1. As these appeals involve common questions of facts and law they were taken up together. Originally one revision application was filed which on transfer to the Tribunal is being treated as Appeal No. ED(SB) (T) 444/81-C. The other appeals have been filed for completion of record as the common order-in-appeal was in regard to several orders-in-original.
2. The present appeals are against the common judgment and order dated 29.9.1980 passed by the Collector of Excise (Appeals), Bombay.
3. Lube India Limited, known as the Lube Refinery also, was a Company jointly owned on a 50 : 50 basis by the Government of India and the Esso Eastern Inc. This Company was set up to manufacture lubricating oil base stocks and transformer oil base stocks. An agreement was entered into between the Government of India and the Esso Eastern Inc in September 1965. According to the terms of the agreement the Esso Standard Refining Company of India Ltd., (hereinafter referred to as ESRC) was to supply certain hydro carbon streams to the Lube Refinery for use as feed stocks/raw materials in the manufacture of lube base stocks and transformer oil base stocks. After processing the feed stocks the Lube Refinery was to return to ESRC surplus hydro-carbon streams. The Wash Oil was intended to be used by the Lube Refinery for the purpose of washing filters in the Dewaxing Units during the course of the manufacturing operations. A clause has been incorporated in the Lube Refinery agreement to the effect that Lube Refinery would not be placed at a disadvantage in the matter of imposition or levy of excise duty on products manufactured by it as compared to like products manufactured in the country by other Refineries. Before the Lube Refinery went on stream during August 1969, certain meetings were held with the Excise Collector, Bombay, as also the officials of the Central Board of Excise & Customs, New Delhi. During the course of the discussions the Collector of Central Excise had confirmed that there would be no duty liability in respect of any hydro-carbon streams exchanged between the Lube Refinery and the ESRC. The Ministry of Finance, Government of India, by a Notification dated 10.7.1969 declared the premises of the Lube Refinery as a 'Refinery' for the purpose of Rule 140(2) of the Central Excise Rules, 1944. It is urged that the Government of India had accepted the position that the hydro-carbon streams exchanged between the two refineries were not liable for any excise duty and that the two refineries would be treated as one unit and one complex for the purpose of Central Excise. The appellants had been submitting all requisite information relating to the streams of feed stocks including the wash oil received and those returned after use to ESRC. On 2.11.1972 a show cause notice was issued by the Supdt. of Central Excise calling upon the Lube Refineries to pay excise duty of Rs. 50,28,135-73. It was alleged that the excise duty was levied on the quantities of wash oil received from ESRC during the period August 1969 to September 1972. The appellants sent a proper reply setting out both legal and factual contentions. The Assistant Collector of Central Excise by his order dated 8.2.1980 confirmed the demand. An appeal was filed and the Collector of Central Excise (Appeals), Bombay, held that the contentions of the appellants were not acceptable.
4. Shri G.M. Badkar, Tax Manager, appeared for the appellants and Smt.
Vijaya Zutshi, SDR, for the respondent.
(i) Whether the product in question (wash oil) being an intermediate product transferred from ESRC to Lube Refinery was not excisable under the Central Excises law and hence no excise duty could be levied even on the quantity used in the Propane Dewaxing Unit (ii) Assuming that this could be considered excisable, whether no duty could be levied on wash oil used in the Lube Refinery in view of Rule 143-A of the Central Excise Rules 1944 (iii) Whether the impugned demand could not be raised under Rule 160 since that rule is not applicable and in any case whether the demands are barred by time (iv) Whether the doctrine of promissory estoppel would apply and could be invoked 6. We have initially to find out the nature of the product, namely, wash oil and whether it is excisable. The show cause notice issued prior to the levy refers to 54.63 kls. at 15 C of wash oil received by the appellants from Hindustan Petroleum Corporation Limited (Fuels Refinery) and consumed during the period from 1.4.1978 to 30.6.1978. In their reply dated 16.8.1978, the appellants have submitted that out of 546 327 kls. of wash oil, 491.694 kls. were returned to the Fuels Refinery as dirty wash oil and 54.63 kls. were used in the process of manufacture at the Lube Refinery. Even this quantity was utilised in the manufacturing process having been mixed with wax slurry, and after washing the filters, was sent back to the Fuels Refinery for re-processing. It is common case that duty was paid on the reprocessed product. The Technical Note submitted by the appellants in respect of the used wash oil in the Propane Dewaxing unit indicates that wash oil is untreated raw distillate obtained from distillation of crude in the Fuels Refinery. The oil is mixed with Dewaxing