Customs, Excise and Gold Tribunal - Delhi
Jyoti Laboratories vs Collector Of Central Excise on 12 August, 1993
Equivalent citations: 1994(72)ELT669(TRI-DEL)
ORDER S.L. Peeran, Member (J)
1. The appellants have challenged the order of Collector of Central Excise, Cochin passed in Order-in-Original No. 2/92, dated 21-1-1992. By this order he has held that the product manufactured under the brand name 'UJALA', described by the assessee in their declaration since 86-87 as "soluble liquid optical brightening agent (washing blue), as classifiable under Chapter sub-heading 3204.90 of CET, 1985 and liable to pay duty of Rs. 10,67,687.90 (Rupees ten lakhs sixty seven thousand six hundred and eighty seven and paise ninety only) under Rule 9(2) of Central Excise Rules, 1944 under Section 11A of Central Excises and Salt Act, 1944.
2. A show cause notice dated 19-6-1990 was issued to the appellant and its proprietor for contravention of Section 6 of Central Excises & Salt Act, 1944 read with Rule 174 of Central Excise Rules, 1944, and Rules 9(1), 52A, 53,173B, 173C, 173G, and 226 of Central Excise Rules, 1944, inasmuch as they had manufactured a total quantity of 3,14,05,555 bottles (75ml.) of liquid optical whitening agent (with brand name 'UJALA' classifiable under Chapter subheading No. 3204.30 of CET, 1985 during the period 86-87 to 17-1-1990 without taking out a Central Excise Licence and removed the same without payment of duty and without observing the relevant provisions of C.E. Rules, 1944, and also contravened the provisions of Central Excises & Salt Act, 1944 and of rules made thereunder by filing false declaration with jurisdictional Central Excise Range Officer suppressing facts with intent to evade payment of duty which attracts the provisions of Sub-section (1) of Section 11A of the Act.
3. The annexures to the show cause notice gives details of the changes, and gist of all the statements, recorded by the investigating team. The brief facts are that the appellant commenced production of Ujala in the year 1983 and the turnover for the year 1984-85 was declared as Rs. 62,384/- for the year 1986-87, they filed a declaration with the Supdt. of Central Excise, Trichur Range II claiming exemption from licencing control as per Notification No. 174/86-C.E., dated 1-3-1986 and the value of the clearances declared was Rs. 24,67,524.10. The description given to the product was "SOLUBLE LIQUID OPTICAL BRIGHTENING AGENT (WASHING BLUE) by brand name 'Ujala' and classified the same under the sub-heading 3212.90 of CET Act, 1985, and also claimed exemption from payment of duty under Notification No. 114/73, dated 30-4-1973 as amended and under Notification No. 207/86, dated 25-3-1986 for a brief period. The manufacturing process described was "to boil water, add pigments of washing blue/dye and stir by hand tools, cool in liquid and fill the bottles by hand". They had filed similar declaration and were claiming exemption for the year 1987-88 and 1988-89. It is alleged that they had evaded payment of duty by resorting to mis-classification of their product and by suppressing the information regarding the actual raw material used. The Directorate General of Anti-Evasion, Madras, Bombay, Cochin along with Officers of Central Excise Collectorate, Cochin conducted simultaneous searches on 17-1-1990 in the factory premise at Kandanassery, the South Zone Office and in the residence of Shri M.K. Panjan, F/o Shri M.P. Ramachandran, Proprietor, office premises of the appellants at Bombay and at Kakanada, Cochin. Documents were seized and samples and raw materials were also drawn. Shri Ramachandran, Proprietor had described the characteristics of the product as :
(i) (Ujala) is an instant action liquid optical whitener imports ultra violet effect and fluorescent effect to the clothes thereby giving optical brilliance of white colour.
(ii) The special formula avoids corrosion of clothes whether cotton, synthetic or silk and ensure long life of clothes.
Therefore, it has been alleged that the product is classifiable under sub-heading 3204.30 of the CET, 1985.
4. to 16 * * * * * *
17. We have heard Shir V. Lakshmikumaran, learned Advocate for the appellant and Smt. Ananya Ray, the learned SDR for the Revenue.
18. Shri V. Lakshmikumaran contended that the first show cause notice gave up the classification under sub-heading 3204.30 as fluorescent and the later show cause notice proposing under sub-heading 3204.90 and confirmed thereunder is wrong and the correct classification would be only under subheading 3204.29 of CET, 1985, as the preparation does not result in a manufacture of a fresh product. He relied on the Chemical Examiner's report, who had opined that no new product had emerged by mere physical mixing of the inputs with hot water. He drew support form the technical opinion of Shri Arvind V. Patwardan and that of Dr. N.R. Iyengar. He referred to Chapter Note 6 of Chapter 32, which noted what amounted to manufacture and even as per this Note, the activity of preparing and making Ujala did not amount to manufacture. He contended that before classifying under sub-heading 3204.90, the Department has to over-rule other headings. The product would fall under 3204.29 as 'Synthetic Organic Dyes' and preparations based thereon (formulated). He relied on the following ruling to contend that there is no emergence of new product:
(i) Collector of C. Excise v. Indian Dye Stuff Industries -1986 (26) E.L.T. 936
(ii) Collector of Central Excise v. Denson Engineers -1991 (52) E.L.T. 296
(iii) Collector of Central Excise v. Gujarat Phenolics Synthetics (P) Ltd. -1991 (53) E.L.T. 419
(iv) Coromandel Prodorite (P) Ltd. v. Government of India and Ors. -1985 (20) E.L.T 257 (Madras).
(v) Order No. 1245/90-C, dated 13-11-1990 - M/s. Bush Broke Allen Ltd. v. Collector of Central Excise.
(vi) Order No. 1245/90-C, dated 13-11-1990 - Collector of Central Excise v. Mallaya Fine Chem. (P) Ltd., Bangalore.
(vii) Arlabs v. Collector of Central Excise - 1992 (20) ETR 550.
