TaxTMI 
TaxTMI 
2006 (4) TMI 314
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.... 2.2 The assessee was also alleged to have 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 exp....
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....ured by the appellants is classifiable as S.O.D. then the appellants are not entitled to the benefits 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 actu....
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....Organic Derivative, there is a misdeclaration otherwise there is no misdeclaration. 32. The question, therefore, is failure to furnish the specific information as to the raw materials used in the manufacture of Kalson/Solvent K.G. amount to suppression of fact. Having specifically 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 Comp....
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....mist has categorically opined that copper complex i.e. the impugned material can rightly be called as synthetic organic derivative. Hence I find basis to conclude that the copper complex (Blue coloured liquid) being 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 accordin....
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....s constitution and its chemical and physical properties and not separable (Encyclopaedia Britannica Vol. Ill page 54) Furthermore it is difficult to understand as to how all these ingredients can remain in an inert (mixture form) state as made out in the opinion. In fact 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 inhere....
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....t convincing and can be relied upon as Chemistry of phthalocynine blue/ Phthalogen dyestuff. 34. Dr. Ayyangar, Scientist, N.C.L. in his letter dated 21-12-81 addressed to M/s. Kasat Chemicals (P) Ltd. , Pune in which he has categorically stated that Kalogen Blue 3 SL found to be a blue dyestuff with very good fasteners properties on cotton. It is equivalent 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 B....
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....micals.) "INGRAIN DYES" -The term Ingrain Dyes is correctly applied to all types of dyes which are formed in sitution in substrata by the development and coupling of one or more intermediate compounds. I also refer to C.I. 74160 at page No. 2789 of the said book dealing with Phthalocyanine to which Kalogen Brilliant Blue belongs (as already known from the opinion given by experts (scientists) discussed in the preceding paras). As regards the application 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 O....
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....es and organic compound prepared by using human resources and organic compound is a chemically homogeneous molecular species formed by carbon and hydrogen elements linked to each other. Even if organometallic compounds and metal II complexes which have carbon metal chemical bonds may be vaguely classified under the term organic compounds, the metal complexes, which are cordination compounds having cordination bonds between metal atom and heteroatoms such as oxygen and nitrogen cannot 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 Chemical....
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.... relevant period read as follows: "14.D. Synthetic organic dye stuffs (including pigment dye stuff) and synthetic organic and derivative used in any dyeing process." 3.4 Revenue has taken the stand that the item is synthetic organic derivative. The assessee submits that it is a mixture of inorganic chemicals based on the opinion of National Chemical Laboratory. A mixture as certified by the Apex Laboratory in India cannot be a compound since mixtures are accepted and different from a compound by very definition. 3.5 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 Dep....
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....ng or complexing Lewis bases (electron-pair donors), called ligands, are often used commercially to modify the properties of the metals or metal ions, e.g, metal deactivators in gasoline and complexes of copper and zinc in brass electroplating". Another extract is that "Typically a coordination compound consists of a metal atom, ion, or other Lewis acid plus a number of election-pair donor atoms coordinated to the same acceptor atom are chelating ligauds such as those shown in table Metal Complex is therefore a coordination compound." (ii) In the book on Chelating Agents and etal Chelates by E.P.Dwyer and 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 Nome....
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....) in Chemical Engineering and was awarded Ph.d (Tech) in dyestuff chemistry in 1947. He has held various assignments including Chairman of dye and dye intermediates in the Planning Group of the National Committee of Science & Technology in the Govt. of India during 1972-73. He stated that if the copper is chelated with NTA to form a metal coordination compound, it will still be regarded as a compound of predominantly inorganic nature. He further added that a coordination compound having coordination bond between metal atom and hetroatoms such as oxygen and nitrogen will not be termed as an organic compound. Therefore this product copper complex cannot be regarded as an organic compound in para 8 he further explained that in the product in question, the copper 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....
