2000 (2) TMI 121 - AT - Central Excise

Summary

Issues Involved:
1. Whether the process of repacking bulk aluminium paste into smaller packing amounts to a process incidental or ancillary to the manufacture of aluminium paint.
2. Whether the combined product (aluminium paste and medium) in a single carton is assessable for excise duty as aluminium paint under Note 2 to Section VI of the Central Excise Tariff 1985.

Issue-Wise Detailed Analysis:

1. Process of Repacking and Manufacture:
The appellants are engaged in the manufacture of aluminium medium and purchase aluminium paste in bulk drums of 25 Kgs., repacking it into smaller tins of 4 Kgs., and placing it with aluminium medium in a common carton, clearing it as aluminium paint. They filed a classification list claiming the classification of aluminium paint under Chapter Heading 3208.90, which was initially approved. However, it was later found that they excluded the cost of aluminium paste in the assessable value, claiming it was a bought-out item, and paid duty only on the aluminium medium. The adjudicating authority held that the repacking process amounted to a process incidental or ancillary to the manufacture of aluminium paint, making it assessable for excise duty as aluminium paint under Note 2 to Section VI of the Tariff.

2. Tribunal and Judicial Precedents:
The appellants relied on several judicial precedents, arguing that the process does not amount to manufacture:
- Collector of Central Excise v. Kalinga Paints and Chemicals Industries (1989): Tribunal held that putting aluminium medium and aluminium paste together in separate packs does not amount to manufacture.
- Union of India v. Delhi Cloth and General Mills Co. Ltd. (1977): Supreme Court held that manufacture generally means bringing into existence a new substance.
- XI Telecom Ltd. v. Superintendent of Central Excise (1999): Andhra Pradesh High Court held that putting together different duty-paid items in a kit does not amount to manufacture.

3. Department's Argument:
The Departmental Representative argued that the view in Modi Paint and Varnish Works v. Collector of Central Excise (1994) is correct and applicable. The facts in Kalinga Paints and Chemicals Industries were different as the packing was done outside the factory, whereas in the present case, the repacking and combining were done within the factory. The process was incidental or ancillary to the completion of the final product, aluminium paint.

4. Tribunal's Analysis:
The Tribunal noted that:
- The appellants were manufacturing aluminium medium and repacking aluminium paste into smaller tins within the factory, clearing it as aluminium paint.
- The process of repacking and combining in a common carton is essential for the final product, aluminium paint, as the paste has no shelf life when mixed.
- The market recognizes the product as aluminium paint, not as separate aluminium medium and paste.

5. Conclusion:
The Tribunal concluded that the process undertaken by the appellants is incidental or ancillary to the manufacture of aluminium paint, making it assessable for duty as aluminium paint. The Tribunal upheld the view in Modi Paint & Varnish Works v. Collector of Central Excise (1994) and answered the referred question affirmatively.

Final Judgment:
The appellants' activities of manufacturing aluminium medium and putting it along with aluminium paste in a common carton, selling it as aluminium paint, amounts to the manufacture of aluminium paint and is liable to Central Excise Duty as aluminium paint. The impugned order is upheld, but the appellants are entitled to the benefit of Modvat credit for specified inputs used in the manufacture of aluminium paint. The appeal is disposed of accordingly.