S.S. Sekhon, Member (T)
1. The appellant M/s Goyal M.G. Gases Pvt. Ltd., are an assessee engaged in the manufacture of Helium Gas falling under Chapter No. 28 of Central Excise Tariff Act, 1985.
2. The present dispute relates to eligibility of exemption under Notification No. 23/98-Cus. dated 2.6.98; 20/99-Cus. dated 28.2.99; 16/2000-Cus. dated 1.3.2000 as amended by Notification No. 31/2000-Cus. dated 24.3.2000 which inter-alia permits clearance of raw materials required for manufacture of goods under the warehousing provisions, to be delivered for the purpose of offshore oil exploration or exploitation against certificate issued by duly authorized officer in the Ministry of Petroleum & Natural Gas, Govt. of India.
3.1 The appellant are following the formalities of Customs Bonded Warehousing and manufacturing activities obtained licenses under the Customs Act and also obtain Registration under Central Excise, They imported Helium Refrigerated Liquid (hereinafter referred to as HRL), converting the liquid form into Diving Helium Gas (hereinafter referred to as DHG) by mixing of 2% oxygen gas after conversion of HRL into gas. The manufacturing process is as follows:
(a) (i) Decanting of Helium Refrigerated Liquid from ISO container: Helium Refrigerated Liquid is brought in a very special vacuum insulated ISO Container which is designed specially to store Helium Refrigerated Liquid at a very low temperature of 4.2 K. This is done by vacuumising and shielding of jackets with liquid Nitrogen. The liquid as stated above is at a very low temperature. This liquid is passed through a heater called vaporizer where atmospheric heat is circulated in heat exchange with incoming .Helium, Refrigerated Liquid (at 42K) as a result of which it converts into Helium Gas. This Helium Gas is then passed through a high pressure compressor where the pressure of the Helium gas is raised in stages by the compressor from 0 kg/cm2 to 150 kgs./cm2 as the pressure is increased in each stage the temperature of gas also increases to 200 degree centigrade and then it is cooled down to 15 to
20 degree centigrade by after cooler system using water. The heated water is cooled down by cooling tower/water chilling plant. The Helium gas coming out from the final stage is passed through a oil removal unit. The unit consists of four chambers viz., Helium Gas Cooling Chamber, Alumina Filter and finally in activated Charcoal Filter. The Helium gas is cooled down to temperature of 5 degree centigrade and passed through these filters thereby removing moisture, oil and other impurities. The Helium gas is analysed at this point for impurity content by direct online mounted analyzer and gas chromatograph for detecting impurities like CO, CO2, CH4, N2,O2, H2O etc. The Helium Gas is then passed to a buffer vessel or to be manifold ramp for cylinder filling through valve panel/storage vessels/quads/pellets.
The cylinder which contains impurities are cleaned and then evacuated several times and purged by pure gas. The filled cylinders are labelled as per grade.
(ii) Mixing of Oxygen:
Two percent by volume of oxygen gas is mixed in Helium Gas Cylinders.
(iii) Testing of filled cylinder prof Quad:
The cylinder/Quad filled will be checked for impurity content if any by analysers, which requires small/minor quantity of gas.
(iv) Helium Refrigerated Liquid filling in Dewars:
(a) Helium Refrigerated Liquid will be filled into small containers called Dewars ranging from 50 litres to 1000 litres capacity directly from the ISO container. The filling is through a vacuum insulated transfer tube.
(b) Alternatively compressed gas will be converted into Helium Refrigerated liquid by helium liquifier for filing into dewars.
(v) Filling charging of liquid nitrogen to the nitrogen jacket of ISO Container.
Helium Refrigerated liquid remains in liquid state at very low temperature of 4.2K. To maintain this temperature inside the ISO container, the container is jacketed by liquid Nitrogen shield, which is at 77K thereby minimizing the atmospheric heat to reach the inner vessel where Helium Refrigerated Liquid is stored. Part of liquid nitrogen will get evaporated and will be recharged as and when required depending upon the storage time/holding of the container at our private bonded warehouse.
The HRL was de-bonded without payment of duty for manufacture of DHG for supply intended for ONGC for the purpose of off-shore exploration or exploitation. Forty such Bills of Entry were filed and goods ex-bonded under physical supervision of Excise Department after assessing Bill of Entries showing the particulars of exemption. On 18.5.2000 they filed a Bill of Entry of de-bonding HRL under claim of the benefit of Notification 16/2000-Cus. dated 1.3.2000 as amended. The same was disallowed and the Show cause notice was issued, proposing the following:
(b) (i) that helium gas mixed with 2% oxygen is not a part which is used for manufacture of goods to be supplied for intended purpose;
(ii) that similarly helium gas mixed with 2% oxygen is not a raw material as no new finished final product is manufactured. Mixing of gas does not constitute manufacture;
(iii) that there is no sale to retailer and therefore not covered by definition of deemed manufacturer as per Chapter Note No. 10 of Chapter No. 28.
