V.K. Agrawal, Member (T)
1. The Common issue involved in these nine appeals is whether the process of conversion of straight grade bitumen into air blown grade bitumen amounts to manufacture.
2.1 The facts in brief in appeal No. E/4498/93-C are that M/s. Tiki Felt Industries, appellants (TFI), manufactured Bitumen Coated felt. They purchased duty paid hessain cloth, straight grade bitumen, fillers and mica as raw materials. The straight grade bitumen was converted into blown grade bitumen through oxidation, known as blowing process. Such blown grade bitumen was applied on both sides of the hessian cloth. A show cause notice dated 24-1-1992 was issued to them for demanding duty in respect of Blown Grade Bitumen (BG Bitumen) falling under sub-heading 2713.20 of the Schedule to the Central Excise Tariff Act for the period from February, 1987 to September, 1991. The Collector, Central Excise, in impugned Order dated 10-3-1993, confirmed the demand of Central Excise duty amounting to Rs. 2,84,981.23, imposed a penalty of Rs. 1,00,000/- and confiscated plant & machinery with an option to redeem the same on payment of fine of Rs. 25,000/- holding that the process of conversion of straight grade bitumen into blown grade bitumen amounts to manufacture, relying upon the decision of the Appellate Tribunal in the case of Bitumen Products (India) Ltd. v. CCE, 1989 (44) E.L.T. 504 (T). The Collector also held that longer period was invokable for demanding the duty as they had only declared their final product i.e. felt, and they did not at all declare blown grade bitumen produced by them.
2.2 Appeal No. E/3416/89-C : M/s. STP Ltd., Calcutta, filed a classification list effective from 25-4-1986 in which Blown Bitumen packed in drums and bags was mentioned below Item 7 of the list claiming that no duty was payable. The C.L. was approved on 27-1-1986 by the proper office. Subsequently a show-cause notice dated 25-2-1987 was issued for classifying the product under sub-heading 2714.90 of CETA. The Assistant Collector, under Order dated 18-9-1987, ordered that goods would be classifiable under subheading 2713.21 (Packed) or 2713.22 (in bulk) and no duty would be chargeable as long as the BG Bitumen was made out of duty paid SG Bitumen. Another notice dated 23-3-1988 was issued to levy duty in absence of any notification. The Assistant Collector, under Order dated 8-11-1988 held that bitumen packed in drums was classifiable under sub-heading 2713.21 attracting tariff rate of duty. The Collector (Appeals) also confirmed the Adjudication Order, under Order in Appeal No. 65/Cal I/89 dated 22-3-1989 holding that mode of packing is a criterion for classification of petroleum Bitumen under different headings; that the Assistant Collector is correct in his observation that once an item is included in any tariff heading/sub-heading, the question of further manufacture, origin, etc., would not arise.
2.3 E/22/90-C : The Collector, Central Excise, Kanpur, under impugned Order No. 8/89, dated 6-10-1989, imposed a penalty of Rs. 15 lakhs on M/s. STP Ltd., Mathura, holding that Bitumen packed in drums is a different item than the bitumen in bulk as tariff provides for two items that plea that packing does not amount to manufacture is not acceptable as the definition of manufacture in Section 2(f) of the Central Excise Act is inclusive and not exhaustive; that there was no suppression of facts and as such entire demand was time- barred.
2.4 E/1178/91-C : The Collector Central Excise, Baroda, under Order No. 89/91, dated 28-10-1991, held that there had been a process of manufacture involved in the production of ‘blown grade bitumen’ from ‘straight grade bitumen’ and transformation into a new commodity commercially known as distinct having its own character and use other than as a binder used in road making process; that extended time limit for demanding duty is available as ‘M/s. Tiki Tar Industries’ had not furnished the process of manufacture of blown grade bitumen in detail. The Collector confirmed the demand of duty Rs. 14,86,445.24 P for the period from March, 1986 and April, 1990 and imposed a penalty of Rs. 5 lakhs and ordered confiscation of land, building, etc., with an option to redeem the same on payment of fine of Rs. 50,000/-.
2.5 E/1799/91-C: M/s. Agra Bitumen The Additional Collector, Kanpur, under Order No. 21/Addl. Collr./90, dated 14-1-1999 confirmed demand of excise duty amounting to Rs. 65,896.32 P and imposed a penalty of Rs. 5,000/- on M/s. Agra Bitumen, holding that if a tariff provides two different sub-headings, the conclusion is that each will have some items covered thereunder even though one may come into existence by a simple operation and as such Bitumen packed in drums is a different item under Item 2713.21; that extended period of limitation is invokable as they suppressed the fact of manufacture and clearance of B.G. Bitumen.
