Full Judgment
2. The Commissioner by independent Order-in-Original Nos. 30/97, dated 30-4-97 and 31/97, dated 25-6-97 has held that the process of converting camphor powder to tablets does not amount to a process of manufacture and no new goods comes into existence and on that premise has dropped the proceedings initiated by the respective show cause notices issued to the respondents demanding duty. He has also held that there is no suppression of facts and that there was a Trade Notice No.88 (MP)/Camphor/10/1971, dtd. 14-6-71 in which it had been clarified that this conversion of camphor powder to tablets does not amount to process of manufacture. This clarification was issued by the Collector-ate of Central Excise, Bombay - I vide letter C.No.V/Ch.29 (3)/86, dated 9-4-86 to the Bombay Camphor tablets Mfrs. Association, Bombay clarifying that the camphor tablets made from duty paid camphor would not constitute manufacture. He also noted that the respondents were holding a bonafide belief that the goods were not dutiable and there was no intentional evasion on their part to evade payment of duty. He has noted the Apex Court judgments as rendered in the case of (i) Cosmic Dye Chemicals v. CCE, Bombay, 1995 (75) E.L.T. 721 (S.C.); (ii) Tamilnadu Housing Board v. CCE, Madras, 1994 (74) E.L.T. 9 (S.C.) = 1994 (55) ECR 7 SC; (iii) Padmini Products v. CCE, 1989 (43) E.L.T.195 (S.C.); and (iv) CCE v. Camphor Drugs & Liniments, 1989 (40) E.L.T.276 (S.C.) to hold that demands would be time-barred as there was no conscious or deliberate withholding of information and also intentional evasion of duty. On this ground, he has held that there is no case for invoking the provision to Section HA for demanding duty over the extended period can be sustained.
5. Ld. Counsel Smt. Komala Choudhary and Shri K. Jayachandran, Advocate relied on a large number of judgments to argue that the order passed by the Commissioner (Appeals) is sustainable in the light of judgments referred to by him in his order on merits and also on a large number of citations relied on by them in the Board. They also pointed out that Revenue has not made out any ground on the finding given by the Commissioner that adding of oil to camphor powder was only for lubricating the machine and it did not bring any change in the light of character, name and in the nature of camphor powder which was converted into tablets. They also pointed out that the finding given by the Commissioner that respondents held a bona fide belief in the light of Trade Notice issued by the Bombay Collectorate has also not been converted in the appeal memo. The only ground taken up in the appeal memo is that respondents had not informed the department. The Counsels pointed out that the Commissioner has given a categorical finding as to how the assessees were holding a bona fide belief in the light of department's own circular and that there was no intention to evade duty. Counsels also pointed out to the judgment of the Supreme Court relied upon by the Commissioner that there was no intention to evade duty and bona fide belief was required to be accepted and mere non-filing of declaration is no ground to confirm the duty for larger period as taken by the Revenue in the grounds of appeal. The Counsels also pointed out that Budget 1997 introduced a new Chapter Note in Chapter 29 to expand the scope Of manufacture to include "labelling or re-labelling of container and repacking from bulk packs to retail packs or adoption of any treatment to render the product marketable to the consumer". They contended that this note had prospective effect and it clearly indicated that the said activity carried out by the assessee was not dutiable. This point had also been noted by the Commissioner while dropping the proceedings. They pray for dismissal of Revenue's appeals.
6. After due consideration of the arguments and after perusal of the entire record, the Bench was satisfied that Revenue did not have case and hence rejected the appeals reserving detailed order to follow. The reasons for rejecting the appeals are given herein below : 6.1 The respondents were having units wherein they converted camphor powder into tablets. The facts of the case disclosed that due to humidity and temperature, the camphor powder so purchased turns into masses of irregular shapes. The processes undertaken in the units are as follows : The solid camphor masses are ground in the grinding machine to obtain camphor powder. Coconut oil is added to this powder and this mixture is then fed into tableting machines. These tableting machines are fixed with dies of various sizes. The camphor powder gets pressed in these dies of the tableting machine and camphor tablets of different sizes and shapes with dimensions ranging from 8 mm to 200 mm (width/dia) emerge. These are then wrapped with paper wrapper bearing the brand name "Gopal" in the wrapping machine and then different lots of 10,15,25,50 and 100 tablets are packed in unit containers of cardboard boxes, plastic boxes and polythene bags and cleared in the market.
