TaxTMI 
TaxTMI 
2016 (5) TMI 1108
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....o the Petitioner pertaining to the period 1st January 1990 to 26th March 1990. 2. At the outset it was stated by Mr C. Hari Shankar, learned Senior counsel for the Petitioner on instructions that the Petitioner was not pressing W.P. (C) No. 1926 of 2000 which challenges the CEGAT's order dated 14th March 2000 emanating from the SCN dated 5th July 1990. Accordingly the present challenge is confined to the CEGAT's order dated 15th April 1998 emanating from the SCN dated 19th February 1991 pertaining to the period 1st March 1986 to 31st December 1989. Background facts 3. The facts are that the Petitioner, inter alia, owns and operates a manufacturing unit in Meerut District, Uttar Pradesh and known as Daurala Sugar Works. The Petitioner has been operating a chemical plant at the said factory at Daurala where it is engaged in the manufacture and sale of various chemicals falling under Chapters 28, 29 and 38 of the Schedule to Central Excise Tariff Act, 1985 ("CET Act"). One of the items manufactured by the Petitioner is Phenyl Acetic Acid ('PAA') classified under Chapter 29 of the CET. It is stated that in the manufacture of PAA two intermediate products are manufac....
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....ed 30th April 1975 exempt from payment of excise duty if they were captively used in the factory of production. It is stated that in 1976 and 1982, the Petitioner applied to the Assistant Collector of Central Excise, Meerut and the Superintendent of Central Excise, Modipuram, Meerut for renewal and amendment of the Central Excise Licence in Form L-6 enclosing the details of the manufacturing process of various products including BeCL, BeCN and PAA. The Petitioner paid 'Nil' rate of duty on PAA in terms of Notification No. 147/84-CE dated 18th June 1984. 7. With the introduction of Modified Value Added Tax ('MODVAT') Scheme, the Petitioner applied to avail MODVAT credit on various inputs including the following: (a) Toluene (b) Chlorine (c) Sodium Cyanide (d) Sodium Hypo Chloride (e) Bleaching Powder (f) Triethylamine (g) Sulphuric Acid (h) Caustic Soda 8. The CET Act replaced the Schedule to the CE Act with effect from 28th February 1986. On 1st March 1986 chemicals that were hitherto classified under TI 68 in the Schedule to the CE Act were described in different Chapters of the CET. In terms of Notifications Nos. 171, 172 and 176 of 1986 dated 1st March....
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....disclosed the following information: (a) Manufacture of PAA cleared upon Nil rate of duty under Notification No. 147/84. (b) Production of the Aqueous Layer from PAA (classified under Chapter 38 to the Schedule) on which BED of 15% ad valorem was paid. (c) Production of BeCL and BeCN for captive consumption, which were exempt from duty in terms of Notifications 171, 172 and 176 dated 1st March 1986 as well as Notification No. 217/86 dated 2nd April 1986. (d) Manufacture of BeCL and BeCN on which 15% duty ad valorem was paid. 12. By letters dated 29th July 1986 and 4th August 1988, the Petitioner informed the Department that in the chemical plant it produced PAA from toluene and chlorine and that BeCL and BeCN were intermediate products for the manufacture of PAA. The Petitioner also stated that it was also marketing BeCN apart from consuming it captively for the manufacture of PAA. It was clarified that the BeCN used captively was different from the one that was marketed. Another classification list was filed on 1st March 1989 in which again the information disclosed by the Petitioner in the lists filed on 7th March and 7th May 1986 was disclosed. 13. The D....
