2009 (2) TMI 574 - AT - Central Excise

Natural justice - Violation of - Order - Adjudication order - Demand - time limitation - shelf life of the product

Summary

Issues Involved:
1. Classification and dutiability of Denatured Ethyl Alcohol (DEA).
2. Violation of principles of natural justice.
3. Limitation period for invoking duty demands.

Issue-wise Detailed Analysis:

1. Classification and Dutiability of Denatured Ethyl Alcohol (DEA):
The appellant manufactures various toilet preparations using Extra Neutral Alcohol (ENA) as a primary raw material. The ENA is denatured by adding Di-ethyl Pthalate (DEP) to make it unfit for human consumption, a statutory requirement under the Medicinal and Toilet Preparations Act. The central issue is whether the addition of DEP to ENA results in the creation of an intermediate product, Di-ethyl Alcohol, which is subject to Central Excise duty under chapter sub-heading 2204.10 of the Central Excise Tariff Act. The Tribunal had previously remanded the matter for re-examination in light of a similar case (Charishma Cosmetics Pvt. Ltd. and J.K. Helen Curtis Ltd.), where it was held that Denatured Ethyl Alcohol, although classifiable under Chapter Heading 22.04, was not dutiable due to its non-marketability and short shelf life. The Commissioner, however, failed to properly compare the appellant's manufacturing process with the earlier case, leading to another remand for a thorough examination of the facts and processes involved.

2. Violation of Principles of Natural Justice:
The appellant argued that the Commissioner relied on a report by the Assistant Commissioner, which was never disclosed to them, thereby violating the principles of natural justice. The report pertained only to one product (Fa-deo spray), and the manufacturing processes of other products were not examined. The Tribunal emphasized that non-disclosure of the report and failure to compare the appellant's process with that of Charishma Cosmetics and J.K. Helen Curtis constituted a clear violation of natural justice. Consequently, the matter was remanded again to ensure a fair re-examination, including the supply of the Assistant Commissioner's report to the appellant and verification of the manufacturing processes.

3. Limitation Period for Invoking Duty Demands:
The appellant contested the demand on the grounds of limitation, arguing that there was no misstatement or deliberate suppression of facts. The denaturing process was conducted under the supervision of State Excise authorities, and the Central Excise authorities were aware of the addition of DEP to ENA. The Tribunal agreed, noting that the process was a statutory requirement and well-known to the authorities. The appellant's omission to declare the addition of DEP could not be construed as suppression with intent to evade duty. Furthermore, other manufacturers in the cosmetic industry were not paying excise duty on denatured ENA, supporting the appellant's reasonable belief that the product was not dutiable. Therefore, the Tribunal held that the invocation of the longer limitation period was unjustified and directed the Commissioner to re-decide the matter on merits within the standard limitation period.

Conclusion:
The appeal was disposed of with directions for a de novo examination of the manufacturing processes, ensuring adherence to natural justice principles, and a re-evaluation of the duty demands within the standard limitation period. The Tribunal emphasized the need for a fair and thorough re-examination, considering the processes adopted by other manufacturers and the statutory requirements under the Medicinal and Toilet Preparations Act.