G. Sankaran, Senior Vice-President
1. This is an appeal against Order- in-Original No. 34/86 dated 21-10-1986 passed by the Collector of Central Excise, Delhi by which he -
(a) ordered M/s. Satyakam Rasayan Udyog, Delhi (the "appellants") to pay excise duty amounting to Rs. 5,82,005.10;
(b) imposed a penalty of Rs. 6,00,000/- on the appellants; and
(c) confiscated certain seized goods allowing them, however, to be redeemed on payment of a fine of Rs. 6,500/- in lieu of confiscation plus the appropriate amount of duty leviable thereon.
2. The facts of this case, briefly stated, are that the appellants were engaged in the manufacture of Phenol Formaldehyde moulding powder ("PF moulding powder") under Central Excise licence, availing themselves of duty exemption under Central Excise Notification No. 83/83. The total value of clearances recorded in the simplified account register for the year 1982-83 was Rs. 6,18,300. On 4-8-1983, excise officers visited the factory and, on verification of the stocks with the recorded balance in the R.G. 1 register, found 30 bags of 50 kgs. each of PF moulding powder, valued at Rs. 13,500/- in excess. This quantity was seized. The officers also recovered one ledger containing entries regarding clearance of the goods during 1982-83 and 1983-84. It was found, on comparison of this ledger with the excise statutory records that goods valued at Rs. 21,63,526/- and Rs. 17,18,645/- had not been brought on the Central Excise records and had been cleared in addition to the clearances recorded in the said records which were Rs. 6,18,300/- in 1982-83 and Rs. 1,32,300/- in 1983-84. It was contended on the basis of these figures that the appellants were liable to pay duty of Rs. 2,90,481.35 in 1982- 83 and they were not eligible for the benefit of Notification No. 83/83 in 1983-84 entailing a duty liability of Rs. 2,91,523.84. A show cause notice was issued to the appellants proposing confiscation of the seized goods, demand for duty as shown above and imposition of penalty. In defence, the appellants maintained that excise duty was chargeable at the stage of manufacture of P.F. resin and not on the moulding powder. Further that, if at all, the moulding powder could be charged to duty it could be only under Item No. 68 of the First Schedule (hereinafter the 'CET') to the Central Excises & Salt Act, 1944, but that under that item, the goods were exempt under Notification No. l05/80/in view of the total clearances being less than Rs. 30 lakhs. They also explained that the excess stocks found could not be recorded due to the absence of the excise clerk. The private ledger entries pertained to purchase of raw material and finished goods sold and the latter entires were also in the statutory records. If the value of the raw material purchased was excluded, the clearances of P.F. moulding powder would be below Rs. 7.5 lakhs, as recorded in the statutory records. In the end, they denied contravention of any provisions of the Central Excise law. After hearing the appellants, the Collector, in due course, passed the impugned orders.
3. In one of the hearings, a submission was put forth for the appellants that the Collector was in error in clubbing the entries in the R.G. 1 register and the private ledger. All the production entries had been duly recorded in the R.G. 1 register. Some entries in the private register related to purchases made by the appellants and if opportunity was given, the appellants could substantiate this plea by adducing oral and documentary evidence. The Tribunal, by order dated 2-7-1987, directed the Collector to give an opportunity to the appellants to produce evidence in support of their pleas and submit his findings. The Collector submitted his report dated 19-2-1988. It was stated therein that the appellant's representative had produced certificates from 3 persons (Shri Ram Prakash, Shri Shyam Sunder and Shri Amarchand Bindal) to the effect that they had been supplying to the appellants mineral stone powder, jute and plastic bags and saw dust. It was suggested by the appellants' representative that if these certificates were not acceptable, the 3 persons might be summoned and examined. In his report, the Collector noted that the three certificates did not contain details of the dates of supplies, quantities etc. and did not constitute evidence to show that the private ledger entries recorded also the purchase of raw materials. The report also detailed a number of discrepancies between the R.G. 1 register entries and the private ledger entries. It was concluded therefrom that the entries in the two records related to different transactions.
