1. The captioned appeal was initially filed as a Revision Application before the Central Government which, under Section 35P of the Central Excises & Salt Act, 1944, has come as transferred proceedings to this Tribunal for disposal as if it were an appeal filed before it.
2. The facts of the case, briefly stated, are that the appellants (hereafter referred to as IPCL) cleared mixed-xylene falling under Item No. 6 of the Central Excise Tariff Schedule at 'nil' rate of duty in terms of Central Excise Notification No. 276/67, dated 21-12-1967 to M/s. Alkalies & Chemicals Corporation of India Ltd. (ACCI). Since the mixed-xylene was used by the latter as solvent and thinner for manufacture of paints and varnishes, the Department took the view that IPCL was not entitled for exemption under Notification No. 276/67. The C.T. 2 certificate (the prescribed certificate for availment of the benefit of Chapter X Procedure) against which the clearances were effected by IPCL was also taken to be invalid. A show cause notice was issued to them and, on adjudication, the Assistant Collector, besides imposing a penalty of Rs. 250/- under Central Excise Rule 9(2) on IPCL, demanded from them duty on 238.751 KLs. of mixed-xylene at the appropriate rate. The matter was pursued by IPCL in appeal. The Appellate Collector, by his order dated 22-12-1980, held on the basis of documents submitted before him that there was a valid C.T. 2 certificate covering the clearances effected under different removal documents commencing from AR3A No. 452, dated 24-2-1975. On this basis, the Appellate Collector held that IPCL was not liable to pay differential duty on the 11 consignments cleared by it on or after 24-2-1975. We should make it clear at this stage that the Assistant Collector had proceeded on the basis that Notification No. 276/67 did not apply to the facts of the case but Notification No. 35/73 for which, however, the C.T. 2 certificate was got endorsed by the proper officer only on 24-2-1975. The Assistant Collector held that the IPCL was not entitled to the concessional rate of duty but the Appellate Collector extended the benefit of Notification No. 35/73 in respect of 11 consignments cleared on or after 24-2-1975. In respect of 3 clearances covered by AR3A Nos. 442, 447 and 449, dated 13-2-1975, 17-2-1975 and 18-2-1975 respectively, the Appellate Collector took the view that since there was no valid CT 2 certificate to cover these 3 consignments, IPCL was liable to pay the differential duty. He also reduced the penalty from Rs. 250/- to a token amount of Rupee one only.
3. In the hearing before us on 2-7-1984, Shri R.K. Gupta, appearing on behalf of IPCL, submitted that Notification No. 276/67 was squarely applicable to the facts of the case and that all the clearances numbering 14 were eligible for total duty exemption. Paints and varnishes, in accordance with Departmental practice and understanding, were taken to be chemicals and Notification 276/67 authorised exemption from duty on mixed-xylene used in the manufacture of chemicals. In support of this contention, he drew our attention to the broad commodity groups in the Central Excise Tariff wherein Paints and Varnishes are shown under the grouping "chemicals". He also produced for our perusal a copy of the certificate held by ACCI for removal of mixed-xylene in accordance with which removal of mixed xylene in the manufacture of chemicals (paints, varnishes, lacquers and allied materials,....synthetic resins) etc. was permitted. Shri Gupta vehemently argued that there was no need for IPCL to invoke Notification No. 35/73 since Notification 276/67 which was more beneficial to them applied to the facts of the case. He also argued that there was no clandestine removal and, therefore, even, the token penalty of Re. 1/- was not justified.
4. Opposing the appeal, Shri S.N. Khanna, DR. argued that since the mixed-xylene was used in the manufacture of solvent or diluents for the manufacture of paints, Notification No. 35/73 and not 276/67 applied to the facts of the case.
5. We have considered the submissions before us. Notification No.276/67 exempts excisable goods falling under item Nos. 6 to HA (mixed xylene falls in this category) cleared to another factory in accordance with the procedure set out in Chapter X of the Central Excise Rules for use in the manufacture of any of the commodities specified in the Schedule annexed to the notification, other than as fuel. One of the commodities so specified is chemicals; another is chemical formulations.
6. Notification No. 35/73 exempts inter alia mixed xylene from so much of the excise duty leviable thereon as is in excess of the rate specified therein provided that the Collector of Central Excise is satisfied that the goods are intended for use, among other things, as solvent or diluent or thinner in the manufacture of paints, varnishes, lacquers and allied materials for use in painting.
7. The issue for determination is whether the IPCL was entitled to the benefit of Notification No. 276/67 or 35/73. IPCL's contention is that since paints are broadly classifiable as chemicals and have so been classified in the Excise Tariff, they are eligible for the benefit of Notification 276/67. The Department's contention, on the other hand, is that Notification No. 35/73 is the one which is specifically applicable to mixed xylene cleared for manufacture of paints and varnishes.
8. Notification No. 276/67 does not define chemicals nor chemical formulations. It is seen from the commodity groupings adopted in the Central Excise Tariff Schedule that paints and varnishes have been placed under the broad commodity grouping "chemicals". There is, therefore, force in IPCL's contention that according to the Departmental practice and understanding paints and varnishes were chemicals for the purpose of the notification. At the same time, Notification No. 35/73 specifically covers mixed xylene intended for use as solvent or diluent or thinner in the manufacture of paints, varnishes, lacquers and allied materials for use in painting. Whereas Notification No. 276/67 grants complete exemption, Notification 35/73 gives only partial exemption. One distinguishing feature is that Notification No. 276/67 is in respect of products falling under items No. 6 to 11A (this covers mixed xylene) produced in any premises other than the premises wherein refining of crude petroleum or shale of blending of non-duty paid petroleum products is carried on, which is declared under Sub-rule (2) of Rule 140 of the Central Excise Rules to be a refinery. Notification No. 35/73, on the other hand, does not have such a qualification. Looking to this distinguishing feature and the principle that when 2 notifications are applicable, the more beneficial should be applied, we consider that IPCL was entitled to the benefit of Notification No. 276/67 in the facts and circumstances of this case.
Having regard to this finding and the fact that the clearances were effected on Central Excise documents, there should be no question of any clandestine removals. Therefore, even the token penalty of Re. 1/- would not be justified. Accordingly, we allow the appeal with consequential relief to the appellants which shall be granted within 3 months from the date of communication of this order.