Lubri-Chem Industries Ltd. Vs. Collector of Central Excise, Bombay
EmailClassification of liquid paraffin – T.I. 8.
(1) Section 11A – Central Excise and Salt Act – Demand for short recoveries of excise duty within five years – Held that Revenue did not contend that appellants had been guilty of any fraud or collusion or wilful misstatement or suppression of facts with interest to evade the payment of excise duty – Held demand must fall.
Let us clear the ground. In Collector of Central Excise v. Chemphar Drugs and Liniments, 1989 (40) E.L.T. 276 (S.C.), this Court has held that in order to make a demand for excise duty sustainable beyond a period of six months and upto a period of five years, under Section 11A of the Central Excises & Salt Act (earlier, Rule 10 of the Rules made under the said Act), it had to be established that excise duty had not been short-levied or paid by reason of fraud or collusion or willful misstatement or suppression of facts or contravention of any provision of the Act or the Rules with intent to evade payment. Something more positive than mere inaction or failure on the part of the assessee or conscious or deliberate withholding of information when the assessee knew otherwise was required before the assessee could be saddled with any liability beyond the period of six months. Very fairly, Mr. M. Chandrasekharan, learned Additional Solicitor General, appearing for the excise authorities, did not contend that the appellants had been guilty of any fraud or collusion or wilful misstatement or suppression of facts with intent to avade the payment of excise duty. The demand for payment of excise duty for the period 19th June, 1980 to 31st January, 1981,in the sum of Rs.84,836.35 upon 1,93,056 litres made on 6th August, 1981 must, therefore, fall. (Para 6)
At no earlier point of time were the appellants intimated that they were being asked to pay excise duty on the said liquid paraffin at two stages; first: when it was manufactured and then when it was packed and labelled. The only controversy when the matter went to the Collector (Appeals) was whether the said liquid paraffin fell within T.I. 68 as the appellants urged or it fell under T.I. 8 as one Assistant Collector held or under T.I. 14E as another Assistant Collector did. The entire demand upon the appellants, as imposed by the Collector (Appeals) and upheld by the Tribunal at the second stage under T.I. 14E must, therefore, fall. Very fairly, the learned Additional Solicitor General did not contend otherwise. (Para 7)
The Deputy Chief Chemist having opined that the said liquid paraffin had a flashing point above 76 degrees Fahrenheit and flame height of more than 10 mm. but less than 13 mm. the requirement of T.I. 8 were satisfied. (Para 9)
Mr. Salve contended that since the said liquid paraffin was processed from spindle oil and spindly oil was expressly excluded from the purview of T.I. 8 by reason of clause (b) of Explanation II thereto, the said liquid paraffin fell outside T.I. 8. We are unable to accept this argument. Explanation II states that T.I. 8 does not include (in clause (b) thereof) lubricating oils, including spindle oils, flushing oils and jute batching oils. The exclusion, therefore, is of lubricating oils. Spindle oils are set out as one example of lubricating oils. It is, therefore, lubricating oils which fall outside the purview of T.I. 8. It is no ones case that the said liquid paraffin is a lubricating oil. The appellanta conttention that the said liquid paraffin is not a mineral oil cannot,therefore, be accepted. It may also be pointed out that no evidence in support of this contention has been adduced; in other words, no evidence has been adduced to show that the said liquid paraffin has a chemical composition or derivation other than that mentioned in Explanation I of T.I. 8. (Para 10)
In the result, the order under appeal is confirmed only insofar as it upholds the imposition of excise duty in the sum of Rs.30,677.04 for the period 1st February, 1981 to 31st July, 1981. For the rest, the order under appeal is set aside, and the appeals allowed accordingly. (Para 11)
1. The appellants manufacture liquid paraffin I.P. It is the case of the appellants that the said liquid paraffin is packed in drums which are labelled. The labels bear the appellant a monogram “Lubri-Chem”. The said liquid paraffin is supplied to pharmaceutical industries. The pharmaceutical industries use the said liquid paraffin as an intermediate in the manufacture of drugs. The said liquid paraffin was classified for the purposes of payment of excise duty under T.I. 68 and, as a drug intermediate, cleared without payment of excise duty by reason of an exemption notification.
