TMI Blog1997 (11) TMI 225X X X X Extracts X X X X X X X X Extracts X X X X ..... ium by Ion exchange process, under Tariff Item 68, and excise duty was collected thereon under this heading; however, subsequently by letter dated 14-7-1986, the Superintendent of Central Excise informed the appellants that DM water fell outside the scope of Tariff Item 68 and the appellants, therefore, applied for grant of refund of duty paid by them on DM water from March, 1975 onwards and refund was sanctioned on 17th March, 1977. No duty was levied on DM water till February, 1986. With the introduction of the Central Excise Tariff Act, 1985 (effective from 28-2-1986) Chapter 28 covered inorganic chemicals and organic or inorganic compounds of precious metals of rare earth, metals of Radio active elements or isotopes, and sub-heading 2851.00 covered other inorganic compounds including distilled or conductivity water and water of similar purity." 3. As the department was of the view that DM water was classifiable under Heading 2851.00 and since the appellants were manufacturing and captively consuming DM water in the manufacture of Caprolactum, Melamine, Nylon 6 chips, fertilizers etc. as well as were also clearing DM water outside the factory without payment of duty, a show ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , there was no wilful suppression or mis-statement with intent to evade payment of duty and process of de-mineralisation of water was carried out openly and the Excise officers were fully aware of the process of de-mineralisation of water carried out by the appellants. 6. Our findings on the above three points are recorded hereunder : I. Excisability of DM water : The process of de-mineralisation of water by the appellants is as under : The DM water required for raising steam in various plants is manufactured in water treatment plant. The raw water received from Mahi river contains dissolved solids in the form of Calcium and Magnesium salts. As these salts deposit scales in boilers while raising steam they are removed from the water by a process of de-mineralisation. The raw water is passed through a bud of resin called cation resin, where the calcium and manufacturing Ions are selectively exchanged and removed from the water. As the cation resins have certain maximum capacity to remove calcium and magnesium, they became ineffective in length of time. The resins are then regenerated by passing 30% Sulphuric acid (by diluting 98.5% Sulphuric acid with water through the exch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r conductivity water or water of similar purity; liquid air ....). The Explanatory Notes to HSN at page 322 acts as a useful guide in support of the above entry and the Explanatory Notes state that `Heading 2851.00 covers distilled water, re-distilled osmotic water, conductivity water and water of similar purity, including water treated with ion exchange media. On a simple reading of the entry in the Central Excise Tariff along with HSN Explanatory Notes, it is seen that the de-mineralised water (by ion exchange media) falls for classification under Heading 2851.00. II. Duty demand on un-accounted loss of DM water captively consumed : There is no dispute regarding production figures and figures of captive consumption. No explanation has been put forth by the appellants for the un- accounted loss of DM water within their plant which if properly explained, could have been condoned by the appropriate authority. Their submission that there is bound to be variation up to 5% in production figures because of variation in measuring instruments or meters used in chemical plants, is also not borne out by any material, for example, meters manufacturer s, specifications about error. In t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onfirmed ; (e) The demands are not barred by limitation. The impugned orders are, therefore, upheld and the appeals rejected. Sd/- (Jyoti Balasundaram) Member (J) Dated : 3-12-1996 7. [Order per : S.K. Bhatnagar, Vice President]. - With due respects to Hon ble Member (Judicial), my views and orders in the matter are as follows. 8. I observe that the appellants are required to subject the Mahi river water to a treatment in their water treatment plant with a view to de-mineralise the same by cation exchange method so as to make the water suitable for their industrial purposes. In this respect, I observe that `Mcgraw-Hill Encyclopedia of Science Technology Volume 14 at page 513 reads as under : Water treatment. Physical and chemical processes for making water suitable for human consumption and other purposes. The water treatment can be done by various processes including water softening." 