1990 (11) TMI 417 - AT - Central Excise

Tribunal rules material not sodium rosinate, assessees win appeal

The Tribunal ruled in favor of the appellants, finding that the material in question was not sodium rosinate or a derivative of rosin. It was deemed ... Sodium rosinate - derivative of rosin - marketability as a condition of excisability - continuous process (intermediate product not severable) - limitation under the proviso to Section 11-A(1) of the Central Excises and Salt Act, 1944 - benefit of Notification No. 225/86Sodium rosinate - Whether the intermediate aqueous product prepared in the sizing process is 'sodium rosinate'. - HELD THAT: - The Tribunal examined documentary definitions and chemical reports but found that the material identified by departmental authorities was an aqueous liquid/solution used for sizing rather than sodium rosinate in isolated solid/cake form. The records show test reports describing viscous liquids or aqueous solutions and adjudicating orders treating the liquid used in sizing as a derivative; however, there is no definitive evidence that the appellants manufacture sodium rosinate as a distinct, marketable product. On the facts before it, the Tribunal concluded that production of sodium rosinate as such was not established. [Paras 32, 33, 34, 39, 41]Not proved that appellants manufacture 'sodium rosinate' as a distinct excisable product.Derivative of rosin - Whether the material is a derivative of rosin and, if so, whether it satisfies the characteristics of a derivative for excisability. - HELD THAT: - The Tribunal noted that neither the Revenue nor the adjudicating authorities produced technical literature to demonstrate that the product met accepted requirements of a satisfactory derivative (distinct, solid, markedly different properties). Appellants relied on authoritative texts distinguishing emulsion/unsaponified material from a true derivative. The authorities did not test or establish that the product conformed to the criteria for a proper derivative of rosin. [Paras 42, 43, 45]Not established that the impugned material is a satisfactory derivative of rosin.Marketability as a condition of excisability - continuous process (intermediate product not severable) - Whether the material (even if derivative) was marketable or severable from the continuous paper-making process so as to be excisable. - HELD THAT: - Relying on Supreme Court precedents, the Tribunal reiterated that a product must be shown to be marketable/severable to be held excisable. The appellants consistently maintained, and some appellate findings recorded, that the sizing solution is produced and used within a continuous manufacturing process and cannot be taken out for marketing. The Revenue failed to produce evidence of marketability or that the impugned product was extracted from the continuous process in a form fit for sale. Consequently, the condition of marketability was not satisfied on the material before the Tribunal. [Paras 46, 49, 51, 61]No evidence of marketability or separability; impugned product not excisable in the circumstances.Limitation under the proviso to Section 11-A(1) of the Central Excises and Salt Act, 1944 - Whether extended period of limitation could be invoked on the ground of suppression/intentional non-declaration. - HELD THAT: - The Tribunal observed that the demands arose as a consequence of a tariff change and that paper mills had long used rosin in their processes; widespread notices following the tariff amendment did not by themselves establish deliberate suppression by individual appellants. Several adjudicating authorities had accepted that the demand flowed from the tariff revision. On the facts, the Department did not prove fraud, collusion or wilful suppression necessary to invoke the extended period under the proviso to Section 11-A(1). [Paras 53, 54, 60, 61, 63]Extended period under the proviso to Section 11-A(1) not applicable; many demands are time-barred.Benefit of Notification No. 225/86 - Whether appellants were rightly denied set-off/benefit of Notification No. 225/86 on the ground that rosin was used to manufacture an excisable intermediate. - HELD THAT: - Since the Department did not establish that rosin was used to produce an excisable, marketable intermediate product, and given the findings on non-excisability and limitation, the Tribunal held that denial of the notification's benefit was unwarranted. The Tribunal explicitly refrained from deciding complex tariff classification points but held that the factual basis for refusing the Notification was absent. [Paras 55, 56, 63]Benefit of Notification No. 225/86 was admissible; denial of set-off not sustained.Final Conclusion: The Tribunal allowed the assessees' appeals: demands premised on manufacture of sodium rosinate or a rosin derivative were not established and, in the absence of proof of marketability or separability from a continuous process, the products were not held excisable on the material before it. The extended limitation period under the proviso to Section 11-A(1) was not attracted and many demands were time-barred. Consequently the appellants' claims under Notification No. 225/86 were upheld. Twenty-eight assessees' appeals were allowed and five Revenue appeals were dismissed. Issues Involved:1. Whether the material in question, which is being manufactured at the intermediate stage, is 'sodium rosinate'.2. If not, whether it is a derivative of rosin.3. Whether it is marketable.4. Whether there was justification for invoking a longer period of limitation.Detailed Analysis:1. Whether the material in question is 'sodium rosinate':The appellants contended that they were not manufacturing 'sodium rosinate' but rather an aqueous solution used for sizing paper. The process involves mixing soda ash and rosin, heating, and then using the resultant emulsion for paper sizing. The adjudicating authorities alleged that the appellants were manufacturing sodium rosinate, but the evidence provided, including chemical test reports, indicated that the product was an aqueous solution or emulsion rather than pure sodium rosinate. The dictionary definition of sodium rosinate (sodium abietate) describes it as a white powder soluble in water, derived by leaching rosin with sodium hydroxide solution. The test reports and the adjudicating authorities' findings did not conclusively prove the manufacture of sodium rosinate as defined.2. Whether it is a derivative of rosin:The adjudicating authorities suggested that the material might be a derivative of rosin. However, technical literature and definitions provided by the appellants indicated that a derivative should be a solid, easily prepared, and purified substance. The material in question did not meet these criteria, as it was an aqueous solution or emulsion used in a continuous process. The adjudicating authorities did not provide sufficient evidence to classify the material as a derivative of rosin.3. Whether it is marketable:The appellants argued that the material was not marketable as it was produced in a continuous process and had a short shelf life. The adjudicating authorities did not provide evidence of marketability. The Supreme Court rulings in Bhor Industries Ltd. v. CCE and CCE, Baroda v. A.S. Enterprise established that for a product to be excisable, it must be marketable. The department failed to prove that the material was marketable, and thus, it could not be considered excisable.4. Whether there was justification for invoking a longer period of limitation:The longer period of limitation was invoked on the grounds of alleged suppression of facts by the appellants. However, the appellants had been availing of benefits under Notification No. 201/79, which required them to disclose the use of rosin in their manufacturing process. The adjudicating authorities acknowledged that the demand arose due to changes in the Central Excise Tariff and not due to suppression of facts. Therefore, the invocation of the longer period of limitation was not justified.Conclusion:The Tribunal concluded that the material in question was not sodium rosinate, nor was it a derivative of rosin. It was not marketable, and the invocation of the longer period of limitation was unjustified. The benefit of Notification No. 225/86 was admissible. Consequently, the appeals filed by the assessees were allowed, and the appeals filed by the Collector of Central Excise were dismissed.