ORDER
V.P. Gulati, Member (T)
1. These appeals are against the order of the CCE (A), Madras under which duty has been demanded from the appellants for the period and 21-9-1992 to 28-2-1993 and the proviso to Section 11A (1) of the CESA, 1944 has been invoked for demanding duty for the extended period of 5 years.
2. Carbon dioxide was obtained by the appellants as a by-product during the process of manufacture of beer and the same was used within the factory in bottling of beer. Carbon dioxide was obtained by fermentation process of wort. The Carbon dioxide gas is drawn through a pipe from the fermenter and taken to the float from where it is drawn to the compressor where it is compressed to 10.5 kg/cm pressure from where the same is passed through a pipe line to gas distributor from where it is injected back to the final beer at 3.5 kg/cm2 pressure to a gas volume of 2.8 v/v.
3. The learned lower authority took note of the position prevailing before introduction of the new Tariff Act, 1985. The appellants took the plea before the said gas manufactured by them was not marketable as it did not conform to the ISI Standard. The learned lower authority however, after taking note of the appellants’ plea has observed as under :
9. In view of what has been discussed in the preceding paragraphs. I am of the view that the carbondioxide arising as a by-product in the manufacture of Beer, is an excisable commodity falling under S.H. 2811.10 of the Central Excise Tariff Act, 1985.I am also of the view that the excisability of this material is not affected because of its coming into existence as a by-product in the process of manufacture of another item. In the present case, the fact that the carbondioxide does not conform to the ISI standards will not affect the excisability of the said carbondioxide in view of the fact that tariff sub-heading No. 2811.10 does not make any mention about the purity required or that the gas should be according to ISI specifications. In fact, the duty on carbondioxide not conforming to the ISI specifications 307/66 is fully exempted vide notification No. 417/86-C.E., dated 15-9-1986 as amended provided that such carbon-dioxide is supplied to and used in a liquefied or solidified carbondioxide bottling plant from where the liquefied or solidified carbondioxide is cleared on payment of duty. By implication, such of the carbondioxide not conforming to ISI specifications and which is not used in a bottling plant has to pay duty. In terms of notification No. 40/85-CE., dated 17-3-1985 as amended Carbonic Acid (Carbondioxide) used for industrial purpose is also exempted from the whole of duty but this exemption is not applicable to the carbonic acid (carbondioxide) used in the manufacture of Beverages or aerated water. Therefore, the benefit of this notification also is not applicable to the manufacturers.
10. Thus, the duty on the carbondioxide manufactured and captively consumed by the manufacturers appears to be demandable as mentioned in the show cause notices. Since the manufacturer of carbon-dioxide and its use in the production of beer had not been intimated to the Department invoking the proviso to Section 11-A appears to be in order. Having manufactured the carbondioxide without licence/registration required under Section 6 of the Central Excises and Salt Act, 1944 read with Rule 174 and having used the carbondioxide produced and captively consumed without following Central Excise procedure and without debiting the duty in the P.L.A., the manufacturer had contravened Rule 9(1) read with Rule 173B and 173G and rendered themselves liable for penalty under Rule 173Q of Central Excise Rules, 1944.
4. The learned Consultant for the appellant pleaded that the issue regarding levy of duty in respect of carbon dioxide produced in the appellants’ factory as a by-product has been a subject matter of dispute going back to the early 80s. In this connection he referred to the order-in-appeal dated 18-2-1983 bearing No. 16/83 (G) passed by the then Collector Central Excise (Appeals) Shri I.J. Rao. He pleaded that at that time the issue posed was in the context of whether carbon dioxide gas manufactured in the appellants factory fell under Heading 14H or under tariff Heading 68 of the CET. He pleaded that the appellants claimed the item under heading 68 and for reason of captive consumption had claimed exemption under Notification 118/73 available in respect of Tariff Item 68 goods captively consumed. The authorities however, sought to classify the same under Heading 14H. The learned CCE(A) did not decide the issue on merits and held as under :
On a perusal of the records I do not see that in the instant case any expert opinion in respect of the classification of the CC»2 was obtained, especially when there was a conflict between the Department and the appellants in relation to its classification. In the absence of such opinion obtained from the expert neither the Department could say that the gas in question would fall under Item 68. Therefore, unless expert opinion is called for, the classification of the product under an item of tariff cannot be decided. In the circumstances I set aside the impugned order without prejudice to merits of the case on either side so that the samples of product may be drawn and sent to the expert like Chemical Examiner for his opinion about its classification and then the matter may be decided, after supplying the copy of the Chemical Examiner’s opinion to the appellants and inviting their arguments, if any.