19. He contended that the fresh show cause notice issued on 31-5-1991 would be a new claim and new proceedings and, therefore, the demands prior to six months from this date would be time-barred, as the period is prior to six months from the date of the show cause notice, the duty liability confirmed would not be sustainable. In this context he has relied on the following rulings :
(i) IOC v. Collector of Central Excise -1991 (54) E.L.T. 110
(ii) Safari Industries v. Collector of Central Excise -1991 (54) E.L.T. 308
(iii) Neyveli Lignite Corporation v. Collector of C. Excise -1992 (58) E.L.T. 76
(iv) Creative Cosmetics v. Collector of Central Excise -1993 (63) E.L.T. 348
(v) Anna Saheb Bapu Bhagate v. Collector -1986 (24) E.L.T. 567
20. Smt. Ananya Ray, the learned SDR contended that the process of preparation of 'Ujala' resulted in manufacture of a new commodity, with a different name, character and use. There was a complete transformation of the ingredients and the new product was known differently in the market and it was traded differently. In the market the product is not called as Acid dyes. The new product has emerged by addition of the ingredients in a fixed formulae and it has been kept as a trade secret, which the party had admitted. The ingredients were not just mixed but it had been done in a pre-determined formulae and hence, a new commodity had emerged. It is similar to Ultramarine blue. She relied on the ruling of Reckitt & Colman v. Collector of Central Excise, 1985 (22) E.L.T. 216, Laminated Packaging v. Union of India 1991 (49) E.L.T. 320, Union of India v. Babu Bhai Mulchand 1991 (51) E.L.T. 182. She contended that the rulings cited by the learned Advocate were not applicable to the facts of the present case. She contended that the first show cause notice holds good and only the tariff entry was changed in the second show cause notice based on the same facts and therefore, the demands were sustainable. She relied on the ruling rendered in the case of Star Paper Mills v. Collector of Central Excise, 1986 (26) E.L.T. 81. She contended that the Collector had correctly determined the classification as the product would fall under the residuary item.
21. Shri V. Lakshmikumaran, countering the arguments, submitted that heading 3204.29 covers also preparations tltereon and as the essential characteristics remained the same, it should fall in the same heading and that the ratio of Mallaya Fine Chemicals cited would squarely apply to the facts of the case. The show cause notice proposes a new classification and hence, it has to be construed as a fresh show cause notice and in the Star Paper Mills, cited by the learned SDR, the facts are different, inasmuch as, in that case, a corrigendum had been issued, while in the present case, it is a fresh show cause notice and not a corrigendum and hence, the citation would not apply. He contended that the end-use is not the criterion for the purpose of classification and hence, Acid violet dye in solution form would not fall under sub-heading 3204.90 because of a particular use.
22. We have carefully considered the submissions made by both sides and have perused the records and the citations referred to. The question that arises for our consideration is as to --
(i) Whether there is a process of manufacture and a new excisable goods had arisen in the preparation of the product UJALA.
(ii) If so, what is the correct classification.
(iii) Is the show cause notice, dated 31-5-1991 a fresh show cause notice? If so, can the demands be confirmed?
23. The appellants were preparing the product UJALA by mixing the following ingredients in hot water, manually and filling them in plastic bottles of 75 ml. each using funnel and measuring glass.
Acid Violet dye - 98.5% Ranipal - 1.16% Ultramarine blue - 0.34%
According to the appellant, he has stopped using Ranipal and Ultramarine blue from 11-6-1990. The period in question is 86-87 to 17-1-1990. The appellants' contention is that by merely dissolving Acid Violet Dye in boiling water will not result in manufacture. As during the period in question, the party had been adding Ranipal and Ultramarine blue in a fixed percentage, the question has to be examined from this point of view. Therefore, we are now going to examine the question, as to whether by addition of Ranipal and Ultramarine blue to the liquid acid violet dye in a fixed percentage and traded as 'Ujala' would result in a new product. It is the contention of the appellant that by adding these two ingredients, no chemical reaction takes place and the character and properties of Acid Violet dye in diluting solution continue to remain the same. In support of their contention, they have relied on the technical expert's opinion and also they base their plea on the basis of the Chemical Examiner's opinion also. In support of this contention, they rely on the rulings cited by them. On the other hand, the learned Collector has held that there is a change in form, the use is different and that it is known differently in the market and the product is not sold in the market as substitute for acid violet dye. This finding is contested by the appellant and it is urged that chemically acid violet dye and the solution are answering the properties and characteristics of acid violet dye. As we have stated above, we have to examine the question as to whether the addition of two other inputs would result in a new product by process of manufacture and whether the product has a different name, character and use than the original product? The report of the Chemical Examiner quoted in the show cause notice is already extracted above. As can be seen from the extract of the report, the 'Ujala Liquid' is stated to be "in the form of bluish violet coloured liquid. It is an aqueous solution composed mainly of colouring matter". The characteristic of white powder is stated to be composed of "fluorescent brightening agent and inorganic compound"; while 'Blue powder' is stated to have "characteristics of ultramarine blue; and 'violet powder' is a synthetic, organic colouring matter Acid dye". The Chemical Examiner by his letter, dated 17-1-1990 to the Assistant Collector has stated as follows :
"Sir, Sub : C. Excise - samples of Acid Violet, Ujala Super Whitener, Ultramarine blue and white stainer drawn from M/s. Jyothi Laboratories on 17-11-1989 Test Report.
Please see the enclosed copy of T.R. of 4 samples drawn from M/s. Jyothi Laboratories. The samples were drawn at the time of our visit to the factory along with Superintendent (Preventive) of C. Excise Head Quarters, Cochin.
The entire method of manufacturing was also verified. The factory is getting the Acid Violet and Fluorescent Whitening agent from Bombay. The fluorescent whitening agent is nothing but Ranipal as per the packing list on the tin.
Factory is making the Ujala by simply mixing these three items, Acid violet, ultra marine blue, fluorescent whitening agent in water heating them to a particular temperature and then filter this solution and bottling them in small packings and packing them in paper cartons for marketing, as such, there is no machinery is used for the production. All the process is done by manual labour only.
Hence in my opinion, no new product is emerged by this process, only three colouring matters mixed together in a particular proportion for colouring the fabric.