Aids and Solvent Propane. As a result wax precipitates out of the solution and is then separated from the oil in rotary drum filters. Wash Oil is absolutely essential to maintain production in the Propane Dewaxing Unit. The filtering medium is a very fine synthetic fibre cloth which is wrapped around the filter drum over a backing cloth. As the drum rotates, each compartment passes through the waxy feed in the vat. Wash oil is essential for the operation of Propane Dewaxing Unit without which the operation of the unit will be commercially inexpedient and technically not feasible. About 90% by volume of the wash oil consumed in the unit is returned to Fuel Refinery and recovered, while the balance 10% by volume is burnt into furnaces as wet fuel gas. It is urged on behalf of the appellants that if the filters are not frequently washed with the aid of wash oil the manufacturing process would come to a grinding halt. The filtering equipment in the Dewaxing Unit is a highly sophisticated piessurised equipment with continually rotating filter drums. It is thus argued that wash oil is an intermediate product and is not sold in the market as such. The learned representative of the appellants urged that the test of marketability must be established before excise duty could be levied. He relied on the ruling reported in 1982 ELT 447 (Ker.) 1982 ECR 457D-Ker. (The Western India Plywood Limited v. Union of India and Ors. 1983 ELT 2184 (Mad.) 1984 ECR 392 Secretary Ministry of Finance, Govt. of India, New Delhi and Ors. v.W.S. Insulators of India, Madras) and 1983 ELT 197 (All.) (Flocks (India Private Limited v. Government of India and Ors.
7. The Departmental Representative argued that marketability was one of the tests and not the sole test. She placed reliance on the ruling reported in 1978 ELT (J) 336 (SC) 1973 Cen-Cus June ix--ECRC 257-S.C.(South Bihar Sugar Mills Ltd. and Anr. etc. v. Union of India and Anr.
etc. and Tata Chemicals Limited, Bombay v. R.N. Desai, Inspector, Central Excise and others). According to her, wash oil had a distinct name, character and use and being a highly specialised item may not be ordinarily sold but was definitely capable of being sold. She relied on the ruling reported in 1983 ELT 1566 (SC) : ECRC 476-S.C., Dunlop India Limited and Madras Ruber Factory Limited v. Union of India and Ors.
8. We have to find out whether wash oil would attract excise duty. The onus is no doubt on the department to prove that this intermediate product is sold in the market as such. If there is no proof that wash oil is known by a distinct name and is sold in the market as such having definite characteristics and use the duty liability will not be attracted. From the facts of the case, it is clear that wash oil is an intermediate product used in the course of the manufacture in the Propane Dewaxing Unit. The Appellate Collector has observed that the goods manufactured by the appellants satisfy the specifications of excisable item mentioned at item 8 of the First Schedule of the Central Excises & Salt Act. The Collector has observed that this fact was mentioned in the impugned order and was not refuted by the appellants.
Shri Badkar argued that if the fundamental test of marketability was not proved answering specifications would not be relevant. In our view wash oil would be liable to excise duty because the test of marketability is established. The levy of duty arises on the production or manufacture of the goods as laid down in 1982 ELT 447 1982 ECR 457D (supra). If the intermediate product which comes into existence is a complete product known to the market, it is excisable. Even the ruling reported in 1983 ELT 2184 (1984 ECR 392) (supra) confirms the view that in order to attract excise duty the goods, manufactured, must be goods, which are ordinarily bought and sold in the market and are known as such in the commercial community. The facts that the goods are not actually sold in the market would not make any difference. It is clear from the facts of the case that these goods are excisable goods and have been mentioned in the First Schedule. Further, when wash oil is removed from ESRC to Lube Refinery, a price is fixed and the accounts are settled by adjustments. These are factors which point out that wash oil is capable of being sold.9. The Tax Manager of the appellants drew our attention to a circular issued by the Central Board of Excise and Customs dated 1.5.1982. That circular dealt with certain doubts regarding duty liability of intermediate products emerging in course of manufacture of a product.
The Central Board of Excise had clarified that if the intermediate products had reached a stage when they could be regarded as excisable goods, classifiable under a tariff entry, keeping in view all the guidelines laid down by the Supreme Court in the cases of DCM and South Bihar Sugar Mills, they could be charged to duty. Intermediate products consumed or utilised within the factory of production can be charged to duty when they have reached the stage when they can be identified as excisable goods falling under a tariff item. In this case, the marketability has been established and the identity of the wash oil as excisable goods has also been made out.
