Case Law Details
Ganga Rasayanie Vs Commissioner of Central Excise (CESTAT Kolkata)
Introduction: In a significant judgment passed by the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) Kolkata, the processes of re-crystallisation and distillation were deemed not to constitute ‘manufacture’ under the Central Excise Act. The case, Ganga Rasayanie vs Commissioner of Central Excise, revolved around whether these processes undertaken by Ganga Rasayanie, a firm involved in processing various petrochemical products, constituted ‘manufacture’ under the Excise Act.
Analysis: The tribunal extensively analysed the processes undertaken by the appellant, Ganga Rasayanie. The company primarily deals with the process of Coal Tar distillation, refining, blending, and repacking of various petroleum products. The key argument was that the process did not change the original character and properties of the material, and thus, did not amount to ‘manufacture’.
The Tribunal referenced previous case law and observed that the processes of re-crystallisation and distillation did not result in a new product with a distinct name, character, or use, hence, these could not be defined as ‘manufacture’. The tribunal drew from the appellant’s own previous case and other case law in arriving at this conclusion.
Conclusion: The CESTAT Kolkata, in its judgment, set a clear precedent stating that the processes of re-crystallisation and distillation do not amount to ‘manufacture’ under the Central Excise Act. This ruling provides a much-needed clarification for companies engaged in similar operations.
FULL TEXT OF THE CESTAT KOLKATA ORDER
The instant appeal is filed by the Appellant against the impugned order dated 14.05.2009 passed by Commissioner of Central Excise Bolpur. The said order has been passed pursuant to the Order of the Tribunal dated 14.05.2008 remanding the matter after setting aside the Order-in-Original passed by the Commissioner on 11.07.2002.
2. The issue involved in this case is whether the process undertaken by the Appellant amounts to manufacture and whether the Appellant is eligible for the SSI benefit . The amount involved is Rs.89,06,036/-with interest and equivalent amount of penalty and fine of Rs.1,40,000/-The Period involved in the dispute is November 1987 to February 1994.
3. Briefly stated facts of the case are that the Appellant is engaged in undertaking the processing of Coal Tars, Solvent Naptha, Tar Acid, Light Creosote Oil, Napthalene, Althrecene Oil etc. falling under chapter Sub-heading Nos. 3814.00, 2706.00, 2907.90, 2707-60 and 2707.40 of the Central Excise Tariff Act, 1985. They were having two units in West Bengal, a processing unit at Durgapur and a godown at Liluah. They are also registered as SSI Unit under the Directorate of Cottage & Small Scale Industries of the Government of West Bengal. The Appellant primarily undertook the process of Coal Tar distillation, refining, blending and repacking of various petroleum products and the said process does not change the original character and properties of the material. The Coal Tar Distillates are exempted from whole of the duty of excise in terms of Notification No.298/86-CE dated 13.05.1986. The processed materials and bought out materials are sold to different customers under different code according to the grade and quality.
4. They were given L6 Licence on 12.01.1978 and C.T.-2 Certificate on 04.02.1980 for procuring refined diesel oil known as Solvent CIX in terms of Notification No.267/67 dated 21.02.1967 without payment of duty for manufacture of chemicals. The appellant was procuring the raw materials without payment of duty on the strength of the said certificates and the License. However, the officers of the Department tested the chemicals and the finished products and found that no new product came into existence and hence the process undertaken by themdid not amount to manufacture. Accordingly, the Central excise authorities cancelled the C.T.-2 Licence vide letter dated 16.09.1981.
5. The coal Tar and Dehydrated Coal Tar are chargeable to NIL rate of duty. Coal Tar Distillates viz. Solvent, Naptha, Light/Heavy Creosote Oil, Anthracene Oils etc. are exempted from payment of duty under Notification No.298/86 dated 13.05.1986. The appellant did not avail MODVAT Credit as per the decision of the Department that their processing of Coal Tar does not amount to manufacture.
6. First Show Cause Notice was issued by the Department on 19.08.1992 for the period from 01.04.1991 to 22.02.1992 alleging that the processes undertaken by the Appellant amounted to ‘manufacture’. The second Show Cause Notice was issued on 13.10.1992 for the period 01.11.1987 to 18.09.1992 excluding the period 01.04.1991 to 21.02.1992 on the basis of production and clearance value on average basis during the financial years 1987-88, 1988-89, 1989-90, 1990-91, 1991-92 Subsequently, four more Notices were issued, within the normal time period, but the value of the exempted goods had not been excluded and SSI benefit had not been extended.
7. The Appellant contented that in none of the years the value of the manufactured products exceeded Rs.30 Lakhs, which was the SSI exemption limit prevailed during the relevant period. Their contention is that the value of clearance atLiluah Unit could be taken into consideration since the manufactured goods of Durgapur Unit were sent to Liluah Unit for packing and selling.
