Popular Carbonic Pvt. Ltd. Vs Commissioner of Central Excise (CESTAT Chennai)
(i) The issue is to whether the process of compressing carbondioxide and subsequent filling in cylinder amounts to manufacture in terms of Chapter Note 9 to Chapter 28 of the Tariff Act has been settled in favour of the appellant by the Tribunal in the own case of the appellant in Commissioner of Central Excise, Chennai Popular Carbonic Pvt. Ltd5;
(ii) The appeal filed by the Department (Commissioner Popular Carbonic Pvt. Ltd. 6 ) was dismissed by the Supreme Court on 15.07.2011.
(iii) The amendment made on 01.03.2008 to Chapter Note 9 of Chapter 28 of the Tariff Act would not make any difference and the activity carried out by the appellant would not amount to manufacture; and
(iv) The period involved in the show cause notices impugned in the present appeals is from 2005-06 to 2013-2014. Subsequently a show cause notice dated 15.07.2015 was issued to the appellant for the period March 2014 to April 2015 also alleging that the activity of filling gas received through pipeline into cylinders by compression amounted to manufacture. The Principal Commissioner by order dated 21.07.2016 dropped the proceedings holding that the process did not amount to manufacture. This order of the Principal Commissioner had attained finality as not appeal was filed by the Department. In such circumstances, it is not open to the Department to take a different stand in this appeal.
In the case of the appellant, a Division Bench of the Tribunal in Popular Carbonic, relying upon the decision of the Supreme Court in BOC (I) Limited, upheld the decision of the Commissioner (Appeals) held that the process undertaken by the appellant would not amount to manufacture and the relevant portion of the decision is reproduce below:
“Heard both sides. The appellants received Carbon-di-oxide gas from M/s. Madras Fertilizers, through pipeline which is stored and compressed and subsequently filled in cylinders. Cylinders carry the buyers name “PILLAY” apart from the particulars of gross weight and net weight.
2. The lower appellate authority has taken note of the Chapter Note 10 to Chapter 28 which required at that time labelling or re-labelling of containers and repacking from bulk packs to retail packs or the adoption of any other treatment to render the product marketable, to satisfy the requirement of ‘manufacture’ and, thereafter, he has followed the ratio of the Tribunal’s decision in the case of Ammonia Supply Company v. CCE, New Delhi – 2001 (131) E.L.T. 626 (Tri.-Del.), in which the tribunal had decided in favour of the respondents that the process undertaken by them did not amount to manufacture.
3. We find that the view taken by the Tribunal was also approved by the Hon’ble Supreme Court in the case of CCE, Mumbai v. BOC (I) Ltd. – 2008 (226) E.L.T. 323 (S.C.). We note that for the subsequent period, the word ‘and’ in the relevant chapter note has been replaced by the word ‘or’. But at the material time April, 2002 to March, 2004, the Chapter Note contained the word ‘and’ and hence, the cited Tribunal’s decision as well as the cited decision of the Hon’ble Supreme Court squarely apply to the present case. Hence, we hold that the impugned order passed by the lower appellate authority requires no interference. Consequently, the department’s appeal is dismissed.”
It would now be necessary to examine the main contention raised by the learned counsel for the Appellant that since the order dated 21.07.2016 passed by the Principal Commissioner for the subsequent period attained finality, as no appeal was filed by the Department to assail the said order, the Department cannot now agitate that the activity undertaken by the appellant would amount to manufacture.
This submission advanced by the learned counsel for the appellant deserves to be accepted.
FULL TEXT OF THE CESTAT DELHI CHENNAI
The issue involved in all the appeals is whether compression of carbondioxide received through pipelines and the subsequent filling into cylinders would amount to manufacture in terms of Chapter Note 9 of Chapter 28 of the Central Excise Tariff Act 19851.
2. Chapter 28 of the Tariff Act deals with Inorganic Chemicals, Organic or Inorganic Compounds of Precious Metals, of Rare-Earth Metals, of Radioactive Elements or of Isotopes. Chapter Note 9, as stood prior to 01.03.2008, is as follows:
“9. In relation to products of this products of this Chapter, labeling and relabeling of containers or repacking from bulk packs to retail packs or the adoption of any other treatment to render the product marketable to the consumer, shall amount to “manufacture”.”
3. The only amendment that was made on 01.03.2008 to Chapter Note 9 is that ‘and’ was replaced ‘or’.
4. Excise Appeal Nos. 41252, 41253, 41254, 41255, 41256, 41257 and 41258 of 2013 seek the quashing of a common order dated 30.01.2013 passed by the Commissioner, adjudicating the seven show cause notices covering the period from April 2005 to March 2012, by which the demand has been confirmed with interest and penalty.
5. Excise Appeal Nos. 41259, 41260, 41261, 41262, 41263 and 41264 of 2013 have been filed to assail the order dated 31.01.2013 passed by the Commissioner, adjudicating the seven show cause notices covering the period 2005-06 to 2011-12, by which the demand has been confirmed with interest and penalty. However, for the show cause notice No. 12/2010 dated 30.06.2010, even after confirming the demand, the Commissioner ordered that the demand shall stand dispensed because of the overlapping period confirmed by Order No. 5/2013, which order has been assailed in one of the Excise Appeals mentioned in the second paragraph of this order. Thus, only six appeals have been filed against the seven orders passed by the Commissioner.
