Custom, Excise & Service Tax Tribunal
M/S. Maharashtra Aldehydes &Amp; ... vs Cce Raigad on 19 November, 2018
IN THE CUSTOMS, EXCISE & SERVICE TAX
APPELLATE TRIBUNAL
WEST ZONAL BENCH AT MUMBAI
COURT No. I
APPEAL Nos.
E/1901/2006,155,222/2008,894/2009,1475,1476/2010,85640,85641/2015,
85559,85576/2016
Arising out of Order-in-Appeal No. AT/166/RGD/06 dated 2.3.2006
passed by Commissioner of Central Excise (Appeals), Mumbai-II
Arising out of Order-in-Original No. 41/Commr/AKP/2007 dated
29.10.2007 passed by Commissioner of Central Excise, Belapur
Arising out of Order-in-Original No. 41/Commr/AKP/2007 dated
29.10.2007 passed by Commissioner of Central Excise, Belapur
Arising out of Order-in-Original No. Belapur/71-72/Belapur
Dn.IV/R-I/COMMR/WLH/2008-09 dated 31.3.2009 passed by
Commissioner of Central Excise, Belapur
Arising out of Order-in-Appeal No. PKS/18-19/BEL/2010 dated
23.4.2010 passed by Commissioner of Central Excise (Appeals),
Mumbai-II
Arising out of Order-in-Appeal No. PKS/18-19/BEL/2010 dated
23.4.2010 passed by Commissioner of Central Excise (Appeals),
Mumbai-II
Arising out of Order-in-Appeal No. CD/57 & 58/BEL/2014 dated
25.11.2014 passed by Commissioner of Central Excise (Appeals),
Mumbai-II
Arising out of Order-in-Appeal No. CD/796 & 797/BEL/2015 dated
9.11.2015 passed by Commissioner of Central Excise (Appeals),
Mumbai-II
Maharashtra Aldehydes & Chemicals Ltd. Appellants
Bharat Dye-Chem Industries
Commissioner of Central Excise, Belapur
Commissioner of Central Excise, Belapur
Reshma Organics Pvt. Ltd.
RFCL Ltd.
Avantor Performance Materials India Ltd.
Reshma Organics Chemicals Pvt. Ltd.
Reshma Organics Chemicals Ltd.
Avantor Performance Material India Ltd.
Vs.
Commissioner of Central Excise, Raigad Respondents
Commissioner of Central Excise, Belapur E/1901/2006,155,222/2008,894/2009,1475,1476/2010,85640,85641/2015,85559,85576/2016 2 Bharat Dyechem Industries Sunbel Alloys Company of India Ltd.
Commissioner of Central Excise, Belapur Commissioner of Central Excise, Belapur Commissioner of Central Excise, Belapur Commissioner of Central Excise, Belapur Commissioner of Central Excise, Belapur Commissioner of Central Excise, Belapur Appearance:
Shri Gajendra Jain, Advocate, for appellant-assessees Shri V.K. Agarwal, Additional Commissioner (AR), for Revenue CORAM:
Hon'ble Dr. D.M. Misra, Member (Judicial) Hon'ble Mr. Sanjiv Srivastava, Member (Technical) Date of Hearing: 19.7.2018 Date of Decision: 19.11.2018 ORDER No. A/87930-87939/2018 Per: Sanjiv Srivastava Following appeals have been listed for consideration. Both the parties agree that the issues involved in all these appeals are identical and hence heard together. Common issue involved in all these appeals is whether the processes undertaken by the unit shall amount to manufacture for the purpose of levy of Central Excise duty. Table 1 gives the details of appeal:
S Appeal No Finished Products Inputs
No
Description CETH Descripti CETH
on
1 E/1901/200 Hexane Fraction for 2710.13 Hexane 2710.12
6 ChromotographyLic fraction
Maharastra hrosolv from
Aldehydes & Petroleu
Chemicals m
Ltd Vs Products
Commission Petroleum Benzene 2710.90 Hexane 2710.12
er Central 600-800 CGR (Petroleu
Excise m
E/1901/2006,155,222/2008,894/2009,1475,1476/2010,85640,85641/2015,85559,85576/2016 3 Raigad Benzene or Petroleu m Eher)
2 E/155/2008 Various Grades of 2710.13 Hexane 2710.12 Bharat Dye Hexane LR, AR, Chem HPLC, SG Industries Various Grades of 2710.13 Petroleu 2901.13 Vs CCE Petroleum Ether m Ether Belapur (Benzine) 3 E/894/2009 Hexane for 27101112 Hexane 271019 CCE ChromotographyLic from 80 Belapur Vs hrosolv petroleu Sunbel m Alloys products Company of Petroleum Benzene 27101113 Petroleu 271019 India Ltd 600-800 CGR m 80 Benzine 60-800C FS 4 E/1475/201 Various Grades of 27101113 Ordinary 2710.12 0 Hexane LR, AR, (2710.13) Grade Reshma HPLC, SG Hexane Organics Pvt Ltd Vs CCE Various Grades of 27101113 Petroleu 2901.10 Belapur Petroleum Ether (2710.13) m Ether 5 E/1476/201 Various Grades of 27101113 Ordinary 2710.12 0 Hexane LR, AR, (2710.13) Grade Ranbaxy HPLC, SG Hexane Fine Chemicals Various Grades of 27101113 Petroleu 2901.10 Ltd Vs CCE Petroleum Ether (2710.13) m Ether Belapur 6 E/85641/20 Various Grades of 27101113 Hexane 2710.13 15 Hexane LR, AR, (2710.13) 600C-
Reshma HPLC, SG 800C
Organics Pvt
Ltd Vs CCE Various Grades of 27101113 Petroleu 2701.13
Belapur Petroleum Ether (2710.13) m Ether
600C-
800C
7 E/85559/20 Various Grades of 27101113 Hexane 2710.13
16 Hexane LR, AR, (2710.13) 600C-
Reshma HPLC, SG 800C
Organics Pvt
Ltd Vs CCE Various Grades of 27101113
Petroleu 2701.13
Belapur Petroleum Ether (2710.13)
m Ether
600C-
800C
8 E/222/2008 This Appeal is filed by department against the same
CCE order, against which appellants have filed appeal at S
Belapur Vs No 2. Commissioner has dropped certain portion of Bharat Dye demand on ground of limitation. Against this Chem department is in appeal.
Industries 9 E/85640/20 These two appeals are filed by M/s Avantor 15 Performance Material Ltd, against the same orders for 1 E/85576/20 which appeals have been filed at S No 6 & 7, penalty of 0 16 Rs 10 Lakhs have been imposed on them in each order.
2.1 The issue involved in all the appeals under consideration is whether the processes undertaken by the appellants to refine and purify the various E/1901/2006,155,222/2008,894/2009,1475,1476/2010,85640,85641/2015,85559,85576/2016 4 petroleum products (Petroleum Benzine and Hexane) to obtain specified grade of petroleum products shall amount to manufacture in terms of Section 2(f) of Central Excise Act, 1944 for levy of Central Excise Duty.
2.2 The issue was earlier decided by the tribunal in appeal at S No 3, in case of M/s Sunbel Alloys Company of India Ltd., holding that processes undertaken amount to manufacture. However tribunal has held that extended period of limitation cannot be invoked and also no penalty need to be imposed in the facts and circumstances of the case. The order of tribunal holding that the processes undertaken amounted to manufacture was challenged before the Hon'ble Bombay High Court.
2.3 Hon'ble Bombay High Court in case of Sunbel Alloys Co. of India Ltd.[Civil Writ Petition No. 279 of 2015 with Central Excise Appeal No. 179 of 2014 (Original Side) order dated January 20, 2015]while remanding the matter, for fresh consideration by the tribunal made observations as follow:
"19. In the present case, there is a far more serious legal infirmity. The appellants claim to be carrying on job work for E.Merck Specialties (P) Ltd. The principals of the appellants (E.Merck) faced identical allegations and were proceeded against for having carried on manufacturing activity in their premises. The product or goods in relation to which the allegations are made are identical. The Tribunal upheld the arguments of E.Merck and allowed E/1901/2006,155,222/2008,894/2009,1475,1476/2010,85640,85641/2015,85559,85576/2016 5 its Appeal. That order was relied upon by the appellants in the proceedings against them. They succeeded before the Commissioner. The Tribunal does not make any reference to all this and does not deem it necessary to consider the arguments based on its earlier orders. These orders were stated to be final. Yet, the Tribunal omits to consider them. We are not impressed by the argument of Mr. Bhate that though the assessee cited before the Tribunal the decision in its own case or rather in the case of M/s. Merk Specialities Pvt. Ltd. or M/s. E. Merk (i) Ltd., the judgment of this Court in the case of Mercedez Benz (supra) was not brought to the notice of the Tribunal. It is surprising that the Tribunal has to be shown on this elementary or basic point any judgment as it is its bounden duty in law to have adverted to an order passed by it or its coordinate bench on the same point, may be in earlier round of litigation. If it is relevant to the adjudication in the present appeal, then, it is the further bounden duty to deal with it in details. If the judgment is distinguishable on facts a definite conclusion on that count has to be reached. If the judgment is not correct then equally reasons have to be assigned for such a crucial conclusion. This is the rule which has been emphasized. Rule of judicial discipline requires reference being made to a larger bench in case of differences of opinions or views between the benches of the Tribunal on identical facts. A healthy way of deciding matters and to maintain purity and sanctity of the judicial process is emphasized by this Court in Mercedes Benz (supra) and relying upon the judgment of the Hon'ble Supreme Court of India. This binds the Tribunal. We have also cautioned the Tribunal in number of cases that the process of adjudication and in Revenue matters requires an early finality to vexed issues. If the issues are raised repeatedly then all more there ought to be certainty and end to the litigation. In Revenue matters none is benefited E/1901/2006,155,222/2008,894/2009,1475,1476/2010,85640,85641/2015,85559,85576/2016 6 by delays. If the delays are caused by repeated remand of proceedings then that has to be avoided. If its earlier orders have been brought to the notice of the Tribunal, then, the least that is expected is that they are dealt with and considered seriously and a conclusion is reached about their applicability to the facts and circumstances of a given case. The Tribunal which is manned by experienced members drawn from the Revenue or Technical Services and Judiciary are expected to perform this task efficiently. They are selected and appointed on account of their merit and not just their experience. They may not have dealt with matters which required them delivering judgments and passing binding orders after hearing both sides and on questions of law, but, their learning knowledge and experience as Members of the Tribunal would improve their performance by passage of time. This minimal expectation is not fulfilled nowadays and cryptic orders lacking in reasoning and precision are passed day in and day out. We do not know where the fault lies. It is either in the process of selection and appointment or because there is no review and appraisal of the performance of the Tribunal Members from time to time. Whatever may be the cause, the outcome is rendering decisions which leave everything incomplete.
