ORDER
S.L. Peeran, Member (J)
1. This is a revenue appeal directed against the order dated 22-1-1987 passed by Collector (Appeals), Bombay.
2. The Ld. Collector in the impugned order has held relying on the authorities cited before him that polyethylene and polyproplyene films and sheets manufactured by them, fall under T.I. 15A(2) of the erstwhile Central Excise Tariff and are wholly exempted from payment of C.E. Duty from 23-10-1982 onwards under the Notification No. 231/82, dated 23-10-1982. He has also held that Govt. of India by Notification No. 208/84, dated 16-10-1984 has waived the recovery of duty on such films and sheets all sorts of a thickness not exceeding 0.25 mm, cleared during the period from 25-11-1978 to 22-10-1982. He has also held that part demand for Rs. 1,90,400.82 for the period from 1-3-1982 to 31-7-1982 demanded by show cause notice dated 23-11-1982 is also hit by time bar for a part period from 25-5-1982 to 31-7-1982. Therefore, the ld. Collector has modified the demand to this extent. The ld. Collector has totally set aside the demands raised in the show cause notice dated 25-1-1983 for Rs. 8,07,039.87 issued for the period from 1-4-1977 to 31-3-1978 as totally barred by time. Aggrieved by this order, the Revenue has filed this appeal. The respondent has also filed cross appeal for confirmation of duty for part period.
3. It is stated in this appeal that the product in question has been found as ‘rigid’ plastic, vide chemical test, and hence it is pleaded that the Notification No. 231/82 issued on 23-10-1982 and Notification No. 208/84 has no role to play. The respondent had not filed classification list nor obtained any licence for removal of the goods on payment of duty and hence the demand made for extended period is not barred by time.
4. In the cross appeal, the respondent has stated that they are manufacturers of Low Density Polyethylene and Polyproplyene lay flat tubings from duty paid granules. It is split opened vertically and such lay flat tubings are known as films and sheets. Its thickness is not more than 0.1 mm and hence they are totally exempted under the Notification No. 231 /82-C.E., dated 23-10-1982. It is also stated that by issue of Notification No. 208/84, dated 16-10-1984 under Section 11C of Central Excises & Salt Act, 1944, the Govt. of India has waived the recovery of duty leviable on clearance of sheets/films for the period from 25-11-1978 to 22-10-1982. It is also stated that the Revenue’s contention that notification in question is inapplicable as the films and sheets are rigid is an incorrect submission in view of Ministry’s letter No. 93/36/82-CX-3, dated 5-1-1983, which states that as the benefit of exemption under Notification No. 68/71 was not available to rigid films and sheets and therefore, Notification 231/82, dated 23-10-1982 was issued and thereafter Notification No. 208/84, dated 16-10-1984 was issued under Section 11C. Therefore, it is contended that the notifications exempt “films & sheets” other than that of PVC, the thickness of which does not exceed 0.25 mm. They state that in their case, their films and sheets are other than that of PVC and their thickness is less than 0.1 mm and hence their products are exempted under the said notification. They also submit that the criterion of rigidity of films and sheets is not applicable in their case and also the demands are barred by time.
5. We have heard Shri Sharad Bhansali, ld. SDR for the Revenue and Shri R.K. Jain, ld. Consultant for the respondent. Arguing for the Revenue, Shri Sharad Bhansali contended that the lay flat tubings manufactured from duty paid polyethylene and polyproplyene granules fell under T.I. 15A(2). The respondents were slitting open vertically lay flat tubings, and bringing into existence a different commodity known as “films and sheets”, which incidentally also falls under T.I. 15A(2) and that they are dutiable, as they being a different product. In this context, he relied on the ruling of the Larger Bench rendered in the case of Guardian Plasticote Ltd. v. C.C.E., Calcutta and Ors. as reported in 1986 (24) E.L.T. 542. It is his contention that if the films and sheets are directly made from the granules then they are exempted under Notification No. 142/82, dated 22-4-1982 and not so, if an intermediate product like lay flat tubing arises. He submitted that the Section 11C notification exempted only prospectively and hence the demands for larger period and six months prior to the issue of the show cause notice are demandable, as also because the party had failed to obtain licence being asked to do so. In this regard, he relied on the ruling rendered in the case of Vishwakarma Steel Ind. v. C.C.E. as reported in 1986 (26) E.L.T. 169. In this case, it has been clearly laid down that obtaining licence is a different aspect than durability and failure to do so would entail attraction of larger period. Ld. SDR fairly admitted that in this case no notice had been issued calling upon them to obtain licence. However, after the issue of first SCN, they were bound to have taken the licence and as they had failed to do so, demands for larger period are extendable.