4. A copy of the Collector's report was supplied by the Tribunal to the appellants' representative on 1-3-1988. On 23-3-1988, Shri M.G. Abrol, Consultant for the appellants, submitted that the Collector had issued summons to the above 3 persons without the appellants' knowledge and so the appellants could not take any steps to secure their presence during the proceedings before the Collector. He requested that the Tribunal might itself examine these persons. The request was granted and the appellants were asked to produce them. However, the appellants' representative did not, during the hearing on 28-9-1988 or 10-3-1989, make any reference to the aforesaid order and its compliance.
5. An affidavit dated 27-9-1988 by one Vinod Sangar was filed by the appellants during the pendency of the proceedings before the Tribunal. However, Shri Abrol made it clear during the hearing on 10-3-1989 that he was not placing reliance on the said affidavit since it was not on the record of the Collector.
6. Shri Abrol, learned Consultant for the appellants' main submission was that during the material period -1982-83 and 1983-84 - the relevant Tariff Entry i.e. 15A of the CET remained unchanged. And conversion of PF resin into PF moulding powder did not amount to "manufacture" of new goods attracting levy of excise duty. It was only with effect from 1-3-1984 that the law was amended by the Finance Bill, 1984, so as to make such conversion "manufacture" within the meaning of Section 2(f) of the Central Excises & Salt Act. Thus, prior to 1-3-1984, it was not "manufacture". In this context, reliance was placed on the Explanatory Note on Clause 44 of the Finance Bill. To hold to the contrary, would mean that the amendment was redundant and meaningless. The amendment was not in the nature of a clarificatory or doubt-removal amendment. If at all such conversion was held to be "manufacture" during the material period, the moulding powder would fall under Item No. 68 and not 15A, CET.
7. Shri Abrol referred to the Tribunal's decision in the case of Indian Cable Company Ltd., Calcutta v. Collector of Central Excise, Calcutta - 1984 (15) E.L.T. 434 (Tribunai) holding that conversion of Polyvinyl Chloride resin into Polyvinyl Chloride Compound was "manufacture". The period was prior to 1-3-1984. Shri Abrol distinguished the present case by submitting that the goods herein were PF resin and PF moulding powder. Reference was made to page 635 of the book "Shreve's Chemical Process Industries", 5th edition, showing classification of commercial resins and plastics wherein PF resin is shown under the head "Synthetic resins formed by condensation polymerisation". The submission was that duty was leviable, therefore, at the resin stage only. Reference was also made to page 38 of "Modern Plastics Encyclopaedia", 1979-80, to show that resin and moulding powder were different.
8. Continuing, Shri Abrol submitted that the Collector was wrong in relying on Explanation III to Item 15A, CET. This Explanation merely identified the form of the resin, it did not widen the scope of the entry. Item 15A(1) covered primary resins and 15A(2) articles made therefrom. PF moulding powder was not an article made from PF resin. If at all it was excisable, it would not be under Item 15A(2) but under Item 68, CET. It was further submitted that some resins emerged as moulding powders. That was the rationale for Explanation III specifying moulding powders. But that would not mean that conversion of resin into moulding powder would attract excise duty under Item 15A.
9. Shri Abrol submitted that the Collector was also in error in stating that the appellants' process of manufacture was a continuous one. Shri A.S. Sunder Rajan, learned DR, submitted that he did not dispute this. The Tribunal might take it that it was a discontinuous process, the resin emerging first and then getting converted to moulding powder.
10. Shri Sunder Rajan, for the respondent, submitted that the amendment of Section 2(f) of the Central Excises & Salt Act by the 1984 Finance Bill was not relevant for the present case which covered a prior period. Both resin and moulding powder fell under Item 15A, CET. Therefore, duty would be leviable on the finished product, i.e., the moulding powder on its value and not on the resin which was not being cleared out of the factory. For this contention, he relied on the Tribunal's decision in the case of Collector of Central Excise, Thane v. Indian Dyestiiff Industries Ltd. - 1986 (26) E.L.T. 936 (para 21). Both resin and moulding powder were marketable as was the similar situation in the cited case.