6.2 The department initiated proceedings on the ground that this conversion of camphor powder into tablets emerged into a new product with distinct name, properties and use and different from the raw material. Therefore, as the assessee had not taken out licence and declared themselves as a unit, they had clandestinely removed without payment of duty and hence the duty was recoverable for larger period. However, we notice that the assessee took the ground that mixing of coconut oil was only for the purpose of lubricating the machine and it did not bring any change in the camphor powder.
They contended that camphor powder and tablets were one and the same and did not change the use or characteristics and did not constitute any process of manufacture. They also stated that about the issue of trade notice by the Bombay Collectorate and the letter C.No.V/Ch.29 (3)/86, dated 9-4-86 of the Asstt. Collector of Central Excise Bombay-I addressed to the Bombay Camphor tablets Mfrs. Association wherein it was clarified that camphor tablets made from duty paid camphor would not constitute manufacture; that the Sales Tax authorities also had taken a similar view as indicated in the decision of the Commissioner of Sales Tax, Bombay Order No. DDO-1186-adm. 5/333/216, dated 27-5-1987. The Commissioner after due consideration and on examination of the judgments relied held that process of conversion of camphor powder into tablets did not amount to a process of manufacture. The findings recorded by the Commissioner in paragraphs 15 to 21 of the order are reproduced herein below :- "15. I have carefully gone through the records of the case and the submissions made by M/s. RGS in their reply to show cause notice and those made by Smt. Komala Choudhary, the consultant during the time of personal hearing. The two issues to be decided in this case are (i) whether the conversion of camphor tablets and marketing them in packets for the purpose of lighting them before the images of Gods during religious rites/worship would amount to manufacture and if so (ii) whether the demand can be enforced over a period of 5 years as provided for in the proviso to Section 11A of the Central Excise Act, 1944.
16. In this connection M/s. RGS had contended that the processes they undertake involve only conversion of duty paid camphor powder into tablets and that no new product emerges during the operations except for a change in the physical form. In this connection the learned Consultant had cited the decision of the Hon'ble Supreme Court in the case of Vee Kayan v. Commissioner of Central Excise, Chandigarh, reported in 1996 (83) E.L.T. 262 (SC) and contended that mere change of physical form is not sufficient to constitute manufacture and also relied on the decision of the Hon'ble Tribunal in the case of Reckitt and Coleman v. Collector of Central Excise, Bangalore, reported in 1996 (82) E.L.T. 407 (T) wherein it was held that conversion of enzyme powder into tablets would not amount to manufacture. The learned Consultant also drew my attention to the changes brought in the Chapter Notes of Chapter 29 in the Budget 1997, wherein the scope of manufacture had been extended to labelling, relabelling of containers and repacking from bulk packs to retail packs or adoption of any other treatment to render the product marketable to the consumers and concluded that the effect of the Budget changes cannot be given retrospectively.
17. Section 2(f) of the Central Excise Act defines "manufacture" to include any process, (i) incidental or ancillary to the completion of a manufactured product; and (ii) which is specified in relation to any goods in the Section or Chapter Notes of the Schedule to the Central Excise Tariff Act, 1985 (5 of 1986) as amounting to manufacture.
The Hon'ble Supreme Court had also given various decisions on the scope of manufacture and held that it is necessary that there should be transformation and emergence of a new and different article having a distinctive name, character or use to call a process as manufacture. In the case of UOI v. DCM, reported in 1977 (1) E.L.T. 1999 (S.C.) the Hon'ble Supreme Court observed that "to say this as to equate 'processing' to 'manufacture' and for this we can find 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 changes in substances, however minor in consequence that change may be. This distinction is well brought out in a passage thus quoted in permanent addition of Words and Phrases Vol. 26 from an American Judgment. The passage runs thus : "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".
