V.P. Gulati, Member (T)

1. These are appeals filed by the Collector of Central Excise, Ahmedabad against the orders of the Collector (Appeals), Bombay.

2. Brief facts of the case are that the respondents manufacture phenol formaldehyde for captive consumption out of raw materials - Melamine, Formaldehyde, Phenol, Methanol, Caustic Soda, Hexamin and Hydrochloric Acid for use in the manufacture of laminated sheets. The process of manufacture as seen from the record is as under :-

"Formaldehyde is pumped into reaction vessels and thereafter melamine is added with constant stirring. Hydrochloric acid in very small quantity is added to bring down the PH (to accelerate the reaction). Thereafter, the temperature is increased to 60° to 80°C, as required and thereafter the same is brought down to 60°C. At that time some quantity of caustic soda or methanol, as the case may be, is being added. In some cases the water is separated from formaldehyde and in remaining cases water is not taken out."

The chemistry of reaction for the formation of phenolic resins as given by the respondents as Annexure 'B' of the Appeal Memorandum is reproduced as Annexure 'A' to this Order. The Phenol Formaldehyde resin is formed in three forms and there are three reactive stages for formation of the respective forms. Here we are concerned with first stage of reaction which has been abstracted by the appellants from Reference Book - Material and Technology - Volume VI - page numbers 587 to 593. For the formation of 'A' Stage it has been stated in the same Reference Book as under :-

"Resol resins. - In the presence of alkalis the condensation to polynuclear compounds take place much more slowly compared with the acid state. A higher formaldehyde concentration can therefore be used e.g. P/F = 1/1.1 - 1/1.5 (for moulding and laminating); P/F = 1/1.5 - 1/2.5 (for casting resins and adhesives). The reaction is carried out in tanks, in aqueous or alcholic solution, with small quantities of catalysts (NH4)H, NaOH, Ba(OH)2 etc. The condensation must be carefully controlled to prevent premature gelation. The resols are normally used in the viscous condition for various further processing. Solid resols can be obtained by careful evaporation. On prolonged heating the resols convert to hardened resite; much water is here set free as a result of the chemical reaction of the reactive mythylol phenols, which for the most part make up the resols. Subsequent addition of strong inorganic acids gives rise to a very rapid and vigorous reaction to resite. This process is used in the manufacture of foamed phenolic plastics. Resols used as starting materials have a very limited storage life owing to the presence of reactive groups."

There is no dispute regarding the fact that when 'A' Stage resin in question is formed there are reactive groups present in the mixture and for formation of the resin from 'A' to 'B' Stage and then to 'C' Stage, the reaction has to be controlled with the necessary additives and application of necessary heat and pressure depending upon what is required to be produced. It is also not disputed that technically and commercially, the resins in question formed in different stages are recognised as categories apart having specified uses depending upon the end-product to be manufactured. In the case of respondents, the material manufactured is used for manufacture of laminated sheets.

3. In the proceedings before the Assistant Collector, the respondents pleaded that the goods had been found to be a reacting mixture and by its very nature could not be held marketable and therefore for the purpose of levy of duty under the Central Excises and Salt Act, these could not be considered as goods. It was pleaded that these goods were not stable products and had no shelf life. It was pleaded that in the reaction mixture manufactured, the reaction was still on-going and that the reaction was complete on formation of laminated sheets by the application of necessary heat and