2005 (3) TMI 223 - AT - Customs

Summary

Issues Involved:
1. Eligibility of exemption under various Customs Notifications.
2. Definition of 'manufacture' and whether the process undertaken qualifies as 'manufacture'.
3. Applicability of the artificial definition of manufacture under Chapter Note No. 10 of Chapter No. 28.
4. Compliance with conditions of the relevant Customs Notifications.
5. Demand for Customs duty, penalty, and interest on previously assessed Bills of Entry.

Issue-wise Detailed Analysis:

1. Eligibility of exemption under various Customs Notifications:
The appellant, engaged in the manufacture of Helium Gas, claimed exemption under Notification Nos. 23/98-Cus., 20/99-Cus., and 16/2000-Cus. as amended, which allow clearance of raw materials for offshore oil exploration or exploitation. The appellant followed Customs Bonded Warehousing procedures and imported Helium Refrigerated Liquid (HRL), converting it into Diving Helium Gas (DHG) by mixing 2% oxygen gas. The dispute arose when the exemption was disallowed, leading to a show cause notice and subsequent denial by the Deputy Commissioner. However, the Commissioner (Appeals) found that HRL is a raw material and the conversion process amounts to manufacture, satisfying the conditions of the Notifications.

2. Definition of 'manufacture' and whether the process undertaken qualifies as 'manufacture':
The primary contention was whether the mixing of 2% oxygen with Helium Gas constitutes 'manufacture'. The Commissioner (Appeals) held that the activities undertaken for conversion of HRL to DHG amount to manufacture, as per the artificial definition under Chapter Note No. 10 of Chapter No. 28. This was contested by Revenue, arguing that mixing gases does not result in a new product with a distinct name, use, or marketability. However, the Tribunal found that the Customs Notifications do not restrict 'manufacture' to the definition under Section 2(f) of the Central Excise Act, 1944, and should be understood in a broader sense.

3. Applicability of the artificial definition of manufacture under Chapter Note No. 10 of Chapter No. 28:
The Commissioner (Appeals) applied Chapter Note No. 10 of Chapter No. 28, which includes an artificial definition of manufacture. The Tribunal upheld this interpretation, noting that the activities undertaken by the appellant satisfy the conditions laid down in the Notifications and the artificial definition of manufacture.

4. Compliance with conditions of the relevant Customs Notifications:
The Tribunal found that the appellant complied with the conditions of the relevant Customs Notifications. The Notifications exempt goods used as parts and raw materials for manufacturing goods supplied for offshore oil exploration or exploitation. The Tribunal concluded that HRL, used to produce DHG by mixing with 2% oxygen, qualifies as raw material used in manufacturing under Section 65 of the Customs Act, 1962. The Tribunal also noted that the Notifications do not require a chemical reaction to consider a new commercial product to have emerged.

5. Demand for Customs duty, penalty, and interest on previously assessed Bills of Entry:
Revenue issued another show cause notice demanding Customs duty on 40 previously assessed Bills of Entry, arguing that the clearances did not satisfy the conditions of the Notifications. The Tribunal, however, found no infirmity in the order of the Commissioner (Appeals), which had determined that the appellant satisfied all conditions of the Notifications. Consequently, the Tribunal set aside the order of the Commissioner, rejecting the duty demands, penalties, and interest on grounds of limitation and compliance with the exemption conditions.

Conclusion:
The Tribunal allowed the appeals filed by the assessee and its Manager, setting aside the impugned order, and rejected the appeal filed by the Commissioner, upholding the order of the Commissioner (Appeals). The Tribunal confirmed that the appellant was entitled to the exemption under the relevant Customs Notifications and that the activities undertaken constituted 'manufacture' under the broader interpretation applicable to Customs Notifications.