He pleaded that in spite of the clear direction given by the CCE (A) that expert opinion should be obtained before deciding the classification issue none has been obtained until now. He pleaded that when there was genuine doubt whether the appellants’ goods i.e. carbon dioxide could be considered for the purpose of levy of duty the CCE (A) felt it necessary that expert opinion should be taken. The Department before fastening heavy demand on the appellants should have first obtained expert opinion in this regard. His plea is that carbon dioxide manufactured in the appellants’ unit does not conform to the ISI standard and it could be considered only as a brewery gas which could not be considered as carbon dioxide for the purpose of excise levy under tariff heading 14H. Notwithstanding the above, he pleaded that the appellants during the period for which demand has been raised have furnished to the authorities figures of carbon dioxide gas captively consumed in their factory and from the copies of correspondence filed in the paper book it is seen that from 5-4-1986 after the new tariff Act, 1985 came into force, the question of levy of duty on carbon dioxide consumed by the appellants was a subject matter of correspondence between the appellants and Department. From 17-3-1986 the appellants informed the Supdt. that they had not been collecting and utilising carbon dioxide produced from fermentation in their factory since December 85 and that they were purchasing carbon dioxide from outside. They intimated to the Department when they started utilising the same. This was in reply to the letter of the Supdt. dated 12-3-1986 earlier received by them. The appellants were also informed by the Department that they would be liable to pay duty. In case the clearances of the carbon dioxide gas exceeded Rs. 7.5 lakhs, vide letter dated 21-1-1985. The appellants vide their letter dated 10-4-1987 addressed to the Supdt. of Central Excise, Ramachandrapuram (AP) have furnished the return of carbon dioxide captively consumed from 1-4-1986 to 3-3-1987. .Subsequently, again vide their letter dated 11-4-1989 they have furnished the figures of carbon dioxide captively consumed for the period from 1-4-1988 to 31-3-1989. Subsequently vide their letter dated 11-4-1990, the appellants have furnished the similar information for the period 1-4-1989 to 31-3-1990. Strangely enough, there is a subsequent letter addressed to the appellants by the Supdt. and which has been endorsed to the AC Central Excise, Kakinada dated 5-6-1990 wherein the following is set out:
2. The following information may kindly be furnished to this office to study the matter, with ref. to the orders on the subject.
(i) The Purpose for which the return has been filed by you.
(ii) A detailed report on the manufacturing process of carbon dioxide (CO2) in your factory and when and where it has been obtained.
(iii) How the carbon dioxide has been utilised in your unit,
(iv) Why no Central Excise licence in Form L4 has been taken by you for the production of carbon dioxide, which is an excisable commodity under sub-heading No. 2811.10 of the Central Excise Tariff Act. 1985.
(v) How you have become eligible for exemption from payment of duty on the CO2 produced by you.
3. The production clearance figures for the last 5 years may be furnished. The appellants in their letter dated 6-6-1990 addressed to the Supdt. of Central Excise have referred to this letter informing the Supdt. that they will be sending necessary information as sought for. On 14-6-1990 they have furnished the information in regard to the above as under :
1. The return has been filed by us for your information and record. We had been filing our returns to the office of the Superintendent for Central Excise, Ramachandrapuram since the year 1981-82.
2. We are not manufacturing CO2 gas in our factory. The CO2 gas is evolved during the fermentation process in manufacturing beer.
3. The evolved CO2 gas during fermentation is used for injecting into the final beer at a desired level before it is bottled.
4. The carbon dioxide gas evolved during fermentation in our brewery falls outside the purview of T.I. 14H of Central Excise tariff as we do not purify the gas nor liquify it and as such the gas does not conform to the marketable grade as per the I.S.I, specifications.
5. We have become eligible for exemption from payment of duty as per the Central Excise notification No. 175/86 which has been published in Part II, Section 3, Sub-section (1) of the Gazette of India extraordinary dated 1st March, 1986.
Also, by the order in appeal No. l6/83(G), dated 16-2-1983 by the Collector (Appeals) Central Excise, Madras received through the office of the Superintendent, Central Excise, Ramachandrapuram.
