H.R. Syiem, Member (T)

1. A revision petition dated 18th February, 1981 was filed by M/s. Hindustan Lever Ltd., Bombay against order-in-appeal No. 474/Cal-1979, dated 29-10-1979 passed by the Appellate Collector of Central Excise, Calcutta. This order is said to have been received by the petitioner on 10-9-1980, a fantastic time to take, by any standards.

2. The Appellate Collector held that spent earth which comes in the course of soap manufacture was assessable to duty under item 68 of the central excise tariff. This spent earth is obtained when activated bleaching earth has gone through processes of soap manufacture in which it plays the role of removing the colour etc. from the oil to render it colourless. After a number of processes, the activated earth can no longer bleach or remove colour from the oil. This is when it loses its activity and is called spent earth. The Appellate Collector said that spent earth had a distinctive name, had different uses and was saleable. He found that spent earth was sold to manufacturers of cheap washing soap.

3. This order of the Appellate Collector follows upon the Order No. 2(0) of 1979, dated 26-2-79 passed by the Assistant Collector of Central Excise, Calcutta III Division saying the same thing. The Assistant Collector held that the factory M/s. Hindustan Lever Limited suppressed the fact about spent earth while submitting the application for L-4 Licence and concealed the name of the said product and did not incorporate it in their B-2 bond. Therefore, he said that the time limit for demand would be 5 years. He accordingly rejected the factory's contention that the demand was time-barred.

4. The learned counsel for M/s. Hindustan Lever Ltd., Mr Gupta, Senior Legal Manager argued that the spent earth was not manufactured by them. It was obtained as a waste product from activated earth which is used in the manufacture of soap. They do not set out to manufacture spent earth; it is generated during the manufacture when the activated earth becomes inactive through use in the process. It is the same activated earth which comes out as spent earth, and not a new product or commodity that they planned to manufacture, and on which they lavished time and energy in order to process and obtain. As a product it is useless to them. It may be true that it fetches some money, because when it goes through the process of soap production, after it has decoloured and bleached the oil, it absorbs and acquires a little of the oil which it comes into contact. This is inevitable in such a process. The oil in the spent earth is taken in the use of cheap washing soaps. This is true of many waste products and not just spent earth.

5. He argued that the demand was time-barred since it was issued after the time limit. They had made no misdeclaration or suppression of any kind.

6. The learned counsel for the department Mr. Khanna said that the spent earth had a distinct use. This was a by-product and by failing to mention it by declaring it to the central excise the factory was guilty of suppression. The central excise did not know anything about the spent earth. He referred to the tariff advice of the Central Board of Excise and Customs which said that spent earth which is used in the manufacture of soap is classifiable under tariff item 68 of the central excise tariff. He said that this product, spent earth, was a by-product which was sold and which had uses in the manufacture of soap. It is a distinct product with a distinct use.

7. The learned counsel for the appellants replied that there was no manufacture of spent earth : only recovery of a substance that had outlived its utility. He quoted the famous judgment of the Supreme Court in Delhi Cloth Mill and South Bihar Sugar Mill. He quoted 1984 ECR 2253 Collector of Central Excise v. Sarang Engineering in which the Tribunal held that reselling of roller shafts does not amount to manufacture. He also quoted MANU/CE/0144/1984 : 1984 (18) E.L.T. 582 Jay Electric Wi