Yours faithfully, Sd/-
(K.K. VISWANATHAN) CHEMICAL EXAMINER"
* * * * * *
36. The learned SDR has relied on the ruling of the Supreme Court in the case of Laminated Packings (P) Ltd. v. Collector of Central Excise, as reported in 1990 (49) E.L.T. 326 (SC) In this case, polyethylene laminated kraft paper was produced out of lamination of duty-paid kraft paper with polyethylene. The Hon'ble Supreme Court after examining the issue has held in Para 6 as follows:
"6. The further contention urged on behalf of the appellant that the goods belong to the same entry is also not relevant because even if the goods belong to the same entry, the goods are different identifiable goods, known as such in the market. If that is so, the manufacture occurs and if manufacture takes place, it is dutiable. 'Manufacture' is bringing into being goods as known in the Excise Laws, that is to say, known in the market having distinct, separate and identifiable function. On this score, in our opinion, there is sufficient evidence. If that is the position, then the appellant was liable to pay duty. We are, therefore, clearly of the opinion that the order of the CEGAT impugned in this appeal does not contain any error. The appeal, therefore, fails and is accordingly dismissed."
37. As can be seen from the above findings of the Hon'ble Supreme Court that a new product had emerged and in the market it was also identified separately and hence, the Hon'ble Supreme Court held that manufacture had taken place. This ruling is totally different and the same cannot be applied to the facts of the present case as, no new product has emerged and it is not also known differently in the market. The Revenue has also not produced any evidence contradicting the claim of the appellants and the technical opinion produced by them. The burden of classification is on the Revenue and before classification is done, the Revenue has to show that a new product has emerged after a process of manufacture which has not been proved in the present case and the evidence is also in favour of the appellant.
38. Therefore, on the basis of the technical opinion and the case law cited above, we have to uphold the contention of the assessee that there is no manufacture on the addition, and mixing of Ranipal, Ultramarine blue in the liquid Acid violet dye and there is no new product emerging from such a process.
39. As regards the classification of the product, it would not be necessary for me to deal with it, as the first question has been answered in favour of the appellant. However, as my learned brother Shri Lajja Ram is taking a different view of the matter, it becomes necessary for me to answer the other two questions also.
40. In the event of the product being considered as a new product having emerged out of a process of manufacture, then its classification is required to be answered. As per the show cause notice, dated 19-6-1990, the Revenue had proposed the classification under sub-heading 3204.30 of Central Excise Tariff, 1985. Later after the appellants filed their reply and the ld. Collector hearing the submissions proposed through a fresh show cause notice, dt. 31-5-1991 classification under sub-heading 3204.90 of Central Excise Tariff, 1985. The appellants are however contending that the acid violet dye purchased by them falls under 3204.29 - 'other' and hence, the learned Collector proposing Heading 3204.21 for acid violet dye is not correct. It is their plea that acid dye violet is exclusively dissolved in water and a small fractional quantity of Ranipal and ultramarine blue does not involve any chemical or change. In this context the results of Chemical Test of the Chemical Examiner, results of the test of the National Chemical Laboratory, Universal Research & Analytical Lab, Chemo-Test Laboratory and technical opinion of Arvind V. Patwardhan and Dr. N.R. Ayyangar is relied. We have already considered these evidences and have concluded on the basis of this evidence that the addition of small fraction of Ranipal and ultramarine blue has not brought in any change in the acid dye violet and it has continued to remain the same. The evidence has already been extracted above in the preceding paragraphs. Dr. Arvind V. Patwardhan has clearly answered that the solution of Acid Dye is not a fluorescent brightening agent and also not a luminophore. The learned Collector has not examined these materials at all. He has applied Note 2 of Chapter 32 and has proceeded to classify under sub-heading 3204.90 as 'others' under heading "synthetic organic products of a kind used as fluorescent brightening agent or as luminophores; merely on the conclusion that 'Ujala' makes the treated substrate appear white by the blueing method. With utmost respect to the ld. Collector, the entire approach is erroneous. The expert opinion has opined that the product has continued to remain acid dye violet in aqueous solution and categorically ruled out to be fluorescent brightening agent and luminophore. The Trade Notice in F. No. V-C-132(30) 9/86, dated 14-7-1986 has also clarified that mere addition of Glauber's salt, dextrine, soda ash and other chemicals or uniting of two or more formulated/standardised/prepared dyes undertaken in the preparation of dye both for dyeing or printing purposes would not amount to manufacture. Therefore Note 2 of Chapter 32 is not attracted in the present case. The product cannot be classified under Heading 3204.90 as a preparation based on synthetic organic colouring matter. The contention of the appellant that acid violet dye falls under sub-heading 3204.29 as "other"; under the Heading "synthetic organic dyes and preparations thereon" requires to be accepted. The product 'Ujala' is more appropriately classifiable under subheading 3204.29 of Central Excise Tariff, 1985.
41. The appellants have contended that the show cause notice, dated 31-5-1991 is a fresh show cause notice and hence, the demands being time-barred, it cannot be confirmed. They have relied on the ruling of Anna Saheb Bapu Bhagate v. Collector of Central Excise, Bombay 1986 (24) E.L.T. 567. In Paragraph 10 of this judgment, it has been held as under :
"10. In this case the show cause notice had been initially issued in 1979 demanding duty for the period of six months preceding thereto. But subsequently the said show cause notice had been replaced by a fresh show cause notice, dated 9-5-1980 demanding duty for the entire period 4-11-1975 to 30-7-1979. To use the words of the Appellate Collector "however, subsequently these show cause notices were replaced by fresh four show cause notices issued in 1980". It is, therefore, clear that the show cause notice issued in 1980 was not by way of mere amendment to the earlier show cause notice but in the place of and in substitution of the earlier notice. That would mean the effective show cause notice so far as the present adjudication is concerned was dated 9-5-1980. In view of our finding, earlier duty could have been demanded under this notice for the six months preceding that date only. But as earlier noted the period of demand was 4-11-1975 to 30-7-1979. Thus, the period of demand fell entirely beyond six months preceding the date of the show cause notice. That would mean that no duty would be recoverable."
