Full Judgment
In reply the appellants submitted that they are purchasing duty paid Ultra Marine Blue from the manufacturers and dilute the same by adding China Clay and Acid Dyes and thereafter pack it in smaller consumer packs and sell the same. On this premises it was their defence that this activity cannot be equated with the process of manufacture.
Alternatively it was also claimed that in case it is held that the said activity amounts to manufacture then they will be eligible to exemption under Notification No. 114/73. However, the Assistant Collector negatived the said defence of the appellants and approved the said classification list classifying the Ultra Marine Blue and Liquid Blue under sub-heading No. 3206.90 without extending the benefit of exemption notification No. 114/73 and 175/86. Against that order of the Assistant Collector the appellants filed the appeal before the Collector (Appeals) who while observing the since the Show Cause Notice issued in the instant case did not make any mention regarding grant of benefit of exemption Notification No. 175/86-CE, the Assistant Collector was not correct in denying the benefit of this Notification to the appellants in the impugned order and, therefore, for denying the benefit of this Notification he will have to initiate separate proceedings, confirmed the findings of the Assistant Collector regarding the classification of the subject goods and the denial of benefit under exemption Notification No. 114/73. Hence the present appeal.
3. Arguing on behalf of the appellants Shri V. Lakshmikumaran, Ld.
counsel submitted the the appellants are purchasing duty paid Ultra Marine Blue and after purchasing so add China Clay as a dilutant/extender and Acid Dyes without the aid of power and thereafter pack it in a smaller consumer pack and sell the same under different brand names. Elaborating further he submitted that chemically after dilution also Ultra Marine Blue is known and used only as Ultra Marine Blue, thus there is no change in the name, character or use of the product. The Ultra Marine Blue has the same identity after dilution.
The China Clay only acts as a dilutant and the acid dye performed no other function except to maintain the parity of shade which was disturbed by the dilution with the addition of the China Clay. The acid dye did not in any way act as a chemical modifier and at best it was a physical modifier of a mechanical nature in inert capacity. Further, the ultra marine pigment and the synthetic organic dye stuffs (Acid dyes) purchased by the appellants were fully standardised, prepared and formulated dyes which was ready for use in the form in which they were purchased. He also submitted that Chapter Note 6 to Chapter 32 was totally inapplicable in as much as that pertains to unstandardised and unformulated synthetic organic dyes and the addition of 18 acid dye stuffs falling under heading 32.04 was only to preserve the parity of shade. Otherwise the diluted Ultra Marine Blue would not be marketable.
Consequently, Chapter Note 6 was inapplicable to the diluted ultra marine blue and the conclusion that the same amounted to manufacture according to Chapter Note 6 to Chapter 32 was totally unwarranted. As regards the liquid blue he contended that acid dye stuff was diluted with water and nothing more was done. The acid dye stuffs were standardised, formulated and prepared forms. Consequently, in the case of liquid blue Chapter Note 6 to Chapter 32 is inapplicable. To buttress his submission he drew our attention to that part of the impugned order-in-appeal where the Collector (Appeals) according to him, obliquely held that Chapter Note 6 to 32 is inapplicable by observing that "No doubt the lower authority has relied upon Note 6 of the Chapter Notes of Chapter 32 which apply to tariff item 32.04. The same analogy can be applied to the process adopted by the appellant".
Challenging the observation of the Collector (Appeals) that the same analogy can be applied to the process adopted by the appellants he submitted that it is totally incorrect to apply the analogy. In support of his submission he cited the case of Jyothi Laboratories v. Collector of Central Excise, Cochin 1994 (50) ECR 36 wherein it was held that the diluting of acid violet dye and addition of small quantity of Ranipal and Ultra Marine Blue does not amount to manufacture within the meaning of Section 2(f) of the Central Excises and Salt Act, 1944 as it does not bring in any chemical or physical change. He also cited the case of Mis. Bush Boake Allen (India) Ltd., Madras v. Collector of Central Excise, Madras Final Order No. 1246/90-C wherein it was held that the process of dilution of standardised food colour(s) does not result in the change and, therefore, the process of dilution adopted by the appellants therein would not result in "manufacture" of food colour preparations.
4. Alternatively he also argued that in case it is held that the activity carried on by the appellants as aforesaid amounts to manufacture then the appellants were entitled for the benefit of exemption notification No. 114/73 since in the case of diluted ultra marine blue the 1% addition of acid dye stuffs was only for technical necessity to restore the parity of shade of ultra marine blue and nothing else.
5. In reply Shri Somesh Arora, Ld. JDR while supporting the impugned order cited the case of Empire Industries Ltd. and Ors. v. Union of India and Ors. wherein it was held that transformation of an object into a different commercial commodity is sufficient to constitute manufacture within the meaning of Section 2(f) of the Central Excises and Salt Act. He submitted that the case of Jyothi Laboratories v. Collector of Central Excise, Cochin supra, is distinguishable on the facts of the case and drew our attention to paragraph 150 of the Report wherein it was inter alia held that since the product "Ujala" is a preparation based on synthetic organic dye, its classification will only be under heading 3204.29.
6. Considered. In the instant case their appears to be no dispute that the appellants are purchasing the duty paid Ultra Marine Blue and after purchasing so they dilute the same by using 75% to 80% China Clay and also add 1% acid dyes (synthetic organic dye stuff) falling under heading 32.04 to preserve the parity and the shade and thereafter they pack it in smaller packs and sell the same under different brand names.