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.... page 33 of OIO dated 9-9-86 establishes that in fact KCPL are manufacturing Kalogen Brill Blue 3K. 41. For ready reference the details of these 12 files are reproduced below as mentioned in earlier order-in-original ;- (i) File B/70 - letter from the Satyanarayanan Brothers, Chirala, A..P. .addressed to Kasat Chemical Pvt. Ltd. dated 21-3-1977. In this he is requesting to despatch Kalogen Brill Blue 3 SL (Yarn superior quality) and enclosing payment thereof by draft. This indicates that the assessee is manufacturing this product right from 1977. (ii) File A/31- Letter from Jayant Dye Chem Corpn., Chinchbandar Bombay dated 28-2-1981 addressed to Kasat Chemical Pvt. Ltd., -in which he is requesting for quotation with sample of Phthalogen Blue for-Hank DYEING and dyed hank. (iii) File No A/31-Letter from Shriram Trading Co. Gudiyayattam Tamilnadu dated l9-6-1980 addressed to Kasat Chemical Pvt. Ltd. in which he is requesting 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., w....
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.... Company as their distributor for sale of Kalogen Brilliant Blue 3 SL/3K. 43. Thus Hon'ble CEGAT concluded that in view of the correspondence files, which specifically refers to the product Kalogen Brill Blue 3K and balance sheets evidencing purchase of copper acetate and the agreement dated 9th Sept, 1978 that the appllants were manufacturing Kalogen Brill Blue 3 K 44. Now CEGAT have directed Commissioner, C,Excise to consider in what aspects Kalogen Brill Blue 3 K differs from Kalogen BL 3 SL and composition of Kalogen Brill Blue 3 K. Further directed to ascertain cost of Kalog & V Brill Blue 3 K or the value of 3K. After going into the details my findings are : 45. First, I refer to Dy. Chief Chemists report which clearly distinguishes the product Kalogen Brill Blue 3K which is greenish in colour whereas Kalogen BL 3 SL is off white powder. 46. Moreover from the correspondence, it reveals that Kalogen Brill Blue 3K was demanded by purchaser only for yarn dyeing in specific region where yarn is dyed and then used in handlooms. Whereas from the huge record seized from KCPL Kalogen BL 3 SL is supp....
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....wn as consumed reflected in balance sheets, (d) Three different invoices made one for customers and two for the department, (e) The transport documents showing only powder is being sent which can happen only in case of Kalogen Brill Blue 3K are supported by delivery challans and that for in a particular Region where the yarn dying is very common. I cannot ignore such vital evidences which loudly announce that M/s. KCPL were manufacturing dye for yarn dying but distributing it by the name Kalogen BL 3 SL (yarn dyeing) but which in the market was known very popularly as Kalogen Brill Blue 3 K , or 3 SLM, or 3 SLK etc a brand for yarn dyeing. Hence I confirm that M/s. KCPL was manufacturing the product for yarn dyeing namely as Kalogen Brill Blue 3 K 53. 53. Now, after having determined that the two are distinct and separate products, proceed to consider the valuation aspect of Kalogen BL 3 SL In this connection, it will be pertinent to quote a specific example in support of the above discussed matter. Hence, the example of Bill No. 2642 dated 19-1-1985 is discussed. It is curious to note that the Bill No. 2642 dated 19-1-85 is raised to M/s Nitro Chem Ind.&n....
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....le with them. In the absence of any evidence to the contrary, I find that the two copies of invoice with same bill no., date, Gate Pass No. and date with KCPL for the aforementioned transaction have been concocted to mislead the Department and also enable them to keep an account of the total ransaction with their customer. In this case, KCPL would not adopt the same modus operandi as that for Kalogen BL 3 SL as described in Para 57 below but as he was sending only one material as depicted in customer's copy to their customers and accordingly, since their customers would have questioned KCPL they have not shown the other material in the customer's copy. 55. In this also KCPL in their defence has filed the affidavit from Shri C.P.Damodaran of M/s. K.R.C. Perumal Chetty which says that Kalogen BL 3 SL is supplied with Kalsol/Solvent KG in ratio of 1:4. But it revealed that it is at the instance of Shri H.R. Kasat , D., KCPL who vide his letter dated 11-10-85 (pages 233 to 254 PB) asked him to file such affidavit. Investigations with Shri Damodaran of M/s.K.R.C. Perumal Chetty also proved that they have received Kalogen BL 3 SL for yarn....