11. In support of classification of the moulding powder under Item No. 15A, the D.R. relied on the Bombay High Court's judgment in Industrial Plastic Corporation Private Ltd. & Ors. v. Union of India & Anr. - 1983 (12) E.L.T. 425 (paras 39, 40) and the Tribunal's decision in Plastic Powder Pvt. Ltd., Calcutta v. C.C.E., Calcutta -1983 (14) E.L.T. 2049. Though these decisions pertained to the Tariff as it stood prior to the 1982 budget, Shri Sunder Rajan contended that moulding powder was covered by Item 15A(1) even after 1-3-1984. It was plastic material and not an article of plastics. Explana- tion I, and not Explanation III, to Item 15A was applicable.
12. In a brief rejoinder, Shri Abrol submitted that the Tribunal's decision in the Indian Dyestuff Industries Ltd. case (supra) dealt with conversion of concentrated dyes into dilute dyes, both being basically the same and was not applicable to the present case where the resin and moulding powder were different products. Further, that decision was mainly on the issue of post-manufacturing expenses and duty liability at the stage prior to captive consumption.
13. We have carefully considered the submissions of both sides and perused the record. For a proper appreciation of the controversy, it is necessary to note the wording of Item 15A, CET, as it stood during the material period.
"15A. Artificial or Synthetic resins and Plastic Materials, and other materials and articles specified below -
(1) Condensation, polycondensation and polyaddition products...its salts and esters; linoxyn.
(2) Articles of materials described in sub-item (1), the following, namely :-
Boards, sheeting, sheets and films, whether lacquered or metallised or laminated or not; lay flat tubings not containing any textile material.
(3) Not reproduced as not relevant.
(4) Not reproduced as not relevant. Explanation I & II not reproduced as not relevant.
Explanation III. - Sub-item (1) is to be taken to apply to materials in the following forms only :-
(a) liquid or pasty (including emulsions, dispersions and solutions);
(b) blocks, lumps, powders (including moulding powders), granules, flakes and similar bulk forms;
(c) waste and scrap."
Explanation III makes it clear that sub-item (1) inter alia covers powders, including moulding powders. In the present case, we are concerned with P.F. moulding powder. Prima facie it would be covered by Item 15A(1) by virtue of the Explanation. But the contention for the appellants is that conversion of resin into moulding powder became "manufacture" within the meaning of Section 2(f) of the Central Excises & Salt Act only with effect from 1-3-1984 when the section was amended. Section 2(f) of the Act reads thus :-
"manufacture" includes any process incidental or ancillary to the completion of a manufactured product".
By the Finance Bill, a new sub-clause was added to Section 2(f) reading as follows :-
"(ix) in relation to artificial or synthetic resins and plastic materials, includes their conversion into moulding powders."
It is contended that prior to 1-3-1984, such conversion did not amount to "manufacture". Reliance for this contention is inter alia placed on the "Notes on Clauses" attached to the Finance Bill, 1984. The relevant note reads -
"A sub-clause (ix) is proposed to be added to Section 2(f) of the Central Excises & Salt Act, 1944, to include conversion of artificial or synthetic resins and plastic materials into moulding powders in the definition of 'manufacture'."
