1994 (6) TMI 187 - AT - Central Excise

Issues Involved:
1. Whether the 'Coating Solution' for fluorescent tubes used by the appellants for captive consumption could be deemed as an excisable product liable to Central Excise duty.
2. Whether the demand issued on 10-3-1987 seeking to recover duty for the period 28-2-1982 to 28-2-1986 on the 'Coating Solution' in question was time-barred.

Detailed Analysis:

1. Excisability of 'Coating Solution' for Fluorescent Tubes:
The primary issue was whether the 'Coating Solution' used by the appellants in the manufacture of fluorescent tubes could be classified as an excisable product. The Collector relied on the Chemical Examiner's report, which described the solution as a "white liquid composed of cellulose derivative other than Nitro Cellulose/Plasticizers, inorganic fluorescent pigments, and volatile organic solvents," with a volatile organic content of more than 53%, giving it the characteristics of a cellulose lacquer.

The appellants argued that the solution could not be classified as a lacquer because the percentage of binder solids was only 4.5%, whereas lacquers typically have 20-30% binder solids. They also claimed that the solution was not capable of giving a tack-free adherent film or coating on surfaces. The Collector rejected these arguments, stating that the appellants' experts tested the solution after baking it at 500^0C, which was not a standard condition for such tests.

The Collector also dismissed the appellants' claim that the solution was not marketable due to its short shelf life, stating that the appellants had not provided any proof to support this claim. The judgment cited several precedents, including Cipla Limited v. Union of India and Jagatjit Cotton Textile Mills Ltd. v. Collector of Central Excise, emphasizing that the burden of proving marketability lies with the Department. Since the Department did not provide evidence that the solution was known to the market and capable of being marketed, the Collector's order was deemed unsustainable.

2. Timeliness of the Demand:
The second issue was whether the demand issued on 10-3-1987 for the period 1-3-1982 to 28-2-1986 was time-barred. The Collector invoked the extended period under the proviso to Section 11A, citing suppression of facts by the appellants. The appellants contended that they had kept the Department fully informed about their activities, including the use of the 'Coating Solution' in the manufacture of fluorescent tubes. They provided documentary evidence showing that they had furnished all required information to the Department.

The judgment referenced the Supreme Court's ruling in Collector of Central Excise v. Chemphar Drugs & Liniments, which stated that for the extended period to apply, there must be evidence of fraud, collusion, or willful misstatement. The Tribunal found that the appellants had not suppressed any facts and had provided all necessary information to the Department. Therefore, the demand was deemed time-barred as it was issued beyond the permissible period without sufficient grounds for invoking the extended period.

Conclusion:
The Tribunal concluded that the 'Coating Solution' could not be deemed an excisable product as the Department failed to prove its marketability. Additionally, the demand for duty was time-barred as the appellants had not suppressed any facts. Consequently, the impugned order was set aside, and the appeal was allowed.

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