Customs, Excise and Gold Tribunal - Delhi
Supreme Chemical Works vs Collector Of C. Ex. on 7 June, 2000
Equivalent citations: 2000(72)ECC502, 2000(119)ELT707(TRI-DEL)
ORDER P.S. Bajaj, Member (J)
1. The issue referred to the Larger Bench in the above referred three appeals relates to the excisability and classification of the product known as Ammonium Nitrate (in short, AN).
2. The facts giving rise to this issue lie in a narrow compass and may briefly be detailed as under:
3. The appellants are engaged in the manufacture of AN in the form of fine powder particles. The material used by them for manufacturing this product consists of crude lumps of AN, damaged calcium ammonium nitrate (in short, CAN) and AN melt. All these inputs are firstly mixed up with the water and then aluminium bicarbonate is added in that mixture. Thereafter, the mixture is washed with the water to remove insoluble impurities like mud, etc. The aluminium bicarbonate added in the mixture, helps in removing calcium in the form of calcium carbonate and thereafter it is heated for evaporation of the water. By this process, the crystals of ammonium nitrate (in short, AN) are obtained and then grounded to convert them into powder particles. The inputs used in the process of producing AN are bought by the appellants from the fertiliser manufacturers like NFL, RCF, etc., and are duty paid.
4. The necessity for referring the question relating to the excisability and classification of AN product under Chapter Heading 31.02 of the Tariff, to the Larger Bench has arisen on account of divergent views expressed by different Benches of the Tribunal, in two cases, namely CCE, Aurangabad v. Anil Chemicals Pvt. Ltd., 1985 (21) E.L.T. 889 and IDL Chemicals Ltd. v. CCE, 1993 (68) E.L.T. 589. In the former case, the Tribunal has taken the view that production of prilled AN 99% from 75% to 82% did not amount of manufacture while in the later case the Tribunal has taken a different view holding that conversion of AN melt into AN flakes amounted to manufacture having regard to the different characteristics and commercial understanding.
5. While doubting the correctness of the decision of the Tribunal in CCE, Aurangabad v. Anil Chemicals Pvt. Ltd., (supra) the Division Bench of the Tribunal - while hearing the above referred appeals recorded the order that the issue deserves referred to the Larger Bench; and that is how the matter has come before this Bench
6. The learned counsel for the assessees has contended that the law laid down in IDL Chemicals Ltd., (supra) is correct one as AN is a product which satisfied the definition of "manufacture/produce" as used in the Central Excise Act and as such is excisable.
7. On the other hand, the learned JDR while refuting this contention of the counsel, has argued that AN cannot be held to be a manufacture/produce product under the Excise Law as no mechanical process is involved for its production. Therefore, the law laid down in CCE, Aurangabad v. Anil Chemicals Pvt. Ltd., (supra) by the Tribunal is correct one.
8. In order to decide as to whether AN can be said to be a manufactured or produced product keeping in view the inputs used and the process involved in its manufacture/production, it would be beneficial to refer to the definition of the expression "manufacture" as used in Section 2(f) of the Central Excise Act and its scope and interpretation detailed in various judicial pronouncements by the Apex Court.
9. The expression "manufacture" stands defined by Section 2(f) of the Central Excise Act as under :-
" 'manufacture' includes any process, -
(i) incidental or ancillary to the completion of manufactured product; and
(ii) which is specified in relation to any goods in the Section or Chapter Notes of the Schedule to the Central Excise Tariff Act, 1985 (5 of 1986) as amounting to manufacture, and the word 'manufacture' shall be construed accordingly."
10. This expression has also been interpreted by the Apex Court in various judgments. In Union of India and Ors. v. Delhi Cloth & General Mills, 1977 (1) E.L.T. (J 199) the Apex Court has interpreted this expression "manufacture" as under: -
"The word 'manufacture' is generally understood to mean as bringing into existence a new substance merely to produce some change in a substance, therefore, 'manufacture' implies a change but every change is not manufacture and yet every change of an article is result of treatment, labour and manipulation. But something more is necessary and there must be transformation, a new and different article must emerge having a distinctive name, character or use."
11. In CCE v. Kiran Spinning Mills, 1988 (34) E.L.T. 5 (SC) similar view has been expressed by the Apex Court regarding the expression 'manufacture', it has been observed in that case, by the Court as under-
"It is true that etymological word 'manufacture' properly construed would doubtless cover the transformation which brings about fundamental change, a new substance brought into existence, a new different article having distinct name, character or use results from a particular process of particular activity."
12. In Hindustan Polymer v. CCE, 1989 (43) E.L.T. 165 the Apex Court has defined the expression 'manufacture' as under-
"manufacture" under the Excise Law is the process or activity which brings into being articles which are known in the market as goods and to be goods these must be different, identifiable and distinct articles known to the market as such. It is then and then only that manufacture takes place attracting duty.
Keeping in mind the above referred definition of the expression "manufacture/produce", we have to see how the product AN comes into existence and whether it can be termed as a "manufactured product" or not.
13. The inputs used and the process employed for producing the product AN are not much in dispute. The duty paid inputs used for procuring the AN product are crude lumps of AN, damaged calcium ammonium nitrate (CAN) and AN melt. All these inputs are mixed in the water in order to remove insoluble impurities like mud, etc. The solution is then transferred to the tanks where Ammonium bicarbonate is added in order to remove calcium in the form of calcium carbonates. Thereafter, the solution is transferred to the pans and given heat till water is evaporated. By doing so the solid cake of AN is procured which is then broken into pieces and fed into the grinding machines for obtaining powder particles. This is how the AN in the form of fine powder particles is obtained by the appellants.
14. The product AN produced by the appellants by the adopting the abovesaid method from the mixture of the inputs referred above without any hesitation can be said to be a new distinct substance having different and distinctive name and character in the commercial market. This product is quite new/distinct in character and use, from the crude lumps of AN, damaged CAN and AN melt used as inputs. The AN is a result of process or activity which brings about a fundamental change, a new and different substance/article having its own marketability. The product is quite different, identifiable and distinct and is known to the market as such. That being so it satisfies the essentials of expression "manufacture" as used in Section 2(f) of the Central Excise Act and interpreted by the Apex Court in the above referred cases. Therefore, it must be held to be a manufactured/produced product. This product also satisfies the test of marketability as it is independently marketable.
15. Section 3 of the Central Excise Act levies the duty on all excisable goods mentioned in the Schedule when they are produced and manufactured and also satisfy the test of marketability. In this context, reference may be made to the Apex Court judgment in Moti Laminates Ltd. v. CCE, Ahmedabad, 1995 (76) E.L.T. 241 (SC) wherein it has been observed by the Apex Court that two tests - one of manufacture and other of marketability have only to be satisfied for subjecting any goods to levy of excise duty. The product in question i.e. AN, as observed above, satisfies both these tests and as such is an excisable product. This product has also been specifically made classifiable under Chapter Heading 31.02 of the Central Excise Tariff and this aspect of the matter has not even been disputed before us by both the sides.
16. In the light of the discussion made above, the statement of law laid down in CCE, Aurangabad v. Anil Chemicals Pvt. Ltd., (supra) must be held to be incorrect, while the ratio of the law laid down in IDL Chemical Ltd. (supra) is endorsed to be the correct one.
17. The reference is answered accordingly. Papers be placed before the concerned Bench for disposal of the appeals accordingly.