V.P. Gulati, Technical Member

1. This is an appeal against the order of the Collector of Central Excise (Appeals), Bombay.

2. Brief facts of the case are that the appellants manufactured. products falling under Tariff Item 15AA and availed of benefit of exemption Notification No. 101/66-C.E., dated 17-6-1966 under Serial No. 4 of the said notification. These products were manufactured out of the ingredients some of which were exempted under the said notification while in respect of, they had paid duty under T.I. No. 1.5 A A. The products manufactured by the appellants hereinafter described as said goods are the following :

(i) Perminal KBI

(ii) Dispersol 'K' Paste

(iii) Lissapol 'PS Cone'

(iv) Lubrol 'VA'

(v) Cirrasol CS Conc

The various ingredients used as raw material and the duty paid/discharge status of the raw material as set out by the appellants are :-

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For proper appreciation of the issues, the said notification is reproduced below :

Exemption to sulphonated caster oil, fish oil, sperm oil and Turkey red oil. In exercise of the powers conferred by Sub-rule (1) of Rule 8 of the Central Excise, Rules, 1944, the Central Government hereby exempts the excisable goods specified in column (2) of the Table hereto annexed and falling under Item No. 15AA of the First Schedule to the Central Excises and Salt Act, 1944 (1 of 1944) from the whole of the duty of excise leviable thereon subject to the conditions laid down in the corresponding entries in column (3) of the said Table.

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3. This notification shall, in relation to sulphonated caster oil, commonly known as Turkey red oil (specified as serial No.1 in the Table above) be deemed to have taken effect from the 1st day of March, 1966.

4. Para 2 added Notification No.172/66-CE shall be deemed always to have been added.

(Notification No. 101/66-CE dated 17-6-1966 as amended by Notifications No. 137/66-CE dated 10-9-66; No. 172/66-CE dated 5-11-1966 No. 4/68-CE dated 20-1-1968 and No. 182/75-CE dated 30-8-1975) .

The appellants had been manufacturing these goods in their factory for a number of years and the manufacture of these different products for the first time took place at different points of time and they had been filing their classification lists from time to time furnishing the date regarding the raw materials used in the manufacture of products and were clearing the same without payment of duty availing of the exemption under Notification 101/66, till 5th October,1982 when the show cause notice was issued to them demanding the duty in respect of past clearances of the said goods. The reasons given in the show cause notice for demand are that the appellants had been using exempted inputs falling under T.I.I5AA for the manufacture of the said goods and therefore the said goods in terms of the conditions set out at serial No.4 of the notification were not eligible for the benefit of duty free clearances. The Department's case in the proceedings is that the exemption to the said goods is available only if these are manufactured out of the surface-active agents on which appropriate excise duty has been paid. In as much as some of the ingredients used as inputs were found to have been cleared on nil duty being exempted in terms of the notification No.101/66, these apparently have been held to have not discharged the appropriate duty liability.

5. The learned advocate for the appellants, Shri R.K. Habbu, pleaded that the appellants had been filing classification lists in respect of the said goods from time to time and they furnished all the information about the ingredients utilised for the manufacture of the goods. He pleaded that alongwith some items falling under 15AA exempted under notification 101/66 they had utilised duty paid surface active agents also for the manufacture of the goods in question. His plea is that since some of the inputs falling under T.I.15AA had suffered duty, the goods manufactured by them should be taken to have manufactured out of duty paid inputs. He pl