JUDGMENT
1. The petitioner-company manufacturers different types of electrical wries and for the purpose of electrical wries, the petitioners purchase copper wire bars and aluminium rods/ingots. The wire bars and rods/ingots after being processed into wires are coated with varnish especially manufactured by the petitioners in order to make them insulated. We are concerned with the process of varnishing. The process has been described in para six of the petition and it is as follows :
“Manufacturing Process for Varnish : ‘DMT’, Ethylene Glycel, Glycerine, ‘Theic’, Trimelletic Anhydride, D.D.M., Zinc Octate and Meta-Cresol (Solvent) are first added in a stainless steel reaction kettle which will be described as “first kettle”. The first kettle is heated from outside and raw materials inside are stirred. The temperature is slowly increased upto or about 225 degrees Centigrade. Reaction of estrification takes place and bye-products of estrification like methanol and water are removed. The material is further heated upto or about temperature of 240 degrees Centigrade so as to build up its molecular weight.
Thereafter the materials in the first kettle is allowed to cool down to a temperature of or about 150 degrees Centigrade. The material at this temperature is in liquid state and is transferred through an intergrated process to second kettle in hot liquid state. Further quantity of solvents like Cresol phemol, xylene etc. are added in predetermined portions to give required flow and rate of evaporation and stirred. The material is then allowed to cool down to temperature below 50 degrees Centigrade. A calculated quantity of specific type of cross-linking catalyst is added to complete the modification. The Viscosity of the varnish so prepared is checked and adjusted if required by adding suitable quantity of solvents. The finished varnish is then filtered and packed steel drums.”
2. The petitioners say that the manufacture of the said varnish is an integrated and continuous process and at no stage do the petitioner-company manufacture resin or polyester resin as known in the market. They say that the said heavy viscous liquid cannot be treated as a marketable commodity as a polyester resin. The said heavy viscous liquid in an unfinished condition and the same cannot be regarded in the trade as polyester resin. Further, the heavy viscous liquid which comes in existence at an intermediate stage in a continuous and intergrated process cannot be used for any other purpose except for continuing the process of manufacturing the said produce viz. varnish. The said heavy viscous liquid is not looked upon by the consumers, manufacturers and dealers as resin as known in the market for being bought and sold as such. Just because the heavy viscous liquid contains some resin elements, it cannot be treated and regarded as polyester resin.
3. The petitioners say that they are paying excise duty on the said varnish under Tariff Item 14(II)(i) of the Central Excise Tariff.
4. However, the Excise Department got a brainwave. Sometime in June 1978 they desired to know the manufacturing process adopted by the petitioner-company in respect of the resin produced and used in the manufacture of varnish, and accordingly the petitioners were called upon to furnish the details. The petitioners gave detailed information as to how the said varnish is produced.
5. In spite of this, on 4th August, 1979 the Inspector of Central Excise drew samples of the said varnish which was at the intermediate stage. The samples were drawn at the intermediate stage at 100 degrees Centigrade, that is to say, it was in the process of being channeled from the first kettle to the second kettle. Thereafter by a letter dated 12th October, 1979 the petitioners were informed that the sample was in the form of brown viscous sticky mass, and that it answered the test for the presence of polyester resin. It further stated that the ingredients as that temperature undergo polycondensation to form polyester resin. In reply, the petitioners informed that the sticky mass was a solution of polyester in solvents and thus it was a varnish and not a resin, and in any event it was not marketable in the trade and it was not known as polyester resin.
6. All these things found no favour with the Department, as the Department stuck to its report and insisted on payment of duty on the said product which was at the intermediate stage, in the process of manufacture of the final product of varnish.
7. I need not set out the detailed history of the litigation, inasmuch as initially the petitioners went to the Bombay City Civil Court and obtained certain orders of injunction restraining the respondents from recovering duty on that ground, and finally, of course, the petitioners had to file the present petition.