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....te of duty by availing exemption under Notification Nos. 176/86 dated 1st March 1986 and 217/86 dated 2nd April 1986 whereas such exemption was available only if the BeCN so produced was dutiable. However, inasmuch as BeCN and thereafter PAA was also being cleared at Nil rate under Notification No. 217 dated 2nd April 1986, the Petitioner was asked to show cause why it should not be asked to pay BED and SED on the BeCL so cleared on payment of Nil duty. Likewise the Petitioner was also asked to show cause why it should not be asked to pay BED and SED on the BeCN cleared on payment of Nil Duty as per Notification No. 217 dated 2nd April 1986 since such BeCN was used in the manufacture of PAA which was also cleared on payment of Nil duty under Notification No. 147/84 dated 18th June 1984. The demand on BeCL was Rs. 5,73,598.44 and that on BeCN was a total of Rs. 10,58,415.75. The computation included BED and SED at 15% ad valorem. 16. The Petitioner replied to the above SCN on 1st October 1990 pointing out that BeCL and BeCN were not marketable in their captive use and therefore not amenable to excise duty. In any event, as BeCL was used to make BeCN in the event that BeCN was con....
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....ply to the above SCN on 19th April 1991. The Petitioner again pointed out that the Department was already aware of that BeCL and BeCN were manufactured in-house and used captively in the manufacture of PAA which was being cleared on payment of Nil duty. It was on that basis that the Petitioner had been asked by the letter dated 31st March 1986 to reverse the MODVAT credit availed on the inputs used in the manufacture of PAA. There was no demand at that stage for duty on BeCL and BeCN. The Petitioner's reiterated that BeCN made in-house and used captively in the manufacture of PAA was in a crude form and not of marketable quality. This was different from that part of the BeCN which was subjected to further processing and thereafter packed for sale. On clearance of such marketable BeCN, duty was paid. The Petitioner submitted that the benefit of MODVAT credit taken on the inputs already reversed should be restored and adjusted towards the duty held to be payable on BeCN. Order-in-original dated 12th August 1991 20. For some reason, the second SCN dated 19th February 1991 was adjudicated first by the Collector of Central Excise (CCE), Meerut by an order dated 12th August 1991 co....
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....iew of the conclusion that BeCN was dutiable. CEGAT's order dated 15th April 1998 25. The Petitioner filed appeals against both orders in original before the CEGAT. By the final order dated 15th April 1998, CEGAT upheld the order dated 12th August 1991 of the CCE as regards the second SCN dated 19th February 1991 except for certain modifications. The conclusions reached by the CEGAT were as follows: (i) The classification list filed on 1st March 1989 mentioned that the Petitioner availed the benefit of Notification No. 217/86 dated 2nd April 1986. In the said classification list the words "for manufacture of dutiable goods" were written by hand and therefore in so far as the inputs namely BeCN/BeCL was being used for manufacture of PAA, which was subjected to nil duty. A false claim had been made by the Assessee. (ii) In the earlier classification list filed on 7th March 1986, PAA was declared twice as 'pharmaceutical grade' and for the second time as 'other grade'. In both the cases the basic duty claimed was nil in terms of Notification No. 147/84. The two substances i.e. BeCL and BeCN were shown to the attracting duty at 15%. There was no mention of either of the....
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....stayed subject to the Petitioner furnishing security to the satisfaction of the Registrar. 27. The rectification application was decided by the CEGAT by order dated 18th November 1999. A copy of the said order was placed on record by the Petitioner by an affidavit dated 11th May 1990. By the said order dated 18th November 1999, the CEGAT accepted the plea of the Petitioner and made the following corrections to page 4 its order dated 15th April 1998: (i) The sentence "this price list does not speak of captive consumption of either of these two input s" shall be substituted with the sentence: "This classification list does not speak of captive consumption of either of the two inputs." (ii) The sentence "In the next classification list dated 7.5.1986 bearing No. CHEM/DSW/86-87 also no exemption is claimed on either of the two substances in terms of any Notification exempting them free of duty when used for captive consumption" with the following sentence: "In the next classification list dated 7.5.1986 bearing No. CHEM/DSW/86-87 exemption is claimed on both the substances in terms of Notification 217/86 for captive consumption." (iii) In Internal page 8 of the order dat....
