1980 (10) TMI 64 - HC - Central Excise

Issues Involved:
1. Levy of excise duty on aqueous solution of phenolic resin.
2. Classification of the product under Item No. 15-A of the First Schedule to the Central Excises and Salt Act, 1944.
3. Determination of resin content in the solution for excise duty purposes.
4. Validity of the orders passed by the excise authorities and the Central Government.

Detailed Analysis:

1. Levy of Excise Duty on Aqueous Solution of Phenolic Resin:
The primary issue in this writ petition is the challenge to the levy of excise duty on the aqueous solution of phenolic resin manufactured by the petitioner. The petitioner contends that the product is a solution of resin and not resin itself, and therefore, should not be subjected to excise duty under Item No. 15-A.

2. Classification under Item No. 15-A:
Item No. 15-A of the First Schedule to the Central Excises and Salt Act, 1944, provides for the levy of excise duty on artificial and synthetic resin. The relevant entry includes various forms of resin, such as solid, liquid, pasty, powder, granules, or flakes. The petitioner argues that their product is not resin but a mixture of resin and water, and thus, does not fall under this item.

3. Determination of Resin Content:
The excise authorities initially assessed duty based on the resin content, considering it to be 45% of the solution. However, after a chemical test, they revised the assessment to charge duty on the entire solution. The petitioner provided reports from the Central Public Health Engineering Research Institute, Bhopal, indicating that the resin content was around 41.04% to 43.3%. The petitioner contends that it is possible to determine the resin content and that duty should be levied only on the resin content, not the entire solution.

4. Validity of Orders by Excise Authorities and Central Government:
The petitioner challenged the orders passed by the excise authorities and the Central Government, arguing that the product is not resin and should not be subjected to excise duty under Item No. 15-A. The court examined the process of manufacturing phenolic resin, which involves mixing phenol and formaldehyde in water, followed by subsequent processes to separate and solidify the resin. The court concluded that the manufacturing process was stopped at an intermediate stage, resulting in a solution of resin rather than resin itself.

The court referred to various textbooks and expert affidavits to support the contention that a solution of resin is not the same as resin in liquid form. The court also noted that the excise authorities initially recognized the distinction between resin and solution of resin by provisionally levying duty on the solid content.

The court held that the product manufactured by the petitioner is an intermediary product and not a fully manufactured resin in liquid form, and thus, not covered by Item No. 15-A. Consequently, the court quashed the orders dated 27th May 1972, 30th July 1969, 30th April 1969, and 10th December 1968, and directed the respondents to refund the excise duty of Rs. 8,70,710.40 to the petitioner within three months. The petitioner was also awarded costs of Rs. 550.

Conclusion:
The court allowed the writ petition, concluding that the aqueous solution of phenolic resin manufactured by the petitioner is not covered by Item No. 15-A of the First Schedule to the Central Excises and Salt Act, 1944, and quashed the impugned orders, directing a refund of the excise duty paid.

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