2.6 E 704/92-C : The Collector, Vadodra, under Order No. 8/91-92, dated 18-12-1991, confirmed the duty amounting to Rs. 68,227.15 against M/s. Gujrat Bitumen for the period from October, 1988 to September, 1990 and imposed a penalty of Rs. 10,000/- on them holding that straight grade bitumen by blowing process is a new product having distinct name, character and use. 2.7 E/707/92-C : Vinay Tar Industries. 2.8 E/708/92-C : Swastik Tar Industries. The Collector, Vadodra under Order No. 6/91-92 and 7/91-92 respectively confirmed the duty and imposed penalty as under : -------------------------------------------------------------------------------- Duty Penalty Redemption Fine -------------------------------------------------------------------------------- (i) Vinay Tar Industries 3,12,959.35 P 10,000 20,000 Period 1-4-1987 to 21-9-1990 (ii) Swastik Tar 2,14,132.33 20,000 20,000 Industries Period April, 1987 to February, 1990 -------------------------------------------------------------------------------- 2.9 E/6077/92-C : CCE Vadodra v. Tiktitar Industries
This Appeal has been filed by the Revenue against Order-in-Appeal dated 9-3-1992 passed by the Collector of Central Excise (Appeals) who extended the benefit of Notification No. 175/86-CE, dated 1-3-1986 to M/s. Tikitat Industries if they satisfy the conditions enumerated in the notifications and set aside the duty and penalty as the Order dated 28-10-1991 passed by CCE, Baroda covered the period i.e. March, 1988 to February, 1989 for which duty has been demanded in the Adjudication Order.
3. Shri M. Shroff, learned Advocate, submitted that the straight grade bitumen was subjected to heating/blowing process so as to improve the quality/utility of the bitumen by virtue of raising the softening point and peneteration; that the process of air blowing did not amount to manufacture and the blown grade bitumen could not be said to be a new commercial commodity having new name, character and use because :
(i) The identity of the product remains as Bitumen only, even after air blowing process;
(ii) The air blowing process only changes the quality or purity or grade of the bitumen without changing its name and characterstics; that according to Condensed Chemical Dictionary by Hawley, the word “Grade” is defined as “any of the number purity standards for chemical products established by various specifications”; that this meaning of the word ‘Grade’ clearly establishes that mere change of the grade does not result into transformation of new Commercial Commodity; that the original product continues to remain the same product with the only change as regards its grade or purity;
(iii) Mere air blowing process does not change the Chemical formula of the products as no chemical reaction changing chemical formula takes place;
(iv) No chemical or other additives are added to, or no ingredients or substances are extracted out of, the starting material;
(v) According to ISI specification I.S. 702-1961, it is evident that the process of air blowing only changes the grades of the Bitumen and the Bitumen continues to be the same commodity;
(vi) According to Explanatory Notes of H.S.N., petroleum bitumen which has been slightly modified by air blowing is similar to unblown bitumen;
(vii) According to various decisions of the Supreme Court, High Court and Tribunal, mare change in grade or improvement of quality cannot by itself result into manufacture of a new commercial commdity. The decisions relied upon are –
(a) CCE v. Anil Chemical (P) Ltd.-1985 (21) E.L.T. 289 (T). (b) CCE v. Bakul Annuities & Chemicals Ltd. -1989 (43) E.L.T. 758 (T). (c) S.D. Fine Chemical Pvt. Ltd. v. CCE -1991 (56) E.L.T. 393 (T).
4. The learned Counsel, further, submitted that the demand was hit by time limit as the Board Tariff Advice No. 21/79, dated 2-6-1979 clarified that when blown grade bitumen is produced from duty paid straight grade bitumen, it will not be liable to duty under Item 11 of the erstwhile Central Excise Tariff; that various Trade Notices by different Collectorates, including Baroda Collectorate; were issued to the same effect; that again in Tariff Advice No. 41 /82, dated 16-7-1992, it was clarified that “blown grade bitumen” would fall under Item No. 11 but no duty would be chargeable if made from duty paid “straight grade bitumen”. The learned Counsel also referred to Board’s letter F. No. 88/11/87-CX. 3, dated 16-6-1987 in which it was clarified that both straight grade bitumen and blown grade bitumen of petroleum would be classifiable either under sub-heading No. 2713.21 or 2713.22 of the Schedule to the Central Excise Tariff Act depending on whether these are packed in drums or in bulk and no duty would be chargeable on blown grade bitumen if made out of duty paid straight grade bitumen. He contended that in view of these clarifications the Appellants bona fidely believed that their product was not excisable and there cannot be suppression of facts on their part.
