TMI Blog2020 (3) TMI 255X X X X Extracts X X X X X X X X Extracts X X X X ..... CBEC Circular No. 495/61/99-CX-3 dated 22.11.99 which holds that odoriferous compound used for manufacture of Agarbathi is not excisable . Further, the said Circular referred to two processes of manufacture of Agarbathi (a) by mixing the Agarbathi Masala with dough and rolling it into Agarbathi, (b) by sprinkling on raw Agarbathi. In the present case, the Respondent has held that the Circular is inapplicable to the appellant s case as the Agarbathi Masala mixed by the appellant is marketable and hence excisable. Further, by this subsequent Circular No. 989/13/2014-CX.3, dated 7.11.2014, the Board clarified the marketability, if any, has to be determined based on evidence. In the impugned order, the Original Authority has held that the appellant is entitled to CENVAT credit of duty paid on the inputs used in the preparation of Agarbathi Masala but the said CENVAT credit has not been calculated and the benefit of the same has not been given while confirming the duty demand on the appellant. Further, the method of determination of value of Agarbathi Masala by the Department has not excluded the duty paid on the inputs used for the preparation of Agarbathi Masala which is contra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ussion and disposal. Vide the first impugned order dated 26.02.2015, the Commissioner has disposed of 12 SCNs issued periodically by the Department to the appellant and in the second impugned order dated 28.11.2016 two SCNs have been disposed of by confirming the demand along with interest and penalties. For the sake of convenience, we take the facts from Appeal No. E/21179/2015. 2. Briefly the facts of the present case are that the appellants are manufacturers of agarbathis (incense sticks) under the brand name CYCLE BRAND AGARBATHIS . The agarbathis manufactured by the appellant are classifiable under Tariff Item No. 33074100 of the First Schedule to the Central Excise Tariff Act, 1985 and are chargeable to NIL rate of duty. Agarbathis primarily consist of bamboo stick, charcoal and gum etc., termed as raw agarbathis. The important part in the process of manufacture involves mixing of various Natural Oils, Resins, Gums/Glues, Chemicals, Diluents, Herbal Extracts in a pre-determined formulations/combination to obtain Agarbathi Perfume also called Agarbathi Masala . This agarbathi masala is applied onto the raw agarbathis by any one of the methods viz. coating, brushing, spr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s Co-Operative Society themselves. It had also been confirmed by Sh. Ananthapadmanabha, Prop. Of M/s Aarabhi Agarbathi Works and Sh. V.Prakash, Partner M/s Mysore Anand Dhoop Factory, Mysore that the perfumes more or less similar to the agarbathi Masala manufactured by the appellant were available in the open market. It had also been confirmed by these two agarbathis manufacturers that even though many agarbathis manufacturers prepare their own in-house perfume mix, there were many manufacturers who sourced it from the open market as the same was readily available. It appeared from the above that the agarbathis masala manufactured by the appellant was a distinct marketable commodity which was commercially known for purposes of buying or selling. Agarbathi masala manufactured by the appellant was stored for the purpose of further use which had proved beyond doubt that the product had a shelf life. Further, the aspect of shelf life has been answered positively in the test reports of IIT, Chennai who tested the samples of agarbathi masala manufactured by the appellant. Therefore the product Agarbathi Masala appeared to have satisfied the twin tests of being a distinct product emer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er issues. The Commissioner vide the impugned order disposed of all the 12 cases together. 3. Heard both the parties and perused the records. 4. Learned Counsel for the appellants submitted that the impugned order is not sustainable in law as the same has been passed without properly appreciating the facts and the law. Learned Counsel has filed written submissions in support of their appeals which are reproduced herein below: Main Issues 1. Appellant manufactures Agarbathi by the process of mixing of Odoriferous Compound of various fragrances as per its proprietary formulae, and sprinkling the same on Raw Agarbathi. For internal purpose, it is called Agarbathi Masala (AM for short). Agarbathi is classifiable under TI 3307 49 00 of the CET and is chargeable to Nil duty. 2. AM is mixed and captively consumed by the appellant for applying on to Agarbathi. It is prepared based on proprietary formula which is a trade secret. The AM is not marketed by the appellant. Most brands of Agarbathi have their own proprietary formula for preparation of Odoriferous Compound. 3. The CBE C Circular No. 495/61/99-Cx.3, dated 22.11.1999 which holds that Odoriferous Compound ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be said to have been manufactured only when the emerging product has distinct name, character and use, per Delhi Cloth General Mills judgment, 1977 (1) ELT J199 SC. In the present case, the appellant has been contending that mere mixing of aromatic compounds does not amount to manufacture as no known product with distinct name, character and use emerges. Reliance is placed on the judgment of the Apex Court in CCE v. Laljee Godhoo co, 2007 (216) ELT 514 (SC). Impugned order does not state what is the name of the product emerging in the hands of the appellant, nor how it is distinct from the ingredients which are mixed. Even the test report purportedly given on the letterhead of IIT, Chennai does not give the nomenclature of the product tested, though the test memo specifically seeks report on this point. Duty demand has been confirmed solely on the basis of alleged marketability which has also not been satisfactorily proved by the Revenue. Thus, twin-test rule has not been followed while confirming the duty demand in both the appeals. 