1. The captioned appeal was initially filed as a revision application before the Central Government which, under Section 35-P of the Central Excises and 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 M/s. Mettur Chemicals & Industrial Corporation Ltd. (the appellants) addressed a letter on 11-7-1977 to the Assistant Collector of Central Excise, Salem stating that they proposed to use cell liquor from their Plant I at Mettur Dam for purification of brine in their Plant II at Veerakkalpudur in order that more rayon grade caustic soda might be available for sale. It was further stated that this cell liquor contained approximately 100-140 gms. per litre of sodium hydroxide and 170-200 gms. per litre of undecomposed sodium chloride and was produced in the intermediate stage in the manufacture of commercial grade caustic soda. The cell liquor was not a saleable commodity because of the very high content of sodium chloride in it. The appellants filed a price list (No. 6/77, dated 16-7-1977) for the cell liquor and, pending its approval, requested for permission to clear the cell liquor on provisional assessment to duty under Central Excise Rule 9-B. The goods were described as "cell liquor containing caustic soda and sodium chloride (on 100% NaoH basis)" and the classification was indicated as Item No. 14B of the Central Excise Tariff Schedule. On 28-6-1980, i.e.
nearly 3 years later, the Department issued a notice to the appellants alleging that they had declared only the cost of production as the assessable value and had not shown any margin of profit that would have been normally earned by them on sale of such goods. The notice further said that it was proposed to compute the assessable value by adding 7.62%, the overall profit earned by the appellants in the year ending March 1978. The proposed action was to be in terms of Central Excise Valuation Rule 6(b)(ii). The appellants contested the notice saying that there were no sales and no profit on the subject goods and, in any case, the over-all profit margin would not be the correct basis. The Assistant Collector of Central Excise, Salem, after considering the appellants' written and oral submissions, passed an order on 30-6-1982 approving the declared price without adding any profit margin to it.
3. The Collector of Central Excise, Madras, who examined the records of the case leading to the Assistant Collector's aforesaid order, in exercise of his powers under Section 35A(2) of the Central Excises and Salt Act (hereinafter called the Act), as it stood then, formed the tentative view that the margin of profit on the cell liquor captively consumed by the appellants should be added to its cost of production in the price list No. 6/77. The Collector said that had the goods been sold, some margin of profit would have been included in the selling price. No sale need in fact take place for the purpose of Valuation Rule 6(b)(ii).The profit had to be based on the profit, if any, shown in the balance sheet. On this basis, he issued a notice dated 19-12-1980 proposing to revise the Assistant Collector's order so as to include the margin of profit of the relevant year in the assessable value for the purpose of assessment of cell liquor. The appellants were asked to show cause against the proposal as also why the consequent differential duty for the relevant period should not be demanded. After considering the appellants' written and oral submissions, the Collector passed an order dated 20-8-1981 setting aside the Assistant Collector's order and holding that the appropriate profit margin for the relevant year should be added to the assessable value declared in price list No.6/77. He held that it was not necessary that cell liquor should be marketed to arrive at the profit margin.
4. The appellants filed a revision application before the Central Government against the Collector's order. It is this revision which we are now disposing of as an appeal. We have heard Shri R. Sasidharan, Advocate for the appellants and Smt. Vijay Zutshi, Senior Departmental Representative for the Respondent-Collector.
5. Shri Sasidharan made it clear at the outset that though a claim was made for duty exemption in terms of Central Excise Notification No.9/69 before the lower authorities, it was not being pressed before us.
We are not, therefore, going into this aspect of the matter.
(ii) even if it was "goods", it would not fall under Item 14-B, CET for caustic soda; (iii) even if it fell under Item 14-B, CET, saleability was essential for adding profit margin for determination of assessable value in terms of Valuation Rule 6(b)(ii); (iv) even if profit margin was to be added, it could not be the over-all profit margin of the appellants.
7. Taking up point (i), the learned Counsel drew our attention to the booklet "The Story of Mettur Chemicals" which described the appellants' manufacturing process at pages 11-15 thus- We are concerned with the product known as cell liquor containing 10-11% caustic soda as against commercial lye which, according to the booklet, consists approximately of 50% caustic soda. According to the Counsel, cell liquor is not "goods"-it has no distinct character or name. Its only use is in lye-production.
