1992 (7) TMI 180 - AT - Central Excise

Summary

Issues Involved:
1. Exemption eligibility of Solubilised vats (Indigosol) under Notification No. 180/61.
2. Whether the conversion of duty-paid formulated/standardised vat dyes into paste amounts to manufacture.
3. Duty liability on formulated/standardised dyes converted into paste.

Detailed Analysis:

1. Exemption Eligibility of Solubilised Vats (Indigosol) Under Notification No. 180/61:
The appellants claimed exemption for Solubilised vats manufactured from duty-paid standardised/formulated vat dyes under Notification No. 180/61. The Collector denied this exemption, asserting that the Solubilised vats were not eligible since they were manufactured from intermediate products. However, the Tribunal found that the Department did not dispute that the appellants used duty-paid standardised/formulated vat dyes. The Tribunal held that Solubilised vats (Indigosol) manufactured by the appellants out of duty-paid standardised/formulated vat dyes falling under Chapter 32 of the Central Excise Tariff were indeed eligible for exemption from duty in terms of Notification No. 180/61 (as amended).

2. Whether the Conversion of Duty-Paid Formulated/Standardised Vat Dyes into Paste Amounts to Manufacture:
The appellants argued that converting duty-paid formulated/standardised vat dyes into paste did not amount to manufacture as it did not result in a new product. They relied on the Bombay High Court's decision in Sandoz (India) Ltd. v. Union of India, which held that merely changing the form of a substance does not constitute manufacture. The Tribunal agreed, stating that the process of converting duty-paid formulated/standardised dyes into paste did not amount to manufacture. The Tribunal also referred to Board's Ruling No. 18/65, which clarified that vat paste produced by blending duty-paid vat powder with glycerine does not involve any chemical change and thus does not amount to manufacture.

3. Duty Liability on Formulated/Standardised Dyes Converted into Paste:
The Tribunal examined whether duty was recoverable on the paste made from duty-paid formulated/standardised dyes. The Collector had observed that the conversion of dyes in unprepared form into prepared form amounted to manufacture, but the Tribunal found this observation contrary to the facts since the appellants were using duty-paid standardised dyes. The Tribunal referred to the Supreme Court's decision in Union of India v. Ahmedabad Manufacturing and Calico Printing Co. Ltd., which held that goods should be classified according to their nature and character at their final stage of production. Consequently, the Tribunal held that duty was recoverable on the paste after it had attained its final form, and the differential duty was recoverable for the goods cleared during the six months preceding the show cause notice.

Conclusion:
1. Solubilised vat dyes manufactured by the appellants out of duty-paid standardised/formulated vat dyes were exempt from duty under Notification No. 180/61 (as amended).
2. The process of converting duty-paid formulated/standardised vat dyes into paste does not amount to manufacture.
3. Formulated/Standardised dyes converted into paste were chargeable to duty at the stage when the goods attained the form of paste after completion of all related processes of manufacture, and differential duty was recoverable for such clearances during the six months preceding the show cause notice.

The appeal was disposed of in these terms.