and Mathen Vs. Collector of Central Excise & ANR  INSC 117 (4 February 1997)
BHARUCHA, K.S. PARIPOORNAN PARIPOORNAN,
appellant is a small scale industry. It carries on the business or manufacture
of liquid Carbon Dioxide (CO2) confirming to ISI grade. The factory is situated
at Kalamassery in Ernakulam District, Kerala State. The first respondent in this
appeal is the Collector of central excise, Cochin. the second respondent is the Fertiliser & Chemicals Travancore
Limited (FACT). This appeal is filed
Section 35L (b) of the Central Excise & Salt Act, 1944, against the order
dated 18.3.1986 passed by the Central Excise and Cold (Control) Appellate
Tribunal, New Delhi substantially modifying the order passed in the appellants'
favour by the Appellate Collector of Central Exercise, Madras dated 18.6.1982.
The Appellate Collector set aside the order of the assistant Collector rendered
on 2.2.1982 holding that the appellant is not entitled to the benefit of exemption
notification No. 7/65-Ce dated 30.1.1965.
facts of this case are in narrow compass. The appellants manufacture carbon
dioxide of ISI. Specification out of raw carbon dioxide gas received through
pipe lime from
M/s, FACT Ltd. Eloor. The raw carbon dioxide is odourous
and has a purity of less than 99% and contains moisture above 0.1 %. such raw
carbon dioxide is subjected to various processes order to remove traces of
moisture, oxide of sulphur etc. The gas is then dried and fed into rotary Booster
compressor to boost the pressure to a a very High point and then passed through
activate carbon to remove final traces of oil and also to deodourise. The pure
gas obtained after these processes is liquified and filled in cylinders and
removed therefrom for making further products or for sale.
the relevant time, Carbonic Acid (carbon dioxide) was specified in Entry No 14H(iv)
of the Ist Schedule to the Central Excise Act, 1944 and was assessable to duty
of excise at the rates in force from time to time. The appellants had taken out
L.4 licence for the manufacture of carbon dioxide. They were permitted to
remove waste gas generated from M/s, Fertiliser and chemicals. Travancore Ltd.,
in view of paragraph 2 or Notification No. 7/65 dated 30.1.1965 after taking
out L.6 licence. The licence was granted on 11.3.1977. Under notification No
7/65, carbon dioxide falling under item 14H of the Central Excise Tariff was
exempted from the whole of the duty f excise leviable thereon, provided it was
used for any "industrial purpose" and subject to the procedure in
Chapter X of the Central Excise Rules and it is common ground that such
procedure was followed by the appellant by taking out L.6 licence. The
appellants had given an undertaking that they would pay the duty on the carbon
dioxide received for processing (raw carbon dioxide - waste gas) in case it was
subsequently decided that they were not entitled to receive the said carbon
dioxide tree of duty under Modification No. 7/65.
appellants were served with show-cause notice dated 20.11.1978 to explain why
L.6 Licence granted to them (to receive impure carbon dioxide gas (waste gas)
by pipe line
M/s, FACT.) and also 4. licence for the manufacture of
dioxide (or liquid carbonic acid) should not be revoked and why duty or Rs.
8.92.695.60 along with SED Rs.
Should not be demanded from them for the period from March 1977 to September
1978 under Rule 10 of the Central Excise Rules, 1944.
C6 by the Collector of Central Excise Cochin.
this trade notice, it has been informed that the carbon dioxide gas produced in
distilleries and fertiliser factories or in any other factory will fall outside
the purview of item 14H. So long as the gas does not conform to the marketable grade
as prescribed in the ISI specifications, such gas will properly classifiable
under item 68. The appellants were allowed to avail notfn. No. 7/65.
the trade notice referred to above is in favour of the assessee and would be
binding on the department (New Gujarat Paper industries vs. Superintendent of
Central Excise 1977 ELT J. 67 Guj.Div. 8). Hence the order of the Asstt.
Collector making duty retrospectively is not correct.
I am of the view that the carbon dioxide gas produced from the fertiliser
factory of M/s.
will fall outside the purview
Item No. 14H of Central Excise Tariff so long as the gas does not conform to
the marketable grade as prescribed in the ISI specification. Such gas will be
properly classifiable under item 68 of Central Excise Tariff. Hence, necessary
action in this regard has to be taken by the Asstt. Collector. The order of the
Lower authority is ser aside with these directions." (emphasis supplied)
further appeal filed by the Revenue, the Appellate Tribunal reversed the
aforesaid decision of the Appellate Collector dated 18.6.1982 by its order
dated 18.3.1986. The appellate Tribunal decided the matter on merits on the
other aspects as well, though the Appellate Collector rendered his decision
substantially on the basis of Trade Notice. (The Appellate Collector also found
that the carbon dioxide
by M/s. FACT will fall outside the purview of item
14H of the Central Excise Tariff, since the gas did not conform to the
"marketable grade" as prescribed in the ISI specification). Regarding
the applicability of trade notice dated September, 1981, the Appellate Tribunal
observed. In paragraph 51 of its order, thus:
Trade Notice on which the respondents seek to rely was issued nearly 3 years
later. In these circumstances the trade notice has no relevance to what
happened earlier. Shri Tripathi has filed before us a copy of the Tariff Advice
No.6/85 dated 6.2.85 of the CBEC along with a model trade notice, to the effect
that impure carbon dioxide not conforming to I.S.I. specifications produced by
distilleries and fertilizer Units, was correctly classifiable under Item 14H.