(Clause 44 of the Bill)
No doubt, in terms, the definition of "manufacture" has been amended to include conversion of resin into moulding powder only with the said amendment. But this by itself may not clinch the issue. We will have to see whether the Tariff Item 15A, as it stood during the material time, covered within its scope moulding powder. If it did, the fact that Section 2(f) was amended in the above manner on 1-3-1984 would not ipso facto mean that moulding powder was not taxable under Item 15A prior to the said amendment. This is because Explanation III in terms makes sub-item (1) of Item 15A applicable to the moulding powder form among other forms. It is well-settled that once an article is classified and put under a distinct entry, the basis of the classification is not open to question. See Supreme Court's judgment in Dunlop India Ltd. and Madras Rubber Factory Ltd. v. Union of India & Ors. - 1983 (13) E.L.T. 1566 (S.C.) ECR compilation of Supreme Court cases 476 S.C. The Supreme Court further held that when an article has, by all standards, a reasonable claim to be classified under an enumerated item in the Tariff Schedule, it will be against the very principle of classification to deny it the parentage and consign it to an orphanage of the residuary class. P.F. resin in the form of moulding powder is indubitably covered by Item No. 15A(1) read with Explanation III. The only question is whether the conversion of resing into moulding powder is "manufacture" for the purpose of levy of excise duty. The position has been put beyond dispute by the amendment of Section 2(f) by the Finance Bill, 1984. But, even prior to this, it should be noted, as set out earlier, that P.F. resin moulding powder was covered by Item No. 15A(1). If in a given case, as in the present instance, the manufacturer did not clear resin as such from the factory, but processed it into moulding powder and cleared the latter from the factory, it cannot be argued that the moulding powder was not liable to excise duty since conversion of resin into moulding powder was not "manufacture" till 1-3-1984. What matters is whether resin in moulding powder form was covered by the Tariff Entry as it stood. The answer is a definite 'yes'. If so, how can it be said that the moulding powder was not liable to be charged to duty? In this connection, it is well to remember that the appellants do not dispute that what they were clearing and selling to customers was moulding powder or bakelite powder, as they call it. No further evidence is required to show that the moulding powder was a marketable commodity and was, in fact, being marketed by the appellants. There cannot be any dispute that resin in its primary form is the same thing as resin moulding powder which, accord ing to the appellants, consists of 20% resin, colour 2%, saw dust 18%, marble powder 55% and a hardening agent Hexamine 5%. The completed manufactured product in the present case is, therefore, moulding powder and not the resin as such, and according to Section 2(f) of the Act, the definition will take in "any process incidental or ancillary to the completion of the manufactured product" i.e. conversion of resin into moulding powder, in the present case. This is despite the position that Section 2(f) was amended so as to, include, in terms, conversion of resin into moulding powder only on 1-3-1984 by the Finance Bill of 1984.
14. In the case of Indian Cable Company Ltd. v. Collector of Central Excise, Calcutta -1984 (15) E.L.T. 434, the question before the Tribunal was whether the conversion of P.V.C. resing into P.V.C. Compound (PVC resin + Plasticizer + Stabilizer + Filler + Lubricants) amounted to "manufacture" for the purpose of Section 2(f) of the Act under Item No. 15A, CET, as it stood during 1977. It was held that there was "manufacture". Reference was made by the Tribunal to the Bombay High Court's judgment in the case of Industrial Plastic Corporation P. Ltd. & Ors. v. Union of India & Anr. - 1983 (12) E.L.T. 425 (Bom.) wherein it was held that phenolic resin and phenolic moulding powder were not two different products. It was noted that the question before the Court was whether phenolic moulding powder was eligible for the concessional rate of duty for phenolic resin under a notification. The Court interpreted the Explanation to the notification and held that the definition of "phenolic resin" would take in chemically or physically modified resins. The Tribunal was of the view that the said judgment was not applicable to the facts of the Indian Cable Co. case. In the instant case before us, we are concerned with the Tariff Entry. By virtue of Explanation III, Item 15A(1), as already noted, covers not merely the resin form but also the moulding powder form. The Bombay High Court's judgment is, therefore, of no application to the present case too.
