IN RE: I.G. PETROCHEMICALS LTD. Vs. UNKNOWN

JUDGEMENT

(1.) M /s I.G. Petrochemicals Ltd (hereinafter referred to as IGPL for short) are a 100% EOU engaged in the manufacture and export of "Phthalic Anhydride" falling under Chapter Sub Heading 2917.90 of the Central Excise Tariff Act, 1985. They are also permitted to sell certain quantities of their final product in the Domestic Tariff Area (hereinafter referred to as DTA for short) by the Development Commissioner, SEEPZ, Mumbai in terms of the Exim Policy. They are manufacturing and clearing the said goods to DTA on payment of concessional rate of duty in terms of Serial No. 3 to Notification 23/03 -CE dated 31.3.2003 (earlier Notification No. 8/97 -CE dated 1.3.1997).

(2.) THE notification prescribed that the goods cleared to DTA would be exempted as per rates prescribed therein subject to the condition that the said goods sold in DTA were only manufactured out of indegenuous raw materials. The benefit is not eligible if the same is manufactured out of imported and indigenous raw materials.

(3.) THE Show Cause Notice dated 6.8.2004 was issued to the IGPL and the other appellant herein. The Notice contended that IGPL were using imported raw materials viz Vanadium Pentoxide in the manufacture Phthalic Anhydride, and the said Vanadium Pentoxide according to the department was an essential, as an indispensable item, in the manufacture of the end product. It is the contention of the department that the manufacturing plant is common and no correlation could be established between the indigenous input/imported inputs and finished goods Phthalic Anhydride manufactured out of indigenous inputs/imported inputs to conclusively prove that the final goods cleared to DTA is only manufactured out of the indigenous material only and therefore the benefit of the notification claimed could not be extended. They were therefore asked to show cause as to why duty demands should not be determined and penalties be imposed. The Commissioner, vide his order now impugned, came to the conclusion: The basic raw material for the manufacture of Phthalic Anhydride are ortho -xylene and air. The air is being drawn from the atmosphere with centrifugal blowers. Ortho -xylene is procured by Noticee No. 1 from indigenous sources (Reliance Industries Ltd. Jamnagar) or by import. Noticee's claim that separate records are maintained by them recording the manufacture of the finished product wholly out of indigenous raw material and imported raw material. Leave aside Vanadium Pentoxide which is imported by the Noticee, whether they will be able to maintain separate record in respect of ortho -xylene which is both imported and indigenously procured ? The process of manufacture followed by Noticee No. 1 is a continuous process and not a batch process. Naturally, it will not be possible to identify whether the end product is manufactured wholly out of indigenous raw material or imported raw material because of the continuous process nature of manufacturing process. They cannot stop their manufacturing activity in a continuous process just to identify what is being manufactured is out of indigenous ortho -xylene or imported ortho -xylene. Even if they are keeping any records to this effect it can never be the true records but falsified ones as it is humanly impossible to identify the Phthalic Anhydride manufactured out of indigenous raw material or imported raw material in a continuous process. And it is an admitted fact, as is also evident from the statement of Shri J.K. Saboo recorded under Section 14 of the Central Excise Act 1944 on (SIC)07/04, that they use both indigenous ortho -xylene and imported orthoxylene in the manufacture of Phthalic Anhydride. Noticee No. 1 procuring "Vanadium Pentoxide" from sources outside India only.... They have submitted that Vanadium Pentoxide is a consumable. At the same time they have also submitted that Vanadium Pentoxide is neither consumed nor burnt up during the process of manufacture and according to them Vanadium Pentoxide is a catalyst which is used for the purpose of generating a particular reaction. It is also an admitted fact that without the presence of Vanadium Pentoxide, the oxidation of ortho -xylene to Phlhalic Anhydride will not lake place and imported Vanadium Pentoxide is continuously present in the reaction vessel to facilitate the oxidation of ortho -xylene. Noticee No. 1 is availing the benefit of Notification No. 23/2003 CE dated 31.03.200. (Sr No. 3 of the table) on the ground that only indigenous raw material are used in the manufacture of final products. Condition No. 3 reads: