1. In consequence of the Appellate Collector allowing five Appeals preferred by the Respondent against five adjudication orders (nos.
1274, 2712, 2709, 4946 and 4950) made on diverse dates between 25-1-80 and 9-4-80, Government of India issued a notice dated 19-5-81 requiring the Respondent to show cause as to why the order of the Appellate Collector (allowing the five Appeals of the Respondent) should not be set aside, in exercise of the powers of Review vested under Sec. 36(2) of tie Central Excises and Salt Act, 1944-as it read at the relevant time (hereinafter referred to as the Act). The proceedings in review that were thus initiated were transferred to the Tribunal and heard as Appeals, pursuant to the provisions in Sec. 35(P) of the Act. They are Appeal Nos. 1449, 1489,1491, 1493, 1494.
(a) Whether, in the facts and circumstances of the case, recovery of Caprolactum from wash water constituted manufacture of Caprolactum (b) If so, was it classifiable under item 14AA of the 1st Schedule to the Act. (Adjudication Order No. 1274) and accordingly assessable to duty during the periods between- so that their refund applications do not maintain ; and they are further liable to pay differential duty on such Caprolactum during the periods between- (c) Was the Notification No. 47/77 dated 1-4-77 applicable to the facts of each of the Appeals (d) Was the show cause notice for the Review in order Our decision- herein governs all other Appeal Nos. 1489, 1491, 1493, 1494 as well.
3. The undisputed sequence of events that culminated in the present proceedings are- (a) a notice dated 21-7-79 requiring the Respondent to show cause as to why the Caprolactum recovered from wash water should not be classified under item 14(AA) of the 1st Schedule to the Act resulted in an adjudication Order No. 1274 dated 25-1-80. It was held in the said order that the Caprolactum, in question, was classifiable under item 14(AA) of the 1st Schedule and was eligible to the benefit of the exemption contained in Notification No. 47/77 dated 1-4-77 provided the conditions therein were fulfilled; (ii) Rs. 52,137.33 for the period 1-6-78 to 31-7-78 culminated in Adjudication Orders Nos. 2712 and 2709 by which the said claims were dismissed on the grounds that recovery of Caprolactum from wash water is "manufacture" and the Respondent was ineligible to the benefit of the Notification No. 47/77 dated 1-4-77, inasmuch as, the Caprolactum was made use of in the manufacture of tyre cord in their factory. (Adjudication Orders Nos. 2712 and 2709); (c) notices dated 6-9-79 and 23-10-79, requiring the Respondent to show cause as to why they should not pay amounts of Rs. 2,37,194 (between March, 1978 and July, 1978) and Rs. 5,33,711.38 (between August, 1978 and March, 1979) respectively, towards differential duty on Caprolactum recovered from wash water and solid waste consequent upon difference between the approved price and declared value of the said Caprolactum by the Respondent, resulted in Adjudication Orders Nos. 4946 and 4950. (Although the preamble in the said orders show that they relate to Caprolactum recovered from wash water, it would appear that they did also concern the Caprolactum recovered out of solid waste); (d) five Appeals one each against each of the aforesaid orders in adjudication, along with two others in relation to duty leviable on Caprolactum recovered from solid waste were all disposed of by a single consolidated order dated 2-1-81 by the Appellate Collector, who set aside all the aforesaid adjudication orders in so far as they related to Caprolactum recovered from wash water, while dismissing two of the Respondent's Appeals concerning Caprolactum recovered from solid waste. He stated that in case any of the Appeals allowed involved both the issues, relief is limited to that part which pertains to recovery of Caprolactum from wash water; (Adjudication Orders 4946 and 4950); (e) a single notice to show cause as to why the order of the Appellate Collector should not be reviewed in so far as it related to Caprolactum recovered from wash water, (i.e. adjudication orders nos. 1274, 2712, 2709, 4946 and 4950-the last two in the part relating to wash water), was issued by the Appellant on 19-5-81, in exercise of the powers vested under Sec. 36(2) of the Act as it then read; on transfer to the Tribunal, they were registered as Appeal Nos. 1489, 1491, 1493, 1494 and 1449; 4. The crux of the notice to show cause, was that the Govt. of India was tentatively of the view that- (a) the Appellate Collector having held that recovery of Caprolactum from waste amounts to manufacture of Caprolactum could not have held otherwise in the case of recovery of Caprolactum from wash water, the reasons being the same; (b) the process of recovery of Caprolactum from wash water also results in the production of a commodity with a distinct name, character and use; (c) the benefit of Notification No. 47/77 dated 1-4-77 cannot be availed because the Carprolactum so recovered was used in the manufacture of tyre cord contrary to the one of the conditions therein; and accordingly, the order of the Appellate Collector was neither proper, nor legal and correct and requires, in the circumstances, to be reviewed.
