1. This is a revision application (hereinafter called "appeal") filed before the Central Government which under Section 35P of the Central Excises and Salt Act, 1944, stands transferred to this Tribunal to be disposed of as if it were an appeal presented before the Tribunal.
2. The basic question involved in this appeal is whether the steam generated in the factory of the appellants, employed for internal motive power and thereafter supplied to two other units for their utilisation, is eligible for exemption from excise duty in terms of Notification No. 118/75-C.E., dated 30-4-75. Under this notification goods falling under Item No. 68, manufactured in a factory and intended for use in the factory in which they are manufactured, or in any other factory of the same manufacturer, are exempt from excise duty. The question is whether the steam used in the manner described above qualifies for this exemption. The appellants have also raised the question of limitation, which will be referred to separately.
3. Appearing before us for the appellants, Shri Kapoor explained the process. He submitted that what was generated in the factory was high pressure steam, at a pressure of 61.5 kg. per square centimetre. After being used for internal motive power, it became medium pressure steam, at a pressure of 18 kg. per square centimetre of low pressure steam, at a pressure of 4 kg. per square centimetre. It was this medium pressure and low pressure steam, which was supplied to the other two units.
Admittedly, these two units are manufacturers different from the appellants. However, it was Shri Kapoor's contention that by employing high pressure steam within their factory, they must be deemed to have "used" it, and therefore it should be taken as having discharged its duty liability under Item 68. The medium pressure or low pressure steam, which it became and which was taken to other factories could not be charged to duty under Item 68, because this would amount to double taxation on the same goods and under the same Tariff Item.
4. In support of his contention that the high power steam did not become a different item of goods on conversion to medium pressure or low pressure steam, Shri Kapoor referred to the famous English "Saccharine case" where it had been held that saccharine in different concentrations did not become different goods.
5. It was observed that under Item 68, the Notification No. 58/75, dated 1-3-75 had been issued, covering intermediate goods and component parts used for captive consumption. It was only on 30-4-75 that Notification No. 118/75 was issued which covers all goods used for captive consumption. Shri Kapoor fairly admitted that the exemption was not admissible in respect of steam produced during the period 1-3-75 to 29-4-75. (This was, however, without prejudice to his argument on limitation).
6. For the Department, Shri Sachar submitted that the argument of double taxation was dropped by them before the Appellate Collector and could not be allowed to be revived before us. He also submitted that the concept of double taxation was accepted in Central Excise Law. In this connection he cited the judgment of the Andhra Pradesh High Court in the case of Standard Packagings v. Union of India and Anr., reported in 1983 E.L.T. 786. In para 8 of that judgment it has been observed that there is nothing in law or any statute including the Constitution under Article 265 prohibiting double taxation in any fiscal enactments.
The Tribunal itself in its Order No. Dl84/83, dated 18-3-83 in the case of Ceakay Rubber Industries (1983 E.C.R. 687) had held that the concept of double levy is an accepted principle in Excise law if the basic or intermediary article had undergone transformation after process of manufacture. Shri Sachar submitted that the exemption Notification No.118/75 was conditional on the use of the steam within the factory and if the condition was not observed, the duty liability remained.
7. We have considered the arguments advanced on both sides regarding the basic issue of applicability of Notification No. 118/75. There is no controversy that the same steam which as high pressure steam is employed within the factory is sold to other factories as medium pressure or low pressure steam. The question is whether the employment of this steam within the factory, in the course of which its pressure drops from 61.5 to 18 or 4 kg. per square centimetre, amounts to "use in the factory in which it is manufactured" within the meaning of Notification No. 118/75. It appears to us, with all respect to the learned representative of the appellants, that it would be difficult to accept the interpretation canvassed by him. There are a large number of exemption notifications which are conditional on the use of excisable goods for a particular purpose. On a reading of these various notifications, it is apparent that the "use" which is contemplated amounts to "using up" or "consumption". In fact, this type of use is popularly referred to as "captive consumption". Scrutiny of a few other notifications also issued under Item 68 will make the position clear.
