Judgment:
1. This appeal is directed against Order-in-Appeal No. ADN/105/B-I/91, dated 14-3-1991 confirming the classification of Ahuracryl PVN, Ahuracryl TX 50, Ahuracryl SZA & Ahuracryl RCF under sub-heading 3906.90 of the Central Excise Tariff.
2. The appellants submit that they purchased Polymethyl Methacrylate and diluted it by adding the required quantity of water. The difference among these products is the ratio between methacrylate and water in them. They also submit that methacrylate purchased by them is duty paid and the only process carried out by them is that of dilution. They also submit that methacrylate is in emulsified primary form on purchase by them and after dilution also it is methacrylate in emulsified primary form. They, therefore, submit that the process of dilution carried out does not amount to manufacture warranting assessment to duty on these four items. As the Adjudicating and the Appellate authorities had relied on Note 6 to Chapter 39, they submit that this Chapter Note also did not warrant levy of duty on the items. They contended there is no conversion from one primary form to another primary form in preparation of these items as methacrylate and the items are both in emulsified primary form. They have relied upon mainly the following judgments in support of their contention that dilution does not amount to manufacture :- 2. 1985 (20) E.L.T. 257 (Mad.) - Coromandal Prodorite Pvt. Ltd. v. Govt. of India and Ors.CCE, Madras v. Kutty Flush Doors and Furniture Co. Ltd. 3. The appellants also submit that their contentions have not been properly considered by the Adjudicating or Appellate authorities. They had filed the classification list under protest. Samples of the items had been drawn in 1985 but they had not been given copy of the Chemical Examiner's report. The Adjudicating authority rejected their request for granting them a copy of the report on the ground that the Chemical Examiner's report is in conformity with the company's declaration as these are all aqueous emulsion of synthetic resin (acrylic) and therefore there is no room to contest the Chemical Examiner's report.
They have also submitted that the adjudication order (dated 6-4-1990) was not proper and tenable as they were informed vide a subsequent letter dated 14-5-1990 that as the said products being aqueous emulsion of synthetic resin (acrylic) and manufactured by mere addition of water etc. to duty paid resin, no further duty is liable. They have reproduced relevant portion of the letter dated 14-5-1990 as follows :- "The classification list of the products Ahuracryl PVN, Ahuracryl RCF, Ahuracryl SZA and Ahuracryl TX-50 has been examined in the light of the test reports received. The said products being aqueous emulsion of synthetic resin (acrylic) and manufactured by mere addition of water, etc. to duty paid resin, as per Collector of Central Excise (Appeals), Bombay's Order No. 213/B.I 32/82, dated 23-2-1982, these goods continue to be classifiable under T.I. 15A erstwhile tariff but with no further duty liability since manufactured out of duty paid resin. Hence the said products are eligible for assessment at NIL rate of duty. The classification list is approved finally under T.I. 15A chargeable to NIL rate of duty in view of Collector (A) Bombay order dated 23-2-1982 as duty paid products." In the aforesaid letter the department itself has admitted that the items are prepared from duty paid materials and the process involved is only one of dilution by adding water and this does not amount to manufacture.
3.1 After the final hearing of the case on 21-5-1998, the appellants forwarded some documents (invoices) to the Registry; but these are not taken on record on account of late submission.
4. The aforesaid contentions of the appellant have been rejected in the impugned order on the ground that Polymethyl Methacrylate in its original paste form could not be directly used by any textile firm and that only after dilution they could be used. The order holds that adding water can be treated as manufacturing activity if it results into transformation of raw material and the resultant product acquires a new character or end-use as known to the market. The order also observes that the process of manufacture may be simple as in the present case and what is important is whether the process transforms the raw material into a new commodity known to the market. The order also in this context relies on the decision of the Hon. Supreme Court in the case of Empire Industries 1986 (7) ECC 208 and Ujagar Industries and the decision of the Bombay High Court that diluting Methanol with distilled water would amount to manufacturing process under Sales Tax Law as it would bring into existence a new commercial commodity namely 'Methimix' [1978 (41) STC 471].
6. We have perused the records of the case and have considered rival submissions. It would appear that subsequent to the passing of the adjudication order the department had changed its view and had informed the appellant vide letter dated 14-5-1990 that no duty is liable to be paid as the process involved was only one of dilution of the material and duty had been paid on the raw material. The appellant has also relied on several decisions, in particular, the decision of the High Court of Madhya Pradesh in Tata Exports Ltd. v. U.O.I. -1985 (22) E.L.T. 732 (M.P.) that mere change in physical form i.e. from powder to liquid does not amount to manufacture and that production of a new article having its own character, use and name are necessary to satisfy the condition of manufacture Under Section 2(f) of the Central Excises and Salt Act, 1944. They have also cited the decision of the Hon. High Court of Madras in Coromandel Prodorite Pvt. Ltd. v. GOI and Ors. -1985 (20) E.L.T. 257 holding that mere change in form would not amount to manufacture and that mixing synthetic resin in solid form with alcohol to convert it into liquid form does not amount to manufacture as the new product which is brought into existence by mixing the synthetic resin with alcohol is not a product different in character, nature and use.
7. From the foregoing, we are of the opinion that the case is required to be reconsidered by the original authority in the light of the fact that subsequent to the adjudication the assessee had been informed vide letter dated 14-5-1990 that the items in question are not liable to duty and that no clear findings have been given on the assessee's contention that Note 6 of the Chapter Note is not attracted in the instant case and that the case law relied upon by him has not been carefully considered. Accordingly, the appeal is allowed by way of remand.