1995 (7) TMI 166 - AT - Central Excise

Summary

Issues Involved:
1. Classification and dutiability of petroleum jelly as an intermediate product in the manufacture of Boroline.
2. Marketability and excisability of the intermediate product.
3. Invocation of the extended period of limitation under Section 11A for demand of duty.
4. Request for re-testing of the intermediate product.
5. Allegation of wilful suppression and intent to evade duty.

Detailed Analysis:

1. Classification and Dutiability of Petroleum Jelly:

The appellant, M/s. G.D. Pharmaceuticals Ltd., was held by the Collector of Central Excise to have manufactured petroleum jelly used captively in the manufacture of Boroline without paying the required duty. The appellant argued that the intermediate product in the hot liquid stage is not petroleum jelly as it is not marketable and does not meet the criteria stipulated under Heading 27.12 of the Central Excise Tariff. The process described involves melting various types of paraffin, microcrystalline wax, and lanolin, which do not solely constitute petroleum jelly, as it must be composed only of hydrocarbons. The appellant requested a re-test to confirm the product's composition, which was ignored.

2. Marketability and Excisability of the Intermediate Product:

The appellant contended that the intermediate product is not marketable in its hot liquid form and does not meet the specifications of petroleum jelly as described in various technical dictionaries and the Explanatory Notes to the HSN. The Departmental Representative argued that the product need not be in gel form to be classified as petroleum jelly and relied on the Calcutta High Court judgment in Bata Shoe Co. v. Union of India. However, the tribunal noted that the product must conform to specific characteristics such as congealing point and cone penetration, which were not demonstrated by the test report.

3. Invocation of the Extended Period of Limitation:

The appellant claimed that the demand was barred by limitation, citing that the Sector Officer was informed in August 1982 of the raw materials and manufacturing process. The tribunal observed that the exceedingly brief description provided by the appellant was insufficient to conclude the emergence of an intermediate product. The tribunal distinguished the present case from the Supreme Court decision in Padmini Products, noting that the failure to declare the manufacture of petroleum jelly indicated an intent to evade duty, justifying the invocation of the extended period under Section 11A.

4. Request for Re-testing of the Intermediate Product:

The appellant's request for re-testing the sample at the Indian Institute of Petroleum was ignored. The tribunal highlighted that the provision for re-test exists to address grievances regarding test results. The appellant's request was reasonable and should have been considered, especially since the test report was the sole basis for the demand. The failure to re-test the sample vitiated the Collector's Order.

5. Allegation of Wilful Suppression and Intent to Evade Duty:

The tribunal noted that the appellant had declared the final product Boroline and its ingredients, and the process of manufacture was within the Department's knowledge. The allegation of wilful suppression and intent to evade duty was not substantiated by the Department. The tribunal emphasized that the burden of proving suppression lies with the Department, which had not been discharged.

Judgment:

The tribunal allowed the appeal by way of remand, directing the Collector to re-test the sample to determine whether the appellant manufactures petroleum jelly as chemically known. The Collector was instructed to adjudicate the case afresh, providing the appellant an opportunity to rebut the test report and argue its case. The majority opinion favored remand for re-examination of the classification, marketability, and excisability of the intermediate product, while the Vice President dissented, accepting the appeal outright due to the Department's failure to establish its case and the lack of evidence of suppression.

Conclusion:

The appeal was accepted by way of remand, with directions for fresh adjudication and re-testing to conclusively determine the classification and dutiability of the intermediate product. The tribunal emphasized the need for fair consideration of the appellant's grievances and the Department's burden to prove allegations of suppression and intent to evade duty.