2008 (8) TMI 237 - AT - Central Excise

Used mercury scrap (UMS)- used mercury is produced and manufactured by the reaction of sodium amalgam with water - repacking of used mercury from the mercury cell into the smaller container would amount to manufacture appellant s contention that regeneration of used mercury cannot be treated as manufacture is not acceptable misdeclaration of the fact that the Mercury recovered from the cells was having non-modvatable Mercury only whereas the fact was that the Mercury in the cells was also containing input on which the Modvat credit was availed by the appellants - facts were willfully suppressed by the appellants with the intention to evade payment of duty on UMS larger period is invocable for demand

Summary

Issues Involved:
1. Liability to duty on used mercury cleared by the appellants.
2. Whether the process of regeneration of used mercury constitutes manufacture.
3. Applicability of Note 10 to Chapter 28.
4. Applicability of Rule 57F(18) of the Central Excise Rules, 1944.
5. Confiscation of 15.688 MTs of used mercury.
6. Imposition of penalties on the appellant-company and its Vice-President.
7. Invocation of the extended period of limitation under Section 11A of the Central Excise Act, 1944.

Detailed Analysis:

1. Liability to Duty on Used Mercury
The Commissioner confirmed the demand of duty amounting to Rs. 23,22,806/- on 67.918 MTs of used mercury cleared during the period 14-5-1998 to 19-12-1998. The appellants argued that the used mercury was from the initial charge in cells installed before 28-2-1986, on which no Modvat credit was availed. The Tribunal upheld the Commissioner's decision, finding that the fresh mercury had always been added to the existing inventory, and thus, the used mercury cleared was not solely from the pre-1986 charge.

2. Process of Regeneration Constitutes Manufacture
The appellants contended that the regeneration of used mercury does not amount to manufacture. They cited the CESTAT decision in NRC Ltd. and the Supreme Court decision in Indian Organic Chemicals Ltd., asserting that the regenerated mercury retains the same physical and chemical characteristics as the original mercury. However, the Tribunal found that the chemical reactions involved in the process resulted in the emergence of a new product, thus constituting manufacture. The Tribunal relied on the decision in Gujarat State Fertilizers, which held that regenerated products attract fresh duty.

3. Applicability of Note 10 to Chapter 28
The appellants argued that Note 10 to Chapter 28, which deems certain activities as manufacture, was not applicable. They cited Tribunal decisions in Ammonia Supply Co. and Johnson & Johnson. However, the Tribunal found that the appellants' activities of repacking mercury from bulk to smaller containers and labelling them with descriptions and weights constituted manufacture under Note 10 to Chapter 28. The Tribunal noted that the appellants had repacked mercury from larger tonners to smaller flasks and then to 300 kg drums, which were marked and labelled, thus rendering the product marketable.

4. Applicability of Rule 57F(18)
The appellants argued that Rule 57F(18) was not applicable since the used mercury was not waste arising from the processing of inputs on which Modvat credit had been taken. The Tribunal disagreed, finding that the used mercury arose from the processing of Prime Virgin Mercury (PVM) on which credit was taken, thus satisfying the conditions of Rule 57F(18). The Tribunal noted that once Modvat credit is availed, all related provisions apply, including the duty on waste products.

5. Confiscation of 15.688 MTs of Used Mercury
The Commissioner ordered the confiscation of 15.688 MTs of used mercury valued at Rs. 29,80,777/- for being unaccounted in the factory. The Tribunal upheld this decision, finding that the mercury was not accounted for in RG1 at the stage of finishing, thus contravening Rule 53 of the Central Excise Rules, 1944.

6. Imposition of Penalties
The Commissioner imposed a penalty of Rs. 23,22,806/- on the appellants under Section 11AC and Rule 173Q, and a penalty of Rs. 50,000/- on the Vice-President under Rule 209A. The Tribunal upheld these penalties, noting that the appellants had wilfully suppressed facts with the intent to evade duty. The Tribunal found that the Vice-President had misdeclared the nature of the mercury recovered, justifying the penalties.

7. Extended Period of Limitation
The show cause notice was issued on 9-7-1999 for clearances made from May 1998 to December 1998. The appellants argued that the demand was time-barred, as they had disclosed all relevant facts in their letter dated 8-8-1998. However, the Tribunal upheld the invocation of the extended period under Section 11A, finding that the appellants had wilfully suppressed material facts.

Conclusion
The Tribunal upheld the Commissioner's order, confirming the demand of duty, penalties, and confiscation. The appeals filed by the appellants were rejected.