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TMI Blog2018 (3) TMI 489X X X X Extracts X X X X X X X X Extracts X X X X ..... lly exempted from payment of duty of excise vide Notification No.06/2002-CE, dated 01.03.2002 and Notification No.03/2006-CE, dated 01.03.2006. Apart from the Native Tapioca Spirit, the appellant was also manufacturing Modified Starch, which was classifiable under Chapter Heading 3505 and was liable to pay Central Excise duty under the said Chapter. However, inasmuch as, the clearances of the Modified Tapioca Spirit were below the exemption limit of clearances as provided in terms of small-scale exemption notifications, the same were also being cleared by appellant without payment of duty by availing such exemptions. The appellant's factory was visited by the Central Excise Preventive officers on 25.04.2007, who conducted various checks and verifications. As per the Revenue, certain records maintained by the said appellant, which were incriminating in nature, were seized under Mahazar, dated 25.04.2007. Revenue also conducted simultaneous searches in the premises of the appellant's two buyers M/s. Seshasayee Paper & Board Ltd., and M/s. SKR Packaging, a manufacture of corrugated boxes. During the course of the visit of the officers in the appellant's factory statement ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ure. It therefore appeared that when tapioca starch is manufactured or treated with this level of heat, the initial resultant product that would emerge is undoubtedly Pyrodextrin only, which is Starch in a modified form which is dutiable under Ch.Heading No.3505 of the Central Excise Tariff. It was also noticed from their process flow chart that S02 (Sulphur-di-Oxide) was mixed in the process at the extraction stage and their website reveals at page No.1 that they are adding Sulphur-di-oxide solution at both the stages of extraction and refining in equal quantity as compared to quantity of Starch Milk. Such usage of chemicals appeared to confirm the modification done to the native starch. It was further observed by the Revenue that one of the important parameters that determines the nature of the starch as native or modified was its viscosity. Enquiries made with the producers of Native Starch indicated that the viscosity of native starch would be around 44 to 50 seconds only in Redwood No.1 method. Similarly, information gathered from the scientific community also confirmed that Native Starch, manufactured by any type of advanced technology will have a Viscosity parameter of aro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... odified Starch are used in different kinds of industries, the Revenue has not produced the buyers of corrugated boxes, detergent and soap industries and paper industries, which use the Native Starch, for cross-examination. Request for supplying the test reports was also reiterated. It is seen that some of the buyers were further called for cross-examination during the course of further adjudications, but the test reports of the samples which were drawn by the Revenue itself during the course of investigations, were not provided to the assessee. The Commissioner vide his impugned order, dropped a part of the demand proposed to be confirmed in the notice and confirmed the duty to the extent of Rs. 1,19,80,748/- [Rupees One Crore Nineteen Lakhs Eighty Thousands and Seven Hundred and Forty Eighty only] along with confirmation of interest and imposed penalty of identical amount under section 11 AC of the Central Excise Act. In addition, penalty of under Rule 26 of Central Excise Rules, 2002 was also imposed. The seized goods were also confiscated with the option to the appellant to redeem the same on payment of redemption fine. The said order of the Commissioner stands impugned before ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to heat for several hours (depending upon the required parameters of the product manufactured) in the reactor vessel in the presence of acids or alkali. This process results in de-polymerization which leads to reduction of viscosity. This process is called dry process modification. For the manufacture of Modified Starch in wet process, the slurry with 40% solids is introduced into a well agitated tank. After the necessary adjustments of pH factor and temperature, the reagents are added, sometimes over a period of several hours and the reaction is allowed to proceed. A sample is analyzed to ensure that the correct properties have been attained after which the reaction is terminated, if necessary, by pH change or other means. The reacted starch is washed and concentrated _ in hydro cyclones or other systems after which it is dewatered and dried in the normal way. Some reactors require pH control using alkali. 3 Tests to classify native starch and modified starch: a) pH factor: Modified starch with the addition of acidic chemical could have lesser pH value. than even the native starch and therefore the lower pH level will not indicate whether they are native or modified. Even in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0. It would increase depending upon the quality of raw material used and process conditions. By process conditions, prolonged storage of wet starch or in slurry form leads to fermentation of the starch which, in turn, would bring down the viscosity of the starch. Whereas in a continuous process as in the case of the noticee, the total process from tuber to tapioca starch powder takes only 28 minutes the viscosity level would be much higher. c) Test of Iodine: When tested with Iodine, the native starch turns blue whereas the modified starch turns violet. This test would determine whether the product in question is native or modified starch. The HSN(Page 90 of Vol.1) specifies that native starches when tested with iodine would turn dark blue. d) Degree of Substitution: By chemical analysis, in case of native starch, there is no degree of substitution since there is no chemical molecule present whereas in the case of modified starch, presence of chemical molecule like carboxyl group, nitrogen, carbonyl, acetyl, etc., can be found. e) NMR (Nuclear Magnetic Resonance) Spectro Photo Meter: By pressing this equipment into service, the molecular structure of the starch to find out t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dified Starch, based upon the various chemical specifications of the products. In fact, we find that the Commissioner himself has accepted the fact that there were different types of buyers in the market who required the Native Starch as also the Modified Starch. He has categorized the statements of the buyers into four different categories and has extended the benefit to the appellant by observing as under:- "19.01. The evidence in the form of market identity consists of statements recorded from various representative buyers some of whom have been relied upon and "some