods and the indigenous goods and that would result in escalation of prices. This would also create difficulties for the importers and genuine manufacturers and the Government does not have any such intention to create disparity between imported goods and indigenous goods. It is also pleaded that the Hon’ble Bombay High Court’s judgment in the case of Ashok Traders inapplicable in the light of earlier judgment of the Bombay High Court as rendered in the case of Century Enka Ltd. and Ors. v. Union of India & Two Others as well as the judgment of the same Bombay High Court’s judgment rendered in the case of Paragon Textile Mills (P) Ltd. v. Union of India. It is their submission that the later judgment of the Bombay High Court in the case of Paragon Textile Mills (P) Ltd. would apply. It has also been submitted that the Larger Bench of the Tribunal in the case of Carborandum Universal has noted about the Bombay High Court in Ashok Traders case had not noticed the judgment of Century Enka Ltd. It is also pleaded that the judgment of the Larger Bench of the Tribunal in the case of Carborandum Universal as well as Bombay High Court’s judgment in the case of Paragon Textile Mills (P) Ltd., Century Enka Ltd. and that of the Supreme Court’s judgment rendered in the case of Thermax Pvt. Ltd. and subsequent rendering of the Tribunal following the Supreme Court’s judgment in the case of Hindustan Electro-graphite Ltd. would settle the controversy in the present case.
9. On a careful consideration of the pleadings made by the ld. Advocate, we are satisfied that the plea taken by the appellant has force and requires consideration. The Tribunal in the case of Hindustan Electro-graphite Ltd. has considered this point in the light of Larger Bench’s judgment in the case of Carborandum Universal and that of Supreme Court’s judgment in the case of Thermax Pvt. Ltd. and has held that the exemption from payment of CV duty under a notification issued under SED is also applicable to the liability for payment of additional duty under Customs Act and of the Customs Tariff Act. The ratio of the judgment as in para 6 & 7 is noted herein below :-
“6. We have considered the submissions. The real controversy in the instant case is in respect of accord of benefit of exemption Notification No. 121 /62-C.E., dated 13-6-1962 issued under Rule 8(1) of the Central Excise Rules, 1944. According to the Revenue, the benefit would be available only with reference to Central excise duty payable under the CET, if the goods have been manufactured in India and that the benefit of Notification could not be availed with reference to liability for payment of additional duty of Customs under Section 3(1) of CTA, whereas the case of the Respondents is that the exemption for payment of Central Excise duty under a Notification issued under the Central Excises and Salt Act, 1944 will also apply with reference to liability for payment of additional duty of customs under Section 3(1) of CTA. In the case of Collector of Customs Madras v. Carborandum Universal, supra the Larger Bench of the Tribunal after thrashing out the case law on the point held by the majority that the exemption for payment of Central Excise duty under Notification issued under the Central Excises and Salt Act, 1944 will also apply with reference to liability for payment of additional duty of customs under Section 3(1) of the Customs Tariff Act, … i.e. imported goods would not be liable to additional duty of Customs if the benefit of Central Excise exemption Notification is available to it. The Apex Court has also taken the same view in the case of Thermax Private Limited v. Collector of Customs, supra, wherein repelling the contention advanced by the Revenue that the procedures of Chapter X is designed to facilitate clearances only for the purposes of Central Excise and that the said procedure cannot be fulfilled at all in the case of an Importer, it observed as follows :-
“It will at once be seen that there is nothing in the scheme of the rule which makes it inapplicable to an importer of goods. The assessee here has imported the goods and is selling them for use in a factory, a use which qualifies for the concession under the S. 8 notifications. The types of use specified in the concessions notified could be of any kind and, even in the notifications under our consideration, they are many and varied. In respect of items falling under S. Nos. 3 and 8, in particular, the actual users may be private individuals or authorities and need not necessarily be manufacturers using the goods in question in an “industrial process” in a narrow sense of that term. For instance, any computer room, hospital or factory purchasing parts of refrigerating and air-conditioning appliances and machinery for use in the computer room, hospital or factory would be entitled to claim the concession by following the prescribed procedure. Only, for claiming a concession in excise duty the user should be the manufacturer himself or he must have made the purchase from a manufacturer liable to pay excise duty on the item whereas in regard to a claim for CVD concession the supplier will be an importer. The latter will be entitled to sell the goods at the concessional rate of duty (or at nil rate if there is an exemption) if the purchaser from him who puts the goods to the specified use (whether a manufacturer or not) fulfils the requirements of Rule 192. Since the concession under 192 rums only on the nature and use to which the goods are put by the user or purchaser thereof and on whether he has gone through the procedure outlined in Chapter X, it would not be correct to deny it to a supplier of such goods on the ground that he is an importer and not a manufacturer. That aspect is provided for by Section 3(1) of CT Act which specifically mandates that the CVD will be equal to the excise duty for the time being leviable on a like article is produced or manufactured in India. In other words, we have to forget that the goods are imported imagine that the importer had manufactured- the goods in India and determine the amount of excise duty that he would have been called upon to pay in that event. Thus, if the person using the goods is entitled to say that the CVD should only be the amount of concessional duty and, if he has paid more, will be entitled to ask for a refund. In our opinion, the Tribunal was in error in holding that the assessees could not get a refund because the procedure of Chapter X of the rules is inapplicable to importers as such.”
