1994 (9) TMI 65 - SC - Central Excise

Whether the said liquid paraffin fell within T.I. 68 as the appellants urged or it fell under T.I. 8 as one Assistant Collector held or under T.I. 14E as another Asstt. Collector did? Held that - It is no one s case that the said liquid paraffin is a lubricating oil. The said liquid paraffin does not therefore fall outside T.I. 8 on this account. It is the case of the appellants that the said liquid paraffin is processed from spindle oil. The appellants contention that the said liquid paraffin is not a mineral oil cannot therefore be accepted. It may also be pointed out that no evidence in support of this contention has been adduced; in other words no evidence has been adduced to show that the said liquid paraffin has a chemical composition or derivation other than that mentioned in Explanation I of T.I. 8. Appeal is confirmed only insofar as it upholds the imposition of excise duty in the sum of Rs. 30, 877.04 for the period 1st February 1981 to 31st July 1981.

Summary

Issues Involved:
1. Classification of liquid paraffin for excise duty purposes.
2. Applicability of extended time limitation for excise duty recovery.
3. Correct classification under Tariff Items (T.I.) 8, 14E, or 68.
4. Liability for excise duty at two stages of manufacture and packing.

Detailed Analysis:

1. Classification of Liquid Paraffin for Excise Duty Purposes:
The appellants manufacture liquid paraffin I.P., which they supply to pharmaceutical industries as an intermediate in drug manufacturing. The appellants contended that the liquid paraffin should be classified under T.I. 68 and be exempt from excise duty as a drug intermediate. However, the Superintendent of Central Excise issued notices claiming that the liquid paraffin fell under T.I. 8 and was cleared without payment of excise duty, demanding recovery of excise duty and imposing penalties.

2. Applicability of Extended Time Limitation for Excise Duty Recovery:
The Assistant Collector of Central Excise, in his order dated 2nd December 1981, confirmed the demands for excise duty on the ground that the liquid paraffin was a mineral oil and became a medicine only after being marketed or labelled as such. The Collector (Appeals) and the Tribunal upheld this classification, applying the longer period of five years for recovery due to the appellants' misdeclaration and suppression of facts. However, the Supreme Court referred to the case of Collector of Central Excise v. Chemphar Drugs and Liniments, which requires more than mere inaction or failure to justify the extended period. The learned Additional Solicitor General did not contend that the appellants were guilty of fraud or collusion. Therefore, the demand for the period 19th June 1980 to 31st January 1981 was not sustainable.

3. Correct Classification under Tariff Items (T.I.) 8, 14E, or 68:
Initially, the Assistant Collector classified the liquid paraffin under T.I. 8, but later, based on the classification lists filed by the appellants, concluded that it should be classified under T.I. 14E due to the labelling showing the monogram of the assessee. The Collector (Appeals) upheld both classifications, stating that the product satisfied the specifications of T.I. 8 at the first stage and was liable for further duty under T.I. 14E after packing and labelling. The Tribunal agreed, stating that the use of a name on the drums was sufficient to classify the goods as patent and proprietary medicine. The Supreme Court found that the appellants were not earlier intimated about the dual-stage excise duty liability, leading to the conclusion that the demand under T.I. 14E must fall.

4. Liability for Excise Duty at Two Stages of Manufacture and Packing:
The Supreme Court examined whether the liquid paraffin was exigible to excise duty under T.I. 8 or T.I. 68. T.I. 8 describes refined diesel oils and vaporising oil with specific characteristics. The Deputy Chief Chemist confirmed that the liquid paraffin met the requirements of T.I. 8. The appellants argued that since the liquid paraffin was processed from spindle oil, which is excluded from T.I. 8, it should fall outside T.I. 8. However, the Court noted that the exclusion in T.I. 8 pertains to lubricating oils, and since liquid paraffin is not a lubricating oil, it does not fall outside T.I. 8. Additionally, no evidence was provided to support the contention that liquid paraffin is not a mineral oil.

Conclusion:
The Supreme Court confirmed the order under appeal only insofar as it upheld the imposition of excise duty in the sum of Rs. 30,877.04 for the period 1st February 1981 to 31st July 1981. The rest of the order was set aside, and the appeals were allowed accordingly. There was no order as to costs.