Such unsatisfactory state of affairs need to be now brought to the notice of all concerned including the appointing authorities.
20. In the light of the above, we are required to quash and set aside both orders of the Tribunal. The Appeal succeeds. The order passed by the Tribunal on 28th March, 2014 and 12th September, 2014 both are quashed and set aside. The Revenue's appeal now shall be reheard by the Tribunal on merits and in accordance with law uninfluenced by its earlier conclusions.
E/1901/2006,155,222/2008,894/2009,1475,1476/2010,85640,85641/2015,85559,85576/2016 7
21. The Tribunal must render a decision after dealing with all the contentions which have been raised by the parties. It should permit the appellants to rely upon the earlier adjudication and also bring to its notice the factual matrix involved therein. It must also allow the assessee an opportunity to rely upon the legal provisions and the judgments relevant to the same. Equally, such an opportunity must be given to the Revenue and if it desires distinguishing the earlier adjudication in the case of M/s. E. Merk (i) Ltd. on facts or on law, the requisite material in that behalf will have to be produced and relied upon by the Revenue. The Revenue is also free to urge before the Tribunal that even if in the earlier round the Tribunal has considered somewhat identical facts and circumstances its earlier conclusion requires reconsideration. When all such contentions are allowed to be raised, we expect the Tribunal to give them serious consideration and render a fresh decision assigning cogent, satisfactory and complete reasons. With these observations and by clarifying that this Court has not expressed any opinion on the rival contentions, either on merits of the show cause notices, the facts or on the questions of law, we dispose of the Appeal and the Writ Petition. No costs."
3.1 Arguing on the behalf of the party's Shri GajendraJain, learned Counsel submitted-
a. They were undertaking job work activity on the excise duty paid Hexane and Petroleum Ether supplied by M/s Merck Specialities Private Limited ("Merck").
They had paid service tax as applicable on the consideration received for the job work activity undertaken by them.
E/1901/2006,155,222/2008,894/2009,1475,1476/2010,85640,85641/2015,85559,85576/2016 8 b. Purification process etc. were earlier undertaken by the Merck themselves and in the case of Merck matter was adjudicated by the tribunal vide its Final Order No 995/98-C dated 12.10.1998.
c. The activities undertaken by them are identical to those which were undertaken by Merck and in terms of the decision in case of Merck, the processes undertaken by them do not amount to manufacture as has been held by tribunal earlier.
d. Adjudicating Commissioner has in para 20 of impugned order held as follows"
'20 Further, on the issue of whether the purification of Commercial Hexane and Petroleum Ether to Hexane HLVC and Petroleum Ether (Benzene) to Petroleum Benzenes GR amounts to manufacture or otherwise. It is seen from the analysis reports technical details as well as manufacturing process, that the critical factors such as density, boiling/ distillation rangeshow no substantial change as such. Further, to consider these products of petroleum industry like different products getting separated from crude would not be proper as those involve hydrocarbon products separating at different levels of distillation and the process is much complex as those involves products of volatile nature. In the process under present reference, no different hydrocarbon products were being separated and the process undertaken was a purification of the products received and such purity levels were required if the goods were to be used for chromatography or cleaning/ degreasing in laboratory applications. It is therefore quiet evident that the process undertaken do not give rise to any different E/1901/2006,155,222/2008,894/2009,1475,1476/2010,85640,85641/2015,85559,85576/2016 9 products with different character, identity or marketability, was merely just a simple purification of the materials received. The point regarding the change of classification as raised by department does not hold goods as there is no change in material characteristics and specifications. Hexane remains Hexane and Petroleum Benzene remains Petroleum Benzene. The change is only in the purity of the material."
e. On perusal of the process undertaken by Merck, it is clear that in their case also the process undertaken were like treatment with acid, washing with water etc. After consideration of the above processes, adjudicating Assistant Commissioner passed order in original dated 7/10.02.2000 holding that processes undertaken do not amount to manufacture. This order of Assistant Commissioner has acquired finality as it has not been challenged.
f. Department claim is not that the processes undertaken by them are different from those undertaken by the Merck. Hence the order of tribunal in case of Merck should be squarely applicable in their case.
g. They rely on following decisions holding that process undertaken by them do not amount to manufacture:
i. Servo Med Industries Pvt Ltd vs CCE [2015 (319) ELT 578 (SC)] E/1901/2006,155,222/2008,894/2009,1475,1476/2010,85640,85641/2015,85559,85576/2016 10 ii. S D Fine Chemicals Vs CCE [1997 (91) ELT 610 (T)] maintained in CA No 2532/92 vide order dated 20.11.1995.
iii. Indian Chem Port Vs CCE [2004 (174) ELT 113 (T)] iv. Dabur India Vs CCE [2004 (174) ELT 261 (T)] v. CCE Vs Aurobindo Pharma [2006 (200) ELT 236 (T)] affirmed by A P High Court in [2013 (292) ELT A64 (AP)] vi. Raj Petrochem Industries Vs CCE [2001 (129) ELT 186 (T)] vii. Mineral Oil Corporation Vs CCE [1999 (114) ELT 166 (T)] Affirmed in [2002 (140) ELT A 248 (SC)] viii. Shyam Oil Cake Vs CCE [2004 (174) ELT 145 (SC)] ix. CCE Vs SilvoLiacal Chemicals [2011 (268) ELT 247 (T)] h. There is no change in the name of the product. Hexane and Petroleum Ether before and after purification remain same. The suffix SF/ GR/ HCLV are given to indicate the specialized use of solvent based on the improvement in the quality of the material supplied by Merck as result of purification. Adding suffix does not mean that there is change in the name of basic chemical based on which goods are bought and sold. The fact that the processed article is known by different suffix will not determine the question as E/1901/2006,155,222/2008,894/2009,1475,1476/2010,85640,85641/2015,85559,85576/2016 11 to whether manufacture has taken place. He relied on following authorities in support-
i. Sundari Rubber Works Vs State of Tripura [1991 (81) STC 200 (Gau)] ii. State of Orissa Vs Titaghur Paper Mills [1985 Suppl SCC 280]i.
iii. State of Maharastra vs C P Manganese Ore Co.
[1977 (1) SCC 643] iv. Y MoideenKunhi and Others Vs CCE [1986 (23) ELT 293 (Kar)] v. Bush India Ltd. Vs UOI [1980 (6) ELT 258 (BOM)] i. There is no change in the character of the goods/ Hexane and Petroleum ether remain the same after purification activity. Since there is no change in character, no manufacturing activity has taken place-
a. CCE Vs Osnar Chemical Pvt Ltd. [2012 (276) ELT 162 (SC)] b. CoromandalProdorite Pvt Ltd vs GOI [1985 (20) ELT 257 (Mad) ] c. Tata Exports Ltd. Vs UOI 1985 (22) ELT 732 (MP)] j. Since there is no change in name, character and use there is no manufacture and hence the appeal filed by revenue needs to be dismissed.
E/1901/2006,155,222/2008,894/2009,1475,1476/2010,85640,85641/2015,85559,85576/2016 12 k. The physical properties and chemical properties of the goods before and after purification remain the same and hence the process undertaken do not amount to manufacture. It is also a settled law that classification follows manufacture and mere existence of tariff entry would not mean that the activity would amount to manufacture.
i. Moti Laminates Vs CCE [1995 (76) ELT 241 (SC)] ii. CCE Vs Aldee Corporation [2005 (188) ELT 241 (SC)] iii. CCE Vs Markfed Vanaspati [2003 (1530 elt 491 (SC)] iv. Prabhat Sound Studios Vs Addl CCE [1996 (88) ELT 635 (SC)] l. Purified versions can also be used for the purposes for which Hexane and Petroleum Ether received from Merck can be used.
m. Department has in the Notice not alleged that the activity of repacking the goods would amount to manufacture in terms of Note 4 to Chapter 27.
n. Value addition is irrelevant for determining, whether processes undertaken amount to manufacture-
a) Satnam Overseas Ltd vs CCE [2015 (318) ELT 538 (SC)]
b) Maruti Suzuki India Ltd. vs CCE [2015 (318) ELT 353 (SC)] E/1901/2006,155,222/2008,894/2009,1475,1476/2010,85640,85641/2015,85559,85576/2016 13
c) CCE vs Technoweld Industries [2003 (155) ELT 209 (SC)]
d) Aero Pack Products vs CCE [2002 (142) ELT 577 (SC)] affirmed in {2003 (238) ELT 385 (SC)]
e) CCE vs S R Tissues [2005 (186) ELT 385 (SC)].
o. Further the contention of value addition was not part of SCN or before the adjudicating authority hence the said contention cannot be for the first time be taken before the tribunal.
i. CC vs Toyo Engineering India [2006 (201) ELT 513 (SC)] ii. CCE vs Ballarpur Industries [2007 (215) ELT 489 (SC)] p. They have paid service tax on the consideration received towards job work undertaken by them on behalf of Merck. They rely on the following decisions whereinit has been held that service tax and central excise duty cannot be simultaneously levied.
i. Osnar Chemical Pvt Ltd Vs CCE [2009 (240) ELT 115 (T)] affirmed in CCE Vs Osnar Chemical Pvt Ltd. [2012 (276) ELT 162 (SC)] ii. Ericsson India Vs CCE 2007 (218) ELT 198 (T)] iii. Ericsson India Vs CCE [2013 (2940 ELT 599 (T)] iv. HCL Infosystem Vs CCE [2009 (245) ELT 712 (T)] v. Transformers & Electricals Vs CCE [2009 (14) STR 737 (Ker)] E/1901/2006,155,222/2008,894/2009,1475,1476/2010,85640,85641/2015,85559,85576/2016 14 vi. CCE Vs Ontop Pharmaceuticals Ltd Vs [2013 (290) ELT 725 (T)] 3.2 Arguing on the behalf of revenue Shri V K Agarwal, Additional Commissioner Authorized Representative submitted that-
a. After the process being undertaken by the various parties onthe inputs, totally new products emerges which are known in the market by different names and their uses are totally different from that of inputs and therefore it cannot be said that the raw material and final products are same.
b. in their statements, the employees of the assessee have stated that the final products were known differently in the trade and had different uses. In other words, each of final product had distinctive name, character and use which was different from the raw material. The processes employed therein, therefore amount to manufacture.
c. In his support he relied upon various decisions listed as follows:
i. C K Gangadharan Vs CIT [2008 (71) ELT 497 (SC )] ii. Peico Electronics & Electricals Ltd Vs CCE [1994 (71) ELT 1053 (T)] iii. Collector Vs Peico Electricals Ltd. [2000 (116) ELT A72 (SC)]
E/1901/2006,155,222/2008,894/2009,1475,1476/2010,85640,85641/2015,85559,85576/2016 15 iv. Arti Electrodes Pvt Ltd Vs CCE [2009 (246) ELT 570 (T)] v. Laminated Packaging (P) Vs CCE [1990 (49) ELT 326 (SC)] vi. CCE vs Alok Enterprises [2010 (209) ELT 333 (Bom)] vii. Alok Enterprises vs CCE [2004 (178) ELT 550 (T)] viii. Suprajith Chemicals Pvt Limited vs CCE [2003 (156) ELT 712 (T)] ix. Air Liquide North India Pvt Ltd vs CCE [2011 (271) ELT 321 (SC)] 4.1 We have considered the submissions made on the behalf of party and also on behalf of revenue. The matter in case of Sunbel Alloys Co. Of India Ltd, has been remanded back by Hon'ble Bombay High Court as stated in para 2.3, supra. At the outset we would mention that both revenue and party's to appeals agree that issues involved in all the appeals are same and identical and these can be taken for decision together.
