1. The appellants are manufacturers of Transformer Oil (T.O.) from out of duty-paid Transformer Oil Feed Stock (T.O.FS.) which they receive from outside. Upto 28.2.1978 both T.O F.S. and T.O. fell under Item No.8 of the Central Excise Tariff1 Schedule (CET). The Central Excise authorities, consequently, were not charging duty on the T.O.manufactured by the appellants out of duty-paid T.O.F.S. The Finance Bill of 1978 effected certain amendments in tariff Item Nos. 8 and 11-A of the GET. These amendments took effect from 1.3.1978. As a result, while T.O. manufactured by the appellants continued to fall under Item No. 8 CET, T.O.F.S. went out of the purview of the said Item into that of Item No. 11-A. In the light of these changes the lower authorities held that even though the T.O.F.S. had discharged duty liability, T.O.produced by the appellants out of such duty-paid T.O.F.S. was liable to duty. The Department alleged that during the period from 1.3.1978 to 7.3.1978, the appellants cleared and sold 291.852 KL of T.O. without payment of duty amounting to Rs. 1,31,966.65 comprised of basic Excise duty Rs. 1,25,62.55 and Special Excise duty Rs. 6,284.10. It was further alleged that, though the said duty amount was included in the sale invoice and was collected from the buyers, the appellants had not paid the amount to the Department. Another allegation was that a certain quantity of white oil (W.O.) falling under Item No. 8 CET, involving a duty amount of Rs 57,707.00 was manfactured by the appellants and captiveiy consumed after 1.3.1978 without payment of duty. As in the case of T.O., with the changes brought about by the Finance Bill of 1978 w.e.f. 1.3.1978, white oil continued to remain within Item No. 8 CET whereas the feed stock from which it was produced went out of the purview of Item No. 8 CET into that of Item No. 11-A of the CET. The white oil in question was partly consumed in the appellants' factory itself in the production of petroleum jellies, etc.
falling under Item No. 68 CET. The allegation in respect of white oil covered the period from 1.3.1978 to 31.12.1978, the quantity involved being 131.323 KL. The total amount of duty in respect of the, T.O. and white oil worked out to Rs. 1,89,674.00. The appellants were asked to show cause why the said amount should not be demanded from them under Rule 10 of the Central Excise Rules (hereinafter referred to as the Rules) and why a penalty should not be imposed on them under Rules 9(2) and 173(Q) of the Central Excise Rules. In reply, the appellants contended that the T.O. referred to in the Show Cause Notice was the pre-Budget stock which did not attract excise duty, that the excise duty element had been inadvertently included in the sales invoices and that the duty, in fact, had not been recovered from the buyers. As regards white oil, it conformed to I.P. (Indian Pharmocopoeia) Specification, that, as such, its classification under Item No. 8 CET was erroneous, that it did not fall under Item No. 14E CET and that it was exempted from payment of excise duty since it was of I.P. Grade.
Further, it was submitted that the white oil captively consumed had not been removed from their factory, that there was, therefore, no question of payment of excise duty at the intermediate stage. Since there was no clandestine removal with intent to evade payment of duty, there was no contravention of Rule 9(1), and therefore, the charge under Rule 9(2) was not maintainable, that the issue was time-barred and fell under Rule 10 if at all there was any contravention. In the personal hearing before the Assistant Collector, it was also submitted that the T.O. in question was from pre-Budget stock. The Assistant Collector, in his adjudication order dated 26.3.1980 after making due allowances for the pre-Budget quantity of T.O., determined the duty due from the appellants at Rs. 1,01,915.84 and the duty on the white oil consumed in the manufacture of I.P. Grade jelly at Rs. 57,700.81 and demanded the said amount under Rule 9(2). The appeal against the Assistant Collector's order was rejected by the Appellate Collector by his order dated 14.11.1980. Aggrieved with this order, the appellants filed on 15.12.1980 a Revision Application before the Central Government which has come to this Tribunal as transferred proceedings under Section 35-P of the Central Excises & Salt Act for disposal as if it were an appeal filed before it.
2. In the appeal before us it has been contended that the T.O. in question was from pre-Budget stock and was, therefore, not liable to ' be charged to duty. As regards the white oil, it is contended that it is one of the products recognised under the Indian Pharmocopoeia and hence it cannot be construed as a product falling either under Item No.14E or Item No. 68 of the CET. In the premise, the orders of the lower authorities deserve to be set aside.