2. On 6th August, 1981, the Superintendent of Central Excise issued to the appellants a notice which stated that they had manufactured and cleared the said liquid paraffin, which fell under T.I. 8, without payment of excise duty thereon. For the period 1st February, 1981 to 31st July, 1981, they were required to show cause why duty in the sum of Rs.30,677.04 should not be recovered from them and why penalty should not be imposed upon them. An identical notice was issued on the same day for the period 19th June, 1980 to 31st January, 1981; the amount claimed thereunder was Rs.84,836.35. The appellants showed cause. An order was made by the Assistant Collector of Central Excise on 2nd December, 1981, wherein he held that the demands in both notices were in order and he confirmed the same. He did not, however, impose any penalty. He came to his conclusion on the ground that there was no denying the fact that the said liquid paraffin was a mineral oil and it became a medicine only after it was marketed or labelled as such. He relied upon the opinion of the Deputy Chief Chemist who, on analysis of the said liquid paraffin, had found that it was in the form of a colourless liquid having flash point above 76 degrees Fahrenheit. It had a flame height of more than 10 mm. but less than 18 mm. The tariff description under Item 8 as Refined Diesel Oil was that any mineral oil which had its flashing point at or above 76 degrees Fahrenheit and a flame height of 10 mm. or more but less than 18 mm. fell under T.I. 8. Accordingly, the said liquid paraffin was correctly classifiable under T.I. 8. The Assistant Collector, therefore, rejected the appellants contention that the liquid paraffin was classifiable under T.I. 68. He held that the appellants had filed a wrong declaration and had suppressed the facts wilfully.
3. On 3rd September, 1982, the Assistant Collector of Central Excise passed an order which recorded that the appellants had claimed in classification lists filed by them that the said liquid paraffin was classifiable under T.I. 68 and, under a notification dated 1st March, 1975, was exempt from payment of excise duty. The appellants had been heard. When their representative was questioned about the labelling of the said liquid paraffin , it had become known that liquid paraffin was packed in drums which bore a label showing the monogram of the assessee. This indicated the proprietary nexus of the appellants with the said liquid paraffin. The Assistant Collector, therefore, ordered that a demand should issue against the appellants for short recoveries of excise duty, after classifying the said liquid paraffin under T.I. 14-E.
4. The appellants filed appeals against the said orders dated 2nd December, 1981 and 3rd September, 1982, before the Collector of Central Excise. The Collector (Appeals) by his order dated 17th March, 1983, held that T.I, 8 gave a self-contained definition of the products falling thereunder. The product manufactured by the assessee had, on test, been found to satisfy such specifications, which fact had not been denied. In view thereof, the product was classifiable first under T.I. 8. After the first stage of manufacture the product was packed, labelled and sold for pharmaceutical purposes. On the appellants own admission, the product was of pharmacopoeia grade. The product was sold in a drum bearing the appellants monogram. During the personal hearing it was claimed that the product did not bear any proprietary name, but this denial had not been substantiated and was not sufficient to disprove the specific observation of the Assistant Collector that the labelling or marketing on the drum bore the monogram of the assessee showing the proprietary nexus of the assessee with the product. As packing amounted to manufacture so far as T.I. 14-E was concerned, the product was liable to pay further duty T.I. 14-E after packing and labelling, in addition to duty under T.I. 8 before such packing or labelling. As the appellants had misdeclared the product as a drug intermediate falling under T.I. 68 and had suppressed the fact that a product satisfying the specifications of T.I. 8 came into being first and further that the same was marketed under the monogram of the assessee, the longer period of 5 years would be available for effecting short recoveries both under T.I. 8 as well as under T.I. 14-E. The appeals were, accordingly, rejected.