It may be presumed That the Collectorates, or at least some of them duly issued
trade notices to this effect in early 1985. If the trade notice of 1981 could
be considered as relevant not matters occurring 3 or more years earlier.
no reason why a trade notice of 1985, To the contrary effect, should not be
taken as equally applicable to the transactions in question." (emphasis
supplied) 9. We heard counsel.
The show-case notice dated 20.11.1978 (page 79 of the Paperbook) was issued for
the period from March 1977 to September, 1978 but the levy and demand is for a
larger period- march 1977 to February, 1982. There was no proper notice and
opportunity to explain. This is violative of natural justice and is also
The Appellate Tribunal was totally in error in discarding the Trade Notice No
220/81 based on Tariff advice no. 83/81 dated 24.8.1981 of the Central Board of
excise and Customs which was communicated to the appellants for information.
(The said Trade Notice is available at page 125 of the paperbook). The
Appellate Tribunal failed to understand and give effect to the terms of the
above trade notice, and the reasons to discard the trade notice relied on by
the Appellate collector are unsustainable. A larger contention on the merits to
the effect that "waste gas" is not a marketable community and is not exigible
to duty, was also raised relying on the decision in Union of India V.
Aluminium [(1995) 77 ELT 268 ]
The relevant Trade Notice relied on by the Appellate Collector is available at
page 125 of the paperbook. It is as follows:
Notice No. 220/81 dt. - 9-81.
A.C.C. Nes. No 42/81 Sub: CASES. Carbon dioxide gas emanating from Distillery
portion of Sugar factories and Fertiliser factories whether classifiable under
T.I. 14H or T.I.68 - question regarding.
considered that carbon dioxide gas produced in distilleries and fertiliser factories
or in any other factory will fall outside the purview of item 14H of Central
long as the gas does not conform to the marketable grade as prescribed in the
ISI specifications such gas will be properly classifiable under item 68 of CET.
from file C.No. V./68/30/5/81CX-6) Sd/- M. Suresh Assist. Collector (Tech).
per DE No. I and II Space 15.
to M/s. Poulose & Mathen, Eloor for information.
Sd/- Superintendent Central Excise Range Alwaye." It is based on the Tariff advice No. 83/81.
It reads as follows:
ADVICE No. 83/81 F.No. 105/2/81-CX.3 GOVERNMENT OF INDIA CENTRAL BOARD OF EXCISE &
CUSTOMS NEW DELHI, THE 24TH AUGUST, 1981.
All Collectors of Central Excise All Collector of Customs All Appellate
Collectors of Customs & Central Excise All Deputy Collectors of Central
Sub: GASES- Carbon Dioxide gas emanating from distillery portion of Sugar
factories and factories and Fertiliser factories - Whether classifiable under
T.I. 14H or T.I.68- Question regarding.
directed to say that a question has been raised whitener raw carbon dioxide gas
emanating from distilleries attached to sugar factories is classifiable under
Item 14H or Item 68 of C.E.T.
matter was discussed in the 15th South Zone Tariff-cum- General Conference held
on the 19th and 20th may. 1981 at Bangalore.
conference noted that certain gases arise in distilleries. thee are described
as raw carbon dioxide, or waste gases and are similar to kiln gas generated in
sugar factories. Such waste gases have carbon dioxide only to the extent of
about 50% However, in so far as fertiliser factories are concerned, it was
noted that the purity of Carbon dioxide gas produced in the factories is more
than 70%. In both the types of cases the Co2 in question does not conform to
the marketable standard. Also, in both the cases, it was not possible to
quantify the production of Carbon Dioxide.
After a detailed discussion, the Conference reached the conclusion that the
purity of Carbon Dioxide gas produced in distilleries is even below 50%. It
should not, Further, as such a mixture of waste gases does not conform to any
specifications of Carbon Dioxide and, further, as such a mixture of waste gases
does not conform to any specifications of Carbon Dioxide as such and it should
be outside the purview of Item 14H on the analogy of kiln gas. Similarly, the
carbon dioxide gas generated in the fertiliser factories is also impure and
does not conform to the marketable grade and hence it will also fall outside
the purview of Item 14H.
Board has accepted the recommendations of the Conference that Carbon dioxide
produced in distilleries as well as in the fertiliser Factories will fall
outside the purview of Item 14H and will be properly classifiable under Item
68. The Board is also of the view that Carbon dioxide gas generated by any
other factory will also fall outside the purview of item 14H so long as it does
not conform to the marketable standard of the carbon dioxide s prescribed in
the ISI Specifications.
above position may please be brought the notice of the field formations for
their information and guidance. The Trade interests may also be informed as in
the Model Trade Notice.
