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2018 (3) TMI 489

r under CETH 3505? - the Revenue's case is that during the period 2003-04 to 2006-07, the appellant have cleared Modified Starch, under the guise of Native Starch. - Held that: - the Native Starch and Modified Starch are two different products and conversion of one into another requires certain additional procedures to be adopted by the manufacturer. There is nothing on record, by way of documentary evidences that such processes were actually undertaken by the appellant during the period in question so as to convert the Native Starch to Modified Starch. - The appellant have explained all the technical aspects and have contended that in the case of Modified Starch, dried starch had to be subjected to heating for several hours in a reactor vessel and the resultant product is "Pyrodextrin". The authorities have failed to appreciate the said fundamental distinction between the Native and Modified Starches. Similarly, the conclusion in respect of use of Sulphur di-oxide solution is erroneous, inasmuch as, the same is for usage and proper extraction of milk from the tuber and the ISI Standard allowed 100 PPM of Sulphur di-oxide in Native Starch. Similarly the Revenue's reference .....

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t and imposition of penalties. In addition, penalty of ₹ 15,00,000/- has been imposed on Shri S. Balamurugan, Manager [General] in terms of the provisions of Rule 26 of Central Excise Rules, 2002. As per facts on record, the appellant is engaged in the manufacture of Tapioca Starches, Native' as well as 'Modified'. The Native Tapioca Starches, is classifiable under Chapter Heading 11.08 and during the relevant period was fully exempted from payment of duty of excise vide Notification No.06/2002-CE, dated 01.03.2002 and Notification No.03/2006-CE, dated 01.03.2006. Apart from the Native Tapioca Spirit, the appellant was also manufacturing Modified Starch, which was classifiable under Chapter Heading 3505 and was liable to pay Central Excise duty under the said Chapter. However, inasmuch as, the clearances of the Modified Tapioca Spirit were below the exemption limit of clearances as provided in terms of small-scale exemption notifications, the same were also being cleared by appellant without payment of duty by availing such exemptions. The appellant's factory was visited by the Central Excise Preventive officers on 25.04.2007, who conducted various checks and .....

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ake difference in its use in the items manufactured by them. The technical aspect of the product was also studied by the Revenue and it was found that - property of starch needs to be enhanced at-least by dextronisation either by heat or by both heat and acid to avoid retrogradation while using in the end use applications. Investigation brought out that SPAC maintain drier temperature at 130 degree to 195 degree C in the process of manufacture. It therefore appeared that when tapioca starch is manufactured or treated with this level of heat, the initial resultant product that would emerge is undoubtedly Pyrodextrin only, which is Starch in a modified form which is dutiable under Ch.Heading No.3505 of the Central Excise Tariff. It was also noticed from their process flow chart that S02 (Sulphur-di-Oxide) was mixed in the process at the extraction stage and their website reveals at page No.1 that they are adding Sulphur-di-oxide solution at both the stages of extraction and refining in equal quantity as compared to quantity of Starch Milk. Such usage of chemicals appeared to confirm the modification done to the native starch. It was further observed by the Revenue that one of the imp .....

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the Revenue has recorded the statements of various persons but the statements which are in favour of the assesse do not stand supplied to them. They demanded the copies of all these statements. The appellant was provided cross-examination of various persons including the cross-examination of their own Manager. However, the appellant was not satisfied with the cross-examination and submitted that inasmuch as, the Native Tapioca Starch and Modified Starch are used in different kinds of industries, the Revenue has not produced the buyers of corrugated boxes, detergent and soap industries and paper industries, which use the Native Starch, for cross-examination. Request for supplying the test reports was also reiterated. It is seen that some of the buyers were further called for cross-examination during the course of further adjudications, but the test reports of the samples which were drawn by the Revenue itself during the course of investigations, were not provided to the assessee. The Commissioner vide his impugned order, dropped a part of the demand proposed to be confirmed in the notice and confirmed the duty to the extent of ₹ 1,19,80,748/- [Rupees One Crore Nineteen Lakhs E .....

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rough disintegrators and gets powdered. The powdered wet starch is fed into flash dryers at 1600 C by using hot air to dry the wet starch. The dried starches coming out of the flash dryer with about 12-13% residual moisture is fed into sifters and packed in the packing section. The notice also enclosed a detailed literature on the same. b) Modified Starch: The Native starch manufactured in the above mentioned process is subjected to heat for several hours (depending upon the required parameters of the product manufactured) in the reactor vessel in the presence of acids or alkali. This process results in de-polymerization which leads to reduction of viscosity. This process is called dry process modification. For the manufacture of Modified Starch in wet process, the slurry with 40% solids is introduced into a well agitated tank. After the necessary adjustments of pH factor and temperature, the reagents are added, sometimes over a period of several hours and the reaction is allowed to proceed. A sample is analyzed to ensure that the correct properties have been attained after which the reaction is terminated, if necessary, by pH change or other means. The reacted starch is washed and .....

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scientific community revealed that viscosity parameter for native starch was only 44-50 seconds and that even this level of viscosity was achievable only in case of fine quality native starch powder. The department has not disclosed the source or the information gathered from the scientific community to come to such a conclusion. As stated earlier the minimum level of viscosity prescribed by ISI for a native starch is 50. It would increase depending upon the quality of raw material used and process conditions. By process conditions, prolonged storage of wet starch or in slurry form leads to fermentation of the starch which, in turn, would bring down the viscosity of the starch. Whereas in a continuous process as in the case of the noticee, the total process from tuber to tapioca starch powder takes only 28 minutes the viscosity level would be much higher. c) Test of Iodine: When tested with Iodine, the native starch turns blue whereas the modified starch turns violet. This test would determine whether the product in question is native or modified starch. The HSN(Page 90 of Vol.1) specifies that native starches when tested with iodine would turn dark blue. d) Degree of Substitution .....

