2015 (10) TMI 1725 - AT - Central Excise

Manufacturing activity or not - activity of blending to increase the viscosity of the product- Appellants had mixed Guar Dal Flour/Powder (75%), Guar Dal Powder/Saw Dust (5-10%) and TKP (10-15%) in a blender - Guar Dal Powder, known as Guar Gum - classification under Sub Heading No.1301.10 - Imposition of penalty - Held that - Appellants received the Guar Dal Powder which is derived from seed of Guar plant. The seed of Guar plant in powder form known as Guar Dal Powder, was received by the Appellant. The Appellant had undertaken a process of the said powder added with other product and TKP. It is also mixed with Methonol and Glycol in a minimum quantity. There is a chemical reaction during mixing of these items and the viscosity of the final product ranges from 0 to 5000 CPH as per requirement of end use of the product. The chemical reaction in the Blender is expressing the magnitude of internal friction in a fluid and there is a change of properties as per end use of the goods. Thus, there is a change of character of the impugned product. There is change of character of the goods of different properties as per viscosity used in various industries. - the activities undertaken by the Appellant would amount to manufacture. - Decided against the assessee. Classification - Held that - the Guar Dal Flour/Powder was modified by chemical reaction in order to improve their properties as per end use of the product in various industries. So, it is rightly covered under Chapter 13 of the CETA. Extended period of limitation - bonafide mistake - Held that - Considering the overall facts and circumstances of the case, we are of the view that the extended period of limitation cannot be invoked. In the case of M/s Ravi Gum Industries 2007 (10) TMI 272 - CESTAT, AHMEDABAD , the Appellant is a job worker. As the matter is related to interpretation of manufacturing and classification of the goods, imposition of penalty on the Appellants cannot be sustained. Demand of duty confirmed for the normal period of limitation with Interest - Penalty waived - Decided partly in favor of assessee.

Summary

Issues Involved:
1. Whether the process undertaken by the appellants amounts to manufacture.
2. Classification of the product under the Central Excise Tariff Act.
3. Applicability of extended period of limitation for demand of duty and imposition of penalties.

Detailed Analysis:

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

The Tribunal examined whether the activities performed by the appellants constituted "manufacture" under Section 2(f) of the Central Excise Act, 1944. The appellants argued that mixing Guar Dal Flour/Powder and Tamarind Kernel Powder (TKP) without any chemical reaction did not change the character, use, or identity of the product. The Revenue contended that the addition of Glycol and Methanol increased the viscosity, altering the product's properties, thus constituting manufacture. The Tribunal found that the process involved a chemical reaction, changing the product's viscosity and solubility, resulting in a new product known in trade as Guar Gum. This transformation met the criteria of "manufacture" as defined by the Supreme Court in the case of Union of India Vs Delhi Cloth & General Mills Co. Ltd.

2. Classification of the product under the Central Excise Tariff Act:

The appellants argued that the product should be classified under Heading 1101 of the Tariff, which covers products of the milling industry, attracting a Nil rate of duty. The Revenue maintained that the product should be classified under Heading 1301.10, which covers gums and involves processes carried out with the aid of power, attracting an 8% duty. The Tribunal noted that Heading 1301 did not distinguish between seed gum and plant exudates/extracts and that the chemical treatment to improve properties like viscosity and solubility aligned the product with Chapter 13 of the Harmonized System of Nomenclature (HSN). Thus, the product was rightly classified under Heading 1301 of the Central Excise Tariff Act, 1985.

3. Applicability of extended period of limitation for demand of duty and imposition of penalties:

The appellants contended that the extended period of limitation could not be invoked as they had filed declarations under Rule 174 of the erstwhile Central Excise Rules, 1944, and acted on a bona fide belief that the goods were non-excisable. The Tribunal found that the appellants had disclosed the process, including the use of power, in their declarations. Given the conflicting decisions of co-ordinate Benches of the Tribunal and the bona fide belief held by the appellants, the extended period of limitation and imposition of penalties were not justified. The Tribunal set aside the demand of duty for the extended period and the penalties imposed on the appellants.

Conclusion:

The Tribunal concluded that the process undertaken by the appellants amounted to manufacture, and the product was classifiable under Heading 1301 of the Central Excise Tariff Act, 1985. However, the demand of duty for the extended period and the penalties imposed were set aside due to the bona fide belief of the appellants and the conflicting decisions of the Tribunal. The appeals of M/s. Kraps Chemical Pvt. Ltd. and M/s. Ravi Gum Industries were disposed of accordingly.