4.2 The party's have challenged the appeal filed by the revenue basically on the ground that the decision of tribunal in case of CCE Bombay Vs E.Merk (I) Ltd [Final Order No 995/98-C dated 12.10.1998 in Appeal No E/2617/94-C of 1994] has decided the issue of manufacture in their favour, and hence following the said order appeal of revenue needs to be dismissed. For E/1901/2006,155,222/2008,894/2009,1475,1476/2010,85640,85641/2015,85559,85576/2016 16 ease of reference the relevant excerpts from the decision of Commissioner (Appeal) and that of the order of Tribunal are reproduced below:
Commissioner (Appeal), [Order in Appeal NoPCJ-
536/BOM-III/94 dated 26/9/94]-
"4 I have considered the submissions. This case is very similar to the facts in the case of S D Fine Chemicals P Ltd Vs Collector decided by the Tribunal as cited by the respondent's hereinabove. In that case, the appellants were undertaking the process of purification of duty paid chemicals by re-crystallization and simple distillation. So the question considered by the tribunal was whether purification of this type which makes the chemicals as fine chemicals suitable for use as laboratory chemicals can be held to be a process of manufacture that brings into existence new and distinct product having its own name, characteristics and use so as to be excisable to duty. The Hon'ble Tribunal held that 'what emerges after the process of simple distillation and re-crystallization of the chemicals undertaken by the appellant are only chemicals having much higher purity without any change in the name or in their chemical formula." After considering a number of case laws on this issue the tribunal came to conclusion that the process of purification by crystallization and distillation will not amount to a process of manufacture under Section 2 (f) of CESA, 1944.
5. In the present case, the department has not made out a case to hold that the facts of the case law relied upon by the respondent as well as by the Assistant Collector are different from the facts of the present case. There is nothing to indicate in the application that the chemicals after purification by re-crystallization and E/1901/2006,155,222/2008,894/2009,1475,1476/2010,85640,85641/2015,85559,85576/2016 17 distillation are converted into a new product with distinct and character.
It is not even disputed that there is no chemical reaction involved in the process which would change the chemicals formula of the product. In this view of the matter, I reject the application."
Tribunal Final Order No 995/98-C date 12.10.1998 "3 We find that the basis of challenge to the impugned order in this case is that the department has preferred an appeal to the Hon'ble Supreme Court against the judgement of the Tribunal in the S D Fine Chemicals case. We find that consequent upon the report of the tribunal filed before the Supreme Court in the S D Fine Chemicals reported in 1997 Supreme Court vide order dated 20.11.95 has dismissed the Revenue's appeal. Since the appeal of the revenue against S D Fine Chemicals has been rejected, there is no merit in the Department's appeal and the foundation of the Department's appeal falls to the ground, in this view of the matter. As a result, we see no reason to interfere with the impugned order and accordingly uphold the same and reject the appeal."
3.2 From the above decision of the tribunal in the case of E Merck referred above, it is quite evident, that the appeal before the tribunal was singly on the ground that the department had preferred an appeal before the Apex Court in case of S D Fine Chemicals. By the time the matter was taken up for disposal, the appeal filed by the department in the case of S D Fine Chemicals had been dismissed by the Apex Court. Accordingly tribunal found that the ground on which appeal has been filed E/1901/2006,155,222/2008,894/2009,1475,1476/2010,85640,85641/2015,85559,85576/2016 18 was no more, accordingly the appeal filed by the department has been dismissed. Thus it is seen that there was no consideration of any other issue, except the appeal filed by the revenue before the Apex Court in case of S D Fine Chemicals. Since the said appeal in Supreme Court had been dismissed, tribunal rightly dismissed the appeal filed by the revenue.
3.3 Now the real question is whether the order of the tribunal in case of E Merck referred above, would be binding on the party's and would be a binding precedent for all the times to come, even if it can be shown that by applying the principles laid down by the Apex Court in the case of S D Fine Chemicals itself, to the facts of present case the processes undertaken amounts to manufacture.
3.4 From the order dated 8.8.1992 of adjudicating Assistant Commissioner, and that of Commissioner (Appeal) dated 26.09.1994, in case of E Merck, it is quite evident that both the authorities had found the facts of the case identical were identical with the case of S D Fine Chemical as decided by the tribunal vide order reported in 1991 (56) ELT 393 (T). The said order was appealed by the revenue before the Apex Court. Further the said order of tribunal, was not an unanimous order, and there was a difference in opinion amongst the Member's hearing the matter in first instance. While Member (T) was in favour of allowing the appeal, E/1901/2006,155,222/2008,894/2009,1475,1476/2010,85640,85641/2015,85559,85576/2016 19 Member (Judicial) disagreed and was for dismissing the appeals. When the matter was referred to third Member, third member agreed with the view of Member (Technical) for dismissing the appeal. Against this order, the matter was taken before the Supreme Court, and Supreme Court while examining the issue in great details found that the order by third member was very cryptic and was not answering the issue raised by the Member (Judicial) while differing from the Member (Technical), accordingly the matter was again referred back to third member for passing a fresh order. The relevant extract from the order of Apex Court is reproduced below:
"Now coming to the facts of the case before us, it is clear from the perusal of the opinion of the third Member of the Tribunal that he has not dealt with the case in a full and proper manner and has disposed of the issue in a cryptic manner. It has, therefore, become necessary to remit the matter for the fresh opinion of the third Member of the Tribunal. The third Member shall not hear the parties and render his opinion afresh on the question referred to him. He shall do so within six months from this date. He shall transmit his opinion to this Court soon after rendering it.
If the third Member, JyotiBalasundaram, who heard the matter is not available, the Chairman of the Tribunal shall specify another Member for hearing this matter."
3.5 Thus the order of tribunal on which reliance has been placed by both Adjudicating Authority and Commissioner (Appeal) was in fact set aside and matter remanded for fresh reconsideration by the third E/1901/2006,155,222/2008,894/2009,1475,1476/2010,85640,85641/2015,85559,85576/2016 20 member. The matter was reconsidered by the third member vide her order as reported in 1997 (91) ELT 610 (T) and after transmission of reconsidered view, the appeal filed by the revenue was dismissed by the Apex Court. Since the appeal filed by the revenue in case of S D Fine Chemicals was dismissed, tribunal dismissed the appeal filed by revenue in case of E Merck. We are not going into the issue of dismissal of appeal by the tribunal in case of E Merck, but would point out that while in case of S D Fine Chemicals, third Member, had examined the issue in light of the observations made by the Apex Court in [1995 (3) SCR 84], no such examination has been done by any authority while deciding the case of E Merck. In view of the decision of Apex Court in case of Shree Baidyanath Ayurved Bhawan [2009 (237) ELT 225 (SC)] holding as follows the matter needs to be reconsidered.
"45. Before we part with the case, we may address to the plea of res judicata raised by the learned Senior Counsel for the Department. Mr. K. Radhakrishnan pressed into service few legal maxims in this regard. It is true that maxim Nemo debet bis vexari pro una et eadem causa is founded on principle of private justice as it states that no man ought to be twice put to trouble if it appear to the court that it is for one and the same cause. The maxim Interest republicae sit finis litium concerns the State that law suits be not protracted. This maxim is based on public policy. In our opinion, these maxims cannot be applied as a rule of thumb in the taxation matters. In the matters of classification of goods, the E/1901/2006,155,222/2008,894/2009,1475,1476/2010,85640,85641/2015,85559,85576/2016 21 principles that have been followed by the courts - which we endorse - are that there may not be justification for changing the classification without a change in the nature or a change in the use of the product; something more is required for changing the classification especially when the product remains the same. Earlier decision on an issue inter parties is a cogent factor in the determination of the same issue. The applicability of maxim Res judicata pro veritate occipitur in the matters of classification of goods has to be seen in that perspective. The interpretation given by this Court in Baidyanath I with regard to this product has been considered and applied by us after amendment because Chapter Sub- heading 3003.31 does not contain definition of Ayurvedic Medicine and the product DML in nature, character and uses remains the same as it was prior to amendment."
3.6 In Bharat Sanchar Nigam Ltd. v. Union of India -
[2006 (3) SCC 1] Hon'ble Apex court held as follows:
"The decisions cited have uniformly held that res judicata does not apply in matters pertaining to tax for different assessment years because res judicata applies to debar courts from entertaining issues on the same cause of action whereas the cause of action for each assessment year is distinct. The courts will generally adopt an earlier pronouncement of the law or a conclusion of fact unless there is a new ground urged or a material change in the factual position. The reason why the courts have held parties to the opinion expressed in a decision in one assessment year to the same opinion in a subsequent year is not because of any principle of res judicata but because of the theory of precedent or the precedential value of the earlier pronouncement. Where facts and law in a subsequent assessment year are the same, no authority whether quasi-judicial or judicial can generally E/1901/2006,155,222/2008,894/2009,1475,1476/2010,85640,85641/2015,85559,85576/2016 22 be permitted to take a different view. This mandate is subject only to the usual gateways of distinguishing the earlier decision or where the earlier decision is per incuriam. However, these are fetters only on a coordinate Bench which, failing the possibility of availing of either of these gateways, may yet differ with the view expressed and refer the matter to a Bench of superior strength or in some cases to a Bench of superior jurisdiction.
A decision can be set aside in the same lis on a prayer for review or an application for recall or under Article 32 in the peculiar circumstances mentioned in Hurra v. Hurra [2002 (4) SCC 388]. As we have said, overruling of a decision takes place in a subsequent lis where the precedential value of the decision is called in question. No one can dispute that in our judicial system it is open to a court of superior jurisdiction or strength before which a decision of a Bench of lower strength is cited as an authority, to overrule it. This overruling would not operate to upset the binding nature of the decision on the parties to an earlier lis in that lis, for whom the principle of res judicata would continue to operate. But in tax cases relating to a subsequent year involving the same issue as an earlier year, the court can differ from the view expressed if the case is distinguishable or per incuriam. The decision in State of U.P. v. Union of India [2003 (3) SCC 239] related to the year 1988. Admittedly, the present dispute relates to a subsequent period. Here a coordinate Bench has referred the matter to a larger Bench. This Bench being of superior strength, we can, if we so find, declare that the earlier decision does not represent the law. None of the decisions cited by the State of U.P. are authorities for the proposition that we cannot, in the circumstances of this case, do so. This preliminary objection of the State of U.P. is therefore rejected."