3. The appeal was heard 10.8.1983. Shri Nagarajan, Consultant, appearing on behalf of the appellants, essentially reiterated the submissions made before the lower authorities and those made in the Memorandum of Appeal. In particular, he urged that there has been no violation of Rule 9(1) and, therefore, Rule 9(2) had no application to the facts of the case. He also submitted that the clearances of T.O. in respect of which duty was sought to be demanded from the appellants took place during the period 1.3.1978 to 7.3.1978. The Show Cause Notice demanding duty under Rule 9(2) read with Rule 10 was issued only on 25.6.1979, i.e. more than one year after the period of clearance.
The demand was, therefore, hit by limitation under Rule 10 as it existed at the material time. Rule 9(2), as already submitted, had no application. Shri Nagarajan also submitted that if a product was made from another duty-paid product, both falling under the same tariff sub-item, there was no authority for charging duty again under the same sub-item on the 2nd product. It was on this basis that prior to 1.3.1978 no duty was being charged on T.O. made out of duty-paid T.O.F.S. both falling under Item No. 8 CET. The only change that had taken place was that on 1.3.1978, T.O.F S. moved out of Item No. 8 to item No. 11 A. This, however, would not make any difference to the proposition that T.O. made out of duty-paid T.O.F.S was not liable to pay duty again.
4. Appearing on behalf of the Respondent Shri V. Lakshmi Kumaran, SDR, took us through the various provisions of the Central Excise Rules governing what is popularly known as "Self Removal Procedure" contained in Chapter 7A of the Rules. He submitted that assessments made in respect of goods cleared under the Rules governing the Self Removal Procedure would be complete only on assessment by the proper Central Excise Officer of the monthly RT 12 return, unlike in the Physical Control Procedure where the Central Excise Officer finalised the assessment in the factory itself. The RT 12 return in the present case did not show the clearances of the T.O. which had, during the relevant period, been cleared from the factory without payment of duty, without entries in the RG I Register and without cover of" gate passes. At the same time, the sales invoices of the subject goods showed charging and recovery of the duly amount from the customers. In the circumstances, the SDR contended that the proviso to Rule Hi, as it stood at the material time, applied. It was not necessary to allege or establish fraud or collusion or wilful mis-statement. All that was necessary was to establish suppression of facts which need not be wilful. In other words, the intention was not relevant for invoking the proviso to Rule 10. In support of this submission a decision of a Special Bench of this Tribunal was cited as 1983 ELT, P. 1107 Gopal Dass Jagat Ram Pvt. Ltd. v. Collector of Central Excise, Chandigarh 1983 ECR 825D. Reference was also made to the Supreme Court judgment in the case of N.B. Sanjana v.Elphinstone Spinning & Weaving Mills Co. Ltd., 1978 ELT (J. 399) : 1973 Cen-Cus July vi (S.C). It was submitted that no classification list was filed by the appellants with the proper officer to the effect that the subject T.O. was not dutiable. The fact that no penalty was imposed would not necessarily mean that there was no suppression of facts warranting recourse to proviso to Rule 10.
5. Shri Lakshmi Kumaran contended that the Assistant Collector had given due allowance to the pre-Budget stock of T.O. vide the 2 paragraphs of his adjudication order preceding the operative part of the order. The computation arrived at by the Assistant Collector had not been controverted by the appellants. He further submitted that there was no Notification conferring duty exemption on T.O. falling under Item No. 8 CET, manufactured from duty-paid T.O.F.S, also falling under Item No. 8. Therefore, there was no substance in the appellants' contention that T.O. made out of duty-paid T.O.F.S. was not liable to duty even though both might have fallen under the same tariff item. The important thing to see was whether the process of conversion of T.QFS- to T.O. was a process of manufacture. It was certainly a process of manufacture. This gained support from the fact that the appellants later on filed classification list for clearances of T.O. under Item No. 8 after the Budget changes of 1.3.1978, which would not have been the case if no manufacture was involved. He submitted that there was no Supreme Court judgment on the issue whether in a case involving a process of manufacture, the finished products would or would not be liable to excise duty when the raw material from which it was manufactured fell under the same Tariff item and had discharged duty liability.