8. It is interesting to note that at one stages the Department appears to have acted “pursuant to the orders of the higher authorities” and that is found in a letter dated 19th February, 1980. It is clear that throughout the Department acted at the instance of “the higher authorities”. Certainly, the Assistant Collector could not have acted pursuant to any such instructions from the higher authorities. He should have considered the matter independently on the basis of the evidence that was brought before him and also on the basis of all the facts that were placed before him. In the present case, it is clear that the product was at the intermediate stage, as such not salable, with no market whatsoever, and there is an express statment from the petitioners that they had never offered to sell that product or to market that product to any outsider. It was not in the condition to be marketed at that stage. Recently, I had a similar matter to be decided by me in respect of what is known as “dip solution” in the case of Ceat Tyres of India Ltd. v. The Union of India, being Writ Petition No. 282 of 1981, decided by me on 23rd June, 1987 = 1987 (30) ELT 857 (Bom). There also the Department had acted in a patently illegal manner, inasmuch as the said ‘dip solution’, which was not marketable, was held to be ‘resin’ by the Department and the duty was demanded on that ground. After considering the various cases cited before me, I held against the Department.
9. The same reasoning would apply in the present case also. The case can be said to be directly covered by the case of Union Carbide India Ltd. v. Union of India and others, reported in 1986 (24) E.L.T. page 169.
10. In the present case, apart from the petitioners’ own statment, they have also relied on the affidavit of one Mr. Ramniklal S. Gosalia, who is the sole proprietor of the concern known as Ramniklal S. Gosalia. They are carrying on business of buying and selling chemicals-solvents pigments resins imported and indigenous for the last twenty-five years. The said Gosalia is also the President of Chemical and Alkali Merchants’ Association. He had categorically stated that in his experience for the last twenty-five years. He has not come across any resin in the form of brown viscous stickly mass being bought and sold in the market. In addition to the affidavit of Mr. Gosalia, the petitioners have also relied on the affidavit of an expert one Dr. Shrikrishna P. Potnis, who is a highly qualified person and who is the Senior Professor of Polymer Technology and is the Head of the Plastics and Paints Division in the Department of Chemical Technology of the Bombay University. He had visited the factory of the petitioners and physically checked the process of manufacture of insulating varnishes and the various stages involved therein. He has examined the Test Report given by the Deputy Chief Chemist of Central Excise, Bombay, and he has stated that the product removed from the first kettle in the form of brown viscous sticky mass would answer the test for presence of polyester resin and the ingredients added during the reaction undergo poly-condensation at the temperature of reaction to form polyester resin. The deponent has posed two questions to himself viz. (i) whether the product is a resin as is generally known, and (ii) whether the product has any commercial use and whether it can be described as ‘marketable goods’. He has answered these questions that product from kettle-I is a ‘brown sticky mass’ and is not a solid and is a mixture of saturated polyester resin and meta-cresol solvent and it cannot be used for textile fibre, nor can it be used for moulding, nor for any FRP construction. He has also categorically stated that it cannot be used for any other purpose except for the manufacture of varnish by the petitioners. He has certified that this is not a product of commercial use or marketable goods.
11. With no better analysis than as given by Dr. Potnis, the Department should have accepted this analysis in good grace. However, the Department would not agree and this petition had to be filed and decided on merits. In the result, the petitioners succeed and I pass the following order :
ORDER
12. Rule made absolute in terms of prayers (a), (b), (c) and (d) of the petition. The Bank Guarantees given by the petitioners during the pendency of this petition do stand discharged. The Department is directed to cancel all these bank guarantees within a period of six weeks from today and hand over the same to the petitioners.
13. Mr. Mehta for the petitioners, at this stage, points out that there one bank guarantee for the period April 1982 to March 1987 for Rs. 3,45,000/-. The said bank guarantee expires on 30th June, 1987. However, the same has been renewed but has not been filed with the Department. Mr. Mehta submits that in view of the above order, the petitioners may be directed that is not necessary to file the bank guarantee with the Department.
14. I accordingly direct the petitioners that they need not file the said bank guarantee.
15. The petitioners are also entitled to the costs of this petition from the respondents.