TaxTMI 
TaxTMI 
TaxTMI 
1990 (11) TMI 417
X X X X Extracts X X X X
X X X X Extracts X X X X
....n the form of a lump and cannot be used as such, so emulsion has to be prepared by adding some other material and dissolving them in the water. Process, adopted for this purpose by all the appellants, is more or less the same. The process, as stated in the impugned order in para 8 in Appeal No. E/4015/89-C (M/s. Stadfast Paper Mills, Appellant), is that the product, in question, is manufactured by reacting caustic soda lye in water and then heating the same with Rosin for 4 to 6 hours. In appeal memo of Appeal No. E/401/89-C (Orient Paper Mills) (in para 3), the process is stated as under: "The appellants mix soda ash and rosin and heat them with steam. The result out produce is cooked rosin. It is passed through strainer and the material so obtained is passed through emulsifier where it is mixed with the steam and water. The product at this stage is a clear rosin emulsion. It is not a solution because rosin does not dissolve in soda ash or water. This product is pumped through a meter to a tank and mixed with pulp and sent to paper machine for being used for sizing of paper. It is this rosin which serves as a sizing agent for paper alongwith other chemicals like alum." 3. In Ap....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... availing of benefit of Notification No. 225/86 dated 3-4-1986 by taking credit of central excise duty paid on rosin purchased and setting off towards the payment of excise duty on the paper cleared by them. So, it was alleged in some of the show cause notices that as the rosin was utilised as raw-material in manufacture of the product, in question, which was excisable, the appellants were not entitled to avail of benefit of such notification and they were also asked to show as to why they should not be asked to pay the duty for which they have claimed set off during the said period. 7. So, following issues arise in these appeals : (i) whether the material, in question, which is being manufactured, at the intermediate stage, is 'sodium rosinate'; (ii) if not, whether it is derivative of rosin; (iii) whether it is marketable; and (iv) whether there was justification for invoking longer period of limitation. 8. As facts involved in above appeals are more or less the same and the issues that arise are also the same, it is not necessary to recite facts of each appeal individually. In all the above appeals, the adjudicating authority concerned, confirmed the demand raised in sho....
X X X X Extracts X X X X
X X X X Extracts X X X X
....vocate adopted the above arguments. 11. L.A., Sh. Sridharan, made following submissions : In Vinod Paper Mills Ltd., chemical test report has not stated the composition, but has only stated 'aqueous solution'. The appellants mixed soda ash with rosin and what emerges is salt and water. Some part of it may be 'sodium rosinate', but most of the part will remain only 'rosin'. In fact, what is being prepared is sizing material. There are three types of material from which sizing material is prepared available in the market as stated in the technical literature. They are (i) powder form; (ii) paste form; and (iii) protein fortified. From this solution, which is in question, can be prepared, but solution is not marketable and is not marketed. He referred to technical literature and dictionary meaning of sodium rosinate. Entry 3806(B)(6) in HSN does not cover the material in question and at the relevant time, the Indian Tariff Nomenclature was not "Pari Materia" with HSN. All the paper mills are manufacturing this material since more than 50 years and formerly, all these manufacturers were availing of benefit of Notification No. 201/79 and from 1-4-1987, Modvat Scheme is extended to pap....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 38.01 covers derivatives, but this product is not derivative. He referred to technical literature. He also referred to Trade Notice issued by the Hyderabad Collectorate Number 188/89 dated 27-9-1989 [1989 (43) E.L.T. - T13], to show that similar product has been declared to be non-excisable. 15. L.A., Sh. Sharma for Shreyans Paper Mills Ltd. adopted the arguments advanced by Sh. Sridharan, Ld. Advocate. 16. Sh. Prabhakar, Financial Controller for United Pulp adopted the arguments and referred to Trade Notice issued by the Baroda Collectorate No. 178/89 dated 18-9-1989 [1989 (24) ECR 21C]. He, further, submitted that discussion about manufacture of sodium rosinate is not correct. Moreover, reference in the impugned order to Trade Notice is not proper because, the Trade Notice is dated 14-7-1987 while the period, in question, is 1-3-1986 to 28-2-1987. The Collector is not clear whether the appellants are allegedly manufacturing sodium rosinate or derivative of rosin. 17. L.A. Sh. Lahoty for Madhya Bharat Papers Ltd. adopted the above arguments on the points of marketability, limitation and valuation. He, further, submitted that in the show casue notice (at page 17), it is not sta....