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PETITIONER: M/S. POULOSE AND MATHEN

       Vs.

RESPONDENT: COLLECTOR OF CENTRAL EXCISE & ANR.

DATE OF JUDGMENT:       04/02/1997

BENCH: S.P. BHARUCHA, K.S. PARIPOORNAN

ACT:

HEADNOTE:

JUDGMENT:                       J U D G M E N T PARIPOORNAN, J..      The appellant  is a small scale industry. It carries on the business  or manufacture  of liquid Carbon Dioxide (CO2) confirming  to   ISI  grade.  The  factory  is  situated  at Kalamassery in  Ernakulam District,  Kerala State. The first respondent in  this  appeal  is  the  Collector  of  central excise, Cochin.  the second  respondent is  the Fertiliser & Chemicals Travancore  Limited (FACT).  This appeal  is filed under Section  35L (b)  of the  Central Excise  & Salt  Act, 1944, against  the  order  dated  18.3.1986  passed  by  the Central Excise  and Cold  (Control) Appellate  Tribunal, New Delhi   substantially modifying  the  order  passed  in  the appellants’ favour  by the  Appellate Collector  of  Central Exercise, Madras  dated 18.6.1982.  The Appellate  Collector set aside  the order  of the assistant Collector rendered on 2.2.1982 holding  that the  appellant is not entitled to the benefit  of   exemption  notification   No.  7/65-Ce   dated 30.1.1965. 2.   The facts  of this  case are  in  narrow  compass.  The appellants manufacture  carbon dioxide of ISI. Specification out of  raw carbon  dioxide gas  received through  pipe lime from M/s,  FACT  Ltd.  Eloor.  The  raw  carbon  dioxide  is odourous and  has a  purity of  less than  99% and  contains moisture above  0.1 %.  such raw carbon dioxide is subjected to various  processes order  to remove  traces of  moisture, oxide of  sulphur etc.  The gas  is then  dried and fed into rotary Booster  compressor to boost the pressure to a a very High point and then passed through activate carbon to remove final traces  of oil  and also  to deodourise.  The pure gas obtained after  these processes  is liquified  and filled in cylinders and  removed therefrom for making further products or for sale. 3.   At the  relevant time,  Carbonic Acid  (carbon dioxide) was specified in Entry No 14H(iv) of the Ist Schedule to the Central Excise  Act, 1944  and was  assessable  to  duty  of excise at  the  rates  in  force  from  time  to  time.  The appellants had  taken out L.4 licence for the manufacture of carbon dioxide.  They were  permitted to  remove  waste  gas generated from  M/s, Fertiliser  and  chemicals.  Travancore

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Ltd., in  view of paragraph 2 or Notification No. 7/65 dated 30.1.1965 after  taking out  L.6 licence.  The  licence  was granted on  11.3.1977. Under  notification No  7/65,  carbon dioxide falling  under item 14H of the Central Excise Tariff was exempted  from the  whole of  the duty f excise leviable thereon, provided  it was  used for any "industrial purpose" and subject  to the  procedure in  Chapter X  of the Central Excise Rules and it is common ground that such procedure was followed by  the appellant  by taking  out L.6  licence. The appellants had  given an undertaking that they would pay the duty on  the carbon  dioxide received  for  processing  (raw carbon dioxide  - waste  gas) in  case it  was  subsequently decided that  they were  not entitled  to receive  the  said carbon dioxide tree of duty under Modification No. 7/65. 4.   The appellants were served with show-cause notice dated 20.11.1978 to  explain why  L.6 Licence  granted to them (to receive impure  carbon dioxide  gas (waste gas) by pipe line from M/s,  FACT.) and also 4. licence for the manufacture of carbon dioxide  (or liquid  carbonic  acid)  should  not  be revoked and  why duty  or Rs. 8.92.695.60 along with SED Rs. 19,823. Should not be demanded from them for the period from March 1977  to September  1978 under  Rule 10 of the Central Excise Rules, 1944.      C.No.V/68/30/3/81   C6    by    the      Collector of Central Excise Cochin.      In this  trade notice,  it has been      informed that  the  carbon  dioxide      gas produced  in  distilleries  and      fertiliser  factories   or  in  any      other factory will fall outside the      purview of item 14H. So long as the      gas  does   not  conform   to   the      marketable grade  as prescribed  in      the ISI  specifications,  such  gas      will  properly  classifiable  under      item  68.   The   appellants   were      allowed to  avail notfn.  No. 7/65.      But the  trade notice  referred  to      above is  in favour of the assessee      and  would   be  binding   on   the      department   (New   Gujarat   Paper      industries  vs.  Superintendent  of      Central  Excise   1977  ELT  J.  67      Guj.Div. 8). Hence the order of the      Asstt.   Collector    making   duty      retrospectively is not correct.           Besides I  am of the view that      the  carbon  dioxide  gas  produced      from the fertiliser factory of M/s.      FACT will  fall outside the purview      of Item  No. 14H  of Central Excise      Tariff so  long as the gas does not      conform to  the marketable grade as      prescribed     in      the      ISI      specification.  Such  gas  will  be      properly classifiable under item 68      of Central  Excise  Tariff.  Hence,      necessary action in this regard has      to   be   taken   by   the   Asstt.      Collector. The  order of  the Lower      authority is  ser aside  with these      directions."           (emphasis supplied) 8.   In further  appeal filed  by the Revenue, the Appellate Tribunal reversed  the aforesaid  decision of  the Appellate