6. The Learned Consultant, Shri R.K. Jain arguing for the respondent submitted that the demands were barred by time. The department had issued two show cause notices, one dated 6-11-1982, for an amount of Rs. 1,90,400.82 for the period 1-3-1982 to 31-7-1982. Thereafter the department had issued notice dated 25-1-1983 invoking larger period for the period earlier to one shown in the previous notice for an amount of over Rs. 8 lakhs period covering dated 1-4-1977 to 28-2-1982. It is his submission that the notice did not contain any allegation of fraud or suppression. This show cause notice issued invoking larger period subsequently to notice issued covering the demand within time, will be unsustainable as has been held in the case of Neyveli Lignite Corpn. Ltd. v. Collector of Central Excise as reported in 1992 (58) E.L.T. 76. He submitted that there is also no proposal to impose penalty in the show cause notice and therefore, the lower authority imposing penalty in the present case is not justified. In this regard, he relied on the ruling rendered in the case of Collector of Central Excise, v. Rohit Pulp & Paper Mills, as reported in 1992 (60) E.L.T. 331. He submitted that there is no clandestine removal in the case. It is his further submission that the sample had been drawn on 11-2-1982 and the test result is said to be dated 15-7-1982. These test results were not communicated nor details stated in the show cause notice. The test results did not disclose the extent of thickness of the goods, which detail is essential to consider the criterion of thickness as laid down in the Notification, to qualify for exemption.
He submitted that the department had come to know the results on 15-7-1982 and, therefore, issuing the show cause notice invoking larger period will be barred by time, as the department had pome to know of all the results and yet had not issued the show cause notice within 6 months, from the date of test results. He submitted that the department were aware of the activity of manufacture and hence, Section 11A is not invokable. In this regard, he relied on the ruling rendered in the case of L.D. Textile Industries Ltd. v. Collector of Central Excise and Customs as reported in 1992 (58) E.L.T. 236. He submitted that where a party had cleared the goods with the knowledge of the department, then in that event, clandestine removal cannot be alleged and in this regard, he relied on the ruling rendered in the case of SA7L (Durgapur Steel Plant) v. Collector of Central Excise as reported in 1991 (53) E.L.T. 125. He submitted that the party could not have been put to notice regarding the thickness of the goods prior to the receipt of the test results on 15-7-1982 and, therefore, the question of suppression did not arise in this case. In this regard, he relied on the ruling rendered in the cases of :-
i. Dr. Beck & Co. (India) Ltd. v. Collector of Central Excise; 1991 (54) E.L.T. 271
ii. Dimensional Plastics Industries (P) Ltd. v. Collector of Central Excise; 1991 (54) E.L.T. 443
iii. S.B.L. Ltd. v. Collector of Central Excise; 1994 (74) E.L.T. 350
He submitted that if the department remained silent for a long time, even after information had been furnished, then in that event, the Tribunal has held that the larger period cannot be invoked as in the case of S.K. Kemexc Industries v. Collector of Central Excise as reported in 1995 (75) E.L.T. 377. He submitted that the assessee had not paid the duty, as there was a general practice in the trade to consider the goods as exempted and, therefore, the assessee had held a bona fide belief. Such a belief can also be inferred from the circumstances of issue of Notification under Section 11C by the Government. In this regard, he submitted that the Tribunal in a series of judgments has held that, where a notification under Section 11C has been issued then in that event, the demand for previous period would be barred by time, as an inference can be drawn with regard to the bona fide belief held by the party regarding non-dutiability of the product. In this regard, he relied on the ruling rendered in the case of Chloride India Ltd. v. Collector of Central Excise as reported in 1994 (72) E.L.T. 435.