10. We also find that M/s. Lube Refinery is a separate legal entity and M/s. Esso Standard Refining Company of India Ltd. is another distinct legal entity. It is not a mere transfer of the goods by one Refinery to the other. Admittedly adjustment of value of the goods for purposes of accounting is also made for the wash oil. The two units are separate.
It cannot be argued that there is a mere transfer of goods from one unit to the other. The fact that these two units are located close by will not make any difference for, till the amalgamation of the two units in July 1974, they continued to be separate entities in the eye of law. We also do not agree with the contention that the absence of profit motive between the two units should be taken into consideration in order to assess the excisability of goods in question. Considering the fact that the two units are separate in the legal sense the products sold by one unit to the other would be liable to excise duty.
In 1978 ELT (J) 618 Maneklal Harilal Spg. and Mfg. Co. Ltd. Ahmedabad and Ors. v. Union of India and Ors. it was held that an intermediate product which is by itself an excisable article is liable to excise duty even though it is not removed from the factory.
11. We also notice Clause 10 of the Lube Refinery Agreement dated 15.9.1965 which reads as follows: 10. (a) The Government will use its good offices with the Maharashtra Government for according to the Company the same treatment in regard to exemption from sales tax on their intercompany transfers and/or sales between the company and ESRC and/or ESE and/or other oil companies for so long as any of the oil companies enjoy exemption from sales tax on their intercompany sales of transfers of their products: (b) Government will use its good offices to ensure that ESRC and Lube Company are not placed at a disadvantage.
(i) in the imposition or in the method of levy of customs duty on their products as compared to any like products imported from abroad; or (ii) in the imposition or in the method of levy of excise duty on products manufactured or processed by them as compared to any like products manufactured or processed in the country.
From the above it is clear that the Government has offered its good offices for claiming exemption from sales tax between the two companies. In regard to the imposition of excise duty, it is stated that the ESRC and Lube Company would not be placed at a disadvantage with the other like institutions. These terms therefore confirm that the two companies are two legal entities. Even in their letter dated 11.8.1969 the Collector of Central Excise. Bombay, has written to Lube India Ltd. to approach the Government of India for granting exemption on the quantities of LPG used as fuel in the plant, if so desired. So it is for the Government to have exempted wash oil as such from the excise net, if they so desired. Even in the conference held on 22.7.1969, it was understood that orders of the Ministry of Finance would be obtained if need be to ensure that no excise duty was claimed under the existing Excise Rules. The Government have accepted the accounts maintained by Lube India and the ESRC for central excise purposes. In the office Memo from the Ministry of Petroleum to Ministry of Finance dated 23.12.1975 the question of exemption of excise duty on wash oil was considered and the Director, Ministry of Petroleum has requested the Ministry of Finance to re-consider the matter and allow the exemption from excise duty. So we do not accept the arguments that wash oil being an intermediate commodity was not excisable under the Central Excises Rules and that no excise duty could be levied on the quantity used in the Propane Dewaxing Unit, 12. It is urged that even if the product is considered excisable, no duty should be levied on wash oil used in the Refinery in view of Rule 143-A of the Central Excise Rules.
Rule 143-A Special provision with respect of goods processed and manufactured in refineries: With the sanction of the proper officer and in accordance with such instructions as the Collector may from time to time issue in writing in this behalf, the owner of the goods, processed or manufactured in a refinery, declared under Sub-rule (2) of Rule 140, may blend or treat or make such alterations and conduct such further manufacturing processes in the aforesaid goods in such manner and subject to such conditions as the Central Government may, by notification in the official Gazette, specify.
The appellants claim that they use the wash oil for manufacturing other petroleum products liable to excise duty. The department contends that wash oil has been used for the purpose of washing filters in the Dewaxing Unit and hence it shall not be deemed to have been used for the purpose of manufacture. The Collector of Central Excise (Appeals) while dealing with this aspect has observed that the goods themselves, that is to say, wash oil in question, shall be subjected to the process of blending, treatment, alteration etc.
14. We are of the view that the appellants are entitled to the benefit of Rule 143-A as it is a special provision intended for the Refinery.