Receipt of this letter may please be acknowledged.
G.N. BHAGCHANDANI UNDER SECRETARY Copy forwarded to: As per list attached.
MODEL TRADE NOTICE Sub: GASES - Carbon Dioxide gas emanating from distillery
portion of sugar factories and from fertiliser factories whether classifiable
under T.I.14H or T.I.68 - Question regarding.
considered that Carbon Dioxide gas produced in distilleries and fertiliser
factories or in any other factory will fall outside the purview of item 14H of
C.E.T. So long as the gas does not confirm to the marketable grade as
prescribed in the ISI specification. Such gas will be properly classifiable
under Item 68 C.E.T." (emphasis supplied)
is seen that the show-cause notice dated 20.11.1978 was issued for the period
from March 1977 to September.
But the order of the Assistant Collector given effect to by the proceedings of
the Superintendent dated 4.5.31983 has levied the duty for a longer period,
from March 1977 to February, 1982. The show-cause notice served for a shorter
period cannot be relied on for the purpose of levy for a much longer period. We
should say that the appellant was not served with a proper notice before
saddling the liability for a period beyond September, 1978 1978. This unfair
and Vitiates the proceedings.
The Tribunal has stated that the trade notice issued in September, 1981 based
on Trade advice of the Board dated 24.8.1981 was issued three years later than
the relevant period. The Tribunal refers to Trade Advice No. 6/85 dated
6.2.1985 of the Central Board of Excise and Customs along with "a model
trade notice" where in it seems to have been stated that carbon dioxide
not conforming to I.S.I.
produced by distilleries and fertilizer units was correctly classifiable under
item 14H. The Appellate Tribunal was of the view "that it may be
presumed" that the Collectorates, or " at least some of them"
duly issued trade notices to this effect in early 1985, and so a later trade
notice could also be taken into account.
hold that the reasoning and conclusion of the Appellate Tribunal is based on
surmise and the Tribunal ignored the earlier trade notice or 1981 without
proper reasons therefor. Firstly, the tariff advice No. 6/85 dated 6.2.1985
which is said to have been accompanied by a "model" trade notice is
not part of the record. Its contents are unknown. There is no material on
record to show that trade notices were issued by the Collectors in pursuance of
the above tariff advice of the Central Board of Excise and Customs. The
Tribunal also omitted to notice that the earlier tariff advice No. 83/81 was in
force at the time when the proceeding was pending before the Assistant
Collector and she passed the order on 2.2.1982 and also when the Appellate
Collector set aside the above order and gave relief to the assessee by his
order dated 18.6.1982. The concerned department understood the legal position
then as reflected in the trade advice and trade notice of the year 1981. It was
a plausible view of the matter. It was pointedly stated that the carbon dioxide
gas generated in the fertilizer factories is also impure and does not conform
"to the marketable grade" and hence it will also fall outside the
purview of Item 14H. Whether the later tariff advice No. 6/85 adverted to all
relevant aspects or deviated from 1981 tariff advice and if so. To what extent,
are not detailedly stated in the order of the tribunal (paragraph 51). The
earlier tariff advice and trade notice categorically stated that in the absence
of Non-Conformity to the marketable grade (standard) "impure carbon
dioxide not conforming to I.S.I. specifications produced by distilleries and
fertilizer units was correctly classifiable under item 14H." Was the
requirement, that the goods should be of "marketable grade"
(standard) dispensed with , in the later tariff advice? This is not adverted to
by the Tribunal. The Appellate Tribunal casually referred to a later tariff
advice No.6/85. without fully and effectively appreciating its contents, its scope
and the impact of the earlier tariff advice No. 83/81. The above aspect is
vital and fundamental to the basis of which the Appellate Collector granted
relief to the appellant. We are of the view that the appellate Tribunal has
failed to consider the matter according to law and the order appealed against
should be ser aside and we hereby do so.
One aspect deserves to be noticed in this context. The earlier tariff advice
No. 83/81 on the basis of which trade notice No. 220/81 was issued by the
collector of Central Excise and Customs is binding on the department. It should
be given effect to. There is no material no record to show that this has been
rescinded or departed from, and even so, to what extent. Even assuming that the
later tariff advice No. 6/85 has taken a different view - about which there is
no positive material - the facts point out that the concerned department itself
was having considerable doubts.
far from clear. In such a case. where tow opinions are possible, the assessee
should be given the benefit of doubt and that opinion which is in its favour
should be given effect to. In the light of the above, it is unnecessary to
adjudicate the other points involved in the appeal on the merits.
For the reasons state above, we set aside the order of the Customs Excise and
Gold (control) Appellate Tribunal dated 18.3.1986 and allow this appeal and
restore the order of the Appellate Collector of Central Excise, Madras dated
18.6.1982. There shall be no order as to costs.