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.... only. But in order to hide the value charged to the customer, KCPL has split the bills separately and the bill to the customer was never brought to the notice of the Department with malafide intention to evade duty by under valuing the excisable product and loading the value of so called exempted product. There are several examples available from seized records where bills were split to mislead the Department and under value the product. 58. The reason for fragmentation of value in invoices retained with KCPL was to show that they were clearing Kalogen BL 3 SL and Kalsol separately. Kalsol being exempted without aid of power as per the contention of KCPL. However, in the light of the statements recorded of the workers Shri Subbi, Shri Dhumal and Shri Taru, this proposition of KCPL is difficult to accept. However, these are de novo proceedings and Hon'ble CEGAT in their order dated 13-8-90 have pronounced to the effect that the statement of these three workers cannot be taken into account. As such, I stand restrained from locking into this. Be that as it may I find that genuine document to customer is supported by transport documents whereas two sets....
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....firm the duty involved. 3.10 As regards the manufacture & clearances of Brill Blue 3K, we find that :- (a) The appellant had contested the manufacture of this product. Firstly this product was not found in the search of his premises. Secondly no samples of this product had been drawn in the factory. His customers were cross examined by the ld. Commissioner and their gist is in the OIO No.22/CEX/1986 dt. 9.-9-1986. Shri C.H. Hande said that he had received Kalsol along with Kalogen BL 3SL . He said he does not know 3GK, Shri S.R. Jaju said that he had received BL3SL ana not Pthalogen Blue. He also does not know what 3GK stands for. Shri R. K. Agarwal said that he had received Kalogen BL3SL and Kalsol/Solvent kg. as ordered by him. Shri U.K. Garg also gave a similar statement. The appellant had requested for cross examination of Dr. Patankar, Dr. Gokhale, Dilip Shah and U. R. Londhe but they did not appear for cross examination on 7-2-1986. The Counsel claimed that if the cross examination of these witnesses is not granted their testimony cannot be relied upon. All these statements were examined by the Tribunal and in their Order No....
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....ance with law. On ascertaining the value of Kalogen Brill Blue 3K the Collector should determine the undervaluation if any, and duty and penalty after taking a decision in the light of observations made & above." (d) Quantification of Production of Kalogeon Briil Blue 3K. When the matter was remanded in July 1990 the Dept. should have immediately got into action to : (a) Classify Kalsol/Solvent Kg. which the Tribunal had held to be Copper Complex. (b) Quantify the production and determine the assessable value of Kalogen Brill Blue 3K (henceforth referred to as 3K) for working out the demand. (c) The extent of undervaluation of BL 3SL. It would have been appropriate to do this exercise when the matter was only 5 years old. However the second Collector delved into different aspects and this exercise got delayed. The present Adjudicating Authority (3rd Commissioner) has done this exercise in (b) above in Paras 44 to 52 of his Order. He has pointed out the differences between 3K and Kalogen BL 3SL as under. Kalogen Brill Blue 3K (or 3K) Kalogen BL3SL (BL3 SL for ....
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....he production of 3K, though he has not finally adopted the same. He has held in Para 47 that BL3SL can be used for dyeing in conjunction with Copper Complex (i.e. Kalsol) in the ratio of 1:2 but Brill Blue 3K can be used directly for dyeing application and not in conjunction with anything also. In other words wherever BL3SL was supplied with Kalsol in the' ratio of 1:2 the invoice was genuine but not when it was supplied in the ratio of 1:4 (Para 53 & 54 of the 010). In the latter case what was supplied was Brill Blue 3K in the guise of BL3SL and Kalsol which was shown was never supplied. We find that the ld Commissioner has given the instance of Bill No 2642 dt. 19-1-85 where the goods were supplied to M/s. Nitro Chem Ind. Sales Corporation, Mumbai under GP1 No 150 dt. 19-1-85. The quantity of BL3SL mentioned therein is 280 Kg. @ Rs. 26/- per kg. (Rs. 20 assessable value + Rs. 6 excise duty) . The other component of the gross price of Rs. 140/- is towards 4 litres of Kalsol (Price Received Rs. 114). He has concluded from the Lorry Receipt dt. 12-2-85 that only powder i.e. 280 Kg of Brill Blue 3K was transported. We would have been inclined to accept this argument if th....