9911796707
TMI Blog2006 (4) TMI 314X X X X Extracts X X X X X X X X Extracts X X X X ..... ve manufactured a product viz Kalogen Brill Blue 3K without intimation to the department and without filing classification and clearing the same in the guise of BL 3SL. 2.3 A Show Cause Notice was therefore issued for violation of various provisions of the Central Excise Rules and demanding duty amounting to Rs. 1,56,92,883.63 for the period March 1980 to February 1985. This notice dated 15-8-1995 invoked the extended period under the proviso to Section 11A(1) of the Central Excise Rules and also proposed to imposed penalty on the appellants. 2.4 This case was decided by the Collector of Central Excise Customs, Pune by an Order-in-Original No. 22/CEX/86, dated 9-9-1986 confirming the demand of Rs. 1,56,92,883.63 and imposing a penalty of Rs. 38.00 lakhs on the assessee and the directors of the assessee-company. 2.5 Aggrieved by this order, the assessee appealed to the Tribunal and this Tribunal vide Order Nos 847 to 856/90, dated 27-6-1990 remanded the case back to the Collector to decide the correct classification of Kalsol/Solvent KG or Copper complex based on the technical literature on the matter and the expert opinion in this respect and valuation of Kalogen Brill Blue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the exemption under Notification No. 179/77. If the Copper complex is not classifiable as SOD, then they are entitled to avail the exemption under Notification No. 179/77, provided the condition mentioned therein are satisfied. The Collector may consider the eligibility of the appellants claim for exemption under Notification No. 179/77 after excluding the statements of the workers. Proceeding on the assumption that it is classifiable as SOD, for the purpose of invoking longer period of limitation there should be suppression of material facts while filing the classification lists and obtaining the approval of the classification lists. The relevant allegation in the show cause notice are that Kalsol/Solvent KG were manufactured and cleared by availing exemption under Notification No. 179/77 as amended and thus misdeclared the products to the department by furnishing false samples giving vague information regarding raw materials. It is also alleged that the assessee has deliberately suppressed the facts namely that he is classified the excisable goods viz., he found to be actually manufacturing copper complex (Synthetic Organic derivative falling under T.I. 14D and not Solve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y mentioned raw materials like chelating agents, liquor Ammonia, Glycol, Neah, there is no reason why they should not specifically describe Copper i.e. Cupric Chloride . Instead they merely mentioned chlorides. It is only when they furnished the information to the deptt. in their letter dated 5th August 1977 and reply dated 23-6-1977, there is no reference to Cupric Chloride whereas in the files referred to by the Collector relating to the correspondence between the appellants and the buyers they were referring to the product as Copper Complex . These two acts namely the omission and commission would prove that the appellants have deliberately omitted to furnish the particular of raw material used i.e. Cupric Chloride , in order to conceal from the authorities the actual product that is manufactured. 33. However, since the finding of the Collector as to the classification of Copper Complex is not based on cogent and convincing evidence we set aside the order of the Collector and remand the same to consider the issue after examining the literature available and also examining the experts. The appellants should be given opportunity to furnish technical literature and examine t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... manufactured by the assessee but not declared to the Dept.) is synthetic organic derivative. Discussion of Expert Opinions : 24. As regard opinion of Dr. Sukhthankar and Dr. Pathak - I find that Dr. Sukhthankar in his affidavit has opined that : In my view a product can be regarded as a Synthetic Organic Derivative only if it satisfies the following two criterion : (1) The product must be synthetic i.e. man-made. (2) The product must be a derivative of organic compound . 