5. The appellants carried the matter to the Customs, Excise & Gold (Control) Appellate Tribunal. By its order dated 2nd September, 1983, which is the order under challenge before us, the Tribunal dismissed the appeals. It referred briefly to the facts and arguments. It then observed that there could be little doubt that the assessment under TI 8 was correct and it did not need to spend much time on this. The main dispute, it said, was the assessment of the packed liquid paraffin under TI 14E. In this behalf, the Tribunal agreed with the contention of counsel for the excise authorities that the use of a name on the drums so that the drums and their contents could be connected to a particular person as the proprietor who manufactured or marketed the medicine was sufficient to class the goods as patent and proprietary medicine. As regards the time bar, the appellants had made no declaration that the said liquid paraffin was sold in labelled drums. They had claimed that the said liquid paraffin was a drug intermediate, which was assessable free of duty under TI 68. The appellants had not reported that a TI 8 product was obtained. The appellants had, therefore, failed to make a complete and true declaration and the longer time of 5 years was, therefore, correctly applied. The Tribunal, accordingly, found itself unable to interfere with the decision of the appellate authority and rejected the appeals.
6. Let us clear the ground. In Collector of Central Excise v. Chemphar Drugs and Liniments, 1989 (4) E.L.T. 276 (S.C.), this Court has held that in order to make a demand for excise duty sustainable beyond a period of six months and upto a period of five years, under Section 11A of the Central Excises & Salt Act (earlier, Rule 10 of the Rules made under the said Act), it had to be established that excise duty had not been short-levied or paid by reason of fraud or collusion or willful misstatement or suppression of facts or contravention of any provision of the Act or the Rules with intent to evade payment. Something more positive than mere inaction or failure on the part of the assessee or conscious or deliberate withholding of information when the assessee knew otherwise was required before the assessee could be saddled with any liability beyond the period of six months. Very fairly, Mr. M. Chandrasekharan, learned Additional Solicitor General, appearing for the excise authorities, did not contend that the appellants had been guilty of any fraud or collusion or wilful misstatement or suppression of facts with intent to avade the payment of excise duty. The demand for payment of excise duty for the period 19th June, 1980 to 31st January, 1981,in the sum of Rs.84,836.35 upon 1,93,056 litres made on 6th August, 1981 must, therefore, fall.
7. Now, it will be remembered that both notices dated 6th August, 1981, were issued by the Assistant Collector upon the basis that the appellants had cleared the said liquid paraffin which fell under T.I. 8 without payment of excise duty. Upon these notices the Assistant Collector passed the order dated 2nd December, 1981, confirming the demands. On 3rd September, 1982, upon classification lists that were filed by the appellants, the Assistant Collector came to the conclusion that classification of the said liquid paraffin under T.I. 68 was inadmissible and that the said liquid paraffin, since it was marketed in drums showing the monogram of the assessee, should properly be classified under T.I. 14E. Accordingly, he directed demand notices to issue for short recoveries, after classifying the said liquid paraffin under T.I. 14E. This contemplated that the said liquid paraffin, instead of being classified under T.I. 68, as claimed by the assessee, or under T.I. 8, as earlier held by the Assistant Collector, should now be classified under T.I. 14 E. The appellant went up in appeal before the Collector (Appeals) against the order classifying the said liquid paraffin under T.I.8 as also against the order classifying it under TI 14E. The Collector (Appeals) upheld both classifications. He held that the said liquid paraffin on manufacture fell under T.I. 8 because all the specifications thereof were satisfied. He then stated, “After the first stage of manufacture the product is packed and labelled and sold for pharmaceutical purposes……… As ‘packing’ amounts to manufacture so far as the Tariff Item 14E is concerned, the product will be liable to pay the further duty under Tariff Item 14E after packing and labelling, in addition to duty under item 8(a) before such packing or labelling”. The Tribunal upheld the order of the Collector (Appeals). At no earlier point of time were the appellants intimated that they were being asked to pay excise duty on the said liquid paraffin at two stages; first: when it was manufactured and then when it was packed and labelled. The only controversy when the matter went to the Collector (Appeals) was whether the said liquid paraffin fell within T.I. 68 as the appellants urged or it fell under T.I. 8 as one Assistant Collector held or under T.I. 14E as another Assistant Collector did. The entire demand upon the appellants, as imposed by the Collector (Appeals) and upheld by the Tribunal at the second stage under T.I. 14E must, therefore, fall. Very fairly, the learned Additional Solicitor General did not contend otherwise.