8. As regards point (ii), Item 14-B, CET covers only the commercial product caustio soda in solid form or in lye. In solution form, only lye containing 48-50% caustic soda is the commercial product. Even the Department calls the subject goods only as cell liquor. Only on concentration, it yields caustic soda lye.
9. Regarding point (iii), it was submitted that the goods are not saleable and therefore there is no question of adding any profit margin. The product is an effluent and it cannot fetch a profit.
10. As regards point (iv), reference was made to Central Government's Order-in-Revision No. 688-695 of 1975,dated 17-10-1975 in the appellants' own case holding that (in respect of metal containers produced for captive consumption) the fair return on capital cannot be a guide when the appellants' balance sheets are prepared on an over-all basis of the products manufactured and metal containers alone were not their manufactured product.
11. Smt. Vijay Zutshi, replying to the above submissions, stated with reference to points (i) and (ii) that the subject cell liquor was not an effluent (a throwaway product, according to Hawleys' Condensed Chemical Dictionary). It was a valuable product, resulting in caustic soda lye on concentration. The fact that the appellants did not market the goods would not mean that they are not "goods" for excise levy. The fact of manufacture was what was important. The Supreme Court decision in the Delhi Cloth & General Mills case-1977 E.L.T. J 199 and the Allahabad High Court decision in the Union Carbide India Ltd., case-1978 E.L.T. J 1 and the Calcutta High Court decision in Union Carbide Company Ltd. case-1978 E.L.T. J 180.
As regards point (iii), the learned Senior Departmental Representative submitted that the saleability was not an important consideration. The profit margin on caustic soda sold by the appellants should, however, be taken into account.
12. We have carefully considered the submissions of both sides. The crux of the dispute is whether the cell liquor is caustic soda lye for the purpose of Item No. 14-B, CET. If it is not, then, nothing else survives for consideration. On this point, the appellants' literature indicates that the subject cell liquor is a weak solution of 10-11% caustic soda, containing a large proportion of salt. The concentrated liquor with the precipitated-out sodium chloride removed contains about 50% caustic soda and this is what the appellants sell as "commercial lye".
Kirk-Othmer's Encyclopaedia of Chemical Technology supports the above statement. The primary product caustic soda is shown to be 50% NaoH and cell liquor or cell effluent to be 10% caustic soda and 14% sodium chloride, these concentrations varying with the type of cell used and its operating conditions. Of course, the 50% NaoH can be and is concentrated to 70-74% strength also. Most of the caustic soda sold in the U.S. is produced as a 50% water solution which is also what world production is tending to be. It is further said that the conversion of caustic effluent into saleable products requires further energy, usually in the form of process steam, to evaporate water and crystallise the salt. The same information is given in J.H. De Bussy's "Materials and Technology Volume I-Air, Water, Inorganic Chemicals and Nucleonics." Similar information can be gathered also from "Chem Tech II-Second Volume of Manual of Chemical Technology-Inorganic Products" published by the Chemical Engineering Education Development Centre, Indian Institute of Technology, Madras (para 6.20).
13. It is, therefore clear that cell liquor containing about 11% caustic soda is not what is known and recognised as caustic soda lye-which contains approximately 50% caustic soda. It does not, therefore, fall for classification under Item No. 14-B, CET.14. The two decisions cited, one of the Allahabad High Court and the other of the Calcutta High Court are, in our opinion, not applicable to the facts of the present case. In the Allahabad decision, the Court said that the fact that a product may not be known to the general public or to the traders in general would not change the position and that the test of general marketability did not appear to be sound. In the Calcutta High Court decision, the Court said that it was not necessary that goods should be sold or were saleable to attract the excise duty. We have come to the finding that the goods in the appeal before us is not caustic soda lye. It would not, therefore, fall under Item No. 14-B, CET. The question whether the 'cell liquor is saleable or is sold is of little consequence in so far as this question is concerned and does not affect our finding. The Supreme Court's decision in the D.C.M. case, where the Court held that in order to attract excise levy a new product having a distinct name, character or use must emerge as a result of the manufacturing processes, also does not have any application to the present case, since we have found that the product under consideration does not answer to the description "Caustic Soda Lye".
15. Since the entire proceedings culminating in the appeal before us have their genesis in the classification of cell liquor under Item No.14-B, CET and this classification has been set aside by us, nothing else survives for our consideration. The appeal is allowed.