1997 (11) TMI 225 - AT - Central Excise

Summary

Issues Involved:
1. Excisability of Demineralized (DM) Water.
2. Duty demand on unaccounted loss of DM water captively consumed.
3. Applicability of extended period of limitation.

I. Excisability of DM Water:

The appellants' process of demineralization involves treating river water to remove calcium and magnesium salts using an ion exchange process. The appellants argued that this process is merely purification and does not constitute "manufacture" under the Central Excises and Salt Act, 1944, as DM water is not a new product with different characteristics from the original river water.

The tribunal disagreed, stating that the process of demineralization changes the character and use of the water, making it suitable for generating steam, which river water cannot do. Thus, DM water qualifies as a new commercial commodity with distinct name, character, and use, satisfying the definition of "manufacture." Consequently, DM water is excisable and falls under Heading 2851.00 of the Central Excise Tariff Act, 1985.

II. Duty Demand on Unaccounted Loss of DM Water Captively Consumed:

The appellants did not provide a satisfactory explanation for the unaccounted loss of DM water within their plant. They claimed a possible 5% variation due to measurement errors but failed to substantiate this with evidence. The tribunal held that without proof of captive consumption of the unaccounted DM water, the benefit of exemption is not applicable. Therefore, the duty demand on the unaccounted loss was confirmed.

III. Applicability of Extended Period of Limitation:

The tribunal noted that the appellants were obligated to file a new classification list under Rule 173B(4) of the Central Excise Rules following the introduction of the Central Excise Tariff Act, 1985, which they failed to do. This non-filing, coupled with the appellants' actions, indicated an intent to evade duty. The tribunal held that the extended period of limitation was rightly invoked, and the duty demand was not time-barred.

Separate Judgments:

Order by Vice President:

The Vice President disagreed with the majority opinion, arguing that the process of demineralization is akin to water softening, which does not result in a product comparable to distilled or conductivity water. He emphasized that natural water, even after treatment, remains non-excisable unless it transforms into a distinct commercial commodity. He cited the absence of evidence showing that DM water achieved similar purity to distilled water and argued that the process did not amount to "manufacture." Consequently, the Vice President held that DM water is not excisable and the demand was time-barred due to the absence of suppression or intent to evade duty.

Order by Third Member:

The Third Member agreed with the Vice President, stating that the removal of impurities does not change the essential properties of water. He cited various judgments, including the Supreme Court's ruling in the case of vegetable oil, where the removal of impurities did not constitute "manufacture." He concluded that DM water is not a new product and is not excisable. Additionally, he held that the extended period of limitation could not be invoked as there was no suppression of facts by the appellants.

Final Order:

In view of the majority opinion, the impugned order was set aside, and the appeal was accepted, confirming that DM water is not excisable, and the demands were time-barred.