Telangana High Court
Saroj Chemicals P Ltd vs The Customs And Central Excise And 2 Ors on 19 March, 2024
Author: P.Sam Koshy
Bench: P.Sam Koshy, N.Tukaramji
IN THE HIGH COURT FOR THE STATE OF TELANGANA:
HYDERABAD
***
CENTRAL EXCISE APPEAL No.41 of 2006
Between:
Saroj Chemicals (P) Ltd.
Appellant
VERSUS
The Commissioner (Appeals) and Ors.
Respondents
JUDGMENT PRONOUNCED ON: 19.03.2024
THE HON'BLE SRI JUSTICE P.SAM KOSHY
AND
THE HON'BLE SRI JUSTICE N.TUKARAMJI
1. Whether Reporters of Local newspapers
may be allowed to see the Judgments? : Yes
2. Whether the copies of judgment may be
marked to Law Reporters/Journals? : Yes
3. Whether His Lordship wishes to
see the fair copy of the Judgment? : Yes
__________________
P.SAM KOSHY, J
__________________
N.TUKARAMJI, J
2
* THE HON'BLE SRI JUSTICE P.SAM KOSHY
AND
THE HON'BLE SRI JUSTICE N. TUKARAMJI
+ CENTRAL EXCISE APPEAL No.41 of 2006
% 19.03.2024
# Between:
Saroj Chemicals (P) Ltd.
Appellant
VERSUS
The Commissioner (Appeals) and Ors.
Respondents
! Counsel for Appellant(s) : Mr. P.V.Rajasekhar
^Counsel for the Respondent(s) : Mr. B.Narayana Reddy
<GIST:
> HEAD NOTE:
? Cases referred
1) 1998 (97) ELT
2) 1963 AIR 791
3) (1989) 4 SCC 275
4) AIR 2003 SC 843
5) 1995 SCC, SUPL. (2) 336
6) AIRONLINE 2006 SC 658
7) (1989) 2 Supreme Court Cases 439
8) (2005) 2 Supreme Court Cases 168
9) (2015) 14 Supreme Court Cases 47
10) (1998) 2 Supreme Court Cases 32
3
THE HON'BLE SRI JUSTICE P.SAM KOSHY
AND
THE HON'BLE SRI JUSTICE N.TUKARAMJI
CENTRAL EXCISE APPEAL No.41 of 2006
JUDGMENT :
(per Hon'ble Sri Justice P.SAM KOSHY)
The instant is an appeal under Section 35(G) of the Central
Excise Act, 1944 (for short 'the Act') preferred by the appellant
assailing the order passed by the Customs, Excise & Service Tax
Appellate Tribunal (herein referred to as 'the Tribunal') in Appeal
No.E/274 & 275/2002 on 12.10.2004.
2. Heard Mr. P.V.Rajasekhar, learned counsel for the appellant
and Mr. B.Narayana Reddy, learned Senior Counsel for the
respondents.
3. The litigation started from an order passed by Respondent
No.2/Additional Commissioner, Customs & Central Excise,
Hyderabad demanding duty and penalty upon the product sold by
the appellant from its unit which is operated in Hyderabad. The
whole issue arose when a show cause notice dated 08.01.1999 was
issued by respondent No.3/Deputy Commissioner of Central
Excise, Hyderabad to the appellant alleging that the appellant is
engaged in the manufacturing and selling of "Activated Bleaching
Earth" and "Activated Carbon" and both these products being
excisable goods, the appellant by his conduct has suppressed
material facts and information from the authorities and have also
not paid requisite duty under the excise law. Therefore, the
appellant is liable to pay the duty along with penalty etc. The
appellant therein gave a detailed explanation and reply to the show
cause notice and also produced necessary records available with
them.
4. Respondent No.2 thereafter passed the Order-in-Original on
21.10.1999. In the course of passing the Order-in-Original,
respondent No.2 went on to decide whether the raw material
fuller's earth lumps were being subjected to undergo a process of
getting crushed in job crusher and pulverized in pulveriser.
Thereafter, the powder generated is heated between 200°C to 300°C
in a furnace and thereafter it is packed in bags for commercial use.
Whether this process and the resultant product can be classified as
activated bleaching earth.
