Collector of Central Excise Vs. Markfed Agro Chemicals - Court Judgment

Excerpt:
1. this is an appeal against the order passed by the collector (appeals), central excise, new delhi. the only question that arises for consideration in this case is whether the preparation of malathion 50%, ddt 25%, aldrin 30% and sohnagar 30% e.c. by mainly dilution of basic pesticidal chemicals in highly concentrated form by addition of inert carriers/solvents and dispersing and stabilising agents to make them suitable for either direct use or after addition of water, amounts to manufacture within the meaning of section 2(f) of the central excises and salts act, 1944.2. on behalf of the appellant shri somesh arora, learned jdr appeared before us. he contended that the process of addition of chemicals and other ingredients like inert carriers or solvents and also surface active, dispersing and stabilising agents to pesticidal chemicals in highly concentrated form would amount to manufacture within the meaning of section 2(f) of the act since it results in the emergence of a new and distinct product having different properties viz.pesticide/insecticide fit for either direct use or after addition of water. according to the learned jdr the process of conversion of basic pesticidal chemicals carried out by the respondents was analogous to the manufacture of soft drinks out of concentrates. on these grounds it was contended that the impugned order holding that the dilution of pesticides and insecticides in highly concentrated form through addition of solvents, surface active and dispersing agents to render them suitable for use did not amount to manufacture was illegal and not sustainable.3. on behalf of respondents smt. archana wadhwa, learned advocate has contended that the process carried out by the respondents mainly comprised of dilution to the required strength of the basic pesticidal chemicals which were in highly concentrated form. she added that dilution was carried out to make them suitable for direct use by addition of inert carriers or solvents, surface active agents and dispersing and stabilising agents. she stated that even after such processing the products were marketed as malthian, ddt and aldrin. she pointed out that even in respect of 'sohnagor' which was prepared by diluting 'diamethoate' the chemical name of the product shown on the containers was 'diamethoate'. she contended that no duty was chargeable on the products in question since the basic chemicals used were duty-paid and the processing carried out did not constitute 'manufacture' within the meaning of section 2(f) of the act, since there was no transformation resulting in the emergence of any new or different article having distinctive name, character and use. on these grounds she pleaded for the rejection of the appeal.4. we have examined the records of the case and considered the submissions made on behalf of both sides. it is seen that the only question that has to be decided is whether processing of pesticidal basic chemicals in concentrated form, namely, malathion 50%, ddt 25%, aldrin 30% and diamethoate carried out by addition of inert carriers/solvents, surface active and dispersing agents and also stabilisers for diluting them and rendering them suitable for use either directly or after addition of water, amounted to manufacture within the meaning of section 2(f) of the act. according to the respondents the process of dilution of basic pesticidal chemicals through addition of solvents, surface active agents and solvents, surface active agents and stabilisers carried out by them did not amount to manufacture since such processing did not result in any new product having distinctive name, character and use. in this regard they also pointed out that even after processing, the products retained the same name as that of the basic chemical with the exception of 'sohnagor'. they have stated that even in the case of 'sohnagor) which is prepared by diluting the basic chemical 'diamethoate' the chemical name 'di-methoate' was indicated on the packages.5. it is seen that in the case of sandoz india ltd. v. union of india and ors. reported in 1980 (6) e.l.t. 696 the hon'ble bombay high court has held that foron liquid could not be treated as an entirely new substance because the pigment from its solid state has been converted into liquid state by the use of solvent and made properly usable with the aid of dispersing agent. para 16 of the said judgment being relevant is reproduced below :- "it will, therefore, appear that merely a change in the form of substance or a commodity would not by itself lead to the conclusion that a new article has been manufactured. before a charge of excise duty is attracted, it must, therefore, be established that the foron liquid was an entirely new substance and merely because the pigment from its solid state has been converted into a liquid state by the use of solvent and made properly usable with the aid of the dispersing agent, an inference that a new product or commodity has been manufactured cannot be drawn. on the material that is available in this case, it is not possible for us to hold that the foron liquid is obtained as a result of a manufacturing process or that it is an article which is distinctive in name, character and use. foron liquid is merely a trade name but with the substance with its chemical composition. we are not, therefore, satisfied that the department was justified in making a demand for excise duty on the basis that foron liquid was a changed form of the pigment at the time of its removal from the factory."deputy commissioner sales tax (law) board of revenue, ernakulam v. pio food packers reported in 1980 (6) e.l.t. 343 the hon'ble supreme court has observed that though the nature and extent of processing may vary from one case to another, yet it is only when the change, or a series of changes take the commodity to the point where commercially it is recognised as a new and distinct article that a manufacture can be said to have been taken place.7. it is seen that the processing of the concentrated basic pesticidal chemicals in question carried out by the respondents through addition of inert carriers/solvents and dispersing and stabilising agents resulted only in their dilution rendering them suitable for use either directly or after addition of water and formulations retained the name of the basic chemicals. evidently no new product having distinctive name, character and use appeared as a result of such processing. under these circumstances on the ratio of the decisions quoted above, we hold that the processes carried out by the respondents did not constitute 'manufacture' within the meaning of section 2(f) of the central excises and salt act, 1944.

Judgment:
1. This is an appeal against the order passed by the Collector (Appeals), Central Excise, New Delhi. The only question that arises for consideration in this case is whether the preparation of Malathion 50%, DDT 25%, Aldrin 30% and Sohnagar 30% E.C. by mainly dilution of basic pesticidal chemicals in highly concentrated form by addition of inert carriers/solvents and dispersing and stabilising agents to make them suitable for either direct use or after addition of water, amounts to manufacture within the meaning of Section 2(f) of the Central Excises and Salts Act, 1944.

2. On behalf of the appellant Shri Somesh Arora, learned JDR appeared before us. He contended that the process of addition of chemicals and other ingredients like inert carriers or solvents and also surface active, dispersing and stabilising agents to pesticidal chemicals in highly concentrated form would amount to manufacture within the meaning of Section 2(f) of the Act since it results in the emergence of a new and distinct product having different properties viz.

pesticide/insecticide fit for either direct use or after addition of water. According to the learned JDR the process of conversion of basic pesticidal chemicals carried out by the respondents was analogous to the manufacture of soft drinks out of concentrates. On these grounds it was contended that the impugned order holding that the dilution of pesticides and insecticides in highly concentrated form through addition of solvents, surface active and dispersing agents to render them suitable for use did not amount to manufacture was illegal and not sustainable.

3. On behalf of respondents Smt. Archana Wadhwa, learned advocate has contended that the process carried out by the respondents mainly comprised of dilution to the required strength of the basic pesticidal chemicals which were in highly concentrated form. She added that dilution was carried out to make them suitable for direct use by addition of inert carriers or solvents, surface active agents and dispersing and stabilising agents. She stated that even after such processing the products were marketed as Malthian, DDT and Aldrin. She pointed out that even in respect of 'Sohnagor' which was prepared by diluting 'Diamethoate' the chemical name of the product shown on the containers was 'Diamethoate'. She contended that no duty was chargeable on the products in question since the basic chemicals used were duty-paid and the processing carried out did not constitute 'manufacture' within the meaning of Section 2(f) of the Act, since there was no transformation resulting in the emergence of any new or different article having distinctive name, character and use. On these grounds she pleaded for the rejection of the appeal.

4. We have examined the records of the case and considered the submissions made on behalf of both sides. It is seen that the only question that has to be decided is whether processing of pesticidal basic chemicals in concentrated form, namely, Malathion 50%, DDT 25%, Aldrin 30% and Diamethoate carried out by addition of inert carriers/solvents, surface active and dispersing agents and also stabilisers for diluting them and rendering them suitable for use either directly or after addition of water, amounted to manufacture within the meaning of Section 2(f) of the Act. According to the respondents the process of dilution of basic pesticidal chemicals through addition of solvents, surface active agents and solvents, surface active agents and stabilisers carried out by them did not amount to manufacture since such processing did not result in any new product having distinctive name, character and use. In this regard they also pointed out that even after processing, the products retained the same name as that of the basic chemical with the exception of 'Sohnagor'. They have stated that even in the case of 'Sohnagor) which is prepared by diluting the basic chemical 'Diamethoate' the chemical name 'di-methoate' was indicated on the packages.

5. It is seen that in the case of Sandoz India Ltd. v. Union of India and Ors. reported in 1980 (6) E.L.T. 696 the Hon'ble Bombay High Court has held that Foron liquid could not be treated as an entirely new substance because the pigment from its solid state has been converted into liquid state by the use of solvent and made properly usable with the aid of dispersing agent. Para 16 of the said judgment being relevant is reproduced below :- "It will, therefore, appear that merely a change in the form of substance or a commodity would not by itself lead to the conclusion that a new article has been manufactured. Before a charge of excise duty is attracted, it must, therefore, be established that the Foron liquid was an entirely new substance and merely because the pigment from its solid state has been converted into a liquid state by the use of solvent and made properly usable with the aid of the dispersing agent, an inference that a new product or commodity has been manufactured cannot be drawn. On the material that is available in this case, it is not possible for us to hold that the Foron liquid is obtained as a result of a manufacturing process or that it is an article which is distinctive in name, character and use. Foron liquid is merely a trade name but with the substance with its chemical composition. We are not, therefore, satisfied that the Department was justified in making a demand for excise duty on the basis that Foron liquid was a changed form of the pigment at the time of its removal from the factory."Deputy Commissioner Sales Tax (Law) Board of Revenue, Ernakulam v. PIO Food Packers reported in 1980 (6) E.L.T. 343 the Hon'ble Supreme Court has observed that though the nature and extent of processing may vary from one case to another, yet it is only when the change, or a series of changes take the commodity to the point where commercially it is recognised as a new and distinct article that a manufacture can be said to have been taken place.

7. It is seen that the processing of the concentrated basic pesticidal chemicals in question carried out by the respondents through addition of inert carriers/solvents and dispersing and stabilising agents resulted only in their dilution rendering them suitable for use either directly or after addition of water and formulations retained the name of the basic chemicals. Evidently no new product having distinctive name, character and use appeared as a result of such processing. Under these circumstances on the ratio of the decisions quoted above, we hold that the processes carried out by the respondents did not constitute 'manufacture' within the meaning of Section 2(f) of the Central Excises and Salt Act, 1944.