E/1901/2006,155,222/2008,894/2009,1475,1476/2010,85640,85641/2015,85559,85576/2016 23 3.7 Since the issue in case of E Merck was never examined by the Tribunal, on merits and the matter was agitated only for the reason that decision in case of S D Fine Chemicals, relied upon by adjudicating authority and Commissioner (Appeal) have been appealed before the Apex Court, tribunal has dismissed the appeal filed by revenue only on that ground. Since Tribunal has not considered the issue in E Merck on merits and in light of the Apex Court decision in case of S D Fine Chemicals, the earlier decision of Tribunal referred above cannot be a binding precedent, in view of decision in case of Jagjit Singh Vs Chandigarh Administration [J.T. 1995 (1) S.C. 445] and Allahabad High Court in case of Super Casettes [1997 (94) ELT 302 (SC)] 3.8 Hon'ble Supreme Court has in case S D Fine Chemicals [1995 (3) SCR 84] held-
"The decisions aforesaid make it clear that the definition of the expression 'manufacture' under Section 2(f) of the Act is not confined to the natural meaning of the expression 'manufacture' but is an expansive definition. Certain processes, which may not have otherwise amounted to manufacture, are also brought within the purview of and placed within the ambit of the said definition by the Parliament. Not only processes which are incidental and ancillary to the completion of manufactured product but also those processes as are specified in relation to any goods in the section or chapter notes of the schedule to the Central Excise Tariff Act, 1985 are also brought within the ambit of the definition. As has been repeatedly observed by the Court, though E/1901/2006,155,222/2008,894/2009,1475,1476/2010,85640,85641/2015,85559,85576/2016 24 the principles enunciated are clear, it is their application that presents difficulties and it does not help to draw "any sharp or intrinsic distinction between 'processing' and 'manufacture', "which would only result in an oversimplification of both and tends to blur their interdependence in cases such as the present one"
(Ujagar Prints). It would also be not right, as pointed out in Ujagar Prints to try to restrict the sweep of the definition with reference to Entry 84 List-I of the seventh Schedule to the Constitution. Since the constitutionality of the said definition has been repeatedly upheld with reference to both Entries 84 and 97 of List-I (Empire Industries and Ujagar Prints), the definition must be understood in terms it is couched. It should also be remembered that the question whether a particular process does or does not amount to 'manufacture' as defined under Section 2(f) is always a question of fact to be determined in the facts of a given case applying the principles enunciated by this Court. One of the main tests envolved by this Court is whether on account of the processes employed or applied by the assessee, the commodity so obtained is no longer regarded as the original commodity but is, instead, recognised as a distinct and new article that has emerged as a result of the processes (Ujagar Prints)."
3.7 The Supreme Court in the case of Union of India v.
BabubhaiNylchand Mehta 1991 (51) ELT 182 (SC) has held at Paras 6, 7 and 8 as follows -
"We have given our careful consideration to the arguments advanced by learned Counsel for both the parties. In our view the above decision in Laminates Packings (P) Ltd. v. Collector of Central Excise, Guntur (supra) is an authority directly clinching the issue E/1901/2006,155,222/2008,894/2009,1475,1476/2010,85640,85641/2015,85559,85576/2016 25 involved before us. In the above case the short question for consideration was whether the lamination of duty paid kraft paper with polyethylene resulting in polyethylene laminated kraft paper would amount to manufacture and excisable under law or not. Dealing with the above question it was observed as under -
Lamination, indisputably by the well-settled principles of excise law, amounts to manufacture. This question in our opinion is settled by the decisions of this Court. Reference may be made to the decision of this Court in Empire Industries Ltd. v. Union of India. Reference may also be made to the decision of this Court in CCE v. Krishna Carbon Paper Co. We are therefore, of the opinion that by process of lamination of kraft paper with polyethylene different goods come into being. Laminated kraft paper is distinct, separate and different goods known in the market as such from the kraft paper.
Counsel for the appellant sought to contend that the kraft paper was duty paid goods and there was no change in the essential characteristic or the user of the paper always lamination. The fact that the duty has been paid on the kraft paper is irrelevant for consideration of the issue before us. If duty has been paid, then benefit or credit for the duty paid would be available to the appellants under Rule 56A of the Central Excise Rules, 1944;
It is no doubt correct that in the above case it was also observed that manufacture is bringing into being goods as known in the excise law i.e. to say known in the market having distinct separate and identifiable function. On this score in our opinion, there is sufficient evidence. On the basis of the above observations, it was strenuously contended by Mr. Lalit that in the above case there was sufficient evidence on record to hold that after manufacture the goods were known in the market having E/1901/2006,155,222/2008,894/2009,1475,1476/2010,85640,85641/2015,85559,85576/2016 26 distinct separate and identifiable function but there is no such evidence on record in the case in hand before us.
We find no force in the above contention. Once we hold that the coating lamination and other process applied by the Company in its factory amounts to manufacture, new products come into being. It does not remain an ordinary kraft paper and as such it is liable to excise duty of 40% ad valorem as provided under Central Excise Tariff Item No. 17(2). In the above Laminated Packings case, it was clearly held by process of lamination of kraft paper with polyethylene different goods come into being. Laminated kraft paper is distinct separate and different goods known in the market as such from the kraft paper."
3.8 The third member in case of S D Fine Chemical, has in her order reported in 1997 (91) ELT 610 (T) has held as follows:-
"15.3 The Hon'ble Supreme Court in the case of Dy. Commercial Superintendent Sales Tax v. Pio Food Packers -1980 (6) E.L.T. 343 (SC) laid down that manufacture is the end result of one or more processes through which the original commodity is made to pass and although the nature and extent of processing may vary from one case to another, yet it is when the change or a series of changes take the commodity to the point where commercially that article is recognised as new and distinct article, that a manufacture can be said to have taken place.
15.4 In the decision of the A.P. High Court in Brooke Bond India Ltd. v. Union of India and Ors. reported in [1984 (15) E.L.T. 32 (A.P.)] the High Court has held that duty on mixture of Coffee and Chicory resulting in a distinct commercial commodity did not amount to double taxation on the same commodity. In Paragraph 50 of the E/1901/2006,155,222/2008,894/2009,1475,1476/2010,85640,85641/2015,85559,85576/2016 27 judgment, 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, if the article in question retains its essential character, it has to be taxed as such article only and the processing would make no difference. The physical stage or even composition may change, but so long as the essential character of the article continues to remain the same, it has to be taxed as that commodity alone. The test for determining whether 'manufacture' can be said to have taken place is whether the commodity which is subjected to the process of manufacture can no longer be regarded as the original commodity, but is recognised in the trade as a new and distinct commodity. The test laid down by Pathak, J. in Pio Food Packers' case [1980 (46) STC 63 (S.C.)] should be the guiding principle in determining the question whether a particular commodity has been subjected to the process of manufacture. Commonly manufacture is the end result of one or more processes through which the original commodity is made to pass. The nature and extent of processing may vary from one case to another and indeed there may be several stages of processing and perhaps different kind of processing at each stage. With each process suffered the original commodity experiences a change. But it is only when the change, or a series of changes, take the commodity to the point where commercially it can no longer be regarded as the original commodity but instead is recognised as a new and distinct article that a manufacture can be said to take place. The test that is required to be applied is:
does the processing of the original commodity being into existence a commercially different and distinct commodity? On an application of this test, it is clear that the blending of different qualities of one possessing differing chemical and physical composition so as to produce ore of the contractual specifications cannot be E/1901/2006,155,222/2008,894/2009,1475,1476/2010,85640,85641/2015,85559,85576/2016 28 said to involve the process of manufacture, since the ore that is produced cannot be regarded as a commercially new and distinct commodity from the ore of different specifications blended together. The nature and extent of processing may vary from case to case; in one case the processing may be slight and in another it may be extensive, but with each process suffered the commodity would experience a change. Wherever a commodity undergoes a change as a result of some operation performed on it or in regard to it, such operation would amount to processing of the commodity. The nature and extent of the change is not material".
16. The test of manufacture laid down by the Hon'ble Supreme Court in the case of Union of India and Ors. v. Delhi Cloth and General Mills Co Ltd. and Ors. - 1977 (1) E.L.T. (J 199) is that a new and different article must emerge having distinctive name, character or use. The same test was reiterated in the case of South Bihar Sugar Mills v. Union of India -1978 (2) E.L.T. (J 336) wherein the Supreme Court affirmed that the word 'manufacture' implies a change but every change in the raw material is not manufacture and there must be such transformation that a new and different article must emerge having a distinct name, character or use. In the case of Empire Industries Ltd. v. Union of India -1985 (20) E.L.T. 179 (SC), the Hon'ble Supreme Court held that, if by application of labour and skill an object is transformed to the extent that it is commercially known differently, it will suffice to say that manufacture has taken place for the purpose of Central Excise. The test of manufacture as laid down by the Hon'ble Supreme Court in the case of Ujager Prints v. Union of India - 1988 (38) E.L.T. 535 was to determine as to whether the change or series of changes brought about by the application of processes take the commodity to the point where, E/1901/2006,155,222/2008,894/2009,1475,1476/2010,85640,85641/2015,85559,85576/2016 29 commercially it can no longer be regarded as the original commodity but is instead recognised as a distinct and new article that has emerged because of the result of the processes.
17. In the present case, admittedly only the grade of the chemical gets change and hence the test of manufacture as laid down by the Hon'ble Supreme Court in the cases cited (supra) is not satisfied as purification of a chemical to obtain another grade of the same chemical, particularly when the purification is marginal, cannot be said to result in a totally new chemical commodity.
18. The question may be examined from the context of the new Central Excise Tariff Act, 1985. Therein sub-heading 2915.10 covers Acetic Acid. Evidently, the material being purchased by the appellants from the market would have suffered duty as Acetic Acid under sub-heading 2915.10. Even after purification, there is no dispute that the product is being sold by the appellants in the market only as Acetic Acid. If the Revenue were to levy excise duty on the purified Acetic Acid, it would only be under sub- heading 2915.10 only. That would clearly amount to double taxation. This anomaly does not get highlighted in the present matter because the Department is levying duty under Tariff Item 68 of the Schedule to the erstwhile Central Excise Tariff. It is an accepted and agreed position in the present case that the purification of chemicals is not included as a process of manufacture under Section 2(f) of the Act as it stood prior to 28-2-1986 nor is there any chapter note in any of the chapters treating purification of chemicals as amounting to manufacture.