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....s request for some time to further look into the matter on the question of maintainability of the writ petition. Adjourned to 21st September 1999." 32. It was thereafter that on 21st September 1999 Rule DB was issued. In other words, the writ petition was admitted after the Division Bench considered the question of maintainability of the writ petition. The said order admitting the writ petition was not challenged by the Department. The said writ petition has been pending in this Court for nearly two decades. 33. Consequently, this Court does not consider it appropriate at this stage to relegate the Petitioner to the alternate remedy of an appeal. Apart from interminably delaying the resolution of the dispute that started two decades ago, it will add to the burden of huge pendency of cases and would not serve any useful purpose. Consequently, the preliminary objection raised by Ms. Sonia Sharma is hereby rejected. Was the extended period of limitation available to the Department? 34. As far as the SCN dated 19th February 1991 is concerned, since it pertains to the period 1st March 1986 to 31st December 1989, one of the main issues that arises is whether the Department....
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....e 1 set out the products that were proposed to be manufactured. As regards 'the manner of manufacture' it was stated as under: "Toluene & Chlorine is reacted in all glass plant to produce Benzyl Chloride which is converted to Benzyl Cyanide on reaction with Sodium Cyanide. Benzyl Cyanide is then hydrolysed by using hydrochloric acid sulphuric acid to produce Phenyl Acetamide and Phenyl acetic acid respectively. For the production of Benzyl Alcohol, Benzyl Acetate and Benzoate, Benzyl Chloride is reacted with sodium carbonate, sodium acetate and sodium benzoate respectively. Chilled water is used in the plant for condensers and coolers as well as direct consumption in the process." 39. Again when it applied for change of the name of the licence from Daurala Chemical Industries to Daurala Sugar Works (Chemical Plant), in the application form the Petitioner stated that it may be granted licence to obtain (without payment of whole or part of the central excise duty thereon) Toluene to be used for the manufacture of BeCL, BeCN which were used for the manufacture of PAA and allied chemicals. 40. After the introduction of MODVAT Scheme, the Petitioner c....
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....t payment of duty or that PAA itself was being cleared with payment of Nil duty. 42. Further, the Petitioner had placed on record copies of the serially numbered gate passes pre-authenticated by the proper officer of the Department indicating how much BeCN was captively consumed in the manufacture of PAA and the quantity that was cleared on payment of duty. These gate passes in turn formed the basis of making entries in the statutory RG 1. The Petitioner is right in its contention that the gate passes were pre-authenticated in September 1986 and were issued in October 1986. Notification No. 118/75 was rescinded with effect from 28th February 1986. Therefore the question of the Petitioner claiming the benefit of Notification No. 118/75 did not arise. The pre-authentication was made and the documents accepted by the Department obviously by extending the benefit under Notification No. 118/75. 43. The copies of the classification lists dated 7th March 1986, 7th May 1986 and 1st March 1989 reveal that the first entry under the column describing the products manufactures mentions PAA and the fact that it was being cleared upon payment of Nil duty in terms of Notification 147....
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....ailing exemption from payment of duty were disclosed in the Classification List. 46. Mr Hari Shankar referred to the decision in Nizam Sugar Factory v. CCE (2006) 11 SCC 573 and submitted that the second SCN for the extended period was a virtual repetition of the first SCN and did not point to any new material that the Department came across to conclude that the conditions for attracting the extended period of limitation were fulfilled. On the other hand, Ms Sonia Sharma submitted that the Department was within its right to issue the second SCN for an earlier extended period since at the time of the first SCN, the investigation was still in progress and "more and more facts" remained to be unearthed. She stated that prior to the issuance of the SCN dated 5th July 1990, the Department was not aware of the process being adopted by the Petitioner to manufacture PAA. She sought to distinguish the decision in Nizam Sugar Factor (supra) by pointing out that the subsequent SCN in the aforementioned decision pertained to a later period than the first SCN, whereas in the present case it pertained to an earlier period. 47. As already noticed, the Department was indeed aware of t....