2006 (10) TMI 16 - AT - Central Excise

Central Excise Vat paste The process of conversion of vat powder into vat paste by adding glycerin, dispersing agent, water etc. does not amount to manufacture, if the vat powder is standardized/formulated or prepared dye

Summary

Issues:
1. Whether the conversion of vat powder into vat paste amounts to the manufacture of a new excisable product.
2. Whether the appellants are entitled to SSI exemption.
3. Whether penalty imposition on the appellants and others is justified.

Analysis:
1. Conversion of Vat Powder into Vat Paste:
The case revolved around the conversion of vat powder into vat paste by the appellants. The Show Cause Notice alleged that this process amounted to manufacturing a new product classified under Chapter Heading 3204.29. The Commissioner confirmed duty imposition, but the appellants contended that the conversion did not constitute manufacturing based on legal precedents and clarifications from the CBEC. The appellants argued that the vat powder purchased was already standardized/formulated dye, as evidenced by invoices, and the conversion process did not change the essential nature of the product. The Tribunal agreed with the appellants, citing various judgments and clarifications that supported the view that such a conversion did not amount to manufacture. Therefore, the duty imposition was set aside.

2. SSI Exemption Entitlement:
The Show Cause Notice also raised concerns about the appellants' entitlement to SSI exemption, particularly regarding the sale of standardized dyes under the brand name of another entity. However, since the primary issue of duty imposition was resolved in favor of the appellants based on the non-manufacturing nature of the conversion process, the question of SSI exemption became moot.

3. Penalty Imposition Justification:
The Commissioner had imposed penalties on the appellants and others under various provisions for alleged duty evasion. The appellants challenged the penalties, arguing that since the duty liability itself was not valid due to the non-manufacturing nature of the conversion process, the question of penalties did not arise. The Tribunal, after determining that no duty was payable, concluded that the penalties were not justified. Therefore, the impugned order of the Commissioner was set aside, and the appeals were allowed.

In conclusion, the Tribunal's judgment clarified that the conversion of vat powder into vat paste by the appellants did not amount to manufacturing, based on legal precedents and clarifications. This decision led to the dismissal of duty imposition and subsequent penalties, ultimately ruling in favor of the appellants.