1998 (3) TMI 228 - AT - Central Excise

Summary

Issues Involved:
1. Whether the process of mixing duty-paid formulated/standardized/prepared synthetic organic dyes with other dyes/diluents amounts to manufacture under Note 6 to Chapter 32.
2. Classification of such dyes under the Central Excise Tariff Act.
3. Applicability of Trade Notice 48 (MP)/Synthetic Organic Dyes (1)/86, dated 14th July 1986.
4. Consistency and fairness in the Department's approach to issuing show cause notices.

Issue-wise Detailed Analysis:

1. Whether the process of mixing duty-paid formulated/standardized/prepared synthetic organic dyes with other dyes/diluents amounts to manufacture under Note 6 to Chapter 32:

The core issue in these appeals is to determine if the process of mixing duty-paid formulated/standardized/prepared synthetic organic dyes with one or more dyes/diluents/Glauber's salt, soda ash, dextrine, etc., either by grinding or pulverizing, constitutes a manufacturing process within the meaning assigned in Note 6 to Chapter 32. The respondents, who hold a Central Excise Licence to manufacture synthetic organic dyes, purchase dyes from outside and mix them with diluents, then sell the resultant product under their brand name. The Assistant Collector of Central Excise classified these dyes under sub-heading 3204.29, asserting that converting concentrated dyes into a standardized/prepared form ready for use is a manufacturing process. However, the lower appellate authority accepted the respondents' contention, supported by gate passes, that the dyes were already standardized/formulated/prepared, and thus, their conversion did not amount to manufacture.

2. Classification of such dyes under the Central Excise Tariff Act:

The Assistant Collector classified the mixed dyes under sub-heading 3204.29, arguing that the process amounts to manufacture. However, the lower appellate authority and the Tribunal found that Note 6 to Chapter 32 applies only to the conversion of unformulated/unstandardized/unprepared dyes into a ready-to-use form. Since the respondents were dealing with already formulated/standardized/prepared dyes, the conversion process did not result in a new commercial commodity with a distinct name, character, and use. Therefore, the Tribunal upheld the lower appellate authority's decision that the process did not amount to manufacture, and the appeal by the Revenue was rejected as unsubstantiated.

3. Applicability of Trade Notice 48 (MP)/Synthetic Organic Dyes (1)/86, dated 14th July 1986:

The lower appellate authority relied on Trade Notice 48 (MP)/Synthetic Organic Dyes (1)/86, which clarified that the conversion of unformulated/unstandardized/unprepared forms of synthetic organic dyes into formulated/standardized/prepared forms ready for use amounts to manufacture. However, this notice does not apply to reformulations out of already formulated/standardized/prepared dyes. The Tribunal agreed with this interpretation, noting that the Revenue failed to substantiate that the conversion process resulted in a distinct commercial commodity.

4. Consistency and fairness in the Department's approach to issuing show cause notices:

The Tribunal observed that the Department had issued multiple show cause notices on the same issue, despite earlier adjudications favoring the respondents. The Assistant Collector's order in 1988, which was set aside by the Collector (Appeals) in 1989, had already examined the issue. The Tribunal criticized the Department for repeatedly raking up the same issue and causing unnecessary inconvenience to the respondents. The Tribunal emphasized that unless the order of the Collector (Appeals) was stayed or modified, the Department was bound to comply with it and should not have issued further show cause notices on the same matter.

Conclusion:

The Tribunal upheld the lower appellate authority's decision that the process of mixing duty-paid formulated/standardized/prepared synthetic organic dyes with diluents does not amount to manufacture under Note 6 to Chapter 32. The classification under sub-heading 3204.29 was deemed incorrect, and the appeal by the Revenue was rejected as unsubstantiated. The Tribunal also highlighted the unfairness in the Department's repeated issuance of show cause notices on the same issue, causing avoidable inconvenience to the respondents.