7. As regards the merits of the case, the ld. Consultant submitted that the activity of slitting of lay flat tubing did not amount to an activity of manufacture. It is his submission that lay flat tubings were classified under Tariff Item 15A(2) and, therefore, what arose after splitting such lay flat tubings cannot be held to be manufacture as no separate goods arose for classification, again under the said T.I. 15A(2). He submitted that for the purpose of classifying the product under T.I.15A(2) falling under T.1.15A(1) the inputs should be one. He submitted that the Assistant Collector had clearly given a finding that lay flat tubings were exempted under T.I. 15A(2) and, therefore, what arose after splitting the said lay flat tubings did not bring into existence different goods and it cannot be again classified under the same Tariff Item and held to be dutiable. At best the department could have thought of classifying under Tariff Item 68 but the same has not been done by the department. He submitted that the Notification No. 68/71, dated 29-5-1971 as amended by the Notification No. 198/78, dated 25-11-1978 exempted articles made of plastics, all sorts, falling under sub-item No. 15A from the whole of the duty of excise leviable thereon except to; –
(i) rigid plastic boards, sheeting, sheets and films, whether laminated or not; and
(ii) flexible polyvinyl chloride sheetings, sheets, films and lay-flat tubings not containing any textile material
Provided that –
(a) Such articles are produced out of the artificial resins and plastic materials or cellulose esters and ethers in any form falling under sub-item (1) of the said Item (1) on which duty of excise or the additional duty under Section 2A of the Indian Tariff Act, 1934 (32 of 1934), as the case may be, has already been paid; or
(b) such articles are produced out of scrap of plastics. Explanation. – For the purposes of this notification
(i) the expression “flexible”, in relation to an article made of plastics, means the article which has a modulus of elasticity either in flexture or in tension of not over 700 kilograms per square centimetre at 23 degrees centigrade and 50 per cent relative humidity when tested in accordance with the method of test for stiffness of plastics (ASTM Designation D-474-63), for flexural properties of plastics (ASTM Designation D-790-63), for Tensile properties of plastics (ASTM Designation D-638-64T), or for Tensile properties of Thin Plastic sheeting (ASTM Designation D-882-64T);
(ii) the expression “rigid”, in relation to an article made of plastic, means all articles other than ‘flexible’ articles as defined in clause (i).
(Notification No. 68/71-C.E., dated 29-5-1971 as amended by Notifications No. 195/77-C.E., dated 23-6-1977 and No. 198/78-C.E., dated 25-11-1978.”
Referring to this notification the Learned Consultant submitted that only those articles of plastics arising from the Item No. 15A(1) were exempted, provided their flexibility satisfied the expression “flexible” as defined in the notification. He submitted that both the criterions had not been shown by the department, to have not been satisfied by the party. He submitted that the party had always contended that the goods were flexible and did not have thickness more than 0.25 mm. The Notification No. 208/84, dated 16-10-1984 had been issued under Section 11C; which had exempted polyethylene films, all sorts of thickness not exceeding 0.25 mm falling under Item No. 15A during the period commencing on the 25th November, 1978 and ending with the 22nd October, 1982. He submitted that the department had merely intimated in the show cause notice that the item was rigid as per the test results without indicating the thickness criterion in the show cause notice. Therefore, the assertion of the party that the goods were not exceeding the thickness of 0.25 mm cannot be rejected by the department. He submitted that the question of the rigidity laid down in the notification had also been struck down as unconstitutional by two High Courts as in the cases of;
i. Mechanical Packing Industries (P) Ltd. v. Union of India and Anr. – 1987 (32) E.L.T. 35
ii. Aflon Engg. Corpn. v. Union of India – 1992 (61) E.L.T. 246
He submitted that the demands for the period subsequent to 22nd October, 1982 also stand exempted by Notification No. 149/82, dated 22-4-1982, and hence, the party had not paid duty thereon also.