6. Excise Appeal No. 41951 of 2014 has been filed to assail the order dated 28.04.2014 passed by the Commissioner, adjudicating the show cause notice dated 15.07.2013 for the period 2012-13 by which the demand has been confirmed with interest and penalty.
7. Excise Appeal No. 41355 of 2015 has been filed to assail the order dated 26.03.2015 passed by the Commissioner, adjudicating the show cause notice dated 09.07.2014 for the period 2013-14, by which the demand has been confirmed with interest and penalty.
8. M/s. Popular Carbonic Pvt. Ltd.2 is engaged in the process of compressing carbon dioxide falling under Chapter 28 of the Tariff Act and the compressed carbon dioxide is filled into cylinders brought by the customers. The appellant claims that it receives carbon dioxide from M/s. Madras Fertilizers Limited through pipelines on payment of applicable excise duty. The carbon dioxide undergoes two processes at the premises of the appellant namely (i) compression and filling up into cylinders as gas and (ii) compression to make the carbon dioxide in liquid form.
9. The Department issued 16 show cause notices covering the period of 2005-06 to 2013-14 proposing to levy excise duty on the ground that the activity undertaken by the appellant namely, compression of carbon dioxide and the subsequent filling into cylinders amounts to manufacture in terms of Chapter Note No. 9 to Chapter 28 of the Tariff Act. The show cause notices further alleged that the appellant was not entitled for the Small Scale Industry benefit in terms of Notification dated 01.03.2003 since the goods cleared by the appellant contain a brand name of some other person. The show cause notices also proposed to levy interest and penalties under rules 25 and 27 of the Central Excise Rules, 2002.
10. The appellant denied the allegations made in the show cause notices and stated that the process undertaken by the appellant did not amount to manufacture under Chapter Note 9 to Chapter 28 of the Tariff Act. The appellant also stated that no sale under a brand name took place and in fact it was only to ensure compliance of the mandatory requirements of the Explosives Act that the appellant had to identify the owners of the cylinders. The appellant also placed reliance upon a decision of the Tribunal in their own case to contend that the activity undertaken by the appellant would not amount to manufacture under Chapter Note 9 to Chapter 28 of the Tariff Act.
11. As noticed, above four orders dated 30.01.2013, 31.01.2013, 28.04.2014 and 26.03.2015 passed by the Commissioner have been assailed in the appeals. The first order and the second order adjudicated seven show cause notices each, while the third order and the fourth order adjudicated one show cause notice each.
12. It would be useful to examine the four orders.
Order dated 30.01.2013
13. The Commissioner noted that the issue actually first arose for the period from 2002-03 upto March 2004, during which period two orders, each dated 29.09.2004, were passed by the Deputy Commissioner holding that the process undertaken by the appellant amounted to manufacture and the practice of clearing carbon dioxide in cylinders of the buyers with their identification marks would render the product as branded goods, disentitling the appellant from claming the exemption. The appellant, however, filed appeals which were allowed by the Commissioner (Appeals) by order dated 11.04.2005 holding that the activity did not amount to manufacture. The Department filed an appeal before the Tribunal, which appeal was dismissed and a further appeal by the Department to the Supreme Court was also dismissed on 15.07.2011.
14. After having noted the aforesaid factual position, the Commissioner observed that though the Tribunal while deciding the aforesaid matter in the case of the appellant had placed reliance upon the decision of the Supreme Court in Commissioner of Central Excise vs. Boc (I) Ltd.3, but in view of the subsequent decision of the Supreme Court in Air Liquide North India Pvt. Ltd. vs. Commissioner of C. Ex., Jaipur-I4 and the amendment made in Chapter Note 9 of Chapter 28 of the Tariff Act on 01.03.2008, the process undertaken by the appellant would amount to manufacture. The Commissioner also observed that since carbondioxide gas was filled in cylinders which bore identification marks/names of the buyers, the appellant would not be entitled to claim exemption under the Notification dated 01.03.200. The demand was, therefore, confirmed with penalty and interest.
Order dated 31.01.2013
15. The Commissioner held that the activity undertaken by the appellant would amount to manufacture and the relevant portion is reproduced below:
“Whether the above described activity of M/s. PCPL amounts to manufacture by a fiction of law:
4.2 Carbondioxide in liquid or gaseous state when packed from pipeline in bulk to retail packs after being subjected to certain treatment/process amounts to manufacture by virtue of gaining marketability after passing through the factory of production of the assessee in the aforesaid manner. The said canbondioxide gas attracts the fiction of manufacture in terms of Section 2(f) of the Central Excise Act, 1944 read with Note 9 of chapter 28 of the Central Excise Tariff Act, 1985.