5. Respondent No.2 took into consideration the evidence led by
the Director of appellant company and also the report that was
obtained from IICT, Hyderabad along with the opinion of one Sri V.
Ramachandra Rao, Head of Department of the Metallurgy
Department in J.N. Government Polytechnic College,
Ramanthapur, Hyderabad and also taking note of the evidence
which was collected from the premises of the appellant company,
particularly, the invoices where the product has been sold by the
appellant themselves by the name of activated bleaching earth.
Respondent No.2 confirmed the demand of Rs.5,04,330/- being the
duty payable and also an equivalent amount towards penalty
under Section 11AC of the Act along with interest at the rate of
20% per annum. In addition, also ordered for confiscation of plant
and machinery and also penalty of Rs.10,000/- upon one of the
directors of the appellant company under Rule 209A of the Central
Excise Rules. In the course of reaching to the said conclusion, it
was held as under:
"Whenever Bentonite or Mantmorillonite or Fullers earth
are heated and subjected to chemical treatment then
Alumina, Iron oxide, Calcium oxide and Magnisium oxide
will be converted into sulphates, but SiO2 will become
inactive. Hence the overall superficial structure changes
after any chemical treatment. The acids which are added
in various measures to increase the bleaching efficiency of
the earth. Before thermal activation it is an absorbent
medium after activation it becomes an absorbent medium.
Therefore the process undertaken by the assessee
amounts manufacture from which different products
having different usages are coming into existence."
6. This order of respondent No.2 was subjected to challenge
before respondent No.1/Commissioner (Appeals), Customs &
Central Excise, Hyderabad, vide Order in Appeal No.152 &
153/2001(H-I)CE. Respondent No.1 also vide order dated
23.08.2001 referring to the evidence that was collected in the
course of investigation and also appreciating the entire process
undertaken at the appellant company reached to the following
finding of fact which for ready reference is being reproduced herein
under:
FINDINGS
"(i)The appellants are procuring Fuller's Earth lumps, a
mineral clay, which is also known as Mantmorillonite or
Bentonite. The Fuller's Earth lumps are crushed in jaw
crusher and the crushed material is then pulverized in the
Pulverisers. This powder is heated in the furnace between
200 C to 300 C. Then it is treated with Sulphuric acid. The
Fullers Earth Powder, on heating gets thermally activated
and then by adjusting its pH value by the addition of
Sulphuric Acid, gets powerful adsorption properties. As is
evident from the invoices, the appellants are
manufacturing various grades of Activated Bleaching
Earths viz., SC 900, SC 200, Black, RB Grade, SC 100, SC
1500, for Castor Oil, Soya Grade, for Cotton Seed Oil SF,
SSF, SC 60 etc., To given an illustration with regard to
various grades of the product, Cotton Seed Oil is very
darker in colour on extraction while Soya Bean Oil is
lighter in colour. Thus, the decolouring agent has to have
strong adsorption properties in case of Cotton Seed Oil
than that of Soya Oil for decolourizing them. Hence, there
is difference in the product required for usage in industries
depending upon the type of oil being extracted and the
requirement is fulfilled by the appellants by their different
grades of Activated Bleaching Earth. In fact, the invoices
describe the final product as Activated Bleaching Earth.
The Activated Bleaching Earth, is processed and
manufactured out of the fullers earth. Its characteristics
can be manipulated so as to suit the different
requirements of customers i.e. for bleaching of cotton seed
oil, bleaching of soya bean oil etc., By undertaking the
process of manufacture, different products having different
usages come into existence."
7. It was this order passed by respondent No.1 which was
subjected to challenge before the Tribunal vide Appeal No.E/274 &
275/2002. The Tribunal also after hearing the appellant, finally
vide the impugned order dated 12.10.2004 affirmed the order
passed by respondent Nos.2 and 3 and dismissed the appeal filed
by the appellant holding as under and which is under challenge in
the present appeal:
"6. The first issue pertains to whether or not the process
carried out by the appellants amounts to manufacture. We
have already described the process to which Fullers Earth
is subjected. In the case of Ajanta Marble & Chemical
Industry Vs CCE {1991 (53) ELT 457} the Tribunal held
that crushing, grinding and sieving of lime store to obtain
powder amounts to manufacture. In the present case the
Fullers Earth is subjected to more processes than in the
above-cited case. There is no reason as to why the process
adopted by the appellants does not amount to
manufacture. In the case reported in 1998 (97) ELT, the
Apex Court ruled that whether a process is that of
manufacture is based on two/old list (a) a different
product comes into existence or not, where the original
product ceases to exist; (b) but for the said process the
original product will have no use. The appellants' product
satisfies these tests. The appellants themselves sell their
product as Activated Bleaching Earth to their customers
for different uses in different industries. The product as
manufactured by them ceases to be a Fullers Earth.
