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2011 (4) TMI 1011 - HC - Central ExciseSeizure of records and documents as well as goods - Whether the process of prilling amounts to manufacture or not - The petitioners obtain Ammonium Nitrate Melt, a chemical having composition of NH4NO3 and remove by process evaporation/prilling extra moisture from the Ammonium Nitrate Melt which according to the petitioners does not result in any change in the chemical composition at all of he duty paid Ammonium Nitrate Melt purchased by the petitioners from the open market. Held that - it is apparent that it is not permissible for the officers of the Central Excise department to act contrary to the Circulars issued by the Board. In the facts of the present case, of the Circular No. 44/89 dated 19th July, 1989 the Board had desired that every jurisdictional Collector of Central Excise should strictly ensure that no Central Excise duty is paid on such prilled ammonium nitrate as obtained from melt ammonium nitrate and no Modvat Credit of such duty, even if paid is allowed. The said Circular continued to hold the field despite the subsequent decision of the Tribunal in I.D.L. Chemicals Ltd. v. Collector of Central Excise (1993 - TMI - 82628 - CEGAT, NEW DELHI ) as well the decision of the Larger Bench of the Tribunal in Supreme Chemical Works v. Collector of C.Ex. Jaipur (2000 -TMI - 48825 - CEGAT, NEW DELHI) till the same came to be withdrawn by Circular No. 848/06/2007-CX., dated 18th April. 2007. In the circumstances, in the light of the law laid down by the Apex Court in the above referred decisions, it was not permissible to the respondents to act contrary to the Circular dated 19th July, 1989 till the same came to be withdrawn on 18th April, 2007.
Issues Involved:
1. Legality of seizure of records, documents, and goods. 2. Whether Prilled Ammonium Nitrate (PAN) obtained from Ammonium Nitrate Melt (ANM) is excisable and if the process of prilling/evaporating moisture constitutes "manufacture" under Central Excise law. 3. Validity of actions taken by respondents based on a show-cause notice and demand for excise duty, penalty, and interest. 4. Entitlement of the petitioner to restitution of amounts recovered as excise duties with interest. Detailed Analysis: 1. Legality of Seizure of Records, Documents, and Goods The petitioners challenged the seizure of records and goods by the Central Excise Department under panchnamas dated 31-3-2003 and 11-6-2003. It was noted that the seized records and documents had already been returned to the petitioners, rendering this issue moot. 2. Excisability and Manufacture of Prilled Ammonium Nitrate (PAN) The petitioners argued that the process of converting Ammonium Nitrate Melt (ANM) into Prilled Ammonium Nitrate (PAN) does not constitute "manufacture" under Central Excise law. They relied on the Tribunal's decision in Collector of Central Excise, Aurangabad v. Anil Chemicals (P) Ltd., which held that mere improvement in quality and purity does not amount to manufacture. The Central Board of Excise and Customs had also issued Circular No. 44/89, stating that no excise duty should be charged on PAN obtained from ANM. The respondents, however, argued that the process of prilling does constitute manufacture, citing the Tribunal's decision in M/s. I.D.L. Chemicals Ltd. v. Collector of Central Excise and the Larger Bench's decision in Supreme Chemical Works v. Collector of Central Excise, Jaipur, which held that conversion of ANM into Ammonium Nitrate Flakes amounts to manufacture due to different physical characteristics and commercial names. The court noted that the Board did not rescind the Circular No. 44/89 even after these decisions, indicating that the Board did not intend to change its stance at the relevant time. The court held that the officers of the Central Excise Department are bound by the Circulars issued by the Board and cannot act contrary to them. 3. Validity of Show-Cause Notice and Demand for Excise Duty The show-cause notice dated 1st November 2003, demanding central excise duty, penalty, and interest, was issued before the Board withdrew Circular No. 44/89 on 18th April 2007. The Supreme Court in Ranadey Micronutrients v. Collector of Central Excise and Paper Products Ltd. v. Commissioner of Central Excise held that Circulars issued by the Board are binding on the Department. The court concluded that the show-cause notice and the consequential demand were ab initio bad as they were contrary to the existing Circular of the Board. 4. Restitution of Amounts Recovered as Excise Duties The court held that it was not permissible for the respondents to recover Central Excise duty from the petitioner company in respect of PAN obtained from ANM until the issuance of the subsequent Circular dated 18th April 2007. Consequently, the petitioners are entitled to restitution of the amount recovered as excise duty till that date, in accordance with the law. Conclusion: The court quashed the impugned show-cause notice dated 1st November 2003 and held that the respondents could not recover Central Excise duty from the petitioner company for PAN obtained from ANM until the issuance of the subsequent Circular dated 18th April 2007. The petitioners are entitled to restitution of the amounts recovered as excise duty. The issue of whether the process of prilling amounts to manufacture was left open for determination by the appropriate forum. The petition succeeded to the extent mentioned, with no order as to costs.
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