19. As can be gathered, the key test is whether the commodity which is subjected to the process of manufacture can no longer be regarded as the original commodity. In my view in the instant case this test has E/1901/2006,155,222/2008,894/2009,1475,1476/2010,85640,85641/2015,85559,85576/2016 30 not been satisfied as the chemicals prior to the two processes concerned herein continue to remain the same after being subjected to the processes, admittedly with only a change in increase in purity. The commodity retains its identity substantially through the processing stage. Therefore, it cannot be said to have been manufactured."
3.9 In case of CST Vs IOC [(1978) 41 STC 471 (BOM)], Bombay High Court has held -
"2. The respondent is a dealer registered under the said Act. By an application dated 14th October, 1971, made under section 52(1) of the said Act, to the Commissioner of Sales Tax, the respondent sought determination of the correct rate of tax payable on the sale of Methimix effected under a certain invoice, a copy of which was annexed to the application. The respondent applied for determination of the question as to whether mixing of distilled water with methonol amounted to manufacture of goods under section 2(17) of the said Act. The respondent further applied for the determination of the correct rate of tax payable on the sale of Methimix effected under the aforesaid invoice. The respondent purchased methonol from the Fertilizer Corporation of India which is a registered dealer under the said Act. The methonol so purchased was mixed by the respondent with distilled water in the exact proportion of 45 per cent. methonol and 55 per cent. distilled water. This mixture was sold by the respondent under the name "Methimix".
It was stated in the said application that this mixture was a power augmentation fluid used for increasing power development by aviation engines and was principally used at the take-off stage. The Commissioner of Sales Tax came to the conclusion that mixing of distilled water with methonol in the circumstances E/1901/2006,155,222/2008,894/2009,1475,1476/2010,85640,85641/2015,85559,85576/2016 31 aforesaid would amount to "manufacture" as defined in section 2(17) of the said Act, that the product Methimix was covered by entry 67 of Schedule C to the said Act and that it would be liable to the levy of sales tax at 12 per cent. under section 8 of the said Act. The respondent preferred an appeal against this decision to the Sales Tax Tribunal. The Tribunal held that mixing of distilled water with methonol by the respondent as aforestated did not amount to "manufacture" within the meaning of the said term under section 2(17) of the said Act. In view of this conclusion, the Tribunal did not examine the question of the rate of tax payable on the sale of Methimix. The Tribunal set aside the order of the Commissioner of Sales Tax in the determination proceedings, holding that the respondent having purchased methonol from a registered dealer would be entitled to the benefit of resale while selling the diluted methonol in the way in which it had done. As no process of manufacture was involved, the sales by the respondent would amount to resales within the meaning of section 2(26) of the said Act and hence the amount of the said resales would be liable to be deducted from the taxable turnover under section 8 of the said Act. The question referred to us arises from this decision of the Tribunal.
3. Clause (17) of section 2 of the said Act gives a very extended definition to the term "manufacture". The said clause reads thus :
"'manufacture', with all its grammatical variations and cognate expressions, means producing, making, extracting, altering, ornamenting, finishing or otherwise processing, treating, or adapting any goods; but does not include such manufactures or manufacturing processes as may be prescribed."
4. We have no doubt that in view of the said extended definition, the mixing of methonol with distilled water in E/1901/2006,155,222/2008,894/2009,1475,1476/2010,85640,85641/2015,85559,85576/2016 32 exact proportions and subjecting the mixture to laboratory test as has been done in the present case by the respondent would be covered in the description of the term "manufacture", given in clause (17) of section 2 of the said Act. For example, mixing in such a manner would certainly amount to making the mixture or producing the mixture or treating methonol with water or adapting methonol for the use in question. The question which has to be really considered is whether such activity of mixing methonol with distilled water results in a commercially different commodity. As we have already held in Commissioner of Sales Tax v. Dunken Coffee Manufacturing Company ([1975] 35 S.T.C. 493), for an activity to amount to manufacture, it must result in a different commercial article or commodity. It must not be the commodity which is commercially the same as it was before the activity was applied to it. We have pointed out in that decision that the definition of the term "manufacture" in clause (17) of section 2 of the said Act is very wide and includes within its scope certain activities which in ordinary parlance cannot be considered as manufacture. The contention of Mr. Sheth, the learned Advocate for the respondent, is that even after methonol was mixed with distilled water by the respondent, the article still remained the same, namely, a mixture containing methonol and distilled water, and hence it could not be said that any new commercial commodity had been brought into being by the activity of mixing methonol and distilled water carried out by the respondent. In our view, this contention is totally unfounded. The description of the process of such mixing given by the respondent shows that the mixing is done in exact proportions and the mixture is even tested in a laboratory. This mixture is used for a specific purpose, viz., as power augmentation fluid mainly used in aeroplane engines for the purpose of take-off. The mixture E/1901/2006,155,222/2008,894/2009,1475,1476/2010,85640,85641/2015,85559,85576/2016 33 is sold under a definite name, viz., Methimix. In these circumstances, it appears to us that it is beyond dispute that a new commercial commodity, viz., Methimix, has been brought into existence by the activity of mixing methonol with distilled water carried out by the respondent and the said activity of mixing methonol with distilled water carried out by the respondent does amount to manufacture within the meaning of clause (17) of section 2 of the said Act. Mr. Sheth has drawn our attention to our decision in Commissioner of Sales Tax v. Bombay Mercantile Corporation ([1975] 35 S.T.C. 505). In that case, the respondent, a dealer in lubricating oils, purchased some drums of oil and after hand-blending the same sold the resultant mixture. It was held that this process carried out by the respondent in that case did not amount to "manufacture" within the meaning of section 2(17) of the said Act. In out view, this decision has no application to the case before us, because, as we have pointed out in that case, there was nothing on the record to show that any new or different commercial commodity came into existence as a result of the process of hand- blending applied to the oil purchased by the respondent therein, whereas, in the present case, as we have already observed, the mixing carried out by the respondent has resulted in a new commercial commodity which is sold in the trade name of Methimix."
3.10 Another test applied by the Hon'ble Supreme Court is the "Functional or user test." In the case of Atul Glass Industries (P) Ltd. v. Collector of Central Excise (1986) 63 STC 322 (SC), the Apex Court at page 327 held as under:
"The test commonly applied to such cases is : How is the product identified by the class or section of people E/1901/2006,155,222/2008,894/2009,1475,1476/2010,85640,85641/2015,85559,85576/2016 34 dealing with or using the product? That is a test which is attracted whenever the statute does not contain any definition. Porritts& Spencer (Asia) Ltd. v. State of Haryana (1978) 42 STC 433(SC). It is generally by its functional character that a product is so identified. In Commissioner of Sales Tax, U.P. v. Macneill& Barry Ltd. (1986) 61 STC 76 (SC) : (1985) 2 SCALE 1093 (SC), this court expressed the view that ammonia paper and ferro paper, used for obtaining prints and sketches of site plans could not be described as paper as that word used in common parlance. On the same basis, the Orissa High Court held in State of Orissa v. Gestetner Duplicators (P) Ltd. (1974) 33 STC 333 (Ori) that stencil paper could not be classified as paper for the purposes of the Orissa Sales Tax Act. It is a matter of common experience that the identity of an article is associated with its primary function. It is only logical that it should be so. When a consumer buys an article, he buys it because it performs a specific function for him. There is a mental association in the mind of the consumer between the article and the need it supplies in his life. It is the functional character of the article which identifies it in his mind. In the case of a glass mirror, the consumer recalls primarily the reflective function of the article more than anything else. It is a mirror, an article which reflects images. It is referred to as a glass mirror only because the word "glass" is descriptive of the mirror in that glass has been used as a medium for manufacturing the mirror."
4.1 The apex Court in CCE vs. S.D. Fine Chemicals (P) Ltd. (1995) Supp 2 SCC 336 has laid down that whether a particular process is covered by 'manufacture' as defined in s. 2(f) is a question of fact, to be determined in the facts of each case. In CCE vs. Jayant Oil Mills (P) E/1901/2006,155,222/2008,894/2009,1475,1476/2010,85640,85641/2015,85559,85576/2016 35 Ltd. (1989) 3 SCC 343, the apex Court held that all processes do not constitute manufacture. Manufacture is complete as soon as by the application of one or more process, the raw material undergoes some change. The moment there is transformation into a new commodity commercially known as a separate and distinct commodity having its own character and use, 'manufacture' takes place as held by the apex Court in Aditya Mills Ltd. vs. Union of India (1988) 4 SCC
315.Hon'ble Apex Court in the case of UOI vs. Delhi Cloth and General Mills Co. Limited 1977 (1) ELT J-
199 (SC) held that manufacture implies a change, but every change is not manufacture and yet every change of an article is the 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. Thus in light of the legal position as enumerated above, the facts in the present cases need to be examined.
4.2 From the adjudication order in the case of Reshma Organics, following paras, narrate the facts and understanding the of raw material and finished products by the appellants employees themselves.
"3. Statement of Shri Devashish Anil Auddy, Director of M/s. ROCL, was recorded on 05.12.2005 and E/1901/2006,155,222/2008,894/2009,1475,1476/2010,85640,85641/2015,85559,85576/2016 36 16.06.2005 under Section 14 of the Central Excise Act, 1944 who stated, inter alia, that, they were engaged in the business of distillation, rectification and repacking of laboratory regents for M/s. RFCL on job work basis;
M/s. RFCL were supplying all raw materials and packing materials to their factory gate;
depending on their requirement, the goods were manufactured from Hexane fraction of petroleum products which was first washed with sulphuric acid (3-4 times) and then washed with water till the same was rendered neutral to pH;
the said material was then rectified in the rectification column; the fraction below 60oC to 65oC was collected as Hexane's of HPCL and then the same was repacked in the consumer packs;
same process was being carried out for the various grades of Petroleum Ether 60-80; the products being distilled were for higher and refined grades in the purer form than commercial grade;
the products were repacked in the consumer packs of 500 ml, 1 litre, 2.5 litre, 25 litre etc.; the products manufactured by them fell under CETSH 2710.12 and 2710.13;
they were treating raw material Hexane-HPCL falling under CETSH 2710.13 and petroleum Ether 40-60 and 60-80 also falling under 2710.13 with acid followed by water washing and distillation and thereafter repacking the same into consumer packs; the resultant products were exclusively used in the laboratory and institutional laboratories or servicing industry as gradient run in HPCL instrument;
E/1901/2006,155,222/2008,894/2009,1475,1476/2010,85640,85641/2015,85559,85576/2016 37 as per his understanding, their product like petroleum either 60-80/40-50 did not fall under manufacturing activity as defined in the Section 2(f) of the Central Excise Act, 1944; they were paying duty on Hexane HPCL from the year 2002-03 till 14.7.2005, accepting that the process amount to manufacture.
