ORDER
D.C. Mandal, Member (T)
1. The issue to be decided in this case is whether silicone emulsion obtained by the appellants by the process of mixing certain ingredients with the aid of power in silicone oil which is imported and on which additional duty of customs (countervailing duty) at the appropriate rate under Tariff Item 15 A. had been paid is cYvatgeabVe to Central Excise duty under Tariff Item 15 A.(1) ibid. The contention of the appellants before the lower authorities was that no chemical synthesis took place in the preparation of emulsion of silicone oil. It was also further contended that since the silicone oil out of which the emulsion was made had already borne countervailing duty under Tariff Item 15A(1), Central Excise duty under the same tariff item could not be charged once again. The appellant’s contention was rejected by the lower authorities, who held that the emulsion was chargeable to duty under Tariff Item 15A(1) of the Central Excise Tariff in view of Explanations II & III below Tariff Item 15A. They, however, allowed proforma credit under Rule 56A of the Central Excise Rules, 1944 in respect of the countervailing duty paid on the imported silicone oil.
2. We have heard Shri Uday M. Joshi, learned advocate for the appellants and Shri A.S. Sunder Rajan, learned JDR for the respondent. Shri Joshi has relied on paragraph 7 of this Tribunal’s decision reported in 1988 (34) E.L.T. 637 (Tribunal) in the case of Collector of Central Excise, Bombay III v. Auxichem in support of his contention that the appellants’ products are silicone preparations and hence not chargeable to Central Excise duty under Item 15A(1) of the Central Excise Tariff. He has also argued that the demand for duty is partly time-barred as the demand show cause notice was issued on 26-10-1982 in respect of the goods cleared from the factory during the period 1-3-1982 to 30-9-1982. He has stated that the show cause notice was received by the appellants on 2-11-1982, and therefore, the demand for duty for the period 1-3-1982 to 3-5-1982 is barred by limitation. It is admitted by him that the point of limitation was not raised before the lower authorities.
3. Arguing for the Revenue, Shri Sunder Rajan has drawn our attention to page 14 of the Paper Book in which the result of chemical test was communicated stating that “Sample is in the form of white aqueous emulsion of Silicone Oil”. He has stated that the test report was not challenged by the appellants. He has relied on this Tribunal’s decision in the case of CEAT Tyres of India Ltd., Bombay v. Collector of Customs, Bombay, reported in 1988 (35) E.L.T. 635 (Tribunal) in support of his contention that the appellants’ products were chargeable to duty under Tariff Item 15A (1) of the Central Excise Tariff. He has also argued that the Tribunal’s decision, reported in 1988 (34) E.L.T. 637 (Tribunal), is not applicable as in that case silicone preparation was involved. He has further argued that the point of limitation was not raised before the lower authorities.
4. We have gone through the records of the case and have considered the arguments of Shri Joshi and Shri Sunder Rajan. The appellants manufactured silicone emulsion with the trade names of Silkona 830,110 & 10 & Indosyl 350. In the facts stated in para 7 of the statement of facts in the appeal memorandum, the appellants have stated that they manufactured silicone emulsion from imported silicone oil by the simple process of dilution and stabilisation with the aid of power. The countervailing duty under Item 15A of the Central Excise Tariff was paid on the imported silicone oil. The process employed by them for obtaining silicone emulsion consisted of diluting the imported silicone oil with water in the presence of 2 to 2.5% emulsifier purchased from the indigenous market. A thorough mixture was obtained after carrying out stirring for about 15 minutes. This was the only process that was undertaken by the Company. It is also stated that the Company did not carry out any other process involving chemical synthesis for the simple reason that they did not have the where-withals to carry out any chemical synthesis, nor was any chemical synthesis required to be carried out for obtaining silicone emulsion from the imported silicone oil. In ground No.-(iv) of the grounds of appeal, the appellants have stated that “nothing had changed and the emulsion obtained by the Company contained about 29 to 30% of silicone oil. The Company, while selling its silicone emulsion, endeavours to educate its customers about the manner in which to analyse the product. The customers are advised that by simple addition of DIOXAN, a liquid to the emulsion, the original imported silicone oil gets separated so much so that the oil is retrievable. The silicone oil that is recollectable by adding DIOXAN liquid, is, chemically speaking the same product as the imported silicone oil, without any loss of or diminution in its characteristics and properties. Had there been any chemical synthesis as a result of the process employed by the Company to bring about silicone oil in the form of emulsion, both the substances would have lost their original identities and silicone oil would not be recoverable in its pristine form as a result of addition of DIOXAN liquid to emulsion. This fact admirably proves that the resulting emulsion was not a new product by itself nor did it constitute a product brought into existence by chemical synthesis”.
