1. This is an appeal against Order-in-Appeal No. 297/ASM/83, dated 31-12-1983 passed by the Collector of Central Excise (Appeals), Calcutta, by which the Collector confirmed the Order-in-Original No. I D-IV/DB/5/Demand/RPC/83, dated 19-5-1983 passed by the Assistant Collector of Central Excise, Dhubri, Assam. The Assistant Collector, by his Order, demanded a sum of Rs. 25,49,477.70 as duty from M/s Bongaigaon Refinery & Petrochemicals Ltd. (hereinafter referred to as "the appellants") on 4500 metric tonnes of Raw Petroleum Coke (RPC) produced and removed by the appellants without payment of duty within the factory premises as feed stock for the production of Calcined Petroleum Coke (CPC)., 2. The facts of the case, briefly stated, are that the appellants are engaged in the refining of crude petroleum resulting in the manufacture of petroleum products. They also manufacture petrochemicals. It appears that they were engaged in the production, inter alia, of RPC in their delayed Coker unit with effect from 21-9-1981. The allegation levelled against the appellants is that they had not obtained any Central Excise licence for the manufacture of RPC, that they had not filed classification and price lists, that they had not submitted monthly assessment returns and had not observed other prescribed Central Excise procedures and requirements and removed the RPC so produced (4500 metric tonnes) without payment of the duty leviable thereon from the place of its storage as feed stock for the production of CPC within the factory premises. By a notice dated 9-7-1982, the appellants were called upon to show cause why duty amounting to Rs. 25,49,477.70 should not be demanded from them under Central Excise Rule 9(2) and Rule 49 (as amended by Notification No. 20/82-CE, dated 20-2-1982) and Section 11 of the Central Excises & Salt Act, 1944 and why penalty should not be imposed upon them under Rule 9(2) read with Rule 226 for contravention of the provisions of Rules 174, 43, 48, 226, 173-B, 173-C, 173-G(2), 173-G(3), 173-G(4) and 9(1) read with 49(1) and 173-F.The appellants, in their reply to the show cause notice, contended that RPC was classifiable under item No. 1 l-A of the Central Excise Tariff Schedule (CET) for which item they were holding a Central Excise licence. They further contended that, since RPC was an intermediate product, they were not required to observe other Central Excise formalities. After hearing the appellants, the Assistant Collector, in his adjudication order, held that RPC was not an intermediate product in the manufacture of CPC in the sense that RPC was derived from refining of crude petroleum in an integrated and uniterrupted process as an end-product. He further held that the process of manufacture as contemplated in Section 2(f) of the Central Excises & Salt Act, 1944 (hereinafter referred to as the Act) was complete. CPC was prepared in a distinctly separate process of calcination. The RPC was a clearly identifiable and distinct excisable commodity which was capable of being physically removed and was being marketed by all other refineries. The appellants were, therefore, required to pay duty on the aforesaid quantity of RPC even if it was considered as an intermediate product, in accordance with Rules 9 and 49, as amended. The Assistant Collector confirmed the demand for duty as set out in the show cause notice, but did not impose any penalty on the appellants considering that there was no mala fide intention.
Aggrieved with this order, the appellants preferred an appeal before the Collector (Appeals), Calcutta. The Collector, after hearing the appellants, confirmed the Assistant Collector's Order. With reference to the claim for exemption under Central Excise Notification No. 95/79, dated 1-3-1979, the Collector observed that the exemption was applicable only in cases where the procedure set out in Central Excise Rule 56-A was followed and where duty payable on the RPC had already been paid prior to the manufacture of CPC. Since the appellants had not followed the provisions of the Notification during the material period, the Collector rejected the claim.
It is against this Order of the Collector (Appeals) that the appellants are presently before us.