Carbon and mineral substances are said to be activated
when their superficial structure has been modified by
appropriate treatment (with heat and chemicals etc) in
order to make them suitable for certain purposes such as
decolouring, gas or moisture absorption or filtering etc.
The appellants' product does these functions. Thus is an
Activated Bleaching Earth classifiable under chapter
heading 3802 of Central Excise Tariff Act. Further, as per
the technical opinion given by experts that while Fullers
Earth in its original form has absorbing characteristics
after the thermal and chemical treatment if gets the
characteristic being an adsorbant capable of being used
for decolouring, filtering etc. When Fullers Earth is
crushed its superficial form undergoes a change, thus
making it an activated bleaching earth. The Ld. DR also
points out the price differential between Fullers Earth in
its raw form and its finished form as marketed. We
therefore hold that the process to which Fullers Earth is
subjected to amounts to manufacture and that in its
modified form if falls under 2802 of Central Excise Tariff
Act.
7. The appellants were found to be describing their
product as Fullers Earth thereby avoiding payment of
appropriate duty. The period involved is 1994-95 to 1997-
98. We hold that duty is payable as demanded involving
larger period of limitation as the appellants contravened
Central Excise Rules with an intent to evade payment of
duty. We agree with the Commissioner (Appeals)'s order in
so far as penalty and interest is concerned under Section
11AC and 11AB. Penalty and interest under these Sections
can be imposed and demanded only for the clearances
effective after 28/09/1996. We observe that confiscation of
plant and machinery is not called for in a case of this type.
We therefore, set aside the confiscation. Penalty imposed
on the Director of the company under Rule 209A 209A is
set aside."
8. The following substantial questions of law were formulated
while preferring the present appeal:
1. Whether the process undertaken by the appellant
amounts to manufacture or not when read with note 2 of
the Chapter 25 of the Section V of the Central Excise Tariff
Act, 1985?
2. Whether the products dealt by the appellants classified
under hearing 25.05 or 38.02 of Central Excise Tariff Act
in view of the explanatory notes of HSN?
3. Whether the Raw Material in question (fuller's earth - a
natural mineral clay) is also known as bentonite or
motmorillanite or not in the view of respondents own
experts opinion differs with?
4. Whether it is justified to invoke the proviso to section
11A of the act to bring in the extended period of limitation
to five years instead of six months in view of all the records
of the appellants are transparent, clear and open for
inspection nor suppression of records or otherwise and in
particular not disputed and admitted the same by the
department/respondents?
5. Whether it is justified to club all the years together
when the appellants are entitled for the benefit of general
exemption granted under law for each preceding year
being a SSI unit?
Of the said questions of law framed, learned counsel for the
appellant primarily made his contentions on question Nos.1, 2 and
4.
