1989 (9) TMI 227 - AT - Central Excise

Issues Involved:
1. Validity of the demand for duty and penalty imposed.
2. Alleged suppression of production and clearance of goods.
3. Classification and excisability of Mahatal RT 75.
4. Exemption eligibility for petroleum jelly.
5. Deduction of the value of drums and barrels from the assessable value.
6. Time-bar and limitation period for the demand.

Detailed Analysis:

1. Validity of the Demand for Duty and Penalty Imposed:
The appellants challenged the order-in-original dated 27-10-1987, wherein the Collector of Central Excise, Madras confirmed a demand of Rs. 3,69,471.38 and imposed a penalty of Rs. 1,52,000/-. The demand and penalty were invoked under Rule 9(2) read with the proviso to Section 11A(i) of the Central Excises & Salt Act, 1944, and Rule 173Q of Central Excise Rules, 1944.

2. Alleged Suppression of Production and Clearance of Goods:
The appellants argued that they had taken out a Central Excise license L-4 No. 1/71 in 1971 and surrendered it in December 1979 as their products were exempted. They had not filed any declaration under Notification No. 111/78 for availing the exemption from licensing control and had not paid any duty from 1980 onwards. The Collector's claim of suppression was contested by the appellants, who provided evidence of regular inspections and communications with the Department, indicating no suppression.

3. Classification and Excisability of Mahatal RT 75:
The appellants contended that Mahatal RT 75, a mixture of furnace oil, pine oil, and resin, continued to be furnace oil even after distillation and manual mixing. They argued that the process did not constitute manufacturing as there was no change in the name, character, or use of the furnace oil. The Collector rejected this claim, stating that the product was synthetic pine tar and not merely furnace oil. However, the Tribunal found that the Test Certificate provided by the appellants was not properly considered and remanded the matter for fresh testing and determination.

4. Exemption Eligibility for Petroleum Jelly:
The appellants claimed that petroleum jelly was exempted under Notifications No. 104/82 and No. 234/82, which exempted bulk drugs. The Collector rejected this claim, stating that petroleum jelly was a chemical product used in the manufacture of V belts and tyres. The Tribunal referred to the decision in Oil Dale Trading (P) Ltd. v. Collector of Customs, Calcutta, which held that there was no need for a drug license for the exemption of petroleum jelly under Item 68. Thus, the appellants' claim for exemption was upheld.

5. Deduction of the Value of Drums and Barrels from the Assessable Value:
The appellants sought deduction of the value of durable and returnable drums and barrels used for packing their products. The Collector rejected this claim, stating that the drums and barrels were not returned to the appellants. The Tribunal remanded this issue for reconsideration, directing the Collector to allow the appellants to provide evidence of the durability and returnability of the containers.

6. Time-bar and Limitation Period for the Demand:
The appellants argued that the demand for duty for the year 1981-82 was beyond the period of five years and hence not enforceable. They also contended that no duty could be levied for clearances made on and from 27-2-1985, as the Central Excise officers had visited the factory and gathered all relevant particulars. The Tribunal found that the Department had been aware of the appellants' activities and there was no suppression of production. Therefore, the demand was limited to six months prior to the date of the show cause notice, i.e., from 26-9-1986.

Conclusion:
The Tribunal remanded the matter to the Collector for fresh consideration on the classification and excisability of Mahatal RT 75, the deduction of the value of drums and barrels, and the redetermination of the demand for duty for a period of six months prior to the date of the show cause notice. The appeal was allowed by remand for de novo consideration.

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