17. Out of the case laws cited by the consultant, I find that the case of Reckitt & Coleman of India Ltd. v. CCE, Bangalore, reported in 1996 (82) E.L.T. 407 (Tribunal) (Special Bench) is more relevant to the issue wherein it was held by the Hon'ble CEGAT that converting of enzyme blend powder into tablets does not amount to manufacture. Relying on the earlier decision of the Tribunal in the case of Brooke Bond India v. CCE reported in 1994 (73) E.L.T. 151 (Tribunal), it was held that "The tablets are used for cleaning the contact lenses since during the use protaineous deposits occur on the contact lenses. These tablets are simply dissolved in water with which contact lenses are cleaned. The same purpose could be carried out by the powder also. It is also not that powder as imported was subjected to any further manufacturing process in the same manner as industrial raw material so subjected. In view of the matter, it cannot be said it was sold, on importation, as a raw material and that it was marketable only as a raw material. Test of marketability was satisfied at the point of import itself. It is also clear that while compacting could have aided marketability, it was not essential to marketability. It could have been sold as much as convenient packs and all that a consumer was required to do was to take every time a pinch of powder and dissolve it in water".
18. In the case of Brooke Bond India v. CCE, Hyderabad, reported in 1994 (73) E.L.T. 151 (Tribunal) it was held by the CEGAT that process of pressing coffee powder into tablets by sprinkling a small amount of water does not amount to manufacture. While deciding the case, Hon'ble CEGAT observed that "the process undertaken by the appellants of converting the powder into tablets cannot be considered as a process of manufacture as defined in the Central Excise Act. We are not convinced that coffee tablets are different from coffee powder for the purpose of classification and exemption.
To arrive at the conclusion, new item is different from old item, not only there must be change in name but it should have different character and use. No evidence has been produced to show that coffee tablets are different from coffee powder either in character or on its use. On the other hand, it was substantiated by the appellants that tablets if powdered will become coffee powder again composition, character, and use of the tablets are the same as that of coffee powder.
19. The process undertaken by M/s. RGS is that the duty paid camphor powder, which turns into masses of irregular shape due to humidity, is ground in the grinding machine, coconut oil is added to this powder and tableted into different sizes. These tablets are marketed under a brand name 'Gopal' in different lots and various packages.
In this connection, M/s. RGS had argued that adding of 2 to 4 gms of coconut oil in 15 kgs of camphor for lubrication would not change the character and quality of the raw material. From the records, it is evident that the raw material purchased is camphor powder falling under Chapter 2914.20 of the Central Excise Tariff Act. The final product brought out due to the process is camphor tablet of a regular shape. So, evidently there is change in the physical form and the tablets are also admitted to be in a form convenient for the purpose of lighting before the images of Gods during religious functions. However the raw material and the final product are camphor only. It is also reported that camphor in irregular shape without being made into tablets are marketed for the purpose referred above. Adding of small quantity of coconut oil for lubrication does not change the character or usage of the camphor and no new compound having different name and character had emerged due to the addition of a small quantity of coconut oil with camphor.
Therefore the process undertaken by M/s, RGS on camphor powder to transform the same to camphor tablets does not bring into existence any new commodity having distinct use and character. In the case of Empire Industries v. UOI reported in 1985 (20) E.L.T. 179 Hon'ble Supreme Court held that "the taxable event under the excise law is manufacture. The moment there is transformation into a new commodity, commercially known as distinct and separate commodity having its own character, use and name whether be it the result of one process or several processes manufacture takes place and liability to duty is attracted". In the case under consideration, there is no such transformation and all that takes place that there is only a change in the physical form of the product viz. camphor.
