2008 (9) TMI 386 - HC - Central Excise

Whether dilution of Alletherin to 3.6% by weight concentration (w/w) from 90% concentration/purity by adding deodorized K-oil as inert carrier/solvent, perfume as masking agent DHT (Dibutyl Hydroxy Tulune) as stabilizing agent amounts to manufacture? Held that - Mere processing of the goods is not manufacture and to fall within the definition of manufacture a new substance should be formed. In the present case no new substance is formed and only a diluted form of original substance is packaged under a different brand name. Alletherin in its concentrated form is an insecticide and the final product manufactured by the respondent is a diluted form of insecticide which will only kill small insects like mosquitoes. There is no new substance which is created. The petitioner if it wanted to include dilution of insecticide within the meaning of manufacture could have made specific provision in this regard in section itself or in the chapter notes of the Schedule to Central Excise Tariff Act, 1985. In the absence of any such notes the mere process of diluting the alletherin by adding non-reactant substance cannot amount to manufacture. All that is being done is that the potency of the insecticide is being reduced. This cannot be termed to be manufacture. Question referred is answered against the petitioner

Summary

Issues:
Interpretation of the definition of "manufacture" under the Central Excises and Salt Act in relation to dilution of Alletherin to 3.6% by weight concentration from 90% concentration.

Analysis:
The case involved a dispute regarding whether the dilution of Alletherin by adding various agents amounted to "manufacture" under the Central Excises and Salt Act. The respondent was engaged in manufacturing liquid mosquitoes destroyer by diluting Alletherin to 3.6% purity with deodorized kerosene oil, perfume, and DHT. The question was whether this dilution process constituted "manufacture" as per the Act's definition. The adjudicating authority initially held that there was no manufacturing process involved as both the concentrated and diluted Alletherin fell under the same sub-heading. The Department appealed to higher authorities, but the appeals were dismissed.

The Central Board of Excise and Customs issued an order stating that dilution of a concentrated insecticide would fall within the scope of "manufacture" under the Act. However, various High Courts, including Gujarat, Madras, and Delhi, held that the Board cannot issue circulars contrary to tribunal decisions. The courts emphasized that the Board's circulars should not render tribunal decisions irrelevant. The courts stressed that the proper course of action for the Department would be to appeal the tribunal's decision if they disagreed, rather than issuing conflicting circulars.

The judgment referred to precedents like Union of India v. Delhi Cloth and General Mills Co. Ltd., where the Supreme Court clarified that mere processing does not constitute "manufacture" unless it results in the creation of a new substance. In this case, the diluted Alletherin did not lead to the formation of a new substance; it only reduced the potency of the insecticide. The court concluded that without specific provisions in the Act or chapter notes regarding dilution processes, the mere act of diluting Alletherin did not amount to "manufacture" as defined in the law. Therefore, the petition was dismissed, and the question was answered against the petitioner.