8. We have carefully considered the submissions made by both the sides and have perused the show cause notices, replies and the impugned orders. The department had alleged in Annexure-II of both the show cause notices that the appellants were manufacturing low density polyethylene films and sheets from polyethylene and polyproplyene granules and the said films and sheets were classifiable under T.I. No. 15A(2) and chargeable to duty. It has also been stated that the representative samples of the manufactured products had been drawn for chemical test for analysis to determine whether the films and sheets are rigid or otherwise and sent to the National Test House, Alipore, Calcutta. The test report revealed that the sample in question is a rigid plastic and thus it is stated that the goods were not exempted under Notification No. 71/71, dated 29-5-1971, which has been replaced by Notification No. 153/82, dated 22-4-1982. Therefore, it is stated that they are liable to pay duty under Section 11C of Central Excise Act, 1944. In the reply the party had stated that they were manufacturing lay flat tubings from the granules and then the same was split to obtain sheets and hence, such splitting did not amount to manufacture.
9. As can be seen from the allegations made in the show cause notices, it is department’s case that the party is manufacturing low density films and sheets from polyethylene and polyproplyene granules. Therefore, the question of considering whether lay flat tubings arose as a result of splitting and as to whether it amounts to manufacture does not arise for our consideration. The reason being, even if such lay flat tubings arose during the intermediate stage, yet the department is not choosing to classify such lay flat tubings and no such allegation is made by the department that such an intermediate product arose during the manufacture of films and sheets from granules, and were required to discharge duty. Therefore, it is not necessary for us to examine this issue in the light of controversy raised by the department. However, the plea of rigid-ness raised by the department is an important criterion for our examination. The Notification No. 208/84-C.E., dated 16-10-1984 exempted the duty for the past period, it was issued under Section 11C and it laid down that polyethylene films all sorts, of thickness not exceeding 0.25 mm falling under T.I. 15A were exempted from duty for the period 25th November, 1978 and ending with 22nd October, 1982. The department has not indicated in the show cause notice the details of the test results except to say that the plastic films and sheets were rigid as indicated by the test results. Therefore, the said criterion of 0.25 mm having been satisfied or not was never put to the party, nor it is discussed in the orders of the lower authorities. The party has been asserting throughout that their goods satisfies this criterion, as it was less than 0.25 mm. It is seen that the department has not demanded duty subsequent to the period as shown in the notification is under Section 11C. It follows that the department has accepted the criterion of thickness as indicated by the party. Therefore, in the absence of details of thickness of the sheets in the show cause notice, it has to be presumed that the party had manufactured films and sheets of thickness not exceeding 0.25 mm and thus qualifying for the exemption as laid down in the Notification No. 208/84-C.E., dated 16-10-1984. Further, it can be seen that the Notification No. 66/71 as amended by Notification No. 198/78-C.E. also exempts articles made of plastic, all sorts, falling under T.I. No. 15A(2). This notification also laid down the criterion of flexibility and granted exemptions from the duty except to rigid plastic, board, sheetings, sheets and films. As stated the test results have not been disclosed, nor there is any indication that the item manufactured by the appellants did not satisfy the explanation to this notification. Therefore, it can only be held that the details furnished by the appellants with regard to their goods being flexible and being less than 0.25 mm thickness, is required to be accepted.
10. The appellants have also stated that the demands are barred by time. In this context, they have relied on the several rulings referred before us. It has been laid down in the case of Chloride India Ltd. (supra) that the issue of notification under Section 11C is an indication of bona fide belief held with regard to goods being non-dutiable, hence invoking of larger period by alleging suppression is not sustainable. The ruling given in the case of Neyveli Lignite Corporation Ltd. (supra) that subsequent show cause notice alleging larger period gets time barred is also relevant to the present case. It is also seen that the department has not alleged the details of suppression nor shown that the appellants have evaded duty with an intention to evade duty, which now the Supreme Court has held to be a requirement, for confirming demands for larger period as held in the case of Cosmic Dye Chemical v. Collector of Central Excise, as reported in 1995 (75) E.L.T. 721. It is also seen that the test results are said to have been obtained by the department on 15-7-1982. Therefore, the issue of show cause notice on 25-1-1983 invoking larger period after a lapse of time is also clearly barred by time. In this regard, the ruling referred to by the Learned Consultant before us supports our view.
10A. In the result the respondent succeeds both on merits as well as on time bar and thus, the appeal of the Revenue is rejected.
S.K. Bhatnagar, Vice President
11.With due respects to Hon’ble Member (Judicial), my views and orders in the matter are as follows :-
12. I have considered the submissions of both the sides including the written memo dated 22-2-1995.
13. The basic question involved in this case is as to whether the polyethylene and polyproplyene films and sheets manufactured by the respondents were wholly exempted from duty during the relevant period or were liable to duty.
14. The show cause notice dated 6-11-1982 (relating to the period 1-3-1982 to 31-7-1982) states that the product was, on test of samples, found to be rigid plastics and was, therefore, not eligible for exemption under Notification No. 71/71 as amended from time to time and Notification No. 153/82. The second show cause notice dated 25-1-1983 relates to the period 1-4-1977 to 28-2-1982 and has been issued on the same grounds. In both the cases, Rule 9 and Section 11A have been referred to and the appellants have been charged with manufacturing the goods without Central Excise licences and clearing the same without payment of duty demanded by the notice.
15. The respondents have, on the other hand, claimed that they were wholly exempt from payment of duty in terms of Notification No. 208/84 issued under Section 11C for the period covered by the notification. They have also claimed exemption in respect of the remaining period asserting that there was no suppression or mis-statement of fact and the Department was in know of the activities undertaken by them.
16. In this connection, I find that Notification No. 71/71 invoked in the show cause notices exempts rigid plastic goods, sheeting, sheets and films whether laminated or not, other than those manufactured from flexible polyvinyl chloride sheetings, sheets, films and lay-flat tubings not containing any textile material and falling under sub-item (2) of Item No. 15A provided subject to fulfilment of the conditions indicated in the Proviso and the Explanation.
17. The Department has pleaded that the word ‘rigid’ applies to such sheets and films also but has not produced any evidence before us to show that the products were rigid in terms of the meaning assigned to this term in the explanation to Notification No. 68/71 referred to in Notification No. 71/71 or the Notification No. 198/78. The respondents have pleaded that rigidity was not the relevant criteria for their product. But even if it was, the Gujarat and Bombay High Courts have held this definition ultra vires; And therefore, a mere reference to the test report said to have been issued by National Test House, Alipore was not sufficient; And, the Department was required to show that even in terms of the observations of the Hon’ble Judges in the above two cases, the films were rigid and not entitled to the benefit.
18. The respondents have themselves on the other hand referred to and claimed before the lower authorities the benefit of Notification No. 149/82 (which superseded 68/71) and further explained that no duty was payable on such product prior to 23-1-1982 date. They have, as already notified, claimed benefit of Notification No. 208/84 before the Tribunal.
19. The learned DR, on the other hand, has emphasized that the Collector (Appeals) has erred in not considering the findings of the original authority and the learned counsel has not opposed this pleading. The learned DR has also further stated that as the product was rigid plastic, therefore, Notification Nos. 231/82 and 208/84 were not relevant.
20. Learned counsel also agrees that Notification No. 231/82 is not relevant but claims that Notification No. 208/84 was applicable.
21. I have considered the above submissions and noted that both lay-flat tubings as well as films or sheets made by splitting them open fall under Tariff Item 15A(2). And, no evidence has been laid before us to show that such a process of splitting amounts to manufacture of a new product. Further, the Department has not also substantiated its contention that the articles in question were really rigid and therefore, not entitled to exemption; and the Department has also not been able to show that there was deliberate suppression or mis-statement of fact with an intention to evade duty. Therefore, the demand for the period beyond the normal time limit of six months was time-barred and even for this period of six months, if the duty has already been paid on the lay-flat tubings then no further duty was chargeable. Hence, I agree with the conclusions arrived at by Hon’ble Member (Judicial) and reject the appeal.