6. As we are not manufacturing CO2 gas or sell it, no quantity has been cleared for sale from the unit.
We have filed the returns in duplicate showing the captive consumption to the office of the Superintendent of Central Excise, Ramachandrapuram on or before 15th April every year. Further, they have received a reply from the Supdt. dated 14-7-1990 asking them to furnish a copy of the order of the CCE (A) bearing No. 16/83 dated 18-2-1983. The appellants vide their letter dated 12-4-1991 furnished the figures of captive consumption of carbon dioxide for the period 1-4-1989 to 31-3-1991 and again vide their letter dated 11-4-1992 they have furnished the figures of captive consumption of carbon dioxide. The Supdt. sent a letter to the appellants, which reads as under :
GOVERNMENT OF INDIA
OFFICE OF THE
ASSISTANT COLLECTOR OF CUSTOMS & CENTRAL EXCISE
KAKINADA DIVISION: KAKINADA – 7
SHRI N. VENKATESWARLU, SUPERINTENDENT, ANTI EVASION Unit.
Assistant Collector of Central Excise, Kakinada – 533 007
M/s. Artos Breweries Ltd.
Draksharama Road, Ramachandrapurarm Investigation No. 8/ 92AE Dated: 30-7-92 MOST IMMEDIATE CENTRAL EXCISE Manufacture of CO2 Gas falling under sub-heading No. 2811.10 of Central Excise Tariff Act, 1986 - Request for submission of particulars - Regarding. It is observed that during the course of manufacture of 'BEER' in your factory CO2 Gas is generated as a by-product and the same is consumed by you in the manufacture of 'Beer' itself.
2. In this connection, you are hereby directed to furnish the total quantity of CO2 Gas produced as a by-product during the course of manufacture of ‘Beer’ and value thereof for the years 1987-88,1988-89,1989-90,1990-91, and 1991-92 and for 1992-93 upto JULY, 1992. As this product manufactured by you appears to be examined investigated into the levy of Central Excise duty, immediate respond is requested for furnishing the particulars.
Yours faithfully
Sd/-
(N. VENKATESWARLU)
SUPERINTENDENT OF C.E. (A.P.)
KAKINADA DIVN.
The appellants subsequently exchanged some correspondence with the Supdt. in their last letter dated 28-10-1992 wherein the following is set out:
During the process of Fermentation of .Beer, CO2 is evolved naturally and said CO2 is sent to the Compressor through Pipe line and after compressing same, again through a Pipe Line. It is sent to Beer Tanks where the CO2 is injected and mixed with Beer to a required volume of 2.8. The CO2 so evolved during the process explained above is not collected in Cylinders/Tanks and is not stored before using the same in the manufacturing of Beer. The CO2 so evolved during the Fermentation of Beer, is not converted in to liquid form and also not purified. Unless CO2 is converted into liquid form, it can not be stored in Cylinders.
The function of the CO2 in the Beer is thirst quenching and expel air and Oxygen if any in the Beer and Bottles and to prevent the spoilage of Beer due to Oxygen.
Show cause notice was issued thereafter vide their communication dated 18-12-1992. In the show cause notice, inter alia following is set out while demanding duty on carbon dioxide under tariff heading 2811.10.
7. Since the manufacturer appears to have deliberately suppressed the fact of production of CO2 without obtaining licence/registering themselves with the Central Excise authorities, with an intent to evade payment of Central Excise duty, the extended period beyond 6 months is invokable under the proviso to Sub-Sec. (1) of Section 11A of Central Excises and Salt Act, 1944 to recover the duty.
5. The learned Consultant pleaded that the appellants right from 1983 had been contending that carbon dioxide could not be charged to duty under Heading 14H and they had taken the plea that the same would be assessable under Item 68 with exemption under Notification 118/75. He pleaded that the learned CCE (A) vide his order No. 16/83 (G) dated 18-2-1983 clearly held that it is necessary to get the goods tested by the authorities to decide the classification issue. Thereafter the appellants were under the bona fide belief that they are not required to pay excise duty, nor demand was raised from the appellants nor any test was done as a result of the direction issued by the learned CCE (A). He pleaded that after the introduction of the new tariff the appellants had been submitting regularly returns for the carbon dioxide consumed captively for each year and the authorities were thus fully informed about the use of carbon dioxide gas which was produced by the appellants as a by-product and the authorities did not raise any demand or any objection for the use of the said gas without payment of duty in their factory captively. He, therefore, urged that there was no suppression of fact on the part of the appellants. He pleaded that the authorities themselves were not sure whether duty could be demanded for the carbon dioxide captively consumed as in the last letter of the department, before the issue of show cause notice dated 30-7-1992 what has been stated therein is that the Department was examining about the levy of duty on the goods in question produced in their factory. He therefore, pleaded that the demand raised for the period 11/88 to 18-6-1992 was barred by limitation.