25. However, it is difficult to understand how Dr. Sukhtankar has opined that the impugned product does not satisfy the two criterion. As already discussed in the preceding paras the impugned product is outcome of reaction between NTA and Cupric Chloride and accordingly it is man-made. Further NTA is Nitrilotriacetic acid which is an organic substance which when reacts with cupric chloride produce copper complex and accordingly the impugned product is a derivative of organic substance. Accordingly both the conditions as mentioned by Dr. Sukhtankhar on his affidavit stands fulfilled. Accordingly it is difficult to understand to how he has stated these conditions have not been fulfilled in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it is an impossibility for acids and alkalis to remain in an inert mixture state as acid and alkali react to form new product. It is understood that NTA on reaction with Sodium Hydroxide forms Sodium Salt and further on reaction with Cupric Chloride forms Copper Complex and Sodium Chloride. 29. Here I would like to mention that there is no mention about the process involved and further it is not necessary for a mixture of inorganic substance not to be termed as a synthetic organic derivative. NTA and Sodium Hydroxide react together and reaction is exothermic to which cupric chloride and ammonia is added which forms copper complex. On chemical reaction derivative is formed whereas in mixture physical property are intact and is applicable to unreacted chemical, which is impossible in this case. Accordingly the views/opinions expressed by Dr. Pathak cannot be of help. In view of the inherent contradictions I am constrained to ignore this opinion. 30. Now coming to the opinion of Dr. Ayyangar, (I) would like to mention the Tribunals decision in the case of Commr. of Central Excise, Ahmedabad v. Dyestuff and Intermediates reported in 2001 (138) E.L.T. 13/30 wherein it has been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt to the imported Phthalogen Blue IF3G of Bayer W. Germany. I find that this supports the conclusion derived from Dr. Venkatraman s book referred in earlier O-I-O issued. I also find it convincing and can oe relied upon as Chemistry of phthalocynine blue/ Phthalogen dvestuff. 35. In another opinion of Dr. Ayyangar, Scientist dt. 24-1-79 addressed to Shri H.R. Kasat, KCPL, Pune in which he has categorically confirmed that vour samples of Kalogen BL 3 SL sent alongwith Kalsols were also compared with Gharda s samples and found that yours is equivalent in all respects. (Paper Book Page No.225). It was found to be very interesting and hence I referred to the classification list filed by M/s. Gharda Chemicals. The classification list of Gharda (Paper book page No. 226, 227) found to contain Ingrain Blue Copper Complex both classified under T.I. 14D. The Ingrain Blue is also known as phthalocyanine Blue. Hence Kalogen BL 3 SL and Copper Complex stands covered by expression phthalocyanine Blue. It is important to note that Dr. Gharda a technocrat who pioneered these products first time in India and the classification list dt. 20-3-71 is signed personally by him. This lends support ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ication of these dyes the said colour index states as follows DYEING CELLULOSE AND SILK, DISSOLVED IN SPECIAL SOLVENT AND ORGANIC COPPER COMPLEX, peel, dry and fix in an aqueous bath containing formic acid or a mixture of formic and oxalic acid. Hence, I confirm from this that the copper complex used with Pthalocyanine Blue has to be organic copper complex as per Dyers and Colourists. No other interpretation is sustainable or is able to bear scrutiny as discussed above. At this juncture, it has to be noted the Hon ble CEGAT in their order dated 26-7-90 have already held that there was justification in allegation that the description of raw material was vague and that copper complex were to be classifiable as a Synthetic Organic Derivative and a misdeclaration was found, extended period would be applicable. In view of the discussion in the preceding paras I hold Copper Complex to be Synthetic Organic Derivative. I also conclude that assessee had not only insisted upon describing it otherwise than as SO, derivative but had also gone to the extent of foisting on the department the so called expert opinions and thus wilfully mislead the department. Thus I hold that extended period ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be termed organic compounds. Thus solvent KG/Kalsol, which is a mixture of predominantly inorganic compounds cannot be termed a synthetic organic derivative, even if the copper in it is chelated with NTA to form a metal coordination compound. A perusal of the above report would indicate that the product is not understood to be a Synthetic Organic Dyestuff or a Synthetic Organic colouring matter having affinity to textile fabrics or an organic compound; therefore its classification as Synthetic Organic Derivative under the erstwhile T.I. 14D cannot be upheld. The goods which are to be classified under the said Tariff Item were the subject matter of decision