1990 (6) TMI 167 - AT - Central Excise

Issues Involved:
1. Duty demand on hydrochloric acid destroyed by the appellants.
2. Duty demand on chlorine gas used for manufacturing hydrochloric acid.
3. Applicability of Rule 49(1) of the Central Excise Rules.
4. Requirement of permission from the Collector for destruction of goods.
5. Verification of destruction of hydrochloric acid by the Assistant Collector.

Detailed Analysis:

1. Duty Demand on Hydrochloric Acid Destroyed:
The appellants manufactured caustic soda and obtained chlorine as a by-product, which was used to manufacture hydrochloric acid. Part of the hydrochloric acid was sold, and the rest was destroyed due to a lack of market demand. The destruction was carried out without obtaining permission from the proper officer as required by Rule 49(1) of the Central Excises & Salt Act, 1944. The authorities demanded duty on the hydrochloric acid destroyed.

The appellants argued that the destruction was necessary due to limited market demand in the backward region where their factory was located. Rule 49(1) stipulates that duty may not be demanded if goods are unfit for consumption or marketing, subject to conditions imposed by the Collector. The appellants did not apply for a waiver of duty, nor did they provide evidence that the goods were unfit for marketing. The Tribunal held that the hydrochloric acid destroyed was not eligible for the benefit under Rule 49(1) and upheld the duty demand.

2. Duty Demand on Chlorine Gas Used for Manufacturing Hydrochloric Acid:
The lower authorities demanded duty on chlorine gas used to manufacture hydrochloric acid that was destroyed. The appellants contended that the chlorine gas used was "wet chlorine," which was not marketable and hence not subject to duty. They cited a previous case and a government clarification to support their claim.

The Tribunal noted that if duty on hydrochloric acid is required to be paid, the chlorine gas used in its manufacture would be exempt under Notification No. 145/71. However, the Tribunal refrained from making a final decision on the excisability of wet chlorine due to a lack of evidence and expert opinion. The matter was left open for further examination by the lower authorities.

3. Applicability of Rule 49(1) of the Central Excise Rules:
Rule 49(1) defers the collection of duty on excisable goods until they are cleared for home consumption unless exempted or waived under specific conditions. The appellants did not comply with the conditions set out under Rule 49(1) for the destruction of goods, as they did not seek permission from the Collector. The Tribunal emphasized that the satisfaction of the Collector is a condition precedent for claiming the benefit under Rule 49(1).

4. Requirement of Permission from the Collector for Destruction of Goods:
The Tribunal highlighted that the appellants did not obtain permission from the Collector before destroying the hydrochloric acid, which is a prerequisite under Rule 49(1). The Tribunal held that failure to obtain such permission justified the duty demand. However, the Vice-President (Judicial) dissented, arguing that the destruction of hydrochloric acid should not attract duty merely due to the lack of permission. He suggested that at worst, the failure to obtain permission might entail a penalty, but no penalty was imposed.

5. Verification of Destruction of Hydrochloric Acid by the Assistant Collector:
The Vice-President (Judicial) proposed remanding the case to the Assistant Collector of Central Excise to verify the appellants' claim of destruction of hydrochloric acid. The demand for duty should be limited to the quantity of hydrochloric acid not proven to have been destroyed. The Assistant Collector should also examine whether the chlorine used in the manufacture of hydrochloric acid was in a commercially recognized form.

Majority Decision:
The President agreed with the Vice-President (Judicial) and remanded the case to the Assistant Collector with specific directions:
1. Verify the appellants' claim of destruction of hydrochloric acid.
2. Limit the duty demand to the quantity of hydrochloric acid not proven to have been destroyed.
3. Examine whether the chlorine used was in a commercially recognized form and determine its duty liability accordingly.

The appeal was remanded for further examination and verification by the Assistant Collector of Central Excise.

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