5. The learned Advocate also mentioned that decision in the case of Bitumen Products, relied upon by the adjudicating authority, is per incurium and distinguishable as it was given in the context of old tariff; that reliance was placed upon the extract from the publication “A Layman’s Introduction to OIL Refining” by D.G. Crook, published by I.O.C. Ltd.; that this write up simply explains that by air blowing process, the nature of molecule in bitumen changes and that the softening point and penetration point of the bitumen get changed; that it is also mentioned in the write up that for using bitumen for road making purpose, “the bitumen must not become soft and sticky on a hot day” which has been missed by the adjudicating authority.
He also referred to Ashford’s Dictionary of Industrial Chemicals according to which Air Oxidation is used to form bitumen with higher penetration and softening; that the Tribunal’s attention was not drawn to the decisions in CCE v. Anil Chemicals (P) Ltd., 1985 (21) E.L.T. 889 and CCE v. Bakul Aromatics and Chemicals Ltd., 1989 (43) E.L.T. 7587 (T) (sic) wherein it has been categorically held that mere process of purification or change in the grade/specification would not amount to manufacture. He relied upon the judgment in Union of India v. J.G. Glass Industries Ltd., 1998 (97) E.L.T. 5 (S.C.). He also mentioned that Gujrat Refinery, which supplies bitumen, also employs air blowing process for manufacture of petroleum bitumen and as such the only difference in bitumen received and bitumen after modification in their factory is with regard to the grade i.e. Standard of purity. He referred to the letter dated 26-7-1991 from Vadodra Collectorate in which the process of manufacture of straight grade bitumen as explained by I.O.C. Ltd. was mentioned and submitted that it is apparant therefrom that I.O.C. was also using air blowing process as it was stated as under :
“The Vacuum Residue (V.R.) is pumped to a heater where it is heated unto 230°C and then the said V.R. goes to a Bitumen reactor where Air is blown/bubbled to manufacture Bitumen and then after cooling, the product known as Petroleum Bitumen is sent to storage tanks at about 140°C”.
6. Finally Shri M. Shroff, learned Advocate contended that the demand is barred by time limit specified in Section 11A of the Central Excise Act as in the case of Tiki Tar Industries, a declaration was filed by them in which they had mentioned that B.G. Bitumen is exempted in view of Tariff Advice No. 41/82, dated 16-7-1982 and the Superintendent, Central Excise has certified that exemption is available to them in the declaration itself; that in respect of Vinay Tar Industries, Gujrat Bitumen, Tiki Felt Industries and Swastik Tar Industries, though no declaration was filed by them, they held a bona fide belief in view of Board’s clarification that the impugned product was not excisable and in view of this it cannot be claimed that there was any suppression on their part warranting invocation of extended period of limitation; that Adjudicating Authority had not given any findings on this aspect of time limit in the impugned Order. He relied upon the decision in the case of Cosmic Dye Chemical v. CCE Bombay, 1995 (75) E.L.T. 721 (S.C.). The Apex Court held that suppression was not wilful as the Appellants therein entertained a bona fide impression gained from two High Court judgments which held that the goods exempted from duty were not includible within the definition of “excisable goods” as defined in Section 2(d) of the Central Excise Act. He also relied upon the decision in Ugar Sugar Works Ltd. v. CCE, 1993 (68) E.L.T. 224 (T).