7. Thus, following ratio of the said decision we uphold the impugned Order-in-appeal passed by the Collector (Appeals) and reject the present appeal filed by the Revenue with consequential relief to the Respondents according to law.”
As can be noticed from the Paragaon Textiles Mills (P) Ltd. and the earlier judgment of the Bombay High Court in the case of Century Enka and that of Larger Bench and also that of the Supreme Court’s judgment in the case of Thermax Pvt. Ltd., the ratio arising therefrom is that exemption of additional customs duty (CVD) available under a notification to Excise duty cannot be denied merely because of certain proviso in a notification. In the light of ratios rendered in these cases, the contention taken by the appellant is well founded and in that view of the matter, the appeal is allowed.
S.K. Bhatnagar, Vice President
With due respects to Hon’ble Member (}), my views and orders in the matter are as follows :-
10. First and foremost, I observe that the demand notices in question do not indicate the grounds/reasons or the basis on which they have been issued and the amounts in question are being demanded. The appellants had protested about this fact and specifically mentioned in the reply to the show cause notices addressed to the Asstt. Collector that ‘no notification or any other specific levying clause’ has been quoted. However, neither the Asstt. Collector has dealt with this aspect nor the Ld. Collector (Appeals). It was however, an important point as non-mention of any ground or reasons results into a handicap for the assessee or the defendant. It makes it difficult for him to effectively defend himself and give a suitable reply.
11. The second point which I observe is that the demand notices are in respect of (i) C.V.D. and (ii) ‘S.E.D.’ However, the reply to the show cause notices and the AC’s order-in-original both deal with Notification No. 19/88 (as amended by 27/91) and 143/91 and the demand with reference to ‘SED’ remains uncovered by the appellant’s reply as well as by the discussion and findings in the Assistant Collector’s order although in the operative portion, the Assistant Collector chooses to confirm both the additional duty as well as ‘SED’.
12. The Collector (Appeals) also deals with only the C.V.D. aspect and leaves out S.E.D. The orders of the lower authorities, are therefore, non-speaking in so far as S.E.D. was concerned.
13. Be that as it may, I find that from the very beginning at the original stage right through the appellate stage to the hearing before us, the case has proceeded on a track which it was not required to follow, having missed a major premise which will affect the entire proceedings.
14. This point relates to classification of zinc dross under Customs Tariff Heading 2620.19 for customs duty purposes and Central Excise Tariff Heading 2620.00 for additional duty purposes.
15. It is interesting to note that neither the Show Cause Notice(s) nor the Asstt. Collector refers to the basis of initial classification at the time of assessment or the proposed re-assessment for C.V.D. and S.E.D. purposes. As already observed the Show Cause Notices do not mention even notifications although the A.C. obliges us in this respect and the Collector (Appeals) also does not deal with this aspect and only at the time of hearing before the Tribunal the hearing Nos. for classification purpose were mentioned and debated. But even at this stage, a fundamental aspect appears to have been somehow missed.
