ORDER
V.P. Gulati, Vice-President
1. The issue in the appeal relates to the demand of duty in respect of Carbon Dioxide which had emerged in the appellants’ factory as a By-product in the manufacture of Distillery products manufactured by the appellants. The demand is for the period May, 1990-Feb, 1994. The Carbon Dioxide was claimed to be impure Carbon Dioxide collected during the course of fermentation in the appellants factory and the same was on sale supplied through the pipeline to M/s. Agro Carbonic Gases (P) Ltd. (ACGL for short). The same was processed in the factory of M/s. ACGL and thereafter it is stated that the same was cleared on payment of duty at the ACGL’s end.
2. The Ld. advocate for the appellants has pleaded that until March, 86. the said gas was not held to be dutiable in terms of tariff advice 83/81 dt. 24.4.81 as stated in the pleas made before the Ld. Lower authority and as stated in the Order-in-Original. He has pleaded that the gas as such was not marketable and unless the marketability could be established the duly could not have been demanded and in this connection he referred to the decision of the Hon’ble Supreme Court reported . He has pleaded that the goods became marketable as Carbon Dioxide gas only after purification and for that reason therefore, he pleaded that no duty could be charged from the appellants as the product has not been show to be marketable. He also referred to the judgment . He has pleaded that the appellants were in the bona fide belief that no duty was payable in respect of the goods and there was no intention to evade payment of duty. He. in this connection, referred to the SCN wherein it has been merely stated that the appellants who were the manufacturers of Industrial Methylated spirit had sold the Carbon Dioxide which was produced in the appellants’ factory as by-product without registering themselves with the Central Excise department and without observing any of the Central Excise Procedures and they had contravened the provisions of Rules 9(1), 43, 52A, 53, 173B, 173C, 173G and 174 for having manufactured and cleared Carbon Dioxide without payment of duty and without observing any of the C.E. procedures and suppressed the facts of production and clearance of Carbon Dioxide from the C.E. department with an intent to evade payment of duty and longer period of limitation has been invoked.
3. He has pleaded that there is no attribution as to in what way they had suppressed the production with an intention to evade payment of duty. He has pleaded that the appellants were acting on the bona fide belief that impure Carbon Dioxide could not be treated as marketable and they are not the goods for the purpose of excise levy. In this connection, he referred us to para-9 of the order of the Ld. Lower authority in which the Ld. Lower authority has observed as under:
On the question of limitation. I find that manufacture and clearance of impure carbon dioxide and marketing have not been disputed. It has also not been disputed that VCDL had not kept the Department informed about the clearances. That ACGL are registered with the Central Excise is of avail in this regard. Hence, the invocation of proviso to Section 11A(1) of the Act is justified.
(before the word “avail” the word “not” appears to be missing otherwise the following sentence will loose its meaning).
4. He has pleaded that the Ld. Lower authority has not disputed the fact that the Carbon Dioxide which was cleared was impure and he has not taken into consideration the appellants’ plea as to in what way the appellants had suppressed the facts with the intention to evade payment of duty. He has pleaded that unless this intention could be read from the facts and circumstance of the case, longer period of limitation could not have been invoked. In the absence of any finding in this regard, he pleaded that the Ld. Lower authority’s order is not sustainable.
5. He has in this connection stressed that the appellants had entertained a bona fide belief that the goods were not dutiable for reason of Carbon Dioxide being impure and referred to the reply to SCN which is filed in the paper book at page 45 of the paper book that they have referred case laws under which it has been held that there should be something positive done other than mere inaction or failure on the part of the assessee for holding suppression with the intention to evade payment of duty and that there should be a conscious and deliberate withholding of information and he referred to the following judgment which was cited in the reply to the SCN as under:
1.2. It was laid down in the case of Tigrania Metal v. CCE that the following conditions have to be satisfied for invoking the extended period as extracted below:
The Supreme Court have held that for supression of facts, there should be something positive done other than mere inaction or failure on the part of the assesses. There should be a conscious and deliberate withholding of information [Collector v. Chemphar Drugs & Liniments ]. In this case, we find that there are no such ingradients of overt action on the part of the applicants. There could be a bona fide belief belief that they had given the correct description of the input as re-rollable scrap’ in respect of ship breaking scrap.
