1996 (7) TMI 232 - AT - Central Excise

Summary

Issues Involved:
1. Classification and exemption status of white/yellow phosphorus under Notification No. 43/88.
2. Timeliness of the show cause notices and the applicability of the extended period for demand recovery.
3. Validity of the Revenue's appeal against the Collector (Appeals) decision.

Detailed Analysis:

1. Classification and Exemption Status of White/Yellow Phosphorus:
The primary issue revolves around whether white/yellow phosphorus qualifies for exemption under Notification No. 43/88. The appellants manufactured white/yellow phosphorus and cleared it to their other unit for use in manufacturing pesticides/insecticides intermediates without paying duty. The department contended that yellow phosphorus was not mentioned in the Notification, thus not eligible for exemption. However, the Assistant Collector and the Collector (Appeals) concluded that white and yellow phosphorus are essentially the same, with the latter being an impure form of the former. This conclusion was supported by references to technical literature, including the "Merck Index" and "Hawley's Chemical Dictionary." Consequently, both authorities upheld that white/yellow phosphorus falls under the exemption provided by Notification No. 43/88.

2. Timeliness of the Show Cause Notices and Applicability of the Extended Period:
The show cause notices dated 2-7-1991 and 11-9-1991 covered periods beyond six months, specifically from 1-12-1990 to 31-3-1991. The appellants argued that the demands were time-barred as the notices did not allege any wilful suppression of facts, fraud, or collusion, which are necessary to invoke the extended period under Section 11A of the Central Excises and Salt Act, 1944. The Collector (Appeals) and the Tribunal found merit in this argument, noting that the department was aware of the clearances made under Chapter X procedure and thus could not justify the extended period for demand recovery.

3. Validity of the Revenue's Appeal Against the Collector (Appeals) Decision:
The Revenue's appeal contended that white phosphorus was used in manufacturing phosphorus tri-chloride, an intermediate product, rather than directly in pesticides/insecticides, and thus did not meet the conditions of Notification No. 43/88. The Tribunal, however, emphasized that the show cause notice's scope was limited to the distinction between white and yellow phosphorus. The Tribunal further noted that the emergence of intermediate products does not negate the exemption if the final products fall under the specified tariff heading (3808.10). The Tribunal cited several judgments, including "Shalimar Paints Ltd. v. Collector of Central Excise" and "Tata Oil Mills Co. Ltd. v. Collector of Central Excise," supporting the view that exemptions should not be denied due to intermediate stages in the manufacturing process.

Conclusion:
The Tribunal upheld the decisions of the Assistant Collector and the Collector (Appeals), confirming that white/yellow phosphorus qualifies for exemption under Notification No. 43/88. The Tribunal also agreed that the demands were time-barred and dismissed the Revenue's appeal, emphasizing that the Notification should be interpreted to fulfill its intended purpose and not rendered ineffective. The appeal was thus rejected in its entirety.