9. It may be mentioned in this connection that the relevant portion from `Mcgraw-Hill Encyclopedia of Science Technology Volume 14 (page 508) reads as under : Water softening. A water treatment process by which u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... N and relevant portion of the Explanatory Note reads as under : 22.01 - Waters, including natural or artificial mineral waters and aerated waters, not containing added sugar or other sweetening matter nor flavoured; Ice and snow. This heading covers : (A) Ordinary natural water of all kinds (other than sea water - see Heading 25.01). Such waters remain in the heading, whether or not clarified or purified, except that distilled or conductivity water and water of similar purity are classified in Heading 28.51. (B) Mineral waters, whether natural or artificial." 15. The HSN is basically a customs tariff where products are classified irrespective of whether they are of manufactured or unmanufactured type. Therefore, while applying it to Central Excise side, we have to keep this fact in mind; And, where both natural and synthetic forms of a substance(s) are included, we have to consider which one satisfies the criteria of excisability. In my opinion, Heading 22.01 of Central Excise Tariff would therefore, cover only such water as is manufactured or synthesized as for example, by combining hydrogen and oxygen in the required ratio (H2 : O1) or the water which is obtained dur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9 POINTS OF DIFFERENCE In view of the difference of opinion between Hon ble Member (Judicial) and the Vice President, the matter is submitted to Hon ble President for reference to a Third Member on the following points : (i) Whether de-mineralisation of water amounted to a process of manufacture; (ii) and if so, whether de-mineralised water was classifiable under Heading 2851.00 or 22.01; (iii) whether the demand was barred by limitation or not and if not, whether duty demand to the extent proposed by Hon ble Member (Judicial) was required to be confirmed; (iv) or, there was no process of manufacture involved and in any eventuality, the demand was time barred and hence, the appeal was required to be accepted." Sd/- Sd/- (Jyoti Balasundaram) (S.K. Bhatnagar) Member (J) Vice President Dated : 28-8-1997 21. [Order per : S.L. Peeran, Member (J)]. - The difference of opinion between the learned Member (J) and the learned Vice President was heard by me today i.e. 17th Oct., 1997. 22. The facts of the case as well as the contention of both the sides and the points of difference has already been brough ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g at page 322. The learned Member (J) has also proceeded to hold that there has been suppression in the matter and therefore, the invokation of larger period is totally justified. 24. On this point, the learned Vice President has differed and has held after examining the process of water appearing at page 513, Volume 14 in Mcgraw-Hill Encyclopedia of Science Technology and also the definition of water softening at page 508 that such softening of water cannot be compared with distilled water, re-distilled or electro-osmotic water or conductivity water unless it could be shown that water so obtained (after treatment with ion exchange media) was of similar purity. The learned Vice President has also on examination of the Heading 28.51 of the HSN has noted that the said HSN itself excluded from that heading natural water even after filtered, sterilised, purified or softened. Since the water has been softened by the appellants by removing of two of the impurities namely, calcium and magnesium, therefore, the learned Vice President held that the Tariff Chapter 28 is not attracted in the present case. While so holding the learned Vice President has expressed his opinion in Para 15 per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it does not cease to be an oil. If beyond the process of refinement of the oil, the oil is hardened, again by the use of chemical processes it is not rendered any the less groundnut oil. The Hon ble Supreme Court has further gone on to accept this proposition and in subsequent judgments as in the case of Collector of Central Excise v. Jayant Oil Mills Pvt. Ltd. as reported in 1989 (40) E.L.T. 287 and again in the case of Collector of Central Excise v. Jayant Oil Mills as reported in 1993 (67) E.L.T. 986. These judgments were again followed by the Tribunal in the case of Collector of Central Excise v. Jayant Oil Products Pvt. Ltd. as reported 1995 (77) E.L.T. 360 (Tribunal) = 1995 (58) ECR 698. 