The Show Cause Notice was replied. The Deputy Commissioner denied the exemption in appeal. The Commissioner (Appeals) came to the following findings:
(c) (i) that HRL is a raw material and activities undertaken for conversion of DHG amounts to manufacture and satisfies the condition laid down in the Notfn. Further, same also satisfies the artificial definition of manufacture appearing in Chapter Note No. 10 of manufacture. Further, Dept. itself consider DHG as manufacture product which is evident from the fact that excise duty is recovered on finished goods and warehousing licence for in bond manufacturing activity has been granted from time to time;
(ii) that judgments cited by the adjudicating authority in support of the stand that activities undertaken does not constitute manufacture is not applicable as disputed issue involved was simply putting two gases together in one cylinder (mixing of gases) and disputed period was prior to insertion of artificial definition of manufacture in Chapter Note No. 10 of Chapter No. 28.
Revenue filed on appeal to the Tribunal and also issued another Show cause notice dated 30.9.2003 demanding Customs duty on the 40 Bills of Entry assessed earlier.
3.2 In another proceeding initiated about the clearance on other Forty BE’s, Commissioner found that the Helium Gases remain and even after undergoing the process of mixing with 2% Oxygen no new distant product came in existence with specific use. The demand of Customs under Section 28(2) were confirmed on conclusions that the imported HRL cleared under claim for exemption of Customs duty under Notification Nos. 23/98-Cus., 20/99-Cus. & 16/2000-Cus. & 31/2000-Cus. were not correct clearances as they could not satisfy the condition therein of (sic) used in manufacture of goods to be supplied in connection with the purpose of off-shore oil exploration or exploitation by ONGC to be fulfilled. The activity undertaken on HRL do not amount to manufacture within the meaning of Section 2(f) of Central Excise Act, 1944 and therefore, the duty demands were required to be confirmed, mala fide intention was also found to call for penalty under Section 114A of the Customs Act on the appellants-assessee company and penalty on the Manager under Section 117 of the Customs Act. The recovery of duty with interest was ordered. Hence Appeals No. E/501 & 502 by the assessee and its Manager.
3.3 Appeal No. E/900/2001 has been filed by the Commissioner against Order-in-Appeal No. Commr (A)/1225/SRT/2000 dated 30.11.2000 of Commissioner (A) wherein the assessee appellants case it has been held that the assessee had satisfied all the conditions of Notification No. 16/2000-Cus. as amended vide Notification No. 31/2000-Cus. and it was incorrect to deny the exemption to them. The grounds taken by Revenue in this appeal are:
(i) Exemption is not applicable for non-fulfilment of the conditions of the said notification as only “parts and raw materials for manufacturing of goods to be supplied in connection with the purpose of off-shore oil exploration or exploitation” and the goods do not conform to the same.
(ii) The extension for the bonding period is up to 14.9.2001. The process of 2% Oxygen mixed in Helium (HRL) does not result in new product having different name, nomenclature and end use to come into existence and also no chemical reaction takes place.
(iii) Mixing of gases does not amount to manufacture. Section 2(f) of the Central Excise Act refund manufacture and in view of this case of S.C. Commissioner of Central Excise v. Goyal Gases (P) Ltd. 2001 (119) ELT 5 (SC) wherein it has been held as follows:
The Tribunal has categorically held that no evidence was led by the Department to controvert the assessees case that no new product with distinct usage and marketability had been produced. Even so, it is contended that Tribunal failed to appreciate that by the mixing of four more gases a totally different product with distinct use and marketability was produced. We find, having heard the learned Additional Solicitor General, that there is, in fact, no evidence led by the department to establish that case. The reliance upon the order of the Commissioner would appear to be misplaced because the Commissioner’s ipse dixit carries the matter no further. The appeal is dismissed.” (In other words it is held that no manufacture of new product emerges due to mixing of gases as required under Section 2(f) of Central Excise Act, 1944).
(iv) Finding of Commissioner (Appeals) of application of chapter note 10 of chapter 28 is not applicable as supply on HRL mixing with 2% of Oxygen in returnable cylinders is not a retail sale as per the definition of retail sale prescribed in “The Standards of Weights and Measures” (Packages Commodities) Rules, 1977 also ONGC is not individual or a group of individual and not retail sale price was fixed under this Rules, rules framed under that Act.
