2014 (3) TMI 793 - AT - Central Excise

Manufacturing activity or not - improvement in the quality of imported plywood by dipping the imported plywood into a boiling hot chemical solution consisting of Sodium Bicarbonate, Boric Acid and Copper Sulphate mixed in water and thereafter drying - Revenue contends that final product is marine plywood and since a new commodity with different name, character and use has emerged - Held that - manufacture can be said to have taken place only when there is transformation of raw materials into a new and different article having a different identity, characteristic and use. It is well settled that mere improvement in quality does not amount to manufacture. It is only when the change or a series of changes take the commodity to a point where commercially it can no longer be regarded as the original commodity but is instead recognized as a new and distinct article that manufacture can be said to have taken place - process undertaken by the appellant does not amount to manufacture and hence the demands and penalties are set aside and both the appeals are allowed - Following decision of Commissioner of Central Excise Versus Osnar Chemical (P) Ltd. 2012 (1) TMI 27 - Supreme Court of India - Decided in favour of assessee.

Summary

Issues Involved:
1. Classification of imported plywood.
2. Determination of whether the process undertaken by the appellant amounts to manufacture.
3. Applicability of excise duty on the final product.

Issue-wise Detailed Analysis:

1. Classification of Imported Plywood:
The appellant, M/s. Associate Lumbers Pvt. Ltd., imported plywood classified under heading 44123110 and cleared it on payment of Customs duty including CVD. The Revenue contended that the imported goods were decorative plywood, whereas the appellant argued that they imported marine plywood. The appellant claimed that the goods were mistakenly classified under 44123110 instead of 44123190 due to the CHA's error. They asserted that the imported goods were not decorative plywood, as decorative plywood is thinner and decorative on one side. The appellant maintained that their imported plywood, although not conforming to Indian Standard Specifications IS 710-1976, should be classified under 44123190.

2. Determination of Whether the Process Undertaken by the Appellant Amounts to Manufacture:
The core issue was whether the process of dipping the imported plywood in a boiling chemical solution and selling it as marine plywood constituted manufacturing. The Revenue argued that the process resulted in a new commodity with a different name, character, and use, thus amounting to manufacture and making the final product chargeable to excise duty. The appellant countered that the process only improved the quality of the plywood, making it termite-free and enhancing its durability, but did not transform it into a new product. They cited several case laws, including Commissioner of Central Excise, Bangalore II Vs. Osnar Chemicals Pvt. Ltd., to support their contention that mere improvement in quality does not amount to manufacture.

3. Applicability of Excise Duty on the Final Product:
The Tribunal examined the Supreme Court's judgment in the Osnar Chemicals case, which dealt with the addition of polymers and additives to bitumen. The Court held that mere improvement in quality does not constitute manufacture unless the product undergoes a transformation resulting in a new and distinct article with a different identity, characteristic, and use. Applying this principle, the Tribunal found that the process undertaken by the appellant did not amount to manufacture, as the final product remained plywood, albeit with improved quality. The Tribunal also reviewed other cited judgments and concluded that the specific facts and circumstances of each case must be considered to determine whether a process constitutes manufacture.

Conclusion:
The Tribunal held that the process undertaken by the appellant did not amount to manufacture. Consequently, the demands and penalties imposed by the Revenue were set aside, and both appeals were allowed. The judgment emphasized that mere improvement in quality does not transform a product into a new and distinct article, and thus, the final product was not subject to excise duty.

(Pronounced in court on 31.1.2014)