29. I have given a careful thought and consideration to the submissions and also taken into consideration the submissions made by the learned DR in this regard. These judgments are not distinguishable and are directly applicable to the facts of this case inasmuch as river water has been made more useful, as it has become de-mineralised water for use in the boilers. The Revenue s contention is that it has become industrial water and it cannot be compared with the river water, as it is mar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... quid with high dielectric constant (81 at 17C), which largely accounts for its solvent power. It is a weak electrolyte, ionizing as H3O+ and OH-. At atmospheric pressure it has d 1.00 (4C), fp OC (32F) and expands about 10% on freezing. Viscosity 0.01002 poise (20C), sp heat 1 calorie/g, vap press 760 mm (100C), triple point 273.16K at 4.6 mm, surface tension 73 dynes/cm at 20C, latent heat of fusion (ice) 80 cal/g, latent heat of condensation (steam) 540 cal/g. Bulk d 8.337 lbs/gal, 62.3/lb/cu ft. Refr index 1.333. Water may be superheated by enclosing in an autoclave and increasing pressure; it may be supercooled by adding sodium chloride or other ionizing compound. It has definite catalytic activity especially of metal oxidation. Physiologically water is classed as a nutrient substance." Derivation : (1) Oxidation of hydrogen, (2) end product of combustion, (3) end product of acidbase reaction, (4) end product of condesation reaction, Purification : (1) Distillation, (2) ion exchange reaction (zeolite), (3) chlorination, (4) filtration. Use : Suspending agent (papermaking, coal sluries), solvent (extraction, scrubbing), diluent, beer and carbonated beverages, hydration of l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... part. This aspect was gone into by the Tribunal and examined by a larger Bench in the case of BHEL v. Collector of Customs, as reported in 1987 (28) E.L.T. 545. This aspect was examined and it was held that an incomplete article continues to remain so and does not acquire the essential character of a complete article even by applying the Explanatory Notes or Interpretative Rule 2(a). It held that by applying Rule 2(a), the item cannot be considered as having acquired the essential character of a complete article. This aspect of the matter has been again examined by the Hon ble Supreme Court in the case of TISCO v. Union of India as reported in 1988 (35) E.L.T. 605 which upheld such a view expressed by the Tribunal in BHEL s case. Although the BHEL has not been specifically quoted therein, but yet the judgment of the Delhi High Court in case of Metal Forging Pvt. Ltd. v. Union of India as reported in 1985 (20) E.L.T. 280 has been approved. 33. This aspect of the matter was gone into in great depth by the Tribunal in the case of Aravali Forgings Ltd. v. Collector of Central Excise, as reported in 1994 (70) E.L.T. 693 and also in the case of Echjay Industries Ltd. v. Collector of Ce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... revious judgments on the point of `manufacture and `goods as rendered in the case of Union of India v. Delhi Cloth and General Mills Co. Ltd. as reported in 1977 (1) E.L.T. (J 199), South Bihar Sugar Mills Ltd. v. Union of India as reported in 1978 (2) E.L.T. (J 336), Union Carbide India Ltd. v. Union of India as reported in 1986 (24) E.L.T. 169 and that of Governor General in Council v. Province of Madras as reported in 1978 (2) E.L.T. (J 280); Hon ble Supreme Court observed in Para 7 as follows : 7. It is necessary in this connection to reiterate the basic fundamental principles of excise. The Judicial Committee of the Privy Council in Governor General in Council v. Province of Madras 1978 (2) E.L.T. (J 280) = (1945 F.C.R. 179), this Court observed at page 1287 of the report that excise duty was primarily a duty on the production or manufacture of goods produced or manufactured within the country. This Court again in In Re. The Bill to Amend Section 20 of the Sea Customs Act, 1878, and Section 3 of the Central Excises and Salt Act, 1944 [1964 (3) SCR 787] at page 822 of the report referring to the aforesaid observations of the Judicial Committee reiterated that taxable event ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... taking opinion from the Chief Chemist issued circulars to the effect that mere purification of the water by Municipal Corporation and supplying through tap for household purpose will not make the water a different commodity. Hard water are difficult to use for washing cloths therefore, even dhobies and launders boil the water to make it soft for cleaning dirty cloths. Therefore, such supply of water for such use after softening will not make the water a different commodity but it has become more useful commodity by such processes only. The Hon ble Supreme Court again appreciated a similar point in the case of Collector of Central Excise v. Ambalal Sarabhai Enterprises as reported in 1989 (43) E.L.T. 214, wherein the department wanted to classify starch hydrolysate which was quickly fragmented and losing its character in a couple of days, as goods falling within Item 1E of erstwhile Central Excises and Salt Act. The Hon ble Supreme Court appreciating the party s contention dismissed the Revenue appeal and held that the burden of proving that the item is goods is on the department and the department has not produced any evidence, while the assessee had adduced positive evidence in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y Note to HSN relating to Chapter 28.51 which reads as under: natural water, even if filtered, sterlised, purified or softened, is excluded (Heading 22.01) On this basis, the question has been raised whether treated water could be excisable under Heading 22.01. 