In the present case the entire show cause notice, proceeded on the basis that the claim of classification under Heading 3212.90 and exemption Notification No. 114/73, dated 30-4-1973 had been wrongly claimed by the party, when in fact the product is classifiable under sub-heading 3204.30. By a fresh show cause notice, dated 31-5-1991 (extracted supra) the Department completely changed their stand and a fresh stand was taken. Although the department can take a different stand on the fresh materials available as held in Creative Cosmetics v. Collector of Central Excise (supra), but the same is subject to time bar and therefore, the show cause notice dated 31-5-1991 is a fresh show cause notice and not a corrigendum. Hence the ruling in Para 10 of Annasaheb Bapu Bhagate v. Collector of Central Excise, Bombay and that of Safari Industries Pvt. Ltd. (supra) are fully applicable to the facts of the case and hence, I hold that the demands are time-barred and not sustainable.
42. In the result the appellants succeed and the appeal is allowed.
Lajja Ram, Member (T)
43. With due respect to the Hon'ble Judicial Member, my opinion and orders on the matter are as follows :
44. The product marketed by M/s. Jyothi Laboratories, under their brand name 'Ujala' is described by the appellants as 'soluble liquid optical brightening agent (washing blue)'.
45. The proprietor of the firm has described the characteristics of the product as under :
(i) 'Ujala' is an instant action liquid optical whitener, imparts ultra violet effect and fluorescent effect to the clothes, thereby giving optical brilliance of white colour.
(ii) The special formula avoids corrosion of clothes, whether cotton, synthetic or silk, and ensures long life of clothes.
46. In a letter to Canteen Stores Department, it was stated that the special ingredients of 'Ujala' prevent fungus formation, clotting, sedimentation and disintegration. Long shelf life was said to be another peculiarity of 'Ujala'.
47. In statement, dated 17-1-1990, the proprietor of the firm has stated that by dipping of clothes in the solution of their product 'Ujala', an attractive whiteness is obtained in the clothes.
48. On page 158 of the paper book it is stated that 'Ujala' is used as an auxiliary preparation so as to give brightness to the clothes washed. The purpose for which it is used is washing. It is said to be imparting brightness to the existing colors.
49. The process of preparing the product has been given by the appellants as under :
(i) Water is boiled in ovens.
(ii) Acid dye violet, also called acid violet, 'Ranipal', a fluorescent brightened, and ultramarine blue, an inorganic pigment, are dissolved in the boiled water, in the proportion of 98.5%, 1.16% and 0.34%, respectively.
(iii) The mixure is stirred well to form an aqueous solution.
(iv) The solution is stored in drums, and cooled.
(v) It is filtered.
(vi) Bottles are filled, closed and packed.
50. About 3500 bottles of 75 ml. 'Ujala' are produced out of a mixure of 8 Kgs. of acid dye violet, 100 gms. 'Ranipal' and 60 to 100 gms. ultramarine blue.
51. It is a product which is used for the washing of the clothes. After washing/rinsing when the clothes are free from soapy water/detergent residue, 4 to 5 drops of 'Ujala' are used in one litre of clean water, and the clothes are rinsed again. The violet colour of the solution is said to be appealing to the eye, and the tinge of violet to the clothes washed brings a brightness.
52. Let us now analyse the raw materials used. Dye is a chemical compound used to produce long-lasting colours in materials. The textile industry uses dyes to colour fibres, yarns and fabrics. The chief kinds of synthetic dyes include, among others, acid dyes. Acid dyes are dissolved in acid solutions. These dyes give bright colours to nylon, silk and wool. (Source : The World Book Encyclopaedia).
53. The appellants were using acid dye violet. According to the suppliers - colour Labs., acid violet dyes were classifiable under heading No. 3204.29 of the Tariff, which relates to the synthetic organic dyes, other than those in unformulated or unstandardised or unprepared forms.
54. According to the Encyclopaedia of Chemical Technology, 3rd Edition, Kirk Othmer, acid dyes are water soluble anionic dyes for application to nylon, wool, silk and modified acrylics.
55. Ranipal. - Ranipal is the new name of the preparation 'Tinopal', a brand name of Ciba Geigy Corporation. 'Tinopal' was a trade mark for a group of optical brighteners which absorb ultra violet light in the near visible range and re-emit the energy as visible light. It was used in heavy duty detergents and detergent specialities to whiten fabrics (Source : The Condensed Chemical Dictionary, 9th Edition).
56. According to the suppliers, colour labs, it was classifiable under Heading No. 3204.30, which covers synthetic organic products of a kind used as fluorescent brightening agents.
57. Ultramarine blue is an inorganic pigment; blue powder. It is used in very low percentages to intensify whiteness of laundered clothing etc., by off-setting yellowish undertones; gives a 'blue' rather than a 'yellow' white. (Source : Condensed Chemical Dictionary).
58. According to the party, ultramarine blue was classifiable under heading No. 3206, which covers 'other colouring matter'.
59. It is thus seen that each of the raw materials had a distinctive name, character and use, and the final product, produced out of the processing of these raw materials, has a different name, character and use, different from the raw materials from which it is produced.
60. The use to which the product 'Ujala' is put is different. Its characteristics are different. Its name is different, different from the raw materials. It has got a violet tinge and is used for washing of the clothes after use of soap/detergents, to give them an optical whiteness, to give a fluorescent effect.
61. In the light of the above discussions, with regard to the filial products and the raw materials etc., let us now analyse whether the process involved in the processing of acid dye violet, Ranipal and ultramarine blue, is a process of manufacture, that is the manufacture of the washing preparation, 'Ujala'.
62. to 84. * * * * * *
85. In the case of Ckowgule and Co. Private Limited and Anr. v. Union of India and Ors., 1981 (1) SCC 653, (referred to in Paragraph 31 of the decision in the Empire Industries' case), it has been observed that whatever may be the operation, it is the effect of the operation on the commodity that is material for the purpose of determining whether the operation constitutes such a process which will be part of 'manufacture'. Any process or processes creating something else having distinctive name, character and use would be 'manufacture'.
