2005 (3) TMI 239 - AT - Central Excise

Summary

Issues Involved:
1. Eligibility for the benefit of Notification No. 8/97-C.E.
2. Classification of imported chemicals as consumables or raw materials.
3. Applicability of the extended period of limitation for the demand of duty.
4. Imposition of penalty and interest under Section 11AB of the Central Excise Act.

Issue-wise Detailed Analysis:

1. Eligibility for the Benefit of Notification No. 8/97-C.E.:
The primary issue in this appeal is whether M/s. Alps Industries Ltd., a 100% Export Oriented Undertaking (EOU), is entitled to the benefit of Notification No. 8/97-C.E., dated 1-3-97, for excisable goods cleared into the Domestic Tariff Area (DTA). This notification exempts goods from payment of excess excise duty, provided they are produced or manufactured wholly from raw materials produced or manufactured in India. The appellants argued that the chemicals they imported were consumables, not raw materials, and thus did not violate the conditions of the notification. They relied on Circular No. 389/22/98-CX., dated 5-5-1998, which clarified that imported consumables do not disqualify an EOU from the benefits of the notification. However, the tribunal held that the use of imported chemicals, which enhance the finishing utility and value of the end product, qualifies them as raw materials, thereby disqualifying the appellants from the benefits of Notification No. 8/97-C.E.

2. Classification of Imported Chemicals as Consumables or Raw Materials:
The appellants contended that the imported chemicals (lefasol, indigo powder, PVA, Discofix DBA, Ceraperm, and resorcinol) were consumables, substantially consumed during the manufacturing process, and thus should not be considered raw materials. They cited the Supreme Court's decision in Coastal Chemicals Ltd. v. CTO, Andhra Pradesh, which defined consumables as materials used as inputs in the manufacturing process but not identifiable in the final product. However, the tribunal referred to the Supreme Court's judgment in CCE v. Ballarpur Industries Ltd., which held that materials essential for the manufacturing process, even if consumed or burnt up, qualify as raw materials. Applying this test, the tribunal concluded that the imported chemicals were raw materials, as the end product's utility and value depended on their use.

3. Applicability of the Extended Period of Limitation for the Demand of Duty:
The appellants argued that the extended period of limitation under Section 11A of the Central Excise Act was not applicable, as there was no suppression of facts, fraud, or willful misstatement. They claimed that the department was aware of their activities, as the imported consumables were rewarehoused and issued for production under the department's supervision. The tribunal agreed, noting that the appellants regularly filed declarations claiming the benefit of Notification No. 8/97, and the department's own circular dated 5-5-1998 supported their understanding. The tribunal found that the department's lack of clarity on the interpretation of "raw materials" indicated no deliberate suppression by the appellants. Consequently, the extended period of limitation was not invocable, and the demand was upheld only for the normal period specified in Section 11A(1).

4. Imposition of Penalty and Interest under Section 11AB of the Central Excise Act:
The tribunal set aside the penalty imposed on the appellants, as the issue involved was one of interpretation, and there was no suppression of facts. As a result, interest under Section 11AB was not chargeable prior to 11-5-2001, since it was demandable at that time only in cases of fraud, collusion, or willful misstatement. However, interest was chargeable from 12-5-2001 onwards, following the substitution of Section 11AB(1) by the Finance Act, 2001, which allowed for interest to be charged without reference to fraud or suppression.

Conclusion:
The appeal was disposed of with the tribunal holding that the benefit of Notification No. 8/97-C.E. was not available to the goods manufactured and cleared by the appellants into the Domestic Tariff Area. The demand of duty was upheld only for the normal period, and the price was to be treated as cum-duty price. The penalty was set aside, and interest was chargeable from 12-5-2001 onwards.