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the impugned order. The appellants have clarified how the material differs from sodium rosinate which has been stated in the impugned order itself. The material, in question, will have to undergo process of evaporation and saponification before converting it into sodium rosinate. Moreover, sodium rosinate is manufactured from rosin and caustic soda (sodium hydroxide) while the appellants are preparing sizing material by adding soda ash to rosin. Moreover, the material, in question, is not derivative of rosin and it is a mixture of two things. The test report was not given to the appellants, even though sample was drawn after hearing. So, no reliance can be placed upon it and so composition of the product is not proved. In HSN under Chapter Heading 38.09, preparations are included, but no derivatives and in T.I. of CET, paper sizing agents are not included. By amending T.I. from 10-2-1987, by Amendment Act, 1985, [1986 (27) E.L.T. B35], finishing agents of a kind used in the paper industry have been included in 38.09 which would, by implication, suggest that that was not included earlier. Moreover, it has been described as preparation which would also suggest that it is neither sodi....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... is produced as additional submissions by the appellant in Appeal No. E/3319/89 wherein it has been stated as under : "Rosin is weighed and cooked in the kettle having steam check up arrangement for 3-6 hours alongwith soda as solution.... A concentrated rosin emulsion is prepared which is diluted to 2.0 per cent concentration in the dilution tank with hot water." 26. He also referred to the written submissions wherein it is stated as under : "The shelf life of the 'sizing solution' is very short." Then, he referred to a letter dated 12-6-1987 (page 21 of the Paper Book of the said appeal) addressed to the Chairman, C.B.E.C. by the Secretary of Indian Paper Mills Association wherein it is stated as under : "But this rosin cannot be used as such and it has to be mixed with soda ash and the resultant compound - Sodium Abietate/Rosinate is used in the manufacturing process." 27. He also referred to a letter dated 29-7-1987 (page 23) by the said Association addressed to all the members of the Association wherein also, it is stated as under : "Sodium Abietate/Rosinate are resultant compound of rosin in admixture with soda ash is used by paper mills in their manufacturing process.....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... in M/s. Chhotabhai Jethabhai Co. and Others v. UOI - ECR C (SC 147) (1932-1982 Compilation of S.C. Judgments) wherein in para 35, it has been laid down that excise duty is levied because of the mere fact that the goods have been produced or manufactured and are unrelated to and not dependent on any commercial transaction in them. He submitted that this has not been over-ruled uptil now and so whether the product is marketable and is marketed has no relevance. Regarding limitation, he submitted that all the appellants knew that the product that they were manufacturing had become excisable and it was their legal duty to file classification list and declare the production of the same to the Department. It was a statutory duty which they had dis-regarded intentionally and that was a suppression. Shri Sunder Rajan reiterated the arguments stated in the appeal memos of the four appeals preferred by the Department. 29." In reply, the Ld. Advocates contended that the arguments advanced by the Ld. D.R. that the Department intends to levy duty on paste which is first manufactured before converting it into solution is a new argument and none of the adjudicating authorities has said so.....
X X X X Extracts X X X X
X X X X Extracts X X X X
....2.5% (by ml.) (ii) the sample is sodium rosinate in the form of thick and light yellow coloured paste. The percentage content of solid matter is 36.3. 33. In the impugned order, the Additional Collector has (at page 3 of the copy) held as under: "Rosin and soda ash or caustic soda which are the principal raw material for Sodium Rosinate, are cooked together in vessel with water by steam to convert the same into soluble form i.e. sodium rosinate. The same solution is added to stock (Pulp) alongwith other chemical in a chest for manufacture of paper. Rosin in turn reacts with other chemical in the manufacturing process of paper. It is used by paper industry for sizing of paper. It is a derivative of rosin and finds mention in the explanatory notes to HSN below Heading No. 38.86". 34. In the show cause notice (page 14), it was alleged that the appellant was manufacturing sodium rosinate. The samples are in liquid form and the Additional Collector has come to the conclusion that what is manufactured is derivative. So, there is no definite finding that what is being manufactured is sodium rosinate and it appears from the impugned order that what is being sought to be made excisable ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ants do not manufacture sodium rosinate as such nor do they manufacture sizing material which is marketed in different forms, but they are manufacturing the liquid compound which is used in the process of sizing of the paper. So, if the dictionary meaning of the sodium rosinate is kept in mind, there is no evidence that any of the appellants is manufacturing sodium rosinate. 40. Sh. Sunder Rajan, mainly relied upon and referred to the record in Appeal No. E/3319/89 (Mandya National Paper). This is a government enterprise and it can be presumed that the facts stated by them can be relied upon. In this appeal a technical note, prepared by Dr. R. Tripathi, General Manager (W), is produced wherein it is stated as under: "SIZING" Process in MNPM In our Mill, we are using rosin size which is a part of paper manufacturing process. In short, rosin is weighed and cooked in the kettle having steam jacket arrangement for three to six hours along with soda ash solution. The consumption of soda ash varies from 12 to 14% of weight of rosin. A concentrated rosin emulsion is prepared which is diluted to 2.0% concentration in the dilution tank with hot water. Alum solution is also prepared simul....