not. relied. The buyers consisted of both end-users and traders Upon examination of these statements, I notice that all the statements can be broadly ategorized into three viz., (a) statements which have identified some grades as modified starch without any contradiction (b) statements some of which categorized the grades as modified starch and some stating that they do not know whether the grades are modified starch or native starch ; (c) statements in which some buyers identify the grades as native starch and some as modified starch and (d) statements which identified certain grades as native starch. It is felt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case of these three despatches which were described as modified starch in internal records, the corresponding statements also confirmed them as modified starch. Therefore, in these cases, the goods have to be held as 'white dextrin' and 'PPC & CG' which are modified starches and not 'A' Grade) (as mentioned in the corresponding invoices. Therefore, the demand with regard to 'A' grade has to be ignored except for these three cases.A.-In the second case of Swan grade (SI.No.11) while the market statements refer to it as modified starch, the despatch register makes no mention. However, the evidence of market can be relied upon in the absence of any contradiction in judging this grade as modified starch. Thus, in 18 of the 20 Grades both the statements and record tally or there is no contradiction between them, However, in the case of ALN and D Grades (SI.No.9 & 10) (unlike the other two cases) there is direct contradiction between the statements from the market (of M/s.Aditya Starch Products and Aditya Specialities in the case of ALN and M/s.Dixons Enterprises in the case of D Grade) and the entries in the despatch register which described them as modified starch. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lf prescribes minimum 50 seconds for tapioca starch. There is no limit for maximum level. Because, viscosity is based on quality of raw material. If the raw material is pre matured, viscosity is in lesser side. If it is matured tuber, it is in higher side and also depends on process conditions. * Native starch is white coloured free flowing amorphous powder and consists of amylase and amylo pectin molecules and it turns blue colour with iodine solution. It forms hydrogels with water while heating. * Modified starch is manufactured by treating native starch using chemical by heating or without heating. Some chemical groups are introduced during modification or depolymerisation takes place. * For the basis for distinguishing native and modified starches, PH is one of the factor and it is not the deciding factor. Viscosity is one of the factor and it is also not the deciding matter. * Test of Iodine - native starch turns blue with iodine solution but modified starch turns purple with iodine solution. * Degree of substitution: for native starch, there is no degree of substitution, there is no chemical molecules present in native starch whereas, modified starch consists of che ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nverted into Modified Starches and none of their clients has also given any statement to the effect that the goods supplied to them were put to testing so as to determine as to whether the same was Native or Modified Starch. He again, in the said cross-examination asked for the test reports of the product. It is also seen that some of the buyers of the appellant whose statements were recorded were also cross-examined, wherein it was clarified that they were captively using Native as also Modified Starch. Some of the buyers of the paper manufacturing industries or the corrugated boxes manufacturing industries deposed that both the types of starches can be used by them for manufacture of their final product and they do not conduct any test on the starch purchased by them. Some of them, in fact, deposed that they do not note a difference between Native or Modified Starch and use the starch sold by the assessee without testing the same. As such, it becomes clear from the above material on record that there is no strict observance by the buyers for the use of either the Native Starch or the Modified Starch. It is also seen that no samples of starch purchased by the said buyers has bee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be made to various industries. Whereas, 'A' Grade was supplied to all the industries, Grade 'B' was meant for supplies to textile industries and Grade 'C', 'G' & 'H' is for corrugated box manufacturers. Similarly, they have explained the other grades. However, it is appreciated that the said grades given by the appellants to the various types of Native Starches produced by them is their business tactics and has no relevance to the fact that such grading would convert them into Modified Starches. The fact that what was cleared can be decided only by way of testing the same and not based upon the assumptions and presumptions. Similarly, concluding that the clearances were of Modified Starches based upon the details given in the dispatch register cannot be upheld. It already stands explained by Shri S. Balamurugan through his cross-examination that the said record is maintained for marketing purposes to show the prospective buyers about the sale of a particular variety of starch. As such, the register is for the purpose of seeking appraisal and cannot be adopted to conclude that clearances were of Modified Starches. It is to be kept in mind that it is not the Revenue is cas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... we find no reasons to uphold the impugned order of the Commissioner. The Tribunal in the case of Reliance Cellulose products Ltd. Vs Collector of Central Excise, Hyderabad reported in 1997 (93) E.L.T. 646 (S.C.) has observed that the opinion of the Chemical Examiner and Chief Chemist of the Government has to be given the status of an expert opinion. In terms of Rule 56 of the Central Excise Rules, the Central Excise officer is empowered to take samples for the purpose of testing and he has to communicate the result of such tests to the manufacturer. Further, in the case of Commissioner of Central Excise, Customs & Service Tax, Be/gaum Vs M/s. Murdheswar reported in 2016 (37) 384 (Tri. -Bang.), the opinion of the Chemical Examiner examining was adopted for classification purposes. In view of our foregoing discussions, we find that there u virtually no evidence worth upholding, produced by the Revenue so as to conclude that what was cleared by the appellants during the period in question was not Native Starch but was Modified Starch. On the other hand, as already observed, the test results of various samples drawn by the Revenue from the product available during their visit in the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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