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Collector dated  18.6.1982 by its order dated 18.3.1986. The appellate Tribunal decided the matter on merits on the other aspects as well, though the Appellate Collector rendered his decision substantially  on the  basis of  Trade Notice. (The Appellate Collector  also  found  that  the  carbon  dioxide produced by  M/s. FACT will fall outside the purview of item No. 14H  of the Central Excise Tariff, since the gas did not conform to  the "marketable  grade" as prescribed in the ISI specification). Regarding  the applicability of trade notice dated September,  1981, the  Appellate Tribunal observed. In paragraph 51 of its order, thus:      "The  Trade  Notice  on  which  the      respondents seek to rely was issued      nearly  3  years  later.  In  these      circumstances the  trade notice has      no  relevance   to  what   happened      earlier. Shri  Tripathi  has  filed      before us  a  copy  of  the  Tariff      Advice No.6/85  dated 6.2.85 of the      CBEC  along   with  a  model  trade      notice, to  the effect  that impure      carbon dioxide  not  conforming  to      I.S.I. specifications  produced  by      distilleries and  fertilizer Units,      was  correctly  classifiable  under      Item 14H.  It may  be presumed That      the Collectorates, or at least some      of them  duly issued  trade notices      to this  effect in  early 1985.  If      the trade  notice of  1981 could be      considered as  relevant not matters      occurring 3  or more years earlier.      we see no reason why a trade notice      of 1985,  To the  contrary  effect,      should  not  be  taken  as  equally      applicable to  the transactions  in      question."           (emphasis supplied) 9.   We heard counsel. 10.  The show-case  notice dated  20.11.1978 (page 79 of the Paperbook) was  issued for  the period  from March  1977  to September, 1978  but the  levy and  demand is  for a  larger period- march  1977 to  February, 1982.  There was no proper notice and  opportunity to  explain. This  is  violative  of natural justice and is also unfair; (2)  The   Appellate  Tribunal   was  totally  in  error  in discarding the Trade Notice No 220/81 based on Tariff advice no. 83/81 dated 24.8.1981 of the Central Board of excise and Customs  which   was  communicated  to  the  appellants  for information.   (The said  Trade Notice  is available at page 125 of  the paperbook).  The Appellate  Tribunal  failed  to understand and  give effect  to the terms of the above trade notice, and  the reasons  to discard the trade notice relied on by  the Appellate  collector are  unsustainable. A larger contention on  the merits  to the effect that "waste gas" is not a  marketable community and is not exigible to duty, was also raised  relying on  the decision  in Union  of India V. Indian Aluminium [(1995) 77 ELT 268 ] 11.  The relevant  Trade Notice  relied on  by the Appellate Collector is  available at  page 125 of the paperbook. It is as follows:      "Trade Notice No. 220/81     dt.  -      9-81.      T.I.68 A.C.C. Nes. No 42/81      Sub: CASES.    Carbon dioxide   gas

