ORDER G.R. Sharma, Member (T)

1. The captioned appeal is directed against the order-in-original passed by the Collector, Central Excise. The Collector, Central Excise had demanded duty amounting to Rs. 5,85,679.50 on Waste Liquor-I and Waste Liquor-II manufactured and removed/captively used during the period 1-3-1986 to 31-3-1987. The ld. Collector also imposed a penalty of Rs. 2 lacs. on the appellants.

2. The facts of the case, in brief, are that the appellants are engaged in the manufacture of Caprolactum. Shri A.S. Akolkar, Manager (Excise & Customs) of the appellants company, in his statement dated 23-4-1987 stated that they utilized Benzene, Ammonia Gas, Synthesis gas, Carbon dioxide, Sulphur dioxide, Oleum and Caustic soda for manufacture of caprolactum classifiable under Chapter 29; that in the process of manufacture, the waste liquor I and waste liquor II came out as by-product. It was stated by him that the above two products are of no use and if they are drained out, it would create pollution and therefore, they used waste liquor II as fuel to destroy the waste liquor I in the waste liquor combustion unit and they drained the resultant refuse obtained out of waste liquor I and waste liquor II. He also stated that on certain occasions, they had cleared waste liquor II to some customers. It was also stated by Shri Akolkar that in the process of burning, a lot of heat is generated and to keep the temperature within limit, water is circulated. In the process) steam is generated due to burning of waste liquor I and waste liquor II which is used for concentrating waste liquor I to level of 40% solid. The Department was of the view that steam is produced in the process of burning/destruction of waste liquor I and waste liquor II in Waste liquor combustion unit of the company; that the steam falling under Chapter 28 of CETA, 1985 is exempted from payment of Central Excise duty and Notification No. 217/86, dated 2-4-1986 grants exemption to the goods falling under Chapter 29 of the Central Excise Tariff, if used in the manufacture of goods falling under notified chapters provided that the final products are not exempted from payment of Central Excise duty. Therefore, the Department was of the view that the company is not entitled to such exemption and that the company has wrongly availed of the exemption under the aforesaid notification. A show cause notice was issued to the company asking them to pay Central Excise duty on waste liquor I and waste liquor II produced by them during the period 1-3-1986 to 31-3-1987. It was also alleged in the show cause notice that the company had deliberately and wilfully did not pay the duty as they had themselves in their classification list dated 1-3-1986 classified the product under Chapter 29 and had shown that the products were chargeable to duty at a rate of 15 per cent ad valorem. After considering all the submissions made before the ld. Collector, he observed that in the process of destruction of waste liquor I & II furnished by the appellants, it is admitted that in the process of destruction of two liquors in the waste liquor combustion unit, heat is generated and to reduce the heat, water is circulated which gets converted into steam; that this steam is utilized only for purpose of concentrating waste liquor I to make it suitable for burning with waste liquor II. It was also observed that the products have a distinct name, character and also their use. On the question of marketability, the ld. Collector held that since waste liquor I and waste liquor II were produced as byproducts and have been marketed and as such they are saleable goods. The ld. Collector finally confirmed the demand for duty and imposed a penalty.

3. Shri Willingdon Christian, the learned Advocate appearing for the appellants submitted that duty has been demanded for the period from 1-31986 to 31-3-1987 whereas the show cause notice was issued on 2-1-1989. He submitted that the dispute is limited to the question whether waste liquor I and waste liquor II arising as by-product during the course of manufacture of caprolactum are excisable goods. He submitted that waste liquor I arises in the process of saponification whereas waste liquor II was generated in the process of anone (sic.) distillation. The ld. Counsel for the appellants submitted that both these are by-products, that they are stored in a tank; that they are only of no use or value; that they are hazardous and toxic and that they are prone to create obnoxious pollution if merely drained out, that under Pollution Control Act, that they are required to destroy; that the applicant company have installed a combustion unit where these two products are completely destroyed; that waste liquor I and waste liquor II clearly suggests that there are waste or refuse arising in the process of manufacture of caprolactum; that these products are hazardous, toxic and useless. The learned Counsel submitted that the company had spent more than Rs. 4 crores for installing the combustion unit and recurring cost for burning them comes to Rs. 1 crore annually; that they are not marketable as items in Heading 2909.90 of CETA, 1985; that sale of the products was rare and for experimental purpose; that these stray sales cannot be said to establish the regular market; that the admitted position was that these by-products were destroyed completely by burning. He therefore, submitted that the goods are not excisable and no duty was leviable on the goods. In support of his contention, the learned Counsel cited and relied upon the judgments in the following cases:

(i) 1987 (29) E.L.T. 502 (Delhi) - Modi Rubber Ltd. v. Union of India

(ii) 1987 (30) E.L.T. 967 (Trib.) - Collector of C. Ex. v. Andhra Oxygen (P) Ltd.

(iii) 1988 (14) E.C.R. 435 (CEGAT-SB-C) Collector of C. Ex. v. Papyrus Papers Ltd.

(iv) 1991 (36) E.C.R. 537 (CEGAT SB-C) South India Viscose Ltd. v. CCE

(v) 1994 (74) E.L.T. 261 (Trib.) - Alok Udyog Vanaspati & Plywood Ltd. v. CCE.

(vi) 1995 (77) E.L.T. 21 (S.C.) - CCE v. Indian Tube Co. Ltd.

4. On the question of limitation, the learned Counsel submitted that the demand pertains to the period from 1-3-1986 to 31-3-1987 whereas the show cause notice was issued on 2-1-1989 and therefore, clearly, the demand in show cause notice was hit by limitation. The ld. Counsel submitted that in the show cause notice, the allegation against the appellants is that they suppressed the facts of use of waste liquor I and II in the manufacture of steam. He submitted that there is a lot of evidence to prove that there was no suppression of any material whatsoever in this regard. He referred to a letter dated 1-6-1978 from the appellants to Superintendent in which it was clearly stated that in the Caprolactum Plant of the appellants the waste liquor I & II were obtained and that both these liquors are ordinarily burnt in their liquor combustion unit. He also referred to a letter dated 8-6-1978 from the Suptd. of Central Excise to the appellants which acknowledged the letter dated 6-6-1978 of the appellants. The ld. Counsel also submitted that on 30th June, 1978, they replied to the letter of the Supdt. clarifying the position further; that the Supdt., Central Excise in his letter dated 28th October, 1978 had communicated the test result of the sample drawn; that when Modvat was introduced in the Finance Bill of 1986, the appellants company wrote to the Asstt. Collector that waste liquor I and waste liquor II arise in the process of caprolactum and that it was burnt in the waste liquor combustion unit. In this letter, it was also clarified that both waste liquor I and II are together burnt in the waste combustion unit and in doing [so], steam is produced which is utilized for concentrating the waste liquor I to a level of 40 per cent solids; that further on December 4, 1986, the appellants company wrote to the Suptd., Central Excise about the composition of waste liquor I and II. The learned Counsel submitted that well before the date of raising the demand as also immediately when a new Central Excise Tariff was introduced in the Finance Bill of 1986, the appellants took the question of production of waste liquor I and waste liquor II in the process of manufacture of caprolactum and also the production of steam in the process of burning the waste liquor I & II. He therefore, submitted that there was no suppression, wilful mis-statement and therefore, the demand was barred by limitation. In support of his contention, he cited and relied upon the judgment are as under:

(i)1989 (21) E.C.R. 182 (SC) - Collector of C. Ex. v. Chemphar Drugs & Liniments.

(ii) 1989 (43) E.L.T. 195 (S.C.) - Padmini Products v. CCE.

(iii) 1992 (39) E.C.R. 32 (Trib.) - Neyveli Lignite Corpn. Ltd. v. CCE.

That the appellants of their own did classification of the disputed products under sub-heading 2909.90 of CETA, the ld. Counsel submitted that it is well settled by now that there is no estoppel in case of classification. In support of his contention, he cited and relied upon the following 4 decisions:

(i) 1984 (16) E.L.T. 171 (S.C.) - Shri Vallabh Glass Works Ltd. v. UOI

(ii) 1985 (21) E.L.T. 35 (Delhi) - Modi Prints and Varnish Works v. UOI

(iii) 1985 (21) E.L.T. 571 (Trib.) - Collector of C. Ex. v. Rohit Pulp & Paper Mills Ltd.