86. Hence more than the process, emphasis in this regard is on the effect of the process. Seen in this light there can be no doubt that the process in this case is a process of 'manufacture'.
87. In several pronouncements by the Hon'ble Supreme Court, the emphasis has been on the fact whether the article emerged as a result of process is known to the market as a new article.
88. There is no doubt that the product 'Ujala' is known in the market as a new substance. It cannot be put to the same use as its three ingredients.
89. Thus, in the case before us, a new and commercially different article with distinctive name, character and use has emerged, and the process adopted by M/s. Jyothi Laboratories, constitutes a process of manufacture for the purposes of central excise levy.
90. In the various decisions relied upon by the appellants, the chain of treatment to which the original product have been subjected to, had not been broken. The processes were undertaken to facilitate use of the original product, and not to convert them for a different use, as is the case before us. The original product was not mixed with other independent products, but only diluents, fillers, etc., were added to make the original product usable.
91. In the case of Sandoz India Ltd. v. Union of India, reported in 1980 (6) E.L.T. 696, the matter before the Bombay High Court was the conversion of a pigment from its solid state, into a liquid state, with the aid of solvent and dispersing agent in order to make it usable. There was merly a change in the form of the pigment. The process was only with a view to break the pigment particles so that the dye-stuff particles were dispersed uniformly in liquid media.
92. In the case before us there were three items, a dye, a brightener and a pigment. They were mixed in an aqueous solution, and used as a product to which properties of all the three items have been imparted. Here was not a case of making any or all of the products usable for the same purpose for which they were usable before, but using the resultant product for an entirely different purpose, that is for washing of the clothes.
93. to 108. * * * * * *
109. As will be seen above, in the case before us, there are three raw materials classifiable under different heads and the same were used for different purposes.
110. Thus, the rationale of the case - Bush Boake Allen India Ltd. v. Collector of Central Excise, Madras, referred to above, is not applicable to the facts in the case before us.
111. Let us now deal with the classification of the product 'Ujala'.
112. Under show cause notice, dated 19-6-1990, the product was sought to be classified under sub-heading No. 3204.30 of the Central Excise Tariff.
113 to 115. * * * * * *
116. The proposal for classifying the product 'Ujala' under Heading No. 3204.90 was based on the reasons that it was a fresh preparation based on products falling under sub-heading No. 3204.19 (blue), 3204.21 (Acid Violet Crude), 3204.29 (Acid violet standardised and 3204.30 (Ranipal), the combination of all of which improves the colour of the preparation to bluish violet and gives a further shining to the fabric on which it is used.
117. Heading No. 3204.90 covers preparations based on synthetic organic colouring matters of a kind used for colouring any material, as specified in Note 2 to the Chapter 32, and which are not covered by any of the other sub-headings of the Chapter Heading 32.04.
118. The party had themselves admitted that their product was an aqueous solution of colouring matter imparting bluish violet colour to the substrate (cloth).
119. In their reply, dated 16-8-1991, the party had referred to the opinion of some of the experts and submitted that 'Ujala' exhibits all properties of Acid Violet Dye, and the presence of 'Ranipal' and Blue ultramarine neither improves the colour of the preparation nor gives any further shining, as compared to the acid violet dye of the same strength.
120. In the order, dated 21-1-1992 passed by the Collector of Central Excise, Cochin, it has been mentioned that the rate of duty under Heading 3204.30 and Heading No. 3204.90 was the same, and no new grounds have been proposed in the show cause notice, dated 31-5-1991, and hence, it cannot be argued that their interests have been prejudiced.
121. The grounds on which the product has been classified under Heading No. 3204.90 of the Tariff are based on the submissions of the appellants themselves, and the technical literature/ expert opinion submitted by them. The details are summarised in Para 23 of the order-in-original by the Collector of Central Excise, Cochin.
122. On chemical examination, it was found that the product 'Ujala' was in the form of bluish violet coloured liquid. It was an aqueous solution composed mainly of colouring matter.
123. It was observed that 'Ujala' makes the treated substrate appear white by the blueing method, and it being an aqueous solution of colouring matter, imparts bluish violet colour to the substrate.
124. Thus, there is no doubt that the product 'Ujala' is a preparation based on colouring matter of a kind used for colouring the cloth.
125. Thus, I agree with the findings of the adjudicating authority that the product 'Ujala' was correctly classifiable under Heading No. 3204.90 of the Schedule to the Central Excise Tariff Act, 1985.
126. The question as to whether a particular process to which the raw materials have been subjected to is a process of 'manufacture' or not, has to be answered in the light of the well laid down tests by the Hon'ble Supreme Court in a series of decisions. The facts and circumstances of each case have to be analysed [Refer Bombay High Court's decision in the case of Shakti Dye Works (supra)]. This is the job of those who are called upon to adjudge the matters before them, who have to come to and report their decision in a logical, judicial and judicious manner. This work cannot be delegated to any other authority, howsoever high or learned that may be, and no authority could dispose of contentious matters unilaterally in violation of the principles of natural justice. Views have to be based on reasons and the findings have to be transparent.
127. Very often in defence, statements from the experts are filed in support of the points made by the noticees. It needs to be remembered that the evidence of experts can never be conclusive as it is merely opinion evidence (Ishwari Prasad v. Mohammad Isha, 1963 (3) SCR 722).
128. It has been held in a number of cases by the Hon'ble Supreme Court that expert opinion is by its very nature, weak and infirm [Refer Magan Beharilal v. The State of Punjab, AIR 1977 SC 1971].
129. The Tribunal in the case of Kiran Overseas v. Collector of Customs, 1988 (38) E.L.T. 362 (Tribunal), has observed that "the expert opinion is only a relevant piece of evidence and it is ultimately for the quasi-judicial authorities to adjudge the correctness of the same by application of their mind having regard to the facts and circumstances of each case".
130. Again in the case of Rubicon and Ors. v. Collector of Central Excise 1988 (38) E.L.T. 353 (Tribunal), the Tribunal has observed that "the opinion of an expert has to be treated in law as evidence of any other witnesses and does not stand on a higher footing. The Supreme Court has pointed out that expert or no expert, the Court or the Tribunal cannot shirk its responsibility in applying its mind and effecting comparison before reaching a conclusion".