5. After due consideration of the matter in consultation with the Chief Chemist, Board is of the view that the product would be non-excisable even in the new tariff. Firstly, Section 2(f) of the Central Excises and Salt Act defining manufacture has no specific provision in respect of this commodity unlike in some cases and therefore if the product was earlier non-excisable, it should continue to be so even under the new tariff. Secondly, the Explanatory Notes to HSN may not provide conclusive basis for deciding the issue in Central Excise matters as the HSN has special bearing for the purpose of trade and not manufacture. Chapter 22 of the new Tariff does not indicate that such items are to be included. HSN Explanatory Notes to Chapter 22.02, also do not make specific mention of the product in question, although sweetened or flavoured mineral water find mention thereunder. Thirdly, if such products are considered ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... und that these circulars pertain to aqua mineral bisleri treated water and not to de-mineralised water. I am not in a position to agree with him as the circular of 1986 has been quoted in the circular 87 as can be seen from the above. Furthermore, the Board has gone to the extent of saying that if soften or flavoured mineral water is required to be treated as goods then tap water, domestic water, Municipal Corporation gets covered, since water was specifically mentioned under Heading 22.01 of HSN. As can be seen from the circulars, Municipal water is much higher purity than that of de-mineralised water from river, for the reason that the Municipal Corporation water is more purified one and potable for the purpose of human consumption. The other commodity is aqua mineral treated water is still on a higher stage of purification. All these three items are held to be non-excisable by the Board and such Board s circulars are having binding effect on the authorities as has been held time and again by the Hon ble Supreme Court in the following judgments : 1. Poulose and Mathen v. Collector of Central Excise [1997 (90) E.L.T. 264 (S.C.) = 1997 (69) ECR 5 (SC)] 2. Collector of Central E ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -1987 to 24-7-1987. In this show cause notice, the department alleged that the appellants have resorted to fraud, mis-statement or suppression of facts with an intent to evade duty. In this connection, the appellants contended that the aspect of manufacture was well within the knowledge of department in the erstwhile tariff. It was also pointed out that Board had issued clarifications with regard to non-excisability of the items and therefore, the appellants were under a bona fide belief that such clearances for captive consumption or sale for other industrial users was non-dutiable and therefore, the question of suppression did not arise in the facts and circumstances of the case. In this regard, large number of Hon ble Supreme Court s judgments have been cited. The aspect of suppression has to be viewed in the background of the appellants manufacturing several commodities and paying duty. The department also after the introduction of the new tariff remained silent and did not call upon the appellants to file classification list or declaration. It is only as late as in 1988, the department issued demands alleging suppression of facts. In the background and the facts and circumsta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... manufactured by the respondent and this was in the knowledge, according to the Tribunal, of the authorities. These findings of the Tribunal have not been challenged before us or before the Tribunal itself as being based on no evidence. In that view of the matter and in view of the requirements of Section 11A of the Act, the claim had to be limited for a period of 6 months as the Tribunal did. We are, therefore, of the opinion that the Tribunal was right in its conclusion. The appeal therefore fails and is accordingly dismissed . 41. In the present case also the department knew about the processing of de-mineralised water for use in the boilers in the appellants plant. Therefore, the allegation of suppression or fraud on the appellants part does not exist. In 1988 itself, the department had alleged suppression and in the show cause notice dated 7-1-1988, the department had all the facts with their knowledge, therefore, in 1990, the department cannot again plead that there has been suppression for invoking for a period prior to 1987. This precisely what has been expressed by the Tribunal in the Neyveli Lignite Corporation Ltd. v. Collector of Central Excise as reported in 1992 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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