4. Statement of Shri Ravindra Kumar Tanwar, Senior Manager (Technical) of M/s. RFCL was recorded under Section 14 of the Central Excise Act, 1944 on 05.12.2005, wherein he stated, inter alia, that input product Hexane and resultant were having same physical properties;
impurities were removed by the way of distillation/processing of the raw material in order to make it suitable to use as laboratory reagent as AR Grade, LR Grade and SG Grade Hexane and the variance in prices is due to the above mentioned process.
5. Statement of Shri Sandeep Mathur, Quality Assurance Manager of M/s. RFCL, was recorded under Section 14 of the Central Excise Act, 1944 on 07.03.2007, wherein he stated, inter alia, that:
the raw material Hexane was first washed with sulphuric acid 3 to 4 times and then again washed with water, till the same is neutral to pH;
the said material is then rectified in rectification column and the fraction between 60-65o was collected as Hexane's of HPCL were then charged in glass reactor, washed with water and finally distilled with the help of steam;
the low boiling points impurities were removed and final products were separated at particular boiling point;
the final products were distinct from the input products which contained low volatile matter, metallic impurities, water, sulphur compounds, Thiophene as compared to raw materials and then it was cleared in the E/1901/2006,155,222/2008,894/2009,1475,1476/2010,85640,85641/2015,85559,85576/2016 38 name of specific grades such as AR [Analytical Reagent], LR [Laboratory Reagent] and SG [Special Grade];
more or less similar process was carried out to get the petroleum Ether 60-80 [Fraction from Hexane]; the grades are specified as per their use in the industry such as LR Grade is used as degreasing/cleaning of oily surface in the industries such as Pharma, injection manufacturing etc. AR/SR Grade was used for CRO (Clinical Research Organization) purpose; HPCL Grade was used for High performance Liquid Chromatography instrument for analyzing purity and impurity profile of substances; it was used as a mobile phase in HPCL instrument."
4.3 Sunbel Alloys Company of India Ltd had filed an affidavit giving the details of processes undertaken by them along with the nature and character of the finished goods and raw material before the Bombay High Court. Said affidavit which contains all the details about the processes the products is reproduced below:
E/1901/2006,155,222/2008,894/2009,1475,1476/2010,85640,85641/2015,85559,85576/2016 39 E/1901/2006,155,222/2008,894/2009,1475,1476/2010,85640,85641/2015,85559,85576/2016 40 E/1901/2006,155,222/2008,894/2009,1475,1476/2010,85640,85641/2015,85559,85576/2016 41 E/1901/2006,155,222/2008,894/2009,1475,1476/2010,85640,85641/2015,85559,85576/2016 42 E/1901/2006,155,222/2008,894/2009,1475,1476/2010,85640,85641/2015,85559,85576/2016 43 4.4 From the facts as stated by the employees of the party's and also as per the affidavit filed by appellants, the input raw material received by them is "Commercial Grade Bulk Hexane and Petroleum Ether (also known as benzine). As per the para 7, of the affidavit as result of processes undertaken the certain properties of the Commercial grade Hexane and Petroleum Ether are modified, the finished product meets the requirement of ultimate use.. Also as per the para 5, of the affidavit, the specifications, of the raw material as received and the finished goods supplied by them are also not the same.
Appellants have argued vis a vis two critical parameters to state that there is no change in the raw material received by them and the finished products supplied by them.
10.4. In the Adjudication order adjudicating authority has after consideration of the submissions made returned following findings:
E/1901/2006,155,222/2008,894/2009,1475,1476/2010,85640,85641/2015,85559,85576/2016 44 "19. M/s. ROCL have relied on the case of M/s. S.D. Fine Chemicals in their support. However, this decision is of no help to them as it relates to refining/purification process of chemicals, whereas, in the instant case, the product involved is a petroleum product falling under chapter 27 of the Central Excise Tariff. Further, in the case of M/s. S.D. Fine Chemicals the process involved were mere physical processes, namely, distillation and re-crystallization, whereas, in the instant case, the process involves treatment of the raw material by sulphuric acid, Sodium carbonate solution, water and then distillation. The two processes, therefore, cannot be compared and the decision in the case of S.D. Fine Chemical is clearly distinguishable. [In fact, even for chemicals falling under chapter 28 and 29 of the Central Excise Tariff, the S.D. Fine Chemicals case is no longer applicable as chapter Notes were inserted in these two chapters w.e.f. 1.3.1997, making the process of re-
packing, labeling, re-labeling, etc. as amounting to the manufacture]. As regards the case of E. Merck, there also the items involved were chemicals and going by the text of the relevant CESTAT order, the processes involved were again physical process, namely, distillation, crystallization and filtration. In fact, in the case of Alok Enterprises vs. CCE, Mumbai-III [2004 (ELT 550) (Tri- Mum)], a decision delivered after the case of S.D. Fine Chemicals, it has been held that 'purification' of Acid would amount to manufacture.
20. Even for arguments' sake if it taken that the process of purification may not amount to manufacture in respect of chemicals going by the decision in the case of S.D. Fine Chemicals and E. Merck, this logic cannot be extended to petroleum products. The Petroleum products like gasoline, Kerosene etc. are produced through the process of purification of crude oil, but by no stretch of E/1901/2006,155,222/2008,894/2009,1475,1476/2010,85640,85641/2015,85559,85576/2016 45 imagination can it be said that this process does not amount to manufacture. So far as the instant case is concerned, M/s. ROCPL have contended that the product received by them from M/s. RFCL was Hexane Ordinary Grade, which they subjected to certain processes to produce Hexane AR, Hexane LR, Hexane SG, Hexane HPLC and Petroleum Ether 60-90. It is observed that Hexane is an alkane hydrocarbon with chemical formula CH3 (CH2)4CH3(=C6 H14), whereas, Petroleum Ether is a totally different product which is also known a Benzene. In fact, Petroleum Ether is a fraction of crude petroleum which comes out as a distillate which is intermediate between the lighter Naptha and the heavier Kerosene. It is, in fact a mixture of different Alkanes like pentane Hexane and Heptanes. Thus, what M/s. ROCPL are doing in the factory premises is fractional distillation to further separate different fraction of input raw materials. Different fractions of petroleum are distilled at different temperature and each describing as Hexane, Ordinary Grade) and is a mixture of different hydrocarbons. On fractional distillation it is being separated into pure Hexane and a mixture of other Hydrocarbons. The Hexane is then further refined to AR/SG/HPLC Grades, whereas the remaining mixture of hydrocarbons are being referred to by them as petroleum Ether, which, as already discussed above, is actually a mixture of different hydrocarbons. To say that they are obtaining Petroleum Ether from Hexane is technically not possible [source: Wikipedia]. Even if we accept their contention that they produce petroleum Ether from Hexane, it cannot be said that the raw material and the final product are one and the same. Therefore, the process involved will have to be considered as amounting to 'manufacture'.
E/1901/2006,155,222/2008,894/2009,1475,1476/2010,85640,85641/2015,85559,85576/2016 46
21. As regards Hexane, each of the different Grades have separate uses as indicated below, and, therefore, have distinct name character and use, different from the raw material.
(i) Hexane LR is used for degreasing/cleaning of oily surfaces in industries such as Pharma, Injection manufacturing etc.
(ii) Hexane AR/SG Grade is used for clinical Research Organization (CRO).
(iii) Hexane HPCL Grade is used as mobile phase in HPLC (High Performance Liquid Chromatography) instruments.
The statements of the employees of M/s. ROCPL corroborate the fact that the final products were known differently in the trade and had also different uses. In other words, each final product had a distinctive name, character and use which were different from the raw material. The processes employed therein, therefore amount to manufacture.
22. It is contended by M/s. ROCPL that while the commercial grade can be used for generic purpose, the special grades are used in specialized applications like LR Grade is used for degreasing/clearing of oily surfaces in industries such as pharma, injection manufacturing etc. AR/SG Grade is used for Clinical Research Organization and HPCL Grade is used as mobile phase in HPCL and this cannot, however, mean that specialized grades cannot be put to the use to which commercial grades are put. I find that it's a matter of common prudence that if industry can manage to use the commercial grade to serve their purpose and thereby spending less would not opt for specialized grade incurring more expenditure. It is only when a person or industry need a chemical or product for specific purpose E/1901/2006,155,222/2008,894/2009,1475,1476/2010,85640,85641/2015,85559,85576/2016 47 that the person or industry will go for its use. I find that the value of commercial grade is enhanced by turning them into specialized grades on job work basis and therefore there is value addition. I further find that the specialized grardes are prepared by M/s. ROCPL for a separate use as seen in this case. It is an accepted fact that in the instant case there is value addition. In the case of Decorative Laminates (India Pvt. Ltd.) - 1996 (86) ELT 186, it was held by Hon'ble Supreme Court that 'in deciding whether the processing in a given case amounts to manufacture or not, the relevant criteria are to what extent the value is added and whether the product is prepared for a separate use.' In view of all discussions as above, I hold that processes carried out by M/s. ROCPL on Hexane and Petroleum Ether supplied by M/s. RFCL amounts to manufacture and M/s. ROCPL were required to pay duties of excise during the relevant period."
4.5 Commissioner (Appeal) while concurring with the findings of the adjudicating authority has held as follows:
"6. It is not disputed that the products of the appellants are of the special grades and find applications in specialized applications like degreasing/clearing of oily surfaces in industries such as pharma, injection manufacturing etc. (LR Grade); clinical research organizations (AR and SG), etc. Undoubtedly, the product manufactured by ROCL have very specific usages which are different from the other commercial usages of hexane or petroleum ether. It has been contended that specialized grades can be put to the use to which commercial grades are put to use. The original utility of commercial grades is not lost as a result of purification. The special grades are only an improved version of the E/1901/2006,155,222/2008,894/2009,1475,1476/2010,85640,85641/2015,85559,85576/2016 48 commercial grade received from RFCL. While accepting the logic, is it possible to use the commercial grade hexane for the purpose to which the specialized grades have been processed? The answer would naturally be no!
8. The lower adjudicating authority has taken into consideration the parameters pronounced by the courts in deciding the case as mentioned in para 22 of the impugned order. In the case in hand, it is an admitted fact that the specialized grades have been manufactured after carrying out certain physical and chemical reactions as mentioned in the earlier paras. They are marketed under a different name (like suffix of LR, AR, SG, etc.) and they have character dissimilar to hexane and usage. If the tests are prescribed by the Hon'ble Supreme Court are applied in the case, it will pass the same on all three accounts.
9. Reliance has been placed by the appellants on the case law of M/s. SD Fine. The fact of the case as mentioned in the citation is as under:
4.The appellants were issued with a show cause notice dated 30-3-1983 alleging that the process of purification amounts to process of manufacture. The appellants filed their reply dated 2-9-1983.
Relevant portion of the reply is extracted below :
4.1 The facts in brief of the cases are that we are manufacturers of laboratory and fine chemicals like Ammonium oxalate.