5. Before us, Smt. Zutshi for the Appellant, contended, inter alia that- (a) the wash water actually is a solution of unreacted Caprolactum water and oligomers-(defined to mean a polymer molecule consisting of only a few monomer units-Condensed Chemical Dictionary by Hawley); (b) wash water is, accordingly, classifiable under item no, 68 of the 1st Schedule; (c) significantly, the process of recovery of Caprolactum from wash water as well as the waste is carried on in one and the same plant.
The unreacted monomer in the wash water which is used to condense the molten mass of the waste, that had already reacted with phosphoric acid, combines with the molten mass resulting in Caprolactum; (d) reliance on the Trade Notice referred to by the Appellate Collector cannot avail the Respondent, since, on its terms, it speaks of ''manufacture of Caprolactum from duty paid Caprolactum".
It speaks of "not merely the manufacture of Caprolactum from wash water of virgin Caprolactum but that it must be duty paid in character". "In the cases under reference, the c.v. duty in respect of Caprolactum imported...has not been paid"; (e) the affidavit of Shri Ram Advani,' for the Respondent, supresses the Chemical reaction that takes place-the rupture of the bond structure of the molecules resulting in depolymerisation; (g) the fact that wash water is not bought or sold is of no consequence for adjudging "manufacture" thereof-(reliance on 1978 ELT 1 : 1978 ELT 180-the Union Carbide cases); (h) Shri Advani's affidavit, amounting, as it does, to "suppressio veri and suggestio falsi", would disentitle the Respondent to any relief; (i) wash water was itself not charged to duty-not because it does not fall within item 68 of the 1st Schedule but because of the exemption given to goods captively consumed in terms of Notification No. 118/75 dated 30-4-75.
6. While repeating all the arguments that were advanced in relation to the Appeals Nos. 1492 and 1490 of 1981 relating to Caprolactum recovered from waste, (not reproduced herein in the interests of brevity), learned Senior Counsel for the Respondent urged, that- (a) the findings of fact by the Appellate Collector in relation to Caprolactum recovered from wash water to the effect that "the Caprolactum content in wash water did not lose its identity" was neither disputed nor put in issue; (b) just because it was held that Caprolactum recovered from waste involved "manufacture", it does not follow that Caprolactum is "manufactured" when recovered out of wash water as well; the processes of recovery were entirely different; (c) since there was, indeed, no basis for the show cause notice for Review, or the basis or the foundation for the notice, such as it is, is fallacious reasoning, the Appeal resulting from the notice for review should be dismissed; (d) it should be also dismissed for want of any positive evidence contrary to the finding of the Appellate Collector; (e) "wash water" is not an excisable marketable commodity. (Reliance on Union of India v. D.C.M. (A.I.R. (f) The Trade Notice No. 150/75 relied upon by the Appellate Collector affirmatively establishes that Caprolactum recovered from wash water is not exigible to duty.
7. We must, at the very outset, state clearly and unambiguously, that we have, perforce, to proceed to adjudge the case solely on the evidence on record and not on any submissions of facts discovered by the S.D.R., on her fact finding mission. The only exception can be a case where the evidence on record is demonstrably contrary to scientific truth.
