2014 (12) TMI 1034 - AT - Central Excise

Manufacturing activity or not - Levy of duty on water resistant bonding agent - The appellants claim is that since the manufacturing process undertaken by them is only of diluting the inputs and repacking the same, their activities do not amount to manufacture and hence, no excise duty is payable on their final product namely, Sika Latex and Sika Latex Power - Revenue, on the other hand, is claiming that the final product of the appellant is the water resistant bonding agent , which is used as an additive to cement mortar/concrete to improve the adhesive and water resistant property of such cement mortar/concrete, while their inputs are Styrofan D 623 AP and Apcotex TSN 100 , which are aqueous polymer dispersion used in the modification of hydraulic setting system - Held that - The inputs are aqueous polymer and dispersion which are being processed to make it suitable as water resistant bonding agent. In our view, Revenue has discharged the burden from the literature of the final product as also that of inputs, the process being carried out leads to transformation of inputs into a final product having distinctive name, character or use. Inputs are not being sold by their manufacturer as water resistant bonding agent at all but as a product which manufacture after experiment can be used for diverse applications. In our view, Revenue has discharged the burden that final products are new products with distinctive name, character or use. - maintenance of elaborate records and conduct of quality test ipso facto dos not mean that the process amounts to manufacture, however, it is to be noted that if the process is very simple of dilution, then there is no need to keep elaborate records and there will be no need to conduct quality test for each batch (it can be concentration test only). - in the facts and circumstances of the case, the product having distinct name, character and use comes into existence from the inputs. The final product is a water resistant bonding agent while the inputs are understood as aqueous polymer dispersion used in the modification of hydraulic setting system. Name of inputs or process of transformation is a trade secret and is not known to trade or users. - Decided against the assessee. Computation of liability that the value to be taken as cum duty, we find force in the argument and we remand the matter back to the adjudicating authority to re-compute the duty liability considering the selling price as cum duty price. Keeping in view the nature of dispute, we set aside the penalty imposed. - Matter remanded back - Decided partly in favour of assessee.

Issues Involved:
1. Whether the process undertaken by the appellants amounts to manufacture.
2. Classification of the final product under the appropriate tariff heading.
3. Whether the final product is excisable.
4. Computation of duty liability.
5. Imposition of penalty and interest.

Detailed Analysis:

1. Whether the process undertaken by the appellants amounts to manufacture:

The appellants argued that their activity of diluting and repacking "Styrofan D 623 AP" and "Apcotex TSN 100" does not amount to manufacture as there is no change in name, character, and use of the product. They contended that the manufacturing process only involves dilution with water, which does not create a new product with a distinct name, character, or use. The Revenue, however, claimed that the final products, Sika Latex and Sika Latex Power, are distinct from their inputs and are used as water-resistant bonding agents, thus constituting manufacture.

The Tribunal examined the product literature and found that the final products are marketed as water-resistant bonding agents, while the inputs are described as aqueous polymer dispersions used in the modification of hydraulic setting systems. The Tribunal concluded that the process undertaken by the appellants results in a new product with a distinct name, character, and use, thereby amounting to manufacture. The Tribunal referenced the Supreme Court's definition of manufacture in Union of India vs. Delhi Cloth & General Mills Co. Ltd., which requires a transformation resulting in a new and different article with a distinctive name, character, or use.

2. Classification of the final product under the appropriate tariff heading:

The Revenue classified the final products under Chapter 38, Heading 3824, while the inputs were classified under Chapter Heading 40.02. The Tribunal agreed with the Revenue's classification, noting that the final products are marketed and understood as water-resistant bonding agents, distinct from their inputs.

3. Whether the final product is excisable:

The Tribunal determined that the final products, Sika Latex and Sika Latex Power, are excisable as they are new products resulting from the manufacturing process undertaken by the appellants. The products have a distinct name, character, and use, making them subject to excise duty.

4. Computation of duty liability:

The appellants argued that the value taken for duty computation should be considered as cum duty price. The Tribunal found merit in this argument and remanded the matter back to the adjudicating authority to re-compute the duty liability, considering the selling price as cum duty price.

5. Imposition of penalty and interest:

The Tribunal set aside the penalty imposed on the appellants, considering the nature of the dispute and the appellants' bona fide conduct. The Tribunal did not find sufficient grounds for imposing penalty and interest.

Conclusion:

The Tribunal concluded that the process undertaken by the appellants amounts to manufacture, resulting in a new product with a distinct name, character, and use. The final products are excisable and correctly classified under Chapter 38, Heading 3824. The duty liability should be re-computed, considering the selling price as cum duty price, and the penalty imposed on the appellants is set aside.

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