1. M/s. The Sirsilk Limited are manufacturers of Acetate Rayon Yarn, Acetate Staple Fibre and Acetate Tow. In respect of certain inputs with reference to such manufacture they had claimed benefit of notification No. 201/1979 relating to such of the inputs as had been purchased by them from the open market. The Assistant Collector of Central Excise under his order dated 14.8.1981 held that they were not entitled to such benefit since these inputs had been utilised only in the manufacture of other excisable goods which themselves were exempted from duty by reason of Notification No. 118/1975, such intermediate products being consumed captively in the course of further manufacture resulting in the final manufacture of the products mentioned earlier.
He had also further held that as such inputs purchased from the market were mixed up with similar inputs manufactured in the factory itself for captive consumption and they were all used together in further manufacture it was not possible to correlate the inputs (purchased from the market) and the final product. On appeal the Appellate Collector of Central Excise, Madras under his order dated 30.11.1981 set aside the order of the Assistant Collector and allowed benefit of Notification No. 201/1979 as well as No. 118/1975, holding that the two notifications could be worked together. Thereafter the Government of India issued, under Section 36 (2) of the Central Excises and Salt Act, a review show cause notice dated 6.10.1982 as to why the order of the Appellate Collector ought not to be set aside and the order of the Assistant Collector restored. It is the proceedings initiated under the said review show cause notice that, on transfer to this Tribunal, are being dealt with as an appeal before this Tribunal.
2. We have heard Smt. Vijay Zutshi, Senior Departmental Representative for the Appellant Collector and Shri C. Chidambaram, Consultant for the respondents. Smt. Zutshi took us through the orders of lower authorities and also the review show cause notice and made her submissions on the question raised under the notice. Shri Chidambaram supported the reasonings contained in the order of the Appellate Collector.
3. In the records before us there was a reference to writ petition No.6668 of 1980 before the High Court of Andhra Pradesh wherein a similar issue was said to be involved. When the Consultant for the respondent was enquired about the same he further referred to two other writ petitions which were specifically with reference to the order-in-appeal in the present instance, which is the subject matter of the review show cause notice. When enquired about the disposal of the said writ petitions he stated that writ petitions 6907 of 1983 and 6908 of 1983 (relating to the impugned order-in-appeal) had been disposed of by the Hon'ble High Court without orders in view of the pendency of the present appeal before this Tribunal. He further stated that so far as writ petition No. 6668 of 1980 the same did not relate to Notification No. 201/1979 but to Notification No. 178/1977 and further the issue raised in the said writ petition was regarding rejection of the appeal by Collector as time barred and hence the said writ petition has nothing to do with the matter now in issue before us.
4. The respondents have in their paper book furnished a flow chart regarding the process of manufacture adopted by them. Since the said, chart was not clear on certain details we have had the benefit of elucidation thereof from both sides, and the flow chart mentioned below was thereafter prepared during the hearing and was seen by both sides who have agreed that the same is correct in all necessary details:ACETALDEHYDE -----------> | <----------- ACETALDEHYDE (T.I.68)(T.I.68) | (Purchased from open) | market) ACETATE STAPLE FIBRE ) (T.I.18) ACETATE TOW ) 5. The relevant Notifications for consideration in this appeal are Notification No. 118/1975 dated 30.4.1975 and Notification No. 201/1979 dated 4.6.1979. Notification No. 118/1975 reads as follows: In supersession of the notification No. 58/75-CE, dated 1.3.1975, goods falling under Item No. 68, manufactured in a factory and intended for use in the factory in which they are manufactured, or in any other factory of the same manufacturer, are exempt from the whole of the duty of excise leviable thereon; Provided that where such use is in a factory of a manufacturer, different from his factory where the goods have been manufactured, the exemption contained in this notification shall be allowable subject to the observance of the procedure set out in Chapter X of the Central Excise Rules, 1944: Provided further that nothing contained in this notification shall apply to complete machinery manufactured in a factory and meant for producing or processing any goods, even if they are intended for use in the same factory in which they are manufactured or in any other factory of the same manufacturer.
The portion relevant to this appeal in Notification No. 201/1979 is as follows: "In supersession of notification No. 178/77-Central Excises, dated the 18th June, 1977, all excisable goods (hereinafter referred as "the said goods"), on which the duty of excise is leviable and in the manufacture of which any goods falling under Item No. 68 of the First Schedule to the Central Excises and Salt Act, 1944 (1 of 1944) have been used as raw materials or component parts (hereinafter referred as "inputs"), are exempt from so much of the duty of excise leviable thereon as is equivalent to the duty of excise already paid on the inputs.
Provided that the procedure set out in the Appendix to this notification is followed.
Provided further that nothing contained in this notification shall apply to the said goods which are exempted from the whole of the duty of excise leviable thereon or are chargeable to nil rate of duty." 6. The Assistant Collector under his order dated 14.8.1981 denied the benefit of exemption on the basis that the bought out inputs were utilised for manufacture of other intermediate products only (which also fell under T.I. 68) and not the final products (which fell under T.I. 18) and as these intermediate products were not liable for payment of duty in view of Notification No. 118/1975, the benefit, with reference to the bought out goods, cannot be claimed by the respondents under Notification No. 201/1979. This was on the basis of the second proviso extracted supra. The Appellate Collector had held to the contrary under his order dated 30.11.1981. In the Review Show Cause Notice the reasoning of the. Appellate Collector was found fault with.
