2014 (9) TMI 737 - AT - Central Excise

Manufacturing activity or mere repacking activity - Whether activity of re-packing/re-labeling/re-fining of laboratory chemicals undertaken by the appellant in respect of Petroleum Benzine and Hexane for Chromatography Lichrosolv - Held that - A perusal of the flow chart clearly shows that the Hexane raw materials and petroleum ether 60.80 are charged into a reactor and thereafter, concentrated sulphuric acid is added and stirred and the mixture is left for 4 to 5 hours room temperature. After stirring is complete, the acid is drained and the absence of acid layer is checked. Thereafter Ph value of the material is checked till it reaches 7 or sodium carbonate washing is done so as to reach the Ph value of S7. After removal of the acid, the material is treated with AQ sodium Carbonate to remove 100% acid. Similarly in the letter dated 31/01/2008, the manufacturing process of petroleum benzene 60-80 Grand Hexanes chromatography grade is described. It is stated that raw material, namely, hexane fraction from petroleum is charged in to a reactor, treated with acid and aqueous Sodium Carbonate solution is added to remove the acid. The material is checked for neutral PH-7. Thereafter, the material is send for quality analysis in semi finished condition and after getting the analytical report, the material is filtered and packed in consumable pack of 1Lt. glass bottle. After packing, the filled bottles are then pasted with product labels and then sent to shipper ready for dispatch. The contention of the respondent that they have been doing merely repacking and have not undertaken any reprocessing is not correct. The value addition which the appellant has achieved on account of these processes is of order of 200% which is substantial. If the activity undertaken by the appellant is merely repacking, we do not understand how a value addition 200% could be achieved. Therefore, the argument of the appellant that they had undertaken only re-packing is without any basis and merits rejection. In the label for the input raw material, the product is merely declared as Petroleum Benzine 65/70. There is no indication as to the usage for specific industry or otherwise. It is also observed that BIS 3470 2002 lays down specifications for hexane, food grade, the parameters of which are satisfied by the products marketed by the appellant. Therefore, we have to conclude that a new product has emerged, having a distinct character, name and use after the various processes undertaken by the appellant and therefore, these processes undertaken by the appellant and therefore, the processes undertaken by the appellant amounts to manufacture as defined in Section 2 (f) of the Central Excise & Salt Act, 1944. Invocation of extended period of limitation - Held that - department was aware of the various activities undertaken by the appellant. If that be so, the department cannot plead that the appellant had suppressed any fact with respect to the activities undertaken by them and the department should have taken action well within the normal period of limitation. Hence, invocation of the extended period of limitation for confirmation of duty cannot be upheld in the present case. Therefore, duty demand in the present case is sustainable only for the normal period of limitation. Matter remanded back - Decided partly in favour of Revenue.

Summary

Issues:
- Whether the processes undertaken by the appellant amount to "manufacture" for excise duty liability.
- Whether a new product has emerged from the processes undertaken by the appellant.
- Whether the extended period of limitation for confirmation of duty demand is sustainable in law.

Analysis:

Issue 1:
The appeal challenged the dropping of duty demand proposed for re-packing/re-labeling/re-fining of laboratory chemicals by the appellant. The adjudicating authority concluded that these activities did not result in the manufacture of a new product. The appellant argued that the processes led to a change in product specifications, making them fit for exclusive use in specific industries. The Revenue contended that the processes amounted to manufacture based on previous tribunal and court decisions. The value addition achieved was emphasized to support the Revenue's stance.

Issue 2:
The appellant refuted the Revenue's arguments, claiming that most activities involved repacking without substantial processing. However, historical records revealed that the appellant had indeed undertaken manufacturing processes, including treatment with acids, filtration, and packing into smaller bottles with specific labels. The emergence of a new product with distinct characteristics, name, and use was evident from the processes undertaken, satisfying BIS standards. The tribunal concluded that a new product had indeed emerged, meeting the criteria of "manufacture" as defined in the Central Excise & Salt Act, 1944.

Issue 3:
Regarding the extended period of limitation for confirming duty demand, the tribunal noted that the department was aware of the appellant's activities, negating the claim of suppression of facts. As a result, the invocation of the extended period was deemed unsustainable. The duty demand was deemed sustainable only within the normal period of limitation. The matter was remanded to the adjudicating authority for re-computation of duty demand within the normal period and allowing Cenvat Credit on raw materials based on documentary evidence. Interest on the re-computed duty demand was to be paid, while no penalty imposition was warranted.

In conclusion, the appeal was allowed by remanding the matter for re-computation of duty demand within the normal period and granting Cenvat Credit, emphasizing the emergence of a new product through manufacturing processes undertaken by the appellant.