131. Further, I fail to appreciate as how on the basis of the analysis or examination of the samples of the final product, it could be said that the process by which that product has been obtained was or was not a process of 'manufacture'.
132. Thus, I agree with the observations of the Collector, Central Excise, who adjudicated the case that Chemical Examiner is not the competent authority to decide on the classification of the product, much less on the question, whether the process involved was a process of 'manufacture' or not.
133. Similarly in so far as the opinions of the experts are concerned, I find that they have addressed their opinions to the appellants. Except providing some help and assistance in the analysis, no conclusions, in the nature of things, could be based on their opinions.
134. As regards the notice, dated 31-5-1991,1 agree with the Collector that the earlier show cause notice was not cancelled or superseded.
135. As per the principles of natural justice, reasonable opportunity has to be afforded to the assessee to meet the proposition advanced by the Department. The notice, dated 31-5-1991 was not an independent notice and was in continuation of the show cause notice which had already been issued within the period of limitation.
136. It was not in the nature of an independent show cause notice. It was not styled as a corrigendum. It did not seek to expand the basis of the charges as contained in the original show cause notice. It did not put the duty amount higher than in the original notice. No new rules were quoted therein. Thus, the observations of the Tribunal in the case of Radhika Vitamalt v. Collector of Central Excise 1985 (21) E.L.T. 920 (Tribunal), are not applicable to the realities in this case.
137. The Tribunal in the case of Collector of Central Excise v. Star Paper Mills 1986 (26) E.L.T. 81 (Tri.) has held that when subsequent or second show cause notice refers to the earlier show cause notice the subsequent show cause notice is to be treated to have been issued in continuation of the earlier one and therefore, the time limit is to be computed with reference to the first show cause notice, and the second notice cannot be said to have been hit by limitation.
138. In the case before us the notice after the submissions made by the appellants, in the light of their submissions, referred to the proceedings already in progress under the original notice. In fact it referred to the submissions made by the appellants. It did not create any new demand. It did not invoke any new penal provisions. As the original notice was issued within the time of limitation, and in fact, the adjudicating authority only resurrected the demand under the normal period of limitation, I consider the procedure adopted, both legal and fair, in tune with the demands of natural justice.
139. In Western Bengal Coal Fields v. Collector of Central Excise, 1987 (31) E.L.T. 182 (Tribunal), the Tribunal took the view that when the second notice is merely a corrigendum to the first notice, the time limit is to be computed with reference to the first notice, even if the so-called corrigendum was issued after the reply to the first show cause notice.
140. In that case a regular show cause notice was issued on 23-11-1978. After a reply from the appellants, this show cause notice was amplified. The Tribunal observed that this amplification could be considered only in the nature of corrigendum to the earlier show cause notice. They held that the show cause notice issued on 23-11-1978 was the relevant one for the purpose of time limit for raising the demand.
141. A reading of the notice, dated 31-5-1991 will show that it was in fulfilment to the requirements of natural justice and that the revised classification flew from the submissions of the appellants themselves.
142. In all fairness, the Collector of Central Excise, who adjudicated the case, had restricted the demand only for the period prior to six months from the date of the show cause notice, i.e. 19-6-1990. He had also conceded that assessable value will have to be worked out only in accordance with the provisions of Section 4(4)(d)(ii) of the Act. He has also agreed that the MODVAT credit was admissible to the party provided they are able to establish before the proper officer that inputs have suffered duty and also have been used in the manufacture of their final product. Further, he has not imposed any penalty on the appellants.
143. Taking all the relevant considerations into account and after giving my considered thought to the submissions made by the appellants, I reject their appeal, and order accordingly.
144. In view of difference of opinion between the Hon'ble Members, following questions arise for determination and for reference to the third Member and the Hon'ble President may be pleased to refer the same for opinion:
(i) Whether the impugned product 'Ujala' arises out of a process of manufacture and an excisable product as held by Hon'ble Member (T) or it does not arise out of a process of manufacture and not excisable product as held by Member (J);
(ii) Whether the product 'Ujala' is classifiable under sub-heading No. 3204.29 of Central Excise Tariff, 1985 as held by Member (J) or under sub-heading No. 3204.90 of Central Excise Tariff, 1985 as held by Member (T);
(iii) Whether the show cause notice, dated 31-5-1991 is a fresh show cause notice and if so the demands are barred by time as held by Member (J) or the show cause notice, dated 31-5-1991 is a corrigendum show cause notice and the demands are not barred by time as held by Member (T), and
(iv) Whether the appeal is to be allowed as held by Member (J) or to be dismissed as held by Member (T).
ORDER K.S. Venkataramani (T) and S.L. Peeran (J), Members The ld. Counsel, Shri Lakshmikumaran appearing for the appellants, adressed arguments on the points of difference spelt out above. In regard to the question of classification of the product 'Ujala' under Central Excise Tariff Act, 1985, the ld. Counsel contended that the classification of the product under sub-heading 3202.29 is the correct one. The ld. Counsel submitted that 'Ujala' is based only on acid violet dye and the addition of Ranipal and ultramarine blue has really no significant effect and the product continued to exhibit the same property as acid violet dye. The ld. Counsel submitted that 'Ujala' contains 98.5% of acid violet dye and, therefore, it is, at best, a preparation of acid violet dye and as such, classification tinder sub-heading 3204.29 would be appropriate.