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                   emanating       from                     Distillery   portion                     of  Sugar  factories                     and       Fertiliser                     factories    whether                     classifiable   under                     T.I. 14H or T.I.68 -                     question regarding.           It is  considered that  carbon      dioxide     gas     produced     in      distilleries     and     fertiliser      factories or  in any  other factory      will fall  outside the  purview  of      item 14H  of Central Excise Tariff.      So long as the gas does not conform      to   the    marketable   grade   as      prescribed     in      the      ISI      specifications  such  gas  will  be      properly classifiable under item 68      of CET.            (Issued from file C.No.            V./68/30/5/81CX-6)              Sd/- M. Suresh        Assist. Collector (Tech).              For Collector.      To,      As per DE No. I and II      Space 15.      Forwarded to M/s. Poulose & Mathen,      Eloor for information.           Sd/- Superintendent           Central Excise Range           Alwaye."      It is  based on  the Tariff  advice      No. 83/81. It reads as follows:         "TARIFF ADVICE No. 83/81           F.No. 105/2/81-CX.3           GOVERNMENT OF INDIA    CENTRAL BOARD OF EXCISE & CUSTOMS    NEW DELHI, THE 24TH AUGUST, 1981.      To,           All Collectors of Central           Excise           All Collector of Customs           All  Appellate  Collectors  of           Customs & Central Excise           All   Deputy   Collectors   of           Central Excise.      Sir,           Sub: GASES- Carbon Dioxide gas           emanating   from    distillery           portion of Sugar factories and           factories    and    Fertiliser           factories      -       Whether           classifiable under   T.I.  14H           or         T.I.68-    Question           regarding.           .......................           I am  directed to  say that  a      question has  been raised  whitener      raw carbon  dioxide  gas  emanating      from distilleries attached to sugar      factories  is   classifiable  under      Item 14H or Item 68 of C.E.T.      2.   The matter  was  discussed  in

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    the  15th  South  Zone  Tariff-cum-      General Conference held on the 19th      and 20th may. 1981 at Bangalore.      3.   The  conference   noted   that      certain     gases      arise     in      distilleries. thee are described as      raw carbon  dioxide, or waste gases      and  are   similar  to   kiln   gas      generated in  sugar factories. Such      waste  gases  have  carbon  dioxide      only to  the extent  of  about  50%      However, in  so far  as  fertiliser      factories  are  concerned,  it  was      noted that  the  purity  of  Carbon      dioxide   gas   produced   in   the      factories is more than 70%. In both      the  types  of  cases  the  Co2  in      question does  not conform  to  the      marketable standard.  Also, in both      the cases,  it was  not possible to      quantify the  production of  Carbon      Dioxide.      4.   After a  detailed  discussion,      the    Conference    reached    the      conclusion  that   the  purity   of      Carbon  Dioxide   gas  produced  in      distilleries is  even below 50%. It      should  not,  Further,  as  such  a      mixture of  waste  gases  does  not      conform to  any  specifications  of      Carbon  Dioxide  and,  further,  as      such a  mixture of waste gases does      not conform  to any  specifications      of Carbon  Dioxide as  such and  it      should be  outside the  purview  of      Item 14H  on the  analogy  of  kiln      gas. Similarly,  the carbon dioxide      gas  generated  in  the  fertiliser      factories is  also impure  and does      not conform to the marketable grade      and hence it will also fall outside      the purview of Item 14H.      5.   The  Board  has  accepted  the      recommendations of  the  Conference      that  Carbon  dioxide  produced  in      distilleries  as  well  as  in  the      fertiliser  Factories   will   fall      outside the purview of Item 14H and      will     be  properly  classifiable      under Item 68. The Board is also of      the view  that Carbon  dioxide  gas      generated by any other factory will      also fall  outside the  purview  of      item 14H  so long  as it  does  not      conform to  the marketable standard      of the  carbon dioxide s prescribed      in the ISI Specifications.      6.   The above  position may please      be brought  the notice of the field      formations  for  their  information      and guidance.  The Trade  interests      may also  be  informed  as  in  the      Model Trade Notice.      7.   Receipt  of  this  letter  may      please be acknowledged.