in the case of Sudarshan Chemicals Ltd. - 1979 (4) E.L.T. (J 275) wherein the Bombay High Court had held, the mention of the words Synthetic Organic Derivative used in any dyeing process shows that the legislature did intent to exclude certain item same from the liability to pay excise duty under Item 14D and only those derivatives which were used in the Dyeing Processes were made subject to duty under Item 14D. If it is permissible, altogether, the intention of the legislature in using the used , it may be stated it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .5 The Tribunal vide its decision dated 26-7-1990 has held that assessee was purchasing cupric chloride and nitritotriacetic acid (NTA) which would imply that the appellants were manufacturing copper complexes. As to the question, whether such a copper complex would qualify to fall under Heading 14D, the department relied upon the Government of India s decision in the case of Navin Industries - 1981(8) E.L.T. 958 and the report of the Deputy Chief Chemist. The Tribunal discarded the decision of Government of India on the grounds that it was based on an intended use of the product in the dyeing industry. As against the opinion of the Deputy (i) Chief Chemist, the Tribunal had held that various experts e.g. Dr. Iyengar, Dr. Sukthankar,. Dr. Pathak of National Chemical Laboratory had held that copper complexes cannot be termed as Synthetic Organic Dyestuff. Therefore, the Tribunal directed the Commissioner to consider the Technical Opinion and other experts opinion. 3.6. No further experts opinion has been relied upon by the Commissioner. His order on a perusal indicates a determined effort to reject the material placed by the assessee on record and not makes any effort to procur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... D.P. Mellor (Page 202-205). It has been explained that in a metal complex the metal atom occupies a central position (page 203). When the Central metal atom of a complex is bound to its immediate neighbours by covalent bond formed as the result of the metal atom accepting an election pair from each non-metal atom, it is customary to call the latter the donor and the former the acceptor atom; alternatively, the non-metal atom is called the coordinating atom and the bond between it and the metal atom a coordinate bond . Following is extract titled Nomenclature on Page 205. The Commission on the Nomenclature of Inorganic Compounds set up by the International Union of Pure and Applied Chemistry (1957) has drawn up rules for the naming of metal complexes. Only a brief summary of the principal relevant rules will be given here . This only shows that the metal complex are treated as an Inorganic Compound. (iii) In the book titled Modern Approach to Inorganic Chemistry by C.F. Bell K.A.K. Lott, (Page 206-207) there is a separate chapter on Coordination Chemistry and Coordination Compounds. The latter treated as an Inorganic compound. (iv) The ld. Commissioner has given t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... per is bound to the nitrogen atoms is through coordination bond. Since the bond is not a sigma or II, the cyclic ring formed from NTA and copper atom cannot be termed as a hetrocyclic compound and the product is dealt with in various books in the area of inorganic chemistry. In his cross examination by the ld. Commissioner on 8-5-86, he stated that when a metal combines with an organic acid specially with a coordination bond the product is generally called as metal complex and categorized as inorganic compound and not as organic derivative. (c) Dr. S.H. Iqbal, Head of Technical Services in the National Chemical Laboratory gave the opinion on 29-11-1985 already exstracted in para supra that Kalsol or Solvent kg. contains NTA to the extent of only 15% and the rest are inorganic compounds. As per the definition, synthetic organic derivative is a homogenous organic compound prepared by using human resources and organic compound is a chemically homogenous molecular species formed by carbon and hydrogen elements linked to each other. Even if organometallic compounds and metal II-complexes which have carbonmetal chemical bonds may be vaguely classified under the term org ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g for the terms and conditions for the sale of Kalogen Brill Blue 3 K for cotton yarn dyeing, (iv) File No A/14 - Letter from K.R.C. Perlurnal Chatti Colour House dated 20-7-1983 addressed to Kasat Chemical Pvt. Ltd., wherein he has informed the Kasat Chemical Pvt. Ltd., that the goods received under Bill No. 2297 dated 27-6-83 are of inferior quality and dyed yarn sample enclosed with the letter. (v) File No.A/8-Letter from