1968 (2) TMI 36 - SC - Central Excise

Supreme Court sets aside demand notices, rules in favor of appellant companies. Kiln gas not under excise.

SOUTH BIHAR SUGAR MILLS LTD. Versus UNION OF INDIA

The Supreme Court allowed the appeals and the writ petition, setting aside the orders passed by the High Court. The court held that the demand notices ... Whether what he actually produces by combusting limestone with coke is carbon dioxide? Whether it is compressed carbon dioxide as contemplated by Item 14-H? Held that:- The mere fact that at one stage or the other kiln gas is pressed at 40 to 45 lbs. per sq. inch by a pump or otherwise cannot mean that it is compressed carbon dioxide. At the same time the duty being on manufacture and not on sale the mere fact that kiln gas generated by these concerns is not actually sold would not make any difference if what they generate and use in their manufacturing processes is carbon dioxide. The fact that the gas so generated has carbon dioxide below 99 per cent and does not conform to the specifications of the Indian Standard Institution also would not matter for the gas may be sub-standard, provided what is produced is carbon dioxide. Thus the gas generated by these concerns is kiln gas and no carbon dioxide as known to the trade i.e. to those who deal in it or who use it. The kiln gas in question therefore is neither carbon dioxide nor compressed carbon dioxide known as such to the commercial community and therefore cannot attract Item 14-H in the First Schedule. Appeal allowed. Issues Involved:1. Whether the excise duty levied on carbon dioxide produced by the appellant companies falls under Item 14-H of Schedule I to the Central Excises and Salt Act, 1944.2. Whether the gas produced by the appellant companies is carbon dioxide as known to the market.3. Whether the gas produced is compressed carbon dioxide as per the legal and market definition.4. Whether the appellant companies are manufacturers of carbon dioxide.5. Whether the mixture of gases produced is marketable and known to the trade as carbon dioxide.Issue-wise Analysis:1. Whether the excise duty levied on carbon dioxide produced by the appellant companies falls under Item 14-H of Schedule I to the Central Excises and Salt Act, 1944:The appellant companies challenged the legality of the excise duty levied under Item 14-H in Schedule I to the Central Excises and Salt Act, 1944. Item 14-H pertains to 'Compressed liquified or solidified gases, the following: (iv) Carbonic acid (Carbon dioxide) Fifty per cent ad valorem.' The appellant companies contended that the gas produced by them does not fall under this item as it is not compressed, liquified, or solidified carbon dioxide as defined by the Act.2. Whether the gas produced by the appellant companies is carbon dioxide as known to the market:The appellant companies manufacture sugar and soda ash using processes that involve the production of a mixture of gases, including carbon dioxide. However, they argued that the gas produced is not carbon dioxide as known to the market. The gas produced is a mixture of gases, commonly referred to as kiln gas, which includes carbon dioxide, nitrogen, oxygen, and carbon monoxide. The carbon dioxide content in this mixture ranges from 27 to 36.5 percent, which is significantly lower than the 99 percent purity required by the Indian Standard Institution for marketable carbon dioxide.3. Whether the gas produced is compressed carbon dioxide as per the legal and market definition:The appellant companies argued that at no stage in their manufacturing process is carbon dioxide compressed, liquified, or solidified. The gas produced is not stored or sold in cylinders under high pressure, as is typical for compressed carbon dioxide in the market. The mere fact that the gas is passed through a conduit pipe by a process of suction does not mean that it becomes compressed carbon dioxide. The court agreed that the gas produced is kiln gas and not compressed carbon dioxide as understood in the market.4. Whether the appellant companies are manufacturers of carbon dioxide:The appellant companies contended that they are not manufacturers of carbon dioxide as it is not separated from the mixture of gases produced. The process employed by them does not result in the production of carbon dioxide in a form that is marketable or known to the trade. The court found that the gas produced is kiln gas, which is not known in the market as carbon dioxide.5. Whether the mixture of gases produced is marketable and known to the trade as carbon dioxide:The court examined affidavits and scientific works which showed that the mixture of gases produced by the appellant companies is known as kiln gas and not as carbon dioxide in the trade. Kiln gas is not a marketable article as it is not transported or sold in the market. The court concluded that the gas produced is not carbon dioxide as known to the market and therefore does not attract Item 14-H in the First Schedule.Conclusion:The Supreme Court allowed the appeals and the writ petition, setting aside the orders passed by the High Court. The court held that the demand notices served on the appellant companies were illegal and must be quashed. The court concluded that the gas produced by the appellant companies is kiln gas and not carbon dioxide as known to the trade, and therefore, it does not fall under Item 14-H of Schedule I to the Central Excises and Salt Act, 1944. The respondents were ordered to pay costs to the appellants and the petitioner.