8. We are, therefore, required to answer this : Is the said liquid paraffin exigible to excise duty under T.I. 8 as urged by the learned Additional Solicitor General on behalf of the excise authorities, or is it exigible under the residuary T.I. 68, as urged by Mr. Salve, learned counsel for the appellants.
8A. T.I. 8 read thus at the relevant time:
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Item Description of goods Rate of duty
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8. Refined diesel oils and vaporizing oil that is to say, any mineral oil (excluding mineral colza oil and turpentine substitute, which has its flashing point at or above seventy six degrees of Fahrenheit’s thermometer, and satisfies either of the following requirements :-
(i) the oil has a flame height of ten millimeters or more but less than eighteen millimeters; or
(iii) the oil has a flame height of less than ten millimeters put has a viscosity of less than one hundred seconds by Redwood I Viscometer at one hundred degrees of Fahrenheit’s thermometer, and contains less than one quarter of any one per cent, by weight of any bituminous substance.
(a) Refined diesel oil One thousand rupees
per kilolitre at
fifteen degrees of Centigrade thermometer.(b) Vaporizing oil. Five hundred rupees
per kilolitre at fifteen degrees of Centigrade thermometre.
Explanation I- The expression “mineral oil” “flashing point” and “flame height” have the meanings respectively assigned to them in Explanations I and II of Item No. 6 and in Explanation II to Item No.7
Explanation II – This item does not include –
(a) base mineral oils (suitable for use in the manufacture of lubricating oils and greases) including mineral oils commonly) known as transformer oil base stockor Transformer oil feed stock; and
(b) lubricating oils including spindle oils, flushing oils and jute batching oils.
9. The Deputy Chief Chemist having opined that the said liquid paraffin had a flashing point above 76 degrees Fahrenheit and flame height of more than 10 mm. but less than 13 mm. the requirement of T.I. 8 were satisfied.
10. Mr. Salve contended that since the said liquid paraffin was processed from spindle oil and spindly oil was expressly excluded from the purview of T.I. 8 by reason of clause (b) of Explanation II thereto, the said liquid paraffin fell outside T.I. 8. We are unable to accept this argument. Explanation II states that T.I. 8 does not include (in clause (b) thereof) lubricating oils, including spindle oils, flushing oils and jute batching oils. The exclusion, therefore, is of lubricating oils. Spindle oils are set out as one example of lubricating oils. It is, therefore, lubricating oils which fall outside the purview of T.I. 8. It is no ones case that the said liquid paraffin is a lubricating oil. The said liquid paraffin does not, therefore, fall outside T.I. 8 on this account. Mr. Salve next contended that the said liquid paraffin was not a mineral oil and was thus outside the purview of T.I. 8. Spindle oil would be within the scope of T.I. 8 but for the exemption in favour of lubricating oils in Explanation II. This implies that spindle oil is a mineral oil for the purposes of T.I. 8. It is the case of the appellants that the said liquid paraffin is processed from spindly oil. The appellants contention that the said liquid paraffin is not a mineral oil cannot, therefore, be accepted. It may also be pointed out that no evidence in support of this contention has been adduced; in other words, no evidence has been adduced to show that the said liquid paraffin has a chemical composition or derivation other than that mentioned in Explanation I of T.I. 8.
11. In the result, the order under appeal is confirmed only insofar as it upholds the imposition of excise duty in the sum of Rs.30,677.04 for the period 1st February, 1981 to 31st July, 1981. For the rest, the order under appeal is set aside, and the appeals allowed accordingly.
12. There shall be no order as to costs.
