ORDER
S. Venkatesan, President
1. The issue in this case is whether various chemicals and chemical formulations (collectively called “chemicals” for convenience), which are used in the manufacture of aluminium by the electrolytic process, are eligible for exemption in terms of Notification No. 201/79 dated 4-7-1979 as amended by Notification No. 105/82 dated 28-2-1982. The chemicals or products in question are Cryolite, Calcium Fluoride, Aluminium Fluoride, Boric Acid, “Degasser” and “Coverall”. The Assistant Collector had held that these were not eligible for exemption under the notification as amended. The Collector (Appeals) took the opposite view and held them as eligible for exemption. The Collector has come up in appeal against the order of the Collector (Appeals).
2. At the outset a question arose whether “Annexure D” to the appeal, purporting to be a copy Of the opinion dated 22-3-1984 by the Chief Chemist, Central Revenues, regarding the chemicals in question could be taken on record. Shri Jain objected to such an opinion being now allowed to be taken on record. The Bench found substance in Shri Jain’s objection and decided that the said annexure D should not be taken on record. The Bench also pointed out that whatever the learned SDR sought to establish by means of this opinion could be achieved by reference to standard works of reference.
3. Shri Verma, for the Collector, argued that the conclusion of the Collector (Appeals) was wrong. Under Notification No. 201/79 as amended, only goods used as raw materials or component parts in the manufacture of the finished product were eligible for exemption. There was no dispute that the chemicals under consideration did not actually form part of the finished product, namely aluminium. Therefore, according to Shri Verma, they could not be considered as raw materials and were therefore not eligible for exemption.
4. Shri Verma pointed out that the Collector (Appeals) had relied on two orders of the Tribunal. These were its order in the case of Sandhur Manganese & Iron ores Ltd. (1985 ECR 682) and Titaghur Paper Mills 1985 (21) ELT 901. In those cases the Tribunal had held as entitled to exemption certain substances which did not enter into the finished product. Shri Verma however sought to distinguish the present case on the ground that in those cases the Tribunal did not consider the question whether some part of the substance was recovered and recycled. In the present case, while a part of the cryolite was lost during the process, the rest of it was recovered and recycled. Shri Verma therefore submitted that the order of the Collector (Appeals) was wrong on merits.
5. In para 5 of the order of the Collector (Appeals), it had been held that the demand for duty would be subject to the normal time limit ‘of six months. Shri Verma submitted that this finding was not correct. He referred to an order of the South Regional Bench of the Tribunal, reported in 1986 (7) ETR 399, in the case of Premier Tyres Limited. In that case the Bench had expressed a prim a facie view that the provisions of Section 11 A, Central Excises and Salt Act, would not apply in a case where a manufacturer had wrongly taken credit of duty in terms of Notification No. 201/79.
6. Shri Verma therefore submitted that the appeal should be allowed and the order of the Collector (Appeals) set aside.
7. For the respondents, Shri Jain placed reliance on the two orders which had been relied upon by the Collector (Appeals). In the case of Sandhur Manganese & Iron Ores, the Tribunal had discussed the applicability of Notification No. 201/79 as amended. In this connection the Tribunal had observed as follows:-
“As we have noted, there is no definition of raw material in the notification. What constitutes raw material will depend upon the facts and circumstances of each case. The proposition that a raw material must be physically present in the final product cannot be taken as an inevitable and invariable rule.”
These observations equally apply to the present case. Although the substances might not be present in the finished aluminium, they were essential for the purpose of extracting the aluminium. Shri Jain submitted that there was only one standard process for manufacture of aluminium, and this was from alumina, using the electrolytic process. The cryolite, calcium fluoride, aluminium fluoride and boric acid were all necessary for extracting aluminium from alumina.
8. Anticipating the objection that the degasser and coverall were used after the separation of the aluminium, Shri Jain submitted that the finished product was the aluminium ingot etc. and not the liquid metal. The degasser was necessary to extract the dissolved gases from the liquid metal. The coverall was used to protect the metal after degassing, against further pick-up of gases from the atmosphere.
9. Shri Jain referred to the Tariff Commission Report on the Aluminium Industry (1971). In para 4.7 of the report, under the heading “raw materials”, mention has been made of cryolite and aluminium fluoride. Shri Jain submitted that this would show that these two substances were considered as raw materials in the manufacture of aluminium. He also relied on extracts from a publication “The World Aluminium Industry” by “Australian Mineral Economics Pty Ltd.” Here again there was reference to the raw materials required for producing aluminium. Under this heading cryolite, aluminium fluoride and calcium fluoride had been mentioned.
10. Shri Jain referred to the Indian Standard Specification for aluminium and aluminium alloy ingots and castings for general engineering purposes (IS:617-1975). Under para 3.2, it has been prescribed that ingots shall be “clean and free from harmful defects”. This would show that gases etc. should be removed in order to make aluminium conform to accepted commercial standards.
11. On the question of time-bar, Shri Jain submitted that the show cause notice issued to the respondents cited Section 11 A. It was thus clear that the time-limit under that section would be applicable to the case.
