2008 (9) TMI 308 - AT - Central Excise

Tribunal grants duty remission for lost quantity in special filling process

The Tribunal allowed the Appeal filed by the Appellant Assessee for the first period, granting remission of duty on the quantity lost during the special ... Remission of duty – loss due to filling of liquid chlorine gas – RG-1 stock register - during the process of filling of liquid chlorine in the cylinders/vessels, the liquid chlorine vaporizes inside the cylinders due to temperature difference and when the pressure of chlorine vapour in cylinders and the pressure in the storage tank become equal, the flow of liquid chlorine into the cylinders becomes impossible in absence of any difference in pressures. To avoid such a situation, the pressure inside the cylinders is reduced by way of degassing. The process continues till the required quantity of liquid chlorine is filled into the cylinders. The degassed chlorine vapour is contaminated because of its association with air and other impurities which also enter the cylinder in the course of filling and becomes sniff or waste gas which is neither usable nor marketable as such – Held that in view of Circular No. 2/88-C.E remission of duty allowed. Issues: Appeal by Appellant Assessee and Department on benefit denial and allowance for the same issue in different periods.Analysis:1. Manufacturing Process and Loss Calculation: The Appellant Assessee manufactures Caustic Soda lye involving the generation of wet chlorine gas as a by-product. The process includes cooling, filtering, compressing, and liquifying the gas for storage and filling in cylinders. The Appellant argues that filling in cylinders is essential to complete the manufacturing of liquid chlorine for marketability, and any loss during this process is a natural filling loss. The loss of liquid chlorine during filling within the factory premises is around 3.242%, considered a waste gas, and is neutralized to prevent air pollution.2. Legal Interpretation of Loss: The Department argues that since liquid chlorine has reached the RG-1 stage, any subsequent loss should attract duty payment. However, the Tribunal, after considering the manufacturing process and the unique factors involved in filling chlorine for marketability, concludes that the quantity of liquid chlorine becoming non-excisable sniff gas due to unavoidable filling process cannot be subject to duty. The loss is accounted for, and liquid chlorine cannot be removed without undergoing the special filling process, making the loss a part of the manufacturing completion process.3. Board's Circular and Duty Liability: The Tribunal references Board's Circular No. 2/88-C.E., stating that sniff gas is a waste and not excisable, incapable of being sold. The loss of liquid chlorine during filling is fully accounted for by the Appellants and is not due to unauthorized removal. As duty payment is deferred until goods are removed from the factory, the loss during the special filling process is not chargeable to duty. The Tribunal emphasizes that the loss is not clandestine, and since the Appellant has explained and accounted for the loss, any remission requirement should have been allowed by the lower authorities.4. Judgment and Decision: The Tribunal allows the Appeal filed by the Appellant Assessee for the first period, granting remission of duty on the quantity lost during the special filling process. For the second period, where the lower appellate Authority had already set aside the demand, the Tribunal finds no need for interference and dismisses the Department's Appeal. The decision highlights that the loss during the filling process is integral to the manufacturing completion and marketability of liquid chlorine, exempting it from duty liability.Conclusion: The Tribunal's judgment provides clarity on the treatment of unavoidable loss during a specific manufacturing process, emphasizing the importance of considering unique production requirements and the marketability aspect in determining duty liability, ultimately ruling in favor of the Appellant Assessee and dismissing the Department's Appeal.