The object of the rule is to enable the Refinery to utilise the intermediate products for further manufacturing processes. The words (manufacturing in a refinery' cannot be given a restricted interpretation suggesting that the blending, treating or other alterations should take place in the identical refinery. Though Lube Refinery and ESRC are two different legal entities and have been declared as two separate refineries in the absence of any words in Rule 143-A holding that the further manufacturing processes should be carried out in the same refinery, the appellants must be given the benefit of Rule 143-A. The object of this provision is to afford the benefit of the rule if any product is used in the integrated refining system. If the product is so used, the end product alone should be excisable.
15. We are also not inclined to agree that the term 'further manufacturing processes' should be given a restricted meaning. As pointed out in the earlier paragraph, the washing of filters in the Dewaxing Unit must be held to be towards the manufacture of the final product because the entire process carried out by the assessee in converting the raw material to a finished product should be taken into consideration. As the process of washing the filters forms an integral or indispensable part leading to the ultimate production of the goods, we must hold that such a process would come with-in the ambit of the term "further manufacturing process". The write-up given by the appellants in regard to the use of wash oil shows that such an operation is part and parcel of the manufacturing scheme in the Lube Refinery. The Collector of Central Excise (Appeals) has given a restricted meaning to the words 'in the manufacture of goods' and the words 'aforesaid goods'. In view of the materials now placed before us we are of the view that the use of wash oil for the purpose of filtration in the Dewaxing Unit would also be eligible for the benefit of Rule 143-A.16. We should state that the further manufacturing processes need not be in the identical refinery as contended by the learned Departmental Representative. As rightly pointed out by the representative of the appellants, if it was the intention of the Government to insist that the further processes should be carried out in the same Refinery, they would have set out the same in explicit terms. For example, in Notification No. 352/77-CE dated 16.12.77 in respect of exemption of petroleum products the Government of India have stated as follows: ...The Central Government hereby exempts petroleum products, falling under Item Nos. 6 to 11A of the First Schedule to the Central Excises and Salt Act, 1944 (1 of 1944), produced in refineries wherein refining of crude petroleum or shale or blending of non-duty paid petroleum products is carried on, and utilised as fuel within the same premises for the production or manufacture of other finished petroleum products, from the whole of the duty of excise leviable thereon.
The above extract indicates that the Government was particular that utilisation as fuel should be within the same premises. The appellants would be entitled to the benefit of the rule and no duty should be levied on the wash oil used in the refinery.
17. The concept of 'manufacture' and the import of the term 'very goods' had been considered in 16 STC 259 Indian Copper Corpn. Ltd. v.Commissioner of Commercial Taxes, Bihar and Ors. andJ.K.Cotton Spinning & Weaving Mills Co. Ltd. v. The Sales Tax Officer Kanpur and Anr. it was held that the expression 'in the manufacture of goods' in Section 8(3) (b) should normally encompass the entire process carried on by the dealer of converting raw materials into finished goods. Where any particular process is so integrally connected with the ultimate production of goods that, but for that process, manufacture or processing of goods would be commercially inexpedient, goods required in that process would fall within the expression "in the manufacture of goods". Applying these principles to the present facts, the role of the wash oil in the manufacture of the final products, namely, the cleaning of the unit, is a vital and necessary process without which the final product would not come into existence.
18. From the facts of the case it is noticed that the show cause notice was issued on 9.8.1978. The claim relates to the period from 1.4.1978 to 30.6.1978. Rule 160 of the Central Excise Rules, 1944, has been set out in the show cause notice. On behalf of the appellants, it is argued that Rule 160 will not apply to the facts of the case. Rule 160 contemplates demand of duty if the goods are removed without permission or lost or destroyed. The appellants have admittedly removed the goods after following the procedure set out under the Central Excise Rules.
So the impugned demand cannot be raised under Rule 160. Even if it is assumed that the rule could be invoked it is subject to Rule 10 as it stood at that time. The period was one year during the relevant time.
The annexure to the adjudication order indicates the respective dates of the show cause notices and the period for which the demands were raised. In some of the cases we find that the demand is time barred.
Further the show cause notice has been issued to the appellants for the wash oil received from Fuels Refinery. If the department wanted to rely on Rule 160 the demand for duty should have been raised on the removal by Lube Refinery. In that view also, the present show cause notice is ab initio void.