145. In respect of the issue whether the production of Ujala results in the emergence of a new product, consequent upon the process of manufacture, the ld. Counsel submitted that Ujala exhibits all the properties of acid violet and does not exhibit the property of ultramarine blue or of the fluorescent agent. The essential characteristics remain unchanged. Ranipal and ultramarine blue are only additives to give synergic effect. This is proved by the fact, the ld. Counsel pointed out, that during the earlier period, and subsequent to the period material to this case, Ranipal and ultramarine blue were not being added and Ujala is sold and used by the consumers as such without any difference whatsoever. The ld. Counsel pointed out that the Departmental Chemical Examiner has categorically opined that no new product has emerged. National Chemical Laboratory and the tehnical opinion of Dr. Arvind Pat-wardhan also confirmed this view. Therefore, experts of both sides have, according to the appellants, clarified and opined that no new product has emerged based on substantial technical authority. The ld. Counsel also relied upon the case of Collector of Central Excise v. Lakaki Works (P) Ltd. - 1988 (37) E.L.T. 392 (Tribunal) as also in the case of Collector of Central Excise v. Mallaye Fine Chem (P) Ltd. already referred to by the two members (supra). These decisions would support their claim that in the processes undertaken by them by admixture of Ranipal and ultramarine blue with acid dye to make Ujala, no new product emerges and there is no process of manufacture undertaken. It was submitted that acid violet dye is a stainer giving a violet colour on the surface of substrate, the ld. counsel urged that if it is to be used as dye in the case of textiles it is to be mixed with organic or acids known as mordents only then the colour fixation will take place in the fibre. The acid violet dye preparation as a mixture of acid violet dye Ranipal and ultramarine blue would continue to be such a preparation and there is no manufacture. The ld. Counsel also relied upon Note 6 to Chapter 32 CET in support of his arguments that there is no manufacture involved. It was submitted that so far as dyes are concerned according to Chapter Note 6, conversion of unformulated, unstan-dardised or unprepared forms of dye to formulated, standardised, prepared dyes alone would constitute manufacture. It was submitted that unformulated and un-standardised dyes would be classifiable under sub-heading 3204.21 and on conversion into standardised dye, they would fall under sub-heading 3204.29 and in that event, the process of conversion would amount to manufacture in terms of Chapter Note. In all other cases, it was contended that as far as the dye industry is concerned, there is no manufacture. This view had been endorsed by the Tribunal in its decisions in the case of Bush Boake Allen (India) Ltd., Madras and in the case of Collector of Central Excise v. Mallaye Fine Chem. (P) Ltd. (supra). It is the appellants' case that since the inputs are already formulated dye falling under sub-heading 3204.29 changing the form mixing with other additives would not amount to manufacture. The ld. Counsel also drew support from a tariff ruling under Section 37B of the Central Excises and Salt Act, 1944 issued by the Central Board of Excise & Customs dated 21-4-1993 wherein it has been emphasised that in the case of dyes manufactured in terms of Chapter Note 6 to Chapter 32, it was, further, urged that legislature has laid down what would constitute the manufacture in such a manner, then the legislature is deemed to have also laid down that other processes in the dye industry will not amount to manufacture. It was, further, urged that the Tribunal's decisions in the case of Bush Boake Allen (India) Ltd. and Collector of Central Excise v. Mallaye Fine Chem (P) Ltd. (supra) have since been upheld by the Supreme Court.
146. As regards the point of validity of issue of the second show cause notice, the ld. Counsel submitted that this is a case whether the original show cause notice was proposing classification of the goods under sub-heading 3204.30 and after hearing the arguments of the appellants, the Collector gave up that classification and issued a fresh notice proposing classification under sub-heading 3204.90. It was hence argued that the first notice is deemed to have been discharged by the Collector while dropping the classification under subheading 3204.30. It was, further, urged that the fact that the rate of duty under both the headings is the same cannot be a ground for doing away with the proper procedure for demanding duty in terms of a show cause notice for which proposition, reliance was placed on the Tribunal's decision in the case of Collector of Central Excise v. Bright Brothers Ltd. -1991 (52) E.L.T. 385 (Tri.). The ld. Counsel, further, cited the decision of the Tribunal in the case of Kutty Flush Doors & Furniture Co. (P) Ltd. v. Collector of Central Excise -1989 (42) E.L.T. 730 (Tri.) wherein it was held that in the absence of proper notice consequent reassessment following adjudication proceedings, the Revenue was not entitled to adjust the duty on flush doors under Item 68 CET against the refund of duty collected under Item 16B CET payable to the appellants. This decision has been reportedly upheld by the Supreme Court, as indicated in 1990 (45) E.L.T. A95.
147. The ld. D.R. Sh. Somesh Arora, pointed out that the process undertaken by the appellants by adding Ranipal and ultramarine blue to acid dye, results in a new product which will amount to a process of manufacture because the ultimate product 'Ujala' which emerges with much higher potency, than the original materials. It was, further, argued by the ld. D.R. that the chemical examiner of the department is not an authority to decide what would amount to manufacture for the purpose of the Central Excises and Salt Act, 1944. This is a question to be adjudicated by the competent authority having regard to the material evidence on record and the process in question. Admittedly, the product is known differently in the market from its ingredients. As regards the question of classification of the goods, the ld. D.R. relied upon the Calcutta High Court judgment in the case of Nilsin Company v. Collector of Central Excise, Calcutta and Orissa and Ors. -1985 (22) E.L.T. 739 (Cal.) and in the case of Seth Chemical Works (P) Ltd. v. Union of India - 1989 (43) E.L.T. 6 (Cal.) wherein it is held that ultramarine blue is a colorant and also emphasised that the court held that ultramarine blue is a pigment having various uses one of which is whitening or brightening textiles or clothes. The court held that not only from the standpoint of its physical constituent but also from the stand point of various uses and of popular understanding ultramarine blue is a pigment. The Court held that the goods were classifiable under Item 141(5) of the old Central Excise Tariff. As a colorant, it has to be classified under subheading 3204.90 CETA applying the above ratio. The ld. D.R. also contended that the Collector was correct in issuing the second show- cause notice, which was in fact a continuation of the first and not in the nature of corrigendum. The further memorandum to the appellants was issued by the Collector merely to give them an opportunity in all fairness to state their case for the classification purpose and it was not in the nature of a fresh notice superseding the first show cause notice. The ld. D.R., therefore, fully supported the proposed order by the Hon'ble Member (Technical).
