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Kothari (Madras) Ltd. (Now Vs. Collector of Central Excise - Court Judgment

LegalCrystal Citation
CourtCustoms Excise and Service Tax Appellate Tribunal CESTAT Delhi
Decided On
Reported in(1985)(23)ELT279TriDel
AppellantKothari (Madras) Ltd. (Now
RespondentCollector of Central Excise
Excerpt:
.....been relied upon by the collector in his order for the definition of the terms "anhydrides" and "acid anhydrides" : "substances including organic compounds and inorganic oxides which combine with water to form acids, or which may be obtained from the latter by the elimination of water." "a chemical compound derived from an acid by elimination of a molecule of water. thus sulphur trioxide (sos) is the anhydride of sulphuric acid (h2so4); carbon dioxide co2 is the anhydride of carbonic acid; phthalic acid c6h4 (co2h)2 minus water gives phthalic anhydride c6h4 (co2)o. this term should not be confused with anhydrous (q.v)." compound generating a hydroxlic acid on addition of (or derived from the acid by removal of) one or more molecules of water e.g. sulphur (vi) oxide so3+h2)=h2so4. acid.....
Judgment:
1. This appeal was filed in August 1982 before the Central Board of Excise & Customs against order No. V/14G/15/1/ 81-CX.-Adj. II, dated 22-5-82 passed by the Collector of Central Excise, Madras. On the setting up of this Tribunal, the said appeal was transferred to it in terms of Sec. 35-P of the Central Excises & Salt Act, 1944, to be disposed of as if it were an appeal filed before the Tribunal.

2. The facts of the case, briefly stated, are that the appellants are manufacturers, among other things, of hydrogen chloride gas. The respondent's case is that the appellants manufactured and utilised in the manufacture of ammonium chloride, a total quantity of 2391.168 M.Ts. of hydrochloric acid in its anhydrous form. This manufacture and consumption of hydrochloric acid in anhydrous form was done by the appellants without observance of the Central Excise Rules and Procedures, without filing any classification and price lists and without payment of Central Excise Duty. It is further the case of the respondent that this was all done with the deliberate intention to evade payment of duty by suppressing the fact of production and clearance of the aforesaid quantity of hydrochloric acid in its anhydrous form. A show cause notice issued to the appellants on 18-4-1981 alleging violation of several provisions of the Central Excise Rules and asking them to show cause why a penalty should not be imposed on them under Rule 173Q of the Central Excise Rules and why duty amounting to Rs. 1,93,696.79 should not be demanded from them under the Central Excise Rule 9(2) invoking the extended period of 5 years as against the normal period of 6 months. The appellants, in reply, contended that hydrogen chloride gas manufactured and used by them in the manufacture of ammonium chloride was not hydrochloric acid specified under item 14G of the first Schedule to the Central Excises & Salt Act (hereafter referred to as CET). They contended that the proposal to demand duty and impose penalty was, therefore, unwarranted.

In dee course, the Collector by his order dated 22-5-1982, held that, the product in dispute was classifiable under item 14G of CET as anhydride of hydrochloric acid, that the appellants' contention regarding the value adopted.for assessment purposes was not tenable and that there was suppression of material facts on the appellants' part.

Accordingly, he imposed a penalty of Rs. 5000/- under Central Excise Rule 173Q on the appellants and demanded from them duty of Rs. 1,93,696.79 on the hydrogen chloride gas in anhydrous form used captively by the appellants during the period in dispute.

3. We have heard Shri C. Chidambaram, Consultant and Shri B.L. Gupta, General Manager for the appellants and Shri N.V. Raghavan Iyer and Smt.

Vijay Zutshi for the respondents.

4. Shri Chidambaram made submissions on the merits of the classification dispute and on the other aspects of the case, viz. the basis of the value for assessment purposes adopted by the Collector, the question whether there was suppression of facts on the part of the appellants and the applicability of the extended period of 5 years for demand of duty. However, for reasons which will be apparent shortly, we consider it necessary to discuss only the merits of the classification dispute.

5. Shri Chidambaram quoted extensively from technical authorities, many of them relied on by the Collector himself in his order, and contended that there was no substance known as anhydride of hydrochloric acid nor was hydrogen chloride gas with 8 to 10% water vapour hydrochloric acid in anhydrous form. The Collector has mis-read the technical authorities and was in error in mixing up the anhydride and the anhydrous form.

6. In reply, Shri Raghavan Iyer and Smt. Vijay Zutshi submitted that all forms of acid, whether in anhydrous condition or anhydride condition, were covered by item 14G, CET.7. The dispute before us is really a simple one. It is whether hydrogen chloride gas falls under item 14G as anhydride of hydrochloric acid.

This is the dispute identified by the collector in para 15 of his impugned order. In para 18 of the order, after discussing the technical authorities, cited by him in para 17, the Collector has observed as follows :- "From the foregoing it can be seen that 'anhydride' is a compound which can be derived from the acid by removal of one or more molecule of water and is again capable of generating an acid on addition of one or more molecules of water. Hence hydrogen chloride gas becomes hydrochloric acid when it is reacted with water and the hydrogen chloride gas acts as an anhydride of hydrochloric acid. The chemical combination for both the products is one and the same viz "HCL/'. Hydrochloric acid is nothing but an acqueous solution of hydrogen chloride gas. As Tariff Item 14G covers not only hydrochloric acid but also its anhydride (which is hydrogen chloride gas), the item hydrogen chloride gas producted by the party is classifiable under Tariff Item 14G as anhydride of hydrochloric acid and duty is chargeable under the same item." As Shri Chidambaram has pointed out, there is lot of mixing up of, and confusion with respect to, the expressions "anhydride" and "anhydrous".