8. Nor can we countenance any new case set up for the first time in the course of the arguments before us-and not even adverted to at any stage of the proceedings including the notice to show cause initiating the Review. If it was the case of the Appellant that- (a) wash water were exigible to duty under item 68 of the 1st Schedule but exempted from duty under Notification No. 118/75 dated 30-4-75; or (b) the imported virgin Caprolactum from which wash water resulted was not assessed to countervailing duty-contrary to the assertion of the Respondent all along; we would expect that allegations to that effect would find a place, at least in the notice for Review, if not earlier either in any adjudication order or the order in Appeal. If it were true that wash water was a manufactured product and was assessable to duty under item 68 of the 1st Schedule, why is it that the Respondent, who was required to file a classification list in regard to the Caprolactum recovered from wash water in this Appeal, or M/s. Century Enka, or any other manufacturer of nylon filament yarn, not required to do so, in regard to wash water as well? How is it that when the Appellate Collector had, in para 4 of his order, observed that wash water is not covered by any specific entry in the 1st Schedule, it was not even controverted in the show cause notice for the Review? So also, why is it that the allegation that the Respondent had not paid c.v. duty on the virgin Caprolactum imported and made use of resulting in wash water and waste apart from nylon filament yarn conspicuous by its absence despite the assertion of the Respondent to the contrary all along.
9. (a) If wash water were a manufactured product assessable under the residuary item 68 of the 1st Schedule (of excisable goods) to the Act, not having been specifically enumerated, it has necessarily got to be established, for the reasons set forth in our decision in Appeal No. 1492/81 (relating to recovery of Caprolactum from waste), that it is commercially known to be goods, with a distinct name, character and use. It cannot be forgotten that the test of marketability to adjudge manufacture is of no relevance only in cases where a product indisputably falls under one or the other of items 1-67 of the 1st Schedule [Union of India v. H.U.F. Ramlal Mansukhrai-A.I.R. 1973 S.C. 2333 and not if there is any doubt or debate regarding its specific inclusion in those items or in the residuary item 68. Marketability is the very crux more often than not when a product is sought to be brought within the ambit of the residuary item 68. Otherwise, the product is not "goods" in the first place-much less "excisable goods" (Sec. 3 of the Act).
(b) And the onus to prove marketability and consequently manufacture in the absence of a specific entry in the 1st Schedule rests on the Appellant. That was the ratio of the Supreme Court in the D.C.M. case (A.I.R. 1963 S.C. 791). The distinction between the ratio of the D.C.M. case in A.I.R. 1963 S.C. 791 and the decision in (referred to supra) is obvious.
(c) The decisions in the two Union Carbide cases in 1978 ELT 1 : 1978 ELT 180 do not lend any support to the contention of the Appellant. In the first of these cases, there is a clear finding that, "assuming that the product must be known to the trade as such, before it can be goods within the meaning of the Act, we are satisfied that aluminium cans or torch bodies are such product". In the second, it was stated, after a discussion of the two aforecited cases of the Supreme Court that in order "to be particular goods as mentioned in the item of the Schedule, unless that item is defined in the Act or the Schedule, the goods produced must be known as such in the market".-(Para 11 of the Judgment). This would go in support of what we are holding in paras (a) and (b) supra rather than the contention of the Appellant.
(d) In the circumstances, we cannot hold that wash water is assessable under item 68 of 1st Schedule.
10. (a) It is not the question of "manufacture" of wash water that is in issue but of Caprolactum from wash water. The manufacture and assessability of wash water in terms of item 68 becomes relevant only to the extent that, if, indeed, a "manufacture" assessable to duty under item 68, the process of recovery of Caprolactum from it can straightaway be a manufacture, seeing that it is separately assessable under (item 14AA, following the ratio of (Hyderabad Asbestos Cement Products v. Union of India), 1980 ELT 735. Otherwise it is absolutely irrelevant. What is of greater relevance is as to whether the recovery of Caprolactum from wash water amounts to "manufacture".
