2023 (4) TMI 1131 - AT - Central Excise

Levy of Excise Duty - process amounting to manufacture or not - conversion of SO dyes from unformulated/ unstandarised - process of mixing/diluting SO dyes with dry salt, globular salt (sodium sulfide), dextrose etc. to match the strength with the help of ball mill - Section 2(f) of Central Excise Act, 1944 read with Note-8 to Chapter 32 of Central Excise Tariff Act, 1985 - HELD THAT - The Adjudicating Authority has considered the entire investigation, statements of the persons, chemical examiner test report while dropping the proceedings of the show cause notice. The claim of the respondent was that except dilution of the readily manufactured SO Dyes, no process is carried out and the property in the product remained same except reduction of strength or percentage of the active dye content. On going through the test results, it is found that before and after the process of dilution, there is only change of percentage of the active dye content. This is only because of the contents of various items as mentioned above in the prepared dyes. Even though the percentage of the dye content reduced but otherwise there is no change in the chemical character of the product therefore, it is clear that SO dyes purchased by the respondent is already as formulated/ standardized/prepared form of dyes. Chapter Note 8 applies only in a case where the dyes are not formulated/ standardized or prepared. If the dyes are not in the said form or semi-finished form and only after the process it gets converted into formulated/standardized/ prepared then only as per Chapter Note 8 of Chapter 32 the process shall become a manufacture process. The Adjudicating Authority has also considered various certificates produced by manufacturer of SO dyes from whom the respondent had purchased the goods. The said certificate suggests that manufacturer of dyes had supplied prepared/ formulated/ standardized SO dyes in powder form to the respondent which was ready to use. Note-8 to Chapter 32 prescribes conversion from unformulated/ unstandardised or unprepared dyes into formulated/ standardized or prepared form shall amount to manufacture. Since the respondent have provided documentary evidence suggesting the purchase of ready to use SO dyes in powder form and sold the same by reducing its strength (dye content) and keeping in view the opinion of Chemical Examiner and the certificates of ATIRA and CRDC to the effect that dye content of the purchased SO dyes was reduced, the process adopted by the assessee of diluting the SO dyes by mixing with dry salt/starch etc. did not amount to manufacture within the meaning of Note-8 to Chapter 32. In the case of COMMISSIONER OF C. EX., AHMEDABAD VERSUS FRESH LABORATORIES 2008 (3) TMI 274 - CESTAT AHMEDABAD a similar issue was considered by this Tribunal wherein it was held that It has been held that physical mixture of already standardised, formulated and prepared ingredients by dissolving the same in boiling water does not result in emergence of new product, inasmuch as no manufacturing activity is involved. There are no infirmity in the impugned order passed by learned Commissioner while dropping the proceedings of the show cause notice - appeal filed by assessee allowed.

Summary

Issues Involved:
1. Whether the process of mixing/diluting SO dyes with dry salt, globular salt, dextrose, etc., amounts to manufacture under Section 2(f) of the Central Excise Act, 1944, read with Note-8 to Chapter 32 of the Central Excise Tariff Act, 1985.

Summary:

1. Background:
The respondent is engaged in the process of SO dyes classified under Chapter 32 of the Central Excise Tariff Act, 1985. The Central Excise (Preventive) department, Ahmedabad, investigated and issued a show cause notice alleging that the respondent's activity of converting SO dyes from unformulated/unstandardized to formulated/standardized/prepared dyes amounts to manufacture, thus liable for excise duty. The Adjudicating Authority dropped the proceedings, leading to the present appeal by the Revenue.

2. Revenue's Argument:
The Revenue argued that the respondent's activity of converting unformulated/unstandardized dyes into formulated/standardized/prepared dyes by diluting their strength amounts to manufacture as per Note-8 to Chapter 32. They relied on the judgment in Collector of Central Excise, Bombay vs. French Dyes & Chemical (P) Limited - 1997 (90) ELT 411.

3. Respondent's Argument:
The respondent contended that their activity only involves diluting already formulated/standardized/prepared SO dyes by mixing water, starch, salt, etc., without altering the chemical properties. They argued that the product remains the same, and no manufacturing process is involved. They supported their argument with multiple judgments, including CCE vs. Osnar Chemical Pvt. Ltd. (2012), Flex Engineering Ltd vs. CCE, U.P. (2012), and others.

4. Tribunal's Analysis:
The Tribunal considered whether the process of mixing/diluting SO dyes amounts to manufacture under Section 2(f) of the Central Excise Act, 1944, read with Note-8 to Chapter 32. The Adjudicating Authority had already considered the investigation, statements, and chemical examiner's test report, concluding that the respondent's activity did not amount to manufacture as the dyes were already in formulated/standardized/prepared form. The Tribunal agreed, noting that the purchased dyes were indeed in the formulated/standardized/prepared form, and any activity on such dyes does not amount to manufacture under Note-8 of Chapter 32.

5. Reliance on Precedents:
The Tribunal cited several judgments supporting the respondent's position, including Commissioner of Central Excise vs. Fresh Laboratories (2008), Nirvip Dyes & Chemicals Pvt. Limited vs. CCE, Mumbai (2007), and Phoenix Mills Limited vs. UOI (2004). These cases established that mere dilution or mixing of already formulated/standardized/prepared dyes does not constitute manufacture.

6. Conclusion:
The Tribunal upheld the Adjudicating Authority's order, dismissing the Revenue's appeal and allowing the respondent's cross-objection. The Tribunal also allowed the assessee's appeal for a different period, as the issues and facts were identical.

Pronouncement:
The judgment was pronounced in the open court on 20.04.2023.