5. The learned Departmental Representative has relied on this Tribunal’s decision in the case of M/s. CEAT Tyres of India Ltd., Bombay (supra) in which the classification of imported silicone fluid was in dispute. In that case the Tribunal observed that silicone oil was a polymerisation product produced by chemical synthesis, in a reaction that will satisfy the definition in Chapter 39 of CTA. 1975. It was held therein that silicones in primary form, as distinct from a preparation containing silicone, was classifiable under Heading 39.01/06 and Item 15A(1) of the Central Excise Tariff. The question is whether in the present case the appellants’ products are silicone emulsion in primary form or those are preparations containing silicone oil. A similar issue was considered by the five-Member-Bench of this Tribunal in the case of Collector of Central Excise, Bombay III v. Auxichem, reported in 1988 (34) E.L.T. 637 (Tribunal). In the said case, the respondents manufactured (i) silicone AU 331, (ii) auxichem 831 and (iii) silicone softener 662 which were classified under Central Excise Tariff Item 15AA before 28-2-1982. After the amendment of the Tariff Item 15A in the Budget of 1982-83, the Department came to the view that as the said products were based on silicone they should be classified under Tariff Item 15A(1). A demand show cause notice was issued to the respondents in August, 1982 to recover duty on clearances made from 28-2-1982 to 31-7-1982. The Assistant Collector decided that the goods were classifiable under Tariff Item 15A(1) and he asked the assessee to pay the duty accordingly. The assessee appealed against that decision before the Collector of Central Excise (Appeals), Bombay, who set aside the decision of the Assistant Collector and held that the products were classifiable under Tariff Item 15AA. In the said case M/s. Auxichem mixed Silicone oil with water and some emulsifying agents to produce the textile processing products. In paragraph 9 of the said order, the Tribunal has observed that “Only silicones that are assessable under Item 15A are the synthetic polymers, the first stage when the silicone product undiluted, unmixed silicone polymer, is produced by synthesis. Generally speaking the states in which silicone appears are fluids, resins and elastomers. From these three primary silicones, a number of derived products like sealants, rings washers, ad-hesives, surface-active preparations, encapsulation cements etc. are obtained. Many of these preparations are in emulsions. All these emulsions have other materials, additives, emulsifiers etc. added to aid and help in the use of the preparations in the desired industrial application.” In paragraph-10 of the Tribunal’s order, it has been observed that “only an emulsion of a silicone such as silicone in its primary state or one of its primary states, will be covered. A preparation containing silicone in emulsion for specific uses as in wetting, mould release, lubrication, will not be that emulsion; it is only an emulsion preparation used as wetting, mould release or lubricating preparation otherwise all goods containing polymers or synthetic resins will have to be assessed under Item ISA. Thus paints, lubricants, adhesives, to name only a few, all contain varying amounts of synthetic polymers in mixtures or emulsions. Silicone finds uses even in medicines as an-tiflatulents. In all these preparations, mixtures, compounds, it is the synthetic polymers that give the products their active, distinctive qualities and properties.” It has been held by the Tribunal that M/s. Auxichem’s products cannot be assessed under Item 15A as they are not silicone, but only preparations of silicone. It has been held that the said preparations are properly classifiable under Item 15AA.
6. The facts in the present case are similar to the facts of the case of M/s. Auxichem. In the said case in paragraph 11 of the order, the Tribunal held that the products were lot silicones in primary form, but preparations containing silicone and hence those were not classifiable under Item ISA of the Central Excise Tariff. The Tribunal observed that the properties of (he products as textile processing preparation would govern its assessment and would merit assessment under Tariff Item 15AA. In the facts of the present case, following the decision of the Larger Bench of this Tribunal, we hold that the appellants’ silicone emulsion was not in primary form, but preparations containing silicones and hence not classifiable under Item ISA of the Central Excise Tariff. In this view of the matter, we set aside the impugned order and allow the appeal.
