1997 (8) TMI 145 - AT - Central Excise

Summary

Issues Involved:
1. Eligibility for concessional rate of duty under Notification No. 75/84-C.E.
2. Interpretation of "allied materials" in the context of the Notification.
3. Applicability of Rule 196 of the Central Excise Rules, 1944.
4. Limitation period for raising demand.
5. Imposition of penalty under Rule 173Q.

Detailed Analysis:

1. Eligibility for Concessional Rate of Duty:
The appellants, M/s. Shalimar Paints Ltd., were engaged in the manufacture of thinners using inputs procured at a concessional rate of duty under Notification No. 75/84-C.E. They were initially granted CT 2 Certificates by the Central Excise Authorities for this purpose. However, a show cause notice was later issued to deny the concessional rate on the grounds that the inputs were used to manufacture thinners sold to outside parties, not directly in the manufacture of paints and varnishes.

2. Interpretation of "Allied Materials":
The appellants argued that thinners are "allied materials" of paints and varnishes, as they are essential for reducing the viscosity of paints and facilitating their application. Various technical definitions of thinners were provided to support this claim. The Tribunal found that thinners are indeed considered "allied materials" in commercial parlance and are essential for the practical use of paints and varnishes. The Tribunal noted that thinners are used for cleaning painting equipment and are indispensable in the paints industry.

3. Applicability of Rule 196:
The Additional Commissioner had confirmed the demand of duty and imposed a penalty under Rule 196, arguing that the inputs were not used as specified in the CT 2 Certificates. The Tribunal, however, found that the inputs were used as declared for the manufacture of thinners, which are "allied materials." Therefore, Rule 196 was not applicable as the inputs were properly accounted for and used as intended.

4. Limitation Period for Raising Demand:
The appellants contended that there was no suppression of facts and that the longer limitation period of five years was not justified. The Tribunal agreed, noting that the appellants had acted based on the certificates and licenses issued by the Department. The Tribunal also referenced previous decisions, including the reversal of the Indian Farmers' Fertilizers Co-operative Ltd. case by the Supreme Court, to support the view that the six-month limitation period should apply in the absence of suppression.

5. Imposition of Penalty:
The Tribunal found no justification for the imposition of a penalty under Rule 173Q, as the appellants had complied with the conditions of the CT 2 Certificates and had not suppressed any facts. The confirmation of demand and imposition of penalty were thus deemed erroneous.

Conclusion:
The Tribunal concluded that the appellants were entitled to the benefit of Notification No. 75/84-C.E. for the inputs used in the manufacture of thinners, as thinners are "allied materials" to paints and varnishes. The appeal was allowed, and the impugned Order was set aside, granting the appellants the consequent reliefs.