Meenakshi Trading Manufacturing Co. dated 24-11-1984 addressed to Kasat Chemical Pvt. Ltd. In this letter they are complaining that Kalogen Blue 3K used for hank dyeing is 20% weaker in strength and greener in tone and requested for redder tone and have also enclosed the samples of dyed yarn. (vi) F.No. A/8 - Letter from Meenakshi Trading Manufacturing Co. dated 23-5-1985 to Kasat Chemical Pvt Ltd. in which it is complained that Kalogen Blue 3K supplied to the parties are from different lots (Batches) and which is inferior in quality and in case of supplies by Kanchipuram Colour Chem, Kalogen BL 3 SLM is weaker in strength by 40%. (vii) F.No. A/8- Letter from Meenakshi Trading Manufacturing Co. to Kasat Chemical Pvt. Ltd. dated 1-2-1984 in which he ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Whereas from the huge record seized from KCPL Kalogen BL 3 SL is supplied to Textile mills for cloth dying (PP 230 to 264 of P.B. as some of the samples) 47. Kalogen Brill Blue 3 K is itself a Dye and hence can be directly used to dye the yarn whereas Kalogen BL, 3. SL has to be used with Kalsol/Solvent KG (i.e, Copper Complex) in conjugation with specific ratio of 1.2 for dyeing purposes, (facts discussed in preceding paras of these findings are relevant) 48. Kalogen Brill Blue 3K is a dyestuff whereas Kalogen BL 3 SL and copper complexes are S.O.D. used in dyeing. 49. Further, I proceed to examine the composition of Kalogen Brill Blue 3K It is evident from Dr.Ayyangar s letter dated 21-12-81 already referred, in para 34 above which is in consonance with other expert opinion and literature as discussed therein which has categorically mention that Kalogen BL 3SL is equivalent to Phthalogan Blue IF 3G of Bayer West Germany: This product has been manufactured by KCPL and it s raw materials given by K/C/PL (P 194 Paper Book) are : (1) Phthalic Anhydride (2) Urea (3) Ammonium Nitrate (4) Ammonium Molybdate ( P.B.P.56). 50. The product (Kalogen BL 3 SL) can be used in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The goods were cleared under GP1 No.150 dated 19-1-85 (only powder) The quantity of Kalogen BL 3 SL (ED included) was 280 kgs. @ Rs. l40/- per kg i.e. Rs. 3920/-and in the same bill, the quantity of solvent kg shown is NIL. The same goods were transported through Lorry Receipt No. 185 dated 12-2-85 by M/s Kale Goods Transport, Pune to the same customer showing the quantity of 14 bags containing 280 kgs. of Kalogen BL 3 SL. The lorry receipt do not show the quantity of the solvent kg (Copper Complex). This clearly shows that the powder in bags weighing 280 kgs. was cleared @ Rs. 140/- per kg. The statement of customer also say that they have received only powder and not liquid and this product is only for yarn dyeing. Further it is suprising to note that M/s KCPL has made two different invoices which were never sent to customer or transporter. These bills are of the same no. i.e. 2642 and same date i.e. 19-1-85. One bill show the quantity of Kalogen BL 3 SL (powder) i.e. 280 kgs. (a) Rs. 26/- per kg totaling to Rs. 7280/- under GP1 No. 150 dated 19-1- 85 where as another bill of the same no. 2642 dated 19-1-85 shows the solvent kg consisting quantity of 1120 ltrs @ Rs. 28.50 pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mislead adjudicating authority. (PP/253 to 264 PB.) They have not proved the supply of Kalsol/Solvent KG on the basis of delivery challan, transport documents and hence affidavit is not acceptable. 56. After differentiating Kalogen BL 3 SL and Kalogen Brill Blue 3K and understanding Phthalogen Chemistry the dealing of M/s.KCPL in fraudulent way becomes clear. Thus, proceed to the last charge levied against M/s. KCPL, Pune i.e. UNDERVALUATION OF KALOGEN BL 3 SL- a declared product to the department. 57. In this context on going through the invoices, sales registers and balance sheet in detail it is seen that M/s. KCPL while submitting the invoice to customer for payment is showing consolidated value of Rs.100/- to Rs. 105/- per Kg. for the product sold in conjugation i.e. Kalogen BL3 SL AND Kalsol/Solvent KG (i.e. Copper Complex) in ratio 1:2. The price of Rs. 20/- per kg for Kalogen BL 3 SL declared to the department was never reflected in the customers invoices, nor in sales register. Even balance sheet shows the consolidated value. Thus from his conduct in dealing with the department it can be concluded that the invoices @ 20/-per kg for Kalogen BL 3 SL are manipulated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... escape levy of excise duty. 59. In light of this department has worked out the value of Kalogen BL 3 SL on the basis of cost of materials consumed and reflected in the balance sheet and labour