3. Shri A.P. Kumtakar, learned Consultant for the appellants, submitted before us that the appellants were licenced by the Central Excise authorities to manufacture goods falling under item Nos. 6 to 10, 11A and 11C of the Central Excise Tariff Schedule. Item 11C covered calcined petroleum coke Raw petroleum coke came to be specified as item No. 11(2) of the Central Excise Tariff Schedule with effect from 1-3-1982 and from the same date calcined petroleum coke was specified as sub-item (3) of item 11. Raw petroleum coke was nothing but an itermediate product though it might be manufactured product and was used within the refinery premises. The Bongaigaon Refinery had been declared by the Government as a refinery under Sub-rule (2) of Central Excise Rule 140 by the Central Government's Order (Ministry of Finance, Department of Revenue) No. 261/6/5/80-CX VIII, dated 4-4-1981. Central Excise Rule 143-A contains special provisions with respect to goods processed and manufactured in refineries. The Rule provides that the owner of the goods may blend or treat or make such alterations or conduct such further manufacturing processes in the goods processed or manufactured in the refinery. Rule 47(3A) further provides that where the provisions of Chapter VII of the Central Excise Rules (Chapter VII deals with warehousing and Rules 140 and 143A fall within this Chapter) have been extended by the Central Government by notification in the Official Gazette to any excisable goods, as in this case, every store room or other place of storage in the premises of the factory manufacturing such goods [(set apart for depositing goods manufactured in the premises without payment of duty-see Rule 47(1)] shall be deemed to be a warehouse licenced under Rule 140 in Chapter VII. The cumulative effect of these rules is that the refinery premises were a deemed warehouse and in accordance with the special provisions governing refineries, the appellants were at liberty to carry on within the premises blending, treating, altering or conducting further manufacturing processes in the goods processed or manufactured in the refinery. Shri Kumtakar submitted that there was no "manufacture" involved in the conversion of Raw Petroleum Coke to Calcined Petroleum Coke. Even if the process was deemed to be "manufacture", the aforesaid provisions of the Central Excise Rules permitted such conversion and duty was leviable only on the products ultimately cleared out of the refinery premises. That was the scheme of Chapter VII of the Central Excise Rules. Next, he referred to Central Excise Notification No.74/63, dated 18-5-1963 which exempts the intermediate petroleum products in refineries and falling under item No. 11-A CET used as fuel within the refinery for the production or manufacture of other finished petroleum products. This notification, Shri Kumtakar said, was cited only to show that intermediate petroleum products were known and recognised but they were exempt subject to the stipulated conditions-'not because the notification was relevant for the present case. The main plank of Shri Kumtakar's contention was that the utilization of raw petroleum coke for the manufacture of calcined petroleum coke (calcined petroleum coke was cleared on payment of duty) without having to pay any duty was squarely coveted by the provisions of Central Excise Rule 143-A.4. Appearing on behalf of the Respondent, Shri N.V. Raghavan Iyer, learned Departmental Representative, began his reply by submitting that the appellants had not taken out a licence for the delayed coker unit; the unit had not been specified as part of the refinery. Therefore, though the place of production of raw petroleum coke was part of the refinery complex, it was not part of the licenced refinery premises which alone could be taken to be a deemed warehouse. During the relevant period, Shri Iyer continued, raw petroleum coke fell under item No. 11-A GET whereas CPC was specified in item No. 11-C. He drew our attention to the Order F. No. 261/6/5/80-CX-VIII, dated 4-4-1981 issued by the Central Government under Central Excise Rule 140(2) declaring the premises of M/s. Bongaigaon Refinery and Petrochemicals Ltd. at Dhaligaon covered by licence in form L-4 in relation to excisable goods falling under item Nos. 6 to 11-A CET as a refinery. It would be clear, Shri Iyer stated, that the place where calcined petroleum coke falling under item No. 11-C, CET was manufactured, was not covered by the said Government order. It could not, therefore, be said that the CPC was produced within the refinery premises and, therefore, in the deemed warehouse. Rule 143-A applied only to, premises declared as refineries. The said Rule was not in the nature of an exemption and processing contemplat-ed therein would be such as would not alter the identity of the products. Rule 143-A did not confer any exemption on intermediate products removed from the warehouse. It only permitted processing within the declared refinery premises. In the present case, the RPC having been removed outside the refinery premises was liable to be charged to duty. Further, Rule 140 which talked of all goods without reference to the tariff items under which they fell was not applicable to refineries for which special provisions in the shape of Rule 143A existed. Summing up, Shri Iyer submitted that the demand for duty was justified.