9. Now for better understanding of the aforesaid questions of
law, in the factual backdrop what is necessary to take note is the
definition of manufacture as is defined under Section 2(f) of the
Act, which again for ready reference is reproduced herein under:
"(f) "manufacture" includes any process,⎯
i) incidental or ancillary to the completion of a
manufactured product;
(ii) which is specified in relation to any goods in the
section or Chapter notes of [the First Schedule] as
amounting to [manufacture; or]
(iii) which, in relation to the goods specified in the
Third Schedule, involves packing or repacking of such
goods in a unit container or labelling or re-labelling of
containers including the declaration or alteration of
retail sale price on it or adoption of any other
treatment on the goods to render the product
marketable to the consumer,]
and the word "manufacturer" shall be construed
accordingly and shall include not only a person who
employer hired labour in the production or manufacture of
excisable goods, but also any person who engages in their
production or manufacture on his own account;]"
10. Likewise, in order to answer the question whether the
respondents were justified in invoking the provisions of Section
11A for the extended period of limitation, it would be relevant to
take note of the contents of Section 11A(1), particularly clause (a)
of Section 11A(1) both of which are reproduced herein under:
"11A. Recovery of duties not levied or not paid or
short-levied or short-paid or erroneously refunded
(1) Where any duty of excise has not been levied or paid
or has been short-levied or short-paid or erroneously
refunded, for any reason, other than the reason of fraud
or collusion or any wilful mis-statement or suppression
of facts or contravention of any of the provisions of this
Act or of the rules made thereunder with intent to evade
payment of duty, ⎯
(a) the Central Excise Officer shall, within [two years]
from the relevant date, serve notice on the person
chargeable with the duty which has not been so
levied or paid or which has been so short-levied or
short-paid or to whom the refund has erroneously
been made, requiring him to show cause why he
should not pay the amount specified in the notice;"
11. Learned counsel for the appellant raised the following
contentions challenging the orders passed by respondent Nos.1
and 2 which were affirmed by the Tribunal:
11.2 According to the learned counsel for the appellant, fuller's
earth is exempted and classified as item No.2505 and the relevant
Chapter 25 of Section V (Mineral Products) of the Central Excise
Tariff Act, 1985, speaks about the process of certain things in this
regard, when such particular items are subjected to chemical
treatment and heating shall still qualify for exemption as explained
in the explanatory notes forming part of the Excise Tariff Act.
11.3 It was contended by the learned counsel for the appellant
that the records which the appellant had produced before the
respondents clearly show that the fuller's earth is procured by the
appellant from the suppliers of the quarries leased out by the State
Government by agreements and that the goods in question is only
fuller's earth and nothing else.
11.4 It was further the contention of the learned counsel for the
appellant that for enhancing the quality of the goods as exempted
by law, no other new product is manufactured or emerged as
alleged by the respondents to attract excise duty.
11.5 It was also submitted that there is no change in the super
structure to quantify the goods to be excisable nor the assessing
authorities ever drawn samples to prove their case except alleging
that the process of the appellant is amounting to manufacture but
never attempted to prove the same to bring home the liability
except on illogical and imaginary conclusions of unauthorized
persons.
11.6 According to the learned counsel for the appellant, the expert
has also stated that the fuller's earth is different from bentonite or
motmorillanite but the assessing authority including respondent
No.2 have found from nowhere and equated fuller's earth with
bentonite and concluded that both are the same which is in fact
contradicting their own experts scientific opinion.
11.7 The further ground of learned counsel for the appellant was
that respondent Nos.1 and 2 have arrived at a biased conclusive
finding that the appellant is manufacturing activated bleaching
earth and activated carbon without any legal basis for the same
based on alleged report given in some other matter by one Mr.
Nazir Ali who was a consultant to some competitor of this
appellant.
11.8 It was also contended by the learned counsel for the
appellant that the authorities concerned have failed to appreciate
the independent report and analysis obtained by the appellant from
reputed government scientific research organization i.e. Indian
Institute of Chemical Technology which had clearly opined that the
appellant do not have required capable plant and machinery to
manufacture activated bleaching earth for activated carbon.
11.9 The additional ground that the learned counsel for the
appellant had raised was that the products even after subjected to
wash with chemicals and exposed to heat, neither their
characteristics changed nor the usage by just some people
(including the appellant) lending or calling it with different name,
doubtless, all the more it shall remain the same good as evidenced
from the report of the Council of Scientific and Industrial Research
Unit (IICT).
11.10 It was also the contention of the learned counsel for the
appellant that the products in question before this Court emerged
as no different products, neither the original product (fuller's
earth/chair fines) ceased to exist now but for the said process, the
original products have no use. It was strongly contended that it is
universally known that the fuller's earth is a natural absorbent and
can be used as it is without any treatment.
11.11 According to the learned counsel for the appellant, the
respondents failed to appreciate that the appellant had not
suppressed any information or evidence as alleged. Instead the
appellant had produced all the invoices, registers and books before
the assessing authority which were not disputed and this can be
evidenced from the respondents own notice and impugned orders
passed and the explanation of the appellant by word of mouth and
letter about the process involved in the goods dealt by them to the
authorities concerned and be evidenced from respondents own
orders and records.