Thus, Notification No. 167/79, dated 19-4-79 exempts parts and accessories of motor vehicles and tractors intended for use in further manufacture of excisable goods either in the factory in which they are manufactured or in any other factory. It will be seen that the wording used is very similar to the wording of Notification No. 118/75. In the case of Notification No. 167/79, it is quite clear that the parts and accessories once used in the further manufacture of excisable goods cannot be re-used, as the steam in the present case is. An even closer analogy is found in Notification No. 72/77, dated 29-4-77, which grants conditional exemption to various gases and furnace oil intended for use in the manufacture of synthesis gas, ammonia, heavy water, etc. In regard to synthesis gas, falling under Item 68, it has been specified that the exemption is admissible if such synthesis gas is supplied by the manufacturers to certain specified plants for the manufacture of heavy water and returned by the heavy water plant to the manufacturer and the synthesis gas so returned is used in the manufacture of fertilizers by the manufacturers of the synthesis gas in their factory.
In other words, this is a case where the synthesis gas is used twice over, but after the first use its duty liability is not considered as discharged, and it is discharged in terms of the exemption notification only if it is again put to an approved use. This case is very similar to that before us and would show that a first use in the course of which the steam loses some but not all its utility would not be sufficient to be regarded as "use" within the meaning of Notification No. 118/75.
8. We may also observe that the second proviso to Notification No.118/75 itself gives an indication of the approach by excluding from the scope of that notification complete machinery manufactured in a factory and meant for producing or processing any goods, even if they are intended for use in the factory in which they are manufactured. This would also show that the term "use" in the notification does not mean a use which can be repeated, but on which results in the article losing its utility as such article.
9. For these reasons, we consider that the lower authorities were correct in holding that the steam supplied by the appellants to other factories as medium pressure or low pressure steam was not eligible for the exemption under Notification No. 118/75.
10. We do not find force in the argument based on double taxation, because that question really does not arise. The steam becomes liable for excise duty when it is first produced, and since by its employment in the appellants' factory it does not satisfy the conditions of the exemption notification, the duty liability remains and has to be discharged at the stage of removal from the factory as medium pressure or low pressure steam. The argument based on the "Saccharine case" also is not applicable, since it is not contended that by lowering of its pressure the high pressure steam is 'manufactured' or becomes a different article.
11. We now come to the question regarding limitation. In this case the show cause notice was issued on 30-4-1977, and related to the period from 1-3-75. The show cause notice invoked Rule 10A. The appellants have contended that Rule 10A was not applicable to this case. Even if the decision on the main issue is against them, the applicable Rule would be Rule 10 read with Rule 173J, in terms of which the time-limit at the relevant time was one year. Accordingly, the demand could if at all be enforced for the period from 1-5-76. In this connection Shri Kapoor filed a copy of the classification list dated 5-3-75 filed by the appellants in which, in Part V (Particulars of other goods produced or manufactured and intended to be removed by the assessee) they had listed medium pressure steam and low pressure steam and had added the remark that "these are utility items used internally and also supplied to neighbouring industries, Messers Polyolefins Industries Limited and Messers Standard Alkali...." 12. On the question of time-limit, Shri Sachar submitted that there bad been no assessments in this case and therefore Rule 10 was not attracted.
13. On this question, we find that there is substance in the contentions of the appellants. They had specifically referred in their classification list to the production of medium pressure and low pressure steam and its being supplied to other factories. No doubt their explanation given in the form of "Remarks" could have been clearer, but the fact remains that they had made a substantial disclosure. We find that the excise authorities had on 7-3-75 approved the classification list without indicating that the steam was liable to duty. (In their approval they have used the words "are approved provisionally as non-dutiable ...". However, it was stated by Shri Kapoor, and not controverted by any evidence, that there was no formal provisional assessment, with bond, etc., as laid down in Rule 9B. It, therefore, appears that the words "provisionally approved" were only used as a measure of caution and do not have any legal significance).
14. In these circumstances, it appears to us that Rule 10A was not applicable, and that the case was covered by Rule 10. This being so, the show cause notice could only cover demands up to a period of one year before its date, that is, with effect from 1-5-76. Demands for the earlier period would be time-barred.
15. In the result, while holding that the steam in question was not eligible for the benefit of the exemption under Notification No.118/75, we also hold that the demand for duty shall be enforceable only for the period from 1-5-76. The appellants shall be entitled to consequential relief.