2005 (12) TMI 199 - AT - Central Excise

Duty demand - EXIM Policy - 100% EOU - DTA clearance - Payment of concessional rate of duty - Notification 23/03-C.E. - manufacture and export of Phthalic Anhydride - interest and penalty - HELD THAT - It is an established practice and extensive instructions issued on mixed tank components of liquids and the principle of first in first out is well established to be applied in such cases. The goods cannot be therefore established to have been manufactured from imported Ortho-xylene only. This exercise should have been done by the Commissioner. Instead of denying the benefit of the exemption based on his own fears and conjectures. The procedure prescribed and the law on the subject of treatment to be offered in case of such mixed raw material is very clear. It is not revenue s case that the appellants have mixed ortho-xylene procured from India and abroad. The Commissioner s order impugned before us therefore on this account is emerging on baseless material cannot be upheld. DGTD vide letter have listed Vanadium Pentoxide as a catalystic agent. The Commissioner s reliance on EXIM Policy definition thereof is not called for and be a cause to upset the position of Vanadium Pentoxide to be a catalyst. Catalysts are covered as capital goods of Exim Policy and therefore when use of such capital goods will not impugned eligibility to the benefit of notification as applicable to DTA clearances in this case. It is found that the benefit of notification cannot be denied by the use of Vanadium Pentoxide to the imported catalyst and no material exist to positively conclude that Phthalic Anhydride that was cleared under claim of the said notification was made by use of ortho-xylene which onus is vested on the department and has not been discharged. The duty demands cannot be confirmed. Clearances made under Serial No. 3 to Notification cannot be impugned. Once duty demands cannot be confirmed and the clearances as effected cannot be impugned the penalties as imposed on the EOU along with interest demand u/s 11AB penalty under Rule 26 on the other appellant herein cannot be sustained and are therefore required to be set aside. Thus these appeals are allowed after setting aside the order on duty demands interest and penalties.

Issues Involved:
1. Eligibility for concessional rate of duty under Notification 23/03-C.E.
2. Definition and treatment of Vanadium Pentoxide as a raw material or catalyst.
3. Maintenance of separate records for indigenous and imported raw materials.
4. Validity of duty demands, penalties, and interest imposed by the Commissioner.

Issue-Wise Detailed Analysis:

1. Eligibility for Concessional Rate of Duty under Notification 23/03-C.E.:
The primary issue was whether IGPL could avail of the concessional rate of duty for goods cleared to the Domestic Tariff Area (DTA) under Notification 23/03-C.E., which stipulated that goods must be manufactured wholly from indigenous raw materials. The Commissioner denied this benefit, asserting that IGPL used imported Vanadium Pentoxide, an essential catalyst in the manufacturing process, thus disqualifying them from the exemption.

2. Definition and Treatment of Vanadium Pentoxide as a Raw Material or Catalyst:
The Commissioner classified Vanadium Pentoxide as a raw material, essential for the chemical process, thereby denying the benefit of the notification. However, the Tribunal found that Vanadium Pentoxide, used as a catalyst, does not equate to a raw material. The Tribunal cited several precedents, including the Supreme Court decision in the Ballarpur Industries Ltd. case, and the Tribunal's decisions in Amrit Vanaspati and Rashtriya Chemicals & Fertilizers Ltd., which established that catalysts are not raw materials. Therefore, the use of Vanadium Pentoxide should not bar IGPL from availing the concessional rate.

3. Maintenance of Separate Records for Indigenous and Imported Raw Materials:
The Commissioner argued that IGPL could not maintain separate records for indigenous and imported ortho-xylene due to the continuous nature of the manufacturing process. The Tribunal found this reasoning flawed, noting that the law on mixed goods is well established. The Tribunal emphasized that the Commissioner should have examined the records and applied the principle of first-in-first-out for mixed raw materials. The Tribunal concluded that the Commissioner's findings were based on conjectures rather than concrete evidence.

4. Validity of Duty Demands, Penalties, and Interest Imposed by the Commissioner:
The Tribunal held that the duty demands, penalties, and interest imposed on IGPL and Shri J.K. Saboo were unsustainable. The Commissioner had relied on an incorrect interpretation of the Supreme Court's decision and failed to provide evidence that the goods cleared under the notification were manufactured using imported ortho-xylene. Consequently, the Tribunal set aside the duty demands, penalties, and interest.

Conclusion:
The Tribunal concluded that the use of Vanadium Pentoxide as a catalyst does not disqualify IGPL from availing the concessional rate under Notification 23/03-C.E. The Tribunal found that the Commissioner's findings were based on incorrect interpretations and conjectures. Therefore, the appeals were allowed, and the order on duty demands, interest, and penalties was set aside.

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