7. Shri Sridharan, learned Advocate, appearing on behalf of M/s. Agra Bitumen, submitted that the impugned Order held that the process of ‘blowing’ amounted to manufacture; that no such allegation was made in the show-cause notice and as such the impugned Order travels beyond the scope of the show cause notice; that no opportunity had been given to them to put forth their submissions on this issue and as such the principles of natural justice has been violated. He also submitted that by the process of ‘blowing’ no new product, having a distinct name, character and use emerges; that the Tribunal in CCE v. Jayant Oil Mills, 1993 (67) E.L.T. 986 (T) has held that Vegetable oil through which air is passed changes only physical properties and remains only a vegetable non-essential oil, that the Board in Tariff Advice No 21/79, dated 2-6-1979 clarified that B.G. Bitumen is a variety of bitumen but when it is produced from duty paid straight grade bitumen, it will not be liable to duty under Item 11A; that the Board again in Circular No. 88/1/87-CX. 3, dated 16-6-1987 clarified that “both straight grade bitumen of petroleum and blown grade bitumen of petroleum would be classifiable either under sub-heading No. 2713.21 or 2713.22 the Schedule to the Central Excise Tariff Act, 1985, pending on whether those are packed in drums or in bulk and no duty would be chargerable on blown grade bitumen of petroleum if made out of duty paid straight grade bitumen of petroleum.” He mentioned that Board’s Circulars are binding the department and the department cannot argue against the circulars. Reliance was placed on following decisions :-
(i) Ranadey Micro nutrients v. CCE -1996 (87) E.L.T. (SC).
(ii) British Machinery Supplies Co. v. U.O.I. -1996 (86) E.L.T. 449 (SC). (iii) CCE v. Usha Martin Industries -1997 (94) E.L.T. 460 (SC). (iv) Rajan Ramkrishna v. CWT -1981 (127) ITRI (Guj).
8. The learned Advocate, further, submitted that the Adjudicating Authority has demanded duty on B.G. Bitumen packed in drums relying upon Kanpur Trade Notice dated 2-9-1988 issued on the basis of Board’s circular dated 1-7-1988; that the said circular nowhere states that the process of blowing air into straight grade bitumen to convert it as blown grade bitumen amounts to manufacture; that referring to sub-headings of Heading 27.13 and the method of packing, the Board has clarified that B.G. Bitumen is dutiable if the mode of packing of B.G. Bitumen is different from the mode of packing of S.G. Bitumen; that there is no Chapter Note which defines that for purpose of Heading 27.13 repacking of bitumen from bulk packing into smaller packing amounts to manufacturer. Reliance was placed on the decision in A.D. Steel Syndicate v. CCE, Pune, 1998 (103) E.L.T. 180 (T) wherein it was held that process of transferring the material from bulk containers to small containers does not amount to manufacture. Finally he mentioned that the entire demand is barred by limitation as the Appellants were under the bona fide belief that repacking does not amount to manufacture and also in view of Board’s Circulars and change view vide Circular dated 1-7-1988 cannot be a reason to invoke the extended period of limitation; that for the same reason, imposition of fine and penalty is also not warranted.
9.1 Shri Gopal Prasad, learned Advocate appearing on behalf of M/s. S.T.P. Ltd. submitted that in Appeal No. E/22/90-C it is not the case of the Department that the process of air blowing amounts to manufacture; that only on the basis of change in packing, duty was demanded from the appellants. He also submitted that once the demand of duty has been dropped by the Collector, no penalty can be imposed was held by the Apex Court in CCE v. HMM Ltd. 1995 (76) E.L.T. 497.
9.2 In respect of Appeal No. E/3416/89 filed by M/s. STP Ltd., Shri Gopal Prasad, learned Advocate, reiterated that air blowing or packing was not a process of manufacture within the meaning of the Act as no new or different Commercial or excisable goods came into existence.