(v) Helium Gases mixed with 2% of Oxygen is not a part of any machine equipment or of machine.
3.4 After hearing both sides and considering the issues it is found:
(a) The notification under the Customs Act do not relate or restrict ‘manufacture’ to a definition of ‘manufacture’ under Section 2(f) of the Central Excise Act, 1944 nor do the notification refer to the Standards of Weights and Measures Act definition of retail sale. The word ‘manufacture’ in the Customs notification is to be understood in broader sense and not related to definition under the Central Excise Act. In this connection the reliance placed by the appellant on the case of CC, Kandla v. PSL Pipe Gates Ltd. Order No. A978/WZB/2004/C-III dated 27.8.2004 is well founded.
(b) Customs notification exempts goods falling under any chapter which are Parts and raw material for manufacture of goods to be supplied in connection with the purpose of off-shore oil exploration or exploitation and Condition No. 35 therein reads as–
(a) the parts and raw material are issued in the manufacture of goods in accordance with the provisions of Section 65 of the Customs Act, 1962.
Section 65 of the Customs Act permits the owner of any Warehoused goods to carry on any manufacturing process or other operations in the Warehouse in relation to such goods. This Section also does not relate the interpretation of the word ‘manufacture’ to the definition under Section 2(f) of the Central Excise Act, 1944 nor do the ‘Manufacture and other operations in Warehouse Reputations 1966 issued in exercise of the powers under Section 157 of the Customs Act, 1962 restrict the interpretation of the word ‘manufacture’ to Section 2(f) definition under the Central Excise Act, 1944. We therefore, find no reason to conclude that no manufacture in the Customs Warehouse took place when HRL was mixed with 2% Oxygen to achieve DRG for a specific and (sic, end) use i.e. Deep See Dwing (sic, Diving).
(c) The ground urged by Revenue that HRL is not part/component as the benefit is available to all ‘raw materials’ falling under any chapter of Central Tariff and not restricted to ‘parts’ as commonly understood and pleaded by Revenue. The ex-bonding as raw material of HRL cannot be found fault with or its use by mixing with 2% Oxygen Gas to result in a commodity different. The notification exempts raw materials used for manufacture of goods. Goods as defined under Section 2(22) would encompass DRG. There are no reasons therefore to conclude that HRL as raw material is not used in the manufacture of goods under the provisions of Section 65 of the Central Act, 1962 to deny the benefit of the exemption.
(d) The case of CCE, Meerut v. Goyal Gases (P) Ltd. relied by Revenue does not apply in the fact of this case, as that decision on the facts of that case of mixing of 4 different gases was where no marketability if new commodity was established which is sine qua non to arrive at ‘manufacture’ under Section 2(f) of the Central Excise Act, 1944. In the case before us, the interpretation is not of coverage under ‘manufacture’ as defined in Section 2(f) of the Central Excise Act, 1944. There is evidence produced before us that Helium Gas/Liquid in various concentration of Purity and a mixture with other gases is used in Laboratory and Scientific, Cryogenic, Lighting, Electronics, Nuclear Reactors, Aerospace purposes especially also as Medical and or Breathing Gases. Detailed Technical specification for such Medical/Breathing Use are observed from the write up in Encyclopedia of Chemical Technology by Kirk-Othmer, 4th Edition Volume 13 page 32. We therefore find that 2% Oxygen Helium mixture in this case would be considered as a new commercial product with a different end use that pure Helium Liquid or Oxygen gas the starting points for a specific end use i.e. Deep Sea Diving needs in High Sea Oil explorations. The plea of Revenue, that there is no chemical reaction taking place between Helium and Oxygen in this case does not help the case of Revenue as the presence of a Chemical reaction need not be only task to meet test for a ‘new commercial product’ to be emerging. A mechanical mixture would and could result in a new identified commercial product also as in this case it has because of specific mix and use which is not under challenge.
(e) We find no infirmity in the order of CCE (Appeals), which has arrived, at findings on each condition of the notification to have been complied in this case. We could not upheld the findings of the Commissioner to the contrary. We upheld the order of CCE (Appeals) and set aside the order of CCE.
(f) The duty demands the penalty and interest are not upheld also on ground of limitation in respect of 40 BE’s assessed and knowingly granted the benefit in the facts of this case.
3.8 In view of the findings, the Appeals No. E/501-502/04 are to be allowed after setting aside the impugned order therein and Appeal No. E/900/01-Mum to be rejected and upholding the order impugned therein.
3.9 Ordered accordingly.