TMI Blog1980 (10) TMI 72X X X X Extracts X X X X X X X X Extracts X X X X ..... being processed, are coated with varnish for insulation. The varnish was being manufactured by the petitioner from resin. The petitioner held separate licences for the manufacture of insulated wires, varnish and synthetic resins. We are concerned in this petition with the assessee's process of manufacturing varnish. 3. The petitioner manufactured two types of varnish, one known as TEREMEX and the other as FORMADEV. The former was manufactured from POLYESTER RESIN and the latter from PHENOLIC RESIN. Prior to July, 1972 POLYESTER RESIN was manufactured by the following process. D.M.T. Ethylone, Glycol, Glycerine and Adipic Acid were first mixed in a reactor.with zinc salt as a catalyst and the reaction was carried out gradually increasing the temperature to 235oC. Temperature between 225oC and 235oC was maintained till the process known as alcholists was complete. Thereafter, butyl titanate, which is called a cross linking agent, was added and the reaction was continued at the same temperature. After a particular stage was reached the material was cooled to about 180oC and thereafter transferred to trays manually and then this liquid was allowed to solidify. After room temperature ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y Desmodur CT stable, butyl titanate and zinc naphthanate or octoate were added. The resultant product was taken off in the form of liquid varnish. In other words, the two stages of production of resin and the manufacture of varnish were integrated and some changes made so that there was one continuous manufacturing process leading to the end product (namely, varnish), without any intermediate product (namely, resin) being collected in trays or drums for being used for the manufacture of varnish. On the other hand, in the new process the material which was boiled for the purposes of the first stage was transferred as a hot molten liquid to a bigger kettle in which the second stage of the manufacture was carried out. 6. In the same manner there was also a modification of the process of manufacture of formadev varnish. As before Metacresol and Formalin, were put in a reactor with catalyst, heated to the temperature of 90oC and then subjected to a process of dehydration. At this stage metacresol was added and the temperature was maintained at 70oC till a particular molecular weight was reached. Thereafter, desmodur AP stable solution was added and the mixture was transferred manuall ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ence in Form L-4 to be in a position to manufacture the synthetic resin dutiable and to furnish details regarding the clearance since 2nd September, 1974 of the aforesaid item. The assessee filed an appeal which was rejected on 5th March, 1975 after a hearing. The petitioner company filed a revision petition to the Government of India and relied in support of the petition on the decision of the Bombay High Court in the case of Nirlon Synthetic Fibres Chemicals Ltd., as well as the decision of this Court in case of Caltex Oil Refinery (India) Ltd. (supra). However, the petition was rejected by an order dated 6th December, 1977. 10. In the meanwhile, on 4th November, 1974, the Superintendent of Central Excise called upon the petitioner to show cause why excise duty should not be paid and recovered on the Polyester resin and Phenolic Resin manufactured by it between 3rd September, 1972 and June, 1974. The petitioner filed a reply pointing out, in particular, that the appeal from the order dated 6th June, 1974 was pending. However, by an order dated 11th February, 1975, the Assistant Collector of Central Excise called upon the petitioner to pay Central Excise Duty amounting to Rs. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a single continuous process. It is not necessary once again to repeat the process employed by the assessee. It is sufficient to mention that it was now proposed that, after the initial process of boiling certain materials with a catalyst up to a particular temperature the material would be allowed to cool about to 170oC and all the other raw materials necessary for the manufacture of varnish would be added in the same vessel or kettle so that only the finished varnish emerged from the process for being packed in drums after testing. The idea was that the whole reaction from the beginning to the end should take place in only one kettle and that there should be no removal of the product in containers or the transfer from one kettle to another at any intermediate stage. The company informed the Assistant Collector that they proposed to start the new process from 9th October, 1975. However, on 3rd October, 1975 the Superintendent of Central Excise wrote to the petitioners stating that the liability to pay central excise duty on synthetic resin would continue till written permission to the effect that no duty was chargeable was obtained from the Assistant Collector and so the new proces ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... varnish finally emerges as a result of chemical reactions in one kettle but there is only one end product manufactured by the petitioner viz. varnish. It may be that in plant and there is only one the course of this single process of manufacture, a product is obtained which may perhaps fall within the description in Item 15A. The petitioner's case is that it does not but that even assuming for purposes of argument that this interim product can be described as polyester or phenolic resin it is not liable to duty because the interim product is only an "in process" product which is neither intended to be, nor is in fact, removed from the place of manufacture. In the single kettle process there is no removal at all and in the two kettle process what is tranferred from one kettle to another is a hot Molten liquid which passes on to the second kettle as a step or stage in the integrated process of manufacture of varnish carried out by the petitioner. In these circumstances, it is submitted that, other questions apart, there is no removal of the resin so as to attract duty within the meaning of Rule 9 read with Rule 49 of the Central Excise Rules. 