10. Countering the arguments, Shri H.K. Jain, learned S.D.R., submitted that the Appellate Tribunal, in the case of Bitumen Products (India) v. C.C.E., 1989 (44) ELT 504 has held that a process of manufacture is involved in the production of blown grade bitumen from straight grade bitumen. The Tribunal has held as under :-
“We find that in the paper book there is an extract from the publication “A Layman’s Introduction Top Oil Refining” edited by D.G. Crook, published by Indian Oil Corporation Ltd. on Bitumen. From this extract it is seen that bitumen is a dark viscous material and in fact is usually a solid at normal ambient temperatures. It is widely used for road-making purposes, generally in the form of a binder for stone aggregates. For such purposes, resilience to resist deformation by heavy traffic is important. Because of the hundreds of compounds it contains, bitumen does not have a sharply defined melting point, but merely becomes progressively softer and more fluid as the temperature is raised. The hardness or otherwise, of a bitumen is therefore, expressed in terms of a “softening point” test which measures the temperature at which the bitumen reaches a standard, but quite arbitrary degree of fluidity. The actual hardness, at a given temperature, is determined by another criterion the penetration test, which measures the depth to which a standard needle will sink into a bitumen, when a specified load is applied to the needle for a fixed time. There will be a certain relationship between softening point and penetration test. It is possible to modify this relationship by a process known as “blowing”. If air is blown through molten bitumen, chemical reactions take place, changing the nature of the molecules, and this causes the softening point to increase. The product also has a reduced ductility. Such “blown bitumen”, because of its high softening point, and its more rubbery nature, is particularly suitable for impregnating roofing felts, where the requirement is for a product which will neither crack in cold weather, nor flow under hot sunlight. The extract from the book given in detail as above would clearly show that the bitumen is generally used for road making purposes in the form of a binder for stone aggregate and in the “Blowing Process” of bitumen chemical reactions take place, changing the nature of the molecules causing the softening point to increase. Such Blown Bitumen has different uses other than as a binder used in road making process. On the other hand Blown Bitumen because of the high softening point, imparted to it by the blowing process becomes fit for use as roofing material, therefore, the starting material is called straight grade Bitumen, and after the blowing process, the resultant material is known as Blown Bitumen, which is obtained as a result of chemical reactions which changes the nature of the molecules and the blown bitumen so obtained has different uses to which the starting material, because of its lower softening point, cannot be put to. Therefore, it will be valid to conclude that there has been a process of manufacture involved in the production of blown bitumen from straight grade bitumen.”
11. The learned SDR further submitted that the B.G. Bitumen satisfies all the criteria of being a new product having a new name, character and use as it is called by a name different from straight grade bitumen, its use is changed as it is used as roofing material instead of binder in road construction and as observed by Tribunals chemical reaction takes place, changing the nature of the molecules causing the softening point to increase. He relied upon the decision in Empire Industries Ltd. v. Union of India, 1985 (20) E.L.T. 179 (SC) wherein it was held that the taxable event for Central Excise is the manufacture of excisable goods and the moment there is a transformation into a new commodity commercially known as a distinct and separate commodity having its own character, use and name, whether be it the result of one process or several processes, manufacture takes place and liability to duty is attracted. He also mentioned that even ‘Science and Invention, relied upon by Shri Sridharan, learned Advocate, supports the Revenue’s case as it makes distinction between S.G. Bitumen and Oxidised bitumen. He further mentioned that it cannot be inferred from Boards Circular dated 1-7-1988 that it does not mean to say that process of converting straight grade bitumen into blown grade bitumen does not amount to manufacture, that as at the time of issuing of circular, the rate of duty was specific, no duty could be charged again; that Central Excise Tariff itself recognises two different duties in respect of bitumen on the basis of mode of packaging; that in these circumstances, the question whether packing amounts to manufacture or not becomes ‘irrelevant’. He also relied upon the decision in the case of Laminated Packings (P) Ltd. v. CCE, 1990 (49) E.L.T. 326 (SC) wherein the Apex Court held that the contention that both the products fall in the same tariff entry is not relevant to determine duty liability. He distinguished the decision in the case of ].G. Glass by submitting that the process of printing of glass bottles undertaken in that case did not amount to manufacture as no new commodity came into existence. The learned S.D.R. also mentioned that the decision in Tungabhadra Industries Ltd. v. Commissioner of Sales Tax, AIR 1961 Supreme Court 412, relied upon by the Advocate, is not applicable as it was a judgment in the case of Sales Tax matters.
12. In respect of particular appeal filed by M/s. Agra Bitumen, the learned S.D.R. mentioned that the binding nature of the circular dated 1-7-1988 does not help the appellants inasmuch as it nowhere mentions that the process of air blowing does not amount to manufacture; that the allegation contained in show cause notice dated 28-4-1989 was that they were engaged in the manufacture of blown grade petroleum bitumen and as such there is no substance in the submission of the learned Advocate that no such allegation was made in the notice; that as the demand of excise duty is for the period from 30-9-1988 to 19-11-1988, that is after the issue of circular dated 1-7-1988, there is no reason to hold the bona fide belief that the process undertaken by them did not amount to manufacture. In respect of other units which have not filed declarations with the Department he mentioned that the show cause notice contained the allegation of suppression. He also contended that though M/s. Tiki Tar Industries had filed the declaration, they had not furnished the process of manufacture and as such there was suppression of material facts by them; that M/s. Tiki Felt Industries had filed declaration only in respect of bituminised felt and not in respect of blown grade bitumen; that penalty was imposed on M/s. S.T.P. Ltd. (Appeal E/22/90-C) as the Appellants had not obtained licence for manufacture of petroleum bitumen packed in drum under Rule 174 of the Central Excise Rules and as such imposition of penalty is justified.