1.3. It is well settled law that in cases of bona fide belief that the goods were not dutiable, non-taking out a license & non-payment of duty would not amount to wilful suppression of facts. Decision in the case of Padmini Products v. CCE is extracted below:
As mentioned hereinbefore, mere failure or negligence on the part of the producer or manufacturer either not to take out a licence in case where there was scope for doubt whether goods were dutiable or not, would not attract Section 11A of the Act. In the facts and circumstances of this case, there were materials, as indicated to suggest that there was scope for confusion and the appellants believing that the Foods came within the purview of the concept of handicrafts and as such were exempt. If there was scope for such belief or opinion, the failure either to take out a licence or to pay duty on that belief, when there was no contrary evidence that: the producer or the manufacturer knew that these were excisable or required to be licensed, would not attract the penal provisions of Section 11A of the Act.
In our case prior to March 1986 HSN Tariff, Impure C02 gas was not dutiable as per CBEC Tariff advice 83/81 dt. 24.8.81 which stated that CO2 gas produced in distilleries & fertilizer factories or any other factory will fall outside the purview in Item 14-H so long as the gas does not conform to marketable grade as prescribed in ISI specifications. Such gas will be classifiable under item 68. Same principle was laid down in the case of sniff gas as per CBEC letter 7.4.62 Cx 7 dt. 24.11.62. Even with the advent of HSN Tariff marketability as criteria for dutiability has been established by several Supreme Court decisions. So our bona fide belief is established.
6. He also referred to the latest decision of the Hon’ble Supreme Court and further he pleaded that the supply was made to the adjoining factory through pipelines. This factory, he pleaded, was registered with the Central Excise authorities and they cleared the goods after purification of the Carbon Dioxide after due compliance with the requirements of the Central Excise Laws including payment of duty. He has pleaded that the appellants have not been charged with abatement. He has pleaded since the recipient factory were receiving the gas from the appellants and purifying the same and the recipient factory was under the Central Excise control the departmental authorities concerned who had jurisdiction over both the factories, would have known about as to from where the Carbon Dioxide gas was being received by them. He has pleaded in this background it cannot be said that the departmental authorities were not aware of the manufacture of impure carbon dioxide gas by them. He has pleaded once the duty had been discharged in respect of Carbon Dioxide by ACGL, the recipient factory, there was no loss to the Revenue as duty could not be charged twice on the same goods. A plea was also taken that the department could not charge M/s. VORION CHEMICALS AND DISTILLERIES LTD. the appellants which has been taken over by M/s. MOHAN BREWARIES AND DISTILLERIES LTD. and the duty could not be charged from M/s. VCDL. However, we find that M/s. Mohan Breweries and Distilleries Ltd. have stepped into the shoes of VCDL and MDBL are responsible for the liabilities under section of the Sick Industrial Companies Act.
7. The Ld. JDR for the department referred to the order of the Ld. Lower authority. He has pleaded that the order was sustainable and the duty was demanded based on the invoices issued by the appellants and in the invoices the goods have been described as Carbon Dioxide and once that was clone the duty had to be paid in respect of the same. He has pleaded the earlier clarification of the Board regarding duty liability on Carbon Dioxide was not relied upon in the introduction in the new tariff.
8. Regarding marketability, he has pleaded that the appellants have sold the carbon dioxide under an agreement with the recipient factory i.e. ACGL and they were collecting money for the sale of the goods. Therefore, the very fact that the goods were sold would show that the goods were marketable. He has pleaded that the appellants had not taken out any licence nor had come on record before the authorities regarding manufacture and for any clarification and therefore the intention to suppress the facts and evade payment of duty could be read from this conduct of the appellants. He has pleaded that the appellants were SSI units and therefore the SSI Units are not generally visited by the Central Excise Officers. He has pleaded if the returns had been filed regularly, the authorities could have known about the manufacture and production of the carbon dioxide.
9. The Ld. advocate stated that this tribunal in the case of ARTOS BREWERIES LTD. v. CCE, GUNTUR, to support the case of limitation and to show that the circumstances being similar in that case the appellants’ case should be allowed on the ground of limitation.
