2004 (4) TMI 372 - AT - Central Excise

Summary

Issues:
1. Whether the process of testing, grading, repacking, and labeling of chemicals amounts to manufacture under the Central Excise Act, 1944.
2. Whether the resultant product is a distinct commercial commodity falling under a specific classification.
3. Whether the process of repacking and labeling changes the name or character of the products.
4. Whether the process substantially increases the unit value of the goods.

Issue 1: Process of Testing, Grading, Repacking, and Labeling

The show cause notice alleged that the process of testing, grading, repacking, and labeling of chemicals by the appellants amounts to manufacture under the Central Excise Act, 1944. The Commissioner of Central Excise confirmed the demand, holding that the goods transformed into a new commercial commodity, specifically covered by Chapter Heading 38.22. However, the Tribunal noted that there were no Section Notes or Chapter Notes specifying these activities as manufacturing processes until 1-3-1997. The repacking did not result in a change in name or character of the products, as they maintained the same molecular weight and chemical composition. The Tribunal referred to a previous case where it was held that purification of chemicals does not amount to manufacture if the product does not become a new commercial commodity with a distinct name, character, or use.

Issue 2: Classification of Resultant Product

The Commissioner argued that the products were transformed into a new commercial commodity falling under Chapter Heading 38.22. However, the Tribunal found that even after purification, the products were still used as the original chemicals, and the trade understanding remained based on different end uses. Previous court decisions were cited to support the argument that if the essential character of the article remains unchanged, it should be taxed as the original article and not as a new commodity.

Issue 3: Change in Name or Character

The Tribunal analyzed the Supreme Court's two-fold test to determine if a different commercial commodity emerged or if the original commodity lost its identity. It was concluded that the repacking and labeling did not result in a new commercial commodity, and the original chemicals retained their identity and commercial use even without these processes.

Issue 4: Increase in Unit Value

The Commissioner contended that the process substantially increased the unit value of the goods, which was a basis for determining manufacture. The Tribunal disagreed, stating that an increase in value alone is not sufficient to constitute manufacture. Citing a previous case, it was held that dilution or addition of chemicals with water or other substances did not amount to manufacture, as the resulting products still maintained their original commercial use.

In conclusion, the Tribunal held that the process carried out by the appellants did not amount to manufacture for the period in dispute, set aside the impugned order, and allowed the appeal based on the principles established in previous court decisions and the lack of substantial changes in the products' identity or commercial use.