148. The submissions made by both the sides have been carefully considered. The first point of difference is whether the impugned product 'Ujala' arises out of a process of manufacture or not. It is found from the record that the chemical examiner of the department has visited the appellants' factory. The entire method of manufacturing had also been verified by him and he had submitted that 'Ujala' is made simply by mixing acid violet, Ranipal and ultramarine blue in water heating them to a particular temperature and filtering this solution and bottling in small packing and packing them in paper cartons for marketing. The chemical examiner observed that only three colouring matters mixed together in a particular proportion for colouring the fabric. According to Note 6 to Chapter 32 in relation to synthetic organic dyes (including pigment dyes) of Heading No. 32.04, conversion of unformulated, unstan-dardised or unprepared forms (for example, wet cakes) of such dyes by :--
(a) reduction of particle size,
(b) addition of dispersing agents or diluents, or
(c) adoption of any other treatment, into their formulated, standardised or prepared forms ready for use in the process of dyeing shall amount to "manufacture". It is seen that even according to the subsequent memorandum for changing the classification issued by the Collector on 31-5-1991, the admitted position is acid violet received by the appellants is standardised. Therefore, it is very clear that there is no conversion in this case of unformulated, unstandardised or unprepared form into their formulated, standardised or prepared forms ready for use in the process of dyeing. When this is so, it cannot be held that there is a process of manufacture in the production of 'Ujala'. The chemical examiner's report is to the effect that it is a physical mixture of the ingredients in boiling water which report has been given after study of the manufacturing process.
His opinion has thus been given on the basis of material which is relevant for determining whether the process undertaken is one of manufacture of excisable goods. His opinion though not compelling acceptance by adjudicating authority, yet it also finds support from the other experts in the field, who have given the same opinion as brought out by the Hon'ble Member (Judicial) in his order. It is also significant that only during the material period, along with acid dye violet, Ranipal and ultramarine blue were used by the appellants and that during the period earlier to it and subsequently, the product 'Ujala' was marketed without its ingredients for the same purpose. It has been established by sufficient evidence on record that the 'Ujala' is blueing agent which cannot be regarded as dye for which it is relevant to refer to Encyclopaedia of Chemical Technology, page 395 on Acid Dyes and Theory of Dyeing. It has been mentioned therein that these dyes are applied in the presence of organic or mineral acids. There is no evidence of the presence of such acids in the case of the appellants' product. It is also found that the appellant's stand is supported by the Order No. 2/93, dated 21-4-93 issued by the CBEC under Section 37B wherein it has been clarified that printing paste prepared from formulated, standardised or prepared dyes by simple mixing with other materials would not amount to manufacture and as such, not to be classifiable under sub-heading 3204.29. Paras 3, 4 and 5 of the order is reproduced below :
"Printing paste is obtained from both unformulated, standardised or unprepared forms of synthetic organic dyes and formulated, standardised or prepared forms. Printing paste contains synthetic organic dyes, kerosene oil, urea, water, emulsifier, binder and catalyst, etc. The process of manufacture involves intimate mixing of all the ingredients in the form of dye stuff, or colouring matter. The goods are steamed or otherwise treated to cause the dyes to transfer to and penetrate the fabric. The residue of the paste is removed in the finishing. Note 6 of Chapter 32 stipulates that in relation to synthetic organic dyes of Heading 32.04 conversion of unformulated, unstandardised or unprepared forms (e.g. wet cake) of such dyes by (a) reduction in particle size, (b) addition of dispersing agents or diluents, or (c) adopton of any other treatment into formulated, standardised or prepared forms ready for use in the process of dyeing shall amount to "manufacture". By virtue of this, only unformulated, unstandardised or unprepared forms of dyes when converted into formulated, standardised or prepared forms of ready for use in the process of dyeing by addition of dispersing agents or diluents, etc. would amount to "manufacture".
Keeping this in view, it is hereby clarifed that the printing paste prepared from formulated, standardised or prepared dyes by simple mixing with other materials shall not amount to manufacture and as such, not be classifiable under sub-heading 3204.29 of the Tariff."
The Chemical Examiner's opinion in this case is also in accordance with -y this Tariff Ruling of the Board.
149. Therefore, it is found that in terms of Chapter Note 6 to Chapter 32 -when applied to the process by which 'Ujala' is manufactured, it cannot be said that a process of manufacture as envisaged in the Chapter Note, has taken place, and hence, it is to be concluded that no process of manufacture has taken place at the hands of the appellant. It is also, in this case, borne in mind that the Larger Bench in the case of Saurashtra Chemicals v. Collector of Customs -1986 (23) E.L.T. 283 has held that in classification matters, the Chapter Notes and Section Notes govern the coverage of tariff headings. "The relevant headings in the tariff," observed the Tribunal, "have to be interpreted and applied in the light of the Section Notes and Chapter Notes which are statutory and binding like the headings themselves. These Section Notes and Chapter Notes, sometimes, expand and sometimes restrict the scope of certain headings. In other words, the scheme of the Customs Tariff Act is to determine the coverage of the respective headings in the light of the Section Notes and Chapter Notes. In this " sense, the Section Notes and Chapter Notes have an over-riding force on the respective headings."
150. Once it has been found that no process of manufacture is involved in the preparation of the product 'Ujala', the rest of the points of difference relating to its classification under CETA, 1985 and about the validity of the 2nd Notice become academic. However, it will be pertinent to note, as already pointed out above, that since the product is a preparation based on synthetic organic dye, its classification will only be under heading 3204.29 as held by the Member (Judicial).
151. As for the validity of the Second Show Cause Notice a perusal, thereof, shows that it is not in the nature of a corrigendum. On the other hand, it sets up a new case for the appellants to answer by proposing to change the classification of the product from sub-headings 3204.30 to 3204.90. In such a situation, the second notice cannot be called corrigendum. The fact that in such a situation the rate of duty is the same under both the headings, will make no difference to the necessity of undertaking fresh proceedings as has been found " by the Tribunal in the case of Bright Brothers (supra). Therefore, on this point also, it is to be stated that the demand based on such a show cause notice will be hit by limitation. In the result, the order proposed by the Hon'ble Member (Judicial) is concurred with.
Sd/-
(K.S. Venkataramani)
Dated : 6-8-1993 Member (T)
ORDER
152. In terms of the majority order, the appeal is allowed.