19. We are of the opinion that the show cause notice issued is invalid.
Point (iv): 20. The question of promissory estoppel has been raised by the appellants. The learned representative of the appellants drew our attention to the agreement with the Government of India, the assurances made at the time of the clearances and other communication to emphasise that the Government was estopped from making the demand.
21. The learned Departmental Representative urged that the Government have not granted any exemption by way of notification and hence there could be no estoppel against the demand. She placed reliance in the ruling Jit Ram Shiv Kumar v. State of 22. It is well settled that there cannot be an estoppel against a statute; Trade Notices or tariff rulings contrary to the mandatory provisions of the statutes cannot prevail. As laid down in Motilal Padampat Sugar Mills v. State of Uttar Pradesh the plea of estoppel could be raised if equivocal and repeated assurances had been given. But estoppel is a rule of evidence by which a party who has led another to act to his detriment cannot resile therefrom. In other words, the plea of estoppel cannot be raised for a demand of duty because there can be no estoppel against statuory demands. In 1981 ELT 328 (Del) J.K Synthetics Ltd. and Anr. v. Union of India and Ors. 1981 ECR 337D it was held that the doctrine of res judicata will not apply to matters of taxation. In 1983 ELT 292 1983 ECR 9ID Khandelwal Metal and Engg. v. Union of India and Ors. it has been specifically held that "doctrine of promissory estoppel cannot be invoked for preventing the government in the discharge of the duties under the law. There can be no promissory estoppel against the action of the legislature and the individual be precluded from the legislative functions by resorting to the doctrine of promissory estoppel". In view of the above pronouncement we are of the view that the plea of promissory estoppel cannot be sustained.
23. In the light of our findings that the appellants are entitled to the benefit of Rule 143-A and that the show cause notice is void ab initio, the impugned order cannot be supported and the appeals are therefore allowed.Sd/- H.R. Sylem Sd/- G. Sankaran Sd/- M. Santhanam Member Member Member 1. The demands were issued under Rule 160 Central Excise Rules. This rule prescribes that if goods kept in a warehouse are-- (b) are not removed from the warehouse within the warehousing period permitted under Rule 145, or (d) are not accounted to the satisfaction of the central excise officer, they shall be subjected to duty upon a demand being made therefore by the officer.
2. The circumstances of this case were that the wash oil could not have been subjected to duty for the first three reasons. Only the fourth reason was the one the officer could have brought into play, though the notices merely quote Rule 160 and mention the grounds as the fact that the wash oil used in washing rotary filters in the propane dewaxing unit did not come under the provision of Notifications 168/62, 180/70 and 352/77, and central excise duty was leviable on the oil. Obviously, the demanding authority knew what happened to the wash oil and hence we cannot say it was not accounted to the satisfaction of the officer. It may not have paid the duty that could be leviable--but it did not remain unaccounted. It was very much accounted : it was used in washing the filters. The demanding authority, the Assistant Collector, the Appellate Collector all say the same, and therefore, knew where the wash oil went. It was not a case in which neither the owner nor the central excise officer knew where the goods went. Nor was it a case where the owner told the officer what happened to the oil but the latter did not believe him and was not satisfied the owner was telling the truth, implying that the goods had been fraudulently removed. Such was not the case. Both parties knew and said so. The officer did not say he thought the wash oil had been lost or destroyed. Indeed, he does not even try to discuss the appropriateness of Rule 160. The grounds he gave for the action was not a ground for recovery of duty under Rule 3. This was a case of clearance of goods for home consumption out of a warehouse. The rule for this is Rule 157. It might be argued that since the officer had the power to demand duty, a rule number should not invalidate the demand. This principle is true when a power, like the power to demand duty in a given circumstance, is invoked but the officer quotes a rule that is not correct. In those conditions, the incorrect rule will not invalidate the officer's right to exercise that power.
4. Here the officer sought to exercise the power of recovering duty, under Rule 160, and this was the rule he had in mind. All the authorities below had only Rule 160 before them. All had the same reason for the demand proposal and they all operated in the frame of Rule 160. They never regarded the wash oil as having gone into home consumption, and cleared under Rule 157. Rule 160 was correct if the reasons were the right ones for thinking the oil had become dutiable.
But those were not the right reasons. Hence the quotation and the proceedings under Rule 160 were both wrong. They are not in accordance with the facts and hence are contrary to the law. Duty on the wash oil was not leviable under Rule 160 and the demands are invalid and liable to be set aside.
I set aside the 15 demands and all the proceedings that arose from them.