1. The factory told the Collector of Central Excise, Indore that the slurry resulted from their treatment of hydrochloric acid with lime in order to neutralise it. The slurry was a waste, an effluent, and was thrown away. A firm by the name of M/s. Jameco Agencies took the slurry for recovery of calcium chloride, but this forms a very small part of the waste thrown away by Gwalior Rayon Factory. The slurry waste was not sold to Jameco Agencies.
2. No contradiction was made to the above story in the Collector's order, which records that the assessee wrote to the Superintendent of Central Excise, Nagda in March 1979 that neutralization of hydrochloric acid was a regular feature. The Collector ended his order (No. 2/80 T.I. 14G dated 28-7- 1981) by saying that neutralized hydrochloric acid in the form of slurry constituted goods on which duty should have been paid when supplied to a customer.
3. The learned counsel for the factory told us at the Bench that the goods was of no use to them. They had to treat the hydrochloric acid because it was a substance that cannot be thrown away without danger to persons and property. When they treated it, it was not to obtain a commodity, but only because they could not leave a dangerous acid like hydrochloric acid lying around where it can cause serious damage not only to living things, but to the very atmosphere. When they neutralized it, they destroyed it, and this was with the knowledge and consent of the Department. They srarted this operation in 1972 and had been destroying hydrochloric acid regularly ever since by neutralization. M/s. Jameco Agencies approached them in 1977 to use a small portion of the waste without payment, to which they were only too glad to agree. It cost them nothing, and made space available for more effluent to be deposited. He quoted 1980 E.L.T. 146 to say that if dross and skimmings are not goods or end-product, the waste slurry was even less one. The neutralized slurry had a calcium chloride content of only 18%; nothing of less than 36% was marketable. He quoted 1977 E.L.T. J 199, 1981 ECR 459D to reinforce his arguments. He said no power was used to make the slurry, hence it was exempted under Notification No. 179/77-C.E.4. The learned counsel for the Department said that the removal by Jameco Agencies of the waste material showed it was a goods and that it had uses. The factory does not deny it manufactured hydrochloric acid and then neutralized it. The slurry had a new name, character or use and the Supreme Court Judgement in the famous DCM case will have the effect of drawing this slurry into excisability. It may not have come to market but marketability was not a necessary qualification, according to the South Bihar Mill decision of the Supreme Court 1978 E.L.T. J 336. The 1980 E.L.T. 146 decision on Indian Aluminium was about dross and skimmings, rubbish and scum. This neutralized slurry was not such a commodity. The judgments quoted by the appellants are totally irrelevant.
5. The counsel for M/s. Gwalior Rayon returned to say that slurry was not a name, much less a new name. The Supreme Court said the goods must be ordinarily sold; the expert said the waste was not marketable. The Government has not discharged its burden of proving the goods are dutiable.
I find from letter dated 4th May, 1979 of M/s. GRASIM, Chemical Division, Nagda addressed to the Superintendent, Central Excise, MOR Nagda (which has been enclosed as a document No. 15 to the show cause notice) that as early as 1-3-1979, the factory had taken up with the central excise officers the question of neutralization of hydrochloric acid. This clearly shows that the central excise officers were aware that hydrochloric acid was being neutralized.
The letter also indicates that from 1973 to that date it was being neutralised. In this context, it is not clear how the word "wilful" has been used in the show cause notice considering that the neutralization of hydrochloric acid by making it slurry which was fully under the control of central excise officers was going on for number of years (i.e. right from the year 1973) in a place where central excise officers are posted, the word 'wilful' is therefore plainly misconceived. The evidence as enclosed to the show cause notice also does not support the fact that neutralization of hydrochloric acid was 'wilful'. It is also seen that the particulars of hydrochloric acid neutralized were entered in the R.G. 1/TR-12 records and the central excise officers were fully aware of it.
7. There is no further need to enquire whether the central excise knew about the neutralization. They know about it and it is more than likely they also gave the permission for it (neutralization). The Collector certainly does not accuse them of neutralizing the hydrochloric acid, a distinct commodity assessable to central excise duty, without permission. In para 4.5, the order affirms that neutralization was done with the full knowledge of the central excise officers.
