2010 (7) TMI 169 - HC - Central Excise

Demand Limitation - the respondent-assessee is engaged in manufacture of various toilet preparations such as after-shave lotion, deo-spray, mouthwash, skin creams, shampoos, etc. One of the main ingredients used in the manufacture of various items is Extra Natural Alcohol (ENA). The respondent procures ENA from the local market on payment of duty, to which Di-ethyl Phthalate (DEP) is added so as to denature it and render the same unfit for human consumption. The officers of DGCEI visited the factory of the respondent on 29.8.2001 and found that the addition of DEP to ENA results in the manufacture of an intermediate product i.e. Di-ethyl Alcohol, which is a specified product liable to central excise duty under chapter sub-heading 2204.10 of the First Schedule to the Central Excise Tariff Act, 1985. Pursuant to investigation, show cause notice came to be issued to the respondent for discharging the duty burden in respect of Denatured Ethyl Alcohol. The said proceedings culminated into an order dated 30.4.2003 made by the Commissioner confirming duty demand of Rs.19,23,896/- and imposing penalty of identical amount. Separate penalty was also imposed on the Managing Director. Tribunal held that failure to declare addition of DEP to ENA not amounted to suppression and extended period not invokable and matter remanded for considering demand under normal period. Held that- impugned Tribunal order sustainable.

Summary

Issues:
- Whether Denatured Ethyl Alcohol used in the manufacture of cosmetics is chargeable to excise duty?
- Whether the Tribunal erred in not justifying the invocation of a larger period by the Department?
- Whether the Tribunal erred in remanding the case back to the adjudicating authority with adverse findings against the Department?

Analysis:
1. Chargeability of Denatured Ethyl Alcohol to Excise Duty:
The respondent, engaged in manufacturing cosmetics, used Extra Natural Alcohol (ENA) denatured with Di-ethyl Phthalate (DEP). The Department alleged that this resulted in the manufacture of Di-ethyl Alcohol (DEA) liable for excise duty. The Commissioner confirmed duty demand and penalties, which the Tribunal later remanded for re-examination. The Tribunal found that the denaturing process was a statutory requirement under the Medicinal & Toilet Preparations Act, and the respondent's belief that excise duty was not applicable was reasonable. The Tribunal held that the Department was unjustified in invoking a larger period of limitation, as the non-disclosure of adding DEP to ENA did not constitute suppression.

2. Error in Not Justifying Larger Period of Limitation:
The Department argued that the respondent's failure to declare the manufacture of Denatured Ethyl Alcohol amounted to suppression, justifying the invocation of a larger period of limitation. However, the Tribunal disagreed, stating that the process was known to both parties and did not constitute suppression. The Tribunal emphasized that the denaturing process was a statutory requirement, and the Department should have been aware of it. Therefore, the Tribunal remanded the case for consideration within the limitation period.

3. Error in Remanding the Case with Adverse Findings:
The Commissioner reinstated the earlier order without proper inquiry, leading to the Tribunal remanding the case for re-examination. The Tribunal found the Commissioner's actions against the principles of natural justice, as the Assistant Commissioner's report was not supplied to the respondent. The Tribunal directed the Commissioner to re-examine the case, provide the report, allow cross-examination, and ensure a fair hearing for the respondent. The Tribunal's decision was based on the lack of proper inquiry and the violation of natural justice principles.

In conclusion, the Tribunal's decision was upheld as legally sound, dismissing the appeal and finding no substantial question of law arising from the Tribunal's order. The judgment focused on the statutory requirements, the Department's knowledge, the principles of natural justice, and the need for a fair hearing in excise duty matters.