(iv) 1986 (24) E.L.T. 169 (S.C.) - Union of Carbide India Ltd. v. UOI.

5. Concluding his arguments, the learned Counsel submitted that the demand was hit by limitation and the products are not excisable and therefore, prayed that the impugned order may be set aside and the appeal may be allowed.

6. Shri Sanjeev Sachdeva, the learned SDR submitted that waste liquor I and waste liquor II admittedly were generated as by-products in the process of manufacture of caprolactum; that these products were goods and were marketable as is evident from the admitted sale of these products though the appellants have felt happy in calling this sale as stray sale, that the appellants submitted a classification list classifying these products under Heading 2909.90 of CETA, 1985 and also mentioning that the rate of duty applicable on the goods was 15 per cent ad valorem; that the appellants submitted price lists and got them approved. All these things clearly indicated that the appellants were sure that the goods were excisable and duty was payable on them; that the dispute is that by using waste liquor I and waste liquor II, steam was generated and that the steam is exempted from payment of duty. The duty shall have to be paid on waste liquor I and waste liquor II. Reiterating the findings of the lower authorities, the ld. SDR submitted that the products were goods and were marketable and also were excisable and therefore duty was chargeable on the goods.

7. On the question of limitation, the learned SDR submitted that full facts of the case came to knowledge only when the detailed investigations were conducted into the affairs of the company and as the appellants had themselves offered to pay duty but did not pay duty on clearance for captive use and therefore, there was intention to evade payment of duty and as such, a longer period was rightly invokable. On the question of classification of the goods under Chapter Heading 2909.90 of CETA, 1985, the ld. DR submitted that they had claimed the classification of the goods under this heading and the classification was approved; that the approved classification cannot be challenged and therefore, the question of estoppel does not arise.

8. Heard the submissions of both sides and considered them. We find that there are three issues for determination before us:

Issue No. 1. whether waste liquor I and waste liquor II obtained as by-products are excisable and dutiable.

Issue No. 2. whether the demand is hit by limitation and Issue No. 3. whether there was an estoppel for changing the approved classification.

9. On the question of excisability and dutiability on waste liquor I and waste liquor II, we find that the admitted position is that waste liquor I and waste liquor II are obtained as by-products in the process of manufacture of caprolactum. We also observe that there were a few occasions when these items were sold in the market. The ld. Counsel for the appellants in his arguments had submitted that a similar issue was before the Hon'ble Supreme Court in the case of UOI v. Indian Aluminium Company reported in 1995 (77) E.L.T. 268. In para 13 of their order, their Lordship held:

"13. It is also not possible to accept the contention of the appellants that aluminium dross and skimmings are "goods" or marketable commodity which can be subjected to the levy of excise. Undoubtedly, aluminium dross and skimmings do arise during the process of manufacture. But these are nothing but waste or rubbish which is thrown up in the course of manufacture. The term "dross" is defined in The New Shorter Oxford English Dictionary as:

Dross:

"Dregs . . .(1) Impurities separated from metal by melting the scum which forms on the surface of molten metal. . . .(2) Foreign matter mixed with anything. . . . (3) Refuse, rubbish, worthless matter especially as contrasted with or separated from something of value."

The ASM Metals Reference Book (2nd Edition, 1983) produced by the American Society for Metals defines "dross" as follows:

"The scum that forms on the surface of molten metals largely because of oxidation but sometimes because of the rising of impurities to the surface."

Mcgraw Hill Dictionary of Science and Engineering (1984 Edition) defines it as:

"An impurity, usually an oxide, formed on the surface of molten metal."

Dross and skimmings may contain some small percentage of metal. But dross and skimmings are not metal in the same class as waste or scrap. It may be possible to recover some metal from such dross and skimmings. They can, therefore, be sold. But this does not make them a marketable commodity. As learned Single Judge of the Bombay High Court has pointed out, even rubbish can be sold. Everything, however which is sold is not necessarily a marketable commodity as known to commerce and which, it may be worthwhile to trade in. Learned Single Judge of the Bombay High Court, therefore, rightly came to the conclusion that the proviso to Rule 56A was not applicable as aluminium dross and skimmings are not excisable goods."