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the Native Starch have neither been relied upon in the show-cause notice nor called for cross-examination. We note that the reference to PH factors, feasible test of iodine etc., are not linked with any opinion of the expert and is based upon conjunctures and surmises. In any case, the goods already stands sold by the assessee and it is not possible for the Revenue to conclude that what was cleared was not Native but Modified Starch, based upon the various chemical specifications of the products. In fact, we find that the Commissioner himself has accepted the fact that there were different types of buyers in the market who required the Native Starch as also the Modified Starch. He has categorized the statements of the buyers into four different categories and has extended the benefit to the appellant by observing as under:- "19.01. The evidence in the form of market identity consists of statements recorded from various representative buyers some of whom have been relied upon and some not. relied. The buyers consisted of both end-users and traders Upon examination of these statements, I notice that all the statements can be broadly ategorized into three viz., (a) statements whi .....

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rule IP rather than exception. Of the 4, variations between the perception of market and internal records on analysis, it is found that in two cases they are not contradictory. In the case of "A" grade (SI.No.8 of the Annexure I), there is no mention in the internal records, except in three cases and there is confusion/contradiction in market perception with some calling it modified starch and some native starch. But in the case of these three despatches which were described as modified starch in internal records, the corresponding statements also confirmed them as modified starch. Therefore, in these cases, the goods have to be held as 'white dextrin' and PPC & CG which are modified starches and not 'A' Grade) (as mentioned in the corresponding invoices. Therefore, the demand with regard to 'A grade has to be ignored except for these three cases.A.-In the second case of Swan grade (SI.No.11) while the market statements refer to it as modified starch, the despatch register makes no mention. However, the evidence of market can be relied upon in the absence of any contradiction in judging this grade as modified starch. Thus, in 18 of the 20 Grades bo .....

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tegorizing native starch from A grade to 'H grade. It is categorized based on end users. For textile industry, they are grading B'; packing industries, grade is C and D'; fish processing industries, it is CFG 77, likewise. There is no difference in quality. Normal viscosity of native starch is around 60seconds. Show cause notice reference starch with 58% viscosity can never be a native starch is wrong. ISI itself prescribes minimum 50 seconds for tapioca starch. There is no limit for maximum level. Because, viscosity is based on quality of raw material. If the raw material is pre matured, viscosity is in lesser side. If it is matured tuber, it is in higher side and also depends on process conditions. Native starch is white coloured free flowing amorphous powder and consists of amylase and amylo pectin molecules and it turns blue colour with iodine solution. It forms hydrogels with water while heating. Modified starch is manufactured by treating native starch using chemical by heating or without heating. Some chemical groups are introduced during modification or depolymerisation takes place. For the basis for distinguishing native and modified starches, PH is one of the .....

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raisal purpose. Client appraisal means that some of their customers visit the factory and look at their dispatches and for that purposes, they are maintaining. This record includes other clearances also. Some times their company engaged in trading also. As is seen from the above, Manager (General) has also explained that the Native Starches being cleared by them were not converted into Modified Starches and none of their clients has also given any statement to the effect that the goods supplied to them were put to testing so as to determine as to whether the same was Native or Modified Starch. He again, in the said cross-examination asked for the test reports of the product. It is also seen that some of the buyers of the appellant whose statements were recorded were also cross-examined, wherein it was clarified that they were captively using Native as also Modified Starch. Some of the buyers of the paper manufacturing industries or the corrugated boxes manufacturing industries deposed that both the types of starches can be used by them for manufacture of their final product and they do not conduct any test on the starch purchased by them. Some of them, in fact, deposed that they do .....

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types of grades to the Native Starches which according to the statement of their buyers do not differ much in quality, is indicative of the fact that the said Native Starches cleared to the buyers were not Native but Modified Starch. Though, the appellants have explained that various grades give to the Native Starch are for the purpose of testing the same for supplies to be made to various industries. Whereas, 'A' Grade was supplied to all the industries, Grade B was meant for supplies to textile industries and Grade C , G & H is for corrugated box manufacturers. Similarly, they have explained the other grades. However, it is appreciated that the said grades given by the appellants to the various types of Native Starches produced by them is their business tactics and has no relevance to the fact that such grading would convert them into Modified Starches. The fact that what was cleared can be decided only by way of testing the same and not based upon the assumptions and presumptions. Similarly, concluding that the clearances were of Modified Starches based upon the details given in the dispatch register cannot be upheld. It already stands explained by Shri S. Balamurug .....

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d to be Native Starch, by referring to various specifications. Admittedly, the said authorities are the experts in the field and their opinion, unless demonstrated to be erroneous, cannot be legally brushed aside. In the absence of any other evidence, and in the light of the above test reports, which conclusively establishes the samples to be that of Native Starch, we find no reasons to uphold the impugned order of the Commissioner. The Tribunal in the case of Reliance Cellulose products Ltd. Vs Collector of Central Excise, Hyderabad reported in 1997 (93) E.L.T. 646 (S.C.) has observed that the opinion of the Chemical Examiner and Chief Chemist of the Government has to be given the status of an expert opinion. In terms of Rule 56 of the Central Excise Rules, the Central Excise officer is empowered to take samples for the purpose of testing and he has to communicate the result of such tests to the manufacturer. Further, in the case of Commissioner of Central Excise, Customs & Service Tax, Be/gaum Vs M/s. Murdheswar reported in 2016 (37) 384 (Tri. -Bang.), the opinion of the Chemical Examiner examining was adopted for classification purposes. In view of our foregoing discussions, .....

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