1996 (5) TMI 265 - AT - Central Excise

Issues Involved:
1. Excise duty demand on carbon dioxide (CO2) produced as a by-product during beer manufacturing.
2. Classification of CO2 under the Central Excise Tariff Act.
3. Applicability of ISI standards to CO2 for excise duty purposes.
4. Invocation of the extended period for duty demand under Section 11A of the Central Excises and Salt Act, 1944.
5. Allegations of suppression of facts by the appellants.
6. Eligibility for exemption from payment of duty on CO2.
7. Imposition of penalty under Rule 173Q of Central Excise Rules, 1944.

Detailed Analysis:

1. Excise Duty Demand on CO2:
The appeals were against the order demanding duty on CO2 produced as a by-product during beer manufacturing, for the period from 21-9-1992 to 28-2-1993. The lower authority concluded that CO2, even as a by-product, was an excisable commodity under S.H. 2811.10 of the Central Excise Tariff Act, 1985, and its excisability was not affected by its by-product status or non-conformance to ISI standards.

2. Classification of CO2:
The appellants argued that CO2 produced did not conform to ISI standards and should not be classified under the excisable category. However, the lower authority noted that the tariff sub-heading 2811.10 did not specify purity requirements or ISI specifications. The duty on non-ISI conforming CO2 was fully exempted only if used in a bottling plant where the liquefied or solidified CO2 was cleared on payment of duty.

3. Applicability of ISI Standards:
The lower authority ruled that the non-conformance to ISI standards did not affect the excisability of CO2. The relevant tariff heading did not mention any purity requirements, and the exemption notifications did not apply to CO2 used in the manufacture of beverages or aerated water.

4. Extended Period for Duty Demand:
The proviso to Section 11A (1) of the Central Excises and Salt Act, 1944, was invoked for demanding duty for an extended period of five years. The authority justified this by stating that the manufacture and use of CO2 had not been intimated to the Department, thus invoking the extended period was in order.

5. Allegations of Suppression of Facts:
The appellants contended that they had been transparent about their CO2 production and usage, having regularly submitted returns and correspondences with the Department. The Tribunal observed that the issue had been under dispute since the early 1980s, and the appellants had been in regular communication with the Department, thus there was no suppression of facts. The authorities had ample information but did not act on it for years.

6. Eligibility for Exemption:
The appellants claimed exemption under various notifications, arguing that CO2 used in their factory did not meet marketable standards and was not purified or liquefied. The Tribunal noted that the appellants had been under a bona fide belief that they were not required to pay duty, supported by the lack of demand from the authorities and the ongoing correspondence.

7. Imposition of Penalty:
The Tribunal found no grounds for imposing a penalty under Rule 173Q of Central Excise Rules, 1944, as the appellants had not suppressed facts and had been in regular communication with the Department. The demand for duty beyond six months was set aside, and the penalty was annulled.

Conclusion:
The Tribunal concluded that the CO2 produced by the appellants was excisable under tariff heading 2811.10. However, the demand for duty beyond six months was barred by limitation due to the lack of suppression of facts by the appellants. The penalty imposed was also set aside. The appeals were allowed in these terms.

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