2004 (96) ECC 466 (Tri)

CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL

West Regional Bench -- Mumbai

Ms. Jyoti Balasundaram, Member (J) and Moheb Ali M., Member (T)

Glaxo India Ltd.

Versus

CCE, Mumbai-VI

Appeal No. E/541-R/1998-Bom

[Arising out of Order-in-Original 210/97-Commr-VI/ dated 29.11.1997 passed by Commissioner of Central Excise, Mumbai-VI.]

Order No. A/745/WZB/2004/C-I, dt. 6.4.2004, Certified on 4.6.2004

Manufacture

The finding of the Commissioner that the process carried out by the appellants amounts to manufacture also for the reason that such process substantially increase the unit value of the goods also cannot be accepted as increase in value is not a sine quo non for determining manufacture. The ratio of decisions in Brooke Bond India Ltd. v. Union of India & Ors., 1984 (3) ECC 107 (AP), Kingwin Universal (India) v. CCE, Indore, 2000 (69) ECC 317 (T), and Union of India v. J.G. Class Industries Ltd. 1998 (54) ECC 1 (SC) and other referred cases are squarely applicable to the facts of the present case and following the same, it is held that the process carried out by the appellants herein during the period in dispute and does not amount to manufacture.

Appeal is allowed

PRESENT :

Shri G. Vahanvati, Sr. Adv. with M.P. Baxi, Adv. for the appellant.

Shri Ajay Saxena, JDR for the respondent.

Cases Cited :

1. Brooke Bond India Ltd. v. Union of India & Ors., 1984 (3) ECC 107 (AP) (Followed) [Para 3]

2. Kingwin Universal (India) v. CCE, Indore, 2000 (69) ECC 317 (T) (Followed) ....... [Para 5]

3. Reckitt & Colman of India Ltd. v. Asstt. Collector of Central Excise, 1994 (72) ELT 263 (AP) (Followed) [Para 3]

4. S.D. Fine Chem (Pvt.) Ltd. v. CCE, 1997 (91) ELT 610 (Followed) ..................... [Para 3]

5. Union of India v. J.G. Class Industries Ltd. 1998 (54) ECC 1 (SC) (Followed) ..... [Para 3]

Per : Ms. Jyoti Balasundaram

A show cause notice dated 26.2.1997 was issued to the appellants herein, who held Central Excise registration for manufacture of excisable goods falling under Chapters 11, 23, 28, 29, 30 and 38 of the schedule to the Central Excise Tariff Act, 1985 and also bring various duty paid chemicals falling under Chapter 28 and 29 into their factory and sell item as laboratory reagents after testing, grading, repacking and labelling, alleging that after carrying out the above-mentioned processes, the commercial identity of the products is completely changed and hence the process amounts to manufacture and that the resultant product is distinct commercial commodity falling for classification under Chapter heading 38.22 and proposing recovery of duty of Rs. 8,67,43,562.86 for the period from February, 1992 to February, 1996 under the proviso to sub-section (1) of section 11A of the Central Excise Act, 1944 and proposing penalty under Sections 11AB and 11AC of the Act respectively. Notice was adjudicated by the Commissioner of Central Excise who confirmed the demand along with interest and penalty, holding inter alia that the goods known in the market as chemicals of Chapters 28 and 29 were transformed into a new commercial commodity, for the reason that goods of Chapters 28 and 29, if repacked in specified form and for a specified use get excluded from the purview of these Chapters by virtue of HSN Explanatory Notes to these Chapters, and that laboratory reagents are specifically covered by Chapter heading 38.22. Hence this appeal.

