By TIOL News Service

AHMEDABAD, OCT 15, 2015: THIS Larger Bench is constituted in terms of Order dt.01.05.2015 of the Supreme Court in Civil Appeal Nos.1194-1195 of 2005 with Civil Appeal Nos.5659-5662 of 2008 in the case of Commissioner of Customs & Central Excise, Vs M/s Kraps Chem Pvt.Ltd. & Another - 2015-TIOL-102-SC-CX . By the said Order, the Supreme Court set aside the impugned orders passed by the Tribunal and remanded the case back to the Tribunal with the direction that the matter shall be decided by the Larger Bench.

The assessee purchased the Guar Dal Flour/Powder and Tamrind Kernal Powder (TKP) from outside. The said materials were mixed in a blender and sold as Guar Dal Powder/Flour. The assessee had been filing declarations in terms of notification issued under Rule 174 of the erstwhile Central Excise Rules, 1944 with the Department from the Financial Year 1997-98 onwards, declaring that the product sold by them as Guar Dal Powder. Central Excise Officers were of the opinion that the assessee was engaged in the manufacture of Guar Dal Powder, known as Guar Gum, classifiable under Sub Heading No.1301.10 of the Schedule to the Central Excise Tariff Act, 1985 (CETA) and liable to pay duty and they cleared the goods without obtaining Central Excise registration for manufacture and clearance of the same.

A show cause notice dt.19.12.2000 was issued by the Commissioner of Customs & Central Excise, Surat-II, proposing that the goods should be classified under Heading No.1301.10 of CETA, demand of duty of Rs.92,53,196.00 alongwith interest and to impose penalty, for the period 1997-98 to June 2000. It has also proposed to confiscate the seized goods under Rule 173 Q( 1) of erstwhile Central Excise Rules, 1944.

By the impugned order, the Adjudicating authority confirmed the classification of Guar Dal Powder as Guar Gum under sub-heading No.1301.10 of the CETA and also confirmed the demand of duty of Rs.92,53,196.00 alongwith interest and imposed penalty of equal amount and also confiscated the seized goods and imposed redemption fine of Rs.1 lakh. It has also imposed a penalty of Rs.10 lakhs upon the Managing Director under Rule 209A of the erstwhile Central Excise Rules, 1944.

The Appellants filed appeals before the Tribunal. Tribunal held that the process carried out by the assessee amounts to manufacture. The impugned goods Guar Dal Powder would be classifiable under Heading No.1101 of the Tariff, attracting Nil rate of duty and therefore, the demand of duty, confiscation, penalty ordered in the impugned order was set aside. Revenue filed appeals before the Supreme Court. By Order dt.01.05.2015, the Supreme Court set aside the order of the Tribunal and remanded the matter to the Tribunal to decide by a Larger Bench.

That is how the case is before the Larger Bench.

Excisability – Manufacture : the first issue is that whether the process undertaken by the Appellant would amount to manufacture. The assessee submits that the assessee had mixed Guar Dal Flour/Powder (75%), Guar Dal Powder/Saw Dust (5-10%) and TKP (10-15%) in a blender. There was no chemical reaction amongst the ingredients of the mixture. The product, after process, was sold as Guar Dal Powder. The Guar Dal Flour/Powder after the process remains Guar Dal Powder, and there is no change of character, use and identity of the goods.

Tribunal (LB) found from the records that the Managing Director in his various statements on different dates, deposed that they were procuring Guar Dal Powder of different particle sizes and blend into blender and packing 50 kgs pack. They are also using Glycol and Methonol for dispersion of powder from the sides of blender/mixture. The other additives like Guar Dal Dust/Saw Dust and TKP were added in required quantity. The blender was operated with the aid of power. It is stated that they had laboratory equipments such as Viscometer, Micro Balance, Stirrer, which were used for testing the quality of the material received from the Blenders, as it was agro product and quality of the raw material depends on many factors as field crop. Their main customers were Paper Industries, Agarbatti Industries and Explosive Industries. The viscometer was used in lab for measuring viscosity of Guar Dal Flour, which ranges from 0 to 5000 CPH, Stirrer was used for stirring of the samples while measuring viscosity, Electronic weighing machine for weighing sample and PH meter for measuring pH, which may be acidity, basic and neutral. The viscosity of the product subject to explosive industries ranges from 1500 to 2000 CPH, and of product supplied to Mosquito Coil Industries ranges from 1200 to 1400 CPH. It is stated that the difference in the viscosity of their product supplied to different industries and the viscosity depends upon the percentage of inputs used in the process of the product. It is further stated that when TKP used more, the viscosity of the product was less and when the TKP percentage less, the viscosity of the product was high. It contains binding property as per its natural inherent properties. But, its viscosity and solubility differs on the basis of other inputs used in the blender.

Tribunal found that the assessee received the Guar Dal Powder which is derived from seed of Guar plant. The seed of Guar plant in powder form known as Guar Dal Powder, was received by the assessee. The assessee had undertaken a process of the said powder added with other product and TKP. It is also mixed with Methonol and Glycol in a minimum quantity. There is a chemical reaction during mixing of these items and the viscosity of the final product ranges from 0 to 5000 CPH as per requirement of end use of the product. The chemical reaction in the Blender is expressing the magnitude of internal friction in a fluid and there is a change of properties as per end use of the goods. Thus, there is a change of character of the impugned product. The assessee received Guar Dal Powder and after due process, it was sold as Guar Dal Powder/Guar Gum. There is no dispute that the said product was known in trade as Guar Gum. So, there is a change of character, identity and use of the goods. There is change of character of the goods of different properties as per viscosity used in various industries.

Held: the activities undertaken by the Appellant would amount to manufacture.

Classification : The next issue is whether the product in question would be classifiable under Sub Heading No.1101.00 of CETA as contended by the Appellant or Sub Heading No.1301.10 of CETA as held by the Adjudicating authority.

CESTAT found that the Revenue ' s argument that the product was covered under Heading 13.01 of the Excise Tariff has more merit.

Limitation : Tribunal found f orce in the submissions of the Advocate that the extended period of limitation cannot be invoked. It is seen from the records that the Appellant filed declaration under Rule 174 of erstwhile Rules from the year 1997-98. The Appellant had specifically mentioned the description of the goods as Guar Dal Powder, with the process of manufacture by the Declaration dt.29.09.1997. In any event, there were contrary decisions of the co-ordinate Benches of the Tribunal on this issue. The Advocate submits that the Appellant acted on a bona fide belief and the goods were treated as non-excisable in the entire trade and parlance. It is noticed that the appellant ' s own case, the Tribunal in earlier occasion, observed that the impugned goods are NIL rate of duty under Chapter 11 of CETA. So, the ingredients in proviso to Section 11 A (1) of Central Excise Act, 1944 cannot be involved.

Held: Considering the overall facts and circumstances of the case, the extended period of limitation cannot be invoked.

Held:

1. the process undertaken by the Appellants of Guar Dal Powder/Gum would amount to manufacture and

2. classifiable under Heading No.1301 of the Schedule to the Central Excise Tariff Act, 1985.

3. the impugned orders to the extent the demand of duty alongwith interest for the extended period of limitation and penalties imposed on the Appellants are set aside.

(See 2015-TIOL-2211-CESTAT-AHM-LB)