2003 (12) TMI 141 - AT - Central Excise

Summary

Issues Involved:
1. Excisability and dutiability of liquid sodium silicate.
2. Marketability of liquid sodium silicate.
3. Invocation of the larger period for demand.
4. Eligibility for Modvat credit.
5. Applicability of penalties under Section 11AC of the Central Excise Act.

Detailed Analysis:

1. Excisability and Dutiability of Liquid Sodium Silicate:
The core issue was whether the conversion of solid sodium silicate into liquid sodium silicate amounted to "manufacture" under Central Excise law. The Tribunal noted that the Department initially clarified that this conversion did not constitute manufacture. However, after the introduction of Note 10 to Chapter 28 of the Central Excise Tariff, which states that "labelling or relabelling of containers and repacking from bulk packs to retail packs or the adoption of any other treatment to render the product marketable to the consumer, shall amount to manufacture," the Department contended that the process resulted in a new, marketable product liable to duty.

2. Marketability of Liquid Sodium Silicate:
The appellants argued that the conversion process did not produce a marketable commodity. They asserted that liquid sodium silicate was not repacked from bulk to retail packs and could not be stored for long periods. The Tribunal emphasized that the Department failed to provide evidence of the marketability of liquid sodium silicate. The Additional Commissioner had noted that only solid sodium silicate was marketed, and liquid sodium silicate could not be stored for long, thus supporting the appellants' claim that the product was not marketable to consumers.

3. Invocation of the Larger Period for Demand:
The appellants contended that they held a bona fide belief, based on the Department's initial clarification, that their process did not result in an excisable product. Therefore, they argued that the larger period for demand was not invocable. The Tribunal agreed, noting that the appellants' belief was justified given the earlier departmental clarification and the lack of evidence from the Department proving the marketability of the liquid sodium silicate.

4. Eligibility for Modvat Credit:
The appellants argued that even if liquid sodium silicate were considered marketable, they would be entitled to Modvat credit. They cited several judgments to support their claim, including the Tribunal's decision in "Chamundi Steel Rerolling Mills v. CCE, Bangalore" and the Supreme Court's decision in "Formica India Division v. CCE." The Tribunal acknowledged that if the demand were to be confirmed, the appellants would indeed be eligible for Modvat credit.

5. Applicability of Penalties under Section 11AC of the Central Excise Act:
The appellants argued that penalties under Section 11AC were not applicable, citing various judgments. They maintained that the maximum penalty could not be imposed as it depended on the totality of the case's facts and circumstances. The Tribunal agreed, noting that the Department had not discharged its burden of proof regarding the marketability of the liquid sodium silicate, and the appellants' bona fide belief further justified the non-applicability of penalties.

Conclusion:
The Tribunal concluded that the Department failed to prove that the conversion of solid sodium silicate into liquid sodium silicate resulted in a marketable product. The appellants' bona fide belief, supported by the Department's initial clarification, justified their actions. Consequently, the larger period for demand was not invocable, and the appellants were entitled to Modvat credit. The penalties under Section 11AC were also deemed inapplicable. The appeals were allowed, and the impugned orders were set aside, granting consequential relief to the appellants.