7. Before the lower authorities and also in the appeal memorandum before us the appellants have raised a contention that there being no chemical synthesis in the process of making the silicone emulsion from imported silicone oil no manufacture was involved and hence the silicone emulsions were not excisable under Item 15A(1). Although we accept the contention of the appellants that their silicone emulsions are not the result of chemical synthesis and not classifiable under Tariff Item 15A(1), we are unable to accept the plea that no manufacture was involved in the process of preparation of these emulsions. The mixing of imported silicone oil with other ingredients has resulted in a distinct product, namely, silicone emulsion, having a distinct name, character and use. This process of mixing is manufacture within the meaning of Section 2(f) of the Central Excises & Salt Act, 1944. In the case of Brooke Bond India Ltd. v. Union of India and Ors., reported in 1984 (15) ELT 32 (A.P.), not cited by either of the parties before us, the Hon’ble Andhra Pradesh High Court held that the process of mixing Chicory Powder with Coffee Powder constituted manufacture as defined in Section 2(f) of the Central Excises and Salt Act as it brought into existence a new and different article commercially known as “Ftench Coffee”. It was held therein that the “Coffee Chicory Mixture” was different from the two ingredients constituting the mixture and was liable to duty under Item 68 of the Central Excise Tariff. It was also held in that judgment that an article could be taxed once as a raw material and after it was manufactured and converted into different taxable goods, then it could be taxed again as another taxable item, and the two levies could not be treated as on the same goods. In holding the above views, the Hon’ble High Court considered and followed the ratio of several judgments of the Hon’ble Supreme Court. In this connection, paragraph 64 of that judgment is reproduced below :-
“In Anwarkhan Mehboob Co. v. State of Bombay AIR 1961 SC 213, the Supreme Court held that the conversion of raw tobacco into bidi pattis by removing stem and dust, which, in turn, was required for the manufacture of bidis, emerge into a commercially different commodity. In the case of Hajee Abdul Shukoor& Co. (1964) (15 STC 719) (S.C.), the tanning of rawhides and skins was held as a manufacturing process resulting in the production of different commercial commodities. In the case of Swasthik Tobacco Factory (17 STC 316) (S.C.), the Supreme Court held that the conversion of raw tobacco into chewing tobacco was a manufacturing process resulting in the production of a substantially different commercial commodity. In the case of Ganesh Trading Company (32 STC 623) (S.C.) and also in the case of Raghurama Shetty (47 STC 369), the Supreme Court held that paddy and rice are two distinct commodities and that the milling of paddy involves a manufacturing process. In Devgun Iron and Steel Rolling Mills (12 STC 590), the Punjab High Court held that the process of steel rolling into rolled steel sections was the manufacturing process and the outcome is a different and new commodity. Similarly in the case of Devidas Gopal Krishnan (20 STC 430), the Supreme Court held that the iron scrap when converted into rolled steel, it is a manufacturing process, resulting in a new marketable commodity. In the cases ofChennakesavulu (47 STC 403), andBapalal and Co. (49 STC 20), melting of old silver jewellery and making into new silver jewellery was held to be a manufacturing process producing a different commercial commodity. In the case of State of Punjab v. Chandulal AIR 1969 SC 1073, it was held by the Supreme Court that conversion of unginned cotton into ginned cotton by a mechanical process was a manufacturing process, resulting in the production of two distinct commercial goods. In the cases of Imperial Fertiliser (31 STC 390) and the State of Tamilnadu v. Rallis India Ltd. (34 STC 532), it was held by the High Court of Madras that the mixture of chemical fertilisers and the resultant product were different commercial commodities. In Pyarelal Malhotra’s case 37 STC 319 (S.C.), conversion of scrap iron ingots into rolled steel was held by the Supreme Court to be a process of manufacture resulting in production of a different commodity. Similarly in the case of Shaw Wallace (37 STC 523) (S.C.), the Supreme Court relying upon Imperial Fertiliser case held that the preparation of fertiliser mixture involved manufacturing process resulting in production of a new commodity different from the ingredients composed for the mixture. In the case of Metro Readywear Co. v. Collector of Customs 1978 II Excise Law Times, p. J 520, the Kerala High Court held that the ironing of stitched brassieres using electric iron to be a manufacturing process involving a transformation in the commercial identity of the article. In the case of Union of India v. Ramlal Mansukharai (AIR 1971 SC 2333), the process of melting the metals and mixing them together was held by the Supreme Court as a manufacturing process, resulting in the production of a new commercial commodity.