5. In his reply, Shri Kumtakar stated that it was not required of the appellants to specify the delayed coker unit for the purpose of licence. The licence was applied for and granted for manufacture of specified products. The appellants had applied for licence in the month of September, 1981 for the manufacture of calcined petroleum coke (item No. 11-C). The Central Excise Department permitted commencement of the manufacturing operations after the application for licence was filed.
Rule 140(2) under which the appellant's premises were declared as a refinery did not contemplate or specify any particular product. It would cover any product manufactured in the refinery.
6. We have carefully considered the submissions of both sides. On 4-4-1981, the Government of India issued an Order under Central Excise Rule 140(2) declaring the premises of the appellants at Dhaligaon covered by licence in form L-4 in relation to excisable goods falling under item Nos. 6 to 11-A of the Central Excise Tariff Schedule as a refinery. During the period relevant to the present dispute, namely, 21-9-1981 to 17-2-1982, raw petroleum coke fell under 11-A(5) CET. It is, however, evident that the appellants had not taken out a licence for the production of raw petroleum coke or, as the appellants call it, Green Coke, under the impression that the substance was an intermediate product whose production was but incidental to the manufacture of calcined petroleum coke, the final product. This is clear from the appellants' letter dated 18-9-1981 to the Additional Collector of Central Excise, Shillong. In the said letter, after setting out the above position, the appellants sought exemption from the operation of Rule 174 in respect of the intermediate product raw petroleum coke, ft is clear from perusal of Rules 174 and 176 read with the prescribed form of application for licence to manufacture goods that a detailed description of each variety of excisable goods to be manufactured has to be furnished by the applicant. Admittedly, the appellants did not seek or obtain a licence to manufacture raw petroleum coke. Therefore, it cannot be said that the Central Government Order dated 4-4-1981 issued under Rule 140(2) declaring the appellants' premises as a refinery had application to raw petroleum coke. This was so in spite of the fact that the said Order was in relation to the excisable goods falling under, inter alia, item No. 11A of the CET. For, the Order was pertaining to the premises covered by licence in form L-4 in relation to excisable goods falling under item Nos. 6 to 11 A. We have seen that the appellants had not taken out a licence for manufacture of raw petroleum coke falling under item No. 11 A(5) during the relevant period.
7. Rule 143-A provides that subject to the sanction and in accordance with the instructions of the Collector, the owner of the goods processed or manufactured in a refinery [(declared under Rule 140(2)], may blend or treat or make such alterations or conduct such further manufacturing processes in the said goods in such manner and subject to such conditions as the Central Government may, by notification in the Official Gazette, specify. A bare reading of the Rule shows that it is an enabling provision whereby the owner of the goods may undertake certain operations on the goods, in the refinery. We cannot see any warrant to assume that the Rule confers an exemption from duty on new excisable goods which may emerge as a result of the permitted operations.
8. Raw petroleum coke may be an intermediate product in the manufacture of calcined petroleum coke. During the relevant time, the former fell under 11 A(5) of the CET and the latter under tem 11C. In view of this clearly marked out classification in the Tariff itself, there is no scope for the argument that no "manufacture", as contemplated in Section 2(f) of the Act, takes place in the conversion of raw petroleum coke to calcined petroleum coke According to Rules 9 and 49, any excisable goods coming into existence in the course of manufacturing operations have to suffer excise duty even when they are used within the factory premises for further manufacture of goods. Any doubts as to this proposition have been set at rest by the amendment, with retrospective effect, of Rules 9 and 49 by Section 51 of the Finance Act, 1982. Since the raw petroleum coke in the present case had not suffered duty leviable thereon under item 11A(5) CET before it was taken into use for manufacture of calcined petroleum coke, the appellants are obliged to honour the demand for duty on the raw petroleum coke issued by the Central Excise authorities.
