2019 (9) TMI 1429 - AT - Central Excise

Process Amounting to manufacture or not - Demand of Central Excise Duty not paid - Doctor brand Laundry Soaps - period January, 2002 to February, 2006 - Confiscation - redemption fine - Penalty - extended period of limitation. Whether in the manufacture of laundry soap no process has been carried out with the aid of power or steam for heating because in that case no Excise Duty would be leviable in the manufacture of soap? Appellant, ever since it started manufacturing Laundry Soap , has not been paying Central Excise duty because initially up to 1996 the levy of Central Excise duty was exempted under the Notification dated 1 March, 1994 and subsequently from 28 September, 1996 it was subjected to nil Central Excise Duty. With effect from 28 February, 2005, it was again subjected to 16% Central Excise Duty, but the levy of Central Excise Duty was exempted by Notification dated 24 February, 2005 that came into force on 28 February, 2005. HELD THAT - The definition of power as contended in the Factories Act, in our considered opinion, cannot be taken aid of to determine the meaning of the expression power under the Tariff Act or the Exemption Notification as the purpose of defining power under the Factories Act is for an entirely different purpose and that the Finance Act does not deal with cognate subjects. That meaning of the expression power has to be adopted which people understand in commercial sense. The objective of providing no levy of duty or granting exemption is to discourage manufacturers of soaps by taking aid of electricity or of steam for heating - The meaning of the expression power as contained in dictionaries should also not be blindly applied to the meaning of the expression power as contained in the Tariff Act and the exemption notification and an attempt should be made to find out a meaning which would achieve rather than frustrate the object-of granting exemption and that meaning should be preferred which does not lead to uncertainty or unintended results. In the present case, soaps were exempted from payment of Excise Duty if, in or in relation to the manufacture of such soap no process was carried out with, the aid of power or of steam for heating. In common parlance, power is understood as electricity . Thus, though power may have a wider dictionary meaning or connotation, but only that meaning should be given that would achieve the object of granting exemption. The object behind granting exemption from payment of excise duty to the manufacture of soaps in cases where in or in relation to the manufacture of soap no process is carried out with the aid of power is to discourage the manufacturers from using electricity in the manufacture of soap - In the instant case, there is no apparent conflict in the English and Hindi version of the Tariff Act and the Exemption Notification and, therefore, assistance can be taken of the Hindi version. The Hindi version removes all doubts since the word vidyut has been used, which means electricity . It is true that after the new Tariff Act came into force, the earlier circulars/guidelines/instructions/Tariff advices issued in the context of the erstwhile First Schedule to Central Excises and Salt Act, 1944, had been withdrawn by the Board by Circular dated 27 May, 1994, but the fact remains that the Board had clarified that the use of gas for welding steel furniture parts or use of gas for heating in the manufacture of coco powder cannot be treated as use of power . There is no reason why such a meaning to the expression power should not be given in the new Central Excise Tariff - The Circular clarified that if gas is used for welding steel furniture parts, steel furniture would not be subjected to levy of Central Excise duty. Under the Second Circular issued in relation; to confectionery, it has also been clarified by the Board that if gas is used for heating purpose in or in relation to the manufacture of which any process is ordinarily carried on with the aid of power, it would not be treated as use of power . It is, therefore, clear that only a restrictive meaning to the expression power should be given which is not only in consonance with common parlance, but also in consonance with the Hindi version of the Tariff Act and the Exemption Notification as also the Circulars. The position that emerges is that power used in Chapter 34 of the Tariff Act and the Exemption Notification dated 24 February, 2015 would be restricted to electricity . The Appellant is engaged in the manufacture of soap with the aid of gas and, therefore, no process has been carried on with the aid of power. The manufacture of soap by the Appellant, therefore, would be subjected to NIL rate of duty upto 27 February, 2005 and thereafter also would be subjected to NIL rate of duty because of the exemption Notification dated 24 February, 2005. The Commissioner has, however, confirmed the demand by order dated 15 November, 2006 holding that the Appellant has been manufacturing soap with the aid of power . Penalty - HELD THAT - It is not possible to sustain the demand made in the impugned order. The imposition of penalty on the Appellant, the Factory Manager, the Authorized Signatory and the Managing Director are also not sustainable. Extended period of limitation - HELD THAT - It is not necessary to examine the contention of the Learned Counsel for the Appellant regarding invocation of the extended period of limitation under the proviso to Section 11A of the Central Excise Act, 1944. Appeal allowed - decided in favor of appellant.

Summary

Issues Involved:
1. Whether the use of gas for heating and boiling in the manufacturing process amounts to the use of 'power' under the Central Excise Tariff Act and relevant notifications.
2. Whether the extended period of limitation for demanding excise duty is applicable.
3. Whether the penalties imposed on the Appellant and its officers are justified.

Issue-wise Detailed Analysis:

1. Use of Gas as 'Power':

The primary issue was whether using LPG and CNG for heating and boiling in the manufacturing process of 'laundry soaps' constitutes the use of 'power' under the Central Excise Tariff Act and relevant notifications. The Appellant argued that 'power' should be interpreted as 'electricity' and not any other form of energy. They cited two circulars from 1968 by the Central Board of Excise & Customs, which clarified that the use of gas does not equate to the use of 'power'. The Tribunal agreed, stating that 'power' in common parlance is understood as 'electricity'. The Tribunal also referred to the Hindi versions of the Tariff Act and the Exemption Notification, which used the word 'vidyut', meaning 'electricity'. Therefore, the Tribunal concluded that the use of gas does not amount to the use of 'power', and the Appellant was entitled to the exemption from excise duty.

2. Extended Period of Limitation:

The Tribunal did not find it necessary to examine the applicability of the extended period of limitation under the proviso to Section 11A of the Central Excise Act, 1944, due to the conclusion that the demand itself was not sustainable.

3. Penalties Imposed:

Given the Tribunal's decision that the Appellant was not liable to pay excise duty, the penalties imposed on the Appellant, the Factory Manager, the Authorized Signatory, and the Managing Director were also deemed unsustainable. The Tribunal set aside the penalties, stating that the Appellant had not used 'power' as defined for the purposes of excise duty imposition.

Conclusion:

The Tribunal set aside the Commissioner's order dated 15 November 2006, which had confirmed the excise duty demand and imposed penalties. The Tribunal allowed the appeals, concluding that the use of gas for heating and boiling does not amount to the use of 'power' under the relevant provisions, and thus, the Appellant was entitled to the exemption from excise duty.