(b) The only evidence in this context consists of the affidavits of Shri Advani, apart from technical literature referred to by both sides.
"(a) After Caprolactum has completed the process of polymerisation a small part of unreacted Caprolactum monomer still remains on the polymer. This polymer is washed with water and the water containing this unreacted monomer is called wash water. The wash water would contain normally between 2 to 6% of caprolactum. This is concentrated in stages by the mode of steam-heating and application of vacuum to about 70% of caprolactum. Recovery of caprolactum from wash water merely involves separation of unreacted caprolactum from water. Caprolactum obtained from this process will then be mixed with virgin Caprolactum." (d) In his second affidavit dated 22-8-1983, he gave the properties of the recovered lactum vis-a-vis lactum oligomers consisting of only a few units of lactum monomer described as dimer and trimer etc. They appear to be substantially different.
(e) Now "Oligomers" are formed during the process of polymerisation and require to be eliminated (Encyclopaedia of Polymer Science & Technology p. 366-Vol. 10). Although not mentioned in the aforesaid affidavits, they are present in wash water. "These low molecular lactum oligomers arc removed from the polymer by means of extraction with water, in which case the obtained extract contains about 75 to 80% monomers and 20 to 25% oligomers". (Organic Polymer waste reclaiming Encyclopaedia by Marshall- p. 48).
(f) If, therefore, the wash water contains "oligomers" apart from a small percentage of unreacted caprolactum, the elimination of the former is essentially by a process of extraction, may be by steam heating and application of vacuum.
It is not merely a process of separation of the unreacted Caprolactum from wash water by a process of elimination of the "oligomers" resulting from polymerisation and present in the wash water. If it were mere separation from water, there is no reason why the separated Caprolactum is not in solid form-same as the virgin Caprolactum. The oligomers themselves are depolymerised also resulting in Caprolactum. This process is thus called depolymerisation in contradistinction to polymerisation. Just as polymerisation is a process of manufacture, depolymerization also is a process of manufacture. And it results in the assessable product Caprolactum (in any form).
(g) We are, in the circumstances, of the view, that the affidavits conceal more than what they reveal and the so-called process of recovery amounts to manufacture of Caprolactum at least in regard to the depolymerisation of the oligomers into Caprolactum.
11. Manufactured Caprolactum is, certainly, assessable to duty. Wash water consists of the unreacted Caprolactum as we 11 as the oligomers.
By the process adopted by the Respondents, not only the unreacted Caprolactum is concentrated in the wash water but the oligomers are depolymerised into Caprolactum. Oligomers are, admittedly, not the same thing as virgin Caprolactum on which duty-excise or countervailing duty, as the case may be-had previously been paid. In the premises, if the unreacted Caprolactum present in wash water was already duty paid, it cannot be re-assessed to duty. The same cannot be said about Caprolactum recovered from depolymerization of oligomers in the wash water. This being so, it becomes necessary to ascertain, if possible, the quantum of Caprolactum recovered on depolymerisation of oligomers which alone can be exigible to duty qua Caprolactum. There is no material before us to quantify such Caprolactum.
12. In the premises, the Questions in 2(a) and (b) are answered accordingly. Question 2(c) was not argued before us. On Question 2(d), we hold that the show cause notice was in order.
13. ' In the result, we have no option but to set aside the Appellate Collector's order, in so far as it relates to recovery of Caprolactum from wash water, and remand the matter to the Asst. Collector for a quantification, to the extent possible, after enquiry in which the Respondent is represented and afforded an opportunity, of the Caprolactum manufactured out of the depolymerisation of oligomers in wash water. Duty is to be levied only on the Caprolactum ascertained to have been manufactured out of depolymerisation of oligomers present in wash water. In the result, the Appeal partly succeeds.
14. Before parting with the case, we place on record the invaluable assistance we had derived from the submissions on either side.