16. Here, I am referring to the point as to whether the zinc dross was classifiable under 26.20 at all for additional duty purposes. It is required to be seen in this connection that under C.E.T. Heading No. 26.19 (referred to by both the sides for the sake of comparison) and 26.20 apparently refer to the residues which arise during the course of manufacture of metals, as evident from the clear use of the words ‘from the manufacture of iron or steel’ in the case of 26.19 and in centra-distinction to the same the use if the words ‘other than from the manufacture of iron and steel’ in Heading No. 26.20.
17 The HSN note on 26.19 explicitly refers to the slabs “obtained during smelting of iron ore (blast furnace slags), the refining of the iron or the manufacture of steel (converter slag).”
18 Similarly, HSN Note on 26.20 also mentions, while referring to ‘ash’ and ‘residues’ covered by this heading that the result from the treatment of ores of intermediate metallurgical products (such as matts or from electrolytic chemical or other processes which do not involve the mechanical working of metal”. While indicating what this Heading includes, various processes including galvanisation have been mentioned but the main thing to be seen is that while for customs purposes (that is the basic duty purposes), it is immaterial whether the item being imported is a manufactured or an unmanufactured product, but, for additional customs duty (C.V.D. and S.E.D. purposes) we have to see whether the item in question is a manufactured product in the normal sense or one deemed to be a manufactured product under some legal fiction created by Central Excise Act that is to say an excisable product. This was important because only an excisable product could be charged with a countervailing duty.
19. In the case of Central Excise Tariff which comes into picture because of the Custom Tariff Act Section 3 Heading 26.20 could cover only such ash and residues which were the result of a manufacturing process and could be deemed as manufactured product for the purposes of the Central Excise Schedule and Chapter 26 thereof.
20. Chapter 26 clearly deals with only ores and concentrates and residues or wastes etc. which were deemed to be excisable products and processes with which we are concerned here could only be the processes which were deemed to be manufacturing processes.
21. The Learned Counsel has produced technical literature about zinc wastes and their utilisation which represents proceedings of seminar organised by the Indian Hot Dip Galvanisers as also extract from Chapter 4 of a paper by Mr. Bailey R.N. published in the account of proceedings at the First International Conference on Hot Dip Galvanising as also abstracts from “Galvanising Residues and their Utilisation” by Dr. R.N. Dash.
22. All this material goes to show that the Dross being referred to here was the galvansing dross and galvanising has not been indicated or recognised as a process of manufacture under Chapter 26. Therefore, if the Dross in question was a galvanising residue then it was not an excisable product at all and therefore, no excise duty was leviable and hence, no question of any exemption. The Ld. Collector (Appeals) has noted the appellant’s contention that it was not a manufactured product but has missed the point that if so, the product would not be excisable at all.
23. The appellants have however, not produced any evidence in support of their contention that the zinc dross in question was a galvanising residue only: They have not produced any correspondence with the suppliers or any other commercial literature such as catalogue, bulletin, pamphlet etc. or a copy of the agreement or any other document which would go to show that the item in question was only galvanising residue and not a residue obtained during a manufacturing process or refining process or any other process deemed to be a manufacturing process nor is there any evidence to show that such dross could arise only during the course of galvanising and not otherwise.
24. It is significant in this connection, that from the extracts of the technical papers produced by the Ld. Counsel, it is evident that galvanisers dross “settles there in a somewhat party condition” and it “is taken out of the galvanising bath in the form of lumps”. “Usually it is moulded and cast as slabs which are called ‘hard zinc’ or ‘hard spelter'”; Whereas the Bill of Entry description is “zinc dross (ball-milled) approximately 29% pebbles. This requires an explanation.
25. It is interesting to note in this connection that HSN notes on 26.20 mention that the Heading include (1) Mattes and slags or dross, for e.g. those which in zinc and (2) hard zinc spelter residue from galvanisation by dipping in molten zinc and rsidues from electrolytic metal refining.
26. In view of the above position, I hold that the departmental action suffers from violation of principles of natural justice. The authorities below have not passed a speaking order inasmuch as they are silent over the question of excisability (in case the material was found to be excisable) and the classification thereof which was basic to the determination of liability, if any.
27. Both the sides have not produced sufficient technical and commercial literature which could clinch the issue at this stage.
28. In view of the above position, the impugned order is set aside and the matter is remanded to the Assistant Collector for de novo consideration in accordance with law and the above observations with the direction that the principles of natural justice should be duly observed.