cost and profit. The clear mathematical picture has been given along with the show cause notice which shows the price of Kalogen BL 3 SL around Rs. 35/-. In this context, it was seen from the balance sheet that the raw material required for the manufacture of Kalogen BL 3 SL i.e. (1) Phthalic Anhydride (2) Urea (3) Ammonium Nitrate (4) Ammonium Molybdate (5) Caustic Soda (6) ICE 60. From the balance sheet the raw material cost was worked out of all the reactants on the basis of molecular weight proportion and arrived at raw material cost and added profit for each year and arrived at the assessable value around Rs. 35/- and clear cut duty evasion arrived. The price charged to the customer Rs. 100/- + Rs. 105/- was never ever declared to the department. No contrary evidence was brought before me during personal hearing. The arithmetical calculations submitted by M/s. KCPL in their defence are not convincing nor they explained the difference at the time ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the appellants are manufacturing Kalogen Briil Blue 3K. (b) In the next paragraph, the Tribunal observed that In our view the fact that the appellants purchased copper acetate may be a pointer in the direction that the appellants manufacture Kalogen Briil Blue 3K . In the following paragraph the Tribunal came to a finding that the appellants are manufacturing Kalogen Briil Blue 3K. The invoices also cannot be relied upon to arrive at the conclusion that the appellants are manufacturing 3K. Therefore, we are of the view that in view of the correspondence files which specifically refer to the product Kalogen Brill Blue 3K and the balance sheets evidencing purchase of copper acetate, and the agreement dt. 9th Sept. 1978 that the appellants are manufacturing Kalogen Brill Blue 3K . (c) Since the Collector had observed that the assessee was also manufacturing a more expensive product which is Kalogen Brill Blue 3K and known in trade parlance as Kalogen BL3 SL (Yarn Dyeing), the Tribunal finally remanded the matter with the following directions;. The Collector relying on the cost of the raw material holds that the product is under valued. This finding ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ner has adopted two methods. The first method is given in the Show Cause Notice but the ld Commissioner has not commented anything about it and simply accepted the quantity (102308 Kg) shown in the S.C.N. On internal page 6 of the S.C.N, it is mentioned that Dr. R.G. Gokhale had opined that 1 kg of Copper Acetate when reacted with BL3SL (quantity not mentioned) gives 4 kg of Brill Blue 3K. Now this is a very sweeping remark. It does not indicate the quantity of BL3SL required for reacting with Copper Acetate. The main raw material required for manufacturing 3K is BL3SL and the input output ratio always takes the main raw material into account. Moreover this is a theoretical formula used in laboratories but when 3K is manufactured on an industrial scale, the results can be totally different. It was therefore necessary to cross examine Dr. Gokhale to determine his experience in the industry before placing reliance on his opinion. However, he did not appear for cross examination and the Counsel for the appellant argued that no reliance can be placed on his testimony. The ld Collector however was not inclined to agree (Page 17 of the 1st O/O dt. 9/9/1986). It is well settled that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r hand, the Appellant have stated that even if the ld Commissioner s method is accepted the quantity of Briil Blue 3K cleared through such invoices, (BL3SL supplied in 1:4 ratio) works out to 69,755 Kg. as against 1,02308 Kg. mentioned in the S.C.N. since the matter has remained undecided for 20 years we are of the opinion that this method be adopted with the consent of the Appellants. We also agree with the Appellants that this quantity will have to be deducted from the total quantity of BL3SL which has been alleged to be under valued. 3.11. The Commissioner s finding based on certain assumptions and presumptions. There is no doubt that the appellants have issued invoices for supply of the goods, but the mere fact that invoices have been issued will not indicate the manufacture of a different product and even if it is accepted that the different product is being manufactured, the fact remains that the appellants have not received any further or other consideration in monetary terms over and above the invoice price on the alleged misdeclaration. When the charge of receipt of any additional consideration in monetary terms is not found, the valuation as per the invoice pric ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