15. The matter can be looked at from another angle also. Even assuming for the sake of argument that the conversion of P.F. Resin into P.F. Moulding Powder did not amount to "manufacture" within the meaning of Section 2(f) of the Central Excises & Salt Act during the material period, it cannot be disputed that P.F. moulding powder was covered by the entry because of Explanation III. Therefore, the question whether conversion of the resin into moulding powder was, during the material period, "manufacture", was quite beside the point; it was irrelevant. The Tariff Entry said the moulding powder form was covered by it. So, when that form of resin was cleared, as in the instant case, duty was leviable under the entry. The question of asking, and answering, the question whether the conversion of resin to moulding powder was "manufacture" simply did not arise.
16. The above view is consistent with the view taken by the Tribunal in its decision in Collector of Central Excise, Tliane v. Indian Dyestuff Industries Ltd., Bombay - 1986 (26) E.L.T. 936 (Tribunal) . That case involved concentrates of disperse dyes which were further formulated to diluted disperse dyes. In a somewhat similar case - Sandoz India Ltd. v. Union of India & Ors. - 1980 (6) E.L.T. 696 (Bom.), the Bomaby High Court had held that formulation (i.e. addition of dispersing agents or diluents without any chemical change) of synthetic organic dyestuffs did not amount to "manufacture". The Department's contention in the case before the Tribunal was that if concentrated dyes were cleared from the factory as such, duty would be leviable on that basis, but if such dyes were formulated and the formulated dyes were cleared, duty would be leviable on that basis. The Tribunal noted that the assessee was clearing not the concentrated dyes (wet cake) but the formulated dyes. It was held, therefore, that consistent with the Supreme Court's judgment in Union of India & Ors. v. Bombay Tyre International Ltd. - 1983 (14) E.L.T. 1896 (S.C.), duty would be chargeable on the value of the dyes in the form in which they were cleared. The situation in the present case is closely analogous. Shri Abrol, however, submits that the India Dyestiiff Industries case pertained to the ques- tion of charging duty on post-manufacturing expenses. Further, that case involved concentrated and diluted dyes, both being basically the same. In the instant case, according to Shri Abrol, conversion of resin into moulding powder (two different products) has taken place. The features pointed out by Shri Abrol do not, in our view, make for any significant difference. Though in the instant case, the dispute is not one of valuation but classification, or the stage of chargeability of duty, the key to the dispute lies in the con- dition of the goods at the time of clearance from the factory. And, while in the case of dyes the Tariff Entry did not spell out concentrated and diluted dyes separately, in the case of resins and plastic materials, the Tariff Entry covered, in terms, both the resin and the moulding powder forms In the present case, clearance was in the moulding powder form. Therefore, duty was chargeable at that stage.
17. Shri Abrol has relied on the books, "Shreve's Chemical Process Industries" and "Modern Plastics Encyclopaedia" (1979-80), in support of his contention that duty was liable to be charged only at the P.F. resin stage. The argument appears to be that resin is not the same thing as moulding powder but that this is so only in the case of ther- mosetting resins (e.g. PF resin) and not thermoplastic resins (e.g. PVC resins). In our view, whatever be the nature of the resin, so long as it is cleared from the factory of production as moulding powder, duty is chargeable at that stage.
18. In view of the foregoing discussion, we hold that the Collector was right in taking the view that PF Moulding Powder manufactured by the appellants was chargeable to duty under Item 15A(1) of the CET.
19. In view of the above finding, the question of considering the alternative claim of classification under Item 68, CET, does not arise. However, for the record we note that during the hearing, in response to a query by thd Bench, Shri Abrol had stated that the claim that if the goods fell under Item 68, CET, no duty was chargeable thereon as the total clearances did not exceed Rs. 30 lacs in value, had not been taken up in the proceedings before the lower authority and that he would not, therefore, be pressing this point. In any event, the question of considering the claim does not survive in view of our finding on the classification of the goods.
20. Though the Collector's order confiscates certain goods, imposes fine in lieu of confiscation and penalty on the appellants, Shri Abrol did not address any arguments before us on these aspects during the course of hearing of the appeal. In the circumstances, we are not recording any finding on these aspects.
21. In the result, this appeal is dismissed.