The Collector (Appeals) in his impugned order has obliquely ruled out the applicability of Note 6 to Chapter Note 32 by observing that no doubt the lower authority has relied upon Note 6 of the Chapter Note 32 which apply to tariff item 32.06 adding that the same analogy can be applied to the process adopted by the appellants. So the foremost question before us is as to whether some addition of the China Clay and acid dye to dilute the ultra marine blue amounts to manufacture. The Collector (Appeals) has held so observing that unless these ingredients that is to say China Clay and acid dyes are mixed up, the commodity produced by the appellants would not become diluted and would not be saleable in the form in which it is being sold by them. In fact, it is nothing short of the process of manufacture. And, therefore according to him by adopting this process the appellants are producing a new commodity and marketing it accordingly. In the case of Coromandal Prodorite Pvt. Ltd. v. Government of India and Ors. , it was held by the Division Bench of the Madras High Court that mere mixing or dilution of substance will not amount to manufacture.
Following this decision this Tribunal in the case of Collector of Central Excise, Bangalore v. Mallaya fine Chem (P) Ltd., Bangalore Final order No. 1245/90-C, while deciding the question as to whether adding either common salt or Glauber's salt or potable water depending upon the mode of preparation to the food colours procured by the assessee therein in bulk from the market after paying the excise duty and thereafter repacking the same into convenient retail packets and selling them under different brand names amounts to manufacture or not held as follows: 8. From the admitted facts on the record, it is clear that the respondents are buying food colours in bulk which are also classified under Tariff Item 3204.90 and had suffered excise duty at the hands of the manufacturers of such food colour preparation in bulk-form and the activities undertaken by the respondents in their factory were adding either common salt or Glauber's salt or potable water depending upon the mode of preparation, that is to say powder form or liquid form and repack the same food colour preparation into convenient retail packets and put in the market in the repacker's name as 'Bush Boake Allen'. It is settled law that as per the definition of 'manufacture' given in the Central Excises and Salt Act, it is necessary that an entirely new product with a different character should emerge. It is further well established that though the process brings about a change in the raw material used, every change cannot be taken to construe 'manufacture'. If as a result of the process, raw materials have been transformed into a distinct and commercially new product, then alone the process can be taken to be a 'manufacture'. In the instant case, what the respondents are doing is that, they are getting food colours in bulk form which are already classified under Tariff Item 3204.90 and had suffered excise duty at the hands of the manufacturers of such food colours in bulk form and after getting the said food colours in bulk they add either common salt or Glauber's salt or potable water depending upon the mode of preparation giving a new brand name such as 'Permicol' and giving the repacker's name as stated above. In the case of Coromandal Prodorite (P) Ltd., supra, after analysing the provisions of the Act and the case law, it was held by a Division Bench of the Madras High Court that a process of mixture or dilution will not amount to manufacture. Thus, agreeing with the Collector (Appeals), we hold that the activity carried on by the respondents does not amount to manufacture.
7. Following the ratio of the said decision this Tribunal reiterated the same view in Bush Boake Allen (India) Ltd. v. CCE, Madras Final Order No. 1246/90-C. In the instant case what the appellants are doing is that they are purchasing the ultra marine blue falling under Tariff Item 3206.90 which had already suffered the excise duty and after purchasing the ultra marine blue they add China Clay and acid dyes and thereafter pack it in smaller consumer pack and sell the same under different brand names. This process in our considered opinion does not bring any change in the name, character or use of the product. The ultra marine blue has the same identity after dilution. As regards the liquid blue it is the case of the appellants that they purchased acid dyes on payment of duty and merely add water to that for the purpose of dilution. And, therefore, this activity of adding water to the acid dye does not amount to manufacture. Against this it was the contention of the Ld. JDR Shri Arora that as per paragraph 150 of the judgement delivered in the case of Jyothi Laboratories v. Collector of Central Excise, Cochin, supra, it will fall under heading 3204.29 as it is the preparation based on synthetic organic dye. From the record we find that in the relevant classification list No. 1/87-88 the appellants have given the description of "Liquid Blue" as Containing "Acid Dye" and water exempted as per Section Note No. VI to Chapter No. 32 (Read with Trade Notice No. 48/MP/500(1)/86 dated 14.7.86. Acid dye is formulated dyestuff "Milling Violate." In the Memorandum of Appeal filed before the Collector (Appeals) it was stated in paragraph 3 of the Appeal Memo that the appellants purchase acid dye on payment of duty and merely add water for the purpose of dilution. The fact that the appellants purchase acid dye on payment of duty does not appear to be in dispute. Likewise the contention of the appellants that the acid dye so purchased were standardised, formulated and prepared forms was also not disputed before us. According to Note 6 to Chapter 32 of the CET in relation to synthetic organic dyes (including pigment dyes of Heading No. 3204 conversion of only unformulated/unstandardised and unprepared forms of synthetic organic dyes into their formulated/standardised or prepared forms ready for use in the process of dyeing would amount to manufacture. Since in the instant case as aforesaid the process of adding water in respect of formulated/standardised and prepared acid dyes is only undertaken by the appellants with respect to the liquid blue, we are of the opinion that this process so undertaken by the appellants does not amount to manufacture as the process of mixture or dilution does not amount to manufacture as held by the Madras High Court in the case of Coromandal Prodorite Pvt. Ltd. v. Government of India and Ors. supra.
8. In the light of the above, we are not required to examine the alternative claim of the appellants that they were eligible for exemption as per Notification No. 114/73 as amended since we have held that the activity that were carried on by the appellants as aforesaid does not amount to manufacture.
9. In the result, we answer the question as posed above by us in the negative. Consequently appeal filed by the appellants is allowed with consequential relief to them, if any, according to law.