DCM SHRIRAM INDUSTRIES LIMITED Vs. UNION OF INDIA

JUDGEMENT

(1.) This writ petition is directed against the order dated 10.9.1993 passed by the Customs, Excise and Gold (Control) Appellate Tribunal, New, Delhi, (hereinafter referred to as the Tribunal) in appeal No.E/4262/91-C and also against the order dated 14.8.1991 passed by the Collector of Central Excise, Meerut. By the order dated 10.9.1993 the Tribunal directed the petitioners to deposit the duty demand of Rs.60 lacs as a condition precedent for hearing of the appeal filed by the petitioners against the order dated 14.8.1991 passed by the Collector of Central Excise imposing on the petitioners a demand of Rs-96,94,400.95 as basic excise duty and Rs-2,73,313.42 as special excise duty totaling to Rs-99,67,808.92 and also a personal penalty of Rs.20 lacs only.

(2.) The petitioners are a public limited company engaged in the manufacture of various .chemicals in their factory "Daurala Sugar Works", (Chemicals Division) Daurala, District Meerut. The petitioners are regular Central Excise li- cencees for many years. A scheme known as MODVAT scheme was introduced by the Central Government w.e.f.l.4.1986 providing for benefit of credit of the excise duty paid on the 'inputs' used in the manufacture of final products. The aforesaid scheme stipulated that MODVAT credit would not be available if the final product is exempt from duty in terms of Rule 57 of the Central Excise Rules, 1944. The petitioners applied to the respondents under their letter dated 17.3.1986 for availing the benefit of the MODVAT scheme.

(3.) By a notification No.217/86-CE dated 2.4.1986 the Central Government granted certain exemptions. The said notification was issued in the exercise of powers conferred by sub-rule (1) of Rule 8 of the Central Excise Rules, 1944 (hereinafter referred to as the Rules) framed under Central Excises & Salt Act, 1944 (hereinafter referred to as the Act) whereunder the Central Government exempted certain goods specified in column (2) of the table appended thereto, manufactured in factory and used within the factory of production, in or in relation to the manufacture of final products specified in column (3) of the said Table, from the whole of the duty of excise leviable thereon, which is specified in the Schedule to the Central Excise Tariff Act, 1985. A proviso had also been added to the aforesaid provision contained in the circular "that nothing contained in this notification shall apply to inputs used in or in relation to the manufacture of final products which are exempt from the whole of duty of excise leviable thereon or is chargeable to nil rate of duty". It is stated by the petitioners that Benzyl Cyanide which is manufactured by the petitioners in their factory by the chemical reaction of Benzyl Chloride and Sodium Cyanide in the presence of suitable catalyst is duly covered by the description of inputs to the table annexed to the said notification as it falls under Chapter 29. The petitioners further stated that it is-not disputed that Phenyl Acetic Acid falling under Chapter 29 and Aqueous Layer falling under Chapter 38 are covered by the description of final product in the table annexed to the said notification. The petitioners have further stated that water is removed under vaccum"from the reaction mass in the distillation kettle so as to obtain crude Benzyl Cyanide used captively in the manufacture of Phenyl Acetic Acid and Aqueous Layer of Phenyl Acetic Acid (hereinafter referred to as Aqueous Layer). According to the petitioners the Phenyl Acetic Acid stands exempted under notification No. 147/1984 while the Aqueous Layer has always been cleared from the factory on payment of basic excise duty of 11% ad valorem apart from special excise duty as applicable. It is the case of the petitioners that the Benzyl Cyanide manufactured by the petitioners is different from marketable Benzyl Cyanide and is therefore, not subject to levy of excise duty. According to them the former contains lower Organic impurities and higher impurities which is not the case as regards the latter.