No new product emerges as such under the above circumstances, I hold that a camphor tablet made from camphor powder, is not a new and distinct product.
20. I also find considerable merit in the argument of the consultant that it was only in the Budget 1997 that a new Chapter Note had been introduced in Chapter 29 to expand the scope of manufacture to include, "labelling or relabelling of container and repacking from bulk packs to retail packs or the adoption of any other treatment to render the product marketable to the customer", and that the change could not be given effect retrospectively. The new Chapter Note cannot be given retrospective effect as it involves a substantiate change which can be given effect only prospectively.
21. The other submission made was that demand for the extended period cannot be invoked in view of the clarifications issued by the Collector of Central Excise, Bombay - I vide letter V/29/30/86, dated 10-4-1986 to the Bombay Camphor Tablet Mfrs. Assn., clarifying that camphor tablets made from duty paid camphor powder would not constitute manufacture. From the copy of the letter submitted it is evident that they had relied on an earlier Trade Notice 88/MP/Camphor/1/71, dated 14-6-1971. M/s. RGS contested that due to the clarifications issued by the department and as other manufacturers were not paying duty, they were of the bona fide belief that the goods were not dutiable and there was no intentional evasion on their part. The learned Consultant also cited the decisions of the Hon'ble Supreme Court in the case of Cosmic Dye & Chemicals v. CCE, Bombay,SC, Tamilnadu Housing Board v. CCE, Madras,SC, Padmini Products v. CCE,(SC) and CCE v. Camphor Drugs and Liniments, 1989 (40) E.L.T. 276 (SC) and contested that longer period under provision to Section 11A cannot be invoked in this case as M/s. RGS had entertained a bona fide belief that the goods produced by them were not dutiable and there was no positive evidence to prove intentional evasion of duty and that mere failure to pay duty is not sufficient to demand duty in the absence of conscious or deliberate withholding of information. I do find considerable merit in the above argument as M/s. RGS had produced the clarification issued by the Department to justify their claim that they were under the bona fide belief that the camphor tablet manufactured by them were not dutiable. In view of the Apex Court's decision on the issue, I do not find any evidence to prove they had suppressed any facts with intention to evade payment of duty as there was genuine scope for doubts regarding dutiability of the impugned product. Hence, there is no case for invoking proviso to Section 11A for demanding duty over the extended period is not possible in this case. Thus, the major portion of the demand is also hit by time limitations".
6.3 On a careful consideration of the submissions made and on perusal of the grounds of appeals, we agree with the ld. Counsel that Revenue has not made out any ground in their appeals with regard to addition of coconut oil not bringing out any change in the camphor powder. The said finding of the Commissioner has also not been challenged and as no evidence has been brought out with regard to new goods being brought into existence, therefore, the citation on which the Commissioner has relied is binding on this Bench and respectfully following the said ratio, the Commissioner's findings are required to be confirmed.
6.4 Furthermore, we notice that Commissioner has also given detailed finding as to how the assessees were holding a bona fide belief. No grounds have been made out by the Revenue challenging this finding except to say that non-filing of declaration amounts to suppression.
The ld. Commissioner has given categorical finding that there was no suppression or intention to evade payment of duty and in this regard has relied on the Apex Court judgments which are applicable to the facts of this case to hold that larger period is not invocable.
6.5 Furthermore, we notice that from the latest Apex Court judgment rendered in CCE Chandigarh-I v. Markfed Vanaspati & Allied Industries, 2003 (153) E.L.T. 491 (S.C.) that burden to prove that there is manufacture and that what is manufactured brings into existence a new goods is on the Revenue. It has been held that merely because an item falls in a Tariff Entry that by itself does not mean that manufacture has taken place. This judgment also applies to the facts of the case.
6.6 We also notice that Tribunal in the case of S.D. Fine Chem Pvt.
Ltd., 1991 (56) E.L.T. 393 (T), which has since been affirmed by the Apex Court, has held that process of purification of boughtout chemicals by distillation and re-crystallization would not amount to manufacture as it does not bring any change in the name or chemical formula of chemicals. This judgment also would apply to the facts of the case.