3. Marketability of similar product cannot be the basis . The Learned Counsel further submitted that in this case, finding of marketabilit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... test report of IIT, Chennai. This is unprofessional and unethical. On facts, it is not a test report of IIT Chennai. d. GC MS test adopted in the test report requires the analytical chemist to use his judgment to compare the test results with a memory bank of 5000 results stored in the instrument, and thereupon, decide the identity of the ingredient. In this case, GC MS test has been done in a private laboratory by an unknown chemist, not by the experienced and seasoned professor of IIT. Hence, the test report relied on by the Revenue is unreliable. e. Bureau of Industrial Standards has prescribed IS 326(Part 19) : 1998 for method of sampling and test for natural and synthetic perfumery materials. Even though the test report dated 28.7.2008 does not appear to have been conducted as per this BIS standard. This standard prescribes the method of testing these materials with Gas Chromatography. There is no assertion in the test report as to what standard has been followed while testing the samples drawn from the appellant s factory. f. In spite of specific request of the Revenue in the Test Memo, the test report does not give the nomenclature of the sample tested. Instead, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ong. 10. Proposed classification under TI 3302 90 90 is wrong. The Learned Counsel further submitted that it is the case of the Revenue that AM is an intermediate product, which is chargeable to duty. Whereas, the respondent has classified the product under Chapter heading No. 33.02 which applies only to raw materials of a kind used in industry. Same item cannot be both RM and intermediate products in the hands of the appellant. This error also shows that AM is not excisable and cannot be classified under the CET. 11. Value of DEP not excluded in OIO under Appeal No. E/20221/2017. The Learned Counsel further submitted that in this appeal, it had pleaded that AM which comes into existence as a concentrate cannot be used and it has to be diluted by adding the diluent, viz., Di-Ethyl Pthalate. The appellant had argued that dilution of a concentrate was not a process amounting to manufacture. Hence, the cost of dilution process including the cost of Di-Ethyl Pthalate should be excluded. On this basis, the appellant had submitted CAS 4 certificate also. However, the Respondent has given specious reasons for rejecting this plea. 12. Input credit not excluded while deter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 15. The Learned Counsel further submitted that in a worst-case situation of the appeal being decided against it, as an alternative defence, the appellant submits that it has the right to seek reduction of the liability in every manner permissible under law. Reduction of duty liability would also mean reduction in interest liability and re-quantification of penalty. For this reason also, in the interest of justice, both appeals are required to be remanded. 16. The Learned Counsel submitted that accordingly prays for remanding both the appeals to the Respondent for de novo adjudication with due compliance of Final Order No. 21338/2016, dated 1.12.2016, which allows right of cross examination to the appellant, in the interest of justice. 4.1. Learned Counsel for the appellants further submitted that the impugned order in Appeal No. E/20021/2017 is an ex-parte order passed in violation of the principles of natural justice. He further submitted that this Tribunal vide F.O. No. 21138/2016 dated 01.12.2016 allowed the appeal of the appellant and given the appellant a right of cross-examination but the Commissioner passed the impugned order just before passing of the order by the Tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... TIOL-389-SC-CX-FB on the ground that KSDL had actually marketed the odoriferous compound, which is on record whereas in the instant appeals, there is no such averment by the Revenue. Revenue s sole basis for supporting marketability is the letter of Agarbatti Manufacturing Co-operative Society in which the product description and classification also vary. Further, the Revenue did not draw sample of what is sold by the Co-op Society, before concluding that it is same or similar to the appellant s agarbathi masala. He further submitted that in the case of KSDL, it has been observed by the Apex Court that the KSDL sold the odoriferous compound from Mysuru to Tibetan Camp in Bylakuppe and therefore it was not a captive consumption whereas in the present appeal, the appellant consumes the agarbathi masala in the same place and does not sell the same to anyone. The last submission of the appellant is that it is only the appellant alone who has been targeted and no proceedings have been initiated against any other manufacturers of Agarbathi situated within the territorial jurisdiction of the Respondent. This fact has been admitted by the Respondent in the reply dated 24.10.2018 to the RTI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 014-CX.3, dated 7.11.2014, the Board clarified the marketability, if any, has to be determined based on evidence. Further, we find that the impugned order in Appeal No. E/20221/2017 has been passed on ex-parte. Further, we find that when the Commissioner rejected the application seeking cross-examination of certain witnesses relied upon by the Respondent, the appellant filed appeal before this Tribunal and this Tribunal vide its Final Order No. 21138/2016 dated 01.12.2016 allowed the cross-examination of witnesses which were relied upon by the Revenue but the impugned order was passed before the Tribunal allowed the cross-examination to the appellant without affording any opportunity of hearing to the appellant. Further, we find that the points raised in the subsequent Appeal No. E/20021/2017 will have the bearing on the earlier impugned order. Further, we find that in the impugned order, the Original Authority has held that the appellant is entitled to CENVAT credit of duty paid on the inputs used in the preparation of Agarbathi Masala but the said CENVAT credit has not been calculated and the benefit of the same has not been given while confirming the duty demand on the appellant ..... 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