11.12 Lastly, it was contended that there was no sufficient
material available with the respondents for invoking proviso to
Section 11A so far as the extended period of limitation being
invoked and the same is unjustified and barred by limitation under
law. So also the imposition of penalty under Section 11AB of the
Act and interest under Section 11AC of the Act were not justified
and untenable.
12. Learned counsel for the appellant in support of his
contentions had relied upon the following decisions:
1) Union of India & Ors. Etc. v. J.G. Glass Industries Ltd. Etc. 1
2) Union of India v. Delhi Cloth & General Mills 2
3) Padmini Products v. Collector of Central Excise, Bangalore 3
4) Easland Combines Coimbatore v. Collector of Central Excise
Coimbatore 4
5) Collector, Central Excise v. M/s. S.D. Fine Chemicals Pvt.
Ltd 5
6) M/s. Quinn India Ltd. v. Commissioner of Central Excise,
Hyderabad 6
13. Per contra, learned Senior Counsel for the respondents
contended that an appeal under Section 35G can only be
entertained by the High Court in the event of there being a
substantial question of law made out and not otherwise. According
to the learned Senior Counsel, since there is a concurrent finding
of fact given by two statutory authorities and the Tribunal, it
amounts to a finding of fact which has been accepted and
concurred by two of the appellate forums. In the given factual
backdrop, there is hardly any scope of interference left for this
Court in the instant appeal and therefore deserves to be rejected.
1 1998 (97) ELT
2 1963 AIR 791
3 (1989) 4 SCC 275
4 AIR 2003 SC 843
5 1995 SCC, SUPL. (2) 336
6 AIRONLINE 2006 SC 658
14. It was contended by the learned Senior Counsel that the
Assessing Officer at the first instance and the appellate authority
subsequently has elaborately and extensively dealing with the
process undertaken at the appellant company and taking into
consideration the details in the invoices prepared in the course of
sale of the product coupled with admitted factual matrix so far as
the entire process undertaken by the appellant company has
arrived at the findings. Further, none of the grounds raised by the
learned counsel for the appellant can be said to be a substantial
question of law. Rather, it is a pure finding of fact and for this
reason also the appeal deserves to be rejected.
15. Coming to the facts of the case, the learned Senior Counsel
highlighted the fact that no doubt the raw material used by the
appellant is fuller's earth, however, the said fuller's earth lumps is
put under certain chemical process like jaw crushing of the lumps
and making powder of it. Secondly, heating the said product at the
range of 200°C to 300°C and the product being washed/mixed with
chemicals and acids so as to manufacture different grades of
activated bleaching earth. The entire process undertaken would
bring the final product as a manufactured product in terms of the
definition of manufacture under Section 2(f) of the Act.
16. Learned Senior Counsel in support his contentions had relied
upon the following decisions:
1) M/s. Jaishri Engineering Co. (P) Ltd. v. Collector of Central
Excise, Bombay 7
2) Sarabhai M. Chemicals v. Commissioner of Central Excise,
Vadodara 8
3) Servo-Med Industries Private Limited v. Commissioner of
Central Excise, Mumbai 9
4) Union of India and Others v. J.G. Glass Industries Ltd. and
Others 10
17. The Hon'ble Supreme Court in the case of Union of India &
Ors. Etc (supra) dealing with the definition of manufacture and
deciding an issue whether a process is that of manufacture or not,
held that substantially there needs to be two tests which need to be
examined. Those are:
a) A different product comes into existence or not where the
original product seizes to exist.
b) But for the said process, the original product will have no
use.
18. However, the moment it is crushed and converted into a
powder and the powder thereafter undergoes a process of heating
and mixing with chemicals and acids brings out an altogether
7 (1989) 2 Supreme Court Cases 439
8 (2005) 2 Supreme Court Cases 168
9 (2015) 14 Supreme Court Cases 47
10 (1998) 2 Supreme Court Cases 32
different product depending upon the percentage of chemicals and
acids put to crush fuller's earth and when the entire process is
undertaken, the product generated is what is known as activated
bleaching earth.