10. We have considered the submissions. We observe that the appellants have obtained carbon dioxide as by-product in the process of fermentation carried for the production of Alcohol. The Carbon Dioxide produced is sent through the pipeline to the unit where the same is used as an input for manufacture of carbon dioxide which is marketed after processing the impure carbon dioxide. The facts that other unit was under the Central Excise Control and they were manufacturing carbon dioxide out of the so called impure carbon dioxide which was received from the appellants’ factory is not denied. It is also not denied that the carbon dioxide gas which was cleared from the factory of buyers namely M/s. ACGL was cleared on payment of duty and that unit had taken out licence, and the issue of limitation therefore has to be examined in the background of this conduct of the appellants.
11. The appellants have taken a plea that they were under bona fide impression that the carbon dioxide gas in question was not marketable and same was sold in the market only after purification by the recipient unit i.e. M/s. ACGL. It is seen that the plea that this process of purification of the gas received from the appellants is carried out in the factory which is stated to be adjacent is not controverted. From the facts what emerges is that the central excise authorities who had the control over the adjacent unit would have known as to where from the carbon dioxide gas was being received and they would have also known about what was being done to that carbon dioxide. There is nothing to show that any MODVAT CREDIT was taken in respect of the carbon dioxide received from the appellants by the recipients. Therefore, the fact of non-payment of duty in respect of the said carbon dioxide would have been easily determined from this conduct of the appellants. If the appellants had paid the duty, the buyers would have taken MODVAT credit in respect of the same. As it is. while payment of duty on the gas which was sold after process by the recipient factory was paid, the Revenue has not suffered any loss because of non-payment of duty by the appellants in respect of the said gas. There appears to be no motive in the removal of the goods without payment of duty and there is no allegation that the appellants had gained anything by reason of the non-payment of duty. Allegations made in the SCN are that by reason of not taking out licence and informing the authorities and removal of carbon dioxide there was an intention to evade payment of duty by suppression of facts. The Ld. Lower authority however in para-9 while holding in his order that there was suppression of fact has merely stated that the manufacture and clearance of impure carbon dioxide and marketing have not been disputed and that they had not informed the department about clearances and that M/s. ACGL was registered with the C.E. authorities makes difference and has held that invocation of provisions of Section 11A(1) is justified. We observe that the Hon’ble Supreme Court in a number of judgments has held that there should be some positive act done by the appellants with reference to the circumstances of clearance of goods to infer that was an intention to evade payment of duty by reason of suppression of facts before the provisions of Section 11A could be invoked. The Ld. advocate had cited the case laws in this regard before the Ld. Lower authority but the Ld. Lower authority has not dealt with any one of these case laws as to how same are distinguishable.
12. We observe taking into consideration the totality of the facts and circumstances of the case, held that the allegations that there was an intention to evade payment of duty by suppression of facts is not sustainable. We therefore set aside the demand of duty as the same was raised beyond the period of 6 months.
13. So far as whether the goods are marketable or not, we have in the case ARTOS BREWERIES LTD. upheld in para-7 of the orders that the same have to be considered as goods for the purpose of excise levy. The relevant para-7 of the said decision is reproduced below for convenience of reference:
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 McGraw 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 carbon dioxide 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 by the process of fermentation we are of the view that the carbon dioxide gar 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 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) [ME ber, fr. OE beor; akim to OHG bior beer] 1 : a malted and hopped somewhat bitter alcoholic beverage, specific; 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.
14. Following therefore the ratio of above decision, we hold goods are durable. On grounds of limitations as held by us in earlier paragraphs, the payment of duty as well as levy of penalty is not sustainable and the appeal of the appellants is allowed with consequential relief.
T.P. Nambiar, Member (J)
1. I have gone through the orders passed by the Ld. Vice-President. I agree with the findings that the goods are dutiable as mentioned in para 13 & 14 of the above said order.
2. With respect to limitation aspect, I differ from the views expressed by the Ld. Vice-President. My reasoning are as follows:
3. It is seen that as per the decision of the Hon’ble Supreme Court in the case of CHEMPHAR DRUGS & LINIMENTS suppression of facts means that there must be something positive done and mere inaction or failure of the assessee is not sufficient. Applying the above principles to the facts of the case, it is seen that the appellants have not made out anything to show that they could entertain a bona fide belief that these goods are not dutiable. So also, in the case of PADMINI PRODUCTS . the Hon’ble Supreme Court held that if there was scope of doubt whether the goods are dutiable or not, Section 11A will not be attracted. In this case there is nothing to show that there was any such scope for the appellant to entertain such bona fide belief in this regard.