6. The picture in respect of white oil was much the same. The feed stock from which white oil was manufactured fell under Item No. 8 till 2.1 2.1978 ; it moved over to Item No. 11A on 13.1978. However, white oil continued to remain in Item No. 8. He had no quarrel with the contentions that the white oil was of I.P. Grade. Even so, it would not fall under Item No. 68 CET which was a residual item and could be resorted to only if the while oil did not fall under any other item.
Even I.P. Grade white oil conformed to the description of Item No. 8.
As in the case of T.O., there was statutory exemption in favour of white oil.
7. As regards the plea of no duty liability in view of the captive consumption of the white oil, the SDR drew our attention to the amendment of Rules 9 and 49 with retrospective effect by the 1982 Finance Act. Here also, as with the T.O., there were no gate passes and other excise documentation. Concluding, it was urged that the appeal should be dismissed.
8. In his reply arguments, Shri Nagarajan submitted that, though the excise documents did not show clearance of T.O. during the period 1.3.1978 to 7.3.1978, the factory's challans were very much there. He also referred to the Departmental Instructions on non-dutiability of T.O. manufactured from duty-paid T.O.F.S. reproduced in the Central Excise Tariff, 1983-84 Edition, by R.K. Jain, at page 225.
9. We have given our careful consideration to the submissions of both sides. The following issues arise for our consideration: (a) Whether the subject stocks of T.O. were liable to be charged to duty under Item No. 8 CET when cleared for home consumption on and from 1.3.78 till 7.3.78 (b) Whether T.O. made from duty-paid T.O.F.S. was liable to duty at the material time (c) Whether the white oil manufactured out of duty-paid feed stock and captively consumed by the appellants during the period from 1.3.1978 to 31.12 1978 was liable to be charged to duty under Item No. 8 CET and (d) Whether the demand notice dated 25.6.1979 was hit by limitation 10. Turning to the issue at (a) above, it is seen from the order of adjudication by the Assistant Collector that he had personally visited the appellants' factory on 3.11.1979 and subsequently had discussions with the officials of the company. In the light of the discussions and scrutiny of the records including the company's records, he gave allowance for a quantity which he held to be from pre-Budget stock and that quantity was excluded from the charge to duty. The Assistant Collector's order gives a detailed calculation of how this quantity was arrived at. These figures have not been controverted by the appellants in the hearing before us. In the memorandum of appeal also, apart from a bald statement that the T.O. cleared during the period 1.3.1978 to 7.3.1978 was of pre-Budget stock, the appellants have neither adduced any evidence in support of their statement or controverted the Asstt.
Collector's calculations. We are of the view that, in the circumstances, it was for the appellant to establish his claim which he seems to have not done. Nor has it been established before us that any part of the T.O. which was charged to duty by the Assistant Collector vide his order dated 26.3.1980 was from the pro-Budget stocks. The appellants' case is that since the T.O. was manufactured from duty-paid T.O F.S, and both the products fell under Item No. 8 CET till 28.2.78, the T.O. so produced was not liable to duty under the same tariff item.