8. Can we then say that the neutralization was for producing a new commodity We do not think so. It was for destroying a commodity, hydrochloric acid. And we do not see how the factory would have neutralized hydrochloric acid to produce a new commodity for so long and the central excise do nothing about it. They should have stopped it, or better still, clamped down central excise control, supervision etc. etc. to ensure that duty was paid at the right time. But the Department evidently accepted that it was not a production of goods but a destruction; and this is an established procedure in central excise (under Rule 49). If the destruction (of hydrochloric acid) did not end successfully and some acid escaped into the market illegally, there is not a word to this effect. We are satisfied from all that went before the central excise authorities that the hydrochloric acid was destroyed by neutralization and that this destruction was not only known to but was carried out with the permission of the central excise authorities.
9. We see, therefore, that only waste effluent, as claimed by M/s.
Gwalior Rayon, was the result of the neutralization. It was not a creation of a goods, but the end of a goods, the acid. Here, the effluent lay harmless, neutral, and of no further use to the person who brought it about. It was brought about not in the manufacture of something else, like dross and skimming are brought about nor in the pursuit of wealth to create a new commodity, but because of certain demands of the law, of the society, of the neighbourhood environment, that the factory undertook the neutralisation to destroy the toxic hydrochloric acid. The destroyed and worthless mass was actually thrown away into a refuse heap, and there it lay for several years, till somebody came on the scene and found he could use it. Even then he was able to use only a small part of the rejected heap. The authorities could have said it was a dross, a skimming, a by- product, a sub-standard goods, a surplus, and so on and so forth, but no. They said it was neutralised hydro- chloric acid; they do not refute the factory's claim that it was a destruction. The Collector very fairly accepts (para 4.4) there was no wilfulness about the neutralization, meaning thereby, that the neutralization was not a cover, for something, but that it was a straightforward operation and that it was what it said it was, and that it did not lead to any unlawful act. The slurry/effluent/neutralized acid, therefore, was not a goods created for profit, or capable of bringing profit.
10. This is not invalidated by the fact that the waste suddenly found a use one day. Many wastes, even human wastes, can and do find uses. Many cities have schemes of treating sewage to obtain gas, manure, etc. But we have not yet heard of anybody getting up a plan to manufacture waste. Nobody does.
11. This waste remained that, a waste, for several years. So-called waste like copper scrap does not remain unutilized. The difference between this waste and other waste is that here it is accepted by everybody that nobody had any use for this slurry till a few years ago.
So, we can and do say this was not a goods, and so not excisable.
12. We notice that the Collector directs the Asstt. Collector to examine remission of duty under Rule 49 on the neutralized hydrochloric acid. This is the correct line of approach, and in view of our ruling above that the neutralization was a destruction of the hydrochloric acid, duty would have to be remitted if appropriate to the law. This, however, we leave to the central excise authorities to deal with as they see fit.
13. The Additional Collector of Central Excise, Indore says at para 4.4 of his order No. 3/81/T.I. 14G that the party's claim of exemption under notification No. 179/77, dated 18-6-1977 on the plea that no power was used during the neutralization process was not correct, inasmuch as power was used in despatching slurry from their factory through pipelines. Evidently, the Additional Collector means that if the despatch had not been made by means of power through the pipeline, he would have given the exemption. We rule that despatch of the slurry through the pipeline is not manufacture of the slurry by means of power even if such a despatch by pipeline was by power. When the slurry was despatched, it was already finished slurry and the despatch did not make it more slurry or more waste. The despatch by using power is not manufacture of the slurry by the use of power. We accordingly direct him to extend the exemption under the notification which he unjustly denied.
14. We direct all concerned, the central excise authorities and M/s.
Gwalior Rayon Co.
15. I agree with brother Syiem that the neutralization of hydrochloric acid in the present case resulting in slurry did not amount to "manufacture" and that the slurry would not attract duty. In this view of the matter, I think, there is no need to consider notification No.179/77, dated 18-6-1977.