2. We have heard both sides.

3. At the outset we find that there were no Section Notes and Chapter Notes to Chapter 28, 29 or 38 whereby the activities of testing/grading/repacking/labelling was specified as amounting to manufacture. Such Chapter Notes were introduced only w.e.f. 1.3.1997. The repacking after testing of the chemicals brought into the factory of the appellants does not result in any change in name or character (the repacked products have the same molecular weight and chemical composition). The appellant's contention in the appeal that the use of the items as laboratory reagents is one of the enhanced use that the items are capable of, has not been controverted by the adjudicating authority and therefore even the use of the products does not change. In this connection the ratio of the Tribunal's order in the case of S.D. Fine Chem (Pvt.) Ltd. v. CCE, 1997 (91) ELT 610 becomes very relevant. In that case it was held that purification of bought out chemicals through distillation or recrystallisation does not amount to manufacture as the product does not result in new commercial commodity having a distinct name, character or use. The case of the Department, as upheld by the Collector (Appeals), was that the products in question, namely, benzyl alcohol, ammonium chloride, sodium chloride and acetic acid, etc., have district entity and use as compared to the raw materials used for production and these are also known in trade parlance as distinct from the raw materials. However, the Tribunal accepted the contention of the appellants that, even after purification the products are used as acetic acid or ammonium nitrate, etc., as the case may be, and the product is only used for its properties. It was also held that the trade understanding of the chemicals is with reference to different end use -- the chemicals prior to recrystallisation and distillation remain chemicals even after process are carried out although their purity increases. In para 15.4 of the order the Tribunal relied upon the decision of the Hon'ble A.P. High Court in Brooke Bond India Ltd. v. Union of India & Ors., 1984 (3) ECC 107 (AP) : 1984 (15) ELT 32 (AP) wherein the High Court held that the principle which emerges is that a process is adopted for convenience of sale or making the article of more use to the customers and if the article in question retains its essential character, it has to be taxed as such article only and the process would make no difference. (The High Court was concerned with whether a mixture of coffee and chicory resulted in distinct commercial commodity which could be taxed afresh.) In the case of Reckitt & Colman of India Ltd. v. Asstt. Collector of Central Excise, 1994 (72) ELT 263 (AP) the High Court held that although excisable goods is considered on the basis of its distinct character which again depends upon the use and name, the trade name or use by the consumer cannot alter the intrinsic nature of the goods, and held that ultramarine blue packed in small packs was not a different commodity from the ultramarine blue sold in bulk as the product did not lose its character by being packed in small packs. The High Court quashed the show cause notice issued to the assessee company proposing recovery of differential duty on the ground that ultramarine blue packed and sold in small packs for household use fell for classification under CETA sub-heading 3212.90 as distinct from ultramarine blue in bulk classifiable under CETA sub-heading 3206.19.

4. Another relevant decision in this context is that of the Apex Court in Union of India v. J.G. Glass Industries Ltd. 1998 (54) ECC 1 (SC) : 1998 (97) ELT 5 (SC) wherein the Supreme Court held that whether a process amounts to manufacture is based on two fold tests; first, whether by the said process, a different commercial commodity comes into existence or whether the identity of the original commodity ceased to exist; and secondly, whether the commodity which was already in existence will serve no purpose or will be of no commercial use but for the said process. Applying the test laid down by the Supreme Court as above, we find that the products in dispute do not pass the above tests as it has not been shown that a different commercial commodity comes into existence by repacking or labelling, and further, the identity of the original commodity (chemicals in bulk) continues to exist and the chemicals in bulk have different commercial use even without repacking and labelling.

5. In the case of Kingwin Universal (India) v. CCE, Indore, 2000 (69) ECC 317 (T) : 2000 (117) ELT 305 the Tribunal has held that the dilution of herbicides/fungicides, sulphonated castor oil and inorganic and organic chemicals with water or addition of soda ash as filler does not amount to manufacture, rejecting the argument of the Revenue that a new product for different applications has arisen as a result of such dilution or addition.

6. The finding of the Commissioner that the process carried out by the appellants amounts to manufacture also for the reason that such process substantially increase the unit value of the goods also cannot be accepted as increase in value is not a sine quo non for determining manufacture.

7. The ratio of the above decisions are squarely applicable to the facts of the present case and following the same we hold that the process carried out by the appellants herein during the period in dispute (which is prior to 1.3.1997) does not amount to manufacture and hence set aside the impugned order and allow the appeal.

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