Further in para 22, their lordship held:

"22. The entire argument proceeds on the basis that aluminium dross and skimmings are excisable goods. Otherwise the question of their inclusion in Tariff Item 68 does not arise. The appellants have emphasized the fact that aluminium dross and skimmings are capable of being sold. Hence they must be considered as marketable goods. Since they arise in the course of manufacture, the duty of excise can be levied on such goods. The foundation of the argument rests on the assumption that aluminium dross and skimmings are marketable goods. For reasons which we have set out earlier, it is not possible to consider aluminium dross and skimmings as "goods" or as a commercial and marketable commodity. Dross and skimmings are merely refuse or ashes given out in the course of manufacture, in the process of removing impurities from the raw material. This refuse is quite different from waste and scrap which is prime metal in its own right."

And again in para 25, it was held:

"25. The appellants have drawn our attention to the decision in the case of Khandelwal Metal and Engineering Works & Am. etc. v. Union of India and Ors. 1985 Suppl. (1) SCR 750 where this Court has held that brass scrap which comes into being in the process of manufacture, is a dutiable commodity. It has said that brass scrap is a well-known marketable commodity and is a by-product of manufacture. This, however, will not help the appellants in the present appeals because dross and skimmings are not waste and scrap as understood in common or commercial parlance. These are ashes and impurities and contain only a small percentage of metal which it may or may not be economical to extract, but its presence results in dross and skimmings being sold for a small price."

The learned Counsel also referred to the case of Hyderabad Industries Ltd. v. UOI reported in 1995 (78) E.L.T. 641. In paragraph 6 of their order, their Lordship held:

6. In Moti Laminates Pvt. Ltd. v. Collector of Central Excise, 1995 (76) E.L.T. 241 (S.C.) this Court said:

"6. The duty of excise is leviable under Entry 84 of List 1 of the VIIth Schedule on goods manufactured, or produced. That is why the charge under Section 3 of the Act is on all, 'Excisable goods', 'produced or manufactured'. The expression 'excisable goods' has been defined by clause (d) of Section 2 to mean, 'goods' specified in the Schedule. The scheme in the Schedule is to divide the goods in two broad categories - one, for which rates are mentioned under different entry and other the residuary. By this method all goods are excisable either under the specific or the residuary entry. The word 'goods' has not been defined in the Act. But it has to be understood in the sense it has been used in Entry 84 of the Schedule. That is why Section 3 levies duty on all excisable goods mentioned in the Schedule provided they are produced and manufactured. Therefore, where the goods are specified in the Schedule they are excisable goods but whether such goods can be subjected to duty would depend on whether they were produced or manufactured by the person on whom duty is proposed to be levied. The expression 'produced or manufactured' has further been explained by this Court to mean that the goods so produced must satisfy the test of marketability. Consequently it is always open to an assessee to prove that even though the goods in which he was carrying on business were excisable goods being mentioned in the Schedule but they could not be subjected to duty as they were not goods either because they were not produced or manufactured by it or if they had been produced or manufactured they were not marketed or capable of being marketed."

It also said:

"The tariff schedule by placing the goods in specific and general category does not alter the basic character of leviability. The duty is attracted not because an article is covered in any of the items or it falls in residuary category but it must further have been produced or manufactured and it is capable of being bought and sold."

On a careful reading of the above two judgments, we find that the issue whether waste liquor I and waste liquor II are goods is fully covered by the above judgments. In the case decided by the Hon'ble Supreme Court in Indian Aluminium Co. Ltd., there were some sales also we respectfully agree with the rulings of the Hon'ble Supreme Court and hold that waste liquor I and waste liquor II are not goods for purpose of levy of Central Excise duty.

10. On the question of time-bar, we find that the appellants brought out lucidly in the arguments adduced by the ld. Counsel that all the facts namely the production of waste liquor I and waste liquor II in the course of manufacture of caprolactum and burning of waste liquor I and waste liquor II and production of steam and its utilization for concentrating waste liquor was fully disclosed to the Department. There was no mis-statement of facts or wilful suppression in the instant case. We therefore, hold that the demand is hit by limitation and is sustainable in law. The question of estoppel now being only of academic interest is not being commented upon.

11. Having regard to the above findings, we set aside the impugned order and allow the appeal.