6. Shri Arulsamy, the learned DR for the Department adopted the reasoning in the impugned order. He pleaded that the appellants were using the carbon dioxide gas for injecting into the beer and therefore, the same has to be held to be carbon dioxide notwithstanding any test not having been done.
7. We have considered the pleas made by both the sides. We observe that from the technical write up one of the modes of production of carbon-dioxide is through the process of fermentation. Following is set out in this regard in the Me Graw Hill Dictionary of Scientific and Technical terms:
Carbon dioxide (Chem.). CO2 A colourless gas; density at S.l.P., 1.976 kg/m3, about 1.5 times that of air. Produced by the complete combustion of carbon, by the action of acids on carbonates (e.g. Kipp’s apparatus), by the thermal decomposition of carbonates (e.g. lime burning) and during fermentation. It plays an essential part in metabolism, being exhaled by animals and absorbed by plants (see photosynthesis). May be liquefied at 20°C at a pressure of 5.7 MN/m3, but at Atmospheric pressure it sublimes at 78.5°C. Liquid and solid CO2 are much used as refrigerants, notably for ice cream, and in fire extinguishers CO2 dissolves in water to form unstable carbonic acids; the pressurised solution produces the effervescent ‘sparkle’ in carbonated beverages. When solid it has a convenient temperature for testing electronic components. High pressure carbondioxide has found a considerable use as a coolant in carbon moderated nuclear reactors.
It is seen from the appellants’ own letter that they were also purchasing carbon dioxide gas from outside for use in their factory. Carbon dioxide gas therefore, produced in the appellants’ unit has to be taken to be of the same in character as the one which was purchased from outside for reason of the use being same. Further the appellants have not come on record that carbon dioxide produced by them had any impurity which would make the gas for captive consumption as something to be considered as other than carbon dioxide. Taking into consideration, therefore, the use of the gas and the process by which it has been shown to have been produced i.e. by the process of fermentation we are of the view that the carbon dioxide gas produced by them is chargeable to duty as carbon dioxide. A plea has been taken by the learned Consultant that duty can be chargeable only if carbon dioxide gas is used for making beverage and that beer is not a beverage. His attention was drawn to the definition of beer as set out in Webstors New Collegiate Dictionary which is reproduced below:
beer / ‘bi (a) r/n [ME ber, fr. OE beor; akin to OHG bior beer]1: a malted and hopped somewhat bitter alcoholic beverage, specif: such a beverage brewed by slow fermentation 2: a carbonated non-alcoholic or a fermented slightly alcoholic beverage with flavoring from roots or other plant parts (birch).
We, therefore, find no force on the plea of the appellants in this regard. However, there is a lot of force in the plea of the appellants that the demand was barred by limitation having been raised beyond the period of 6 months, and that there was no ground for invoking the longer period of limitation. We observe that the issue has been pending finalisation right from 1983 when the matter was remanded for de novo consideration when the order in appeal was passed on 18-2-1983. Thereafter in any case the appellants have been filing the annual returns regularly in regard to the quantum of carbon dioxide gas used by them year after year .and they have clearly come on record as to the production and use of the goods in their factory. The authorities also appear to have been in doubt whether duty is chargeable in respect of the goods used by them as the Supdt. of Central Excise, in his letter dated 30-7-1992 has indicated that the question of leviability was being examined and has aked information about the value of clearances during 1987-88 and upto July/92. The appellants also came on record in regard to production and use of the gas in question and it was for the authorities to have taken action for charging duty in respect of the same if duty was required to be charged. Having slept over the matter the authorities cannot turn around and allege that there was suppression of fact on the part of the appellants. We therefore, set aside the demand of duty for the period beyond six months from the date of receipt of show cause notice by the appellants. In the facts and circumstances of the case, we do not find any case for levy of penalty on the appellants. We, therefore, set aside the order of penalty. The appeal is therefore, allowed in the above terms.