9. Notification 95/79-CE., dated 1-3-1979, referred to by Shri Kumtakar, exempts calcined petroleum coke (item No. 11C) from so much of the excise duty leviable thereon as is equivalent to the amount of the excise duty already paid on petroleum coke (Item No. 11 A) used in its manufacture. The exemption is, however, subject to the procedure set out in Central Excise Rule 56A being followed. In other words, to avail of the exemption on CPC, the "input" RPC must have suffered duty and the Rule 56A procedure is followed. In the present case, the RPC had admittedly not suffered the duty payable thereon. The notification, therefore, is of no avail to the appellants.
10. We do not see the relevance of Notification No. 74/63, dated 18-5-1963 which exempts intermediate petroleum products manufactured in refineries and falling under item No. 11A CET which are used as fuel within the refinery for production or manufacture of other finished petroleum products from the whole of the excise duty levable thereon.
In the instant case, raw petroleum coke has, admittedly, not been used as fuel for the production of calcined petroleum coke.
11. Shri Kumtakar's contention that by virtue of the Government order under Rule 140(2) declaring the appellants' premises as a refinery, the provisions of Rule 47(3A) would come into play to the advantage of the appellants is of no avail. Rule 47(3A) provides that where the provisions of Chapter VII of the Rules have been extended by the Central Government by Notification in the Official Gazette to any excisable goods, every such. store room or other place of storage (for deposit of goods without payment of duty) in the premises of a factory manufacturing such goods, shall be deemed to be a warehouse licenced under Rule 140. Now Rule 143 deals with "owner's power to deal with warehoused goods". It provides that with the sanction of the proper officer and in accordance with the Collector's instructions, any owner of goods lodged in a warehouse may sort, separate, pack and re-pack the goods and make such alterations therein as may be necessary for the preservation, sale or disposal thereof. Obviously, the scope of this Rule is limited to such operations as do not result in emergence of a new excisable commodity. The Rule permits operations which are necessary for the preservation, sale or disposal of the warehoused goods and nothing more. The citation of this Rule, therefore, is of no help to the appellants.
12. Having regard to the aforesaid discussion, we are of the opinion that the demand for duty on the raw petroleum coke manufactured by the appellants and utilised by them in the production of calcined petroleum coke was correct. In view of the fact that the procedure under Rule 56A was not followed by the appellants owing to the peculiar features of the case, they could not avail of benefit of the notification No.95/79, dated 1-3-1979. To saddle the appellants with the duty payable on raw petroleum coke and not to give them the benefit of Rule 56A in terms of notification No. 95/79 would result in a situation where they would have paid the full duty payable on calcined petroleum coke without the benefit of relief of the duty paid on the input, namely, raw petroleum coke. Rule 56A is essentially a procedural Rule; the authority for the exemption, in this case, flows from notification No.95/79. We would suggest to the Collector to consider whether any relief is at all possible in terms of the notification read with Rule 56A having regard to the peculiar features of the case.
13. There is one point on which the appellants seem to have a justifiable cause for grievance. After the order of adjudication was passed, the appellants wrote a letter dated 4-8-1983 to the Assistant Collector, Dhubri, pointing out that duty in terms of the adjudication order had been worked out on an assumed assessable value of Rs. 2,697.86 per metric tonne of raw petroleum coke whereas the correct (according to the appellants) assessable value for the goods was Rs. 852.43 per metric tonne only. It is further stated that the latter value had been accepted by the Assistant Collector, vide price list dated 16-6-1982 approved by the Assistant Collector. The letter points out that on the basis of the approved assessable value the duty amount would come down from the figure of Rs. 25,49,477.70 mentioned in the demand to Rs. 8,05,546.35. The letter ends with the request to have a corrigendum issued rectifying the error in computation of the duty payable. Apparently, no action seems to have been taken on this request. In giving effect to our order in the present case, the lower authorities shall give due consideration to the appellants' aforesaid communication.
14. The result is that the appeal is rejected with the aforesaid observations.