Judgment:
1. The common issues involved in these two appeals, filed by M/s.
National Fertilizers Ltd. are whether conversion of gauzes into saturated gauzes on account of continuous use amounts to manufacture and whether such saturated gauzes are classifiable as scrap of precious metals classificable under sub-heading 7101.80 of the Schedule to the Central Excise Tariff Act.
2. Shri D.C. Mandal, learned Consultant submitted that the Appellants use Catchment Gauzes and Platinum/Rhodium Gauzes as catalyst in the manufacture of Nitric Acid; that during the process of manufacture, the impugned gauzes become ineffective after continuous use which are cleared by them for refining and refabrication; that the Adjudicating Authority has held, under the impugned order; that gauzes precious metals are converted into waste and scrap of precious metals having altogether different use and qualities and this is part of the process of manufacture and the scrap of precious metals is classifiable under sub-heading 7101.80 of the Tariff. The learned Consultant, further, submitted that the impugned goods do not satisfy the test of manufacture as laid down by the Apex Court; that the duty is chargeable only on newly manufactured goods and not in respect of saturated and ineffective gauze; that as such provisions of Section 3 of the Central Excise Act are not attracted to the impugned goods; that as these goods are not manufactured by the appellants; they are not liable to pay Central excise duty. He relied upon the decision of the Larger Bench of the Tribunal in the case of Markfed Vanaspati & Allied Industries v.CCE, Chandigarh - 2000 (116) E.L.T. 204 (T) wherein it has been held that spent earth cannot be said to be a manufactured product. "It is in fact same earth which is once initially known as activated clay/earth and which after losing its absorbent character in the process of refining the edible oil by absorbing the impurities and traces of oil therefrom becomes known as 'spent earth'. Therefore, it cannot be concluded that it is a manufactured product." 3. Countering the arguments, Shri Atul Dixit, learned SDR, mentioned that according to Encyclopaedia of Chemical Technology by Kirk Othmer, a catalyst is a substance that alters the velocity of a chemical reaction without appearing in the end products..... Catalysts are now generally believed to function through an unstable chemical complex formed between catalyst and reactant molecules. This complex reacts to produce new compounds with dissociation of the complex and regeneration of the catalyst." The learned SDR submitted that because of Chemical action, gauzes are converted into waste and scrap of precious metal having altogether different use and qualities; that thus process of manufacture has taken place and Central Excise duty is chargeable. The learned SDR also referred to Explanatory Notes of H.S.N. which mentions that Heading 71.12 "covers waste and scrap in metallic form fit only for the recovery of the precious metal, or for use as a basis for the manufacture of chemicals. The heading also covers waste and scrap of any material containing precious metal or precious metal compound, of a kind used principally for the recovery of precious metal... .It includes, in particular : (B) Scrap of wornout or broken articles (tableware, goldsmiths', or silversmiths' wares, catalysts in the form of woven gauze, etc.) no longer fit for their original use. It does not extend to those, which, with or without repair or renovation, can be reused for their former purpose, or which can be converted for other use without being subjected to processes for the recovery of precious metals." 4. The learned SDR contended that it is thus apparent from the Explanatory Notes of HSN that worn-out catalyst is a new product from which precious metal is recovered. Finally he submitted that decision in the case of Markfed Vanaspati & Allied Industries is not applicable to the facts of these cases inasmuch as it has been held therein that spent earth and activated clay are one and the same thing and as such conversion from activated clay to spent earth does not amount to manufacture whereas in the present matters a new product having different qualities and use and falling under different sub-heading of the Tariff has emerged; that further the appeal preferred by the Revenue against the decision in Markfed Vanaspati case has been admitted by the Supreme Court as reported in 2001 (129) EX.T. A317.
5. We have considered the submissions of both the sides. The" facts which are not in dispute are that the Catchment gauzes and platinum/rhodium gauzes are used as catalyst in the process of manufacture of nitric acid and the gauzes after becoming ineffective on account of continuous use are sent for refining and re-fabrication. The Revenue's case is that the gauzes have been converted into scrap on account of chemical reaction and as per Explanatory Notes of HSN such worn out catalyst are scrap of precious metal classifiable under sub-heading 7101.80 of the Tariff. But for being excisable, the goods must be produced or manufactured under Section 3 of the Central Excise Act, In has been held by the Supreme Court in U.O.I. v. Delhi Cloth & General Mills, 1977 (1) E.L.T. (J199) that "Excise duty is on the manufacture of goods and not on the sale." The Court further held that to say that manufacture is complete as soon as, by the application of one or more processes, the raw material undergoes some change "is to equate "processing" to manufacture", and for this there is no warrant in law. The word "manufacture" used as a verb is generally understood to mean as "bringing into existence a new substance.", and does not mean merely "to produce some change in a substance." There must be transformation; "a new and different article must emerge having a distinctive name, character or use." This is the ratio also of the decision of the Larger Bench of the Tribunal in the case of Markfed Vanaspati. In the said matter the contention of the Appellants was that spent earth is not a manufactured product being simply waste emerging in the course of the refining of the oils with the aid of activated fullers' earth and by placing it in a specific sub-heading in the Tariff its basic character does not stand altered. The Revenue, on the other hand had contended that spent earth was a by-product resulting in the course of manufacture of the oils and had been placed in specific sub-heading in consonance with the World Customs Organisation opinion recorded in HSN Notes, being residue resulting from the treatment of fatty substances. The Larger Bench, after referring to various decisions on Manufacture, came to the conclusion that spent earth is not a new or by-product emerging from the manufacture of oils.
6. We agree with the learned Consultant that the test of manufacture as laid down by the Apex Court is not satisfied in the present matters.
The gauzes get saturated, non-usable on account of continuous use. No new product having a distinctive name, character or use emerges. The gauge remains gauge but non usable. If the contention raised by the Department is accepted every machine, used in the manufacture which is to be scrapped after prolonged use, must suffer duty as waste and scrap of the metal it is made of as it may satisfy the definition of waste and scrap given in Note 8 to Section XV of the Tariff. As no new product having distinctive name, character or use has emerged, no Central Excise duty is leviable on worn out gauzes. Accordingly, we set aside the impugned orders and allow both the appeals.