6.7 Furthermore, we notice that large number of similar judgments which apply to the facts of the case which have been cited by the Counsel as in the case of State of Maharashtra v. Mahalaxmi Stores, 2003 (152) E.L.T. 30 (S.C.) wherein crushing of boulders into small size Gitti has been held to be not a process of manufacture.
6.8 In the case of UOI v. J.G. Glass Industries Ltd., 1998 (97) E.L.T. 5 (S.C.) the Apex Court has laid down the distinction to be drawn in process that would result into "manufacture" and bringing into existence different commercial commodity. This judgment also would apply to the facts of the case as in that case also it was held that printing/decoration carried out on the glass bottles by the assessee will not by any stretch of imagination amounts to a process of manufacture. In this case, the Apex Court has relied on a large number of earlier judgments which has a bearing and applicability to the facts of the present case.
6.9 In the case of Sanat Products ltd. v. CCE, Meerut, 2000 (115) E.L.T. 163 (T) it has been held that mixing the binder to the dried and powdered spirulina, a blue green algae, to facilitate easy filling into capsules does not alter the character of natural product and no new product arises. This judgment has since been approved by the Apex Court in the case of Twenty First Century Pharmaceuticals Pvt, Ltd, v. CCE, Chennai, 2000 (126) E.L.T. 694 (T) which answers that mere adding of coconut oil would not bring any change in the camphor powder.Dolsun Containers Pvt. Ltd. v. CCE, Jaipur, 2003 (151) E.L.T. 624 (T-Del.) wherein conversion of corrugation gum powder into liquid gum by adding and mixing water therein without aid or use of any chemical has been held to be not a process of manufacture.CCE, Chandigarh, v. Mahavir Spinning Mills Ltd., 2001 (130) E.L.T. 65 (T-Del.) the bench has held that Paraffin Wax in lump form purchased from the market, melted and put into moulds to cast it into a more convenient form (in the shape of wax washers) for captive use in winding machine to wax the product sewing thread thereby there is no change of character of wax and it does not bring into existence a new product by a process of manufacture.Exide Industries Ltd. v. CCE, Calcutta II, 2003 (154) E.L.T. 110 (T-Kol.) the Tribunal held that adding antimony metal and other additives to pure lead and obtaining a lead alloy does not amount to manufacture as no new commodity emerges as a result of the said process.
6.13 In the case of Punjab Power Packs Ltd. v. CCE, Chandigarh, 1998 (104) E.L.T. 50 (T) the Bench held that mixing of Potassium Hydroxide (solid KoH) with water or with Lithium Hydroxide (solid Li OH) and water does not bring into existence any new commercial commodity with different name and use.
6.14 Likewise in the case of Laljee Godhoo & Co. v. CCE, Mumbai, 2001 (132) E.L.T. 287 (T-Mum.) the Tribunal has held that blending of gum Arabic and wheat flour in sigma mixers and then pouring of filtered water mixed asafoetida resulting in lump or powder does not bring a chemical change in asafoetida and no new goods comes into existence hence does not amount to a process of manufacture.
6.15 In the case of Reckitt & Coleman of India Ltd. v. CCE, Bangalore, 1996 (82) E.L.T. 407 (T) the Tribunal held that converting enzyme blend powder into tablets does not amount to a process of manufacture.
6.16 In the case of Kingwin Uinversal (India) v. CCE, Indore, 2000 (117) E.L.T. 305 (T) the Tribunal held that process of dilution/addition of filter to herbicides/fungicides, sulphonated castor oil and inorganic and organic chemicals does not amount to process of manufacture.
7. These rulings have been relied by the Commissioner to drop the proceedings and hence in view of the citations relied, we do not find any infirmity in the impugned order and the appeals filed by Revenue are rejected. Ordered accordingly.