1991 (9) TMI 171 - AT - Central Excise

Issues Involved:
1. Classification and duty demand for Acetaldehyde under Item 68 CET.
2. Applicability of Notification 118/75 for captive consumption exemption.
3. Valuation of Acetaldehyde under Rule 6(b)(i) vs. Rule 6(b)(ii) of Valuation Rules.
4. Invoking the longer period for demanding duty under Section 11A.
5. Imposition of penalty.

Detailed Analysis:

1. Classification and Duty Demand for Acetaldehyde:
The Collector of Central Excise, Kanpur, classified Acetaldehyde under Item 68 CET and demanded a duty of Rs. 2,33,338.87 for the period from 16-3-1978 to 30-9-1980. The appellants argued that Acetaldehyde was a by-product and not excisable as it was controlled by the State Excise Authority. They contended that there was no suppression of production or clandestine removal, as the goods were cleared under State Excise gate passes. The Tribunal found that the appellants had a bona fide belief that the goods were not excisable, supported by the fact that their factory was regularly inspected by Central Excise officers.

2. Applicability of Notification 118/75 for Captive Consumption Exemption:
The appellants claimed exemption under Notification 118/75 for captive consumption. However, the Collector (Appeals) and the Tribunal held that the exemption was not applicable as the Acetaldehyde was not used in the manufacture of other articles within the same factory but was cleared to other distilleries. Therefore, the conditions for exemption under Notification 118/75 were not satisfied.

3. Valuation of Acetaldehyde under Rule 6(b)(i) vs. Rule 6(b)(ii) of Valuation Rules:
The appellants argued that the valuation should be determined under Rule 6(b)(ii) based on cost data, as their product was unique and not comparable to others. The Department applied Rule 6(b)(i), using the value of comparable goods from other manufacturers. The Tribunal upheld the application of Rule 6(b)(i), noting that reasonable adjustments for differences in purity should be made. The Collector (Appeals) had already directed such adjustments, and the Tribunal found this approach correct in law.

4. Invoking the Longer Period for Demanding Duty under Section 11A:
The Department invoked the extended period under Section 11A, alleging suppression of facts. The appellants contended that there was no deliberate withholding of information. The Tribunal agreed with the appellants, citing the Supreme Court's decision in Padmini Products, which held that mere failure to disclose does not constitute suppression of facts. The Tribunal found that the appellants' belief that the goods were not excisable was reasonable, given the regular inspections by Central Excise officers and the issuance of gate passes by the State Excise Department. Consequently, the demand for duty was restricted to six months from the date of the show cause notice.

5. Imposition of Penalty:
The Collector imposed a penalty of Rs. 2 lakh on the appellants. Given the Tribunal's findings on the limitation aspect and the bona fide belief of the appellants, the penalty was reduced to Rs. 25,000.

Conclusion:
The Tribunal concluded that the longer period for demanding duty was not available to the Department and restricted the duty demand to six months. The exemption under Notification 118/75 was not applicable. The valuation under Rule 6(b)(i) was upheld, with necessary adjustments for purity differences. The penalty imposed was reduced. The appeals were disposed of accordingly.

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