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        Sd/- G.N. BHAGCHANDANI             UNDER SECRETARY      Copy  forwarded  to:  As  per  list      attached.      ===================================            MODEL TRADE NOTICE      Sub: GASES  -  Carbon  Dioxide  gas           emanating   from    distillery           portion of sugar factories and           from   fertiliser    factories           whether   classifiable   under           T.I.14H or  T.I.68 -  Question           regarding.           It is  considered that  Carbon      Dioxide     gas     produced     in      distilleries     and     fertiliser      factories   or in any other factory      will fall  outside the  purview  of      item 14H  of C.E.T.  So long as the      gas  does   not  confirm   to   the      marketable grade  as prescribed  in      the  ISI  specification.  Such  gas      will be properly classifiable under      Item 68 C.E.T."           (emphasis supplied) 12.  It is  seen that the show-cause notice dated 20.11.1978 was issued  for the  period from  March 1977  to  September. 1978. But  the order of the Assistant Collector given effect to by  the proceedings of the Superintendent dated 4.5.31983 has levied  the duty for a longer period, from March 1977 to February, 1982.  The show-cause  notice served for a shorter period cannot  be relied  on for  the purpose  of levy for a much longer period. We should say that the appellant was not served with  a proper  notice before  saddling the liability for a  period beyond  September, 1978  1978. This unfair and Vitiates the proceedings. 13.  The Tribunal has stated that the trade notice issued in September, 1981  based on  Trade advice  of the  Board dated 24.8.1981 was  issued three  years later  than the  relevant period. The  Tribunal refers  to Trade Advice No. 6/85 dated 6.2.1985 of  the Central  Board of  Excise and Customs along with "a  model trade  notice" where in it seems to have been stated  that   carbon  dioxide   not  conforming  to  I.S.I. specifications produced by distilleries and fertilizer units was correctly  classifiable under  item 14H.  The  Appellate Tribunal was  of the view "that it may be presumed" that the Collectorates, or " at least some of them" duly issued trade notices to  this effect  in early 1985, and so a later trade notice could also be taken into account. 14.   We  hold that  the reasoning  and  conclusion  of  the Appellate Tribunal  is based  on surmise  and  the  Tribunal ignored the  earlier trade  notice or  1981  without  proper reasons therefor.  Firstly, the tariff advice No. 6/85 dated 6.2.1985 which is said to have been accompanied by a "model" trade notice  is not  part of  the record.  Its contents are unknown. There  is no  material on record to show that trade notices were  issued by  the Collectors  in pursuance of the above tariff  advice of  the Central  Board  of  Excise  and Customs. The  Tribunal  also  omitted  to  notice  that  the earlier tariff  advice No.  83/81 was  in force  at the time when  the   proceeding  was  pending  before  the  Assistant Collector and she passed the order on 2.2.1982 and also when the Appellate  Collector set  aside the above order and gave relief to  the assessee  by his  order dated  18.6.1982. The concerned department  understood the  legal position then as

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reflected in  the trade  advice and trade notice of the year 1981. It  was  a  plausible  view  of  the  matter.  It  was pointedly stated  that the  carbon dioxide  gas generated in the fertilizer factories is also impure and does not conform "to the  marketable grade"  and  hence  it  will  also  fall outside the  purview of  Item 14H.  Whether the later tariff advice No. 6/85 adverted to all relevant aspects or deviated from 1981  tariff advice  and if so. To what extent, are not detailedly stated  in the  order of  the tribunal (paragraph 51).  The   earlier   tariff   advice   and   trade   notice categorically stated  that in  the absence of Non-Conformity to the  marketable grade  (standard) "impure  carbon dioxide not  conforming   to  I.S.I.   specifications  produced   by distilleries and fertilizer units was correctly classifiable under item  14H." Was the requirement, that the goods should be of  "marketable grade" (standard) dispensed with , in the later  tariff  advice?  This  is  not  adverted  to  by  the Tribunal. The  Appellate Tribunal  casually  referred  to  a later tariff  advice No.6/85.  without fully and effectively appreciating its  contents, its  scope and the impact of the earlier tariff  advice No.  83/81. The above aspect is vital and  fundamental   to  the  basis  of  which  the  Appellate Collector granted  relief to  the appellant.  We are  of the view that  the appellate Tribunal has failed to consider the matter according  to law  and the  order   appealed  against should be ser aside and we hereby do so. 15.  One aspect  deserves to be noticed in this context. The earlier tariff  advice No. 83/81 on the basis of which trade notice No.  220/81 was  issued by  the collector  of Central Excise and  Customs is  binding on the department. It should be given  effect to.  There is no material no record to show that this  has been rescinded or departed from, and even so, to what  extent. Even  assuming that the later tariff advice No. 6/85  has taken  a different view - about which there is no  positive  material  -  the  facts  point  out  that  the concerned department  itself was having considerable doubts. It was  far from  clear. In  such a case. where tow opinions are possible,  the assessee  should be  given the benefit of doubt and  that opinion  which is  in its  favour should  be given  effect   to.  In  the  light  of  the  above,  it  is unnecessary to  adjudicate the  other points involved in the appeal on the merits. 16.  For the  reasons state above, we set aside the order of the Customs  Excise and  Gold (control)  Appellate  Tribunal dated 18.3.1986  and allow this appeal and restore the order of the  Appellate Collector  of Central Excise, Madras dated 18.6.1982. There shall be no order as to costs.