13. It will be necessary for the presen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urposes, it is sufficient to refer to contentions Nos. 2 and 3 which have been set out at page 585 of the report : "2. Excise duty is on production and not on stages of production. Burner Fuel Oil is an intermediate product derived at an intermediate stage in the process of manufacture of finished petroleum product. Burner Fuel Oil is not marketable as such without further processing or blending with other oil, i.e. cutter stock. Therefore, Burner Fuel Oil is not excisable goods and there is no manufacture of goods within the meaning of the said Act. 3. There is no removal of Burner Fuel Oil within the meaning of Rule 49 of the said Rules. Rule 49 is a condition precedent to the recovery of excise duty". On the other hand, the case of the respondent was that the oil in question was not consumed by the petitioner as an inseparable part of an unbroken continuous and uninterrupted process of manufacturing and that what the petitioner describes, as Burner Fuel Oil was actually Furnace Oil, the process off manufacture of which had ended prior to removal for consumption. It was argued that once the said oil had been separated from the crude oil it was a finished product liable to e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty in or outside such place unless he first pays the excise duty leviable on these goods. Rule 49 is a direction to the excise authorities that the payment of excise duty shall not be demanded until excisable goods are about to be issued out of place or premises specified under Rule 9 or are about to be removed from a store room or other place or storage approved by the Collector under Rule 47. Thus, the point out of time when duty must be paid or may be collected is clearly given. Similarly, it is provided that there must be removal from the specified place to attract the payment of duty. If there is no removal there would be no question of payment. Removal is a positive act and cannot have any reference to disappearance of the product. For example evaporating would not be removal for that taken place by natural causes in the process of manufacture or even afterwards. Similarly, waste, of product while in the pipe-line or in storage may take place on account of natural causes or otherwise. We have, therefore, to see whether in the present case the product in question is (a) only an intermediate product obtained in the process of manufacturing of any other finished petroleum produc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fuel. Therefore, it must be held that the oil which comes into tanks 170 and 171 is really an end product and distinct from an intermediary product utilised in an uninterrupted process of manufacture for obtaining another product." It was urged on behalf of the petitioner in that case that even where oil was used for heating purposes it was really a self generating fuel obtained the process of manufacture of various petroleum products and that even, if consumed for heating, it was part of an integrated uninterrupted continuous process of manufacture, because the self generating fuel was a necessity for the running of the plant to get the end product. But it was pointed out that Excise Duty is attracted on all excisable goods which are produced as and when the some are removed within the meaning of Rules 9 and 49 and that the only product which is not excisable is the product which itself gets converted into another product which may be excisable as a single continuous process. (e) The decision of the Bombay High Court in Nirlon Synthetic Fibres and Chemicals Limited v. Shri R. K. Audim, Assistant Collector and Others, (Miscellaneous Case No. 491 of 1963, decided on 30-4-1970) w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... umption as fuel the continuous process of manufacture got snapped. There was no putting back of this oil into the process of manufacture if it is consumed for lighting furnaces or for heating the equipment. 14. We think that the above decision completely governs the present case. Like the polymer chips in the Nirlon case (supra), the resin in the present case is converted in the course of the single integrated uninterrupted process of manufacture carried on by the assessee. In the process followed by the petitioner prior to 1972 there were two stages of manufacture. In the first stage it obtained either polyester resin in the form of solidified flakes or phenolic resin in the form of a solution. These were products well known in the market as resins. It was open to the petitioner to deal with the resin in whatever manner it liked. It would be removed for purpose of sale or it could be removed for consumption in the second stage of manufacture. In fact perhaps most of the resin was used for the second stage of manufacture. But in the state of affairs as it then stood, the two stages were totally independent. The link in the chain of manufacture snapped at the point of time when th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... company needed since cans. It purchased zinc ingots, melted them in a furnace and pressed them into moulds to form zinc slabs. The slabs were then heated incorolled into a flat form with the help of rollers out of which callots were punched. From these callots, cans were made by the impact extrusion process. Thereafter, required chemicals were filled into the cans which after sealing and clading took the shape of finished dry cell batteries. The question for consideration was whether the rough flat forms of zinc obtained during the process of manufacture which were not removed from the premises but were immediately put to use by feeding them hot into a punching process were excisable as "zinc sheets" falling under Item 26-B (2) of the First Schedule of the Central Excises and Salt Act, 1944. The Court found that the flat form from which callots were punched was a produce commercially known as zinc sheets and accepted the argument on behalf of the Revenue that though the zinc sheets did not go out the factory premises as such, there was a removal in law as contemplated in Rule 9 because they were admittedly removed from the rolling mill for consumption or for manufacture of another ..... X X X X Extracts X X X X X X X X Extracts X X X X
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