13. In respect of Appeal E/6077/92-C filed by Revenue, the learned S.D.R. submitted that Collector (Appeals) erred in setting aside the duty and penalty on the ground that the period is covered by the order passed by the Collector; that the notice answerable to the Assistant Collector was issued much before the one issued by the Collector. He also contended that benefit of Notification No. 175/86 cannot be extended to the assessee in respect of goods manufactured and cleared without licence and without payment of duty.
14. In reply the learned Advocate for M/s. Agra Bitumen reiterated that the show cause notice did not contain the allegation that process of air blowing amounts to manufacture; that a perusal of circular dated 1-7-1988 will reveal that it is implicit that the process of converting straight grade bitumen into blown grade bitumen would not amount to manufacture. He also submitted that part of the circular can be challenged by them in view of the judgment of the Supreme Court in Loharn Steel Industries Ltd. v. State of Andhra Pradesh, AIR 1997 Supreme Court 1694 wherein only that portion of exemption notification which discriminated against goods manufactured outside the State was struck down. Finally, he referred to the observations of the Apex Court in Para 20 of the J.G. Glass Industries case for contending that duty cannot be charged twice on the same product.
15. We have considered the submissions of both the sides. The relevant Tariff Heading 27.13 reads as under at the relevant time :
27.13 - Petroleum Coke Petroleum bitumen and other residue of petroleum oils or of oils obtained from bituminous min- erals-Petroleum coke * * * * * 2713.21 - Packed in drums 2713.22 - In bulk - Other residues of petroleum oils or of oils obtained from bituminous minerals * * * * *
16. Under Section 3 of the Central Excise Act, duty of excise shall be levied and collected on all excisable goods which are produced or manufactured in India. It has been held by the Apex Court in Empire Industries Ltd., Supra, that taxable event for Central Excise is the manufacture of excisable goods and the moment there is a transformation into a new commodity commercially known as a distinct and separate commodity having its own character, use and name, manufacture takes place. In the famous decision in the case of Union of India v. Delhi Cloth & General Mills, 1977 (1) E.L.T. (J 199) (SC), the Supreme Court held that the word “manurfacture” used as a verb is generally understood to mean “bringing into existence a new substance” and does not mean merely “to produce some change in a substance”. However minor in consequence the change may be.” The Supreme Court referred to the following passage quoted in permanent Edition of Words & Phrases from an American judgment-
“Manufacture implies a change, but every change is not manufacture and yet every change of an article is the result of treatment, labour and manipulation. But something more is necessary and there must be transformation; a new and different article must emerge having a distinctive name, character or use.”
17. The judgment has been followed in numerous subsequent decisions. It has been further held by the Supreme Court in Moti Laminates Pvt. Ltd. v. CCE, Ahmedabad, 1995 (76) E.L.T. 241 (SC) – that “where the goods are specified in the Schedule they are excisable goods but whether such goods can be subjected to duty would depend on whether they were produced or manufactured by the person on whom duty is proposed to be levied. The expression ‘produced or manufactured’ has further been explained by this court to mean that the goods so produced must satisfy the test of marketability. Consequently it is always open to an assessee to prove that even though the goods in which he was carrying on business were excisable goods being mentioned in the Schedule but they could not be subjected to duty as they were not goods either because they were not produced or manufactured by it or if they had been produced or manufactured they were not marketed or capable of being marketed”.
18. It is thus evident that for being charged to duty of excise, it is not sufficient that the goods are mentioned in the Schedule to the Central Excise Tariff Act. It is also required that these are produced or manufactured and manufacture will be complete only if a new and different article emerges having a distinctive name, character or use. In view of these pronouncements, the argument, that bitumen packed in drums is mentioned in the Tariff, the duty of excise is chargeable and the question of further manufacture, origin, etc., would not arise, is to be discarded. We have to look into the aspect of manufacture before any duty of excise can be levied on blown grade bitumen.
19. The duty paid bitumen received by the Assessee is boiled so that foreign substances like sand and stone settle down; thereafter the air is blown into the material for improving the quality of the bitumen by raising the softening point and penetration; this makes the bitumen suitable for intended application. It is seen from the process undertaken by the Assessees that only the quality of the product which has already suffered duty is improved. It is not the case of Revenue that the bitumen, after the process of air blowing, does no more remain bitumen but becomes a new commercial commodity. The product remains only bitumen with raised softening point and penetration. The Explanatory Notes of HSN clearly mentions that “Petroleum bitumen (also known as petroleum pitch, refinery pitch, petroleum asphalt) is usually “obtained as a residue distillation of crude petroleum. It is brown or black and may be soft or brittle. It is used for road-surfacing, water proofing, etc. Petroleum bitumen which has been slightly modified by air-blowing is similar to unblown bitumen and remains in this heading.” It is thus apparent from H.S.N. Explanatory Notes that unblown as well as blown bitumen fall under Heading 27.13 only. The Central Excise Tariff has also not classified the product into straight grade bitumen and blown grade bitumen but the product has been sub-divided based on made of packing only. The reliance has been rightly placed on decision in A.D. Steel Syndicate case 1998 (103) E.L.T. 180 where it was held that repacking in small containers does not amount to manufacture. The Tribunal observed that “Wherever legislature wanted to declare the process of repacking into small containers as amounting to manufacture it has so provided in the tariff by inclusion of a specific note to that effect.” No such Note has been provided either in the relevant Section of Chapter. Similarly in I.O.C. v. CCE, 1987 (27) E.L.T. 482 (T), Tribunal held that the process of filling & packing of duty paid mineral turpentine oil does not amount to manufacture in absence of any deeming revision in Section 2(f) of the Central Excise Act. Further it is clear from Circular F. No. 88/1 /87-CX. 3, dated 16-6-1987 that Petroleum Bitumens whether of straight grade or of air blown grade are classifiable under sub-headings 2712.21 or 2713.22. According to Hawley’s Condensed Chemical Dictionary, bitumen is “used in hot melt adhesive; coatings, paints, sealants, roofing, and road-coating”. Thus merely because after air-blowing process, the product is used for roofing and not for road construction it does not become a new product chargeable to duty. It has been held by the Supreme Court in Tungabhadra Industries Ltd. v. The Commercial Tax Officer A.I.R. 1961 S.C. 412 that refind oil obtained after the process of hydrogenation continues to be groundnut oil notwithstanding the fact that such oil does not possess the characteristics colour, or taste, odour, etc., of the raw groundnut oil. The Appellate Tribunal also in the case of CCE v. Jay ant Oil Mills, Supra, has held that unless it can be shown that the change in the essential properties of the oil is such that a new commodity has come into existence with a new character, name and use, it would not be appropriate to take the oil from Item 12 and classify it under the residuary item. Blown oil is shown both in the Condensed Chemical Dictionary as well as the Glossery of Chemical Terms to be ‘A Vegetable oil through which air is passed’. As a result of partial oxidation, it is only the physical properties viz., the density, viscosity, drying power undergo a change. The ratio of the decision of the Supreme Court in J.G. Glass Industries’ case, Supra, is applicable in these matters. Applying the two-fold test laid down by the Apex Court whether by the process a different commercial commodity comes into existence or whether the identity of the Original Commodity ceases to exist and whether the commodity which was already in existence will serve no purpose but for the said process, the process of air blowing undertaken in present matters does not amount to manufacture.
20. We also observe that after consulting Chief Chemist, the Central Board of Excise & Customs clarified as early as on 2-6-1979 that blown grade bitumen is a variety of “Bitumen” but when it is produced from duty paid straight grade bitumen, it will not be liable to duty under Item 11 C.E.T. Again the Board; vide Tariff Advice No. 41/82, dated 16-7-1982 Board clarified that Blown Grade Bitumen would fall under Item No. 11 of Old Tariff. We also observe that the Chief Chemist advised that B.C. Bitumen is an oxidised variety of ‘Straight-grade Bitumen’ and as such it cannot be said that a new commercial commodity with a new name, character or use comes into existence by the process of air blowing. After the introduction of present Central Excise Tariff, it was again clarified by Board vide Circular dated 16-6-1987 that “both straight grade bitumen of petroleum and blown grade bitumen of petroleum would be classifiable either under sub-heading No. 2713.21 or 2713.22 of the Schedule to the Central Excise Tariff Act, 1985, depending on whether those are packed in drums or in bulk and no duty would be chargeable on blown-grade bitumen, of petroleum if made out of duty paid straight grade bitumen of petroleum.” It is again evident from this clarification that the classification was based on the mode of packing. This is clear from the Board’s Circular dated 1-7-1988 in which it was mentioned that “The new GET has made a departure from the HSN in respect of petroleum bitumens by making their modes of packing a criterion for their classification under different sub-headings”. The Board, keeping this criterion, it seems, further, clarified that duty would be cheargeable on B.G. Bitumen where it falls under a sub-heading different from the sub-heading under which duty paid straight -grade bitumen falls because of variations in their modes of packing. In light of this clarification we do not find any substance in learned SDR’s argument that the circular does not mean to say that process of converting into B.G. Bitumen does not amount to manufacture. This is apparant from the next sentence in Board’s letter dated 1-7-1988 which reads as under:
“However, where the duty paid straight grade bitumen of petroleum out of which the blown grade bitumen of petroleum has been produced and the blown-grade bitumen of petroleum so produced fall under the same sub-heading, because of the same mode of packing no duty would be cheargeable on such blown grade bitumen of petroleum”.