Ammonium acetate etc. the details of which are given in Annexure `A' to our Classification list submitted with effect from 1-4-1983. We also purify certain products purchased by us from the open market by various methods namely, simple distillation, filteration, crystallization. etc. Some of the products E/1901/2006,155,222/2008,894/2009,1475,1476/2010,85640,85641/2015,85559,85576/2016 49 purchased by us from open market are subjected to processes like grinding, sieving etc. We enclose herewith the actual processes carried out for purification, grinding etc. as Annexure I. As will be seen from the said Annexure, we are not manufacturing any new product and the process of distillation is not that of fractional distillation so as to obtain different products from the original one which is subjected to the process of distillation.
The processes of crystallisation and grinding are simple 4.2 processes and do not amount to process of `manufacture within the meaning of Section 2(f) of the Central Excises and Salt Act, 1944 as explained hereinafter. The process of distillation consists of simple distillation and not fractional distillation. We submit that the process carried out on goods which are subjected to grinding, crystallisation of refinement does not amount to a process of `manufacture' within the meaning of Section 2(f) of the Central Excises and Salt Act, 1944. ..................
10. Comparison of the process of manufacture in the SD case with the appellants would indicate some major differences. It may be noted that the appellants are chemically treating the inputs with 2% sodium carbonate solution to make it pH neutral. Further, the outputs are collected at different temperatures in fractional distillation process. As may be seen from para 4 of the order of SD case, that the process undertaken was consisting of simple distillation and not fractional distillation. However, in the instant case, the Lower Adjudicating Authority in para 20 of the impugned order has concluded that the process undertaken by ROCL is E/1901/2006,155,222/2008,894/2009,1475,1476/2010,85640,85641/2015,85559,85576/2016 50 fractional distillation only. In the light of above said major difference, the ratio of judgment in the case of SD Fine cannot be made applicable in the instant case. The facts of the case in the matter of M/s. E Merck are also identical to the SD Fine case."
4.6 As per Blacks Law Dictionary, Fractional Distillation is "Separation process using the different boiling points of various compounds of volatile components in a mixture. As the compound boils into vapor, components are split from the remaining brew. As the vapor is drawn off, it is cooled to reform the component. Crude oil is distilled in this way."
4.7 As per Hawley's Condensed Chemical Dictionary Fractional Distillation is "Distillation in which rectification is used to obtain product as nearly pure as possible. A part of the vapour is condensed and the resulting liquid contacted with more vapour, usually in a column with plates or packings. The term is also applied to any distillation in which the product is collected in a series of separate components of similar boiling range."
4.8 As per Encyclopaedia, Britannica-
"The primary destination of crude oil is a refinery. There any combination of three basic functions is carried out:
(1) separating the many types of hydrocarbon present in crude oils into fractions of more closely related properties, (2) chemically converting the separated hydrocarbons into more desirable reaction products, and (3) purifying the products of unwanted elements and compounds. The main process for separating the hydrocarbon components E/1901/2006,155,222/2008,894/2009,1475,1476/2010,85640,85641/2015,85559,85576/2016 51 of crude oil is fractional distillation. Crude oil fractions separated by distillation are passed on for subsequent processing into numerous products, ranging from gasoline and diesel fuel to heating oil to asphalt."
"Most methods of distillation used by industry and in laboratory research are variations of simple distillation. This basic operation requires the use of a still or retort in which a liquid is heated, a condenser to cool the vapour, and a receiver to collect the distillate. In heating a mixture of substances, the most volatile or the lowest boiling distills first, and the others subsequently or not at all. This simple apparatus is entirely satisfactory for the purification of a liquid containing nonvolatile material and is reasonably adequate for separating liquids of widely divergent boiling points. For laboratory use, the apparatus is commonly made of glass and connected with corks, rubber bungs, or ground-glass joints. For industrial applications, larger equipment of metal or ceramic is employed.
A method called fractional distillation, or differential distillation, has been developed for certain applications, such as petroleum refining, because simple distillation is not efficient for separating liquids whose boiling points lie close to one another. In this operation the vapours from a distillation are repeatedly condensed and revaporized in an insulated vertical column. Especially important in this connection are the still heads, fractionating columns, and condensers that permit the return of some of the condensed vapour toward the still. The objective is to achieve the closest possible contact between rising vapour and descending liquid so as to allow only the most volatile material to proceed in the form of vapour to the receiver while returning the less volatile material as liquid toward the still. The purification of the more volatile component by contact between such counter current E/1901/2006,155,222/2008,894/2009,1475,1476/2010,85640,85641/2015,85559,85576/2016 52 streams of vapour and liquid is referred to as rectification, or enrichment.
Multiple-effect distillation, often called multistage-flash evaporation, is another elaboration of simple distillation. This operation, used primarily by large commercial desalting plants, does not require heating to convert a liquid into vapour. The liquid is simply passed from a container under high atmospheric pressure to one under lower pressure. The reduced pressure causes the liquid to vaporize rapidly; the resulting vapour is then condensed into distillate.
A variation of the reduced-pressure process uses a vacuum pump to produce a very high vacuum. This method, called vacuum distillation, is sometimes employed when dealing with substances that normally boil at inconveniently high temperatures or that decompose when boiling under atmospheric pressure. Steam distillation is an alternative method of achieving distillation at temperatures lower than the normal boiling point. It is applicable when the material to be distilled is immiscible (incapable of mixing) and chemically nonreactive with water. Examples of such materials include fatty acids and soybean oils. The usual procedure is to pass steam into the liquid in the still to supply heat and cause evaporation of the liquid."
4.9 From the above referred technical literature it is quite evident as result of the processes undertaken the raw material is (1) refining the hydrocarbons present in commercial grade bulk hexane/ petroleum ether (benzene) into fractions of more closely related properties, (2) converting raw material into more desirable reaction products, and (3) purifying the E/1901/2006,155,222/2008,894/2009,1475,1476/2010,85640,85641/2015,85559,85576/2016 53 products of unwanted elements and compounds. Such a process may have altered some or all characteristics of the product. However the test for manufacture as laid down by the series of decisions referred above is not vis a vis the alteration in some or all the characteristics of raw material, but is the emergence of a new product having distinct name, character and use. The argument of the party's that two critical parameters viz density and boiling range have not undergone much change, is not in accordance with the test of manufacture, laid down by the various authorities discussed above.
4.10 In case of Suprajith Chemicals Pvt Ltd [2003 (156) ELT 712 (T)] it has been held as follows:
"The question of manufacture under the Central Excise Act, has been settled with the definition of 'manufacture' being substituted with the introduction of Central Excise Tariff Act, 1985. The new definition contains two clauses and instead of setting out the activities and procedures of different tariff items, clause (ii) of the substituted definition (specifies that any process which is specified in Section/Chapter notes of the schedule to the Tariff Act would amount to manufacture). This clause (ii) of the new definition, is too vast and when read with Chapter Note 11 to Chapter 29 of the Central Excise Act, 1985 would render no doubt that the processes undertaken by the appellants amount to manufacture. The Apex Court in the case of Empire Industries [1985 (20) E.L.T. 179 (S.C.)] which was confirmed by the Constitutional Bench in the case of Ujagar Prints and Ors. [1988 (38) E.L.T. 535 (S.C.)], the Supreme Court held that any process creating something else having a distinctive name, character and E/1901/2006,155,222/2008,894/2009,1475,1476/2010,85640,85641/2015,85559,85576/2016 54 use would result in manufacture. In SD Fine Chemicals [1995 (77) E.L.T. 49 (S.C.)], the apex court held that the meaning of the term 'manufacture' extends beyond its nature meaning, and re-iterated the earlier decision in the case of Ujagar Prints : "one of the main tests evolved by this Court (for determining whether manufacture has taken place) is whether on account of the processes undertaken or employed by the assessee, the commodity so obtained is no longer regarded as the original commodity but is instead recognized as a distinct and new article that has emerged as a result of the processes." And in JG Glass [1998 (97) E.L.T. 5 (S.C.)], the Supreme Court laid down a two fold test for manufacture; (i) whether by the said process the identity of the original commodity ceases to exist (ii) whether the existing commodity will serve no purpose for the process. In Chowgule and Company [1993 (67) E.L.T. 34 (S.C.) = 1981 (1) SCC 653], the Supreme Court held that whatever may be the operation it is the effect that is material. This case is however not under the Central Excise Act. Similarly the Indian Aluminium Cable [1985 (21) E.L.T. 3 (S.C.)], which is under Central Excise Act, the Supreme Court held that it is not the process or technology that determines excisability - the determining factor is what is produced by the process or technology. In Laminated Packing [1990 (49) E.L.T. 326], the Supreme Court held that even if the resultant article falls under the same tariff heading as the item that went into the process to produce it, the process would still amount to manufacture if, it resulted in a commercially different article.
Therefore, in this view of the matter, it is not permissible now to determine whether a particular process of technology undertaken, amounts to manufacture or not, what is essential to determine the activity to constitute 'manufacture', under Central Excise to attract duty under E/1901/2006,155,222/2008,894/2009,1475,1476/2010,85640,85641/2015,85559,85576/2016 55 the Central Excise Act, 1944 would be to determine what new commercially different article has emerged consequent to an activity undertaken. In the present case, the mere statement by the appellants will not rebut the findings arrived at by the Commissioner in the impugned order based on the decision of SD Fine Chemicals [1995 (77) E.L.T. 49 (S.C.)] and the following findings of the Commissioner in the impugned order, "19. The assessee has not furnished any arguments on this except stating that the chapter note does not state that purification amounts to manufacture. No doubt the Chapter note does not state so, but I am of the firm view that the words "the adoption of any other treatment to render the product marketable shall amount to manufacture" are vide enough to cover the activity carried out by the assessee. The very fact that the goods were sent for purification shows that the goods were no longer usable and after purification they became usable. The very fact that the goods had to undergo purification further used, unambiguously reveals that the process of purification has rendered the goods marketable, thereby bringing the goods under the mischief of Chapter note describing manufacture. The argument that in the instant case the goods are not marketed or not brought to open market for sale is not relevant. The fact remains that the purified acetone and ethyl acetate can be bought and sold, and once this is so, it is immaterial that the goods sent for purification are returned after purification to the same customer and not marketed or not brought to open market for sale. It is pertinent to mention here that the assessee himself manufactures and sells acetone and ethyl acetate. It may also be added that the various judicial fora have always referred to "marketability" and not actual "marketing" of goods. Hon'ble Tribunal as far back as 1983 in the case of Orient Paper Mills (which E/1901/2006,155,222/2008,894/2009,1475,1476/2010,85640,85641/2015,85559,85576/2016 56 decision was followed in several other cases) held that when a marketable commodity is created, excisability follows, whether or not the manufacturer sells it. [1983 (14) E.L.T. 1813]. Re-iterated in the case of Indian Hume Pipe Co. Ltd. reported in 1999 (109) E.L.T. 305 (T).
