1985 (9) TMI 193 - AT - Central Excise

Summary

Issues Involved:
1. Classification and excisability of coke oven gas.
2. Applicability of Notification No. 179/77 regarding exemption from excise duty.
3. Validity of the demand for excise duty and the period of limitation.
4. Imposition and quantum of penalty under Rule 173Q of the Central Excise Rules, 1944.

Detailed Analysis:

1. Classification and Excisability of Coke Oven Gas:
The appellant, M/s. Tata Iron & Steel Company Ltd., Jamshedpur, argued that coke oven gas was a by-product and not the result of a manufacturing activity. They contended that it was not known in the market as coke oven gas and was mostly used within their own factory. However, the Revenue authorities countered that the coke oven gas underwent various processes, including the use of electric power for purification and separation of other products, making it a manufactured product under Section 2(f) of the Central Excises and Salt Act, 1944. The Tribunal upheld the Revenue's view, stating that all processes from the coke oven stage till the gas is ready for delivery are incidental or ancillary to the manufacture of the final product, making the coke oven gas excisable under Tariff Item 68.

2. Applicability of Notification No. 179/77:
The appellant claimed exemption from excise duty under Notification No. 179/77, arguing that coke oven gas was manufactured without the aid of power. However, the Tribunal found that electricity was used at various stages of the manufacturing process, including primary coolers, deep coolers, and the refrigeration plant. Therefore, the appellant was not entitled to the benefit of the said notification.

3. Validity of the Demand for Excise Duty and the Period of Limitation:
The appellant argued that the demand was time-barred under Section 11A of the Central Excises and Salt Act, 1944, as it was raised after six months from the date of cause of action. The Tribunal observed that the show cause notice issued by the Revenue did not mention the demand for duty, which is a statutory requirement under Rule 10 of the Central Excise Rules, 1944. Consequently, the demand notices issued separately were invalid. The Tribunal also noted that the appellant had filed classification lists claiming exemption, which were initially accepted by the Revenue authorities, indicating no suppression of facts or clandestine removal. Thus, the six-month period of limitation was applicable, and the demand from 1-3-1975 to 19-3-1979 was quashed as time-barred.

4. Imposition and Quantum of Penalty:
The Tribunal found that the appellant should have paid the excise duty voluntarily after the Revenue authorities rejected their claim of exemption in subsequent classification lists. However, the penalty of Rs. 6 lakhs imposed by the Collector of Central Excise was deemed highly excessive. The Tribunal emphasized the principle that punishment must be proportionate to the offense and reduced the penalty to Rs. 50,000, considering the gravity of the offense and the absence of clandestine removal.

Conclusion:
The Tribunal held that coke oven gas is excisable under Tariff Item 68 and not eligible for exemption under Notification No. 179/77 due to the use of electric power in its manufacturing process. The demand for excise duty was quashed due to the absence of a proper show cause notice and the applicability of the six-month limitation period. The penalty was reduced from Rs. 6 lakhs to Rs. 50,000, making the appeal partly accepted.