21. The learned SDR has heavily relied upon the decision in the case of Bitumen Products (India), Supra, wherein the Tribunal held that a process of manufacture was involved in the production of blown bitumen from straight grade bitumen. We find sufficient force in the submissions of the learned Advocate, appearing on behalf of the Assessees, that the said decision can be distinguised as it pertains to old Central Excise Tariff and the Board’s circulars were not brought to the notice of the Appellate Tribunal. The Supreme Court in the case of Kores (India) Ltd. v. CCE – 1997 (93) E.L.T. 322 (SC), referring to Board clarification that no further excise duty would be attracted if teleprinter rolls are made from printing and writing paper which has already become duty under Tariff Item 17(1) of old Tariff, has held that no duty is payable by the assessee. The Apex Court in CCE v. Kores (I) Ltd. – 1997 (89) E.L.T. 441 (S.C.) also held that “it is not open to the Revenue to advance arguments that are contrary to the terms thereof” (Tariff Advice). Further, the H.S.N. Explanatory Notes on which the Present Tariff is based clearly mentions that “Petroleum Bitumen which has been slightly modified by air-blowing is similar to unblown bitumen and remains in heading 27.13. The Tribunal’s decision in Bitumen Products case seems to have been influenced by the findings that the bitumen is generally used for road making purpose and in the blowing process, chemical reaction takes place, changing the nature of molecules and such blown bitumen has different uses other than as a road binder used in road making process. The different uses concept was not accepted by the Supreme Court in Tungabhadra Industries case, supra. The Supreme Court also observed therein that inter molecular change was not decisive of the matter. The Supreme Court also in the case of CCE v. Jayant Oil Mills Pvt. Ltd. – 1989 (40) E.L.T. 287 (SC) held, following Tungabhadra Industries decision, that “Indubitably hydrogenation of rice brand oil is a process. But all process need not be manufacture”. The Supreme Court held that edible rice bran oil would even after extra heading would continue to fall under Tariff Item 12 and not fall under Tariff Item 68 as the essential properties of the rice bran oil are not changed even after process of hydrogenation/hardening. The Tribunal also held the same view in CCE v. Jayant Oil Mills – 1993 (67) E.L.T. 986 (T) holding that Blown Castor Oil remains only a vegetable non-essential oil. The learned Advocate have referred to other decisions also in this regards such as Jyoti Engg. Corporation v. CCE, 1989 (42) E.L.T. 100 (T), Bharat Forge & Press Industries (P) Ltd. v. CCE 1990 (45) E.L.T. 525. Finally the Apex Court has held in CCE, Patna v. Usha Martin Industries, 1977 (22) RLT 221 that “Through a catena of decisions this court has pronounced that Revenue cannot be permitted to take a stand contrary to the instruction issued by the Board”. The Supreme Court also observed that the fact, that Section 37B was inserted in the Act only in December, 1985, cannot whittle down the binding effect of the circulars or instructions issued by the Board earlier. In view of various decision, circulars issued by the Board and Explanatory Notes of H.S.N., the conversion of straight-grade bitumen into blown-grade bitumen by process of air blowing does not amount to manufacture. Accordingly all the appeals filed by the Assessees are allowed. Further the appeal filed by the Revenue, in view of decision taken in present matter, becomes infructions and is hereby rejected. As the appeals filed by the assessees have been allowed on the aspect of ‘manufacture’ itself, the other questions such as invokability of extended period of limitation, availability of small scale exemption and imposability of penalty have not been considered by us.