20. The assessee had gone on to argue that no evidence has been let in as to the trade/commercial opinion as to the nature of the processed goods in question and its marketability. In this regard, the assessee had categorically stated that the purified acetone and ethyl acetate is used by the supplier for their R&D works this itself proves the marketability. In any case, I am of the firm opinion that no such evidence is required to be submitted. The very fact that the purified goods are sent back and used by the supplier is sufficient evidence to prove its marketability and consequently the excisability.
22. It is also argued that purification and dilution would not amount to manufacture and have cited several decisions in support of their contention. As stated earlier, the departments contention that purification amounted to manufacture is not in the general sense of the term but it is consequent to Chapter Note 11 of Chapter 29, which specifically states that adoption of any other treatment to render the product marketable shall amount to manufacture. Purification of the acetone and ethyl acetate render them marketable and hence the process amounts to manufacture. Accordingly, CED is attracted on such purification. I have perused the decisions relied upon which state that purification or liquidation do not amount to manufacture. I find that none of these decisions either relate to goods of Chapter 29 or to goods falling in other chapters, which included the note providing that treatment to render the product marketable shall amount to manufacture. Thus, this argument of the assessee is not tenable.""
E/1901/2006,155,222/2008,894/2009,1475,1476/2010,85640,85641/2015,85559,85576/2016 57 4.11 Hon'ble Supreme Court has in case of Air Liquide North India Pvt Ltd. [2011 (271) ELT 321 (SC)] category held as follows in similar circumstances:
"10.It is not in dispute that the appellant had purchased Helium gas from the open market and that its quality control officer had conducted various tests and issued analysis report/quality test report stating the results of the tests carried out. It is also not in dispute that the appellant issued certificates of quality at the time of sale on the basis of tests carried out by it to the effect that the gas supplied by it confirmed a level of purity and specifications in conformation with the orders of the customers. Another undisputed fact is that the appellant had purchased Helium gas under a generic description but after the tests and analysis, it was sold to different customers based on their specific requirements at profit margin ranging from 40% to 60% in different cylinders.
11.It is pertinent to note that when the appellant was asked about the process which was being carried out on Helium gas before selling it to its customers, the representative of the appellant had refused to give any detail with regard to the process because, according to him, that process was a trade secret and he would not like to reveal the same. Thus, the respondent or his subordinate authorities were not informed as to what was being done by the appellant to Helium gas purchased or what treatment was given to the said gas before selling the same to different customers at different rates with different certifications in different containers/cylinders. It is also pertinent to note that the gas which was purchased at the rate of about Rs. 520/- per Cum. was sold by the appellant at three different rates namely Rs. 700/-, Rs. 826/- and Rs. 1000/- per E/1901/2006,155,222/2008,894/2009,1475,1476/2010,85640,85641/2015,85559,85576/2016 58 Cum. and thereby the appellant used to get 40% to 60% profit.
12.From the above undisputed facts, it is clear that the gas cylinders were not sold as such but they were sold only after certain tests or processes as specified by the customers of the appellant. It is also clear that only after the analysis and tests, it could be ascertained as to whom the gas was to be supplied and at what rate. The various tests resulted into categorization of the gas into different grades namely, Helium label 4, high purity Helium and Helium of technical grade. Helium label 4 was sold at higher rate as it matched superior standards.
13.In the instant case, Helium gas was having different marketability, which it did not possess earlier and hence the gas sold by the appellant was a distinct commercial commodity in the trade, rendering it liable to duty under Chapter Note 10 of Chapter 28 of the Act. If the product/commodity, after some process is undertaken or treatment is given, assumes a distinct marketability, different than its original marketability, then it can be said that such process undertaken or treatment given to confer such distinct marketability would amount to "manufacture" in terms of Chapter note 10 to Chapter 28 of the Act.
14.The only conclusion from the above is that the tests and "process" conducted by the appellant would amount to "treatment" in terms of Chapter Note 10 of Chapter 28 of the Act. The fact that the gas was not sold as such is further established from the fact that the gas, after the tests and treatment, was sold at a profit of 40% to 60%. If it was really being sold as such, then the customers of the appellants could have purchased the same from the appellant's suppliers. When this question was put to the officer of the appellant, he could not offer any cogent E/1901/2006,155,222/2008,894/2009,1475,1476/2010,85640,85641/2015,85559,85576/2016 59 answer but merely stated that it was the customers' preference. Further, he did not give proper answer as to how the profit margin was so high. The appellant had supplied the gas not as such and under the grade and style of the original manufacturer but under its own grade and standard. Further, while selling the gas, different cylinders were given separate certificates with regard to the pressure, moisture, purification and quality of the gas. This explains the high price at which the appellant was selling the gas.
15.Therefore, in our opinion, the Tribunal has rightly observed that if no treatment was given to the gas purchased by the appellant, customers of the appellant would not have been purchasing Helium from the appellant at a price 40% to 60% above the price at which the appellant was purchasing.
16.As stated hereinabove, it is clear that the appellant was purchasing Helium at the rate of Rs. 520/- per Cum. and was selling the same after adding 40% to 60% profit. Further, the gas was segregated in different cylinders with different properties and, therefore, the rate at which the gas was purchased by the appellant and the rate at which it was sold to its customers was substantially different.
17.In the circumstances, it cannot be said that no treatment was given to the gas purchased by the appellant. For the said reasons, it cannot be said that the appellant was not carrying out any manufacturing activity within the meaning of Chapter Note 10 of Chapter 28 of the Act.
18.It is also pertinent to elucidate on the phrase "marketable to the consumer". The word "consumer" in this clause refers to the person who purchases the product for his consumption, as distinct from a purchaser who trades in it. The marketability of the product to "the E/1901/2006,155,222/2008,894/2009,1475,1476/2010,85640,85641/2015,85559,85576/2016 60 purchaser trading in it" is distinguishable from the marketability of the product to "the purchaser purchasing the same for final consumption" as in the latter case, the person purchases the product for his own consumption and in that case, he expects the product to be suitable for his own purpose and the consumer might purchase a product having marketability, which it did not possess earlier.
19.Therefore, the phrase "marketable to the consumer"
would naturally mean the marketability of the product to "the person who purchases the product for his own consumption". Hence, the argument of the appellant that as the product was already marketable, the provisions of Chapter Note 10 of Chapter 28 of the Act would not be attracted, will have to be rejected.
20.For the aforetasted reasons, we agree with the Tribunal in holding that the appellant is liable to pay excise duty for the reason that it has manufactured Helium within the meaning of the term 'manufacture' as explained in terms of Chapter Note 10 of Chapter 28 of the Act.
21.So far as the issue with regard to relabelling is concerned, we are in agreement with the view expressed by the Tribunal that relabelling would not mean mere fixing of another label. When the appellant was selling different cylinders with different marking or different certificates to its different customers, we can say that the appellant was virtually giving different marks or different labels to different cylinders having different quality and quantity of gas.
22. It can be very well said that the Helium purchased by the appellant was in a marketable state but it is equally true that by giving different treatment and purifying the gas, the appellant was manufacturing a commercially different type of gas or a new type of E/1901/2006,155,222/2008,894/2009,1475,1476/2010,85640,85641/2015,85559,85576/2016 61 commodity which would suit a particular purpose. Thus, the treatment given by the appellant to the gas sold by it would make a different commercial product and, therefore, it can surely be said that the appellant was engaged in a manufacturing activity."
4.12 In view of categorical finding, that as result of the processes undertaken by the party's on the raw material viz Commercial Grade Bulk Hexane/ Petroleum Ether (Benzine), a new commercially identifiable product having separate name, character and use has emerged we hold that the processes undertaken are processes of manufacture.
4.13 In their submissions party's have relied upon various decisions and authorities. Since none of the said authority/ decision has laid down the any test of manufacture which is contrary to the test of emergence of distinct commercial commodity with distinct name, character and use we are not discussing those authorities separately. Also appellants have stated that raw material received by them could have also been used for the purposes for which the finished product is used. Such a submission is not borne out by the evidences and not tenable. Adjudicating authority has dealt with said argument in his order. We do not find any reason to differ from the same.
5.1 Tribunal has while deciding the issue in case of Merck Specialities Pvt Ltd./ Sunbel Alloys Company of E/1901/2006,155,222/2008,894/2009,1475,1476/2010,85640,85641/2015,85559,85576/2016 62 India Ltd. [2015 (317) ELT 375 (T)] on the issue of invoking extended period of limitation, admissibility of CENVAT credit held as follows:
"6.2 The next question is whether the invocation of extended period of limitation for confirmation of duty demand is sustainable in law or not. From the records, it is seen that the department was aware of the vaorious activities undertaken by the appellant. If that be so, the department cannot plead that the appellant had suppressed any fact with respect to the activities undertaken by them and the department should have taken action well within the normal period of limitation. Hence, invocation of the extended period of limitation for confirmation of duty cannot be upheld in the present case. Therefore, duty demand in the present case is sustainable only for the normal period of limitation. While the demand raised in the show cause notice dated 16-12- 2008 is within the normal period of time, in respect of show cause notice dated 8-2-2008 only the demand for the period from January, 2007 to November, 2007 would be within normal period of limitation and duty liability for this period has to be worked out by the adjudicating authority while re-computing the demand. The appellant also would be eligible for the benefit of Cenvat credit of the duty paid on the inputs and input services used in the manufacture of the finished products on which the duty demand is confirmed. This also would have to be worked out on the basis of documentary evidence to be submitted by the respondent.
7. In view of the above, we remand the matter back to the adjudicating authority for re-computation of the duty demand with the normal period as mentioned above and also for allowing Cenvat credit of the duty paid on the raw materials, subject to submission of documentary E/1901/2006,155,222/2008,894/2009,1475,1476/2010,85640,85641/2015,85559,85576/2016 63 evidences. Thereafter, the revised demand will have to be computed. Needless to say that the appellant would be liable to pay interest on re-computed duty demand. In the facts of the case, imposition of penalty is not warranted. Thus, the appeal is allowed by way of remand in the above terms."
5.2 The said part of the order has not been the subject matter of dispute before the High Court, and has acquired finality. Even otherwise we do not find any justification for invoking extended period of limitation in these cases, or denial of CENVAT credit if same is otherwise admissible to the party's. Accordingly we remand the matter back to the adjudicating authority for re-computation of the duty demand within the normal period and also for allowing CENVAT credit of duty paid on raw materials, subject to submission of documentary evidences. Party's will also be liable to pay interest on the recomputed demand.
6.0 Appeals are disposed of by way of remand in the above terms.
(Pronounced in court on 19.11.2018)
(Dr. D.M. Misra) (Sanjiv Srivastava)
Member (Judicial) Member (Technical)
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