JAYANT AGRO ORGANICS LTD. Vs. CCE

JUDGEMENT

(1.) BY the impugned order, the Commissioner of Central Excise, Vadodara has confirmed duty demand of Rs. 2,30,95,031/ - on one of the final products, namely glycerine and other by products arising in the course of manufacture of refined castor oil, hydrogenated castor oil, 12 -Hydroxy stearic acid and ricinoleic acid (these products are exported by the applicants, a 100% EOU) cleared to domestic tariff area on payment of duty at 16% as per Notification No. 8/97 -CE dated 1.3.1997 and has imposed a penalty of amount equal to duty. The duty demand arises as a result of denial of concessional rate of duty in terms of the above mentioned notification on the ground that such benefit was available only if the products were manufactured wholly from indigenous raw materials, while the applicants had manufactured and cleared the goods in the domestic tariff area which were manufactured by using imported raw materials such as bleaching earth, hyflow supercell and nickel catalyst, in addition to indigenous raw materials such as activated carbon, caustic soda lye, sulphuric acid, castor oil commercial etc. The period of dispute is from April 1997 to December 2001, while the show cause notice is dated 11.4.2002. Shri V. Sridharan, the learned counsel for the applicants, submits that the imported items are in the nature of consumables and are not raw materials and therefore their use would not debar the applicants from claiming the benefit of concessional rate of duty under the notification. He relies upon the Board's Circular No. dated 5.5.1998 clarifying that a 100% export oriented unit is eligible to the benefit of Notification No. 8/97, even if imported consumables are used. He also points out that throughout in the export oriented unit scheme, a distinction has been maintained between raw materials and consumables. His next contention is that part of the demand is time barred. The charge of suppression cannot be sustained in view of the fact that the applicants' process of manufacture was within the knowledge of the department, as seen from the special inspection report of January 1995 of the jurisdictional Assistant Collector in which he has clearly noted that imported items, namely hyflow supercell, bleaching earth and nickel catalyst have been used in the process of manufacture. The learned counsel also bases his argument on non applicability of the extended period of limitation on the bona fide belief of the applicants that the imported items were consumables and not raw materials on the basis of a letter dated 25.2.2001 of the Development Commissioner, Kandla Free Trade Zone, that such items are consumables in terms of the relevant Export and Import Policy. He states that about 3/4th of the demand would be hit by the bar of limitation. Lastly he pleads financial hardship by placing before us the unaudited financial results (provisional) for the quarter/half year ended 30 September, 2003 which shows a loss of Rs. 565.97 lakhs. For all the above reasons, he seeks waiver of pre deposit of the duty and the penalty.

(2.) OPPOSING the prayer, the learned S.D.R. Shri Vimlesh Kumar draws our attention to the impugned order wherein the adjudicating authority has primarily relied upon the Apex Court's judgment in CCE v. Ballarpur Industries Ltd.,, 1989 (43) ELT 804 (SC) in coming to the conclusion that the imported items are in the nature of raw materials. He has noted that bleaching earth is primarily used to remove colour in the crude castor oil and helps in physical refining, that hyflow supercell is in the nature of filter aid in the form of a white powder, that nickel catalyst is used during hydrogenation process, as per supplier's certificate/technical literature produced before him, and then applied the test laid down by the Supreme Court for raw materials against each of the three imported items and has found that all the three satisfy the test of raw materials, inasmuch as all the three are essential in the. manufacturing process and in the emergence of the desired end product. The learned S.D.R. therefore submits that the benefit under the notification has been rightly denied. On time bar, he reiterates the finding of the adjudicating authority that the correct manufacturing process and use of each item has not been declared to the department and that the applicants declared in the declaration filed under Rule 173B that their final products are manufactured from wholly indigenous raw materials without disclosing use of imported raw materials. He has no comments on the offer of the financial position of the applicant company.

(3.) HOWEVER , we agree with the applicants that prima facie part of the demand covering approximately 3/4th of the duty demand is barred by limitation, in view of the knowledge of the department regarding manufacturing process of the final products/by products by using both the imported items as well as indigenous raw materials, as seen from the inspection report referred to above as well as the quarterly returns filed with the Development Commissioner clearly indicating that the imported items were used in the production of finished goods, as well as the letter dated 25.2.2001 of the Development Commissioner.