X X X X Extracts X X X X
X X X X Extracts X X X X
....omplete product, it cannot be marketed and cannot be made dutiable . He also contended that the material, in question, contains rosin and rosin makes paper water repellant and so it is used for sizing purpose and that is why material is referred to as rosin size and there is substantial quantity of free rosin therein and there is no complete saponification. So, the material is emulsion and not solution. Solution is homogenous in nature while emulsion is not. So, as pointed out by him, it is not proved that the material, in question, conforms to the definition of rosin derivative. 44. In Appeal No. E/401/89-C (at page 4), five questions which were put to the appellant and answers by the appellant (By Sh. B.M. Lal), have been reproduced, which are as under: Questions Answers 1. Is it correct that Rosin and caustic soda/soda ash is purchased and used in the manufacture of Sodium Rosinate (Sodium Abietate)? 1. Rosin and caustic soda and/or soda ash are used in the preparation of rosin size (Sodium rosinate) in stock preparation plant. 2. Is it a fact that Rosin cannot be used for sizing of paper unless reacted with Soda Ash/Caustic Soda? 2. Rosin is the original form and cannot ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s not denied by the Assistant Collector that the solution of rosin and caustic soda i.e. so-called 'derivative of rosin' comes into existence in the continuous manufacturing process of paper and that it is not possible to take the solution out of the manufacturing machine for the purpose of marketing. Thus, the solution so produced in the course of manufacture of paper, has no identifiable existence of its own except in the mixture of paper pulp, during the process of sizing of paper." 47. All the appellants have stated the process of the manufacture of the material and have stated that it is a continuous process. 48. Shri Sunder Rajan referred to a technical note of Sh. Tripathi produced in Appeal No. E/3319/89-C, but then in that very note, it is stated that the process involves continuous addition to pulp stock. It has been contended by the appellants that this is a continuous process and it is not that concentrated rosin emulsion is produced and taken for sizing purpose. Layout of the machinery is produced on record in A. No. 401/89-C (Orient Paper) wherein rosin stock godowns are also shown and Sh. Sunder Rajan submitted that herein the material, in question, is possibly sto....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ow that three types of sizing materials are being marketed in India. Even if it is so, then also the appellants have contended that they do not manufacture any of these types of material, but they are preparing a solution which has to be prepared for use from one of these materials also if one of these materials is purchased and used by the appellant. As contended by the L. Advocates, that if any of these types of material is to be produced, the appellant has to carry out some further process which they are not carrying out. It is also contended by L.A., Sh. Kumtakar that if sodium rosinate is a product which can be prepared out of this solution, the solution is an intermediate product and no sodium rosinate is produced by the appellants. In the same manner, only because some type of sizing material is available in the market, it cannot be said that what is being manufactured by appellants or any of them is an equivalent to or similar to either of these materials and that it can be marketed. In fact, no such attempt has been made in any of the impugned orders. So, unless it is proved by the Department that the material, in question, is marketable, then even if it may be derivative ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....2-1986 and hence there is no fraud, collusion, wilful mis-statement, suppression of facts, etc. for invoking extended period under the provisions of Sec. 11A". 54. So, even some of the adjudicating authorities have admitted that it is the position. In this view, there was no justification for invoking longer period of limitation and wherever it has been invoked and orders have been passed, as a result thereof, such orders will require to be set aside. In the cases where the question of limitation is not there, in light of the discussion above, as it is not proved that any excisable product is manufactured by the appellants at the intermediate stage, in marketable form, the appeals will have to be allowed on merits and the impugned orders whereby demands have been raised will have to be set aside. 55. The adjudicating authorities have denied benefit of Notification No. 225/86 whereunder the appellants have claimed credit of duty paid on purchase of rosin on the ground that same had been used for the manufacture of intermediate product which was excisable and so the appellants were not entitled to avail of that benefit. Now, firstly, as discussed above, it is not proved that the ro....