Whether manufacture of soap by using natural gas amounts to use of power?

PJ/Case Law /2016-17/3432

Case-PEE CEE COSMA SOPE LTD. Versus COMMISSIONER OF CENTRAL EXCISE, KANPUR

Citation-2017 (345) E.L.T. 118 (Tri. - All.)

Brief Facts-The brief facts of the case are that the appellant PEE CEE CosmaSope Ltd., are engaged in manufacture and clearance of Laundry Soaps falling under Chapter Heading 3401 19 42 and Chapter Heading No. 3401.11 of the First Schedule to the CET Act. The appellant, who were earlier using wood fired furnace for heating the ingredients for manufacture of soap switched on to natural gas during the period under dispute being January, 2002 to February, 2006. Show cause notice dated 17-7-2006 was issued invoking the extended period of limitation as it appeared to revenue that the use of natural gas or gas for heating, in manufacture of the soap, is used of power for manufacturing and accordingly, the appellant is liable to pay Excise Duty on the soap manufactured by them.

Appellant’s Contention-The appellant appeared and contested the SCN along with other grounds and stated that it has been clarified by the C.B.E. & C. vide Circular F. No. B2/9/68-CX, dated 25-3-68, clarifying, the use of gas for heating cannot be treated as use of power in any process of manufacture of goods falling under Item 1-A. Tariff Item No. 1-A includes items namely confectionery, cocoa powder and chocolates, in or in relation to manufacture of which any process is ordinarily carried out without the aid of power. The reference is also made to another Circular of C.B.E. & C. F. No. B2/9/68-CX, dated 22-3-68, wherein also reference was made to the letter of Commissioner of Central Excise, Allahabad dated 5th March, 1968, wherein the ld. Commissioner had issued instructions ‘that the use of gas for welding steel, furniture parts will not be considered as use of power, is hereby confirmed’. It appears that insofar as electric welding is concerned, the State Government Authorities are responsible for the Administration of the factories, has treated as use of power in the process of manufacture. The Circular further refers to a reference made from Asst. Collector of Central Excise, Rampur who had enquired, whether - using gas for welding steel furniture parts should be considered as using power. He has been informed that use of gas in welding in steel furniture parts will not be considered as using of power. It was further clarified that in view of the definition of power given in the Factory Act, 1934, of the Government of India - ‘I presume that neither the gas welding nor electric welding of steel furniture parts will constitute use of power’.
The SCN was adjudicated and the proposed demand was confirmed amounting to Rs. 9,40,43,236/- along with equal amount of penalty under Section 11AC read with Rule 25 of CCR. Further, confiscation of 111366 KG of Doctor Brand Laundry soap valued at Rs. 22,31,993/- seized on 24-1-2006, was also made with option to redeem on payment of redemption fine of Rs. 7 lakhs. Further, penalty of Rs. 1.00 lakh was imposed under Rules 25(b), (c) and (d) of CER, 2001-2002. Further, penalty of Rs. 5 lakhs was imposed on the Managing Director, Shri Mahendra Kumar Jain, penalty of Rs. 5 lakhs on Shri Anoop Kumar, Authorized Signatory of the party and also penalty of Rs. 5 lakhs on Shri Anil Kumar Jain, Factory Manager of the appellant.
Being aggrieved, the company as well as the 3 persons are all in appeals against their individual penalties and the demand raised. The ld. Counsel for the appellant has taken us through the Circular F. No. B2/9/68-CX., dated 22-3-68 and 25-3-68, wherein it has been clarified by the C.B.E. & C. that the use of gas does not amount to use of power for the purposes of the Central Excise Act. The ld. Counsel also taken us through the dictionary meaning of the word “power” from Oxford Advance learner’s Dictionary of current English 6th addition, Chambers English Dictionary, Longman Dictionary of contemporary English. In all these dictionaries “power” has been defined as “electrical energy”. The ld. Counsel also points out that ld. Commissioner have misdirected himself as he has failed to refer to the C.B.E. & C. Circular and have not assigned any reason for differing with the same. The ld. Counsel further draws our attention to the ruling of Hon’ble Supreme Court in the case of MSCO Pvt. Ltd. v. Union of India - 1985 (19)E.L.T.15 (S.C.) wherein in the matter of interpretation, the Apex Court have observed - while construing a word in a statute or a statutory instrument in the absence of any definition in that very document, it must be given the same meaning which it receives in ordinary parlance or understood in the sense in which people conversant with the subject matter of this statute or the statutory instrument understand it. It is hazardous to interpret a word in accordance with its definition in another statute or statutory instrument and more so when such statute or statutory instrument is not dealing with any cognate subject

Respondent’s Contention-The learned AR for the Revenue relies on the impugned order.

Reasoning Of Judgement-Having considered the rival contentions, the bench held that the ld. Commissioner had misconceived andmisdirected himself by concluding that the use of gas for heating of soap chemicals by the appellant’s industry, amounts to use of power. In view of the clarification given by C.B.E. & C. in their Circulars dated 22-3-68 and 25-3-68, bench founded that there was no reason for not following the same and drawing conclusion based on the definition in another Act, which is not cognate to the provisions of the Central Excise Act. In the facts and circumstances, it also held that there is no contumacious conduct or suppression of the part of appellants, in order to evade payment of Central Excise duty. Accordingly, bench also held that the extended period of limitation is not available to the Revenue. Accordingly, bench set aside the impugned order and allowed the appeals. The appellant will be entitled to consequential benefits, in accordance with law, if any.

Decision-Appeal allowed
Comment-The kernel of the case is that in view of CBEC instructions F. No. B2/9/68-CX dt. 22.03.1968 and F. No. B2/9/68-CX dt.25.03.1968 it was clarified that the use of gas during manufacture is not to be considered as use of power. Revenue authorities are not justified in relying upon definition in another act not cognate to CEA, 1944, so the demand made by the revenue is not sustainable.Hence, appeal allowed.

Prepared By-Arundhatibajpai

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PJ/Case Law /2016-17/3432

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