As the technical authorities relied on by the Collector himself show, one term should not be confused with the other. Even so, the two expressions have been used in the order without making a distinction between them. Several paragraphs of the order refer to hydrogen chloride gas in anhydrous form, for example in para 24 which is to be found in the operative part of the order. The departmental representatives have sought to argue that even if hydrogen chloride gas is not an anhydride, it is the anhydrous form of hydrochloric acid and therefore it would be covered by item 14G of CET. "Nitric, Hydrochloric and Sulphuric Acids (including fuming acids and anhydrides thereof), all sorts.

9. The following authorities have been relied upon by the Collector in his order for the definition of the terms "anhydrides" and "acid anhydrides" : "Substances including organic compounds and inorganic oxides which combine with water to form acids, or which may be obtained from the latter by the elimination of water." "A Chemical compound derived from an acid by elimination of a molecule of water. Thus sulphur trioxide (SOs) is the anhydride of sulphuric acid (H2SO4); Carbon Dioxide CO2 is the anhydride of Carbonic acid; phthalic acid C6H4 (CO2H)2 minus water gives phthalic anhydride C6H4 (CO2)O. This term should not be confused with anhydrous (q.v)." Compound generating a hydroxlic acid on addition of (or derived from the acid by removal of) one or more molecules of water e.g. Sulphur (vi) oxide SO3+H2)=H2SO4.

Acid Anhydride : "An oxide of a non-metallic element of an organic radical which is capable of forming an acid when united with water, or which can be formed by the abstraction of water from the acid molecule; or which can unite with basic oxide to form salts." (A) Acid Anhydrides. "Acid anhydrides result from the elimination of a molecule of water, either from two molecules of a monobasic acid, or from one molecule of a dibasic acid. They are characterised by the Group (-CO, O.OC-)" 10. Apart from the above authorities, we find the following definition of anhydrides in Glossary of Chemical Terms by Clifford A.Hampell/Gessner G. Hawley : A compound formed by removing two atoms of hydrogen and one atom of oxygen from another compound, e.g. sulfur trioxide (SOa) is the anhydride of sulfuric acid (HaSO-O, and carbon dioxide is the anhydride of carbonic acid. In Organic Chemistry, phthalic anhydride CeH4 (CO2)O, is formed from phthalic acid, C6H4 (CO2H2), by the elimination of one water molecule. Amino acids can be considered as anhydrides of proteins, from which they are formed by hydrolysis.

"Anhydride" should not be confused with "Anhydrous" (see also anhydrous)" The definition given in "A Dictionary of Science" published by the English Language Book Society (by UVAROV and CHAPMAN), is as follows :-- "Anhydride : The anhydride of a substance is that which, when chemically combined with water, gives the substance. A basic anhydride is the oxide of a metal which forms a base with water (e.g. NaaO + H2O = 2NaOH). . .an acidic anhydride is the oxide of a non-metal which forms an acid with water (e.g.SO3+H2O = HiSO4).

11. It is abundantly clear from the aforesaid authorities that an anhydride of a substance is that which when chemically combined with water, gives the substance. Another way of putting it is that it is a compound formed by removing a molecule of water from another compound.

The classic example of anhydrides are Sulphur Trioxide (SCb) which when reacted with water combines with it chemically and Sulphuric Acid (HaSC4) is the result. The reaction is designated thus-SO3+H2O-HaSO4.

In this example, sulphur trioxide SOs is anhydride of sulphuric acid.

Another example is Carbon dioxide COa which is the anhydride of carbonic acid HaCCb. Yet another example is NaOs. This is the anhydride of Nitric Acid HNOa.

12. Hydrochloric acid is not a compound derived as a result of any chemical reaction between hydrogen chloride gas and water. On the other hand, it is an acqueous solution of hydrogen chloride gas. A solution is a homogenous molecular mixture of two or more solutions of dissmilar molecular structure. Gases in liquids is one type of solution-see p.

356 of "A Dictionary of Science" by UVAROV and CHAPMAN. Nor is hydrogen chloride gas an oxide of a non-metallic element as the definition requires an acid anhydride to be. We have, therefore, no hesitation in holding that HCL gas is not the anhydride of hydrochloric acid. Nor is HCL gas hydrochloric acid because the latter is an acqueous solution of the former. As such the decision of the Collector in classifying the product under item 14G, CET is erroneous and is set aside.

13. The departmental representatives have sought to argue that if the product is not an anhydride of hydrochloric acid, it is the acid in its anhydrous form. This argument has to be stated only to be rejected. As the technical authorities cited earlier clearly show the word "anhydride" should not be confused with "anhydrous". "Anhydrous" means "without water"; it describes a substance in which no water is present in the form of a hydrate or water of crystallisation. For example, anhydrous Aluminium Chloride is a pure compound of Al Cfo whereas the hydrated form contains six molecules of water-Al C136H2O. (see "Glossary of Chemical Terms" by Hampell/ G. Hawley). We have already seen that hydrochloric acid is Hcl-not HC1, (HaO),,. What we have before us is hydrogen chloride gas with about 8 -10% moisture in it.

It, therefore, does not conform even to the literal meaning, leave alone the chemical meaning, of the term "anhydrous".

14. In the view we have taken, no other point survives for consideration. The impugned order is set aside with consequential relief to the appellants.


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