TMI Blog1989 (11) TMI 131X X X X Extracts X X X X X X X X Extracts X X X X ..... f exemption Notifn. No. 201/79, which was para materia with Rule 56A. Appeal allowed as the Tribunal was in error in coming to the conclusion it did - 3988-90 of 1988 - - - Dated:- 23-11-1989 - Sabyasachi Mukharji and B.C.Ray, JJ. REPRESENTED BY : Shri V. Laxmi Kumaran, Advocate, for the Appellants. Shri A.K. Ganguli, Sr. Advocate, for the Respondents. [Judgment per : Sabyasachi Mukharji, J]. - This is an appeal under Section 35L of the Central Excises Salt Act, 1944 (hereinafter referred to as the Act ) against the judgment and order dated 18th August, 1988 passed by the Customs, Excise Gold (Control) Appellate Tribunal, New Delhi (hereinafter refered to as the tribunal ). 2. The appellant was at all relevant times engaged in the manufacture, inter alia, of polyster fibre (man-made) falling under Tariff Item 18 of the erstwhile Central Excise Tariff. In the manufacture of the aforesaid, the appellant was using, amongst other inputs, ethylene glycol and DMT (Dimethyl Tetraphthalate) - duty paid ethylene glycol falling under Tariff Item No. 68 of the erstwhile Central Excise Tariff received by the appellant and used in the manufacture. 3. The Notificatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of the duty paid on the inputs could not be denied. By this order the set-off of duty in respect of duty paid ethylene glycol was allowed from 11-4-1981 onwards except in the case of ethylene glycol used/consumed in polyester waste used for recovery of DMT on the ground that this polyester waste was chargeable to nil rate of duty. Similarly, duty paid on ethylene glycol which was used for recovery of DMT was held not to be allowable while paying duty on polyester fibre. 6. Aggrieved thereby, an appeal against the said order to the Collector of Central Excise, Ghaziabad was filed. 7. The main contentions of the appellants were that the ethylene glycol received in the factory after payment of duty was consumed in the manufacture of polyester fibre only. During the course of manufacture of polyester fibre, two basic raw materials DMT and Glycol interact and thereby certain waste comes into existence. This waste is recycled with glycol for the recovery of DMT in DMT recovery plant, within the factory. Hence, the entire set-off of duty was to be allowed since no part of DMT produced was diverted for any other use other than production of polyester fibre nor was it taken outside th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l content in the methanol, wherein the ethylene glycol contribute only H positive and not OH negative ions, the amount of inadmissible set-off would stand reduced to Rs. 90,749.76. 13. The aforesaid three appeals were decided by the Collector of Central Excise (Appeals), by passing a single order dated 15-12-1983, wherein he observed that the procedure under Notification No. 201/79 was materially the same as the procedure under Rule 56A and in the circumstances allowed all the appeals and set aside the Asstt. Collector s order and the demands. 14. Aggrieved thereby, the revenue went up in appeal before the tribunal. The tribunal after examining the aforesaid contentions noted the contention of the parties. It was the case of the revenue that prior to 11-4-1981 there was no provision in Notification No. 201/79 entitling the manufacturer to obtain credit of the duty of excise already paid on the inputs resulting in waste or by-product or refuge which arose in the manufacture of excisable products which used the inputs. Hence, it was argued that the duty element in the quantity of glycol which was contained in the glycol residual waste, polyester fibre waste and methanol (by-produ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ore the Bombay High Court was different and therefore, it was of the opinion that the said decision was not applicable in the instant case. 15. The Tribunal was of the opinion that the revenue was right that Rule 56A and Notification No. 201/79 were different enactments and the amendment to one could not be read into the other. In that view of the matter, the Tribunal was of the view that the Collector s observation that the procedure under Notification No. 201/79 was materially the same as the procedure under Rule 56A and consequently the amending notification deemed to have retrospective effect was not, in the absence of any such indication, acceptable. In the premises, the Tribunal allowed the appeals and rejected the cross-objection. 16. The question involved in these appeals, is whether the Tribunal was right. On behalf of the appellants, Shri V. Lakshmikumaran contended that the Tribunal failed to appreciate that the provisions of Rule 56A and notification No. 201/79 were pari materia. It appears to us that the provisions of Rule 56A and the Notification No. 201/79 are identical. The relevant provisions of Rule 56A are as follows : 56A(1) . 56A(2) The Collector may, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nafter referred as the inputs ) have been used, from so much of the duty of excise leviable thereon as is equivalent to the duty of excise already paid on the inputs : Provided that the procedure set out in the Appendix to this notification is followed : Provided further that nothing contained in this notification shall apply to the said goods which were exempted from the whole of the duty of excise leviable thereon or are chargeable to nil rate of duty." 18. The amending notification No.102/81 dated 11-4-1981 is as follows : Provided also that credit of the duty allowed in respect of the inputs shall not be denied or varied on the ground that part of such inputs is contained in any waste, refuse or by-product arising during the process of manufacture of the said goods, irrespective of the fact that such waste, refuse or by-product is exempt from the whole of the duty of excise leviable thereon or is chargeable to nil rate of duty or is not mentioned in the declaration referred to in the Appendix to this notification. 19. Central Board of Excise Customs issued Circular No.6/81-CX.6 dated 31-1-1981, which reads as follows : Central Excise - Rule 56A - Proforma Cred ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h of the duty of excise leviable thereon as was equivalent to the duty of excise already paid on the inputs. It is clear, however, that ethylene glycol was used in the manufacture of polyester fibre. It appears that methanol arises as a part and parcel of the chemical reaction during the process of manufacture when ethylene glycol interacts with DMT to produce polyester fibre. It is not possible to use a lesser quantum of the ethylene glycol to prevent methanol from arising for producing a certain quantity of polyester fibre. Thus, the quantity of ethylene glycol required to produce a certain quantum of polyester fibre is determined by the chemical reaction. It may be mentioned herein that it is not as if the appellants have used excess ethylene glycol wantedly to produce the methanol. It is clear that the appellants are not engaged in the production of methanol but in the production of polyester fibre. That position is undisputed. Therefore, it appears that the Tribunal erred when it held that the appellants were not entitled to a part of the credit of duty since ethylene glycol when it interacts with DMT also gives rise to methanol. This construction would frustrate the object of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hese could not be said to be finished excisable goods, nor they were exempt from the whole of duty of excise on or chargeable to `nil rate of duty. Therefore, proviso to sub-rule (2) of Rule 56A would not have any application. The High Court was of the view that refuse or skum thrown off during the process of manufacture could not by any stretch of imagination be considered as a by-product and merely because such refuse or scum may fetch some price in the market they could not be said to be `finished excisable goods . Under Rule 56A, the High Court was of the view, if the material is used in the manufacture of any finished excisable goods, and during the course of manufacture any non-excisable by-product emerged, then it could not be said that the raw material was not used in the manufacture of the finished excisable goods. 22. In our opinion , the same analogy and reasoning would apply when the methanol arises as a result of chemical reaction and not as a result of any by-product. In the instant case, the methanol was non-excisable. Just because methanol arises as a part and parcel of the chemical reaction during the process of manufacture, it cannot be said that methanol was n ..... X X X X Extracts X X X X X X X X Extracts X X X X
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