19. If we look into the order passed by respondent No.2,
particularly, on examining the aforesaid two tests as has been
envisaged by the Hon'ble Supreme Court in the case of Union of
India & Ors. Etc. (supra), for ready reference the relevant portion
of the Order-in-Original dealing with the said issue is reproduced
herein under:
"In the instant case the name of the product
manufactured by the assessee is "Activated Bleaching
Earth" and "Activated Carbon", this is also as per the
certificate issued by the Industries Department,
Government of Andhra Pradesh. The customers are
also placing orders for "Activated Bleaching Earth" and
"Activated Carbon" and the assessee is clearing the
same as per the requirement of the customers through
his invoices. The fullers earth being a natural mineral
clay possess some characteristics. The fullers earth in
raw state contains moisture and has no decolourising
power and this when used as such, will act as an
absorbent medium. While the new product
manufactured by the assessee i.e., "Activated
Bleaching Earth" which is produced by thermal
activation of fullers earth and by adjusting pH value by
addition of sulphuric acid gets powerful absorption
properties. The chemical treatment is necessary to
make the constituents neutral so that they do not
participate in the reaction since they have powerful
adsoption properties during filteration of oils. The
character of the finished goods is entirely different
from that of fullers earth. The end use of the product
required for usage in Industries depending upon the
type of oil being extracted is fulfilled by the assessees
by their different grades of activated bleaching earths.
They are clearing the goods to different customers by
mentioning the product "Activated Bleaching Earth"
and "Activated Carbon" in their invoices."
20. From the finding of fact given by the authority passing the
Order-in-Original, what is established is that though fuller's earth
is the raw material which is subsequently converted into an
"Activated Bleaching Earth" or an "Activated Carbon" through a
mechanical process which includes a chemical treatment after
crushing the fuller's earth lumps altering the clay into powder and
by increasing its bleaching potential. The very purpose of
subjecting the fuller's earth clay to chemical treatment in a
mechanical manner is to alter the nature of the product. Further,
the bleaching ability is enhanced by way of mechanical and
chemical process and the filtration rate of the product also gets
enhanced and becomes faster.
21. Another fact which stands established is that the raw
material fuller's earth in itself cannot be used for those purposes
which it is subsequently used after the mechanical chemical
process is undertaken. Yet another fact which is established from
the pleadings is that the use of the Activated Bleaching Earth
cannot be achieved if fuller's earth is used as it is without the
chemical treatment and the mechanical process which includes the
heating process etc. The mechanical process which fuller's earth is
subjected to is to increase its bleaching performance and filtration
properties and the product is also tailor made as per the
specifications required by the client as per use at their plants.
22. If we look into the process of manufacturing Activated
Bleaching Earth, it would reveal that there are various stages with
precision which has to be undertaken so as to ensure enhanced
performance. The bleaching earth has a set of advanced formula of
different combinations and it is applied by the manufacturer by
using the production technology to manufacture different grades of
Activated Bleaching Earth. All these process put together alters the
fuller's earth clay into an Activated Bleaching Earth giving it the
properties that increases its bleaching potential. Moreover, as has
been discussed in the preceding paragraphs, it is also an admitted
factual position that the appellant have been marketing as
"Activated Bleaching Earth" with different chemical combinations
as per the requirement of the market and nowhere did the
appellant sold the product with an invoice of the product being
nothing else but fuller's earth clay.
23. In view of the aforesaid categorical finding of facts, we are of
the considered opinion that the finding so arrived at by respondent
No.2 which stands affirmed by yet another detailed reasoned order
passed by respondent No.1, both of which again subjected to test
before the Tribunal and the Tribunal also giving specific reasons in
the course of affirming the orders passed by respondent Nos.1 and
2. We do not find any substantial merit in the arguments advanced
by the learned counsel for the appellant calling for an interference
to the findings given by the Tribunal.
24. The appeal thus being devoid of merits, deserves to be and is
accordingly rejected. However, there shall be no order as to costs.
As a sequel, miscellaneous applications pending if any, shall stand
closed.
___________________
P.SAM KOSHY, J
___________________
N.TUKARAMJI, J
Date: 18.03.2024
Note: LR Copy to be marked.
B/O. GSD