For this, they have relied on certain Departmental instructions reproduced on page 225 of the 1983-84 Edition of the Central Excise Tariff by R.K. Jain. Whatever may have been the Departmental instructions, we have to see whether the proposition that T.O.manufactured out of duty-paid T.O.F.S. would not attract duty under Item No. 8 CET, is tenable. In this connection, as we have noted earlier, the appellants have not established to our satisfaction that the T.O. which is the subject matter of the dispute before us came from pre-Budget stocks. Therefore, we have to proceed on the premise that the said T.O. came from post-budget stocks. No Notification has been produced before us which conferred exemption on or extended a concessional rate of duty to T.O. manufactured out of duty-paid T.O.F.S. The very fact that T.O.F.S. has, by the amendments to Items Nos. 8 and 11A CET brought about by the Finance Act of 1978, been taken out of the purview of Item 8 to that of Item 11 A, shows that the 2 products are not one and the same. The T.O. (falling under Item No. 8 CET) produced out of duty-paid T.O.F.S. (falling under Item No. HA CET) would doubtless be liable to be charged to duty under Item No, 8 CET unless there was, at the material time, any Notification conferring exemption or fixing a reduced rate of 'duty on such T.O. No such Notification has been shown to us. Even if 'the T.O. was manufactured out of T.O.F.S., which had discharged duty liability under Item No. 8 CET, there is no authority shown to us for the proposition that such T.O. would not be liable to be charged to duty under Item No. 8 CET except the Board's instructions referred to by the appellants. The real question is whether the process of conversion of T.O.F.S. into T.O. is one of "manufacture" within the meaning of Section 2(f) of the Central Excises & Salt Act. The very fact that they are known by 2 distinct commercial nomenclatures and that T.O.F.S. is the base material for manufacture of T.O. would show that what is involved in the conversion process is, in fact, a process of manufacture. In the circumstances, we have to answer the issue in para 9(a) by saying that it has not been shown to us that the disputed T.O. was from pre-Budget stock and by holding that the said T.O. was liable to be charged to duty under Item No. 8 CET.12. Our finding in so far as the liability to duty of T.O. manufactured out of duty-paid T.O.F.S. applies with equal force to white oil manufactured out of duty-paid feed stock. The additional point for consideration here is the appellants' contention that the said white oil was not liable to duty since it was. not cleared out of the appellants' factory for home consumption but only for consumption within the factory for manufacture of petroleum jelly of I.P Grade. The further contention is that the white oil itself was of I.P. Grade and was, therefore, not liable to duty under Item No. 8 CET. The first question has been set at rest beyond doubt by the amendments to Rules 9 and 49 of the Central Excise Rules effected by Section 51 of the Finance Act, 1982 with retrospective effect from 1944. In accordance with these amendments the position is and should be deemed to have always been that the removal of excisable products from the place of manufacture to another place within the factory for use in the manufacture of other goods shall nevertheless be deemed to be removal from the factory for the purpose of the said Rules. We, therefore, reject the appellants' contention that white oil was not liable to duty on the ground that it was captively consumed and not cleared outside the factory. Also, no Notification has been produced before us exempting white oil of I.P. Grade or such oil used in the manufacture of Petroleum Jellies of LP. Grade from payment of duty. We, therefore, reject the appellants' contention in this behalf.
13. Turning last to the question of limitation, we find from the Assistant Collector's order that the Show Cause Notice was issued asking the appellants to show cause why a penalty should not be imposed on them under Rules 9(2) and 173(Q) arid why duty should not be demanded from them under Rule 10. The notice was issued on 25.6.' 979 demanding duty for the period 1.3.1978 to 7.3.1978 on T.O. and 1.3.1978 to 31.12.1978 on white oil. The appellants' contention is that though the clearances of these products were not disclosed in the relevant monthly RT 12 returns nor were they covered by gate passes or entries in the RG I Register, they were nevertheless covered by the appellants' challans and further that in respect of T.O., the sales invoices had been seen by excise authorities. In the circumstances, the appellants contend that it could not be said that there was any wilful suppression of facts so as to attract the extended period of 5 years within which duty could be demanded from the appellants. Against this, the Revenue's contention is that under the Self Removal Procedure the primary obligation to make proper declarations and entries in the production register RG I, the gate passes and RT 12 returns is that of the appellants, unlike in the Physical Control System, where the Excise Inspector present in the factory has the duty of completing the assessment on the spot in the factory before clearance of the goods. It was incumbent on the appellants to file necessary classification lists in respect of the T.O. and white oil, to enter the production figures in the RG I Register, to effect clearances under gate' passes and to disclose the particulars of clearances in the RT 12 returns. These submissions were not controverted by the appellants before us. The suppression of material particulars in respect of the production and clearance of T.O. for consumption outside the factory and white oil for consumption within the factory could not, in the facts and circumstances of the case, be said to be through inadvertence. In our view, the Department had the benefit of the proviso to Rule 10 as it stood at the material time and the demand was, therefore, within time.
We, therefore, hold that the demand was not hit by limitation. The fact that the Asstt. Collector in the operative part of his order referred to Rule 9(2) and not Rule 10 would not make any difference to the above position since it is well-settled that mere wrong citation of Rules would not make a notice or order invalid so long as the authority has competence to proceed under the correct Rule.
14. Having regard to the foregoing findings, we uphold the order appealed against and dismiss the appeal.