12. For these reasons, Shri Jain submitted that the appeal should be rejected.
13. We have carefully considered the submissions on both sides. The question for consideration is whether the six chemicals can be regarded as “raw materials” for the purpose of Notification No. 201/79 as amended. (The other expression “component parts” in the notification is obviously inapplicable to such chemicals). The ground urged in the appeal is that the chemicals are not “raw materials” according to the dictionary meaning. It is also contended that the expression “raw materials” covers only the basic ingredients, which these chemicals are not. According to the Department, the six chemicals cannot be considered as “raw materials” for the reasons given below:-
(1) Cryolite : Its main function is to dissolve the alumina. It is recovered, except what is lost/consumed by volatilisation etc., and does not form a part or ingredient of the finished goods.
(2) Aluminium Fluoride ; Its main action is to supplement the cryolite, whose function has been described earlier.
(3) Calcium Fluoride : Its main function is to reduce the melting point of cryolite so that the electrolysis can be carried out at a lower temperature.
(4) Boric Acid : It is mainly used to remove titanium and vanadium, which have injurious effect on the electrical conductivity of electrical grade aluminium metal.
(5) Degasser : It is a complex chemical compound added to the molten aluminium to remove gases dissolved in the metal which would otherwise give rise to porosity and formation of cavities.
(6) Coverall : It is also a mixture of certain chemicals which is used to remove impurities and to avoid oxidation of the hot metal.
14. It is the contention of the Department that since none of these chemicals goes into the consumption of the finished article, namely aluminium, none of them can be considered as a “component part” (as already observed the relevant expression is “raw material” and not “component part”).
15. With reference to the two orders of the Tribunal in the case of Sandhur Manganese & Iron Ores and Titaghur Paper Mills etc., the appeal peremptorily dismisses them by observing that “the said order has been issued in the different context which cannot be made applicable in this case”. No pains have been taken by the learned appellant to explain how the context in this case was different.
16. In our view the two previous orders of the Tribunal under reference are very relevant to the present case. In the Tribunal’s order in the case of Sandhur Manganese & Iron Ores, there was a specific enunciation that “the proposition that a raw material must be physically present in the final product cannot be taken as an inevitable and invariable rule”. Again, in the case of Titaghur Paper Mills it has been observed that “if a substance or chemical is used and consumed in order to produce paper or to impart to it certain qualities and properties, we shall say that chemical or substance was an input or a material in the manufacture of the paper. They aid and contribute directly to the generation of the finished paper.” It is not necessary for us again to discuss at length what should be the function of a substance to qualify as a raw material for the purpose of Notification No. 201/79. Suffice it to say that we fully agree with the observations of the Tribunal in this regard in the abovementioned two orders.
17. So far as the particular chemicals in this case are concerned, it is quite clear that all of them are used in the process of separating aluminium metal from alumina and producing ingots etc. Each of them has a specific function and (subject to what we have to all) each of them gets used up or consumed in the process. We therefore find that all of them would qualify to be considered as “raw materials” for the purpose of Notification No. 201/79 as amended.
18. Shri Verma made an attempt to distinguish the present case from the two earlier cases on the ground that in these cases there was no question of the chemical being recovered, whereas in the present case one of the six chemicals, namely cryolite, is recovered and re-used. We observe that there is an oblique reference even to this aspect in para 13 of the Tribunal’s order in the case of Sandhur Manganese and Iron Ores Ltd., as seen below :-
“Again there would be instances where solvent is used for the extraction of certain substances and it is recovered after removal of the extracted substance by distillation or by other methods. The solvent would not be physically present in the extracted substance or may be present in minute quantities. Would it be correct to say that, in the circumstances the solvent is not a raw material used in the manufacture of the extracted substance?”
But apart from this, we are quite clear that so much of the cryolite as is used and consumed in the process of manufacture should be considered as raw material and should qualify for the exemption. It is seen from the records that although the cryolite is recovered and recycled, a part of it is consumed by way of volatilisation and absorption in the lining. It is stated that 40 to 45 Kg of cryolite is needed per tonne of aluminium to compensate for the losses. We had put it to Shri Jain at the hearing that the exemption would be admissible only to such quantity of the cryolite (and other chemicals) as is used up or consumed in the process of manufacture. (This also follows from para 10 in the Appendix to Notification No. 201/79). In actual fact this would make very little difference where the process of manufacture is carried on continuously over a period of weeks or months. Shri Jain himself, while pointing out that this would “lake only a marginal difference, readily accepted that the exemption would be admissible only on the quantity of chemicals which is actually used up during the process of manufacture. In practical terms, the manufacturer would be able to take credit for the duty already paid on the cryolite at the time he receives it into his factory. However, the quantity of cryolite lying over at the end of the manufacturing process (whether as originally received or as recovered after one or more uses) would be liable to duty in terms of para 10 of the appendix to the notification.
19. In the view we have taken, the question of time-bar with reference to the argument made by the Department does not arise and it is needless to go into it.
20. In the result we agree with the conclusions of the Collector (Appeals) and reject this appeal. We would add that neither the order of the Collector (Appeals) nor this order would stand in the way of duty being recovered on unused quantities of ingots in terms of para 10 of the Appendix to Notification No. 201/79.