4.3 Section 2(f) of Central Excise Act, 1944 read with Note 9 of Chapter 28 of the Central Excise Tariff Act, 1985 specifies that in relation to the products of that chapter, labeling or relabeling of containers or repacking from bulk pack to retail packs or adoption of any other treatment to render the product marketable to the consumer, shall amount to manufacture. Going by the third ingredient of the referred note viz., adoption of any other treatment to render the product marketable to the consumer, which ingredient of its incorporation in the Central Excise Tariff Act, 1985 to the present period of dispute, it can be concluded that the subject activity of M/s. PCPL of receiving the carbondioxide gas in pipeline and refilling it into cylinders would clearly amount to manufacture as per the Excise law discussed in detail above since the above described treatments render the goods certainly marketable to their customers according to their required standards/ specifications.
4.4 The fact that the gas was not sold as such is further established from the fact that the gas after the said process / treatment has acquired further value addition thereby resulting in a higher market price compared to the price at which it was procured. This is clear evidence to show that the treatment given to the CO2 gas cleared in cylinders has conferred on the final product a distinctly different marketability among its buyers/dealers in this case. Thus it satisfies the requirement of the third ingredient of Note 9 of Chapter 28 of the Central Excise Tariff Act, 1985 i.e., adoption of any other treatment to render the product marketable to the consumer shall amount to manufacture. (Case of Air Liquide North India Pvt. Ltd. 2011 (271) ELT 321 (S.C.) refers)
16. The Commissioner also held that as carbordioxide was filled in cylinders which bore identification marks/ names of the buyers, the benefit of Notification dated 01.03.2003 would not be available to the appellant.
Orders dated 28.04.2014 and 26.02.2015
17. The confirmation of demand under the remaining two orders 28.04.2014 and 26.03.2015 are based on the same reasonings as the aforesaid two orders.
Order dated 21.07.2016 for subsequent period
18. What transpires from the records is that though the dispute as to whether compression of carbordioxide and the subsequent filling into cylinders would amount to manufacture was an issue raised in all the show cause notices for the period from 2005-06 to 2013-14, which notices are in issue in all the fifteen appeals, but subsequently a show cause notice dated 15.07.2015 was also issued to the appellant for the period March 2014 to April 2015 proposing a demand of Rs. 71,32,248/- as duty payable for the same reasons, namely that filling of gas received through pipelines into cylinders by compression amounts to manufacture in terms of the Chapter Note 9 of Chapter 28 of the Tariff Act. The Principal Commissioner, by order dated 21.07.2016, dropped the demand holding that the activity would not amount to manufacture. For arriving of this conclusion, the Principal Commissioner noted:
a) The earlier order dated 29.09.2004 passed by the Deputy Commissioner confirming the demand, the order dated 11.04.2005 passed by the Commissioner (Appeals) setting aside the order passed by the Deputy Commissioner, the order dated 17.12.2019 of the Tribunal confirming the order passed by the Commissioner (Appeals) and the order dated 15.07.2011 passed by the Supreme Court dismissing the appeal to assail the order of the Commissioner;
b) The present dispute is with regard to the same provisions contained in Chapter Note 9 to Chapter 28;
c) The activity undertaken by the appellant cannot be construed as labeling, re-labeling or re- packing;
d) The amendment made on 01.03.2008 to Chapter Note 9 of Chapter 28 is of no relevance to the issue;
e) The decision of the Supreme Court in Air Liquide North India would not come to the aid of the Department as the factual controversy is different; and
f) The activity of the appellant would not amount to manufacture even under the third requirement of Chapter Note 9 of Chapter 28 of the Tariff Act.
19. It would be useful to reproduce the relevant portions of the order dated 21.07.2016 passed by the Principal Commissioner and they are:-
1 M/s. Popular Carbonic Pvt. Ltd., 198 / 6A, Bharathiar Street, Manali, Chennai – 600 068 (hereinafter referred to as Ms. PCPL) are manufacturers of Liquefied and Solidified Carbon-di-oxide (CO2) falling under Chapter 28 of the First Schedule to the Central Excise Tariff Act, 1985. They are registered with the Central Excise Department with Registration No.AACCP9974FXM001 since October, 2004. M/s. PCPL receive Carbon-di-oxide gas (CO2) from M/s. Madras Fertilizers Ltd, Chennai through pipeline and by compression process the CO2 gas is filled in cylinders and supplied to their customers.
2 In view of Chapter Note 9 of Chapter 28 of the Central Excise Tariff Act, 1985 which reads “in relation to the products of this Chapter labelling or relabeling of containers or repacking from bulk packs to retail packs or the adoption of any other treatment to render the product marketable to the consumer, shall amount to ‘manufacture” the department took a view that the activity of filling the gas received through pipeline into cylinders by compression amounted to manufacture and issued a Show Cause Notice No.19/2015 dated 15-07-2015 proposing to demand an amount of 71,32,248 as duty payable in respect of goods cleared during period March 2014 to April 2015.
4.6 The present note 9 to chapter 28 incorporates the identical provision to chapter note 10 considered during the initial period of dispute. I find there are three distinct activities listed in this provision.