Relying upon the ratio decided in these cases and applying the test laid down therein and on a consideration of all the facts and circumstances of the case, we hold that the process adopted by the appellants of roasting and grinding coffee seeds and Chicory roots by the mechanical process involving consumption of power and then mixing the powders thus obtained from coffee and chicory by mechanical process involving consumption of power constitute the process of manufacture as defined in Section 2(f) of the Central Excises and Salt Act, 1944 and further hold that the product thus obtained known as “Coffee-Chicory Blend” and otherwise known as “French Coffee” in the business market is a distinct commercial commodity falls under Item 68 of the First Schedule and hence liable to levy of excise duty in the manner taxed by the Department. We further hold that the blend or mixture called “French Coffee” differs in identity from the two ingredients constituting the mixture. The new product commercially known as “French Coffee” is undoubtedly an article different in characteristic, use, colour, odour and flavour from pure coffee powder.”
8. In the case of Auxichem v. Collector of Central Excise, Bombay III, reported in (supra), the Tribunal held that the silicone emulsions of M/s. Auxichem were appropriately classifiable under Item 15AA of the Central Excise Tariff. In paragraph 17 of the order, the Tribunal held in that case as follows :-
“For the reasons I have set out above, I rule that M/s. Auxichem’s products we have been discussing cannot be assessed under Item 15A as they are not silicones, but only preparations of silicones. And as they are used in textile processing, it is evident that their nature is most akin to surface-active preparations, wetting agents, softeners, and so on. For these products, there is only one appropriate item in the Central Excise Tariff: Item 15AA, which covers, with other products, surface-active preparation, softeners, wetting agents etc.”
In the paper-book filed by the appellants, they have submitted a copy of letter No. RANGE VIII/DVN.IV, dated 14-4-1982 addressed to the Superintendent of Central Excise, Ahmedabad. In Annexure ‘A’ enclosed to that letter the appellants stated the process of manufacture and the uses of their products. It was stated therein that the products “Silkona-830” and “Indosyl-350” were used “for imparting residue, soft and smooth finish on textiles in general”. It was stated that Silkona-110 was used “for imparting superb soft and smooth finish on textiles in general”. This indicates that their products were used for textile processing and these have surface-active properties. Similar products in the case of Auxichem (supra) were classified by this Tribunal under Tariff Item 15AA. Following the Larger Bench decision in the said case, we hold that the appropriate classification of the appellants’ three products in question should be under Item 15AA of the Central Excise Tariff.
Under Notification No. 101/66-CE, dated 17-6-1966 emulsifiers, wetting out agents, softeners and other like preparations intended for use in any industrial process were exempted from the whole of Central Excise duty leviable thereon subject to the condition that “in respect of surface-active agents used in the manufacture of such emulsifiers, wetting out agents, softeners and other like preparations, the appropriate amount of duty of excise or the additional duty under Section 2A of the Indian Tariff Act, 1934 has already been paid or where such surface-active agents are purchased from the open market on or after the 20th day of January, 1968”. If the appellants’ products fall within the terms of this notification and the condition laid down therein is fulfilled, the benefit of the same should be extended to the appellants’ products.
9. The learned advocate for the appellants has raised the question of limitation. This has also been raised in the ground of appeal before us. Although this point was not agitated before the lower authorities, this being a point of law, we allow the appellants to raise this contention. We observe that the show cause notice was issued on 26-10-1982 for the period from 1-3-1982 to 30-9-1982. The Department has not made out a case that there was suppression of facts or wilful mis-statement on the part of the appellants. The demand for duty, if at all leviable (see paragraph-8 of this order), should, therefore, be limited to a period of six months only under Section 11A of the Central Excises & Salt Act, 1944. Demand for duty should be worked out accordingly.
10. In the light of the above discussions, we set aside the impugned order and allow the appeal in the above terms.