2000 (3) TMI 83 - AT - Central Excise

Summary

Issues Involved:
1. Whether the process of conversion of straight grade bitumen into air blown grade bitumen amounts to manufacture.
2. Classification and duty applicability on blown grade bitumen.
3. Invocation of extended period of limitation for demanding duty.
4. Imposition of penalty and confiscation of property.
5. Applicability of small-scale exemption under Notification No. 175/86-CE.

Detailed Analysis:

1. Whether the process of conversion of straight grade bitumen into air blown grade bitumen amounts to manufacture:
The primary issue in these appeals is whether the conversion of straight grade bitumen into blown grade bitumen through the blowing process constitutes "manufacture" under the Central Excise Act. The Tribunal examined the process, which involves heating and blowing air into straight grade bitumen to raise its softening point and penetration, making it suitable for different applications. The Tribunal concluded that this process does not result in a new commercial commodity with a distinct name, character, or use. The product remains bitumen, albeit with improved quality. The Tribunal relied on the Explanatory Notes of the Harmonized System of Nomenclature (HSN) and previous judicial decisions to support this view. The HSN notes indicate that both unblown and blown bitumen fall under the same heading, and mere improvement in quality does not constitute manufacture. The Tribunal also referred to the Supreme Court's decision in Tungabhadra Industries Ltd. v. Commissioner of Sales Tax, which held that hydrogenated oil remains the same commodity despite changes in its physical properties.

2. Classification and duty applicability on blown grade bitumen:
The Tribunal noted that the Central Excise Tariff does not differentiate between straight grade and blown grade bitumen based on their chemical properties but rather on their mode of packing. The relevant tariff headings (2713.21 and 2713.22) classify bitumen based on whether it is packed in drums or in bulk. The Tribunal observed that the Central Board of Excise and Customs (CBEC) had issued several clarifications stating that blown grade bitumen made from duty-paid straight grade bitumen is not liable to additional duty. These clarifications were binding on the department, and the Tribunal held that the process of converting straight grade bitumen into blown grade bitumen does not attract excise duty.

3. Invocation of extended period of limitation for demanding duty:
The Tribunal addressed the issue of whether the extended period of limitation under Section 11A of the Central Excise Act could be invoked for demanding duty. The Tribunal found that the appellants had a bona fide belief, based on CBEC's clarifications and trade notices, that their product was not excisable. Therefore, there was no suppression of facts or willful misstatement on their part. The Tribunal cited the Supreme Court's decision in Cosmic Dye Chemical v. CCE, which held that suppression must be willful to invoke the extended period of limitation. Consequently, the Tribunal ruled that the demand was time-barred.

4. Imposition of penalty and confiscation of property:
The Tribunal examined the penalties imposed on the appellants and the confiscation of their property. Given that the process of converting straight grade bitumen into blown grade bitumen did not amount to manufacture, the Tribunal found that the penalties and confiscation orders were not justified. The Tribunal referred to the Supreme Court's decision in CCE v. HMM Ltd., which held that penalties cannot be imposed if the demand for duty is not sustainable. Accordingly, the Tribunal set aside the penalties and confiscation orders.

5. Applicability of small-scale exemption under Notification No. 175/86-CE:
In one of the appeals, the Revenue challenged the applicability of the small-scale exemption under Notification No. 175/86-CE. The Tribunal noted that the Collector (Appeals) had extended the benefit of this notification to the appellants if they satisfied the conditions enumerated in the notification. Since the Tribunal had already concluded that the process did not amount to manufacture, the question of exemption became moot. The Tribunal dismissed the Revenue's appeal on this ground.

Conclusion:
The Tribunal allowed all the appeals filed by the assessees, holding that the process of converting straight grade bitumen into blown grade bitumen does not amount to manufacture. Consequently, the demands for duty, penalties, and confiscation orders were set aside. The appeal filed by the Revenue was dismissed as infructuous. The Tribunal did not address other issues such as the invocation of the extended period of limitation, availability of small-scale exemption, and imposition of penalties, as the primary issue of manufacture was decided in favor of the assessees.