The Review Show Cause Notice further pointed out that the bought out inputs under T.I. 68 were not stored and consumed separately but were being mixed with similar goods falling under T.I. 68 which were manufactured in the factory of the respondents and since both these inputs were mixed up and used in the manufacture of further goods the duty relief under Notification No. 201/1979 cannot be exactly determined or quantified. It was for both the above reasons that the Government intended to set aside the order of the Appellate Collector and restore the order of the Assistant Collector.
7. It is clear from the Assistant Collector's order, and also confirmed by Shri Chidambaram, that the exemption under Notification No. 201/1979 was claimed with reference to the bought out inputs only (under T.I.68) and not with reference to the similar inputs which were manufactured in the factory of the respondents and were captively consumed. This was evidently for the reason that with reference to the inputs manufactured in the factory and captively consumed, the immediate resultant goods were themselves free of duty as they also fell under T.I. 68 and were further being captively consumed. The dispute therefore is only with reference to the bought out goods under T.I. 68.
8. The reasoning of the Assistant Collector, which is reiterated in the show cause notice, is that the "said goods" mentioned in Notification No. 201/1979 would be only the goods that are immediately manufactured by utilisation of T.I. 68 inputs and not the final end product. In this connection the learned Consultant for the respondents has drawn our attention to the observations in the decision of this Tribunal in Appeal No. E/299/85(C) (Order No.C/314/85) : 1985 (21) ELT 901 in the case of Collector of Central Excise, Bhubaneshwar v. Tataghur Paper Mills. In paragraph 4 thereof it is observed - "a raw material is a material that is put into the manufacturing system to help in the formation of the finished product, here, the paper. We can see no logic in the arguments of the Assistant Collector who says, for example, that lime is used for manufacture of caustic soda and therefore is not a raw material for paper. But Caustic Soda is used in bleaching paper pulp.
The lime is also used to make bleach liquor. The bleach liquor is again used in the manufacture of paper. The Assistant Collector's difficulty seems to be that between the lime and the paper these are intermediate products; that lime as such is not put into the system to manufacture paper. This is a wrong understanding of an input or a raw material.
There is no authority to say that an input or raw material must go directly into the finished product. As long as it is consumed and utilised in a way that results or helps in the production or manufacture of the article in which the system is engaged, it is a raw material and is an input for that finished product." 9. Reading the words of the Notification also we are unable to subscribe to the view put forward in the Review Show Cause Notice. The Appellate Collector has drawn support from Rule 56A for the view that he expressed, that the duty paid on inputs could be finally set off on the duty payable on the final manufactured product though the input may have immediately been used for production of an intermediate product which alone later went into the manufacture of the final product. As earlier mentioned, there is nothing in the words in the notification which militates against this interpretation. We are therefore satisfied that the benefit of Notification No. 201/ 1979 cannot be refused to the respondents with reference to their bought out inputs under T.I. 68 merely for the reason that the inputs were used for the immediate production of other intermediate goods (under T.I. 68) which alone subsequently went in production of the final manufactured product under T.I. 18.
10. In this connection it may be seen that even the interpretation adopted by the Assistant Collector could not have denied relief so far as regards Acetone as an input, since it went into the immediate production of the final manufactured products only without being converted into any other intermediate product. But in this connection the learned Consultant stated that so far as Acetone is concerned, the respondents have already obtained relief in Appeal No. ED.(MAS) 129/83 before the South Regional Bench of this Tribunal under their order dated 2.2.1985.
11. As far as the second reason stated in the Review Show Cause Notice for refusing benefit under Notification No. 201/1979 is concerned, here again we may notice that there is nothing in the words of the notification as would support the contention put forward in the Review Show Cause Notice. We may in this connection refer to two judgments of the Supreme Court. Though they did not deal with the terms of Notification No. 201/ 1979 yet the principle laid down in those decisions would appear to us to be relevant in assessing the contention put forward in the Review Show Cause Notice. In Union of India and Ors.
v. Tata Iron & Steel Company Limited 1977 ELT J 61 (SC) it Was observed in paragraph 23 as follows: " Second, Notification No. 30/60 grants exemption to duty-paid pig iron. The High Court rightly said that the Notification does not say that exemption is granted only when duty paid pig iron is used and that the exemption would not be available if duty-paid pig iron is mixed with other non-duty paid materials. If the intention of the Government were to exclude the exemption to duty-paid pig iron when mixed with other materials then the notification would have used the expression "only" or "exclusively" or "entirely" in regard to duty-paid pig iron. The object of the notification was to grant relief by exempting duty-paid pig iron."Aluminium Corporation of India v. Union of India 1978 ELT J 452 (SC] it was held that the fact that the manufacture was by part utilisation of duty paid material and part utilisation of non-duty paid material would not deny benefit of a notification which granted exemption when manufacture was out of duty paid material.
12. Similarly in the present instance also the fact that bought out inputs on which duty had been paid were mixed up for purposes of further manufacture with similar inputs which were free of duty under Notification No. 118/75 should not deny the benefit of exemption under Notification No. 201/1979. So long as the required statutory conditions are observed and fulfilled in respect of such bought out duty paid inputs before they are taken out for further manufacture by being mixed up with similar duty free inputs, the final benefit under Notification No. 201/1979 should not be denied. The department may have to take necessary steps to allocate and assign the quantity in the final manufactured product that would have resulted from the utilisation of the bought out duty-paid inputs. That would be a matter of procedural arrangement between the department and the for ascertainment of the ratio.
13. In the result we hold that the order of the Appellate Collector does not require any interference. The appeal is accordingly dismissed and the Review Show Cause Notice is discharged.