4. On the contrary, there is positive act on the part of the appellants in removing these excisable goods without payment of duty. In this connection, I rely on the decision of the tribunal reported in 1997 (23) RLT 470 in the case of L.M.L. LTD. v. CCE, KANPUR. wherein at para 3 [iv] & (v) it is held as follows:
(iv) The Department has invoked the extended period of limitation on the ground that the appellants suppressed material fact of manufacture of steel cops in their factory with intent to evade payment of duty on the same. Learned Counsel submits that the Department knew all along that the appellants supply yarn wound on cops to their customers and, therefore, there was no question of suppression of manufacture of cops. This argument is devoid of any merits-in the absence of any declaration in respect of cops and in the absence of maintenance of any records for cops, knowledge of manufacture of cops by the appellants cannot be attributed to the Department. The Department had knowledge that the appellants were importing steel tubes, but the Department cannot be expected to know that cops were manufactured out of the imported steel tubes as duty paid steel cops which are a marketable commodity could have been purchased by the appellants from cops manufacturers and the Department cannot be expected to know that cops on which yarn was wound and sold, were manufactured by the appellants out of the steel tubes imported by them. The argument of bona fide belief is also not borne out by any material. The HSN Explanatory Notes to Chapter 73 (at page 1011) set out that tubes are “concentric hollow products of uniform cross- section which may be polished, coated or fitted with flanges, collars or rings.” The goods in question have already been found not to be concentric hollow products of uniform cross section and it has also been found that the precision fitting and machining has also been done on the tubes. The appellants were also clearing the yarn on what was described by as cops. Therefore, they had knowledge that they were manufacturing cops and cannot be said to be under any bona fide belief that the cops were nothing but steel tubes. In these circumstances, we hold that there was suppression on the part of the appellants with intent to evade payment of duty and hence the extended period of limitation is attracted and the demand is not hit by limitation.
(v) The appellants stand that cops are never sold by them but returned to them by the buyers of yarn is immaterial for the purpose of levy of duty which is attracted as soon as the goods are manufactured-in this case the cops were manufactured by the appellants and they are a marketable commodity leviable to duty irrespective of the fact whether they went out of the factory and came back on return from the appellants’ customers. Therefore, the demand of duty is sustainable.
5. The above said decision squarely applies to the facts of the case. Therefore, it is seen that the department cannot be expected to know that what was cleared to the adjacent factory was cleared without payment of duty. The appellants’ contention that the other factory where these goods are sold was paying the duty in this regard is not very material. The reason is that the payment of duty is at the time of clearance of manufactured goods. In this case, when the goods were manufactured and when no bona fide belief could be attributed with respect to the dutiability or otherwise of the goods in question and when the appellants removed these marketable commodities they were under an obligation to pay the duty before removing the same. Therefore, it is a positive act by the appellants by which they removed the dutiable goods without payment of duty. Whether the goods so supplied to the factory were again duty paid is not material for deciding whether there was wilful suppression on the part of the appellant. Whatever happened after the removal is no consideration for arriving at the finding as to whether there was a wilful suppression on their part. The very fact that they removed the dutiable goods without payment of duty is the positive act on their part and all subsequent developments are not material in this case.
6. It is thus clear that the act of the appellant in removing the dutiable goods, without payment of duty and without intimation to the department, constitutes a wilful suppression on their part with an intend to evade payment of duty. Once when this taint of suppression is clear from this positive act of the appellant, the longer period of time is invocable in this case. In that view of the matter, I am of the view that the extended period is applicable to the facts of this case. Hence, I am of the view that the appeal is liable to be dismissed and I order accordingly.
DIFFERENCE OF OPINION
In view of the difference of opinion between the Ld. Vice-President and the Ld. Member (J) the following points are referred to the Hon’ble Third Member:
Whether in the facts and circumstances of the case the duty demand is barred by limitation as the extended period is not invocable as held by the Ld. Vice-President.
(or)
Whether the duty demand is in time as the extended period is invocable as held by the Ld. Member Judicial.
V.K. Ashtana
1. On the following difference of opinion between Hon’ble Shri V.P. Gulati (Vice-President) and Hon’ble Shri T.P. Nambiar (Member-Judicial), both since retired, heard learned advocates Shri Srinivasa Raghavan and Shri P.C. Srinivasan for appellant and learned JDR Shri S. Kannan for revenue:
Whether in the facts and circumstances of the case the duty demand is barred by limitation as the extended period is not invokable as held by the learned Vice-President.