8. The Ld. Adjudicating authority passed the Order confirming the demands, by holding the process undertaken by the Appellant as fractional distillation, amounting to ‘manufacture’. The order of the Ld.Commissioner was set aside by the Tribunal vide Order dated 14.05.2008 with the direction to consider the appellant’s case in the light of the decision in their own case and also to consider the availability of the SSI exemption benefit. During the course of denovo proceeding, the Appellant claimed that their case was covered by the decision in their own case, in the case of M/s. Ganga Rasayanie Pvt.Ltd. v. Collector of Central Excise, Baroda reported in 1996 (81) ELT 176 (Tribunal) . In that case the Collector has held that fractional distillation is nothing but a purification of Solvent CIX and the process does not amount to ‘manufacture’. In the present appeal also, the process undertaken does not amount to manufacture even if it is considered as fractional distillation. They also contended that the demand was barred by limitation. The SSI exemption notification as amended would also applicable to them.
9. In denove adjudication, the Ld Commissioner confirmed the demands again vide Order-in-Original dated 14.05.2009. Aggrieved against the impugned order, the Appellant is before us.
10. In their submissions, the Appellant stated that the decision in Appellant’s own case has been wrongly interpreted by Commissioner. The Appellant stated that they undertook the process of recrystalisation and distillation and the resultant goods were given different numbers like GR-101, GR-4546 etc. But, these processes did not bring in any new product and the processes did not amount to ‘manufacture as per section 2(f) of Central Excise Act, 1944. The order passed by the Ld.Commissioner is maintainable in law, since the entire order has been passed following earlier Adjudication order, which has been set aside by the Tribunal.
11. The Ld Departmental Representative reiterated the findings of the adjudicating authority in the Order-in-Original.
12. Heard both sides and perused the appeal records.
13. The issue involved in this case is whether the processes undertaken by the Appellant amounts to manufacture or not. According to the Appellant they have undertaken the processes of recrystalisation and distillation did not bring in any new excisable product. Hence, these processes does not amount to’ manufacture’ as mentioned in section 2(f) of Central Excise Act. 1944.
14. Distillation is a process of evaporation and re-condensation used for separating liquids into various fractions according to their boiling points or boiling ranges. Fractional distillation is a distillation process for the separation of the various components of liquid mixtures. At different temperatures, various components of liquid mixtures emerge at different stages of fractional distillation process. Such components arising in course of fractional distillation process can be distinctly different from the parent raw materials. The emergent products can have different name, character and use. However, the processes of recrystalisation and distillation undertaken by the Appellant cannot be called fractional distillation. There is no evidence available on record to show that various components of liquid mixtures emerged at different stages in the process undertaken by the Appellant. Just because different names have been given to sell the goods in the market, it cannot be said that the Appellant has undertaken the process of ‘fractional distillation’ which amounts to ‘manufacture’. In fact, the officers of the Department tested the chemicals and the finished products and found that no new product came into existence and accordingly held that the process undertaken by them did not amount to manufacture. Later, the Central excise authorities cancelled the C.T.-2 Licence vide letter dated 16.09.1981.Nowhere it is established that the Appellant has undertaken the Fractional Distillation process and at different temperatures, various components of liquid mixtures emerged. Hence, we observe that the findings of the adjudicating authority in the impugned order is not supported by any evidence. It is also observed that the appellant did not avail MODVAT Credit as per the decision of the Department that their processing of Coal Tar does not amount to ‘manufacture’as persection 2(f) of the Central Excise Act. 1944.
15. In the Appellant’s own case the Tribunal observed that the processes carried out by the assessee like distillation and purification on solvent CIX do not give rise to new product hence the same do not mean manufacture.
16. In case of S.D. Fine Chem Pvt.Ltd. – vs – CCE it has been held by the Tribunal that the process of purification by re-crystallization and distillation would not amount to manufacture under Section 2(f) of C. Ex Act, 1944.
17. We observe that the Ld Commissioner has distinguished the above decisions cited by the Appellant only on the ground that new excisable goods having distinct name, character and use have emerged in course of processing of raw materials by the Appellant. We observe that giving different trade name to market the product cannot be called emergence of new final products. The Ld Commissioner has concluded that new excisable goods having distinct name, character and use has emerged during course of processing of raw materials, without any evidence to substantiate that claim. The Appellant contended that they undertook the same processes as carried out in their factory at Baroda and the Tribunal in respect of that unit concluded that the processes undertaken them did not amount to ‘manufacture’. The gist of the order is reproduced below:
Manufacture – Solvent CIX subjected to distillation and purification process does not give rise to any new product with a known chemical formula – Process not amounting to manufacture – Section 2(f) of Central Excises & Salt Act, 1944.
We find no valid reason to ignore the above cited decision in the Appellant’s own case in respect of their unit at Baroda, where the Appellant undertook similar processes of re-crystallization and distillation. The decision in the case of S.D.Fine Chemicals cited above also supports the case of the Appellant. Accordingly, following the above decisions of the Tribunal, we hold that the processes undertaken by the Appellant would not amount to manufacture within the meaning of Section 2(f) of Central Excise and Salt Act, 1944 and hence the finished goods are not leviable to Central Excise duty. Accordingly, the demand made in the impugned order is liable to be set aside.
18. Regarding the eligibility of SSI Exemption, the department contended that the benefit of SSI exemption has been allowed while working out aggregate value of clearances in each financial year during the material period. However, since the processes undertaken by the Appellant does not amount to manufacture and the demand itself is not sustainable, the eligibility of SSI Exemption would not make any difference.
19. In view of the above discussion, we allow the appeal filed by the Appellant.
(Order pronounced in the open court on 22 June 2023.)