(or)
Whether the duty demand is in time as the extended period is invokable as held by the learned Member Judicial.
2. Learned advocates support order recorded by Hon’ble Vice-President and submit as follows:
(i) Their letter dated 4.4.95 to Superintendent of Central Excise refers to Superintendent’s letter dated 16.11.1992 on this issue. Therefore department was well aware of the matter.
(ii) This was followed by other letter (page 90 of the paper book) to Superintendent.
(iii) Their Registration certificate includes CO2 gas and so department was well aware of it.
(IV) On 27.1.90, Commissioner of Central Excise had approved tapping of CO2.
(v) Cited case of South Bihar Sugar Mills because of which they held a bona fide belief that impure CO2 is not excisable as it is not “goods”. Therefore, they did not inform the department in 1990 (1978 ELT J 336).
(vi) Under old Central Excise Tariff, impure CO2 was under T 168 and not as a gas under 14H.
(vii) Under new Tariff, Notification No. 417/86 allowed drawing out. of impure gas without payment of duty, purify it and then clear on duty. Since they were SSI unit, no duty was payable. Non-following procedure of 417/86 is only a procedural lapse but gas was accounted for property.
(viii) Classifications lists were approved in their favour and R.T. 12s assessed.
(ix) Cited–. M/s. Artos whose ratio’s applies on all fours.
(x) Order of Member (Judicial) relies on case-law of LML which is distinguishable on facts. There cops were also purchased from market and so assessee knew they were dutiable. Here on such knowledge exists.
3. Heard learned JDR Shri S. Kannan, who submitted as follows:
(i) Merits are not under consideration, only limitation issue:
(ii) Period involved is May, 1990 to February, 1994 and show-cause notice was issued on 1.6.95:
(iii) Letter mentioned by learned advocate from Superintendent is to M/s. Agro Carbonic, which is a different unit;
(iv) South Bihar case concerns Kiln gas (mixture) while here it is impure CO2 (not mixture of difference gases). Therefore, it is distinguishable on facts:
(v) He supports Hon’ble Member (Judicial) that since the gas was sold therefore, it is goods and exicsable;
(vi) If registration certificate shows CO2, it only supports department’s case;
4. Learned Advocate rebutted as follows:
(i) Registration certificate was amended with effect from 21.11.94 to include CO2 on my initiative.
(ii) Letter dated 6.11.92 to Agro-Carbonic was to adjoining unit, who is recipient of their impure CO 2 and falls under same range, same sector of Central Excise office; and
(iii) CO2 to be marketable must conform to IS 307, but here Agro-Carbonic came to purchase it as a special case only to refine it.
5. I have carefully considered the arguments on both sides and the orders recorded above. With due respects. I am unable to agree with the views of Hon’ble Brother Member (Judicial) for the following reasons:
(i) Reliance on case-law of M/s. LML is misplaced as the same is distinguishable on facts. The product cops manufactured by them was also available in the market. Secondly, these cops manufactured by them were used to wind yarn thereon and sold to customers. On both these counts, they were aware of its marketability. As against that, there was no documentary evidence to show that department was aware as no records were maintained, whereas in the present case, since the impure gas was received by adjacent unit which had informed the common Superintendent, therefore, the proper officer was aware of the fact of removal;
(ii) As against this, the ratio of the case of Artos Breweries appears to be applicable to the present case, as far as limitation is concerned, as the only exception to facts is that in Artos, the department’s knowledge was through communications by them, whereas in the present case it is more through communication by the recipient; and
(iii) that Hon’ble Vice-President has examined the matter of both bona fide belief and motive on the part of appellants in his order in great details. I agree with the same; in particular the fact that even if appellants paid duty, the recipient unit would have taken modvat credit.
6. Taking all the facts and circumstances of the case. I find that the extended period under proviso to Section 11A is not applicable and therefore, the demand is time barred as also held by Hon’ble Vice-President.
ORDER
In view of the orders recorded above, the majority decision is that (a) the goods are dutiable but (b) that the demand is time barred. The appeal succeeds partially only on time bar. Ordered accordingly.
pronounced in the open court on 6.10.1998.